The Evolution of Farmers- Part 2
Posted on May. 14, 2013

Vertical Integration of Farmers
Another argument with which I disagree is that farmers that have vertically integrated into processing should for that reason be ineligible for membership in an agricultural cooperative that claims C-V antitrust immunity. The eligibility of integrated farmers for membership in cooperatives is being raised in pending litigation, but it is difficult to ascertain the legal basis for a distinction between an integrated farmer and other farmers.

In a sense, all farmers are integrated. Even our small family farm was integrated. We not only had a dairy operation, but we also raised sugar beets for a local sugar factory. We did custom farming for our neighbors so that they would not have to own expensive farm equipment, and we trucked springer heifers from our area to large dairies in southern California. Those activities did not disqualify our farm for membership in our dairy cooperative. We were clearly a dairy farm which owned cows and controlled the land upon which they were husbanded. We just did the other functions to help make ends meet.

Some farmers today are integrated into processing and marketing. A potato farmer may build a fresh shed to pack his own potatoes and perhaps his neighbor’s potatoes for market. He is still a farmer, but he has other functions to help make ends meet. Another example may be an egg producer who packs his table eggs for marketing through his egg cooperative, but who also diversifies into egg processing to market his eggs for which there is not a table egg market. He is still a farmer with other functions to help make ends meet.

Sometimes a farm family places the packing, marketing or processing function in a different entity than the farming entity. There should be little question that the farming entity is still eligible for membership in a cooperative, while the packing, marketing or processing entity would not be engaged in farming and, thus, not eligible. The farmer should not be disqualified from membership in an agricultural cooperative merely because the farmer may have an interest in a packing, processing or marketing entity.

This issue was raised in the Hinote case decided some years ago. Hinote was president of a catfish processing and marketing association. When charged by the government for allegedly conspiring with other catfish processors and marketers to illegally fix prices in violation of federal antitrust law, Hinote claimed antitrust immunity under the Fisherman’s Collective Marketing Act (FCMA). Cases interpreting the FCMA immunity rely on Capper-Volstead cases as precedent.

Two of the catfish producer members of the processing and marketing association were subsidiaries of ConAgra and Hormel. Each of their subsidiaries competed with and allegedly conspired with the association in the processing and marketing of catfish products. The district court determined that C-V did not apply since these two producer members did not engage in collective handling or processing, but rather acted as “traditional ‘middlemen’, the very group which Congress viewed as exploiting the true farmers it sought to protect under the Capper-Volstead Act.” 823 F. Supp. at 1358-59. In addition, ConAgra and Hormel integrated backward into catfish production and were not eligible for association membership.

It would be wrong to apply Hinote as precedent to disqualify agricultural cooperatives whose membership includes typical integrated farmers. The circumstances of ConAgra and Hormel are quite different from most farmers who have integrated functions. To apply a decision reached in a case involving some of the nation’s largest agri-businesses to a typical integrated farming entity would be unreasonable. Where there are different functions performed by entities which are owned by the same family, certainly care should be given to make sure the farming entity is the one presented for membership in the cooperative. But again, the fact that a family owns an interest in other non-farming entities should not disqualify the family’s farming entity from cooperative membership.

It might be possible to envision a farmer who has integrated his farm to such an extent that the farm is inconsequential and where cooperative membership might be questioned, but there are no cases which have determined the point at which such a farmer is no longer eligible for cooperative membership.

I have often wondered what the impact would be on U.S. agriculture if farmers who are vertically integrated were disqualified from membership in C-V cooperatives. In a sense, every farmer is integrated to some extent. If the definition of “integrated” were narrow, there would be no farmers eligible for membership and the benefit of C-V would be lost. If the definition were not so narrow where would one draw the line? C-V language provides no guidance. It would require an amendment to the statute. It is my view that the integrated farmers deserve to participate just like other farmers and that it would be seriously discriminatory to provide otherwise.

 

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