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Packers and Stockyards Act: A Sword in a Stone PDF Print E-mail
Written by Harlan Hentges   
Wednesday, 27 August 2008 00:18

 

Merlin the magician, legend has it, lodged the sword Excalibur in a stone where it would lie until taken up by the true King of England.  As of August 12, 2008 the United States Department of Justice has laid its hands on its own sword in a stone -- the Packers and Stockyards Act.  If it succeeds in taking up this sword, it will strike a great blow in defense of farmers, ranchers and consumers.

Nearly a century ago, the legendary trust busting President Teddy Roosevelt set the stage for passage of the  Packers and Stockyard Act of 1921 (PSA) which prohibited any unfair, discriminatory or deceptive trade practice by a meat packer.  The PSA was intended to protect farmers, ranchers and consumers from any types of deceit that were rampant among the few packers who dominated the meat packing industry.  Such abuses are chronicled by Upton Sinclair in his book, The Jungle, where, in unbearable detail, he describes how packers manipulated prices, how laborers worked in inhumane conditions and how filth was permitted in the food. 

The PSA, for a time, was wielded for good against abusive packers, but the monopolists soon set about consolidating power for themselves again.  By the 1970's and '80's, the PSA was and is, like Excalibur, stuck in a stone. It can not be used to conquer evil, and while it rests there, plenty of evil is being visited upon farmers, ranchers, laborers, and consumers.

The packers, through unfair practices increase their market power, and with that power they engage in even more pernicious practices.  Extraordinary degrees of consolidation of market power have crept into agricultural markets.  A key measurement of concentration is the percentage of the market accounted for by the four largest market participants.  This measure is known as the CR4. In 2007 the four largest beef packers -- Tyson, Cargill, Swift and National Beef -- controlled 83.5 % of the market.  Since then, consolidation in beef packing increased when a Brazilian company, JBS, the largest beef packer in the world, purchased Swift and National Beef.  In pork packing in 2007, the CR 4 was 66%, accounted for by Smithfield, Tyson, Swift and Cargill.  In broilers (chickens)  Pilgrims Pride, Tyson, Perdue and Sanderson made up the CR4 of 58.5%.  This consolidation places crushing market power in the hands of aspiring meat packing monopolists, yet the Packers and Stockyards Act remains useless.  

Meanwhile, many people are trying to take up the Packers and Stockyards Act and use it against the packers. One such person is Alton T. Terry.  Mr. Terry is a diminutive man with a slightly high pitched voice, and the demeanor of a good sunday school teacher.  Kind and good natured, Mr. Terry is a contract chicken grower for Tyson.  This means that Mr. Terry borrowed money -- well into the six figures -- to build large barns to feed chickens for Tyson.  Such barns typically hold from 15-25,000 birds.  Baby chicks are delivered, fed for about a month and a half and then picked up for slaughtering.  The barns are empty for about two weeks, and then more chicks are delivered.  

Growers must build their barns to Tyson's specifications.  Failure to maintain the barns to specification may result in Tyson not delivering birds.  If new technologies come along, Tyson may require installation of the new technology.  On a whim, Tyson may require different equipment to be purchased.  The growers must pay for the changes, with additional borrowing if necessary, and if the changes are not made Tyson may not deliver new chicks.  For the grower, leaving Tyson for another company is not a real option because, even if there is another company willing to contract with the grower, his barns will have to be retrofitted to match new specifications. Meanwhile, if Tyson does not deliver chicks the grower will have no income and no way to pay the mortgage.  

Mr. Terry, while in small in stature, is courageous.  He felt he was entitled to observed the weighing of the birds taken from his farm because his pay is based in part on weight.  Terry reports that three times he demand to see the birds weighed and three times Tyson refused.  Terry complained to USDA. He also sought to organize and educate growers about Tyson's practices and the growers' rights.  Tyson then delayed placing new chicks with Terry and ultimately terminated his contract and stopped delivering chicks at all.  Tyson destroyed Terry's livelihood.  Terry was undeterred.  He filed a lawsuit on the grounds that these alleged facts constituted breaches of the Packers and Stockyards Act.

Like many before him, Terry, try as he might, could not pull the sword from the stone.  The United States District Court for the Eastern District of Tennessee dismissed his case.  The Court followed a line of case stretching back more than thirty years holding that showing practice is unfair and deceptive is not enough.  These Courts, based on dubious legislative history, supposed congressional intent, and inexplicable policy concerns held that packers could engage in unfair and deceptive practices as long as those practices did not have an adverse affect on competition.  It is virtually impossible to prove that Tyson's actions which destroyed Terry's livelihood had any impact on the broiler market.  The loss of a single grower is simply statistically insignificant when measured against the entire market. These holdings were the stone in which the Packer and Stockyards Act is lodged.  

Strangely, for an entire generation, lawyers have had no satisfactory answer regarding why the PSA is stuck uselessly in the Courts' flawed reasoning.  The language of the PSA is clear -- unfair practices are prohibited. There is no policy justification for permitting unfair and deceptive practices. There is no statement of congressional intent that only unfair practices that affect the entire market are prohibited.  It is like the magic that stuck the sword in the stone, and made strong men look foolish as they tried to lift the sword.  

But now an unlikely thing has happened.  The United States Department of Justice has a grip on the PSA.  On  August 12, 2008, DOJ has filed a friend of the court brief in Mr. Terry's appeal to the Sixth Circuit Court of Appeals.  For years, DOJ employed the flawed reasoning described above and looked on as the packers ground growers into economic dust.  But now DOJ is arguing vigorously that the Court has erred in dismissing Terry's claims.  DOJ argues the language of the PSA is clear, legislative history is clear, and congressional intent is clear that the PSA does not require Terry to show an adverse impact on competition in the market.  DOJ says any unfair or deceptive practice is prohibited.  

DOJ has its hands on the sword in the stone.  Pull . . .  pull . . . for goodness sake . . .  pull!  

  

 

  

 

 

 

 

 

 

 

 

Last Updated on Wednesday, 27 August 2008 13:35
 

About the Author

Mr. Hentges is a 1992 graduate of the University of Texas with a juris doctorate from the School of Law and a Master of Public Affairs from the Lyndon B. Johnson School of Public Affairs. He is a 1987 graduate of Oklahoma State University with a bachelor of science in agricultural economics.

He is admitted to practice law in the States of Oklahoma and Texas and the Federal District Court for the Western District of Oklahoma. He is a member of the Oklahoma Bar Association, the Oklahoma County Bar Association and the American Agricultural Law Association.

Mr. Hentges’s legal practice is concentrated in agricultural law, civil litigation, Endangered Species Act, eminent domain and appellate law.

Phone: (405) 340 6554

Harlan Hentges P.L.L.C.

102 East Thatcher 

Edmond, OK 73034

 

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