In this increasingly tense environment, Eric Tabor was given a rare public chance to be the good guy. Iowa had gone further than any other state in combating the rise of corporate agribusiness, and Tabor was invited to the Kansas City forum to outline what Iowa regulators were doing.
Tom Miller was attacking corporate meat production from two angles: through litigation and the creation of new laws. The lawsuit against Smithfield, filed just a few months earlier, threatened to upend the creeping vertical integration of the hog industry. At the same time, Miller was pressing for the passage of the Producer Protection Act in sixteen states, which would limit how much power companies like Tyson and Smithfield could wield over farmers.
Tabor was comfortable onstage at the Marriott hotel. He’d had a brief career in politics before joining the attorney general’s office. He knew how to give a campaign speech. Tabor looked out over the crowd of upturned heads and realized these people were on his side. Rural Americans were counting on their government to do something, and Iowa was doing it.
Tabor started talking about the risks of contract farming and the power grab that was under way in Iowa’s hog industry. Well-funded companies were taking over more of the market every day, driving out independent farmers and rewriting the rules of production. Some of the same companies already dominated the chicken business, where they kept farmers on the edge of bankruptcy. Now they wanted to impose that reality on cattle and hog producers. Tabor wound the crowd up with a series of rhetorical questions, in the best tradition of a pulse-quickening stump speech. He asked them: Why should these companies have the power to write the rules of rural America?
— What’s wrong with growers having the right to organize? he asked incredulously. Regulators needed to step in, on both the state and federal level, to protect rural communities.
— Why shouldn’t we do this?
The crowd was eating out of Tabor’s hand by the end of his speech. Afterward, Tabor mingled with attorneys and officials from the USDA, and he met farmers who were hopeful the conference marked a turning point in the age of consolidation.
The wind was at Tabor’s back, and the federal government was on his side. A new era of change seemed just around the corner.
* * *
Not everyone who heard Tabor’s speech was moved. A man named James R. Baker sat quietly in the audience, taking it all in. Baker was the senior administrator of GIPSA, the antitrust regulator that was created before the Great Depression specifically to regulate U.S. meat companies. If anyone in the nation had authority to rein in the power of companies like Tyson, it was Baker.
Baker was sitting with Greg Page, a senior executive at Cargill Inc., the agribusiness conglomerate that was fast becoming one of the nation’s most powerful meat companies. Page oversaw Cargill’s beef division, and he was named the company’s chief operating officer that year.3
Page was skeptical about Tabor’s pitch for tougher regulations, and he told Baker as much.
— Who’s it actually going to benefit? Page asked.
— I don’t understand, Baker replied.
Page explained to Baker that tough rules in Iowa would hinder the industry. In Page’s view, contract farming and vertical integration were essential pillars of the modern food business. The food system just wouldn’t work without them. Page knew that Cargill had a team of salespeople roaming around Japan, looking to sell big shipments of American beef. Those salespeople needed to know that the supply of beef would be there when it came time to deliver, and signing long-term contracts was the best way to ensure a steady supply. The system also worked well for farmers, Page believed. How could a young farmer in Iowa get a big bank loan to build a factory farm if the farmer didn’t have a contract to sell their animals? The contracts provided stability. Page thought that tough regulations on contract farming in Iowa could probably just end up pushing business across state lines into places that were friendlier to corporations.
— It kind of closes the door on wanting to go there and do business, Page explained.
Baker didn’t need much convincing. He was a cattleman and banker from central Arkansas who favored wearing a cowboy hat even in Washington, D.C. He was familiar with the poultry industry and big meatpacking companies, and he tended to think they operated best when left alone. Government rules just impeded the natural functioning of the market. Tabor’s efforts in Iowa, and the parallel efforts in Washington, D.C., and other states, were a bridge too far for Baker.
“Don’t get away from the free enterprise system,” Baker said later about Tabor’s speech. “You start infringing on it with regulations like that.”
Baker was nearing the end of his tenure as head of GIPSA. He served during an era in which the nation’s top regulatory regime closely matched his fondness for an untrammeled free market. Big companies were allowed to merge with other big companies, creating an agribusiness industry that was almost unprecedented in its level of concentration.
IBP, for example, had been allowed to swallow its competitors at a rate that left just four beef companies controlling more than 80 percent of the market. Baker had no problem with this. To understand why, it is helpful to understand the origins of the antitrust agency he headed.
GIPSA gained its authority over meat companies from a law called the Packers and Stockyards Act, which was passed in 1921. The act was passed with the goal of breaking up the “meat trust,” a collection of five companies that controlled about 85 percent of the market (a lesser degree of concentration than existed in 2000).
Back in the 1920s, meat production was a contentious political issue. A federal investigation found that the companies had gained so much power over the food system that they were defrauding consumers and farmers alike.
Meatpackers could do this because of their economically enviable position right in the center of the food business, buying cattle from the farmer and selling fresh meat to the consumer. By locking up control over this pressure point in the system, the meat trust was able to manipulate prices on both ends. They underpaid the farmer and overcharged the consumer. As a result, meat prices were climbing, and farm incomes were declining.
Corporations abused their power in a number of industries, such as oil and railroads, but the meat business raised problems that were all its own. Meat was seen as a necessity. People couldn’t live without it. Many families felt that eating meat, and feeding it to their kids, was the best and cheapest way to get protein. And meat was a historical part of the American diet. People didn’t feel that companies should be able to drive up prices at will and control the supply.
To combat the meat trust, Congress founded the Packers and Stockyards Administration, which based its authority on a very old body of regulations called antitrust laws, so named because they were passed to combat the power of “trusts,” like John Rockefeller’s Standard Oil Company. Perhaps more than any other body of U.S. law, antitrust regulations seek to limit corporate power. The animating idea behind the laws is that corporations can get so big that they start to distort, and ultimately destroy, the free market forces that support capitalism.
There’s a lot of misunderstanding about what antitrust laws do. The laws don’t necessarily ban being big. Antitrust laws recognize that, sometimes, concentration of power is a good thing. Having more companies running railroads doesn’t necessarily provide better railroad service, for example. Businesses can get more efficient when they consolidate. Companies that get bigger can do things more cheaply because of economies of scale. And if companies can do things cheaply, they can pass those savings on to consumers.
What antitrust laws aimed to do was set down a list of rules to make sure big companies didn’t choke out competition. For example, there’s nothing wrong with four companies controlling the supply of beef in the United States. The problem comes if those four companies get together and make a deal among themselves to keep their prices high. The bigness itself isn’t the problem. The anticompetitive behavior is the problem.
This is the rationale that James Baker deployed as head of the Packers and Stockyards Administration during the 1990s. It didn’t alarm him that the industry was becoming more concentrated than ever. What mattered was the specific behavior of the few big companies that were left in control of meat production. As long as those companies didn’t violate the specific rules that aimed to keep competition fair, there was nothing wrong with consolidation. The meat industry was expected to behave itself.
* * *
Meat industry lobbyists aren’t brash. They aren’t even that confrontational. Steve Moline knew he’d never get a threatening call from a meat lobbyist. They were too good for that. If people that powerful wanted to do something to you, you didn’t see it coming. You woke up, and it was all over.
Tom Miller’s Producer Protection Act initially got a warm reception in the Iowa legislature. It was one of those bills that seemed hard to argue against. It shifted power from out-of-state corporations to local communities. It stood up for independent farmers and the small businesses that supported them.
Then, quietly, the legislation started to die the slow death that visits most bills seeking to constrain big meat corporations. In lobbying-speak, the bill started to “carry water.” Enthusiasm waned. Legislators suddenly had reservations. They didn’t return phone calls. Previous supporters had to take a second look.
It seemed that calls were being made, from office to office. Lobbyists were paying visits to legislators. Leaders in the Iowa legislature weren’t willing to bring the bill to the floor for debate. There were other priorities. Maybe next session, they said.
Many of the legislators seemed to be reading from one script. They said their big concern was that onerous legislation might drive the hog industry out of Iowa. The hog business was one of the last vibrant industries that called Iowa home. Better not to endanger it.
Miller’s bill ultimately failed in his home state.
A similar story unfolded in Washington, D.C. The same concerns that sparked the Millennium Conference had stoked a genuine interest in passing laws to constrain the growing meat corporations. In March 2000, Senator Tom Daschle, a Democrat from South Dakota, was drafting a bill that would have required transparency, plain language, and disclosure in livestock contracts. It also would have barred companies from discriminating against producers. The discrimination clause alone might have opened the door for contract farmers to organize because they wouldn’t be afraid that companies would cancel their contracts in retaliation.
The bill wasn’t radical in the sense that it didn’t ban contracts, didn’t outlaw vertical integration, and didn’t establish as many rights for farmers as Tom Miller proposed with his state-level proposal. But it was still too much for the meat companies to tolerate.
On March 8, 2000, as Daschle’s bill was still being drafted, a meat industry lobbyist named Sara Lilygren sent out an e-mail. Lilygren worked for the American Meat Institute, the biggest and oldest lobbying firm for meatpackers. But her e-mail wasn’t sent only to those in the meat business. The address list for this message was a broad cross-section of the industrial food system. It included lobbyists and employees of major food companies like ConAgra, Cargill, and Monsanto, along with lobbyists for industry groups like the National Chicken Council and The Turkey Federation. Lilygren included several of her coworkers at the American Meat Institute on the address list.4
The e-mail’s goal was simple. All the corporate food lobbyists had to work together to stop Daschle’s effort, which would rein in the market power of IBP, Tyson, and Smithfield.
The e-mail included a sample letter that was to be sent to U.S. senators, helpfully pre-addressed to “Senator xxxxxxx.” This sample letter urged senators not to cosponsor Daschle’s bill. In other words, it was urging lawmakers to back off from the measure before it was even proposed, winnowing away the number of lawmakers who might help bring it to the Senate for debate. The letter acknowledged that the bill wasn’t even finished yet but still declared that it was an assault on the rural economy itself.
“We have only seen draft copies of the proposals at this point,” the letter said. “These drafts represent sweeping changes in anti-trust laws. They include agricultural provisions that would force a radical restructuring of industry, would limit farmers’ ability to partner with processors, and would establish an unprecedented invasion of privacy by the federal government into farmers’ business practices.”
The address list of Lilygren’s e-mail was instructive. It was sent to every major meat lobbying group in Washington, even to companies that didn’t seem to have a dog in the fight, like Monsanto. Industrial food lobbyists know it’s smart to stick together. A regulation over one of them could open the door to regulation over others. By pooling their money and time, they present a united wall against any legislation that might change the power structure of American agribusiness. They fight together, and they profit together. Meat lobbyists hold regular conference calls, sharing tips and news and planning future campaigns.
Even laws that seek to tighten food safety provisions tend to wither in front of this kind of resistance. Lawmakers have a hard time passing bills that aim to keep kids from being killed by tainted hamburger. More abstract laws dealing with market power and corporate control of the food economy, like the one Daschle was proposing, didn’t stand a chance.
Daschle eventually introduced the bill, and he got thirteen cosponsors, all of them Democrats except for the Vermont independent James Jeffords. The bill went nowhere. It took on water. Lawmakers weren’t ready to back it.
The same fate awaited a federal producer protection act that was modeled on Tom Miller’s legislation. Iowa Democrat Tom Harkin proposed the federal Agricultural Producer Protection Act in October 2000. It didn’t make it to the floor for a vote and never became law.
The fifteen state attorneys general who joined Tom Miller to pass a producer protection act didn’t have better luck. When the act failed in Iowa, it took on the aura of a lost cause. It started carrying water in all fifteen states in which it was proposed.
In Oklahoma, the bill was pushed by state senator Paul Muegge. It gained momentum early on, as it did in Iowa, and passed the state senate by a wide margin. Then it stalled in the House Judiciary Committee.
Muegge released a statement in March 2001, fuming at the lobbying pressure to block the act.
“It’s a shame that legislators can be bought and paid for by relentless companies,” he said. The bill never reached a vote.
In all sixteen states in which it was proposed, the Producer Protection Act failed.
* * *
By 2004, it was beginning to look like Tom Miller’s case against Smithfield was falling apart. Eric Tabor, Steve Moline, and a small group of attorneys met in a conference room to discuss the case, and a recent court decision in South Dakota had just blown a hole in the side of their sinking ship. It also spelled an end to the notion that states could fight the rise of vertical integration.
Rather than argue against Iowa’s ban on packer ownership, Smithfield sued Tom Miller in federal court, arguing that Iowa had no right to ban vertical integration. Smithfield sued Iowa under Article 1, Section 8 of the U.S. Constitution, commonly known as the Commerce Clause. The Commerce Clause basically prohibits states from setting up their own trade barriers. It says that only Congress can pass laws that affect interstate commerce.
Smithfield argued that Iowa’s packer ban was hindering interstate commerce. Vertical integration was embedded in the agricultural economies of the southern states. Banning it on a state-by-state basis violated the idea of an integrated, national economy.
Smithfield’s fight against Tom Miller was part of a broader effort to tamp down state laws that banned corporate farming, including a similar case in South Dakota. In 2004 a federal appeals court in St. Louis ruled against South Dakota, saying the state’s ban on corporate farming was unconstitutional.
Unfortunately for Moline and Tabor, they were scheduled to go
before the very same federal court to try to argue that Iowa’s ban on vertical integration was legal. It was a losing fight after the South Dakota ruling.
Moline didn’t see the point in fighting. Smithfield would win and then have free rein to operate its Iowa contract farms as it wanted. It would only be a matter of time before Tyson, Cargill, and others rushed into the state to follow suit.
— This is the reality. We need to see if we can get something. Accomplish something, Moline said.
Moline and the attorneys on the case pondered their options, sometimes over beers after work. More than anything, they commiserated with each other. It was becoming clear that states wouldn’t have significant power to regulate the economic power of meat companies. And Congress couldn’t muster the political will to overcome the meat lobby.
The only cops left on the beat were the antitrust regulators in Washington.
* * *
By 2005, GIPSA seemed to have drawn into a shell of nonenforcement. The reasons were partly due to the reorganization overseen by James Baker, the Stetson-wearing GIPSA chief who ran the agency during the Clinton era.
Baker’s prime initiative as the antitrust regulator was to reshape the agency in the image of the highly concentrated meat industry that it oversaw. Baker closed the Packers and Stockyards branch offices that had been scattered around the county. Those offices once housed investigators who would fan out to farms and auction barns to hunt for wrongdoing. Baker moved them to centralized offices that focused on specific industries. An office in Atlanta focused on poultry companies, an office in Denver oversaw meatpackers, and an Iowa office focused on pork production.
When the Bush administration had taken over the agency in 2000, GIPSA personnel were cloistered in the central offices, like cops who had quit walking their beat. A government audit of GIPSA in 2000 found that the agency was broken. It was toothless in bringing cases against big meatpackers. GIPSA’s staff of investigators was made up mostly of economists. They were good at tracking market prices, but they didn’t have a good grasp of antitrust laws. They also didn’t work with attorneys or investigators who knew the laws at other agencies like the U.S. Department of Justice or the Federal Trade Commission.
The Meat Racket: The Secret Takeover of America's Food Business Page 27
