A federal judge has ruled that farm cooperatives do not enjoy an exemption from antitrust laws if they collude to limit the production of a particular commodity in order to boost its price.
The ruling puts the weight of the court behind an opinion long held by many legal scholars, the USDA and the Federal Trade Commission. If it stands it will have an impact on the operations of several ag cooperatives.
The ruling stems from litigation against the United Potato Growers of America by a wholesale potato buyer, Brigiotta's Farmland Produce and Garden Center of Jamestown, N.Y., and other buyers.
United Potato Growers of America, which consists of regional cooperatives in 10 states, was formed in 2005 to alleviate an oversupply of the crop that had depressed prices. It aims to manage potato supplies to increase growers' profitability.
There is little doubt as to the co-op's goal. It's website prominently proclaims "United Potato Growers of America is a federated farmers cooperative that focuses on managing its member's' potato supply as to positively affect grower economic success."
The Capper-Volstead Act was passed in 1922 to extend protections to agricultural cooperatives that had not been specified in earlier antitrust legislation. Capper-Volstead has provided legal cover for the members of non-profit cooperatives meeting the criteria of the act to enter into any number of business and marketing arrangements that would be illegal for commercial enterprises, such as fixing prices and withholding excess product from the market to increase prices.
United Potato Growers argued that its operations were exempted from antitrust restrictions under the Capper-Volstead Act and asked the judge to dismiss the complaint.
U.S. District Judge Lynn Winmill disagreed. He said the writings of the act's original backers make it clear that it was not the intent of Congress that a cooperative be able to restrict the production of a commodity. The plain language of the act, he further argued, specifically lists any number of protected activities that can transpire once a commodity has been produced, but makes no mention of restricting production.
"Individual freedom to produce more in times of high prices is a quintessential safeguard against Capper-Volstead abuse, which Congress recognized in enacting the statute," Winmill said in the decision.
Although the decision does not establish a controlling precedent, it could have an impact on cases filed against mushroom, dairy and egg cooperatives over similar activities. One legal expert we talked with said if the decision stands, the supply-management scheme involving production limits will be "toast."
Indeed. It appears cooperatives that have succeeded by controlling production will have to revert to activities Winmill says are covered by Capper-Volstead, such as withholding portions of produced commodities from market.
Another solution is to ask Congress to amend Capper-Volstead and add the exemption. Though with much larger issues facing the country, we doubt such a measure would gain much traction.