USDA Seeks Information From Public on Industry Consolidation and Anticompetitive Practices in Agricultural Supply Markets

Federal agencies continue to roll out new initiatives targeting anticompetitive conduct in the wake of President Biden’s July 2021 Executive Order, “Promoting Competition in the American Economy.” The latest action comes from U.S. Department of Agriculture (USDA), which on March 11 issued three different requests for information relating to agricultural markets for fertilizer, seeds and other inputs, and retail products. These requests — open for a 60-day public notice and comment period, which ends May 16, 2021— seek information on harms and threats to competition in agricultural markets throughout the supply chain. The requests stem directly from the Executive Order’s directives to USDA to evaluate its current regulations, enforcement priorities and relief programs that implicate competition issues, and to propose changes or enhancements to such initiatives where appropriate.

Below is a summary of the key takeaways on USDA’s information requests following a brief refresher on agriculture-specific directives found in the Executive Order (“Order”) from last summer.

Executive Order Overview: Key Takeaways for Food and Agricultural Businesses

The Order tasks federal agencies with reviewing various types of business practices falling within their respective jurisdictions to identify anticompetitive conduct and trends. It further directs agencies, including USDA, to take action where appropriate — whether through new rules or programs, or both — to reverse what the Order describes as “dangerous trends” that have “constrain[ed] the growth and dynamism of [the American] economy, impair[ed] the creation of high-quality jobs, and threaten[ed] America’s economic standing in the world.”

In the agricultural sector specifically, the Order posits that aggressive consolidation and concentrated market power over the last several decades have undermined competition in the supply chain for raw materials (e.g., feed, seeds, fertilizer, equipment) and other agricultural product markets. These trends, the Order asserts, have caused harmful effects to the livelihoods of farmers, ranchers and agricultural workers:

Consolidation in the agricultural industry is making it too hard for small family farms to survive. Farmers are squeezed between concentrated market power in the agricultural input industries — seed, fertilizer, feed, and equipment suppliers — and concentrated market power in the channels for selling agricultural products. As a result, farmers’ share of the value of their agricultural products has decreased, and poultry farmers, hog farmers, cattle ranchers, and other agricultural workers struggle to retain autonomy and to make sustainable returns.

Based on such perceived market abuses and trends, the Order directs USDA to study market competition, actors and conduct across the entirety of the American agricultural industry and to consider (but not require) several different remedial actions, including:

• Establishing new rules under the Packers and Stockyard Act to aid farmers who challenge exploitative pricing practices and related abuses under the Act;
• Creating anti-retaliation protections for farmers who report unlawful business practices undertaken by other companies in the supply chain;
• Enacting new rules to police the use of labels for products made in the United States and increase transparency; and
• Creating new programs to support farmers’ access to retail markets, such as through establishing alternative food distribution systems that pay farmers fairly.

USDA Requests for Information

On March 11, USDA issued three requests for information (RFIs) and public comments concerning the effects of concentration and market power in seeds and other agricultural inputs, fertilizer, and retail. As part of these requests, USDA also is seeking information on the effects of competition and market access on farmers, ranchers, and on new and emerging market competitors in the agricultural industry (particularly smaller and mid-sized companies).

Below is a brief synopsis of each of USDA’s three information requests.

Fertilizer Markets

USDA foregrounds its Fertilizer RFI by highlighting various consolidation trends in the fertilizer industry, largely due to merger activity over the last several decades, which purportedly have resulted in a small number of large-scale food and agricultural corporations left in the market. These remaining firms allegedly have disproportionate market power to exert over farmers, ranchers, agricultural workers and other participants in the agricultural and food supply chains. USDA thus seeks information to assist it in “identifying and addressing competition-related challenges in the U.S. fertilizer market and other obstacles to producers accessing affordable, responsibly manufactured fertilizer.”

The Fertilizer RFI then sets forth 15 questions for commenters to address in public comments. These questions touch on topics ranging from challenges and trends specific to fertilizer markets, to financing and new business growth strategies. The questions also seek guidance on supply-chain issues that implicate competition and national security issues, including whether merged firms are exerting market power in pricing negotiations at all levels of the supply chain, as well as whether the United States’ reliance on foreign fertilizer supplies risks supply disruptions because of geopolitical conflicts, such as Russia’s invasion of Ukraine, or because of trade wars and similar internal trade issues.

Seeds and Other Agricultural Inputs

As with the Fertilizer RFI, USDA’s Seeds & Ag Inputs RFI lays out high-level market concentration trends that USDA believes have appeared in recent years in markets for corn, soybean, grain trading and processing, machinery, and animal genetics. Without directly connecting the recent trends to pricing concerns, USDA discusses the significant increases in costs of certain seeds and the role a “healthy IP system plays . . . in facilitating” seed technology research.

To address these identified concerns, USDA calls particular attention to “what effects various forms of IP, such as patents, have on small to mid-sized seed businesses and plant breeding programs” and its interest in ensuring fair and competitive seed and input markets overall. Consistent with the Fertilizer RFI, the Seeds & Ag Inputs RFI seeks responses to 25 question prompts, which elicit comments on various market issues such as general supply-side obstacles, IP system issues, sales practices, and enforcement and policy strategies, including any potential programs or initiatives USDA may employ to address seed affordability issues.

Retail and Distribution Markets

Finally, USDA’s Food Retail & Distribution Markets RFI similarly describes current market conditions as broadly suffering from the same types of harms caused by purported consolidation and market power abuses USDA identified in the fertilizer, and seed and other agricultural input market segments. It notes that in addition to consolidation in the restaurant industry, “insufficient analytic attention has been paid to the connections between retail, distribution, and processing firms and the implications for competition in the food and agricultural supply chains.”

For retail markets, the RFI notes in its preamble that it is particularly interested in whether the current rules and regulations under the Packers and Stockyards Act of 1921 and the Robinson-Patman Act of 1936 — both of which target discriminatory practices limiting market access in the agricultural industry — may be modified to enhance market access and prevent predatory pricing by current market participants. USDA is further interested in learning whether grants, loans or other programs may help further its policy goals.

The list of 20 questions in the Food Retail & Distribution Markets RFI focuses on topics such as market share dynamics, food supply and distribution, exclusive dealing arrangements, food labeling, transportation systems, and enforcement and policy strategies USDA might consider to improve access to food and distribution markets by independent processor companies.

Final Thoughts

USDA’s decision to issue the three RFIs (Fertilizer, Seed & Ag Inputs, Food Retail & Distribution Markets) directly stems from the Order’s agriculture-centered directives and provides an opportunity for food and agricultural companies to be heard on numerous competition issues that the Order and USDA have surfaced.

While the Order does not require agencies to take any action, its “whole-of-government” approach to tackling perceived competition issues across the entire American economy (and the global economy in certain circumstances) clearly informs USDA’s RFIs, which in their breadth and subject-matter suggest USDA is open to considering multiple, significant agency actions to address competition issues within its jurisdiction. Indeed, the RFIs indicate USDA is open to adopting several significant rule and policy changes, adjusting enforcement priorities, and creating or enhancing programs to address the government’s view of ailments to competition in the agricultural industry. Against this backdrop, food and agricultural companies should consider submitting comments to confirm, counter or reframe the facts as presented by USDA in their requests. On this last point, note that the due date for comments is May 16, 2021.

While the full impact of the Order on the agricultural industry will not be entirely discernable until USDA receives responses and determines whether and how to proceed, at least one thing is clear: the time for food and agriculture companies to be heard on important competition-related issues is now.

The antitrust laws are nuanced and complex, and their application to particular business situations is a fact-specific inquiry. Businesses concerned about how recent developments will impact their antitrust risks and exposure are strongly advised to consult with legal counsel.