Time is short for USDA to flex its antitrust muscle with meat industry

In the closing months of his tenure as U.S. Secretary of Agriculture, Tom Vilsack is making one last stab at being a trustbuster. Late last week, the USDA quietly moved forward with an effort to strengthen its antitrust authority over the handful of companies that dominate America’s meat system. The action raised hopes for advocates who have pushed for years to toughen antitrust laws, and it already has met resistance from meat companies and their lobbyists. What’s less clear is whether the action will have any meaningful impact.  

The stakes in this fight are enormous. The vast majority of Americans eat meat, and raising animals is still a vital pillar in rural economies. The meat industry is more consolidated than at any point in U.S. history, and there is ample evidence that meat producers like Tyson Foods are underpaying farmers while keeping prices high for consumers. For the last six years, the meat companies have fought hard — and successfully — to maintain their market power.

On Friday, the USDA began the process of finalizing three rules that Vilsack first tried to impose in 2010. The agency sent the rules to the Office of Management and Budget for final approval, which means they could be in effect by the time Obama leaves office in January. The USDA didn’t release the text of the rules, but notified the public that they were moving forward. USDA spokesman Matthew Herrick said the rules are versions of the ones proposed in 2010 that have been updated after a wave of public comment. The rules have been dubbed “The Farmer Fair Practices Rules,” although they used to be known simply as the “GIPSA rule,” named after the agency that would enforce them.

“We hope individuals and organizations remain open and not assume embedded positions on the … rules without yet knowing their content,” Herrick said in an email. “It is important for us to underscore that we will provide meaningful opportunity for the public to review, understand, and provide feedback to the Department.”

Two of the rules are only “proposed” measures, meaning that if the OMB approves them, they still must be posted for public comment before taking effect. One would protect chicken farmers by governing the “tournament” system of payment that ranks one farmer against another. The other proposed rule would ban sweetheart deals between a rancher and certain feedlots that exclude others that provide the same quality of cattle.

The third rule, however, is an “interim final” rule, meaning that it would become the law of the land if the OMB approves it, but could still be amended later if the USDA desires. This rule happens to be the most significant of the three, as it would make it easier for farmers to sue meat companies for unfair practices. It was a cornerstone of Vilsack’s original antitrust efforts in 2010.

Vilsack’s inability to pass antitrust reforms over the last six years has become a symbol of the Obama administration’s failure to curb the market power of big meat companies. Those companies have spent millions lobbying Congress and persuading members to gut the USDA’s ability to enforce the rules. This effort hit a snag late last year when a complicated budgetary process created an opening for the USDA to finalize the measures.

The timing of USDA’s action is almost poignant. It comes less than a month after a group of private-sector lawyers showed that they have more power, and more credibility, than the USDA when it comes to enforcing antitrust laws.

Attorneys with Lockridge Grindal Nauen LLP filed an antitrust suit against the nation’s largest poultry companies, including Tyson, alleging that the firms colluded to raise chicken prices by cutting supplies. The suit was filed on behalf of large-scale wholesalers who say they overpaid for chicken. If the wholesalers win, they could receive financial damages, perhaps in the billions of dollars, along with court injunctions barring industry practices associated with the alleged collusion. Tyson Foods has denied the charges and said it doesn’t collude with competitors when it cuts supplies to keep prices high.   

Investors took the lawsuit seriously. Analyst Timothy Ramey, of Pivotal Research Group, downgraded shares of Tyson Foods on concerns about the case, and the stock fell roughly 11 percent in a matter of hours (shares have since regained much of that loss). It seems that Wall Street considered the suit far more of a threat than the likelihood of action by the USDA. And there was good reason for that; the agency has largely abandoned the issue of antitrust reform after the new rules were first defunded. Between late 2012 and mid-2016, Tyson Foods’ stock price roughly tripled.

The private-sector lawyers filed a case that would have been easy for federal regulators to put together. “It is clear that there is a high level of market concentration and there certainly seems to be a remarkable level of coordination among those dominant market players,” said Joseph Bruckner, a partner at Lockridge Grindal Nauen.

It’s unclear if Vilsack means to put the USDA back in the position of lead antitrust enforcer. Perhaps no one has watched the USDA’s efforts in this space more closely than Patrick Woodall, a senior policy advocate with the activist group Food & Water Watch, which has pushed for stronger antitrust rules. Woodall said he wasn’t surprised when the USDA moved to finalize the rules. He said it signals that the agency is committed to finishing the work it started several years ago. What’s less clear is if there is enough time to get the measures approved before January.

“Technically, they could,” Woodall said. But for the rules to be finalized, the bureaucratic process at OMB and USDA would have to proceed with maximum efficiency. And the process would need vigorous prodding from the highest levels of USDA. Neither of these conditions has been the norm since Vilsack abandoned the antitrust fight in late 2011.

In the meantime, it seems that farmers and consumers will have to depend on plaintiff’s lawyers to file the big cases to curb meat company’s market power. “We’re doing the best we can,” Bruckner said.

Christopher Leonard is a senior fellow at New America and author of The Meat Racket: The Secret Takeover of America’s Food Business.”