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Arbitration Abuses Figure
Prominently Among Themes Discussed at October 30th Senate Judiciary
Committee Hearing
By Steve Etka, Coordinator of the Campaign for Contract
Ag Reform (CCAR)
With the end of this year's congressional session rapidly
approaching, the Senate Judiciary Committee held one of its last hearings
of the year and used the opportunity to focus on the subject of agricultural
competition and concentration.
The official title of the hearing was "Monopsony Issues in Agriculture:
Buying Power of Processors in Our Nation's Agricultural Markets."
As Senator Leahy, the Committee's Ranking Democrat quipped, "monopsony
is hard to say, but it's not hard to understand." When agricultural
markets become excessively concentrated, prices paid to farmers suffer
and abusive contract terms become more commonplace.
Witnesses at the hearing included:
• Assistant Attorney General for Anti-trust Pate,
US Dept. of Justice
• Dr. Deevon Bailey, Utah State University
• Prof. Ron Cotterill, Univ. of Connecticut
• Prof. Peter Carstensen, Univ. of Wisconsin-Madison
The major themes explored through the hearing were:
• lack of adequate enforcement by the US Dept. of
Justice of anti-trust laws as they apply to monopsony (buyer power)
concerns, particularly in agriculture; the recently approved acquisition
of Farmland by Smithfield was an oft-cited example during the hearing;
and
• the need to move legislation to address abusive mandatory arbitration
clauses in livestock and poultry contracts (S.91, the Grassley-Feingold
Fair Contracts for Growers Act); and
• concentration in dairy markets, particularly in the Northeast,
and resulting harm to dairy producers
CCAR and its membership have worked hard in recent weeks
to have the issue of abusive mandatory arbitration clauses in livestock
and poultry contracts elevated as a dominant issue during this hearing,
a necessary step in the process toward enactment of legislation on this
matter.
While only one of the witnesses mentioned the issue (Prof. Peter Carstensen),
discussion of the arbitration issue, and support for the Grassley-Feingold
legislation addressing the matter, figured prominently in the written
and/or oral statements of five Senators, including the Chairman and
Ranking Member of the Judiciary Committee.
Below are excepts from the statements of those five Senators:
Excerpts from Chairman Hatch's written statement
.... Another potential abuse of monopsony power arises
in the area of non-price terms. Rather than forcing a lower price,
a powerful buyer may instead choose to use its power to insist that
a seller accept less favorable contract terms than would be negotiated
in a competitive market. This also is a concern in the area of agriculture.
For example, many argue that producers are forced to accept binding
arbitration clauses that leave them without satisfactory recourse
against processors. Again, if such contract terms reflect the abuse
of market power by processors rather than market efficiencies, both
agricultural producers and consumers will be harmed.
Excerpts from Senator Leahy's written statement
.... In addition, last year's 2002 Farm Bill came close
to taking another important step to level the playing field for independent
producers by providing protections for producers who use production
contracts. Many farmers are forced to sign mandatory arbitration clauses,
as part of a take-it-or-leave-it, non-negotiable contract with a large,
vertically integrated processing firm. In doing so, farmers are forced
to give up their basic constitutional right to a jury trial, and instead
must accept an alternative dispute resolution forum that limits their
rights and is often prohibitively expensive. The Farm Bill would have
ensured that the decision to arbitrate is truly voluntary and that
the rights and that remedies provided for by our judicial system are
not waived under coercion, much like the car dealer arbitration bill
passed by this Committee in 2002. While this provision was removed
in conference, Senators Grassley and Feingold have reintroduced the
Fair Contracts for Growers Act (S.91), which would simply give farmers
a choice of venues to resolve disputes associated with livestock and
poultry contracts. I am a cosponsor of this legislation and it is
my hope that the Committee will report out this bill as soon as possible.
Excerpts from Senator Grassley's oral statement
... On a related topic, I would be remiss if I did not
take this opportunity to voice my concern not only for the spot market's
impact on contracts, but for the construction of producer contracts.
As the lead sponsor of the Fair Contracts for Growers Act
(S. 91) I am very concerned about the abuse of arbitration
clauses in "take-it-or-leave-it," non-negotiable contracts,
such as those that are typical in the livestock and poultry sectors.
Certainly arbitration, if agreed to voluntarily by both parties involved,
can be a useful tool for resolving disputes. But what we are now seeing
in the livestock and poultry sectors is that arbitration clauses are
being forced on farmers not as a legitimate alternative dispute mechanism,
but as a mechanism to prevent farmers from challenging the abusive
actions of large packers or integrators.
Farmers who are forced into arbitration proceedings are rarely, if
ever, successful. In large part, this is because the process is stacked
against them because arbitration does not allow for the right of discovery.
If a farmer is attempting to prove that he has been treated unfairly
or has been the victim of fraud, all the data that would allow him
to argue his case is completely controlled by the company being accused
of misdeeds. Without access to that data through the normal discovery
process, it is impossible for a farmer or grower to prove his case.
And lastly, arbitration proceedings are not part of the public record.
By forcing growers to sign away their rights to resolve disputes in
court, livestock and poultry companies are able to limit public knowledge
about any abusive practices they may use in their dealings with farmers.
So it's easy to understand why a large, vertically integrated livestock
or poultry company might see the benefits of including a mandatory
arbitration clause in their contracts with farmers. And unfortunately,
we also understand that farmers are often put in a position where
they either have to sign the contract presented to them, or face bankruptcy.
But what I do not understand is why we allow this to happen.
The chairman of this committee was the lead sponsor of a bill in the
last Congress, which addressed concerns about the abuse of mandatory
arbitration clauses in contracts between auto manufacturers and car
dealerships. That legislation, which is nearly identical in structure
to the bill that Senator Feingold and I have introduced, is now law.
Our legislation would simply specify that both parties in a livestock
or poultry contract must agree in writing to pursue arbitration, AFTER
THE DISPUTE ARISES, to assure that farmers chose arbitration voluntarily.
It is my hope that we will be comfortable affording farmers the same
protections against abusive contract terms that we have provided for
the car dealers of this country.
Excerpts from Senator Feingold's oral statement
….I am pleased to be an original cosponsor of
the Fair Contract for Growers Act of 2003, which
addresses one unfair result of monopsony power in this industry and
delighted to work with my colleague, Mr. Grassley. It is designed
to provide greater fairness in the arbitration process relating to
livestock and poultry contracts. I believe that arbitration can be
an effective and appropriate method to resolve disputes between farmers
and those who purchase their products, but only when both parties
voluntarily participate. Many farmers, however, due to their disadvantaged
economic position, are forced to sign contracts presented to them
by large processing firms that include mandatory arbitration clauses.
There is no negotiation between the farmer and processor in these
instances * farmers must accept the contract as written, waiving their
constitutional right to have their disputes under the contract decided
by a trial by jury.
I would like to submit a letter for the record from numerous farm
and consumer organizations, as well as advocates for animal protection
and rural communities, expressing their support for the Fair
Contracts for Growers Act.
The Senate and this Committee have both demonstrated strong, bipartisan
support for rectifying the injustices of mandatory arbitration. During
the debate on the farm bill in the last Congress, I offered an amendment
with Senator Grassley to prohibit the use of mandatory arbitration
clauses in livestock and poultry contracts. Our amendment passed the
Senate by a vote of 63 to 31, but it was dropped in conference. This
Committee has supported similar arbitration measures in the past,
such as the "auto dealer" arbitration bill that the Chairman
worked to enact in the 107th Congress.
The Fair Contract for Growers Act addresses only
one piece of the complex business relationships in agricultural markets
that are becoming increasingly concentrated. The growing concentration
of agricultural buyers raises serious questions about the Department
of Justice*s enforcement of existing laws as well as the adequacy
of those laws to ensure a fair, open, and equitable market. I thank
the Chair for letting me speak.
Excerpts from Senator Harkin's written statement
(Sen. Harkin is not a member of the Committee, but given his interest
on the matter, choose to testify as a witness)
…. Beyond urging DoJ to focus greater energies
on protecting independent producers, I would also like to voice my
support for legislation in this Committee's jurisdiction. I was an
original cosponsor of S. 91, the Fair Contracts for Growers
Act of 2003. This legislation would thwart big processor's
efforts to abuse the arbitration system in livestock and poultry contracts.
The bill allows for the use of arbitration to resolve a controversy
as provided for under a livestock or poultry contract only if, after
the controversy arises, both parties consent. The bill also directs
an arbitrator to provide the parties with a written explanation of
the factual and legal basis for an award. The legislative language
very closely tracks language of a similar bill designed to protect
auto dealers that had broad support within this committee and throughout
the entire Senate in the last session of Congress. Further, the bill
also closely tracks language that was included in the Senate version
of the 2002 farm bill, although did not survive the conference because
of opposition by the House Agriculture Committee.
With the successful completion of this Senate hearing
process, CCAR has now turned its attention to urging the Judiciary Committee
leadership to take action on the Grassley-Feingold bill (S. 91) as soon
as possible, by reporting the bill out of Committee so that it may be
considered (and hopefully passed) by the full Senate.
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New Document on Social Justice & Economic Equity in
the Food System
Toward Social Justice and Economic Equity in the Food
System
A Call for Social Stewardship Standards in Sustainable and Organic Agriculture
Primary Authors
Elizabeth Henderson, Organic farmer,
Peacework Organic Farm, Newark, NY
Richard Mandelbaum, Comite de Apoyo a los Trabajadores
Agricolas / Farm Worker Support
Committee (CATA)
Oscar Mendieta, Assoc. of Organizations of Ecological
Producers of Bolivia, (AOPEB)
Michael Sligh, Rural Advancement Foundation International-USA
(RAFI_USA)
From the Executive Summary
Our goal is to build a model of an alternative food
system by creating an economic incentive for social equity and just
working conditions through the establishment of a "social justice"
food label. The vision of this alternative food system is one of vibrant
small-scale family farms that provide well being for the farm family
and dignified work to wage laborers. We have based the following social
justice standards on the two complementary principles of economic
equity for the farmer and just working conditions for the farm worker.
Adoption of these standards will result in a win/win/win scenario
for workers, farmers, and buyers who will all benefit from such a
program.
From the Introduction
The authors explain that this work is part of the effort
to provide standardized labeling programs for the world's food systems.
While environmental stewardship standards, such as organic certification,
are well underway and the very difficult ecological standards have
been developed, standards promoting social justice for the world's
small-scale producers, indigenous peoples and farm workers have been
neglected.
The authors explain that "addressing the need for farmers and
farm workers to gain institutionalized rights and dignity in their
workplace is vital to the future sustainability of our food system.
The fates of small family farmers, indigenous peoples, and farm workers
are inextricably tied. …A social justice labeling program would
consist of three prongs: fair trade principles for the farmer, strong
labor standards for the worker, and protected rights for indigenous
peoples."
Details of this program are explained in the 40-page
document, which is available from RAFI-USA's website. See Briefs and
Resources below.
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