Biden order to strengthen hand of small farmers in legal fights

A new executive order from President Biden targeting anti-competitive business practices is expected to give a major boost to sustainability efforts in the agriculture industry.

The wide ranging order is poised to upend the business models of some of the biggest food producers -- household names like Tyson, Perdue Pilgrim’s Pride and Sanderson Farms -- by potentially making it easier for small farmers to sue them.

Those changes could then lead to more sustainable production methods, Michael Kades, director for markets and competition policy at the Center of Equitable Growth, told The Hill’s Equilibrium.

“You have four buyers, and they control the marketplace, because they don’t have to compete,” Kades said.

The requirements that the big four put on smaller producers, Kades said, “not only harm chicken farmers but spur industrialization of agricultural production in ways that hurt sustainability and the environment.”

Giving more leverage to small farmers could chip away at those practices.

A White House fact sheet on Biden’s order directs the Department of Agriculture to consider a rule that would make “it easier for farmers to bring and win claims, stopping chicken processors from exploiting and underpaying chicken farmers.”

The sustainability implications of the order go even further by essentially looking at industry competition beyond traditional pricing, a nod to the broader environment, sustainability, and governance world -- ESG -- that’s pushing federal regulators and investors to consider the impact of non-financial factors on a company’s bottom line.

The move marks the potential for a dramatic shift from the past four decades, in which courts tended to weigh the risks of overly concentrated business through just one lens: how much goods cost consumers.

Following the hands-off economic policies of the Chicago School and the judicial movement that coalesced around former Solicitor General Robert Bork from the late 1970s on, courts tended to look favorably on mergers like those by which a few meatpacking and logistics companies captured huge swaths of the market.

That transition, largely complete by the early 2000s, moved thousands of farmers into a position of tenancy. Many owned little more than the debt on their loans -- facilitated by the meatpacking company -- needed to build new chicken houses.

And when it came to selling the meat to processors, consolidation meant that in many parts of the country, farmers had access to just one processor — meaning their lone client had the ability to determine their livelihood.

That setup, Kades argued, presents all sorts of problems that go beyond politics and economics.

Since the 1980s, the federal courts and the agencies that had to try their cases in them took the position that the conduct of dominant firms in an industry didn’t matter because courts believed it was too hard for companies to exclude competitors, Kades said, adding that their logic made some sense — it just wasn't borne out by data.

They determined that a firm using “predatory pricing,” in which a big business destroys a smaller competitor by running below-market prices for a sustained period, would ultimately have to raise prices later to compensate, spurring competitors to enter the market and drive prices back down.

That model, Kades said, was followed in permitting mergers that essentially let some major chicken producers take over virtually every step of the supply chain.

"It takes for granted,” he said, “that it is easy for competitors to enter a market,” so that abusive behavior by one company will create a surge in kinder, gentler competitors.

But in agriculture, as in pharmaceuticals, the price of entry is so steep, and the overhead required so great, that once a local monopoly or oligopoly is in place, there is not much that an independent chicken farmer can do.

Alex Harman, a competition expert at left leaning Public Citizen, said that overall there is “no ecosystem where small or midsize businesses can overcome the power of these highly concentrated industries.”

Courts, he said, took the position that “if a big company puts a small company out of business as a result of anti-competitive action, but as a net result the consumer has a lower prices available -- that’s not anti-competitive.”

This approach, he added, required federal judges to determine the effect a company’s action -- based on the model presented -- would have on prices in the future.

The Biden executive order upends that approach, at least for federal agencies.

“Instead of looking into a crystal ball, using complex economic models” -- to say, for example, that a particular merger will save consumers 15 cents on a chicken breast -- “we can look at the observable realities of how markets are structured right now,” said

Stacy Mitchell, co-director of the Institute for Local Self Reliance.

She said getting that right will allow markets to “deliver for consumers, workers, communities.”

“We’re deeply concerned about concentrated power as a threat to the liberty, democracy, equality, and health of communities. Concentrated power undermines local places,” she added.

One element of the Biden executive order directs the U.S. Department of Agriculture (USDA) to study how to rebuild the system that the meatpacking and processing powerhouses like Perdue and Pilgrim’s Pride -- and their retailer customers -- took over in the 1990s.

“You have a growing number of farmers producing food at local scale, and lots of eaters, but we're missing the in-between points -- local slaughterhouses and grain mills. So direction around investment is designed to rebuild that crucial intermediary.”

In conjunction with the order, the USDA announced $500 million in funding for new local-scale meat and chicken processors. In a statement, Secretary Tom Vilsack listed a range of benefits beyond price, saying the increased competition would “transform the food system so it is more resilient to shocks, delivers greater value to growers and workers,” as well as offer customers “an affordable selection of healthy food produced and sourced locally.”

The goal, Vilsack said, was to “shift the balance of power back to the people.”

Kades, of the Center for Equitable Growth, said Biden’s executive order represented a new willingness by federal agencies -- long gun-shy from losing anti-competition cases against companies in court -- to begin using the powers at their disposal.

Still, he said, while the executive order gives those agencies new cover in court when they are inevitably sued, it does little to overturn 40 years of existing case law favoring corporate consolidation.

“Agencies can be a lot more dedicated on enforcement,” he said, “but it would be a lot more effective for Congress to step in.”