DOJ drops case against Monsanto

The Department of Justice has dropped its anti-trust case against Monsanto for anti-competitive behavior in the seed market.  The company is very happy.

I imagine that DOJ staff are disappointed that their efforts in recent years to ensure competitive ag-sector markets have come to very little.  Here is the section on the seed industry from DOJ's May 2012 summary of its field hearings:

Genetically Modified Seeds. The rise of genetically modified seeds generated intense and extensive discussion. Many farmers spoke about the high price of genetically modified seeds, restrictions on the use of genetically modified seeds, and a dearth of choices of genetically modified and conventional seeds. For example, during the public comments in Iowa, there was testimony that “many farmers say that the prices they’re paying are indeed out of hand for seed,” that “farmers say that their choice, their seed options are dramatically reduced, especially in the way of conventional corn and soybean varieties,” and that “farmers fear that the best and newest genetics will only be introduced with expensive patented traits stacked into them.”56

A farmer echoed these comments, asserting that the advent of genetically modified seeds “has reduced my options for non-GMO seeds” and “increased my costs to raise corn.”57

Participants argued that seed traits or “nature” should not be patentable. They asserted that the current patent landscape stifled innovation and competition.58 Many also voiced philosophical objections to the patenting of seed technology and lamented that licensing restrictions imposed by seed companies upset centuries-old folkways. As one rice and soybean farmer put it, “We lost the thing [that as] farmers and inhabitants of this planet . . . is most precious to us, and that is the intellectual property rights to our food.”59

Other participants extolled the virtues of genetically modified seeds, including, they stated, higher yields and less environmental impact. One crop farmer summarized, “The use of GMO seeds makes economic and agronomic sense and provides efficacy with less trips across the field, less fuel, and a safer environment for us farmers, our families, and the environment.”60

Here is the American Anti-trust Institute's 2009 summary of the leading competition concerns (Update 12/2/2012: AAI receives support from DuPont, a Monsanto competitor), Monsanto's 2009 response (.pdf), and a 2010 article in Choices Magazine by agricultural economist GianCarlo Moschini.

Strategies for reforming poultry contracts

For many years, advocates for farmers have been concerned about production contracts in the poultry, pork, and beef industries.

In the current issue of the Washington Monthly, Lina Khan has a captivating feature article criticizing the Obama Administration for retreating on proposed reforms to contracting rules.  A taste of Khan's theme of deflated hopes:

Big processing companies remain free to treat independent poultry, cattle, and dairy producers largely as they please. “You had farmer after farmer after farmer telling the same story, basically pleading for help, and absolutely nothing has come of it,” said Craig Watts, a poultry farmer from Fairmont, North Carolina, who drove 512 miles to attend the hearing in Alabama. Staples agreed. “We had really thought something might change.”

This issue is complex, however.  Recent years have generally been high-profit years for poultry growers (.pdf) -- a key piece of context that readers of Khan's article might miss.  In particular, for the industrial-scale poultry producers who get contracts with the big processors, both farm income and household income are comparatively good on average.  Certainly, I lose more sleep over poverty among hired farm workers in the poultry sheds than among poultry business owners!

Furthermore, many economists are instinctively reluctant to have government agencies write rules for questions as difficult and complex as poultry production methods and pricing.  Tina Saitone and incoming AAEA President Richard Sexton argue that contracts offer some efficiencies and benefits for consumers and farmers alike.

In my view, not all contracts are bad, but some contracts may be abusive and anti-competitive.

Even if you take the economists' view on this issue, there still is an important role for government reform.  In particular, it is essential for contract terms to be transparent, so that farmers are not trapped into contracts with a single processor because they cannot find out their competitive alternatives.

For this reason, when USDA retreated on its proposed contract reforms, one of the passages I read most closely had to do with the transparency of contracts.  Under pressure from Congress, USDA backed down on a simple and entirely sound proposal to require processors to publish sample contracts.  Buried deep in the Federal Register notice (.pdf) where USDA explained its revisions to the rule, a careful reader may find that the USDA officials themselves seemed to recognize that this would have been a good provision, and they sound disappointed that they had to back down.

Livestock and Poultry Contracts Section 201.213 of the proposed rule required the submission and potential publication of sample contracts. Most supporting comments stated that implementation of this rule would assure fairness and market transparency which would allow farmers and ranchers the opportunity to make informed decisions, it would promote fair competition, and it would allow efficient and evenhanded enforcement of the P&S Act. Some comments expressed concern with the lack of clarity and the ambiguity of this section of the proposed rule.