Meyerhoeffer’s transformative tour basically ended at Farmerville. None of Pilgrim’s facilities were transformed into co-ops. Meyerhoeffer learned that change wouldn’t come easily to the chicken industry. Tyson and Pilgrim’s Pride had a lock on the contracts with major customers like Wal-Mart and McDonald’s. If the big companies didn’t like a smaller competitor, they could simply cut their prices in certain regions and snuff out the competitor’s chance of winning a contract.
“There’s a lot of sharks out there, and they can starve you out if they want to,” Meyerhoeffer said.
* * *
Big meat companies kept their hold on power through tightly coordinated integration. The government agencies that policed them were a different story.
In the winter of 2009, Tom Vilsack moved to Washington and started rearranging the furniture in his new office at the helm of the Department of Agriculture. When it came to regulating the world’s biggest meat companies, Vilsack needed to do even more rearranging.
Vilsack inherited a regulatory system that was riven by bureaucratic divisions, miscommunication, and a lack of focus. The inefficiency and breakdown of coordination was breathtaking. While Tyson Foods could scale back national poultry production in a matter of weeks, it seemed antitrust regulators could barely get a memo from one office to another.
The most problematic agency was the one created almost one hundred years ago with the purpose of regulating giant meat companies, the Packers and Stockyards Administration. The PSA was drifting along, lost in a bureaucratic maze. The PSA was hobbled by a series of loopholes and oversights that had been layered upon the agency for decades through congressional action and heavy lobbying from the meat industry. The agency could investigate wrongdoing on the part of poultry companies, for example, but it did not have the legal authority to prosecute them. If the PSA wanted to bring a case against Tyson for fraudulently manipulating scales at its slaughterhouse to underpay farmers, the agency had to build a case and then hand it over to the Department of Justice for prosecution. This is even more difficult and cumbersome than it sounds, because complicated legal cases are like long novels. Passing a case off from one agency to the other, midstream, is like writing half a book and then giving it sight-unseen to another author and asking him to finish it. The Department of Justice had other things to worry about, like terrorism, narcotics trafficking, and white-collar fraud. Cases started by the PSA were referred to the Department of Justice but were notorious for languishing there.
To make matters worse, attorneys and economists within the PSA were barely talking with their counterparts at Justice, let alone sending them cases to be prosecuted. If an attorney inside PSA wanted to talk to an attorney at Justice, they were directed to go through the PSA’s office of general counsel, creating a communications bottleneck that most people seemed to avoid by simply not picking up the phone.
It became clear, early on, that to accomplish anything, Vilsack needed a strong partner within the Department of Justice. Without that, the USDA would stay crippled in the face of a multibillion-dollar meat industry.
* * *
Christine Varney looked out over the crowd as she prepared to make her first speech as the Justice Department’s new chief of antitrust enforcement. It was May 2009, just a few months into the new administration. Varney was beginning her tenure as Barack Obama’s head of antitrust enforcement. Varney was preparing that Monday morning to address a friendly audience, which was a good thing, because Varney had a less than friendly message to deliver. She was about to send a shot across the bow to big business in America, saying in clear terms that a new cop was on the beat.
That message was a tough sell. The stock market had opened lower and fell throughout the morning Varney was to give her speech, with the Dow Jones Industrial Average hovering around 8,400 points. That was down almost 40 percent from its peak levels in late 2007. But even at that depressed level, the markets were rebounding from the terrifying lows of two months before. The unemployment rate was at its highest level in more than twenty years, and Americans were anxious every day that things might get worse: The market might fall further, companies might cut more jobs. Another depression seemed just one bad day away.
This anxiety played into the hands of big business. Companies argued that mergers, cost cutting, and market control were critical to staying profitable. Any government action to curb this behavior could be branded as a reckless act that could destroy jobs and send shockwaves of uncertainty through a fragile economy.
Varney had a different message to convey. She planned to deliver it in her speech that morning at a meeting of the Center for American Progress, a liberal think tank that had petitioned the Obama transition team for tougher antitrust enforcement. Varney seemed the ideal candidate to usher in such a change. She had been a member of the Federal Trade Commission3 for three years during the Clinton administration. During the Bush years, she practiced antitrust law as a partner with Hogan & Hartson, a powerful Washington, D.C., firm. Varney had fought antitrust battles from both sides and she knew the law as well as anyone.
As Varney walked out onstage after a glowing introduction that dubbed her a “premier Washington superlawyer,” she carried herself with characteristic composure. She didn’t just look put together. She looked bulletproof. Varney had a smooth smile that was just polite enough, just strained enough, to telegraph that beneath it lay a resolve of steel.
When she began her speech, Varney wasted no time. She told the crowd that when she walked into her new office at the Department of Justice, she walked past the portraits of former heads of antitrust enforcement including Thurmond Arnold, who ramped up enforcement after the Great Depression. Varney said she admired Arnold and his rationale for tough enforcement. The U.S. economy enjoyed decades of prosperity after Arnold cracked the antitrust whip, ending a period of deep malaise dominated by cartels of companies that had government support.
“The lessons learned from history are twofold,” Varney said. “First, there is no adequate substitute for a competitive market, particularly during difficult economic times. Second, vigorous antitrust enforcement must play a significant role in government’s response to economic downturns to ensure that markets remain competitive.”
Varney said antitrust enforcement had been all “but abandoned” in recent years. Companies could get away with almost anything if they could prove there was an economic or “efficiency” rationale for their actions. Varney said this was harmful to consumers.
Corporate attorneys in offices around the country heard her message loud and clear: The old system would be getting a new look.
* * *
1. A federal judge later ruled that Pilgrim’s Pride did indeed violate antitrust law when it closed plants with the explicit purpose of boosting chicken prices. That ruling only came about because chicken farmers had sued Pilgrim’s Pride over the closures, a legal headache that Tyson escaped.
2. This, by the way, was a best-case scenario. Meyerhoeffer and his neighbors would inherit an already functioning poultry plant. Building a new one from scratch, along with the farms to support it, could cost hundreds of millions of dollars.
3. The FTC enforces antitrust laws alongside the Department of Justice.
CHAPTER 12
* * *
Street Fight
(2010–2011)
INSIDE THE big auditorium, the crowd settled into their seats and began to quiet down when the dignitaries arrived. There was U.S. Attorney General Eric Holder, and next to him Secretary of Agriculture Tom Vilsack. The Republican senator Chuck Grassley stood nearby as Christine Varney, the head of antitrust enforcement at the Department of Justice, approached the stage. They were about to undertake the closest thing to a media circus that has ever happened in the world of agriculture policy.
It was a chilly morning in March 2010. More than a thousand politicians, farmers, lobbyists, and journalists had descended on the auditorium in Ankeny, Iowa, a nondescript little suburb of
Des Moines. The auditorium was the site of an unprecedented public hearing that was jointly hosted by the U.S. Departments of Justice and Agriculture. About seven months into the Obama administration’s tenure, the two agencies announced they would hold five hearings at locations around the country, beginning in Ankeny. The purpose was to examine the growing power of agribusiness corporations like Tyson Foods.
The dignitaries had flown in from Washington. And every major agribusiness lobbying group and company, from Monsanto to Tyson, had sent their public relations teams and lawyers to monitor what was spoken from the podium. Farmer activist groups brought in members from around the country who stood in long lines when it was time to deliver public comment.
Crews of security guards guided traffic outside the little auditorium, which was usually used for Future Farmers of America meetings. The parking lot was overwhelmed and groups of people walked down long sidewalks from auxiliary lots elsewhere, farmers in their denim next to lawyers in their high heels.
A few minutes before the hearing began, Attorney General Holder walked up a small set of stairs to a stage that overlooked the audience. He took his seat at a long table, with a microphone and nameplate placed in front of him as if this were some sort of Senate hearing. To his right sat Christine Varney. To his left sat Secretary Vilsack.
Just the sight of these people sitting at the same table was enough to cause palpitations for meat industry lawyers. For decades, attorneys at the Departments of Justice and Agriculture had played for different teams. They divvied up regulation of the meat industry between them in a system that was riddled with loopholes. The meat industry benefited tremendously from the dysfunction, which made regulators inefficient and aimless. The message being sent by the Obama administration was clear: These agencies would now be working in concert.
The meat lobbyists might have been even more concerned about the man who sat at the far end of the table, an individual whom most people in the crowd probably didn’t recognize. It was Tom Miller, the slender white-haired attorney general of Iowa, who had spent more than a decade trying to roll back the vertical integration of the pork industry. Through his one-of-a-kind settlement with Smithfield Foods, Miller had laid out a template for regulating meat companies across the nation. If imposed on southern poultry producers, such rules could redraw the balance of power in many parts of rural America. For the first time, federal regulators were shining a spotlight on the patchwork system of rules that gave hog farmers in Iowa more rights than chicken farmers in Arkansas. Miller seemed eager to help level the playing field.
After the crowd settled into their seats, Vilsack opened the meeting.
“Let me start off by saying how deeply concerned I am about rural America,” Vilsack said, hunching forward to speak directly into the little microphone set before him. He proceeded to run through the well-known litany of economic woes that characterized small-town America. He described a farming system increasingly controlled by giant corporations, where four companies controlled 80 percent of the cattle market and four hog processors controlled 65 percent of the hog market. He described how the top-heavy (and remarkably efficient) food industry was punishing the very farmers who actually produced the food. Just 11 percent of a typical farming family’s income came from the farm itself. The rest was earned through other means, like working a part-time job in town. This arrangement was systematically destroying midsize, independent farmers, with 80,000 of them disappearing in the last five years alone.
“And when we lose farms in the middle, it also impacts directly the entire rural economy. Today’s rural America has a higher poverty rate than the rest of the country, a higher unemployment rate than the rest of the country, significantly less per capita income than the rest of the country, an aging population, a workforce that is less educated, and well over 50 percent of our rural counties have lost population since the last census,” Vilsack said.
He then outlined a governing agenda that was characteristically ambitious for the newly minted Obama administration, which was just one year old. It wasn’t enough to simply fix these problems by enforcing existing rules and regulations, Vilsack suggested.
“The president has instructed the Department of Agriculture to establish a framework for a new rural economy,” he said. This statement played to the sense of hope and radical possibility that President Obama engendered with his campaign. For those in the crowd, from the farmers to the lawyers, bankers, and politicians, the prospect for fundamental reform was tangible. There could be a new framework, a new system of power in rural America.
In spite of its seemingly radical aims, the effort launched in Iowa would play out over the next two years largely under the public’s radar. After the initial flurry of public attention paid to the hearing in Ankeny, the ensuing debates and regulatory actions that followed went largely unnoticed by most major media outlets.
That’s partly because the debate didn’t fit neatly into categories of red and blue, Republicans and Democrats. By trying to roll back the concentration of power among food companies, the Democratic Obama administration was aligning itself with deeply conservative small-town ranchers, like Chuck Wirtz and Ken Winter. By contrast, Republicans who opposed the administration’s efforts found themselves defending an industrial meat system that was characterized by centralized control, the extinguishing of open and competitive markets, and bureaucratic decision making that replaced the collective wisdom of independent business owners.
Both parties also shared blame for what was happening. The consolidation of agriculture was a bipartisan affair, supported unwaveringly for decades by a revolving door of Republicans and Democrats.
But in Ankeny, as the hearing got under way, there was the palpable feeling that change was not only possible but imminent. And the feeling was justified. The government hearings were just the most visible part of a broader effort. Much of the real work was already being done away from the public eye.
* * *
In the months leading up to the hearing in Ankeny, Iowa, Tom Vilsack installed a team of regulators who would overhaul the Packers and Stockyards Administration, the antitrust agency set up to regulate meat companies before the Great Depression.
The PSA was housed under the bigger agency called GIPSA, which would now be overseen by a young man named John Ferrell, who was just thirty-three years old. Ferrell would directly supervise the PSA and that agency’s new director: a gray-bearded trial attorney named J. Dudley Butler.
Ferrell and Butler were the consummate odd couple. Ferrell is a wispy guy who even in his midthirties looked like a freshly minted college graduate. At the public hearings held in Ankeny and elsewhere, Ferrell sat up on the stage and listened to public comments on behalf of the USDA. His gentle demeanor and fresh face made him look like an unlucky intern rather than the head of the USDA’s antitrust division.
Butler, on the other hand, is brash and blunt-spoken. He had the reputation of being a man who was perpetually about to sue somebody. For decades, Butler represented poultry farmers who took companies like Tyson to court. Butler referred to contract farmers in the press as “sharecroppers,” and he vowed at a public meeting in 2010 that he would help stop the “chickenization” of the beef industry. He was a meat lobbyist’s nightmare, and he had just been given control over the levers of some of the nation’s broadest and strongest antitrust laws.
While the Packers and Stockyards Act was a tough law, the agency that enforced it was weak and incompetent. Ferrell and Butler took over a Packers and Stockyards Administration in which the guiding doctrine for the previous decade seemed to be to sit on the sidelines and do nothing. There was still no internal system to track investigations, a problem that had been identified years before by the General Accounting Office and yet was never fixed. Staff members in the PSA seemed to have the mentality that it was best not to make waves and best not to antagonize the meat companies.
But the PSA had been given a rare opportunity to change the rules of the game. Thi
s opportunity came in the form of a mandate from Congress, passed years earlier in the 2008 farm bill. Congress included in the bill a provision that required the PSA to toughen its rules. The provision was a major victory for farmer advocacy groups, which had lobbied for years to pass the kind of protections that Iowa’s attorney general had failed to achieve in 2000 when he promoted the Producer Protection Act. Some lawmakers, like Iowa senator Tom Harkin, had never given up the fight. As farmer bankruptcies and lawsuits mounted in rural America through the decade, Harkin and his allies gained momentum to push the reforms.
Ferrell had helped write the 2008 farm bill provision in his previous job, when he was a staff member with Senator Harkin. Now Ferrell and Butler planned to exploit to the fullest extent the chance to strengthen the PSA.
For example, the PSA was told to define the term “undue preference” as it appeared in the original Packers and Stockyards Act. The act banned meatpackers from giving one farmer or rancher an unfair preference over another. Defining which preferences were “undue” could instantly redraw the entrenched power arrangements in the cattle industry. It raised the question: Was Tyson’s partnership with certain feedlots illegal? Was Tyson showing an undue preference to its contract feedlots, like Lee Borck’s operation in Larned, Kansas, by paying him extra money to sign a contract with the company? If an independent feedlot owner down the road, like Ken Winters, could deliver the same number of cattle at the same price, why was Tyson paying Borck extra? Was it just to gain control over the market?
The Meat Racket: The Secret Takeover of America's Food Business Page 30
