One of agriculture's great paradoxes is legislation that was designed to curtail concentration in the meat packing industry was passed when five companies dominated the market with a total 40% market share. But the industry has evolved to the point that just three companies claim 80% of the market.
The coming of the trusts and the large corporations that dominated many sectors of the American economy caused monopoly became a critical concern in post-Civil War politics, especially for advocates of the farmer.
By 1878, for the most famous example, John D. Rockefeller's Standard Oil company controlled 90% of the nation's oil production. In the agribusiness sector, the American Sugar Refining Company controlled 85% of the nation's sugar refining, but it was the "Big Five," the group of Chicago meatpacking companies which dominated the slaughter of cattle, that became the major concern.
Sen. John Sherman, R-Ohio, understood the implications of the "power and grasp of these combinations," fearing, without action to reduce economic concentration, the coming of the "socialist, the communist, and the nihilist."
Throughout the late 19th century farmers feared the economic consequences of a powerful "tyranny of monopolies." Farmers initiated demands for legislation that would reign in industrial concentration, an effort that produced the Interstate Commerce Commission to regulate the railroads, and contributed to the consideration of more broadly-based monopoly legislation.
In response to the fears of the "grave evil" of "vast fortunes in single hands," in the words of Sen. George Hoar, D-Miss., Congress passed the Sherman Antitrust Act in 1890.
Curiously Sen. Sherman's intent in introducing his anti-trust legislation was specifically the growing concentration he saw in agriculture, despite the fact that the legislation, according to the historian Richard Hofstadter, was a "ceremonial concession to an overwhelming public demand for some kind of reassuring action against the trusts."
Such public demands were on display during the fall elections of 1890, causing Nebraskans, for the first time, to vote Democratic, sending to Congress the 30-year-old lawyer from Lincoln, William Jennings Bryan, to make their case against the trusts.
Unhappy with both political parties' efforts to address the trust question, many farmers had helped form the People's Party in 1892, adopting the famous Omaha Platform, which stated, "The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind."
In 1896, a fusionist effort united Democrats and Populists, who both nominated Bryan and adopted antimonopoly platforms, losing an election in which Bryan won 22 states and captured nearly 49% of the vote.
The monopoly problem remained a prominent issue in early twentieth century politics. President Theodore Roosevelt embraced the image of a trust-buster and initiated over forty antitrust suits between 1901 and 1909.
Roosevelt's mistake, however, was he saw "good" and "bad" trusts in addressing the monopoly question and a need to regulate the "bad" trusts rather than recognizing trusts in and of themselves as the problem.
It was in 1911 that the Supreme Court approved the divestiture of the Standard Oil and American Tobacco trusts and established a "rule of reason" analysis for future antitrust decisions.
The prominence of the monopoly question in the presidential election of 1912 prompted a range of proposed solutions that were widely debated. The election of Woodrow Wilson brought his "New Freedom" platform and a strengthening of federal antitrust legislation including the Federal Trade Commission Act of 1914.
The Clayton Act of 1914 also attempted to slow economic concentration by limiting corporate mergers and to aid the building of farmer market power by exempting non-stock farmer cooperatives from the reach of the antitrust laws.
The dual approach of applying antitrust scrutiny to corporate activity and promoting the economic organization of farmers became a standard policy for addressing the concentration issue throughout the 20th century.
The accomplishments of this policy are in doubt. The antitrust laws have proved to be a poor method of limiting and reducing corporate concentration and power.
The use of farmer cooperatives and other means to develop the market power of farmers has also fallen short of expectations, leaving many sectors of agricultural production highly disorganized. The resulting imbalance in bargaining power between concentrated buyers and disorganized sellers requires recognition in antitrust analysis.
The same year that Congress passed the Sherman Act saw the collapse of the American Cattle Trust, an organization of farmers that attempted to build their bargaining power relative to meatpackers, highlighting the link between powerful meatpackers and poorly organized farmers.
Agrarian concerns are inherent in both statutes establishing the FTC and the Sherman Act for they specifically limited the anticompetitive practices which contributed to the economic concentration that alarmed farmers and it conferred an antitrust exemption upon farmer efforts to organize themselves economically. An FTC report on the meatpacking industry became the rationale for Congressional efforts to closely scrutinize the workings of the meatpacking industry.
Congressional action took the form of a comprehensive federal statute entitled the Packers and Stockyards Act [P&SA] of 1921. The purposes and provisions of the statute require consideration when enforcing the Sherman, Clayton, and FTC Acts. P&SA passed after these wider statutes became law and was specifically directed toward a problem that seemed to persist despite the existence of previous legislation.
While refusing to purchase a farmer's livestock might be acceptable under the Sherman or FTC Acts, it would not be acceptable under the broad protective purposes of the P&SA. In making such decisions, courts have recognized the problem of monopsony that farmers face and which Congress attempted to address in the P&SA.
One contemporary commentator described the legislation as "extending farther than any previous law in the regulation of private business." The transfer of such power indicates the heightened Congressional concern with meatpacker practices and the intent to intensely scrutinize potential antitrust violations within the industry.
The language of the P&SA made it clear that particularly close scrutiny should be given to the marketing problems of farmers. Borrowing heavily from the language of other antitrust laws, again confirming the interconnectedness of the antitrust legal regime, the legislation prohibits "any unfair" practices or "any undue or unreasonable preference or advantage" to certain sellers.
The act also prohibits packer efforts to apportion supplies among them to avoid bidding against one another if apportionment "has the tendency or effect of restraining commerce or of creating a monopoly in commerce."
The statute also prohibits transferring articles or engaging in business practices "for the purpose or with the effect of manipulating or controlling prices in commerce." The number of practices that can have an "effect" on prices approaches infinity, indicating the intended sweep of the statute.
The broad language of the statute has been used to advocate the close regulation of vertical contracting between farmers and packers. One commentator has suggested that vertical contracting could reduce the number of buyers available to livestock sellers and therefore cause economic injury.
A.V. Krebs publishes the online newsletter, The Agribusiness Examiner, email avkrebs@comcast.net. He is author of The Corporate Reapers: The Book of Agribusiness.
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