A potato growers’ cooperative has agreed to pay $25 million to settle allegations it violated antitrust law by acting as a cartel to raise prices.
Under the deal, which was granted preliminary
approval by a federal judge on June 17, the United Potato Growers of America and affiliated companies and organizations must pay $19.5 million to grocers and $5.5 million to consumers.
The defendants have also agreed to cease any attempt to manage potato supplies for seven years.
Beginning in 2010, the cooperative and numerous growers became the target of numerous lawsuits by grocery companies and consumers for allegedly constraining potato production to artificially inflate prices.
United Potato Growers of America was initially optimistic that its supply management strategy was protected by the Capper-Volstead Act, which provides farmers with some exemptions from antitrust law.
However, Chief U.S. District Judge Lynn Winmill dealt the cooperative’s legal defense a big blow in 2011 by ruling that “acreage reductions, production restrictions, or collusive crop planning” weren’t shielded under Capper-Volstead.
Since then, the cooperative and potato companies have turned over more than 3.6 million pages of documents that were reviewed by the plaintiffs and their economic experts, according to court documents filed with the settlement.
Settlement negotiations faltered in 2012 and 2013, but the discussions were renewed after the plaintiffs asked for their case to be certified as a class action last year, which would allow other affected parties to join the lawsuit.
The talks nearly fell apart again earlier in 2015 but ultimately proved successful, with the parties agreeing to postpone the litigation and eventually agreeing on the $25 million payment and injunction against supply management.
The potato cooperative’s willingness to settle shows that it likely recognized the supply management strategy isn’t legally defensible, said Peter Carstensen, a law professor specializing in agricultural antitrust at the University of Wisconsin.
“Private action to regulate output is inherently suspect,” he said.
The production of other crops is legally managed through marketing orders overseen by USDA, but those are a “different animal” since a federal agency has the final say on supply restrictions, Carstensen said.
“You have to have both authorization and oversight,” he said.
Even USDA-approved marketing orders are under a cloud now, since the U.S. Supreme Court is reviewing the legality of a program that regulates raisin volumes, he said.
A sweeping ruling by the nation’s highest court could affect other volume controls, or potentially even grades and standards established under USDA marketing orders, Carstensen said.
“There’s a danger of the court throwing out the baby with the bath water,” he said.
Rather than trying to directly restrict supplies, the agricultural industry would benefit from improved transparency about market conditions, Carstensen said.
If growers knew more about the anticipated demands of processors and retailers, they could make self-interested decisions without collectively attempting to influence the market, he said. “That’s the kind of information that is needed.”