Antitrust Action on the Way Out the Door, Biden Administration Finalizes Poultry Payment Rules and Sues John Deere and Pepsi

In the final days of the Biden administration, antitrust leaders issued a flurry of rulemakings, policy positions, and lawsuits, before President Donald Trump took office on Monday. Antitrust enforcers targeted landlords conspiring to raise rents, asserted independent contractors’ rights to organize, and halted a private equity takeover of anesthesia providers.

On the food and agriculture front, the Federal Trade Commission sued John Deere for allegedly monopolizing the repair of its equipment. The FTC then sued Pepsi for offering preferential services and lower pricing to its largest buyers in violation of the Robinson-Patman Act, marking the return of the lapsed law. The USDA also finalized a rule to regulate a long-criticized way of paying contract poultry growers called the tournament system. The Biden administration didn’t get everything done, however, as USDA withdrew a proposal to lower farmers’ barriers to challenging unfair practices by meatpackers under the Packers and Stockyards Act.

Right to Repair Goes to Court, Again

Modern agriculture equipment includes many computerized components that require software tools to diagnose and fix a problem. The FTC and two state attorneys general sued the largest agriculture equipment maker, John Deere, for monopolizing the repair of its products by restricting access to this diagnostic and repair software. This federal suit follows similar private class action cases.

Only authorized John Deere dealerships can access the software to fully repair Deere equipment. Deere sells a pared-down version of its repair software, but it cannot complete all repairs. The FTC argues that Deere maintains a monopoly on complete repairs, which deprives farmers of options, price competition, and, most critically, timely service. Missing the chance to harvest crops before a storm or plant seeds at the right time can devastate farmers. Monopolized repair also shuts out independent repair shops and generic parts manufacturers.

Restricting repair and pushing branded parts is very lucrative for John Deere, estimated to be three to six times more profitable than its new equipment sales, according to one class action suit.  

State attorneys general from Minnesota and Illinois joined the FTC’s lawsuit, alleging that Deere’s conduct violated state antitrust laws and hurt farmers and repair shops in their states. The suit primarily seeks to end Deere’s monopoly and require the company to make its full-service repair software available “on reasonable and nondiscriminatory terms.” Notably, Republican Commissioner Andrew Ferguson, who has since become FTC Chair, opposed bringing this lawsuit, joined by fellow Republican Melissa Holyoak.

A Second Robinson-Patman Suit

The Federal Trade Commission targeted PepsiCo, one of the largest U.S. packaged food and beverage companies, for giving special payments and services to its largest big box customer. The FTC brought a similar case against alcohol distributor Southern Glazer’s last month. Both suits revive the price discrimination prohibitions of the Robinson-Patman Act, which antitrust agencies have not enforced in decades.

The FTC argues that these special discounts and advantages prevent independent grocers from fairly competing against big box stores. Advocates such as the Institute for Local Self-Reliance demonstrate that not enforcing the Robinson-Patman Act has contributed to the rise of Walmart and other national big-box retailers and the loss of local food retailers. This uneven playing field contributes to food deserts and exacerbates the price differences between small and large stores.

As with the Deere case, Commissioners Ferguson and Holyoak opposed bringing this suit and in two separate dissents accused the Democratic commissioners of rushing to bring a case without sufficient evidence for political purposes.

New Limits on the Tournament System

USDA finalized its third rule regulating contracts between chicken processors and farmers under the Packers and Stockyards Act. This rule addresses the controversial tournament payment system.

Chicken processors such as Tyson, Perdue, and Pilgrim’s Pride closely control the contract farmers that raise their birds. There are small ways that farmers’ efforts can improve their birds’ health and weight gain, but for the most part chicken companies control the main factors that affect bird growth, namely, the quality of the chicks and their feed.

Despite this, chicken processors pay farmers based on how efficiently chickens convert feed into pounds. Top performing farmers get a bonus added to their base pay while underperforming farmers take a deduction. Pay can vary dramatically: a 2020 survey by USDA found the bottom 20% of farmers received just five cents per pound or less, while the top 20% received nearly nine cents or more.

USDA’s new rule stipulates that chicken companies cannot deduct from farmers’ base pay. The base pay per pound advertised in poultry growing contracts is, in practice, an average pay. USDA says that this deceives farmers and violates the Packers and Stockyards Act. Going forward, base pay must reflect farmers’ minimum possible pay, which will help farmers better project their potential revenue for paying off poultry-related debts.

Poultry contracts can still offer farmers bonuses based on performance, but this rule limits how large those bonuses can be and how they are determined. To prevent farmers from depending on bonus pay, USDA rules that no more than 25% of growers’ total compensation can come from bonuses. The DOJ set a similar limit on bonus pay in a consent decree with Cargill and Sanderson Farms.

To ensure that poultry processors do not use this new regulation as a chance to lower base pay and bonuses to pay less for chicken overall, USDA will require poultry processors to demonstrate that average gross pay for farmers has not decreased for three years.

Chicken corporations must also change how they compare farmers’ performance to factor in the impact of company-provided inputs. USDA names several variables that chicken companies must account for to maintain a “duty of fair comparison,” including chick health, stocking density, flock gender ratios, and late feed deliveries or flock pickups. When chicken companies make a big mistake or need to give contract growers a particularly bad set of inputs, farmers must have the option to receive non-comparison-based pay.

Suffice it to say, these new rules are complicated and highlight core contradictions in the tournament system, namely, that farmers receive performance-based pay based on many factors that chicken processors control. Chicken processors may switch to simpler contracts that pay farmers a flat rate based on the size and quality of their barns, to avoid USDA’s new “duty of fair comparison” requirements.

On the other hand, these rules require a more aggressive USDA to monitor chicken processors’ compliance and ensure that this new duty of fair comparison is upheld. Based on President Trump’s first time in office, it is likely that new leadership at USDA will be more sympathetic to meat corporations and less likely to aggressively enforce this new rule.

Further, Congress could soon repeal this rule altogether. Because USDA finalized this rule so late, there will be a short window when Congress could repeal it using the Congressional Review Act. This would kill the rule and prevent USDA from ever issuing a similar rule.

A bi-partisan range of farm organizations, including the National Farmers Union and the American Farm Bureau, have suggested they will lobby Congress to protect this rule. In a statement, the Farm Bureau said, “We will oppose any future legislative or regulatory efforts to weaken or destabilize protections for America’s contract poultry growers.”

USDA was not confident that its other outstanding rules would survive Congressional repeal. Specifically, the same day USDA finalized its tournament rule, it withdrew a proposal to clarify what constitutes an “unfair practice” under the Packers and Stockyards Act.

Some federal circuit courts have ruled that farmers must prove that a meatpacker’s actions interfered with the competitive process or “harmed competition” to prove they violated the Packers and Stockyards Act. There is no consensus on what harm to competition is, though it implies a broader impact across an industry. This competitive injury standard doesn’t make sense for farmers seeking justice for personal injuries and creates a massive barrier to challenge unfair treatment by meatpackers. Both the Obama and Biden administrations proposed Packers and Stockyards rules to lower this barrier and both failed to finalize them in time.