Order Code RS20562
Updated January 29, 2003
CRS Report for Congress
Received through the CRS Web
Merger and Antitrust Issues in Agriculture:
Statutes and Agencies
Resources, Science, and Industry Division
A continuing trend toward consolidation within agriculture has generated
legislative interest in the effect of concentration and consolidation on U.S. agriculture.
The changing structure of the agriculture sector, particularly with respect to mergers
between major grain companies and concentration in the livestock sector, has brought
up questions about the federal government’s role in pursuing cases of unfair competition
or violations of antitrust laws. Although various regulations target business practices
in the agriculture industry, important social issues associated with concentration and
consolidation may not be fully addressed by existing antitrust laws. This report briefly
sets out the philosophy underlying antitrust enforcement, the federal statutes and
agencies currently involved in antitrust regulation affecting agriculture, and
Congressional activity on the matter. This report will be updated as events warrant.1
Antitrust Issues in Agriculture2
Many issues associated with concentration and consolidation, such as job loss,
change in ownership structure, and other quality-of-life issues, are not addressed by
antitrust laws, but it is these quality-of-life issues that often are the driving force behind
calls for stronger regulations and law enforcement in agriculture. Within agriculture,
issues involve the loss of rural lifestyles, the disruption of farming families, and the
continuing trend of fewer and larger farms coupled with the loss of smaller farms.
Nevertheless, antitrust enforcement does not encompass the broader range of possible
economic and social effects that may be associated with mergers. Such effects result not
only from mergers, but from many other forces as well, including technological change,
Minor revisions by Jean Yavis Jones, January 29, 2003.
For a further discussion on legal issues dealing with antitrust, please see CRS Reports 95-116A:
General Overview of United States Antitrust Law, and RS20241: Monopoly and Monopolization
– Fundamental But Separate Concepts in U.S. Antitrust Law.
Congressional Research Service ˜ The Library of Congress
deregulation, and international competition. Some have argued that mergers may be more
a symptom of broad change in the economy than a cause. Others similarly argue that
concentration/consolidation is occurring in response to external factors, including
international competition. They suggest that policies that are best for dealing with these
changes include promoting full employment and macroeconomic stability, developing a
skilled and well-trained work force, providing adequate unemployment insurance and
other safety net programs, and helping rural communities adapt to economic change.
Basis of Antitrust Enforcement
The goal of antitrust regulation is to protect competition for the benefit of
consumers. Regulations are not intended to keep existing competitors (producers) in the
market, but, rather, to protect the market from unlawful anti-competitive behavior. Thus,
agencies involved might approve a large merger if competition is not reduced, and they
may challenge a small merger if it is likely to reduce competition: “When the antitrust
agencies —Federal Trade Commission and the Antitrust Division of the Department of
Justice— review mergers, they do so with an eye to protecting competition for the benefit
of consumers. They pay considerable attention to market definition —over how large a
market the merged firm might exert market power, and what competitors it faces in that
market— so that the effects of a merger are evaluated in the proper context.”3 Mergers
or acquisitions that are likely to substantially lessen competition in a market are a
violation of Section 7 of the Clayton Act. The purpose of merger review by the
Department of Justice (DOJ) or the Federal Trade Commission (FTC) is to prevent anticompetitive conduct before it occurs. The principal focus during merger review is not on
the conduct of the merging parties, but on whether the merger would change the market
structure to such a degree that competition likely would be substantially lessened. The
premerger remedies DOJ/FTC seek for a merger that would violate the Clayton Act is a
suit to stop the merger, or to insist that approval depends on whether it can be modified
to remove the cause for antitrust concern (e.g., through divestiture). In a d d i t i on t o
potentially anticompetitive mergers, there are two other classes of anticompetitive
behavior that may be subject to findings of antitrust unlawfulness:
Collusion - a violation of Section 1 of the Sherman Act. Occurs when separate firms
agree among themselves not to compete with each other, but instead join forces against
their consumers or their suppliers.
Monopolization or Attempt to Monopolize - a violation of Section 2 of the Sherman
Act. May be used with the anti-merger provisions of the Clayton Act. There are several
ways to monopolize, including the use of predatory practices and/or exclusionary conduct.
Packers and Stockyards Act, 1921 (P&S Act) (7 USC §181 et seq.), administered
by the U.S. Department of Agriculture’s (USDA) Grain Inspection, Packers and
Stockyards Administration (GIPSA). Contains financial protection measures, prohibits
Economic Report of the President. February 1999, p. 39.
unfair, unjustified discriminatory and deceptive practices, and prohibits activities that
might adversely affect competition.
Capper-Volstead Act (7 USC §§291-292) administered by USDA. Confers limited
exemption from antitrust liability to allow farmers to join together in collectively
marketing or processing commodities they produce. USDA may, but has never utilized
the power to, file complaints against cooperatives that engage in a monopoly or restriction
of trade to such an extent that the price of the commodity is unduly enhanced.
Sherman Act (15 USC §§1-8) and Clayton Act (15 USC §12 et seq.) administered
by DOJ and FTC. Prohibit certain activities, including mergers and acquisitions (15
U.S.C. § 18), that may restrict market access or suppress competition. USDA has no
formal role, but may be called on by DOJ/FTC for expertise.
Hart-Scott-Rodino Act (HSR) (15 USC §18a). Requires notification to DOJ and
FTC of proposed mergers or acquisitions, the results of which meet certain size and/or
ownership criteria set out in the statute. The agencies determine the need for any review
beyond the initial requirement.
Agencies Regulating and Enforcing Antitrust Statutes
Grain Inspection, Packers and Stockyards Administration. GIPSA, an
agency within USDA, has primary regulatory authority over meat packers and grain
processors. Its authority to regulate packers and stockyards is found in the P&S Act.
GIPSA does not have antitrust authority directly. Rather, its role is to maintain fair
competition regulations. Specifically, the P&S Act (7 USC §192) makes it unlawful for
a packer or poultry dealer to:
Engage in or use any unfair, unjustly discriminatory, or deceptive practice or device.
Give undue/unreasonable preference/advantage to persons or localities.
Apportion supply among packers in restraint of commerce (creating a monopoly).
Trade in articles to manipulate or control prices, or to create a monopoly.
Conspire to apportion territory, or sales, or to manipulate or control prices.
GIPSA is authorized to investigate alleged violations in the livestock industry, but
not in the poultry industry. Alleged violations of the P&S Act within the poultry industry
must be referred to DOJ. Violators are served “cease and desist”orders and fines may be
imposed. If a packer disregards an order or refuses to pay fines, GIPSA may refer the case
to DOJ, which can enforce the order/fine through court action. According to GIPSA,
most violations are corrected voluntarily by the individuals or firms when a violation is
brought to their attention. Except for serious violations, disciplinary action tends to be
the last resort, and is imposed only after substantial efforts for compliance have failed.
Department of Justice. DOJ has the authority to prosecute anti-competitive acts
generally, including violations of the P&S Act upon referral by GIPSA. DOJ also is
required, under HSR, to review certain merger proposals, and is authorized to file suit to
block any that are deemed anticompetitive. Specifically, parties to proposed mergers must
notify DOJ and FTC if the results of the merger will meet certain size and/or ownership
conditions. DOJ/FTC then have 30 days to review the merger, during which time the
agency may request further information. Such a “second request” generally triggers
negotiation between the parties and the reviewing agency, if, in fact, negotiation has not
already begun. If a suit to enjoin the merger is announced or filed, the proposed merging
companies may take one of three courses of action: (1) drop the merger, (2) prepare to
fight the lawsuit, or (3) negotiate with the agency (if that process has not already begun)
in an attempt to restructure the merger to alleviate the government’s concerns (e.g., via
divestiture of selected assets). Negotiation often is seen as being in the interests of all
parties, because going to court can be expensive, time-consuming, and risky.
Federal Trade Commission. FTC’s role in maintaining fair competition in
agriculture involves the review of mergers, similar to the DOJ role described above.
On March 5, 2002, DOJ and FTC issued a Memorandum of Agreement designed to
both streamline and increase the transparency of their “clearance procedures,” the
processes under which the agencies determine which of them will handle a given merger
or conduct an investigation.4 Although clearance procedures traditionally have
emphasized the agencies’ experience in dealing with specific industries and sectors, they
contend that rapid technological change and deregulation have created convergence
issues, lengthened the clearance period, and reduced the effectiveness of experience-based
Pursuant to the Memorandum, allocations to FTC include grocery manufacturing and
operation of grocery stores; pharmaceuticals and biotechnology (other than that associated
with agriculture); and, the operation of retail stores. Allocations to DOJ include
agriculture and associated biotechnology; beer; financial services, insurance, and
commodity markets; industrial equipment; paper, lumber, and timber; and, transportation.
Other provisions of the agreement addressed: development of a clearance manual;
maintenance of a common database to track HSR filings and clearance matters;
designation of a clearance officer at each agency; weekly meetings and reports to review
the clearance process and ongoing matters; clearly designated levels of review for
clearance disputes; and, provisions for obtaining input from a neutral evaluator in
instances in which the agencies are otherwise unable to resolve a clearance dispute.
On May 20, DOJ announced it would no longer adhere to the agreement due to
opposition from Senator Hollings.
Examples of Agricultural Sector Mergers and Investigations
Case-New Holland. Case (Racine, WI) and New Holland (Amsterdam, The
Netherlands) announced in May 1999, their plans to merge. The two companies
manufacture agricultural equipment (tractors and implements), construction equipment,
Memorandum of Agreement Between the Federal Trade Commission and the Antitrust Division
of the United States Department of Justice Concerning Clearance Procedures for Investigations,
March 5, 2002. [http://www.ftc.gov/opa/2002/04/clearanceoverview.htm]. Although the
Memorandum is supported by several Members of Congress and several former antitrust officials,
it is also strenuously opposed by at least one Senator, and by some consumer groups.
For example, in a number of cases the clearance process consumed a significant share of the
initial 30-day review period and the reviewing agency was forced to issue a second request
simply to preserve its time to investigate effectively.
and provide financial services. The DOJ and the European Commission cleared the
merger for a November 12, 1999, closing, with divestitures of product lines in the United
States and plants in Canada, Britain, Italy, and Germany. In its merger approval, DOJ
ordered Case and New Holland to divest interests in specific tractor and implement
manufacturers and a plant in Canada where the tractors are made. DOJ said the Case and
New Holland businesses it ordered sold are interests in which both companies compete
directly and would have decreased competition and led to higher prices for farm
Cargill-Continental Grain.6 In most cases, merger policy focuses on monopoly
power, but this case focused on monopsony power —the power to dictate purchase prices.
The two companies reached an agreement in October 1998, for Cargill to acquire
Continental Grain’s commodity marketing operations. After DOJ review, the merger
received final approval in June 30, 2000. In approving the merger, DOJ required the
divestiture of 10 elevators in seven states. Divestitures were to take place within five or
six months, with the acquirer subject to DOJ approval as well.
Biotech. When Monsanto acquired DeKalb (both are seed companies), DOJ
required a spinoff of gene technology to the University of California-Berkeley. DOJ
actions in this field have intensified and it continues to closely scrutinize the
biotechnology sector. The most recent case in the biotech industry involves an antitrust
suit against the seed companies Seminis Vegetable Seeds Inc. and LSL Biotechnologies
for entering into an agreement for the production of long-shelf-life tomatoes, and which
allegedly reduced competition in the development and sale of vegetable seed. Seminis
is the world’s largest producer, developer, and marketer of vegetable seeds.
Others. In the area of meatpacking, Excel attempted to acquire Beef America.
However, when DOJ announced an investigation, the transaction went no further. The
Excel case has been cited as an example of how DOJ stops anti-competitive behavior
without much outside attention. In another case, ADM was found to be in collusion in
conjunction with the international lysine (feed additive) market and received a $100
million fine, which was the largest corporate fine in history at the time.
Mergers in the railroad industry are important to agriculture because of the potential
impacts on commodity transportation. Rail mergers are handled differently from mergers
in other industries in three aspects:
First, the Surface Transportation Board (STB) has final authority on allowing or
disallowing mergers. DOJ and FTC are allowed to testify similarly to other parties at a
merger hearing, but STB can (dis)allow a merger regardless of either agency’s position.
For example, DOJ opposed the merger in 1996, of Union Pacific and Southern Pacific
MacDonald, J. September 1999. “Cargill’s Acquisition of Continental Grain: Anatomy of a
Merger.” Agricultural Outlook, p.21-24. USDA, ERS.
For further discussion on railroad mergers and competition, see CRS Report 97-98 E: Rail
Mergers: Background and Selected Public Policy Issues, and GAO Report GAO-01-689: Freight
railroads. However, STB granted permission and the railroads merged under the name
Second, railroad mergers cannot proceed without STB permission. That is different
from mergers in other industries, which are reviewed by DOJ/FTC. In those industries,
mergers can proceed unless blocked by DOJ or FTC. For example, the recent Tyson-IBP
merger proceeded since neither agency moved to block the merger within 30 days of the
Third, STB can oversee results of a merger in order to ameliorate adverse effects.
Because STB maintains oversight over railroads, it may place additional conditions on a
railroad after the merger. That is different from mergers in other industries in that
DOJ/FTC do not maintain oversight after a merger. Rather, they attempt to structure a
merger in a manner that would prevent any potential future anticompetitive
STB Merger Guidelines. In December 1999, Burlington Northern Santa Fe
(BNSF) and Canadian National (CN) announced plans to merge under the name North
American Railways, Inc. It was widely speculated within the railroad industry and among
shippers that a BNSF-CN merger would spur the final round of mergers among railroads.
It was believed the final result would leave the railroad industry with only two very large
Class 1 railroads that span the continent. Before the merger application was filed, STB
held hearings on March 8-10, 2000, to review mergers in the railroad industry and to
determine if a merger moratorium was warranted. After the hearings, STB announced a
15-month moratorium in order to review and update its merger procedures. In accord
with the moratorium, STB announced it would not accept merger applications between
Class 1 railroads during that period, effectively blocking BNSF and CN from filing their
merger application. BNSF and CN appealed STB’s decision to the District of Columbia
Court of Appeals. However, the court ruled STB had the authority to call a moratorium
and did not have to accept the application (Western Coal Traffic League vs Surface
Transportation Board 216F.3d1168 (D.C. Cir. 2000)). Consequently, BNSF and CN
called off their proposed merger.
On June 11, 2001, STB announced its new merger review guidelines. Among other
issues, railroads hoping to merge would have to prove not only that a merger would
maintain competition, but, rather, that a merger would enhance competition.
2002 Farm Bill
The new farm law titled “Farm Security and Rural Investment Act of 2002, signed
into law May 13, 2002, (P.L. 107-171; H.R. 2646) extends GIPSA authority to include
swine production contracts. Previously, GIPSA protected broiler farmers who grew under
contract and livestock producers who sold directly to packers; it did not have authority
over livestock producers growing under contract. Persons contracting with others to raise
and care for feeder pigs or other swine not intended for slaughter also were not covered..
The new law also allows contract producers to discuss the contract with advisors and
enforcement agencies even if the contract contains a confidentiality clause. A Senate
proposal that would have restricted packer ownership was dropped in conference. This
issue may be revisited in the 108th Congress.