Contracts under captive
The something-for-everyone contract has been corrupted by the you-can't-play-in-our-market mentality of agribusinesses

Farm & Countryside Commentary by Elbert van Donkersgoed

Editor's NOTE

Elbert van Donkersgoed is the Strategic Policy Advisor of the Christian Farmers Federation of Ontario, Canada. CFFO is supported by 4,500 family farmers across the province of Ontario.

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March 2, 2004: Are the production and marketing contracts that many farmers sign with processors and other buyers anti-competitive? A State of Alabama jury has said, yes if the buyer or processor is one of a handful that control a market. Last week a jury awarded $1.28 billion to a group of up to 30,000 cattlemen after finding that Tyson Foods, the largest beef processor in the United States, had unfairly manipulated cattle prices for almost a decade.

Tyson is one of four companies that together control 82% of U.S. beef slaughter. The class-action lawsuit was brought by cattlemen who sold their cattle from 1994 to 2002 on the cash market to Iowa Beef Packers, now owned by Tyson. During the trial, cattle producers demonstrated that Tyson depressed prices by an average of 5.1 percent over the eight-year period through a practice known as captive supply. The jury found, "That the defendant's (Tyson's) use of captive supply injured each and every member of the plaintiffs' class."

In their Notice of Class Action, the cattlemen defined captive supply as "forward contracting, formula arrangements, packer owned cattle, packer financed cattle, packer to packer arrangements, procurement alliances, joint venture feeding and other packer controlled inventories of cattle." They charged that these practices manipulated and controlled prices.

A combination of a few large buyers and captive supply is a recipe for unfair and unreasonable low prices for farmers. It is happening in more places than the U.S. beef sector. Close to home, Ontario farmers are fed up with going along to get along.

At the February Provincial Council meeting of the Christian Farmers Federation, delegates from around the province called for legislation to protect farmers' financial and management interests when they make contractual arrangements with others in the food chain. The market clout of input suppliers, processors, wholesalers and retailers can be so pervasive that they unilaterally change contracts. CFFO members want something done about such unfairness. They want legislation that balances the marketplace clout for buyers and sellers of farm products.

Contracts have become a management option for many farmers, but the concentration of much of the food chain in the hands for a few large firms is eroding the opportunities they provided. Wholesalers, processors and retailers are using contracts to extend their market clout and avoid competing for farm products. Contracts are often defended as necessary to improve quality, keep processing plants full and reduce transaction costs. The jury in Alabama found that these so-called business reasons for captive supply were contrived and false.

Contracts are becoming anti-competitive. We need new legislation to re-establish equitable competition and fairness in the marketplace.


For the complete CFFO policy statement: "Protecting Farmers' Interests in Contract Arrangements" go to http://www.christianfarmers.org/policy/protect_farmers_

For legal documents related to the class-action lawsuit go to: http://endcaptivesupply.lawoffice.com/



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