For several months during 2010, the policy makers inside GIPSA drafted a new rule that would carry out the changes required by the farm bill and take them much further. For example, the rule would ban any tournament system for chicken farmers that didn’t guarantee the farmers a predictable base payment. Tyson could only offer incentives for good performance, in other words, rather than docking a farmer’s income by adjusting the base pay rate through the tournament.
The rule also made one legal change that aimed to make the PSA more powerful than ever. The rule said that if a farmer or rancher wanted to sue a company like Tyson under the Packers and Stockyards Act, the farmer had only to prove that Tyson harmed the farmer himself, not the industry as a whole. This single provision rolled back a series of federal court decisions that had basically rendered the Packers and Stockyards Act toothless. The courts had ruled that to win a case under the act, a farmer had to prove that a company’s actions amounted to an industrywide antitrust violation. If Tyson put Jerry Yandell out of business, for example, Yandell would have to prove that his termination harmed competition in the entire chicken industry to win a Packers and Stockyards case. Such a burden of proof was virtually impossible for most farmers and ranchers, so they didn’t pursue cases. The new GIPSA rule changed that. It said the farmer had only to show a company was unfair or deceptive in its actions. That one change would open the courts to a deluge of litigation from farmers who felt they were wronged.
Policy makers inside GIPSA also considered more drastic measures. They discussed imposing an outright “packer ban” that would bar meatpackers from owning their own livestock, a measure long supported by opponents of vertical integration. If applied to the cattle industry, the ban would undoubtedly mean more cattle were bought and sold on the open market. If applied to the pork industry, the results would have been more radical, likely requiring companies like Tyson and Smithfield to divest their hog farming operations. GIPSA policy makers eventually backed off the idea of a packer ban. They thought it would have been hard to justify in court, so they decided not to draft a measure to enact it. The PSA would have to prove that meatpackers owned cattle or hogs with the express intent of driving down the price or limiting competition. It was a daunting standard to satisfy in court.
The GIPSA rule, then, was seen as a first step. It fulfilled the needs laid out by the 2008 farm bill, and it fulfilled some of the promises laid out by President Obama on the campaign trail.
* * *
The proposed GIPSA rule was released in June 2010, with Secretary Vilsack hailing it as a move that would hold “bad actors” to account when they tried to stifle competition.
“The reality is, the Packers and Stockyards Act has not kept pace with the marketplace,” he said. “Our job is to make sure the playing field is level for producers.”
Inside the American Meat Institute, there was shock the day the GIPSA rule was proposed. Mark Dopp, the lobbying group’s director of regulatory affairs, didn’t mince words about his opinion of it.
“We’ve had better days,” Dopp moaned.
“This rule attempts, on many levels, to undercut all the progress that has been made. It will undercut innovation,” he warned. “This isn’t only going to affect bad actors, with all due respect to the secretary, I think that’s a bit misleading.”
What seemed most disturbing to the American Meat Institute (and its partner groups like the National Chicken Council and National Cattlemen’s Beef Association) was the provision that lowered the bar to bringing lawsuits under the Packers and Stockyards Act.
“It’s going to spawn all kinds of litigation,” Dopp said. “I’m afraid I think it will trigger a whole host of what I would consider specious lawsuits.”
The meat lobbying groups began to gather their wits after the initial shock of seeing the new rule. The groups would follow their tried-and-true playbook and respond in unison.
By releasing the GIPSA rule, Vilsack kicked into motion one of the better-funded, better-coordinated lobbying machines in Washington. The meat companies themselves had tremendous resources at their disposal. The biggest meat companies—Tyson Foods, ConAgra Foods, Cargill, Smithfield, and JBS—spent a combined $5.94 million on lobbying during 2010 alone, according to an analysis of disclosure reports. Tyson had the biggest lobbying operation by far, spending $2.59 million.
The companies were joined in the effort by their industry front groups, including the American Meat Institute, the National Chicken Council, the National Cattlemen’s Beef Association, and the National Pork Producers Council,1 which together spent $1.85 million on lobbying during 2010.
Together, the trade groups and companies spent $7.79 million on lobbying in 2010. Influencing GIPSA directly wasn’t going to be an option, and the White House had publicly cast its lot behind stronger enforcement. So the meat lobby turned to the governing body it knew could yield the best results: Congress.
Officials inside GIPSA heard about lobbyists working the halls of Congress, visiting legislators who were friendly to their cause and pressing them to oppose the new rule. The lobbyists made their case convincingly, warning of the jobs that could be lost and the higher meat prices that could result. Analysts inside GIPSA disagreed, but the agency was clumsy in making its case with lawmakers.
At the same time, regulators were getting an earful as they traveled the country, attending the series of workshops that started in Ankeny. The job of reforming the meat industry was starting to look complicated.
* * *
Through the spring and summer of 2010, the U.S. Departments of Agriculture and Justice held their series of five public workshops, visiting out-of-the way towns like Normal, Alabama and Fort Collins, Colorado.
John Ferrell, the boyish head of GIPSA, sat through the long hours of public comment. He was often joined by another young regulator named Philip Weiser, who was Christine Varney’s deputy of antitrust enforcement at the Department of Justice. Over a period of nine months Weiser learned far more about modern agriculture than he expected to when taking his job. And exactly what he learned showed why it is so difficult to reform the food system.
Big meat companies like Tyson had a critical advantage on their side in the argument over how to restructure the nation’s food system. Their advantage was that they represented the status quo. It is far easier for a business to revolutionize an industry than it is for regulators to go back in and tinker with the gears of production, hoping to benefit the public.
Iowa attorney general Tom Miller and his lieutenant Eric Tabor were able to impose new ground rules on industrial hog production because they intervened when the industry was still evolving. They acted when farmers were building the first confinement hog houses and signing their first contracts with integrators.
The story was different for the entrenched southern poultry industry. It had been tightly integrated going back to the 1950s and 1960s. To impose similar rules on that business would mean destroying existing relationships and replacing them with a government-prescribed alternative. In the face of such actions, companies can argue convincingly that the government is experimenting in a field of worrisome unknowns. The actions can cost jobs, hurt productivity, and raise consumer prices. These arguments put a high burden of proof on regulators to show that their actions would improve life for more people than they hurt.
During the series of workshops, Obama administration officials saw just how powerful, and how difficult to change, the meat industry had become. Companies like Tyson had built massive supply chains across rural America, an economic circulatory system that connected industrial farms, high-tech slaughterhouses, distribution centers, warehouses, and trucking lines. The system shipped meat to grocery stores, restaurants, and refrigerated meat cases at Wal-Mart and Costco. This supply chain was enduring, profitable, and complicated. In many ways, the supply chain was also nonsensical and inefficient. A rancher in Colorado might sell cattle to a meatpacker in Austin, Texas, who then shipped the beef back to a Wal-Mart in
Colorado. But escaping this supply chain, or changing it, seemed exceedingly difficult. Altering one part of the chain caused ripples downstream.
There were pockets of change growing in the shadows around this industrial system. Most of these alternatives were part of the burgeoning “localvore” movement, which connected consumers directly with nearby meat producers. It was increasingly common for suburbanites to buy “half a cow” from a local rancher, purchasing a big supply of beef they kept frozen in the basement. At local farmers’ markets, shoppers were willing to pay several times the average price of the meat to buy chicken they knew was locally raised. These niche markets were growing. But the vast majority of meat was still sold through grocery store chains and fast-food restaurants. The localvore movement hadn’t become a viable option for low- to middle-income Americans. And the quirky farmer next door wasn’t able to supply these outlets with the volume of beef, chicken, and pork that they needed.
As it pressed its case to keep the status quo, the meat industry portrayed the current state of affairs as the natural, inevitable order of things. Lobbyists argued that regulators were backward looking in their efforts. Mark Dopp, with the American Meat Institute, put it succinctly in his opposition to the new GIPSA rule.
“This is an attempt to turn the clock back to 1950, on a whole host of levels,” Dopp said. “Essentially, what this would do is undercut what evolved over the last forty or fifty years that has made the U.S. probably the most effective and innovative meat processing system in the world.”
Ultimately, the USDA workshops and proposed regulations generated a big partisan street fight. The dispute ultimately boiled down to predictable contours: Democrats trying to pass new regulations while Republicans fought them on behalf of businesses.
* * *
Secretary Vilsack called a meeting to talk about the political pushback from meat industry lobbyists. The American Meat Institute and its allies had been effective as they circulated Capitol Hill. Lawmakers were starting to see the GIPSA rule as a job-killing act of regulatory overreach that would send the meat industry back to the dark ages.
Officials inside GIPSA and Vilsack’s office suspected that an upcoming congressional hearing was being arranged as a kind of showdown over the rule, the meat industry’s first volley in a fight to turn back new regulations. The House Subcommittee on Agriculture was supposedly being convened to discuss the 2012 farm bill. But word was spreading that legislators would grill the USDA about its proposed GIPSA rule.
So Vilsack called the meeting with John Ferrell and other staff to lay out the agency’s strategy for the hearing. It was clear that the agency wasn’t going to let Dudley Butler, the veteran trial attorney, testify at the hearing. He was considered to be a loose cannon. No one wanted a USDA official dropping the word “chickenization” or “sharecropper.”
GIPSA decided instead to send Deputy Director Edward Avalos, a mild-mannered administrator who worked alongside John Ferrell. Avalos had a tough job. He was supposed to defend the GIPSA rule, but he was limited in what he could say. A federal law, called the Administrative Procedure Act, prohibits government officials from saying publicly how they plan to reshape rules in response to public comment. Avalos had his hands tied in saying what GIPSA planned to keep, or throw out, from its proposed rules. He couldn’t even talk much about the specific rationale for the rule.
Vilsack said he wanted Avalos to be forceful. He didn’t have to get into specifics. He just needed to lay out why the rule was so important.
— This is about correcting a situation in which people were being treated unfairly, Vilsack said.
There was plenty of reason for Vilsack to worry about the upcoming hearing. By the summer of 2010, the Obama administration was losing the public argument over the wisdom of passing new regulations. The populist Tea Party movement had moved the public debate to the right, focusing initially on the administration’s efforts to reform health care. Health care reform was derided as a socialist plot to set up “death panels” and determine if grandmothers got the medical care they needed. If GIPSA’s efforts were painted in the same light, political support for the new rule would evaporate.
Vilsack warned his team that they couldn’t let that happen.
— If we lose control of the public narrative, it’s going to be hard to get it back, he said.
* * *
They lost it. After the hearing, the public narrative about the GIPSA rule would be defined by the squirming, stuttering, nervous demeanor of Edward Avalos.
During the agriculture subcommittee hearing on July 20, Avalos looked like a bank teller who had just gotten caught filching money out of his drawer. Both Democrats and Republicans alike lit into him, demanding that Avalos explain why GIPSA went far beyond the specific mandates of Congress to update the GIPSA rule.
David Scott, a Democrat from Georgia who chaired the subcommittee, was almost poetic in his anger as he stared down at Avalos.
“Mr. Undersecretary, I think what you have witnessed with this Committee today is a very passionate outpouring of very serious concern that the Agriculture Department, in proposing this new rule, has very seriously—seriously—overstepped their boundaries. This is especially true given the fact that parts of this new law’s provisions were soundly rejected through the legislative process, every step—through the Committee, through the Senate, the House, and the farm bill considerations itself. And for you and the Department to arbitrarily go against the wishes and the intent of Congress is serious. It is what Shakespeare referred to when he said, ‘Et tu, Brutus, yours was the meanest cut of all,’ ” Scott intoned.
In fact, officials at GIPSA were certain the agency didn’t need approval from the farm bill, nor from Congress, to assert its authority. In the agency’s view, it was just enforcing a Packers and Stockyards Act that had been sitting mostly idle for decades.
Avalos didn’t summon the kind of emotional defense of the rule that Vilsack wanted. Avalos promised that GIPSA would carefully consider the public comments that were already flooding into the agency. He promised the agency would act appropriately and prudently.
It looked like GIPSA has been caught with its pants down.
* * *
To appease GIPSA’s critics, Vilsack extended the public comment period for the new rule and promised that the USDA would conduct an economic study assessing the rule’s impact on rural America. The study would take more than a year to complete. The extra time for comments and studies was a victory for the meat lobby. As the rule was delayed, it opened the door for a different narrative about the rules to emerge, and for opposition to grow.
To shape the debate, meat company lobbyists used an increasingly common tactic in the Washington influence industry. They stoked a “grassroots” movement of ordinary people who contacted lawmakers to voice complaints and make suggestions that perfectly mirror the wishes of big business. In the meat business, of course, there was no more effective group to enlist for such an effort than farmers themselves. If farmers opposed GIPSA’s efforts, it was hard to justify them.
On August 4, 2010, the National Chicken Council sent out a confidential memo to poultry companies like Tyson Foods and Pilgrim’s Pride. The memo urged the companies to contact their farmers and ask them to oppose the GIPSA rule by sending comments to the agency.
The memo, which was later leaked to the Agri-Pulse industry news service, focused specifically on the provision that would ban the modern tournament system. The National Chicken Council said this would ultimately wipe out all innovation in the industry. Paying farmers a bonus didn’t seem to be incentive enough to get them to work hard or update their houses. There needed to be the threat of financial penalties as well.
It might seem like a tough sell for Tyson to persuade its farmers to fight against a rule that would stabilize their pay and remove the threat of bankruptcy through constant tournaments. The memo’s author, lobbyist Richard Lobb, told the companies they should cherry-pick farmers that were most lik
ely to support the companies’ position:
“We assume that the above-average or more successful growers will be more likely than others to submit comments against the rule. We leave it to your judgment which growers you should contact,” the memo read.
* * *
On October 21, GIPSA got an angry letter from Eunice Richardson, an elderly chicken farmer. Richardson raised birds for a small company called Wayne Poultry in Danville, Arkansas, not too far from Waldron.
For some reason, Richardson chose to write her letter in all capital letters. She told GIPSA:
I FURTHER BELIEVE THAT ALL GROWERS WILL BE THREATENED BECAUSE THE PROPOSED RULES WOULD DRIVE INNOVATION, COMPETITION AND HIGH PERFORMANCE OUT OF THE SYSTEM AND REDUCE THE EFFICIENCY AND COMPETITIVENESS OF THE DOMESTIC POULTRY INDUSTRY.
The language directly mirrored Richard Lobb’s memo to the chicken companies, which said the rule would: “drive innovation, competition and high performance out of the system and reduce the efficiency of the domestic poultry industry.”
Richardson said she sent the letter to GIPSA after “they” provided her a copy of the letter to sign. Richardson declined to say who “they” were. She said she didn’t want to do anything that might get Wayne Poultry in trouble. Even though she signed the letter at someone else’s urging, Richardson said she truly believed the GIPSA rule was a horrible idea. She thought it would remove the incentive for farmers to work hard.
Besides, a new rule wouldn’t help her anyway. Richardson declared bankruptcy and lost her farm about a year after she sent the letter. It had gotten harder over the years to pay the bills on her poultry farm. The utility costs kept rising, and her pay didn’t keep up. The final straw came in 2011 when one of her power generators broke down and she couldn’t afford to pay for repairs. After more than a decade in the poultry business, she declared bankruptcy.
The Meat Racket: The Secret Takeover of America's Food Business Page 31