A potato growers’ cooperative has agreed to pay $25 million to settle allegations that 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.
Apparently, however, the agreement won’t put the legal issue to rest. One of the major plaintiffs, Kansas-based Associated Whole Grocers, issued a press release June 23 indicating it will not participate in the settlement.
“AWG’s individual action alleges that the defendants engaged in various supply-control and price-fixing practices designed to raise the price of fresh and processed potatoes in violation of the Kansas Restraint of Trade Act and the Sherman Act,” the statement reads. “AWG’s case continues pretrial proceedings in the District of Idaho before being returned to federal court in Kansas for trial.”
UPGA President and CEO Jerry Wright said the court is now establishing provisions under which other plaintiffs may opt out of the settlement.
Under the settlement, the defendants have also agreed to cease any attempt to manage potato acreage prior to planting for seven years.
In 2010, the cooperative and numerous growers were the target of a lawsuit by the Jamestown, N.Y., potato buyer Brigiotta’s Farmland Produce and Garden Center for allegedly constraining potato production to artificially inflate prices. Associated Wholesale Grocers filed a similar suit in 2013.
UPGA 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.
Wright said the settlement, which should be finalized by late this year, is not an admission of guilt by the defendants.
“Despite negotiating a settlement, potato growers steadfastly maintain they did not participate in any illegal activity or wrong-doing,” Wright said, adding the settlement “clarifies for growers nationwide protected activities under the Capper-Volstead Act and ensures a path forward for UPGA and its constituent members.”
Wright said the agreement doesn’t limit other UPGA functions such as data gathering, disseminating information and making recommendations.
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 pre-planting 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.
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.”
University of Idaho Extension economist Paul Patterson, who has long studied the cost of producing potatoes in Idaho, believes acreage reductions noted by the plaintiffs were bound to occur regardless of UPGA’s influence, following a string of bad years for potato prices.
“They’re being blamed apparently for the entire price change, and I think that is not logical,” Patterson said. “The whole allegation of price fixing doesn’t seem to hold water under close examination because why would you set your price below your cost of production? It was below the cost of production in some of the years they’re alleging price fixing took place.”
Wright declined to discuss UPGA’s plans to pay the settlement and costs associated with litigation but said the funding will ultimately come from potato growers and the potato industry.