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Law360 (September 8, 2020, 3:35 PM EDT ) The COVID-19 pandemic has brought new compliance risks and considerations for companies and individuals. In this Expert Analysis series, state attorneys general share their enforcement priorities.
Tim Fox
It is true that in Montana, cattle outnumber people. While our sparse population makes social distancing easier, the impact of COVID-19 on our agriculture-centered economy has hit uncomfortably close to home.
Even before the pandemic struck the country earlier this year, some cattle producers were voicing concerns over whether they were receiving their fair share of the consumer dollar. Then, as COVID-19 hit, panic buying at the local level of food and other essential items heightened antitrust concerns on the part of attorneys general nationwide.
Soon after, we warned large online retailers to make sure none of their resellers were price-gouging by overpricing critical items during the COVID-19 shutdowns. We called for Amazon.com Inc., Wal-Mart Stores Inc. and others to put a stop to practices where items like hand sanitizer bottles were sold for hundreds of dollars.
At the same time, many attorneys general — especially those in states with large agricultural sectors — were also concerned about practices that could take advantage of cattle producers. During a call with U.S. Attorney General William Barr in March, I urged him to keep rural producers in mind.
In May, I joined with my colleagues from North and South Dakota, Colorado, Missouri, Arizona, Idaho, Iowa, Minnesota, Nebraska and Wyoming in asking the U.S. Department of Justice to launch an antitrust investigation of the beef processing industry. In a letter to Barr, we requested the investigation to determine if beef processing companies have entered into agreements that deprive consumers and cattle ranchers of a competitive market.
The U.S. beef processing market is highly concentrated, with the "Big Four" meatpackers — JBS SA, Tyson Foods Inc., Cargill Inc. and National Beef Packing Company LLC — controlling 80% of the nation's beef supply. Packer consolidation has occurred over the course of several decades.
As recently as 2009, the DOJ and several states, including Montana, investigated and sued to block a deal that was announced the previous year: JBS was poised to purchase National Beef. But the parties abandoned the merger.
Since then, the cattle industry has experienced ups and downs. Between 2010 and 2016, farmer fair practices rules — clarifying the role of the Packers and Stockyards Act as a producer protection act — were fought over during two efforts to strengthen the act during Tom Vilsack's tenure at the U.S. Department of Agriculture.
Ranchers did not wholly agree on the direction of the rulemaking, nor did policymakers and other market participants. Even as recently as March, several states commented on an existing USDA proposal, expressing concern about language the department is currently reviewing to clarify the act.
There are also those in the beef industry who allege packers have coordinated to reduce slaughter volume and slowed their purchases of fed cattle in the cash market to control normal supply and demand influences; have closed or idled what could be productive slaughter facilities in order to artificially reduce slaughter demand; and have even imported foreign cattle at economically irrational losses for the purpose of depressing domestic cash cattle prices.
Two recent disasters of different origins and proportions illustrate the problems associated with a market that is too concentrated: a catastrophic slaughter facility fire at a Tyson facility in Holcomb, Kansas, on Aug. 9, 2019, and the coronavirus outbreak.
After the Tyson facility fire — which, over the course of a few hours, temporarily eliminated 6% of the nation's slaughter capacity — the market for beef reflected a significant drop in prices paid by packers for slaughter cattle, while simultaneously reflecting record profit margins for the Big Four on boxed beef sold to retailers and ultimately consumers. Some cattle producers cried foul.
How was it after this disaster that packers were making more money, and ranchers and feeders were fetching less? The USDA began an investigation. Several months went by, and there was some positive movement in the market. But COVID-19 struck, and again, the delta between packer profits and producer margins reached reportedly historic levels.
As attorneys general, we have had a long history of success of working together across state and party lines. State antitrust laws came into being because of populist fears of concentration of wealth in the era of the Standard Oil trust and other large corporate entities.
At least 14 states inserted antimonopoly provisions into their state constitutions before the Sherman Act — the main federal antitrust statute — was enacted in 1890. At least 13 states enacted their own antitrust laws before the Sherman Act was passed.
The National Association of Attorneys General, of which I am currently president, was founded after a number of midwestern attorneys general individually brought cases against the Standard Oil trust in their state. They found that even if they won the case, Standard Oil simply moved its corporate existence to another state. The then-attorney general of Missouri finally called a meeting of his fellow attorneys general to discuss concerted action, and the NAAG was born in 1907.
After that, state antitrust enforcement went into a decline, and the federal government took over for about 60 years. Attorneys general resumed more vigorous antitrust enforcement in the mid-1970s. This revival stemmed in part from new state laws authorizing attorneys general to sue on behalf of their states and political subdivisions in state and federal courts.
Two new federal laws enacted in 1976 also encouraged antitrust enforcement activity by attorneys general. The Crime Control Act provided seed money for states to fund antitrust enforcement programs. Although this seed money was a one-time deal, it allowed attorneys general to hire antitrust attorneys.
It seems they proved their worth: Today, there are about 225 people in state attorney general offices who enforce antitrust laws. The Hart-Scott-Rodino Antitrust Improvements Act authorized state attorneys general to maintain federal parens patriae treble-damage antitrust actions for their respective citizens.
Just as our constitution's balance of power ensures the three branches of government are kept in check, antitrust laws help state attorneys general ensure that businesses cannot, through monopolistic or oligopolistic power, control the markets to the detriment of consumers, the agriculture industry and our country. As attorneys general, we want to make sure the COVID-19 crisis does not erode progress that has already been made in consumer protection, whether it is in the field or online.
Our request for DOJ action does not suggest a lack of interest by any of our states in conducting our own inquiries. Rather, our request reflects our awareness of the nationwide significance of this issue and interest in collaborating with federal authorities. Now, more than ever — especially given the importance of maintaining the strength of the nation's food system during the pandemic — we need to dedicate our collective resources to promote competition and protect consumers.
Tim Fox is the attorney general of Montana.
The opinions expressed are those of the author and do not necessarily reflect the views of Portfolio Media Inc. or any of its respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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