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
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
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