How the New Antitrust Standard Could Affect the U.S. Food Supply

About the Author: Ayana Anderson is a second-year full-time law student at American University Washington College of Law. Originally from Minnesota, Ayana graduated from Drake University in Des Moines, IA. She hopes to work in Antitrust and Consumer Protection after graduation.

 

On February 4, 2020, Amy Klobuchar introduced the Competition and Antitrust Law Enforcement Act.[1] This would lower the legal standard set by Clayton Act on which mergers create anticompetitive concerns.[2] Currently, the Clayton Act prohibits mergers and acquisitions that “may be substantially to lessen competition or tend to create a monopoly.”[3] Traditionally, the government or the complaining party had to allege dangerous increases in market concentration and high cost to entry to be successful.[4] The Competition and Antitrust Law Enforcement Act reduced the legal standard to “materially lessening” rather than “substantially to lessen.”[5] Materially being defined as more than a “minimis amount.”[6] Although many industries would be affected by this change, this would considerably affect the U.S. food supply industry.

The U.S. food supply chain has many components. Starting at farms, food goes through primary processors who process or refine it before selling it to wholesalers or manufacturers.[7] Before it lands at your table, the food goes through another round of buyers such as food and beverage services, institutional buyers, retail food stores, or food banks.[8] In 2019, the USDA estimated that agriculture and food industries contributed $1.109 trillion to the U.S. GDP.[9]  American farms contributed $136.1 billion to the U.S. GDP.[10] Food is 13% of American consumers expenditures.[11] The U.S. food supply is intensely competitive; entities endeavor to maximize their output by producing more or owning more channels of output. Corporate consolidation is a trend in food supply as illustrated by the beef and cattle industry. In 2015 it was reported that 85% of the beef packing firms were controlled by four companies.[12]

In 2016, President Obama’s Administration expressed interest in regulating the food supply chain, but nothing materialized. [13] Despite this, Delhaize and Ahold, two large grocers, merged resulting in consolidating the grocery store chains into four major grocers.[14] Even in the market for seeds, pesticides, and herbicide that farmers need to grow produce consolidation is rampant, with the majority of the market share owned by give companies.[15] One company, Monsanto,  has even patented 80% of  U.S. corn and 90% of U.S. soybeans after acquiring over 60 different seed companies in the 1980s.[16] These were only a few examples of the rampant consolidation within the U.S. food supply chain.

If the Competition and Antitrust Law Enforcement Act passes, all mergers will be scrutinized stringently due to a lower legal standard. In 2007, the Department of Justice Antitrust Division decided not to contest Smithfield Foods Inc.’s acquisition of Premium Standard Farms Inc. stating that the merger was not likely to harm competition.[17] Smithfield and Premium Standard Farms were the largest and second largest hog producers respectively.[18] The DOJ concluded that there were other large competitors, and that the merger would lower prices.[19] Under the “materially lessening standard” set by the Competition and Antitrust Law Enforcement Act, Smithfeild would likely have not been able to acquire Premium Standard Farms because it lessened competition more than a “minimis” amount by combining the number one and number two hog producers. Now, Smithfield has become the largest pork producer in the world.[20]  It was acquired by WH Group, a Chinese food processing conglomerate, who reported $22.3 billion in revenue in 2017.[21] WH Group owns 14 agricultural and food brands in the U.S.[22]

Proponents argue that the lower standard will benefit consumers by implementing additional enforcement measures and increasing competition to lower prices.[23] Some argue that a lower standard would result in a presumption of illegality, more civil fines, and increased costs for agencies.[24] Recently, President Biden has ordered the Secretary of Agriculture to survey the supply chains with an eye to competition and making a more equitable food system.[25] It is clear that the U.S. food supply has a history of consolidation. Although the Competition and Antitrust Law Enforcement Act has yet to pass, its implications to the general consumer are still up for debate.

 

[1] Competition and Antitrust Law Enforcement Reform Act of 2021, S. 225, 117th Cong. (2021).

[2] Id at § 2(a)(14).

[3] 15 U.S.C. § 18.

[4] See e.g. FTC v. H.J. Heinz Co., 246 F.3d 708 (2001).

[5] S. 21191, 117th Cong. § 4(b)(1) (1st Sess. 2021).

[6] Id.

[7] Malden C. Nesheim, et al., A Framework for Assessing Effects of the Food System (2015), https://www.ncbi.nlm.nih.gov/books/NBK305173/.

[8] Id.

[9] Ag and Food Sectors and the Economy, USDA (Dec. 16, 2020), https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/ag-and-food-sectors-and-the-economy/.

[10] Id.

[11] Id.

[12] Claire Kelloway & Sarah Miller, Food and Power: Addressing Monopolization in America’s Food System, Open Markets Inst. 3-4 (2019).

[13] Exec. Order No. 13563, 3 C.F.R. 13563 (2011).

[14] Id.

[15] Kelloway & Miller, supra note 12 at 6-8.

[16] Id. at 7.

[17] Press Release, Dept. of J., Statement of the Department of Justice Antitrust Division on Its Decision to Close Its Investigation of Smithfield Inc.’s Acquisition of Premium Standard Farms Inc. (May 4, 2007) (on file with Dept. of J.).

[18] Id.

[19] Id.

[20] Kelloway & Miller, supra note 12 at 5.

[21] Id.

[22] Id. at 19.

[23] Senator Klobuchar Introduces Sweeping Bill to Promote Competition and Improve Antitrust Enforcement, Sen. Klobuchar (Feb. 4, 2021), https://www.klobuchar.senate.gov/public/index.cfm/2021/2/senator-klobuchar-introduces-sweeping-bill-to-promote-competition-and-improve-antitrust-enforcement.

[24] See e.g. Jan Rybnicek & Kara Reid, Will Proposed Legislation Increase Antitrust Enforcement? An Overview of the Competition and Antitrust Law Enforcement Reform Act of 2021, Lexology (Feb. 8, 2021), https://www.lexology.com/library/detail.aspx?g=563b9342-5200-43eb-94ff-d5f2fd374e92.

[25] Executive Order on America’s Supply Chains, White House (February 24, 2021) https://www.whitehouse.gov/briefing-room/presidential-actions/2021/02/24/executive-order-on-americas-supply-chains/.

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