Mary: So for our final panel, the numbers have been in diversity, mini chairs, Kelli Lerner and Will Reiss have put together a very timely discussion which I was sitting in on their practice and it’s getting more interesting every time, the areas that are covered. So it’s titled “Food Equity and Competition on Tracking Antitrust Issues in the Food Industry”. I think you’re going to know a lot of interesting things, but now that I can explore the next [inaudible 05:57:19] hand off it.
Will: Thank you, Mary. So we have the dubious distinction of being the last panel of the day before drinks and dinner, so we hope that we will keep you interested, and I think we have a very fascinating panel. As Mary alluded to, we’re going to be talking about equity issues and competition in the food and agricultural industry. So without further ado, I’m going to introduce our very distinguished panel. To my immediate left is Chan Mazumdar. Chan is special counsel for agriculture at the DOJ, Antitrust Division, and he’s an attorney in the transportation energy and agriculture section. Chan joined the Division in 2002 through the Attorney General’s Honor’s program after clerking in the Eastern District of Wisconsin.
To Chan’s left is Chris Abbott. Chris is a partner in Jenner and Block’s Antitrust and Competition Group, where he represents clients in high stake deals, antitrust class actions, and civil and criminal conduct investigations. And of particular relevance here, Chris played a leading role in the broiler chickens antitrust litigation and the poultry wage fixing cases. He began his career in the FTC’s Bureau of Competition Mergers IV Division, where he conducted high profile merger investigations and was an integral member of the trial team that blocked the merger of Sysco and US Foods.
And to Chan’s left is Eleanor Fox, who needs to introduction. Eleanor is the Walter J. Derenberg Professor of Trade Regulation Emerita at NYU. She’s a scholar in antitrust law, international and competition policy, developing country economic law, European Union competition, and notably among her many accomplishments, she became the first female partner in the New York law firm that many are familiar with, of course, Simpson Thacher & Bartlett.
Then all the way on the left is Ted Davis. Ted is a Managing Principal at the Analysis Group. He has more than 15 years of experience in applied economics and data analysis, in major economic matters and litigation matters are the focus on agricultural markets and farmer products, and Ted’s agricultural experience includes antitrust matters involving allegations of market power, the animal protein markets, and matters involving the presence of genetically modified products and U.S. grain supplies, and matters involving international trade and agricultural products.
So with that, I’m going to start off with Chan, and Chan, if you could just start up, what would you see as the role in antitrust enforcement in the agricultural space and, more particularly, do the federal antitrust agencies consider buyer power in their analysis?
Chan: I’ll get to your question, Will. So I have to start with the disclaimer that the views I’m expressing today are my own and don’t necessarily reflect those of the Department of Justice and don’t indicate what the department would do in any particular situation. And with that, the role of antitrust enforcement, the head space is to ensure that agriculture markets are competitive both on the selling side and the buying side, and competition at all levels leads to better equality, more innovation and competitive prices. I want to emphasize that agriculture is a priority for the Antitrust Division. In a press release following a meeting last September with the National Farmers Union, Assistant Attorney General Canter stated that “competition and agriculture is critical,” and too often farmers and livestock producers have too few suppliers to buy from and too few buyers to sell to.
He also noted that “protecting competition and the rule of law in agricultural markets” is part of the work of the Antitrust Division, and we will vigorously enforce the antitrust laws in this area. And I also wanted to emphasize that agriculture is also a priority for the broader Department of Justice.
Will: So Chris, let me just ask you. So Chan, I want to get some of the enforcement priorities, I mean, do you think the agriculture space is really right for enforcement? Is that something that regulators keep focusing on right now?
Chris: Well, I think they are. “Should” is a big question. I think the stated goal of the next generation and the executive order is the whole of government approach. And agriculture is mentioned, what, nine times?
Will: Nine times.
Chris: Nine times in a day, so I think the cat is out of the bag of whether or not the agriculture space is in the crosshairs of their enforcement. I think that the space is ripe for enforcement, it is a point where buyer power issues are very real, but I think that the efficiency roles of the industry are sometimes overlooked and I’ll talk a little bit about vertical integration in the agriculture industry and how that drives efficiency and I think that is a bad rap. But I wouldn’t want to leave that with that out.
Will: And, Chan, if you talk maybe specifically some relevant enforcement actions that have been brought, some of the relevant litigation in the space.
Chan: So I’m just going to … I forgot, I’m going to briefly mention three actions that were brought during the Biden Administration and two other ones that I think were notable were brought during prior administrations. So the first case, US Sugar, the DOJ challenged US Sugar’s proposed acquisition of its rival, Imperial Sugar and we alleged the transaction would leave the overwhelming majority of refined sugar sales in the hands of only two U.S. producers and this would lead to higher prices for American businesses and consumers. The district court didn’t agree with us, and the DOJ appealed and the oral argument was actually this morning. The second action I want to mention was the case against Cargill and other poultry processors. We filed a complaint along with a consent decree in the summer of 2022. We alleged two counts. In the first count we alleged a violation of section one of the Sherman Act, Harm to Poultry Workers. We alleged a conspiracy that gave poultry processors, including Cargill, Wayne Farms and Sanderson Farms, with only reach to [inaudible 06:04:32] the ability to suppress competition and poultry plant worker compensation below competitive levels.
Among other provisions in the consent decree, they’re required to pay restitution to the plant workers and a related decree effectively shuts down the company that facilitated information sharing and was part of the agreements. The second cause of action was a violation of section 202A of the Packers and Stockyards Act by Wayne Farms and Sanderson Farms. Here we alleged harm to chicken growers and — let me give you a little bit background about the chicken industry. In the chicken industry, chicken growers work under a contract typically and are often compensated under a “tournament system.” Under this arrangement, the growers don’t own the chickens that they raised; the chicken processor owns the chicks, delivers the baby chicks and feed to them, and the chicken growers provide farms. When the chickens are grown, the processor picks them up, they weigh them and under the tournament system, chicken grower compensation depends on how a grower performs relative to other growers. Those who perform worse than others are penalized, and part of that penalty funds bonuses to higher performers.
And DOJ alleged that Wayne Farms’ and Sanderson Farms’ tournament system for the chicken growers violated the Packers and Stockyards Act and is part of our whole government approach, we work with USDA to identify and pursue those violations. And under the consent decree both Wayne and Sanderson will stop penalizing growers and provide better disclosures to growers of the risks and the benefits that they’re facing.
The last action during the Biden Administration I want to mention is a complaint and consent decree that we filed in June of 2021. Under that decree, Zen-Noh Grain was required to divest nine grain elevators in nine geographic areas across five states along the Mississippi River and its tributaries in order to proceed with its proposed three hundred million dollar acquisition of grain elevators from Bunge North America.
I want to turn back the clock a little bit to talk about our settlement involving Bayer and Monsanto. In 2018, DOJ announced it was requiring Bayer to divest businesses worth approximately nine billion dollars to BASF in order to proceed with the proposed 66 billion dollar acquisition of Monsanto. That was the largest negotiated divestiture ever obtained by the Antitrust Division at the time. Bayer and Monsanto were two of the largest agricultural companies in the world, and the assets divested to satisfy DOJ’s concerns included a number of different Bayer seed businesses as well as Bayer’s Liberty herbicide business. I also wanted to mention the role of international cooperation here, and DOJ in our investigation coordinated with numerous other competition authorities around the world, the party’s granted waivers for discussion between DOJ and 13 other agencies to allow us to closely collaborate with our counterparts at the European Commission, Canada, Brazil, Australia, China, India, and South Africa, among others.
Now I want to turn the clock back even further and mention a case that I worked on when I was a young attorney at the division involving JBS and National Beef. In October of 2008, along with 15 state attorneys general, we challenged JBS’s proposed acquisition of National Beef, who was the number four bed cattle packer in the United States. The deal would have increased JBS’s share of bed cattle packing capacity to 35% and led to a three-firm oligopoly with 80%. Going back to earlier, talking about the role of antitrust enforcement, in head markets here, we alleged both harm in the upstream regional markets for the purchase of bed cattle, and on the buyer’s side and in the selling side, in the downstream market for the sale of USDA graded box beef in the United States. The parties abandoned the merger in February of 2009.
Will: One thing I think was interesting about US Sugar is the geographic market, definition issue that’s raised on appeal. I’m interested to know that the full argument [inaudible 06:09:46] had a chance to, at will. The government defined two local markets in that case that the district court did not credit, essentially defined that a Georgia plus, three states market and a southeast regional market, and the challenge with what the government did was they acknowledged that there is importing essentially sugar from outside those geographic markets into the geographic markets, but then discounted completely the ability of firms and buyers in the geographic markets to arbitrage in the face of small but substantial [inaudible 06:10:33] and press. To put it another way, if the post-merger entity raised prices, the argument does and [inaudible 06:10:43] ship more sugar into the market from different parts of the country on trades.
And I think, on appeal, my read of the briefs is that the government is cleverly trying to turn that into a legal issue about how a geographic market should be defined, but as I read it, I think it turns on a factual issue, and possibly ship sugar from the midwest into the southeast, and can you define a small, relatively small geographical market for products that really doesn’t spoil and can be shipped in bulk. When we litigated Sysco – US Foods, our local geographic markets in food and industry because Sysco and US Foods were shipping food that would go bad. And restaurants needed on-time delivery, restaurants needed back to the door, on the morning they needed food. So they needed distribution centers to be within three hundred miles of their restaurant.
Sugar can be shipped on trains, in big train cars, and they can sit in rail yards for a little while, and they can show up not at the exact hour it needs to show up. And they can show up within a range of time, and so I think that factual issue, if I were in the Court of Appeals, I would say this is a factual dispute and I’m not touching it.
Bill: I heard he said, Chris said, the thing that’s distinguished is agriculturally economics [inaudible 06:12:29], is that agricultural products aren’t worth very much? And so the thing that really matters, is the possibility that at some geographic distance, transportation costs outweigh the value of the product.
Mary: There’s one question about the history of the sugar industry, is that [inaudible 06:12:54] I’m wondering [inaudible 06:12:56] solutions that asked [inaudible 06:12:58] to where it is required as demanded, sugar is one of the three areas of the most common [inaudible 06:13:06] all over the world, so that’s why [inaudible 06:13:13] and then possibly question the assumption of that very same market.
Will: I would say that the economic factors in the Biden’s geographic markets are doing what is economically possible today, which is to ship in a certain percentage of sugar, and in the face of a small [inaudible 06:13:39] what would they do, and could they arbitrage sugar to see that price increase? And if they can, the definition of the markets–
Bill: To shift that discussion a bit, Chan mentioned a moment ago, the tournament system, and Ted, I know that’s something that you’ve thought about and looked into, and I’m wondering your thoughts on enforcement. I know there’s been some criticism of the tournament system being potentially anticompetitive. What are your thoughts on that from an economic perspective?
Ted: I think a lot of people when they hear about the tournament system, they sort of envision Mr. Burns from The Simpsons sitting in an office [inaudible 06:14:24] this system that needs to define [inaudible 06:14:29] harm growers, everything’s sort of thinking a little bit about this and how it’s evolved, and really the way I think about it, the term “tournament system,” I think, sounds a little strange, really what it is is relative performance compensation. So those are [inaudible 06:14:50] across different industries, and I think what it does, in this industry is addresses some fundamental risks that are inherent in agricultural production that are going to be different [inaudible 06:15:05]. The thing that’s very difficult to oversee the importance of risk in agricultural production, I can think of four important ones right now. Others, I’m sure, are going to [inaudible 06:15:16] someone that works for an innovator, but what the tournament system does by basing compensation on relative performance instead of absolute performance is that it insulates growers from common production challenges, so the heat wave that kills the chickens, or the cold snap that kills the chickens, all of the [inaudible 06:15:39] productivity increased and decreases as a result. And by basing their comp on relative performance, you don’t penalize them for this, and instead, that risk has shifted to the injury. And so, if we move [inaudible 06:15:57] we have contracts, but no tournament compensation, we are now moving to a world where a relative performance piece of this is out of the equation, and now brokers are bearing their own idiosyncratic production rates and those common production costs. I think that, you can see increases in the variability of grower compensation, greater risk to growers, and potentially less interest by growers in being involved in the system. So as I think about increased enforcement around this particular system, I think it’s important for one to bear in mind the context [inaudible 06:16:38] what its purpose is, and what we’ll be getting on by moving away from.
Will: Thanks, Ted. Chan, you talked a bit about enforcement actions, let’s go back to the Biden, July 2021 executive order, which contemplates this whole government approach to competition. Can you talk a little bit more about what the DOJ and what the USDA has done to advance this?
Chan: DOJ cooperates with the USDA on a number of fronts, and one thing was just about a year ago, we launched a new joint DOJ-USDA farmer fairness portal, and the portal is a one-stop shop to allow farmers to report violations of U.S. competition laws. The portal allows DOJ and USDA to cooperate earlier, more often, and more deeply on enforcement matters. And I also wanted to just point out, USDA is engaged in some rulemaking on the Packers and Stockyards Act, and the DOJ is committed to working with the USDA on a wide range of agricultural things.
Will: Chris, you were mentioning this before, but a real hot topic that seems to be something that’s drawing a lot of scrutiny is this notion of “vertical integration,” whether that’s anticompetitive or not, obviously depending upon the circumstances, we’re talking about specific markets here. What are your thoughts about vertical integration and the impact it has specifically in the agriculture and food markets?
Chris: I think the agriculture and food markets are a great place to look to see that the [inaudible 06:18:20] vertical integration, and it’s important to emphasize at this point in time when there is a new [inaudible 06:18:26] tension are vertical integration, whether or not there are farms that [inaudible 06:18:34] comments on the virtual gathering [inaudible 06:18:41] level. But a chicken doesn’t just show up as a chicken [inaudible 06:18:53]. So that’s kind of … but even before that, there are these companies that breed lines of chickens to have particular traits, but there are lots of steps in the supply chain to go from the egg to the processed chicken. You’ve got [inaudible 06:19:22], you’ve got breeders who breed the breeding stock, who lay the hatching eggs, we’ve got a slide on … courtesy of the National Chicken Council. You’ve got breeder farms, you’ve got hatcheries, you’ve got grow out houses, you’ve got market-ready broilers, which means that there are chickens that are 35 days old give or take that end up the in the back of a processing ramp to be processed. And then after they are processed which is [inaudible 06:20:01] they end up growing to sometimes further [inaudible 06:20:05]. Now a vertically integrated chicken company owns nearly every step of this process. And I raise this because in nearly every class action that I’ve seen here, and a lot of new investigations, that vertical integration, the mere fact of vertical integrations is raised at the center of evil, instead of this is giving a company too much power. I hear that word a lot. My question is, do we really want to live in a world where there are separate companies [inaudible 06:20:41] step with this, is that really the economically rational cost effective way to bring these chickens to market?
And even if we think about it, setting aside the economic benefit, the Chicago School producer surplus, what happens if there’s a health issue and what happens if there’s a safety issue, and all of a sudden we need to track that chicken all the way back to its source, so we need to figure out where the safety issue is [inaudible 06:21:15]. If you have multiple companies, multiple different corporate entities at every step of this chain, it is going to be a [inaudible 06:21:25] night, to figure out where the [inaudible 06:21:29] is coming from, and that’s just one of one of the non-traditional economic benefits that come from vertical integration. So I’m not saying vertical integration is great, everything should be vertical integration, but I am saying that the agricultural industry is a good example of both economic and non-economic benefits of vertical integration, that when you are talking about renewed enforcement [inaudible 06:21:56].
Will: Reactions to Chris’s belief that vertical integration here is pro-competitive in this industry? Eleanor, do you have any thoughts?
Eleanor: [inaudible 06:22:05] I’m not sure any of this [inaudible 06:22:10] integrate, the other perhaps, point of view is really, a point of view, the question of [inaudible 06:22:19] we believe that vertical integration is virtually always efficient [inaudible 06:22:28].
Will: Great. And Eleanor, while I have you, you know you’ve looked at some other issues in this field specifically issues that are potentially effecting equity and fairness in the context of, I guess, first and foremost we’ll talk about the farmer and I’m wondering how that would potentially affect your antitrust analysis in looking at some of these issues.
Eleanor: Right, so actually this program is called “agriculture and equity” about equity, it’s not just about the same old efficiency [inaudible 06:23:06]. So why equity, and what does it have to do with agriculture [inaudible 06:23:12] and indeed, why is the administration right now focusing so much on agriculture? And I would say it is because agriculture is one of the most … one of the markets that will most [inaudible 06:23:31] in the world, it is in a very restrained part, and actually I would [inaudible 06:23:38] within market, really have to look at the world and look at the province [inaudible 06:23:44] and strengths. Mostly the most vulnerable [inaudible 06:23:57] and that is one of the points that I think is [inaudible 06:24:01].
So, farmers are very much [inaudible 06:24:11] and consumers also are very much hurt, in some instances, the poorest communities of consumers have all this [inaudible 06:24:20] are very hurt by this [inaudible 06:24:20] in the supermarket area [inaudible 06:24:35] supermarket, and this is the issue which [inaudible 06:24:41] deserts in very poor areas, and I think that the chicken [inaudible 06:24:55] fairness, I think more of the chicken [inaudible 06:24:57] but I don’t see the justice department [inaudible 06:24:59] have the efficiency of having consent with the chickens. But as you just described-
PART 11 OF 12 ENDS [06:25:04]
Eleanor: … the incentives to [inaudible 06:25:03] chickens, but I see the Justice Department, especially in this recent settlement, the Poultry Exchange of Information case, working with the food administration and the [inaudible 06:25:21] Act to [inaudible 06:25:23] the sections on fairness that have nothing to do with efficiency politics.
Here, I just want to include something, because I saw when I did a little surfing on the mature chickens and [inaudible 06:25:41], there was a lot on food industry. Different people have followed the vendors who have the best chickens, and then I looked at John Oliver.
Chris: I think we looked at that.
Eleanor: And then we want to get a sense of the playing field on fairness, on the vulnerability of the farmers who are caught up in the system that they might not completely understand. You could look up John Oliver poultry.
So I see this administration’s wanting to bring these together, not wanting to undermine incentives [inaudible 06:26:18], but not wanting to keep any of the silos that we’ve been so accustomed to in antitrust, having a modus of looking a little farther outside our silos, outside of just antitrust lawsuits. It could be in trade, although I haven’t seen it yet. The subsidies and the world cartels that may not hurt [inaudible 06:26:46], that may not be directed at humans and directed at… for farmers in developing countries.
All of this impairs the market, and this fairness issue has really surfaced lately. Obviously, the Biden Administration surfaced it, but it’s surfaced with the people lately, many of whom… This is a populist or popular thing, that people have… The populace of their market [inaudible 06:27:16]. I think the Biden administration is taking that on by trying to have broader [inaudible 06:27:22].
Chris: Eleanor, I promised I wouldn’t hijack the panel by asking this question, but I’m going to renege on that promise, so don’t get mad at me. Do you have a view? And you can totally punt on this issue, but whether, in fact, these issues that we’re talking about, equity issues, fairness to the farmer, should be ripe for antitrust analysis?
Eleanor: Oh, so yes, we did have this discussion, and this is my answer to you for [inaudible 06:27:48]. I just think there is a big space for equity and efficiency engagement, and I think this is space that has been overlooked. This, for example, the food deserts, there’s a wonderful work from my friend, Leslie, showing how supermarkets are [inaudible 06:28:05] to the malls to keep their… That when they move out, they have a covenant. No other grocery store, food store, coming in.
Why such a covenant? The supermarket that wants the flexibility to move out might be moving to a space a few miles away, and wants the populace, the customers, to get in their cars or ride a mile or two farther, and go to the new supermarket [inaudible 06:28:37]. But meanwhile, the people in the poor, especially Black, communities that don’t have cars, they’re not going to move. They find that they really have no place within their reach to get fresh food.
I think that these covenants are [inaudible 06:28:54], and it prevents another supermarket from moving in. [inaudible 06:29:00] in certain communities. That would be an example of something we just… We haven’t been looking at the areas of the most vulnerable. The Biden administration and the whole of government executive order is causing us to look in these areas where the most vulnerable, the poorest people, all the poor Black communities, the poor farmers, are actually getting [inaudible 06:29:30] activity that is also anti-competitive.
I haven’t answered your question implicit of when I go outside of what I’m calling this considerable space where equity and efficiency converge. I think there ought to be careful, intentioned trade-offs when we get to this area. Really, if I’m going to make the trade-off, I would say I really want to help the poor consumers, even if I could get wealth increased by allowing freedom of the covenant, that we should just go there, think about it, and where the trade-offs are, trade-offs that we want to make.
There absolutely is a potential conflict between utilitarianism and [inaudible 06:30:21], well, that it can be the new [inaudible 06:30:23] will hurt more people than it actually would introduce [inaudible 06:30:26], and I think that’s an area that we’ll take on and look at, and it’s [inaudible 06:30:26] or the winners, and we would think that through, who is winning.
Chris: Yeah, I think this is the generational question for antitrust, right? And not specifically equity, but the extent to which we’ll look outside the consumer welfare sphere, judge antitrust cases based on outcomes or harms that are not specifically named [inaudible 06:31:07]. My concern, I would put it that way, with an approach that would look for the meeting place of equity and efficiency is mission creep, and mission creep in a way that would have unelected antitrust regulators, speaking as a former unelected antitrust regulator who’s nervous, picking winners and losers and making policy [inaudible 06:31:41].
When I was at the FTC, we prided ourselves on [inaudible 06:31:45]. When we said that, we didn’t mean necessarily just Democrat or Republican on that. [inaudible 06:31:55]. What we meant was we’re not here to make policy [inaudible 06:32:02] because we should be looking, we should be [inaudible 06:32:06] and how much. We should be enforcing the intercostal law using a recognizable standard that everyone can look at and is as objective as possible.
That’s not to say equity, food deserts, those types of covenants, which I haven’t… I’m not speaking about specifically, and other non-traditional consumer welfare arms should not be dealt with it. I would just them to be dealt with by people that I can fire by voting.
Speaker 30: Ted, putting on your economics hat, do you have perspective or a thought on this?
Ted: Yeah, so no, it’s a great… It’s an excellent idea. I love, love, love the idea that Eleanor has. I do worry that on the consumer side is are we going to be able to target the [inaudible 06:33:03] policy in such a way that doesn’t have too many unintended consequences? I think, Chris, that’s a little of what you’re talking about.
I’ll also say, on the buyer side, on the farmer side, I think, setting aside those particular growers that ended up on the John Oliver show who probably met some standard that allows them to be [inaudible 06:33:29], but I do think there is a perception, a misperception, around grower… the information growers have and the degree to which they are “naïve” about certain things. I think there are… Farmers are probably among the more sophisticated participants in the agricultural supply chain, and the way in which policies work, the way in which trade policy and the way in which policies affect them, they are totally on top of that.
Many of them have Bloomberg terminals. They have access to futures markets in their facilities, so definitely don’t… I think the perception that they are somehow in a position to be disadvantaged is maybe a little bit off, certainly vis-a-vis certain parts of the consumer pipeline. I think that’s [inaudible 06:34:18] now.
I guess I would just say bear that in mind, and I am all for the idea of certainly a more expansive view of how we can make something happen, just doing it in a way that’s pertinent and doesn’t create too much in terms of unintended consequences, which I think is a real possibility [inaudible 06:34:36], is the only thing I would add.
Eleanor: Also, I just wanted… I found one small point, this regarding Chris’s statement. We have been talking about consumers and [inaudible 06:34:49] only. If we’re talking about the food deserts, the proposition is that certain people are really losing and losing something huge, which is fresh food [inaudible 06:35:06] food, and it might be that some contend that the richer or the elite are the winners of the supermarket having the ability in these covenants, and if the covenant [inaudible 06:35:26], it doesn’t [inaudible 06:35:29], which I think are basically, in this food desert, it’s [inaudible 06:35:38] consumer.
I think focusing the spotlight on some of these problems is the [inaudible 06:35:43], and not at all getting into the programs for the farmers, particularly the [inaudible 06:35:52] consumers.
Chris: Yeah, I agree it’s consumers. I just don’t necessarily agree that it’s the type of farm that we should be putting into the soup [inaudible 06:36:08]. I think the more we try to put at the feet of antitrust, and I think that there’s a push in the current administration to put a lot of the world’s problems at the feet of antitrust, the more we are going to be asking staff interns at 701 Pennsylvania Avenue, or just up the street, not to enforce the law and ask the question, “Is this merger in violation of section 7 of the [inaudible 06:36:42]? Is this merger, or is this conduce, anti-competitive? Does this [inaudible 06:36:49] process?”
We’re going to be asking them to look at business arrangements and say, “Is this good or bad?” I get really nervous once we start moving in that direction.
Speaker 30: I know Jane is chomping at the bit to say something, but I think we’re unfortunately constrained, so I will not put you on the spot. But Ted, let me shift yours a little bit. We talked about enforcement actions in this space. Just again, from an economic perspective, what do you look at as the consequences or the ramifications within the industry of increased enforcement?
Ted: I guess earlier I mentioned the unintended consequences, and [inaudible 06:37:33] on the buyer’s side, it’s [inaudible 06:37:35] markets. There’s the [inaudible 06:37:36] issue. There are ways in which those markets differ, I think very fundamentally, from the analog on the output side, so [inaudible 06:37:47]. Especially in protein, a lot of the firms that are considered to be concentrated in that, but a lot of people in this room would probably say [inaudible 06:37:58] market power. They have very substantial [inaudible 06:38:02] fixed investment in facilities, and for those facilities to be profitable, they need a steady supply of farm product, a steady, reliable supply of farm product with certain qualities.
There are certain situations in which those buyers of farm products would have incentive to maybe opportunistically [inaudible 06:38:31] their supplier. I would argue that those incentives, those conditions, are not present in this instance. The reason for that, I think, is there’s a bunch of what I think is very convincing nominative research on this that is [inaudible 06:38:49]. I think it’s basically the idea that even in a market where there’s a high degree of concentration, you can get an outcome that looks, in terms of compensation to [inaudible 06:39:00] suppliers, [inaudible 06:39:02], so like perfect textbook, it’s perfect competition, no concentration outcome.
The reason is, and the conditions under which that holds, are if the buyers internalize the benefit of working with suppliers, i.e. if working with them and paying them a competitive wage, competitive prices for products, is not going to result in them going off to work with someone else or somehow not be [inaudible 06:39:35] to that buyer, if they can internalize that benefit, then they are incentivized totally unilaterally to pay those brokers a wage and the price for their goods that will ensure that they can run their facilities properly.
That happens in industry where you have a big investment and where you can internalize those benefits. Imagine a market where there’s one buyer. Most people in this room would go, “Oh, my God. That’s a disaster. That single buyer is going to take advantage of everybody that’s supplying,” but the theory says that that buyer will have an incentive to provide all those folks with the same returns they would get under Textbook 101 conditions because they want them to stay in business and they want them to provide a steady and reliable supply of the farm product.
I think you have things where there’s a merger that something goes from three to two or two to one, and everyone goes, “Oh, no. That’s s disaster. That can’t happen,” but in reality, you are, by blocking that, you’re creating situations where now some of those buyers may have more of an economic incentive to behave opportunistically towards the supplier.
I think the contracting is usually similar, where if you limit the ability of the farmer to contract with the supplier, that can reduce the ability of that farmer to internalize the benefits and increase the incentive, potentially, to behave opportunistically. That’s the kind of thing I’m concerned about, at least on the… in this industry on the buyer’s side.
Chris: Three to twos and two to ones [inaudible 06:41:14]?
Speaker 30: Well, I think we have a few minutes. I’m going to throw it out for questions. Anybody have any questions for the panel? Jay?
Jay: Didn’t we learn from COVID that gradual supply lines are terrible and the fewer competitors you have, the more likely you are to have [inaudible 06:41:40]? Also, under-enforcement or non-enforcement has unintended [inaudible 06:41:47].
Speaker 30: Okay, good preaching to the choir with Chris. Does Eleanor or anybody have reactions? Take on Jay?
Eleanor: Resilience is one of the factors that is [inaudible 06:42:06].
Speaker 30: Anybody else? Well, I don’t think anybody will object to any… a few minutes early for drinks and dinner, so Mary, I’ll turn it to you. Thank you, everybody.