How the Meat Industry Bested the Obama Administration. (Hint: It Involved Millions of Dollars.)

What to eat. What not to eat.
March 4 2014 7:52 AM

Meat Industry 1, Obama Administration 0

The president’s ambitious antitrust plan was no match for lobbyists with lots of cash.

Tom Vilsack
Agriculture Secretary Tom Vilsack.

Photo by Kevin Lamarque/Reuters

This essay is excerpted from The Meat Racket: The Secret Takeover of America’s Food Business, by Christopher Leonard, published by Simon & Schuster. Read another excerpt from The Meat Racket, about how Tyson keeps chicken prices high.

On a chilly morning in March 2010, U.S. Secretary of Agriculture Tom Vilsack addressed a crowd of nearly 1,000 politicians, farmers, lobbyists, and journalists in Ankeny, Iowa, a nondescript little suburb of Des Moines. The purpose of the public hearing was to examine the growing power of agribusiness corporations like Tyson Foods.

“Let me start off by saying how deeply concerned I am about rural America,” Vilsack said. He questioned whether the top-heavy food industry was rigged against the very farmers who actually produced the food. Then he outlined a governing agenda that was characteristically ambitious for the Obama administration in its early years. It wasn’t enough to simply fix these problems by enforcing existing rules and regulations, Vilsack suggested.

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“The president has instructed the Department of Agriculture to establish a framework for a new rural economy,” Vilsack said. For those in the crowd, from the farmers to the lawyers, bankers, and politicians, the prospect for fundamental reform was tangible. There could be a new framework. A new system of power in rural America.

What no one in the giant auditorium could foresee that day was that Obama’s effort would ultimately be a spectacular failure. The story of how Obama failed shows how the administration quickly backed down when corporate interests put up a fight, and how political operatives muzzled and undermined the very reformers Obama’s team installed after his election. It is a pattern that has played itself out in failed efforts to reign in the nation’s biggest banks or stop consolidation in the airlines industry, to take just two examples.

The failed attempt to rein in the big meat packers’ power also illustrates the remarkable level of influence that giant meat companies have in Washington, where they quietly shape public policy to their advantage through groups like the American Meat Institute and the National Chicken Council. Their well-orchestrated effort to beat back Obama’s reform efforts has arguably left them more powerful than they were when Obama entered office. And like many of the changes in America’s meat industry, it all played out under the public’s radar.

* * *

In the months leading up to the hearing in Ankeny Tom Vilsack installed a team of regulators who would overhaul the Grain Inspection Packers and Stockyards Administration, an agency with special antitrust authority over meat companies. The obscure GIPSA agency played a critical role in protecting America’s meat supply. The agency’s authority derived from laws passed 100 years ago to combat the abuses of a so-called “Meat Trust,” a small group of old-school meat packers like Armour and Swift. The Meat Trust underpaid farmers and hiked prices for consumers, and the USDA was remarkably effective at breaking up the meat companies’ monopolistic power. By 1982, the four biggest beef companies controlled only 44 percent of the market and the four chicken producers controlled only 32 percent of the market. But lax enforcement during the 1980s and 1990s brought consolidation back to meat production.

For several months during 2010, the policy makers inside GIPSA drafted a new rule that would carry out the changes that could rebalance the scales of power in rural America. For example, the rule would ban a chicken farmer payment scheme that is known throughout rural America simply as the “tournament.” Under the tournament, chicken farmers do not get paid for how much food they raise. Instead, poultry companies like Tyson pay the farmers based on a ranking system that compares each farmer’s performance against his neighbor’s. The winners are rewarded while the losers are paid so little that many go out of business. Farmers have no control over the main criteria for their success in the tournament—the health of the chickens and the quality of the feed that Tyson provides them. This makes the tournament more like a lottery. The new GIPSA rule would have effectively banned the tournament by guaranteeing farmers a predictable base payment and allowing companies like Tyson to only offer incentives for good performance, in other words, rather than docking a farmer’s income by adjusting the base pay rate through the tournament.

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The rule also made one legal change that aimed to make GIPSA more powerful than ever by strengthening the Packers and Stockyards Act, which was passed in 1921. The new rule would let farmers or ranchers sue a company like Tyson under the Packers and Stockyards Act if the farmer could prove Tyson had harmed the farmer’s business. Thanks to a series of court decisions, farmers must currently prove that meat companies not only hurt the farmers’ business with their actions, but the state of competition in the entire meat industry. That bar has proven almost impossible to reach, rendering the Packers and Stockyards Act toothless.

The proposed GIPSA rule was released in June 2010.

"The reality is, the Packers and Stockyards Act has not kept pace with the marketplace,” Vilsack said at the time. “Our job is to make sure the playing field is level for producers."

Inside the American Meat Institute, there was shock the day the GIPSA rule was proposed. Mark Dopp, the lobbying group’s director of regulatory affairs, didn’t mince words about his opinion of it.

“We’ve had better days,” Dopp moaned. “This rule attempts, on many levels, to undercut all the progress that has been made. It will undercut innovation.”

What seemed most disturbing to the American Meat Institute (and its partner groups like the National Chicken Council and National Cattlemen's Beef Association), was the provision that lowered the bar to bringing lawsuits under the Packers and Stockyards Act.

“It’s going to spawn all kinds of litigation,” Dopp said. “I’m afraid I think it will trigger a whole host of what I would consider specious lawsuits.”

The meat lobbying groups began to gather their wits after the initial shock of the seeing the new rule. The groups would follow their tried-and-true playbook, and respond in unison. By releasing the GIPSA rule, Vilsack kicked into motion one of the better-funded, better-coordinating lobbying machines in Washington.

The meat companies themselves had tremendous resources at their disposal. The biggest meat companies—Tyson Foods, Conagra Foods, Cargill, Smithfield and JBS—spent a combined $5.94 million on lobbying during 2010 alone, according to an analysis of disclosure reports. Tyson had the biggest lobbying operation by far, spending $2.59 million. The companies were joined by the American Meat Institute, the National Chicken Council, the National Cattlemen’s Beef Association and the National Pork Producers Council, which together spent $1.85 million on lobbying during 2010.

Together, the trade groups and companies spent $7.79 million on lobbying in 2010. Influencing GIPSA directly wasn’t going to be an option, and the White House had publicly cast its lot behind stronger enforcement. So the meat lobby turned to the governing body it knew could yield the best results: Congress.

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