A Change in the Pecking Order

Mike Weaver, a chicken farmer who runs a local farmers' association in West Virginia, knows about 120 chicken farmers in the Shenandoah Valley who could lose their farms. Earlier this month, the Big Ag company they contract with, Tyson, sold its chicken processing-plant to George's Family Farms, Incorporated, bringing the number of chicken processing plants there down from three to two.

To smooth the deal, George's offered an extended contract to all of Tyson's farmers, but the sale leaves George's with control over nearly half the area's chicken market. Six months from now, George's could decide to slash costs and sever contracts with farmers. It could cut farmers' pay, demand higher productivity, or change the terms of the contracts. Since George's is now one of only two plants in the valley, and the other, Pilgrim's Pride in West Virginia, is operating at full capacity, the farmers would be out of luck.

That scenario is what prompted the Department of Justice to file an antitrust lawsuit against George's earlier this month to try to nullify the sale. Normally, a processing plant buyout would go unnoticed. The sale price, which, according to Weaver, was only about $12 million, is too small to trigger an automatic review by the Justice Department's antitrust division. But the Obama administration, which pledged last year to pursue anticompetitive practices in agriculture more forcefully, has been paying close attention. It's already gone after the milk company Dean Foods for trying to buy another Midwestern milk processor. It's also sued to stop the sale of a National Beef plant to JBS Beef, which would have affected cattle ranchers in several Midwestern states.

The sudden attention comes after years of outcry from farmers who have seen their livelihoods disappear because of corporate consolidation. Becky Ceartas, a program director who works on contract-agriculture reform for the Rural Advancement Foundation International, says it's fairly new for the Justice Department to go after the giant chicken industry. "I think they're finally looking at regional competition," she says. "If you don't have a plant nearby, it doesn't matter what the competition looks like in the rest of the industry."

In George's case, the Justice Department moved quickly. According to the legal complaint, the department told George's and Tyson that it had concerns about the sale, which many learned about after news reports in March, and it was talking with both companies until the end of business Friday, May 6. But the next day, without notifying the government, George's and Tyson closed the deal. The government responded with a lawsuit filed May 10.

The Justice Department is concerned that George's didn't just remove Tyson as a competitor but muted the competition that will come from Pilgrim's Pride as well. The complaint says that the sale makes it more likely that George's and Pilgrim's Pride will now coordinate to depress prices for local chicken farmers. (Weaver contracts with Pilgrim's Pride.)

What's happening in the Shenandoah Valley has happened around the country for decades. When the Obama administration decided to investigate anticompetitive practices in the livestock industry, it formed a joint task force between the DOJ and the United States Department of Agriculture. The agencies traveled the country last year, conducting workshops both to hear farmers' concerns and to promise to help remedy them. Each agency played a role, and the Justice Department's was to file antitrust cases when warranted, as in the George's/Tyson sale. But for Ceartas and others, the George's lawsuit, and others similar to it, fulfills only part of that promise because it polices just the margins of the industry. The Justice Department's approach necessarily takes a micro view, and this case affects only the 500 farmers in the Shenandoah Valley.

The other, bigger half of the promise was one made by the USDA, which is working to reform the rules governing agricultural markets to make it easier for farmers to get better deals from companies in the first place. (The rules are established by the Grain Inspection, Packers & Stockyards Act and are known as GIPSA.) "The GIPSA rules would [do] far more ... and will provide many more opportunities for both the government and individuals to take action," Lynn says.

These rules govern the way farmers can contract with companies, determine if and how prices are set, and generally help agricultural marketplaces run smoothly. They've existed in some form since the 1920s. Circumstances have changed dramatically since then, and the way farmers contract with companies has changed. The new rules would, among other things, make the sorts of contracts farmers get from companies such as George's more transparent and would force companies to honor them. They would also protect poultry farmers who speak out against unfair practices and prevent the sort of secretive behavior on display in the George's/Tyson deal.

The bad news for farmers is that even tepid moves to make the system better meet strong resistance. Companies, of course, have resisted these rules and are concerned about profits. And, last week, more than 140 members of Congress, led by Rep. Jim Costa of California, signed a letter asking the USDA to get a "more thorough economic analysis" of the proposed rules. The rules, of course, have been through several layers of analysis; the USDA has been working on them since the 2008 farm bill, which directed the agency to change them. Ceartas says the letter is just designed to delay implementation. "They don't need anymore time," she says. "They have everything they need."

The USDA has already extended the timeline for rolling out the rules, and the public, including companies, has had plenty of time to weigh in. The changes generated more than 60,000 public comments, which are now being incorporated into the final rules. USDA officials could still issue them later this year.

For farmers, many of whom have waited a lifetime for reforms, the changes can't come soon enough. Even though the Justice Department is going after the George's/Tyson sale, many reformers feel that the new rules from the USDA could have prevented such a secret, rushed deal to begin with.

Weaver believes that if Tyson had announced its sale publicly, the 120 farmers affected could have organized to buy the Tyson plant themselves. Growers expressed similar interest in establishing a cooperative in 2008, when the local Pilgrim's Pride plant was on the brink of bankruptcy. "The big meat companies don't want us in charge," he says.

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