11.2 Marketing Integrity

Structural Change and Concentration — Transparency and price discovery are important elements of fair markets; yet so are confidential negotiations between parties. This is the balancing act that good farm policy must achieve, especially in the area of agribusiness concentration. Addressing the issue of market power and whether farmers are hurt or helped by certain structural trends in agriculture will continue to be a focus of policy.

NASDA believes the federal government has failed to enforce federal antitrust statutes such as the Sherman Act and the Clayton Act to prevent consolidation, and as a result, the vast majority of family farms and ranches are held captive to an agricultural sector in which consolidation is occurring at a rate never experienced before.

Current antitrust laws, including those applied to packers and stockyards, should be more stringently enforced including the use of more spot checking.

A General Accounting Office (GAO) report issued in 2001, details an investigation it performed on anti-trust matters focusing on agriculture. The report outlines the responsibilities for anti-trust matters, with the major responsibility falling to the Department of Justice’s Antitrust Division (Division), which investigates and prosecutes civil and criminal violations of federal anti-trust laws. The report found significant deficiencies in the way DOJ handled anti-trust matters relating to agriculture.

The fact that the Department of Justice does not have a definition of “agriculture industry” underscores the fact that consolidation in agriculture has been severely neglected, as evidenced by the few companies controlling the agricultural sector. Consolidation among retail grocery stores further exacerbates the situation and for fruit and vegetable growers, this threat is becoming more evident as the market for their product dwindles to a small group of “super” stores.

The control of the animal and plant genetics pool is also consolidating. For example, the genetic base for 90 percent of commercially produced domestic turkeys comes from three breeding flocks. These birds are vulnerable to an avian disease and they lack resistance. On the plant genetics side, should this trend continue, niche producers of feed and grain may find themselves out of a market because they cannot grow organic grain, or grains that are not a genetically modified product.

Larger companies, especially, are seeking greater efficiencies by consolidating and integrating resulting in sellers ultimately having fewer markets for their perishable goods and increasingly being forced to yield to the demands of corporate buyers. This consolidation of industries within the United States is having a profound impact on the way Americans do business.

While NASDA understands that the economic goal of consolidation is to better serve the ultimate customer and strongly believes in a free market economy, where agricultural producers and food retailers share a common goal of providing the retail consumer with affordable, safe, and high quality food, we also believe

that intervention is necessary to ensure that today’s rapidly changing marketplace is functioning in an appropriate and effective manner toward a mutually beneficial end. The USDA, the Department of Justice, and the Federal Trade Commission, directed by Congress, all have an obligation to understand the changing business dynamic in food delivery today — especially concerning fruits and vegetables — and ensure that marketplace trade practices remain fair. There is no argument that the benefits of consolidation and integration are significant, but if a market is controlled by too few players, the impact of any abuse, however small, can be devastating.

NASDA has grave concerns on the issue of consolidation and its effects on market access, and therefore supports strengthening anti-trust enforcement, including representation of agriculture at the Department of Justice. NASDA also believes a fair price discovery system is necessary for animals and plant products with restriction of packers ownership and control of marketed livestock. The Secretary of Agriculture should be given the authority to prevent reprisals or discrimination within the system and should be provided with necessary funding to adequately oversee and enforce the requirements of the new system. Such a system, with equal reporting responsibility by both parties to the transaction, may ease the distrust between segments of the livestock industry and provide a more level playing field for all parties involved. It also has potential for providing detailed, accurate market price information to producers, while protecting the confidentiality of individual market arrangements without increasing producers’ operating costs. To the greatest extent possible, all meat products should be clearly labeled as to country of origin. Unfair livestock procurement practices should also be restricted by allowing the USDA to issue civil penalties as a sanction for violations.

As producer-owned meat packing cooperatives and businesses are emerging as viable marketing options for livestock producers, restrictions placed on captive supplies should be written to prevent unintended restrictions on producer-owned meat packing cooperatives and businesses which provide livestock marketing options.

NASDA supports the accurate reporting of all imports and exports of live animals as well as all meat and meat products. This information would allow producers to make better informed marketing decisions. In order to be helpful, the reports need to include prices paid, volume information, and destination (for exports), and need to have improved accuracy and timeliness.

Price Discovery — Markets for almost every commodity are facing increases in the use of marketing and production contracts — which threatens market transparency and results in a greater balance of power to buyers.

The use and regulation of contracts within agriculture should reflect the quantity and quality of inputs, such as labor and land, the degree of risk assumed by each party, wages, and other factors. Unfortunately, today’s contract relationships are often under the cloud of an oligopoly or even a monopoly buyer, and the producer possesses little legal protection to obtain fair returns on his investments. The traditional open-market transparency in agriculture where farmers find prices through futures trading, terminal markets, or auctions is at risk because oftentimes contracts are executed privately or written with a confidentiality clause. Thus, producers are often legally restricted from sharing or comparing price information. It is important to note that not all contracts are negative, however, especially those in markets where prices are easily accessible and that are not dominated by a small number of buyers.

NASDA believes policy is necessary at the state and federal level to protect producers in contract negotiations against issues such as fraud, retribution, and unreasonable confidentiality clauses, as well as providing for plain language review, protecting the right to litigate, and granting a limited time to review a contract. Moreover, certified farmer cooperatives should have the protected right to negotiate contract terms on behalf of their members. Such protection for would grant cooperative members an increased ability to leverage a fair price for good and services. As a minimum protection for all producers entering into contracts, Federal

legislation is needed mandating basic contract standards addressing the abuses in the industry. However, any federal legislation should not invalidate any state law dealing with contracts

Slotting Fees — The food retail industry practice of “slotting fees,” as it relates to the produce industry, needs further investigation and study by the federal government. Slotting fees are payments made by food producers and manufacturers to purchase shelf space in retail stores. Critics regard slotting fees as unearned store discounts that give a competitive edge to larger manufacturers who can afford them, while depriving consumers of variety, new product innovations, and possibly more competitive retail pricing. Supporters of the fees contend that they enable stores to make room for the thousands of new products introduced annually protecting grocers from having to shoulder all the risk of stocking items that may not sell.

Slotting-fees are a controversial issue in the food sector and are simply not applicable to the fruit and vegetable industry. These fees are structured for food and grocery manufacturers that have a fixed list price for their products. The produce industry, however, is subject to a fluctuating daily market price based on supply and demand for a perishable product. Since produce sellers cannot store their product in a warehouse waiting for a price increase to recoup losses and discounts they do not have the capability of predicting long term prices to reliably cover slotting fees.

The Robinson-Patman Act requires sellers of any product to offer the same terms to all competitive customers. If a retailer demands a special pre-purchase request from a produce grower/supplier in order to secure business, another retailer — whose retail volumes, customer flow, or other economic factors might not warrant the grower/supplier paying similar slotting fees — may take action against that grower/supplier under these antitrust laws if not offered the same ‘deal’ as other retailers. The current system is not suited to the retail practice of slotting fees.

In order to protect growers, packers and shippers, suppliers, and retailers in their goal to serve the consumer, NASDA recommends that the necessary resources be dedicated to investigate and report on the status of the retail industry as it relates to the sale of fruits and vegetables. Specifically, NASDA requests Congress further pursue an investigation of slotting-fees and other “off-invoice” fees in light of an inconclusive September 2000 GAO report on the issue. The inability of GAO to collect sufficient data from retailers to respond to a congressional request indicates that this matter needs further federal attention.

E-Commerce — Internet technology and electronic retail business-to-customer or business-to-business (ecommerce) is still developing. As the technology and business models for commerce on the internet become more sophisticated, the internet is evolving into a viable marketing and sales opportunity for agricultural products, despite some early retrenchment.

While the long term outlook for the future of e-commerce in agriculture remains positive, there is still uncertainty about the ability of the internet to consistently boost farm profits. Also, there is some reluctance among farmers and farm businesses to forsake tested methods of doing business, and embrace new technology that has yet to withstand the test of time. Specific concerns are internet security (privacy and financial), sharing price information, and investment of time and resources into the technology and training of employees. If these obstacles can be overcome, there is a tremendous opportunity for e-commerce to help small- and medium-sized agricultural businesses develop new products and markets, interact more quickly and efficiently with suppliers and customers, and improve productivity by increasing efficiency and reducing transaction costs and paperwork. These businesses can also take advantage of the technology by interacting with customers, suppliers, and the public, and for external support functions such as personnel services and employee training.

NASDA believes there needs to be structural and ‘social’ integrity for consumers and businesses to use the

internet and wireless communication as a business tool. To this end, NASDA supports legislation that will protect the privacy of consumers who use the internet and wireless communication. The Federal Trade Commission should prescribe regulations to protect the privacy of personal information collected from and about individuals on the internet and to give individuals more control over their personal information.

NASDA suggests that Congress make it unlawful for a commercial website operator to collect personal information online from a website user unless the operator provides certain assurances, including notification of the information’s use and opportunity to limit the use of the information for marketing purposes or disclosure to third parties. To assist businesses, NASDA also recommends that the National Institute of Standards and Technology (NIST) focus on assisting agriculture to successfully integrate and utilize electronic commerce technologies and business practices. Further, NIST should be authorized to identify and assess critical enterprise integration standards and implementation activities for these businesses.

Structural Change and Concentration
Last updated: September 20, 2011

Transparency and price discovery are important elements of fair markets; yet so are confidential negotiations between parties. This is the balancing act that good farm policy must achieve, especially in the area of agribusiness concentration. Addressing the issue of market power and whether farmers are hurt or helped by certain structural trends in agriculture will continue to be a focus of policy.

NASDA believes the federal government has failed to enforce federal antitrust statutes such as the Sherman Act and the Clayton Act to prevent consolidation, and as a result, the vast majority of family farms and ranches are held captive to an agricultural sector in which consolidation is occurring at a rate never experienced before.

Current antitrust laws, including those applied to packers and stockyards, should be more stringently enforced including the use of more spot checking.

A General Accounting Office (GAO) report issued in 2001, details an investigation it performed on anti-trust matters focusing on agriculture. The report outlines the responsibilities for anti-trust matters, with the major responsibility falling to the Department of Justice’s Antitrust Division (Division), which investigates and prosecutes civil and criminal violations of federal anti-trust laws. The report found significant deficiencies in the way DOJ handled anti-trust matters relating to agriculture.

The fact that the Department of Justice does not have a definition of “agriculture industry” underscores the fact that consolidation in agriculture has been severely neglected, as evidenced by the few companies controlling the agricultural sector. Consolidation among retail grocery stores further exacerbates the situation and for fruit and vegetable growers, this threat is becoming more evident as the market for their product dwindles to a small group of “super” stores.

The control of the animal and plant genetics pool is also consolidating. For example, the genetic base for 90 percent of commercially produced domestic turkeys comes from three breeding flocks. These birds are vulnerable to an avian disease and they lack resistance. On the plant genetics side, should this trend continue, niche producers of feed and grain may find themselves out of a market because they cannot grow organic grain, or grains that are not a genetically modified product.

Larger companies, especially, are seeking greater efficiencies by consolidating and integrating resulting in sellers ultimately having fewer markets for their perishable goods and increasingly being forced to yield to the demands of corporate buyers. This consolidation of industries within the United States is having a profound impact on the way Americans do business.

While NASDA understands that the economic goal of consolidation is to better serve the ultimate customer and strongly believes in a free market economy, where agricultural producers and food retailers share a common goal of providing the retail consumer with affordable, safe, and high quality food, we also believe that intervention is necessary to ensure that today’s rapidly changing marketplace is functioning in an appropriate and effective manner toward a mutually beneficial end. The USDA, the Department of Justice, and the Federal Trade Commission, directed by Congress, all have an obligation to understand the changing business dynamic in food delivery today — especially concerning fruits and vegetables — and ensure that marketplace trade practices remain fair. There is no argument that the benefits of consolidation and integration are significant, but if a market is controlled by too few players, the impact of any abuse, however small, can be devastating.

NASDA has grave concerns on the issue of consolidation and its effects on market access, and therefore supports strengthening anti-trust enforcement, including representation of agriculture at the Department of Justice. NASDA also believes a fair price discovery system is necessary for animals and plant products with restriction of packers ownership and control of marketed livestock. The Secretary of Agriculture should be given the authority to prevent reprisals or discrimination within the system and should be provided with necessary funding to adequately oversee and enforce the requirements of the new system. Such a system, with equal reporting responsibility by both parties to the transaction, may ease the distrust between segments of the livestock industry and provide a more level playing field for all parties involved. It also has potential for providing detailed, accurate market price information to producers, while protecting the confidentiality of individual market arrangements without increasing producers’ operating costs. To the greatest extent possible, all meat products should be clearly labeled as to country of origin. Unfair livestock procurement practices should also be restricted by allowing the USDA to issue civil penalties as a sanction for violations.

As producer-owned meat packing cooperatives and businesses are emerging as viable marketing options for livestock producers, restrictions placed on captive supplies should be written to prevent unintended restrictions on producer-owned meat packing cooperatives and businesses which provide livestock marketing options.

NASDA supports the accurate reporting of all imports and exports of live animals as well as all meat and meat products. This information would allow producers to make better informed marketing decisions. In order to be helpful, the reports need to include prices paid, volume information, and destination (for exports), and need to have improved accuracy and timeliness.
Price Discovery
Last updated: September 20, 2011

Markets for almost every commodity are facing increases in the use of marketing and production contracts — which threatens market transparency and results in a greater balance of power to buyers.

The use and regulation of contracts within agriculture should reflect the quantity and quality of inputs, such as labor and land, the degree of risk assumed by each party, wages, and other factors. Unfortunately, today’s contract relationships are often under the cloud of an oligopoly or even a monopoly buyer, and the producer possesses little legal protection to obtain fair returns on his investments. The traditional open-market transparency in agriculture where farmers find prices through futures trading, terminal markets, or auctions is at risk because oftentimes contracts are executed privately or written with a confidentiality clause. Thus, producers are often legally restricted from sharing or comparing price information. It is important to note that not all contracts are negative, however, especially those in markets where prices are easily accessible and that are not dominated by a small number of buyers.

NASDA believes policy is necessary at the state and federal level to protect producers in contract negotiations against issues such as fraud, retribution, and unreasonable confidentiality clauses, as well as providing for plain language review, protecting the right to litigate, and granting a limited time to review a contract. Moreover, certified farmer cooperatives should have the protected right to negotiate contract terms on behalf of their members. Such protection for would grant cooperative members an increased ability to leverage a fair price for goods and services. As a minimum protection for all producers entering into contracts, Federal legislation is needed mandating basic contract standards addressing the abuses in the industry. However, any federal legislation should not invalidate any state law dealing with contracts
Slotting Fees
Last updated: September 20, 2011

The food retail industry practice of “slotting fees,” as it relates to the produce industry, needs further investigation and study by the federal government. Slotting fees are payments made by food producers and manufacturers to purchase shelf space in retail stores. Critics regard slotting fees as unearned store discounts that give a competitive edge to larger manufacturers who can afford them, while depriving consumers of variety, new product innovations, and possibly more competitive retail pricing. Supporters of the fees contend that they enable stores to make room for the thousands of new products introduced annually protecting grocers from having to shoulder all the risk of stocking items that may not sell.

Slotting-fees are a controversial issue in the food sector and are simply not applicable to the fruit and vegetable industry. These fees are structured for food and grocery manufacturers that have a fixed list price for their products. The produce industry, however, is subject to a fluctuating daily market price based on supply and demand for a perishable product. Since produce sellers cannot store their product in a warehouse waiting for a price increase to recoup losses and discounts they do not have the capability of predicting long term prices to reliably cover slotting fees.

The Robinson-Patman Act requires sellers of any product to offer the same terms to all competitive customers. If a retailer demands a special pre-purchase request from a produce grower/supplier in order to secure business, another retailer — whose retail volumes, customer flow, or other economic factors might not warrant the grower/supplier paying similar slotting fees — may take action against that grower/supplier under these antitrust laws if not offered the same ‘deal’ as other retailers. The current system is not suited to the retail practice of slotting fees.

In order to protect growers, packers and shippers, suppliers, and retailers in their goal to serve the consumer, NASDA recommends that the necessary resources be dedicated to investigate and report on the status of the retail industry as it relates to the sale of fruits and vegetables. Specifically, NASDA requests Congress further pursue an investigation of slotting-fees and other “off-invoice” fees in light of an inconclusive September 2000 GAO report on the issue. The inability of GAO to collect sufficient data from retailers to respond to a congressional request indicates that this matter needs further federal attention.
E-Commerce
Last updated: September 20, 2011

Internet technology and electronic retail business-to-customer or business-to-business (ecommerce) is still developing. As the technology and business models for commerce on the internet become more sophisticated, the internet is evolving into a viable marketing and sales opportunity for agricultural products, despite some early retrenchment.

While the long term outlook for the future of e-commerce in agriculture remains positive, there is still uncertainty about the ability of the internet to consistently boost farm profits. Also, there is some reluctance among farmers and farm businesses to forsake tested methods of doing business, and embrace new technology that has yet to withstand the test of time. Specific concerns are internet security (privacy and financial), sharing price information, and investment of time and resources into the technology and training of employees. If these obstacles can be overcome, there is a tremendous opportunity for e-commerce to help small- and medium-sized agricultural businesses develop new products and markets, interact more quickly and efficiently with suppliers and customers, and improve productivity by increasing efficiency and reducing transaction costs and paperwork. These businesses can also take advantage of the technology by interacting with customers, suppliers, and the public, and for external support functions such as personnel services and employee training.

NASDA believes there needs to be structural and ‘social’ integrity for consumers and businesses to use the internet and wireless communication as a business tool. To this end, NASDA supports legislation that will protect the privacy of consumers who use the internet and wireless communication. The Federal Trade Commission should prescribe regulations to protect the privacy of personal information collected from and about individuals on the internet and to give individuals more control over their personal information.

NASDA suggests that Congress make it unlawful for a commercial website operator to collect personal information online from a website user unless the operator provides certain assurances, including notification of the information’s use and opportunity to limit the use of the information for marketing purposes or disclosure to third parties. To assist businesses, NASDA also recommends that the National Institute of Standards and Technology (NIST) focus on assisting agriculture to successfully integrate and utilize electronic commerce technologies and business practices. Further, NIST should be authorized to identify and assess critical enterprise integration standards and implementation activities for these businesses.