Stakeholders Debate Competition in the Poultry Industry at USDA/DOJ Workshop
It’s been a couple weeks since chicken farmers and processors met with Secretary of Agriculture Tom Vilsack and Attorney General Eric Holder in Normal, Alabama to discuss competition in the poultry industry. The May 21 USDA/DOJ workshop was the second such meeting conducted by the agencies in their quest to review enforcement policy relating to competition in agriculture. The meeting certainly highlighted the fact that there is debate among stakeholders in the industry about the state of competition, healthy or not.
Several sources noted with great interest that Christine Varney, DOJ’s Assistant Attorney General in charge of the Antitrust Division, asked one poultry farmer to call her directly if he experienced intimidation from poultry processors. The farmer declared that he was concerned to appear in public speaking about the way poultry “integrators” contract with poultry farmers like himself, who actually raise chicks into broilers. The recently published transcript of the May 21 proceedings also contains a farmer’s anonymous statement that was read to the government lawyers by a farmer willing to speak on his colleague’s behalf.
From a policy perspective, there was more to the May 21 workshop than fear and loathing. For example, Assistant Attorney General Varney asked about the prevalence of farmer cooperatives in the industry – to which farmers on the panel replied that poultry farmers do not generally work together in cooperatives. Large poultry integrators, therefore, deal with poultry farmers on a one-on-one basis. And as one can read in the transcript, poultry farmers present in Normal, Alabama generally felt that the large poultry “integrators” have too much power over them. Outside the context of the workshop, Poultry farmers recently sued processors for their alleged unfair practices, without success. On May 10, a federal appeals court upheld the dismissal of claims against Tyson Foods, because the poultry farmers failed to allege that the challenged tactics actually harmed competition – i.e., reduced output or increased prices.
That brings us back to Assistant Attorney General Varney’s question about the prevalence of farmer cooperatives. Because the Capper-Volstead Act enables farmers to band together and jointly negotiate with the large buyers without violating Section One of the Sherman Act, farmers could theoretically deal with poultry processors through a collective or cooperative organization.
Leading up to the meeting, large-scale poultry producers prepared themselves for criticism from farmers. The National Chicken Council released a report by an agricultural economist that describes healthy, vigorous competition in the poultry industry. And while chicken farmers at the workshop complained about the “power” of large poultry integrators, the National Chicken Council report cited a 2001 study that found farmers were generally happy to raise chickens for integrators. Interestingly, the report also reviewed government reports that show much higher levels of concentration among beef and pork processors relative to the poultry industry, and the report showed modest declines in retail prices for chicken products over the past 18 years.
What’s the takeaway from this round of the USDA/DOJ meetings? It’s hard to say. As a general rule, the antitrust enforcement agencies hate to argue with falling consumer prices. But the transcript reveals certain concerns about the power of poultry integrators over the farmers. Though the government’s listening tour clearly shows that government lawyers from USDA and DOJ are listening, it’s not clear yet what they are thinking. Watch for more clues at the June 25 workshop in Madison, Wisconsin, when the DOJ and USDA will be examining competition in the dairy industry.
Levine v. Vilsack: The Ninth Circuit Rules the Humane Methods of Slaughter Act Provides No Remedy
When Congress passes a statute and the Secretary of Agriculture issues a notice in the Federal Register interpreting the statute, it might seem self-evident that someone who believes that interpretation is wrong can appeal that interpretation in court and get a judgment on the merits. On November 18, the Ninth Circuit Court of Appeals said "not so fast."
The decision is a valuable reminder that just because you might allege a wrong, you will not necesarily be entitled to a remedy. The Ninth Circuit does a good job of making sure that the threshold question of standing must be answered satisfactorily before any other allegations in a complaint are reached. When, as here, it finds it not satisfied, the case is over.
The case was Levine v. Vilsack, and it involved what seemed at first a straightforward issue of statutory interpretation. The Humane Methods of Slaughter Act of 1958 ("HMSA of 1958") is the bedrock federal statute dealing with the means of slaughter of livestock. The key provision of the act, 7 U.S.C. Section 1902, provides as follows:
No method of slaughtering or handling in connection with slaughtering shall be deemed to comply with the public policy of the United States unless it is humane. Either of the following two methods of slaughtering and handling are hereby found to be humane:
(a) in the case of cattle, calves, horses, mules, sheep, swine, and other livestock, all animals are rendered insensible to pain by a single blow or gunshot or an electrical, chemical or other means that is rapid and effective, before being shackled, hoisted, thrown, cast, or cut; or
(b) by slaughtering in accordance with the ritual requirements of the Jewish faith or any other religious faith . . . .
The simple question presented in Levine was whether the phrase bolded above, "and other livestock", included fowl. Almost from the time the statute was first enacted, and most recently in 2005, the Secretary of Agriculture ruled that it did not. Levine along with a host of other plaintiffs, including The Humane Society of the United States, sued to overturn this interpretation.
The district court dismissed the case, treating it as a relatively straightforward case of statutory interpretation and agency discretion. The Ninth Circuit (perhaps wary of Justice Scalia's well-known dislike of legislative history) took a different tack.
The issue it confronted is in general known as standing. It derives from Article III of the Constitution, which grants the judiciary the power to decide "cases" and "controversies." The Ninth Circuit relied on a U.S. Supreme Court case called Lujan v. Defenders of Wildlife and its own decision in Salmon Spawning & Recovery Alliance v. Gutierrez to apply a three-part test to the standing issue in Levine.
(1) that plaintiffs had suffered an injury in fact that was concrete and particularized, and actual or imminent; (2) that the injury is fairly traceable to the challenged conduct; and (3) that the injury was likely to be redressed by a favorable court decision
It was on the third of these tests, whether the alleged injury was likely to be redressed by a favorable court decision, that plaintiffs' claims fell.
The problem lies in the statutory history of the HMSA of 1958 and a companion statute, the Federal Meat Inspection Act (the "FMIA"). Initially, the HMSA of 1958 had a enforcement provision in that the federal government was prohibited from buying meat that was not slaughtered in accordance with its terms. However, in 1978, Congress passed a new Humane Methods of Slaughter Act ("HMSA of 1978"), which repealed that provision of HMSA of 1958. As part of HMSA of 1978, Congress also amended the FMIA (initially passed in 1907 in reaction to Upton Sinclar's "The Jungle") to provide inspection requirements for slaughtering. Essentially, those inspection requirements became the replacement enforcement mechanism for the HMSA of 1958. But inspection requirements under the FMIA applied only to "cattle, sheep, swine, goats, horses, mules, and other equines." Without the "other livestock" language of HMSA of 1958, there was no argument that the FMIA inspection requirement could conceivably apply to poultry. However, in 2005, the FMIA was amended once again, deleting the specific list of animals and replacing it with the phrase "amenable species." As the court noted,
Amenable species was defined to include “those species subject to the provisions of this chapter on the day before November 10, 2005" as well as "any additional species of livestock that the Secretary considers appropriate."
Plaintiffs ultimate difficulty, the one they could not overcome, was that they sued for an interpretation under HMSA of 1958, and not to require or overturn agency action interpreting the phrase "amenable species" under the FMIA. As a result, regardless of the harms they claimed and regardless of the proper interpretation of "other livestock" under HMSA of 1958, there was no remedy the court could order for them based on the actual claims in their complaint.
The plaintiffs tried a lot of arguments to avoid this result. In a footnote (it's footnote 8 that continues over pages 15456-67 of the case), the court deals with the plaintiffs' argument that "if she prevailed, 'the number of chickens and other birds slaughtered inhumanely will be reduced, thus decreasing her risk of contracting food-borne illness . . . .'” The court points to other statutes that allow federal inspectors to reduce food-borne illness in poultry slaughterhouses. But it returns to the main point, which is that it has no power to order the Secretary to make a ruling under one statute when the complaint asks for relief under a different statute.
In federal court, standing is the gatekeeper of issues. Without standing under Article III, without being a party that has a real case or controversy in accordance with precedent, no case can proceed. In Levine, the plaintiffs tried unsuccessfully to straddle the gap between two statutes, as to one of which it claimed an incorrect agency interpretation, but under the other of which it would have had to look for relief. It was right of the Ninth Circuit not to give it a helping hand out of that gap.
Comment On Recent New York Times E. Coli and Beef Article: How Retailers Can Protect Themselves
Co-Authored By Guest Blogger Scott Hansen
According to its website, last Sunday’s New York Times article on E. coli and beef is among the most widely read pieces published by the newspaper this week. The article tells the story of a 22-year-old Minnesota dance instructor who was left paralyzed after being infected with a strain of E. coli in an “Angus Beef Pattie” she ate in fall of 2007. The article traces the story of her burger, points out the many limitations in the current system, and calls eating beef a “gamble.”
While the article is clearly targeted at meat producers and processors, food retailers selling beef products, such as grocery stores and restaurants, are also at risk. This piece is a reminder of the need for retailers to take steps to ensure proper systems and procedures for tracing food to its source (according to yesterday's statement by Secretary Vilsack, retail traceability of ground beef is soon to be a USDA requirement). The Times lauds Costco, which it says is one of the few big producers that tests trimmings for E. coli before grinding.
Retailers should also be mindful of the utility of supplier agreements sufficiently tailored to limit liability or to procure insurance coverage. The greater protections afforded by well-drafted supplier agreements and carefully placed insurance are the best way to mitigate exposure.
Some may choose strong indemnification provisions and additional insured provisions. Another route, not yet the prevailing trend in the industry but perhaps in the near future, involves wrap-up insurance covering the entire supply chain, accompanied by covenants of cooperation between members of the supply chain.
Wrap-up insurance/covenants of cooperation approach has the advantage of potentially avoiding expensive and reputation-damaging litigation between members of the supply chain. Wrap-up insurance is also more likely to result in sufficient coverage to protect the retailer or restaurant chain.
No matter the path chosen, thoughtful placement of insurance coverage and confidence in supply chain contracts can help a food company weather the storm of a food-borne illness outbreak.
Secretary of Agriculture Emphasizes Safety of U.S. Pork
Secretary of Agriculture Tom Vilsack issued a statement today emphasizing that U.S. pork products are safe and that there is no evidence that U.S. swine have been infected with the swine flu virus.
Calling trade restrictions on pork or pork products unnecessary, Vilsack said any such restrictions would be inconsistent with World Organization for Animal Health guidelines. “[I]t is not necessary to introduce specific measures for international trade in swine or their products, nor are consumers of pork products at risk of infection,” Vilsack said. The complete statement is available here.
A report in The New York Times notes that pork producers are questioning whether it is appropriate to call the virus “swine flu” given that there is no evidence of swine infection. The report states that officials in Thailand, one of the world’s largest meat exporters, have started calling the virus “Mexican flu.” An Israeli deputy health minister reportedly said Israel would follow suit to keep Jews from having to say the word “swine.”
