WASHINGTON, January 11, 2012 -Agricultural producers’ limited immunity from antitrust laws under the Capper-Volstead Act of 1922 is being challenged in three federal court cases with significant implications for the ability of farmer cooperatives to help their members earn higher prices for their commodities. One common thread in all three cases is whether the law allows cooperatives to restrict production in order to raise prices or only to set prices after the commodity has been produced.

“Obviously, we are concerned about these cases,” says Chuck Conner, CEO of the National Council of Farmer Cooperatives. “They go to the heart of cooperative law and the rights of farmers to make decisions to make their farming operations viable.”

Several major egg buyers – including Kraft Foods, Kellogg, General Mills and Nestle in a suit filed last month – are alleging that co-ops and trade associations unlawfully conspired to control supply and artificially increase egg prices. Lawyers for potato buyers are pursuing a suit in Idaho against several producer groups, making similar allegations. An animal rights group claims in a California suit that dairy cooperatives there illegally increased milk prices by paying farmers to slaughter cows in order to cut production (see following story).

“We see it as kind of logical common sense” that farmers would be allowed to restrict output to raise prices, Conner told Agri-Pulse. “Why say farmers could withhold a product after it was produced . . . versus some kind of reasonable plan to have the farmer and the co-op to plan ahead and see what the market could use this year, so we don’t get into wasteful circumstances? We don’t see that differentiation at all” between pre-planting and post-harvest coordination.

“Surprisingly, in the 90 years of the [Capper-Volstead] Act’s existence, this issue has remained unresolved,” Don T. Hibner Jr., a veteran antitrust lawyer in the Los Angeles office of Shepard Mullin Richter and Hampton, wrote on the firm’s blog last month. “Nevertheless, the legality of output restriction agreements among agricultural cooperatives and their members seems to be an issue whose time has finally come.”

Depending on how different judges in these three cases see it, the question could someday end up before the U.S. Supreme Court.

A preliminary decision in the potato case in U.S. District Court in Idaho does not bode well for co-ops’ ability to restrict production. The court last month denied a motion to dismiss claims that potato grower co-ops agreed among themselves to limit planted acres, pay farmers to destroy existing stocks and refrain from bringing additional potatoes to market. The opinion expresses the tentative view that immunity does not cover agreements to limit output but only to “. . . acts done to an agricultural product after it has been planted and harvested.”

“The case law and commentary on Capper-Volstead supports the proposition that one of the purposes of its enactment was to allow farmers to raise the price of their output,” Hibner writes. “Capper-Volstead was designed to allow the farmers and other producers of agricultural products to join together in cooperatives and raise the price of their products to consumers. . . . One could argue that Congress must have intended to allow agricultural producer cooperatives to meter their output by limiting their members' production.

“Otherwise, ‘cheating’ on cooperatives’ enhanced prices to consumers may defeat the ability of the producers” to raise prices. The pending litigation, Hibner observes, “presents more questions than answers.”



Original story printed in January 11, 2012 Agri-Pulse Newsletter.

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