Preplanting Supply Management
Some have questioned whether the wording of Capper-Volstead -- “preparing for market” -- covers growing or producing the right variety and the right amount for the market, or whether the absence of the wording “supply management” prohibits the cooperative from helping its members to grow or produce the right varieties and the right amount in the process of “preparing for market.”
I believe that this statutory phrase should be interpreted broadly, consistent with the world in which farmers and cooperatives operate. A farmer and cooperative must have some idea that there is a market before they can prepare the farmer’s product for market. This involves not only having good supply and demand data, but the right not to grow more than the anticipated market. One cannot prepare for market if there is not a market. Farmers and their cooperatives have very little question that they have to grow or produce the right varieties and the right amounts. Otherwise, after all other preparation there may be no market at all, or, due to excess supply, the price offered may be below the cost of growing or producing. A potato grower should not have to spend $3,000 to grow an acre of potatoes before learning that there is no market.
An individual farmer does not have, nor can the individual farmer obtain, all the information that he or she needs to “prepare for market.” That is one of the main reasons for joining a cooperative. The farmer not only needs the information but also needs guidance as to how much to grow or produce based on the market and what his or her neighbors are doing.
The local sugar factory to which my family’s farm in southeastern Idaho sold its sugar beets understood its processing capacity and would tell the growers how much they could grow in order for the beets not to rot in the pile and for the refined sugar to have a market.
Yes, cooperatives have always had to engage in a wide variety of supply management activities. They must be able to advise their members of the production needed and also try to avoid extra, unneeded production that will glut the market. It should be noted that soon after the passage of C-V in 1922 Congress passed the Cooperative Marketing Act of 1926 (7 USC § 455) to permit farmers to collect and exchange past, present and future crop and market data.
Some crops are grown annually, which provides opportunities each year to prepare the right amount for market. Dairy cows have a three to four year useful life, and thus a natural annual opportunity for supply management does not exist. Apple growers plant orchards that may produce for decades. Even with such a long cycle, a cooperative that is engaged in processing and/or marketing needs to know how much is being grown or produced so that it will have adequate facilities, manpower and market; the cooperative cannot process or market an unlimited supply. It must have the ability to help its members grow or produce the right amount for the facilities and for the market. All of this is “preparing for market.”
Our dairy cooperative understood its market and its processing capacity. It created a base or quota program by which it paid its producers a better price for milk required for the fresh market, and much less for milk diverted to butter, powder and cheese. This supply management program helped the dairy farmer members adjust their herds over time to fit the demands of the market. A cooperative must advise its members concerning supply and demand, so that, continuing the apple orchard example mentioned above, members will have the information necessary to decide not to plant new orchards or to decide that they can pull trees earlier or that they should emphasize one variety over another variety.
Some years ago in a discussion with officials of the U.S. Department of Justice it was suggested to me that it was not a violation of Capper-Volstead for cooperative members to destroy crops once grown if not needed for the market, but that it was not permissible for the cooperative members to agree beforehand to grow what would be needed. I asked what legal precedent they would cite. In response they cited utterances of other U.S. DOJ officials, but they did not cite any decided case for that proposition.
There is support for the conclusion that pre-planting supply management by an agricultural cooperative and its members is within their antitrust immunity. First, Section 6 of the Clayton Act, 15 U.S.C. § 17, which was passed some years before Capper-Volstead, authorized supply management by farmers through their cooperative and by laborers through their unions.
Second, the Capper-Volstead Act, which was passed as a response to some uncertainties of Section 6 of the Clayton Act, and not as a limitation or pull-back from Section 6, permits farmers to join together in associations to make decisions concerning their products as if they were a single corporation or enterprise (7 U.S.C. § 291). A single corporation or enterprise could certainly manage its production in advance. Moreover, the Capper-Volstead Act on its face does not address only joint selling; it extends more broadly to the “production of agricultural products,” “collective processing, preparing for market, handling and marketing.”
Third, Senator Capper made it quite clear in the debates prior to the passage of the Capper-Volstead Act that “no association can efficiently operate that does not control and handle a substantial part of a given commodity in the locality where it operates.” [S.Rep. No. 236, 61st Cong. 1st Sess. (1921)]. In addition, Senator Lenroot stated during the debates that: “If the farmers in the United States could, through cooperation, have some control and agreement as to production and as to price, not for purpose of making exorbitant profits, but so that they might at least secure back the cost of production, we would see in the United States immediately an upward turn toward prosperity.” (62 Cong. Rec. 2225) These words, consistent with the needs of farmers and their cooperatives discussed above, support the conclusion that the architect of the Capper-Volstead Act believed and intended that it would protect farmers and their cooperatives in controlling their production.
What Does the Future Hold?
There is no question in my mind that cooperatives are needed in the future to assist farmers to grow or produce for the demands of our society for food and fiber. Having been involved in agriculture for many years, first as a member of a farm family and for over 45 years as legal counsel for agricultural cooperatives, I am convinced that C-V was and continues to be essential legislation for agriculture. I have also become comfortable with the many cases that have sustained the limited antitrust exemption for agricultural cooperatives. However, recent rulings that have raised issues concerning pre-planting supply management and eligibility of integrated farmers for membership in C-V cooperatives have placed a cloud over the scope of the antitrust exemption. These rulings must be clarified by the courts so as to bring more certainty to cooperatives and their members or, in the alternative, farmers and their cooperatives will have no choice but to seek legislative clarification to stem the tide of litigation that is costing tens of millions of dollars to defend each year.
This article was written by attorney Randon W. Wilson and was featured in the Spring 2013 Agriculture and Food Committee Newsletter.