Antitrust Status of Farmer Cooperatives: - USDA Rural Development ...

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Abstract The Capper-Volstead Act provides a limited exemption from antitrust liability for agricultural producers who market the products they produce on a cooperative basis. Without Capper-Volstead, farmers who agree among themselves on the pric es they'll accept for their products and other terms of trade would risk being held in violation of antitrust law. Even with the exemption, agricultural producers are not free to unduly enhance the prices they charge, consolidate with or collaborate in anticompetitive conduct with nonproducers, or engage in conduct with no legitimate business purpose that is intended to reduce competition. Keywords: cooperative, antitrust, Capper-Volstead Act, law ________________________________________ Antitrust Status of Farmer Cooperatives: The Story of the Capper-Volstead Act Donald A. Frederick Program Leader Law, Policy & Governance Rural Business-Cooperative Service U.S. Department of Agriculture Cooperative Information Report 59 September 2002 RBS publications and information are available on the Internet. The RBS w eb site is: http://www.rurdev.usda.gov/rbs
Preface Antitrust law poses a special challenge to agricultural marketing associations. Certain conduct by independent business people-agreeing on prices, terms of sale, and whom to sell to--violates the Sherman Act and other antitrust statutes. And these are the very types of collaborative activities that agricultural producers conduct through their marketing cooperatives. Since 1922, the Capper-Volstead Act has provided a limited antitrust exemption for agricultural marketing associations. Producers, through qualifying associations, can agree on prices and other terms of sale, select the extent of their joint marketing activity, agree on common marketing practices with other cooperatives, and achieve substantial market share and influence. But Capper-Volstead is not a total antitrust exemption. So cooperative managers, directors, and advisers must unders tand courses of conduct that ma y expose their organiza tion to antitrust risk. These include collaborating and/or combining with firms other than C apper- Volstead cooperatives and engaging in activity with little or no discernable purpose other than to limit or eliminate competition. This report focuses on the dev elopment and e volution of antitrust law as it applies to agricultural marketing cooperatives. It places as much emphasis on how an d why the rules evolved as it does on the rules themselves. It attempts to tell a story rather than provide clear and simple signposts for making business decisions. While some readers m ay find this frustrating, it is done for a purpose. There are no easy answers to most questions involving possible antitrust liability. Antitrust disputes are fact intensive and their resolution can be very subjective. Litigation can involve numerous issues and take many years to resolve. Involvement of a legal counsel who unders tands both cooperatives and antitrus t issues is crucial to limiting legal exposure in this area. ________________________ This report does not represent official policy of the U.S. Department of Agriculture, the U.S. Department of Justice, or any other Government agency. This publication is presented only to provide information to persons interested in the antitrust status of agricultural producers and their cooperative marketing associations. i
Page 1: USDA United States Department of Ag
Page 5 and 6: Page CHAPTER 3. SHERMAN TO CAPPER-V
Page 7 and 8: Page Association Collaboration ....
Page 9 and 10: Page APPENDIX C. FEDERAL ANTITRUST
Page 11 and 12: CHAPTER 1 HISTORICAL PERSPECTIVE 4
Page 13 and 14: Unlike the waterways, these early r
Page 15 and 16: 250,000. 5 The rapid influx of peop
Page 17 and 18: transcontinental service. This new
Page 19 and 20: to 800,000 members. One of the Gran
Page 21 and 22: faire. Corporate interests wanted t
Page 23 and 24: educed such conduct. Railroad conso
Page 25 and 26: long as the price received for each
Page 27 and 28: However, after the Civil War it fou
Page 29 and 30: Then the Alliance rejected the Roch
Page 31 and 32: CHAPTER 2. THE SHERMAN ACT As the d
Page 33 and 34: legislation introduced as the first
Page 35 and 36: produce evils, but if you take away
Page 37 and 38: signed into law by President Benjam
Page 39 and 40: ! Sec. 4 establishes federal court
Page 41 and 42: approach for determining which rest
Page 43 and 44: it didn't have to examine whether t
Page 45 and 46: fresh meat also violated the Sherma
Page 47 and 48: of this country.. .are presumed to
Page 49 and 50: 40 relevant facts. This is not beca
Page 51 and 52: (1984). 42 lated industries, in an
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found price fixing, then they shoul
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"...to raise or lower prices whatev
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Thus, the importance of the Capper-
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Government need not show significan
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Group boycotts were formally tabbed
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AP. The United States sought an inj
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cooperative provides safeguards suf
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marketing agreement). The expelled
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156 Reynolds at 21-22. 157 Joseph G
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The rapid growth of fluid milk asso
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the hands of 25 trustees who in tur
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assertions. Association counsel was
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In 1891, Illinois enacted a statute
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A month later, the Alabama Court of
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CONGRESS RESPONDS TO STANDARD OIL A
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language recognizing in Federal law
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As introduced, the provision coveri
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194 Id. Rep. Volstead was, at this
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200 51 Cong. Rec. 9568 (1914). 201
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When the bill reached the Senate, i
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that, unless they ceased dealing wi
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Virginia opinion, the Supreme Court
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CHAPTER 4. THE CAPPER-VOLSTEAD ACT
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90 price of any agricultural produc
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The Court then concluded that proce
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Republican from Kansas, Senator Art
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96 Section 1 defines and limits the
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244 59 Cong. Rec. 7852 (1920). The
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100 the tax in transit, and the con
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! The Federal Trade Commission woul
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261 Id. 262 60 Cong. Rec. 369 (1920
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106 them. There were no storage fac
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The Senate immediately requested a
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110 considers the duties and the or
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280 Id. 281 61 Cong. Rec. 1043 (192
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114 and adopted by the Senate to a
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Senator Kellogg, in his role as flo
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118 statistics and he, through his
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120 commerce. This provision of sec
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122 creameries... .but they are not
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Committee hearings general agreemen
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Debate continued the following day,
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admitted to membership in the assoc
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321 Id. 322 62 Cong. Rec. 2281 (192
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the same basis as to organization o
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unit' s first publication was L. S.
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The House Agriculture Committee Rep
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Two important issues arose during t
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On the last day of Senate hearings,
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Committee (without the reference to
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The only Congressional debate on th
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terms than others in the same marke
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394 The influence of the nonstock a
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contained a provision in effect exp
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strike down the entire law in Conno
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This chapter begins with detailed c
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All of the defendants based their d
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and marketing, in interstate commer
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First, the Court examined the scope
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with non-producers such as processo
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violation. In an unreported opinion
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appellate court turned to the full-
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At the time Capper-Volstead was ena
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Likewise, an absentee owner of a fa
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statutory "members" and do not stri
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Two others elements of this decisio
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exchanges and either pack their own
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National Egg. 476 The third address
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The Government conceded all points
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the scope of agricultural "producer
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jority of failing to interpret Capp
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middlemen from price-fixing liabili
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510 Id., at page 2. 511 United Stat
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Foods, for processing into grape ju
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Most producer associations claiming
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law, and perhaps antitrust law in g
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Any immediate impact on supply was
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530 Id. 531 15 U.S.C. § 15. 532 No
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The judge noted that the law appear
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cooperative to antitrust liability,
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organization can develop when these
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Exchange Lemon, TreeSweet and Silzl
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Sunkist also challenged the trial j
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Exchange Act. 563 Bauer counterclai
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in the committee report, to provide
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The court found support for its dec
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policy, making sure the cooperative
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contractual arrangements with other
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The second clause offers the option
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as "predatory" conduct. This sectio
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Section 1 and 2 claims when the par
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producers of agricultural commoditi
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authorized by the Secretary of Agri
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etween Embassy and Maryland & Virgi
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United States v. King. 634 Case law
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Several private cases alleging pred
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Further, the cooperative launched a
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The case was tried before a jury, w
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move on to another store still doin
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went into the facts of the case in
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absolute. 667 The last major issues
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672 119 F. Supp. at 907. Cited with
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monopoly power. It is the wrongful
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In 1960, producer associations in D
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were free to sell to whomever they
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exceeded demand. NFO made essential
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Justice also asserted AMPI engaged
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days notice. The court noted that m
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DI. 701 The practice was suspended
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The cooperatives appealed to the U.
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different premiums in different mar
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cover more than half of DI's reques
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properly was a matter of contract l
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727 GVF Cannery v. California Tomat
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monopolize the fluid milk market in
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741 687 F. 2d at 1183. But in a sub
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3. Mid-Am and AMPI threatened to su
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USDA Enforcement In Section 2, Cong
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separated from USDA' s activities t
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Barriers to entry into the producti
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A Federal district court judge reje
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evidence in the record supported th
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781 1983-2 Trade Cases (C CH) at 68
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the mechanism of a producer associa
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educed. This is not the type of inj
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Columbia River, challenging the con
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to refrain from purchasing such pro
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Sunkist and Reliance violated secti
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cooperative. The Department of the
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cultural producers, have the benefi
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Sewell claimed damages in excess of
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Sewell II. When the court decided t
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308 pricing its product at or just
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According to the decision, Agmax co
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issues such as "what is a producer?
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The opinions supporting the dismiss
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for failure to state a claim under
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its marketing agreements. Plaintiff
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CHAPTER 8: IN CONCLUSION, A LOOK TO
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commercializing innovations on at l
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The agreement enjoins DFA and Kelle
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Appendix A. Cooperative Antitrust C
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328 Pages Castorland M ilk & Cheese
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330 Pages Isaly Dairy Company v. Un
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332 Pages North Texas Producers Ass
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334 Pages Whitney v. National Grape
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336 SECON D CIRC UIT Pages Agritron
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338 Pages National Broiler Marketin
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340 EIGHT H CIRC UIT Pages Alexande
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342 Pages Northern California Super
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Appendix C. Federal Antitrust Statu
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should not be entered by the Commis
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348 CLAYTON ACT 38 Stat. 730 (1914)
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(2) The court shall award the State
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352 CAPPER-VOLSTEAD ACT 42 Stat. 38
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injunction or other appropriate rem
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(2) To conduct studies of the econo
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358 FISHERMEN'S COLLECTIVE MARKETIN
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to be had in considering such order
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