[Senate Hearing 106-1034]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 106-1034

 USDA'S ADMINISTRATIVE PROCEDURES REGARDING THE PACKERS AND STOCKYARDS 
                                  ACT

=======================================================================

                                HEARING

                               before the

        SUBCOMMITTEE ON ADMINISTRATIVE OVERSIGHT AND THE COURTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 25, 2000

                               __________

                          Serial No. J-106-108

                               __________

         Printed for the use of the Committee on the Judiciary

                               __________

                    U.S. GOVERNMENT PRINTING OFFICE
73-877                     WASHINGTON : 2001


                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
JON KYL, Arizona                     HERBERT KOHL, Wisconsin
MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
BOB SMITH, New Hampshire
             Manus Cooney, Chief Counsel and Staff Director
                  Bruce Cohen, Minority Chief Counsel
                                 ------                                

        Subcommittee on Administrative Oversight and the Courts

                  CHARLES E. GRASSLEY, Iowa, Chairman
JEFF SESSIONS, Alabama               ROBERT G. TORRICELLI, New Jersey
STROM THURMOND, South Carolina       RUSSELL D. FEINGOLD, Wisconsin
SPENCER ABRAHAM, Michigan            CHARLES E. SCHUMER, New York
                       Kolan Davis, Chief Counsel
                 Matt Tanielian, Minority Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Ashcroft, Hon. John, U.S. Senator from the State of Missouri.....    37
Grassley, Hon. Charles E., U.S. Senator from the State of Iowa...     1

                               WITNESSES

Brownback, Hon. Sam, a U.S. Senator from the State of Kansas, 
  prepared statement.............................................    36
Dunn, Michael V., Under Secretary of Marketing and Regulatory 
  Affairs, U.S. Department of Agriculture, prepared statement and 
  attachment.....................................................     4
Dyckman, Lawrence J., Director, Food and Agriculture Issues, 
  Resources, Community, and Economic Development Division, U.S. 
  General Accounting Office, prepared statement..................     8

                                APPENDIX
                         Questions and Answers

Responses from the General Accounting Office to Questions from 
  the Senate Committee on the Judiciary..........................    39

                 Additional Submissions for the Record

Grams, Hon. Rod, a U.S. Senator from the State of Minnesota......    42
Letter from the Department of Agriculture, Grain Inspection, 
  Packers and Stockyards Administration to Hon. Charles E. 
  Grassley.......................................................    42

 
 USDA'S ADMINISTRATIVE PROCEDURES REGARDING THE PACKERS AND STOCKYARDS 
                                  ACT

                              ----------                              


                       MONDAY, SEPTEMBER 25, 2000

                           U.S. Senate,    
   Subcommittee on Administrative Oversight
                                    and the Courts,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Charles E. 
Grassley (chairman of the subcommittee) presiding.

 OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 
                     FROM THE STATE OF IOWA

    Senator Grassley. I am pleased to call today's hearing to 
order. We have a very important report from the General 
Accounting Office on the enforcement efforts of the Grain 
Inspection, Packers and Stockyards Administration of the U.S. 
Department of Agriculture with respect to anticompetitive 
activity in the livestock market. The report is entitled 
``Packers and Stockyards Program: Actions Needed to Improve 
Investigations of Competitive Practices.'' The report was 
issued last week.
    One of the purposes of this subcommittee is to provide 
oversight of administrative procedures in various agencies of 
the Federal Government. This is useful in terms of making sure 
that agencies are doing their job in the best manner possible.
    So in August 1999, I asked the General Accounting Office to 
conduct an investigation because I felt the U.S. Department of 
Agriculture was not doing everything under the current Packers 
and Stockyards Act authority to prevent unfair and 
anticompetitive practices in the cattle and hog industries.
    I thought it would be helpful for Congress to have a fair 
assessment of the parameters of the Packers and Stockyards Act, 
what the U.S. Department of Agriculture should be doing under 
their current authority, and how well they have been doing it 
so far. This is particularly important as Congress considers 
how to best address concerns raised about concentration and 
anticompetitive practices in agriculture.
    Even though we have 25-year-low prices for a lot of 
agricultural commodities, I probably hear more concern 
expressed about concentration and the lack of competition in 
agriculture than I do even with prices. So after this report 
was issued, I wasn't that surprised when the General Accounting 
Office report found that GIPSA has substantial authority to 
prohibit anticompetitive activity in the livestock industry by 
taking investigative, enforcement, and regulatory action. I 
also wasn't that surprised when the report showed that GIPSA 
hasn't been very aggressive in terms of pursuing competition-
related cases or issuing competition-related regulations.
    However, I was shocked to learn that GIPSA has serious 
organizational, procedural, and expertise problems which the 
General Accounting Office report concludes substantially impede 
GIPSA's ability to effectively perform its competition duties.
    I was even more shocked to learn that notwithstanding the 
fact that GIPSA has known since 1991 that there were serious 
problems--in fact, in 1997 the U.S. Department of Agriculture's 
own inspector general identified these same problems--very 
little has been done to address and resolve them in an 
appropriate manner or as a priority matter for the Department.
    Undoubtedly, these shortcomings affect how GIPSA conducts 
its business in a very negative way and, ultimately, whether 
farmers are protected from unfair and anticompetitive practices 
in the livestock industry. These shortcomings also severely 
handicap GIPSA's ability to perform its statutory 
responsibilities.
    Now, the way I see this is that even if Congress were to 
enact further laws--and the bills introduced in Congress so far 
generally involve giving the U.S. Department of Agriculture 
more authority--perhaps the USDA is not in a state to 
accomplish anything of real benefit for farmers to protect 
competition.
    The General Accounting Office says that GIPSA hasn't got 
the right procedures and processes in place, nor do they have 
the requisite expertise to do the job that they have to do 
right now. And if you read between the lines of the General 
Accounting Office report, it is saying that the U.S. Department 
of Agriculture and GIPSA haven't made the competition issue a 
priority in the grand scheme of things, based on the small 
amount of resources and time they have actually dedicated to 
these matters. We will explore these issues in depth with 
today's witnesses.
    A final point. I think it is clear that USDA currently has 
very expansive authority to take action to prevent unfair and 
anticompetitive activity in the livestock market, and that the 
U.S. Department of Agriculture hasn't been effective in this 
responsibility because of the problems identified in the 
General Accounting Office report.
    While the Packers and Stockyards Act may not necessarily be 
a panacea in terms of addressing concentration and competition 
in the livestock industry, giving the U.S. Department of 
Agriculture more authority at this time makes little sense 
because it appears that the USDA can't even do the job it is 
supposed to do right now.
    I believe that if the USDA doesn't get its act in order, 
then USDA won't be accomplishing its competition mission under 
the Packers and Stockyards Act. The U.S. Department of 
Agriculture must implement the case methods and investigative 
processes specifically tailored for competition matters, and 
dedicate experienced antitrust lawyers to conduct these 
investigations and pursue them as legal cases which can be won 
in court.
    I am not saying that additional legislation would never be 
appropriate. In fact, I myself think that it would be a good 
idea to get the U.S. Department of Agriculture more involved in 
the merger review process, and I have actually introduced a 
bill that would do just that. But if the USDA can't do 
antitrust, throwing more legislation and authority at it will 
do little to help farmers and competition in agriculture.
    Most importantly, though, the USDA needs to make 
competition matters a priority. While I keep hearing that they 
think that these concerns are important and they are focusing 
on them, why do we then have a report that concludes so very 
little USDA, OGC, and GIPSA time and staff is spent and 
dedicated to competition-related matters? Why hasn't the U.S. 
Department of Agriculture put this at the top of its to-do 
list?
    Ultimately, I believe that the priorities of this 
administration's USDA are not in order, and we in Congress have 
to force USDA to do it. That is the reason why Iintroduced S. 
3091 last week, with Senators Grams, Ashcroft, and Brownback. I refer 
to this as the Packers and Stockyards Enforcement Improvement Act of 
2000. Our bill will require the U.S. Department of Agriculture to 
implement the GAO recommendations within a year.
    It is truly a disgrace that Congress has to resort to 
legislative action to force the U.S. Department of Agriculture 
to make commonsense changes, considering the fact that 
competition and concentration are of such concern to our 
farmers. As I expressed, I hear more about that, quite frankly, 
than I do the low prices.
    I believe that the General Accounting Office Report will 
significantly help improve USDA's monitoring, investigations, 
and enforcement under the Packers and Stockyards Act, and 
consequently help family farmers in the end.
    Now, I am ready to call our witnesses. Even though we are 
only going to receive testimony from Mr. Dunn, who is Under 
Secretary of Agriculture for Marketing and Regulatory Affairs, 
and a fellow Iowan, and Mr. Lawrence Dyckman, Director of Food 
and Agriculture Issues at the General Accounting Office, Mr. 
Dunn and Dyckman are free to bring--I thought each of you 
wanted to bring two extra people to the table with you, so 
would you each come with your teams?
    I want to take your testimony and remind you that your 
entire statements will be put in the record. We have asked you 
to summarize in 5 minutes, and I would like to have you stick 
to that. Now, normally, I would take as long as I could to 
listen to testimony because I think particularly agencies of 
our Government ought to have adequate time to do that.
    But we have been told--and I hope this doesn't happen, but 
I have been told that the Democrat minority is going to enforce 
what is referred to as the 2-hour rule, which means that 2 
hours after the Senate has taken effect, gone into session, we 
must then not have any hearings or committee meetings.
    The reason I hope they don't do that is because I think it 
would be irresponsible not to allow us to get to the bottom of 
these issues that are pretty much bipartisan in this Congress, 
competition in agriculture, and the efforts of my subcommittee 
and other subcommittees of the Congress to put proper attention 
on this. If they do, then we are just going to have to stop 
because under the practice of this committee, we do not keep 
the committee going in violation of the Senate rules to take 
testimony informally, as some committees do.
    What we will do at that point, then, is we will have to 
submit all the questions that are unanswered in oral comments 
to each of you to respond to, and we will put all of the 
statements in the record.
    So would you please start, Secretary Dunn.

    PANEL CONSISTING OF MICHAEL V. DUNN, UNDER SECRETARY OF 
     MARKETING AND REGULATORY AFFAIRS, U.S. DEPARTMENT OF 
  AGRICULTURE, WASHINGTON, DC, ACCOMPANIED BY CHARLES RAWLS, 
 JAMES BAKER, AND JOANNE WATERFIELD; AND LAWRENCE J. DYCKMAN, 
 DIRECTOR, FOOD AND AGRICULTURE ISSUES, RESOURCES, COMMUNITY, 
  AND ECONOMIC DEVELOPMENT DIVISION, U.S. GENERAL ACCOUNTING 
OFFICE, WASHINGTON, DC, ACCOMPANIED BY CHARLES ADAMS AND SUSAN 
                             POLING

                  STATEMENT OF MICHAEL V. DUNN

    Mr. Dunn. Thank you, Mr. Chairman. On behalf of Secretary 
Glickman, I want to thank you for inviting us to present our 
views on the General Accounting Office's Report, entitled 
``Packers and Stockyards Programs: Action Needed to Improve 
Investigation of Competitive Practices.''
    I am pleased to present written testimony and provide any 
additional comments that you might need. I would ask that the 
committee accept that written testimony as it was written.
    Senator Grassley. Yes, we will.
    Mr. Dunn. Thank you.
    Senator Grassley. The same for Mr. Dyckman.
    Mr. Dunn. With me today is our General Counsel, Mr. Charlie 
Rawls, and the Administrator of the Grain Inspection, Packers 
and Stockyards agency, Mr. Jim Baker. In addition to that, I 
would like to introduce to you for the first time at this 
committee our recently appointed Deputy Administrator for 
Packers and Stockyards Programs, Joanne Waterfield. She comes 
to us from the Trade Practices Branch of the Office of General 
Counsel.
    Senator Grassley. Thank you for your presence, and 
congratulations on your new position.
    Mr. Dunn. I want to respond to the GAO report 
recommendations provided in this report. Mr. Chairman, 
generally I strongly agree with the need to formalize a team 
approach between the economists and counsels at the start of an 
investigation. I think it is an excellent suggestion, as are 
many of the suggestions in the report.
    Now, Secretary Glickman also shares the concerns. Back in 
1996, he and I talked about what needed to be done in Packers 
and Stockyards, and he had the same concern that you had, Mr. 
Chairman, about the ability of Packers and Stockyards to not 
only fulfill its traditional role under trade and financial 
concerns, but to address this competition problem.
    The Secretary asked the Office of Inspector General to do 
an audit of Packers and Stockyards, and they did that audit. It 
was released in 1997. That audit put about a watershed change 
in how Packers and Stockyards should operate, and instructed us 
to begin looking at getting morestatisticians, more economists, 
and people with legal expertise on the Packers and Stockyards rolls.
    Mr. Chairman, we did go about doing that and have 
implemented almost all of the procedures that the OIG had asked 
us to implement in that audit report. The result has been that 
we have restructured Packers and Stockyards; downsized the 
number of people at the headquarters, went from 11 regional 
offices to 3 offices, one office in Denver which primarily 
looks at livestock issues for beef and sheep, an office in Des 
Moines, Iowa, that primarily looks at issues of pork, and an 
office in Atlanta that primarily looks at issues involving 
poultry.
    In addition to that, we have vastly increased the staff in 
Packers and Stockyards to address those other issues. We have 
18 new economists and statisticians on the staff of Packers and 
Stockyards. We have hired six people with legal backgrounds, 
and have two in each of the three areas. Mr. Chairman, Joanne 
Waterfield, who is the new Deputy Administrator for Packers and 
Stockyards, is also an attorney. So we have begun following the 
general guidelines that were set out by the Office of Inspector 
General.
    I think that the GAO report is a timely report to come 
through to see how we are doing it. It has some very good 
recommendations on what we need to do and, Mr. Chairman, we 
will be following those.
    Thank you very much.
    [The information supplied by Mr. Dunn follows:]

 Summary of USDA Testimony--General Accounting Office Report ``Packers 
 and Stockyards Programs: Actions Needed To Improve Investigations of 
                        Competitive Practices''

    USDA is concerned about the competitive effects of rising 
concentration levels, vertical coordination, and other structural 
changes in the livestock, poultry and meat packing industries, and is 
committed to effectively responding to competitive, trade practice, and 
financial protection issues in these sectors. Overall, GIPSA and OGC 
concur with the recommendations provided in the report. The Department 
finds GAO's recommendations are within GIPSA's existing reorganization, 
reengineering, training, and long-term planning and implementation 
strategies.
    This testimony outlines GAO's three sets of recommendations: GIPSA 
economists and OGC attorneys should develop a team approach for 
investigations; the number and role of OGC attorneys in GIPSA's 
investigations, as well as the role of GIPSA's own legal specialists, 
should be revisited; and informational activities are needed to educate 
and inform the industry and Congressional representatives of the 
competitive activities occurring in the industry, and changes in 
business practices affecting market operations, or for raising concerns 
under the P&S Act.
    The testimony addresses GIPSA's past, current, and planned 
activities that are responsive to each of the GAO recommendations.
    Overall, USDA has taken and plans more steps to strengthen its 
capacity to address concerns about competitiveness in the livestock, 
meat, and poultry industries under the Packers and Stockyards Act. The 
Department welcomes GAO's constructive suggestions. Many of the 
recommended changes have already been made and others will be 
undertaken as available resources allow.
                                 ______
                                 

                 Prepared Statement of Michael V. Dunn

    Members of the Subcommittee, thank you for this opportunity to 
address the issues raised by the General Accounting Office Report 
``Packers and Stockyards Programs: Actions Needed to Improve 
Investigations of Competitive Practices'' (GAO/RCED-00-242).
    USDA is concerned about the competitive effects of rising 
concentration levels, vertical coordination, and other structural 
changes in the livestock, poultry and meat packing industries. The 
Department completed a major study of concentration (1996) in the red 
meat industry and formed the Advisory Commission on Agricultural 
Concentration in 1996. In 1997, USDA's Office of the Inspector General 
(OIG) reviewed GIPSA's program for investigating competitiveness issues 
under the Packers and Stockyards Act (P&S Act). OIG recommended the 
GIPSA place more of its resources in regional offices, obtain 
additional staff with economic, statistical, and legal backgrounds to 
investigate anticompetitive practices; and develop procedures to 
consult with the Office of the General Counsel (OGC) as investigations 
are initiated and throughout the course of the investigations. In 1998, 
GIPSA restructured its P&S Programs and reallocated staff to provide 
the economic, statistical, and legal resources needed to investigate 
complex competitiveness issues.
    GIPSA's restructuring has strengthened its capability to 
investigate complex competitive, trade practice, and financial issues 
in the livestock, meat and poultry industries. For example, in March 
the U.S. Attorney's Office for the Eastern District of Maryland filed a 
complaint in United States District Court on behalf of USDA against a 
leading poultry processor, based on results of an investigation by 
GIPSA. The complaint alleged that the poultry firm engaged in unfair 
and deceptive practices in its dealings with poultry growers. On July 
31, the Department of Agriculture and the company entered into a 
consent agreement to resolve this complaint. In April 1999, GIPSA filed 
a complaint charging a leading pork packer with engaging in unfair 
practices in violation of the Packers and Stockyards Act. An 
administrative hearing to adjudicate this issue is currently in 
progress. In July 1999, GIPSA filed a complaint charging a major beef 
packing company with engaging in an unfair practice by retaliating 
against a feedlot, in violation of the Packers and Stockyards Act. The 
administrative hearing in that case is scheduled for March of next 
year.
    USDA is committed to effective responses in competitiveness issues, 
trade practice and financial protection issues in the livestock, meat, 
and poultry industries. We welcome GAO's thorough review of P&S' 
Programs and view GAO's recommendationsas constructive. As stated in 
the Department's response to the report ``Overall, GIPSA and OGC concur 
with the recommendations provided in the report . . .'' The Department 
finds GAO's recommendations to be consistent with the existing 
reorganization, reengineering, training, and long-term planning and 
implementation strategies of the agency.
    GAO makes three sets of recommendations:
    The first set suggests that GIPSA economists and OGC attorneys 
develop a team approach for investigations. While this has occurred 
informally during the early stages of complex investigations, GIPSA and 
OGC will formalize this process to ensure that investigative, economic, 
and legal issues are considered prior to embarking on complex 
investigations.
    GIPSA has been recruiting economists and legal specialists and now 
employs a total of 28 economists and 6 legal specialists, with an 
additional 8 economists and 1 legal specialist to be hired, to improve 
investigative capabilities. The Agency believes that it is important 
that we institute well-developed investigative procedures to ensure 
efficient and effective use of these capabilities. GIPSA is examining 
the investigative procedures of the Antitrust Division of the 
Department of Justice (DOJ) and the Federal Trade Commission (FTC), as 
recommended by GAO. GIPSA will also examine procedures utilized by 
other federal regulatory agencies whose missions may more closely 
parallel our own, including the Commodity Futures Trading Commission, 
the Federal Aviation Administration, and the Federal Communications 
Commission. Based on our review, we will develop and refine written 
guidelines and procedures for both routine and complex investigations.
    GIPSA plans to implement a tiered review process for 
investigations. GIPSA anticipates that investigators and legal 
specialists in its field offices will jointly develop investigation 
plans. A screening process will then be used to approve both routine 
and complex investigations. Complex investigations are those that 
require a substantial commitment of resources, include major firms or 
segments of the industry, involve novel economic or legal theories, or 
otherwise present substantial challenges. Supervisors at the field 
office level would approve plans for the Agency's routine 
investigations, and GIPSA headquarters staff, in conjunction with OGC, 
would approve plans for more complex investigations. GIPSA and OGC will 
review detailed written reports of plans for complex investigations for 
logistical implications, such as resource management, and for legal 
issues and economic analyses. Such a careful review of complex 
investigative plans by GIPSA and OGC senior management will result in a 
more effective use of investigative resources and will facilitate 
successful litigations.
    The second set of recommendations in the GAO report discusses the 
number and role of OGC attorneys in GIPSA's investigations, as well as 
the role of GIPSA's own legal specialists. Congressional approval of 
the President's FY 2001 requested budget increase of $3.7 million for 
GIPSA for P&S activities would enable GIPSA to fully integrate OCG into 
GIPSA's investigative process. To the extent resources are available, 
USDA will increase the integration of OGC attorneys into GIPSA's 
investigative teams early in the investigative process. Through the 
screening and approval process described above, it can be expected that 
one or more OGC attorneys will be assigned to a GIPSA investigative 
team at the time that an investigative plan is reviewed and approved by 
GIPSA and OGC senior management. GIPSA may also seek to have an OGC 
attorney assigned to a team during the initial development of an 
investigative plan. The OGC attorney(s) will work closely with GIPSA 
economists, legal specialists, and other technical specialists to 
ensure that investigative plans have a sound legal basis and to address 
critical legal issues throughout the conduct of an investigation. If 
evidence leads to the filing of a complaint, the integration of OGC 
attorneys in GIPSA's investigative teams will improve USDA's ability to 
litigate a case effectively.
    GAO also noted a decline in the number of OGC attorneys who are 
available to assist in GIPSA investigations. In the past 3 years, as a 
result of Congressional appropriations, OGC has been unable to fill 
positions that were vacated through attrition. OGC recognizes the high 
priority and increasing workload in critical areas such as its Trade 
Practices Division. If sufficient funds are not made available by 
Congress, as requested in the fiscal year 2001 budget, consideration 
will be given to transferring resources within OGC to better support 
the work of GIPSA. However, such a transfer would be difficult due to 
the fact that many areas of OGC are already working with reduced 
staffing.
    GIPSA will enhance the effectiveness of its legal specialists. 
While the role of GIPSA legal specialists is not to act as attorneys 
for GIPSA or the Department, they serve as a frontline resource for 
legal advice on investigations. They will participate in investigation 
planning and will consult with OGC attorneys. The legal specialists in 
the field offices are new to the agency and its regulatory processes. 
They will require continuing training and guidance on investigative 
procedures. GIPSA will be looking to OGC for their recommendations in 
this regard.
    The final recommendation addresses informational activities to 
educate and inform the industry and Congressional representatives of 
the competitive activities occurring in the industry, and changes in 
business practices affecting market operations, or raising concerns 
under the P&S Act.
    GIPSA has a long history of meeting with the regulated industry and 
producers to discuss policy issues under the P&S Act. For example, 
GIPSA has held meetings with hog producers to discuss issues and 
maintain a meaningful dialogue. GIPSA has sponsored three regional 
meetings with state departments of agriculture and state attorneys 
general to find ways to better serve the agricultural community, share 
and exchange meaningful information, and develop better channels of 
communication. Last May, GIPSA sponsored a Millennium Conference, 
attended by over 450 people, which brought together speakers with 
divergent views in order to enhance public dialogue and debate on 
structural changes and industry concentration. The Agency has held, and 
is holding, a series of town hall meetings to discuss issues of concern 
topoultry growers, producers and processors. The town hall meetings 
will conclude this fall. USDA sponsored a public forum on September 21 
in Denver to discuss issues surrounding captive supplies. The forum 
provided an opportunity for the public to submit written comments on 
key issues related to captive supplies, for farm groups to offer 
evidence on the problems or benefits or captive supplies, and for 
invited panelists to debate and discuss questions related to the issue. 
GIPSA is also planning a series of town hall meetings next year to 
discuss beef and sheep issues. Each of these events offers information 
about the agency, its function and industry findings.
    GIPSA's three Packers and Stockyards Programs regional offices held 
open houses in May and June 1999, to provide opportunities for industry 
and government representatives to become more knowledgeable about 
Packers and Stockyards Programs' activities and responsibilities. GIPSA 
established a toll-free hotline (800-988-3447) as another avenue for 
producers and the public to voice their concerns and record their 
complaints about competitive, trade practice, or financial issues that 
may warrant investigation. As an aid for livestock and poultry growers, 
GIPSA has added information and links on its web site that can be used 
by producers as a guide before they commit to the legal and financial 
obligations that a signed growing contract would require.
    GIPSA has developed rapid response teams to conduct high priority, 
speedy investigations to prevent or minimize major competitive or 
financial harm caused by violations of the P&S Act. Since July 1999, 
teams have been deployed in North and South Dakota, Missouri, Kansas, 
Nebraska, Mississippi, Pennsylvania, Idaho, Iowa, Illinois, and 
Wisconsin to address a variety of situations in the cattle, hog, and 
poultry industries. A significant part of the rapid response teams' 
activities have involved direct communication with producers and other 
concerned parties.
    GIPSA has actively supported analysis and the public release of 
findings that directly relate to the competitive conditions and 
marketplace behavior in the meatpacking industry. For example, a report 
of an analysis of competitive conditions and behavior of U.S. 
meatpackers by Catherine Morrison at the University of California, 
Davis was released in 1999. A report of research by John Schroeter 
(Iowa State University) and Azzeddine Azzam (University of Nebraska-
Lincoln) conducted as part of the Texas Panhandle Fed Cattle 
Investigation was also released in 1999. GIPSA conducted a peer review 
of the Texas Panhandle Investigation and released the results to the 
public. These findings have contributed to the public understanding and 
debate about the competitiveness of markets and the behavior of market 
participants including their use of marketing agreements, forward 
contracts and packer feeding. GIPSA published a petition submitted by 
the Western Organization of Resource Councils asking that USDA engage 
in rulemaking to limit packers' use of forward contracts and packer 
feeding, and provided the public an opportunity to comment. GIPSA 
publicly provided its assessment of the comments, which has stimulated 
dialogue and discussion of the issues.
    GIPSA publishes an annual statistical report on the meat packing 
industry. The report contains data on packer procurement practices, 
changes in plant size, concentration ratios, and other structural 
changes occurring in the industry.
    USDA recognizes that there is room for improvement. GIPSA 
recognizes that it would be helpful if producers had a better 
understanding of the P&S Act and how the Act applies to various market 
activities. GIPSA also agrees that it could report on market activities 
and identify those activities that may raise concerns about fairness 
and competition, as the FTC does.
    GIPSA also plans to provide more guidance to the industry through 
the regulatory process. On July 28, Secretary Glickman announced plans 
to propose several new regulations and stated that ``Our goal is to 
ensure there is fair competition in the marketplace and to help small 
farmers and ranchers compete more effectively. These new rules will 
help level the playing field by increasing the transparency of market 
transactions.''
    GIPSA has published proposed rules to establish the Swine Contract 
Library as mandated by Public Law 106-78, ``Livestock Mandatory 
Reporting'' and has promulgated a final rule to help ensure that feed 
weight is properly documented whenever it affects payment or settlement 
to livestock and poultry growers.
    By increasing our public visibility through outreach efforts, GIPSA 
can both inform and educate our affected public about their 
responsibilities under the Act and monitor issues affecting the 
industry. If Congress approves its 2001 budget request, GIPSA will 
appoint a full-time Outreach Coordinator for the Packers and Stockyards 
Programs.
    In summary, we have been taking steps to strengthen our capacity to 
address concerns about competitiveness in the livestock, meat, and 
poultry industries. We welcome GAO's constructive suggestions. Many of 
the recommended changes have already been made and we are continuing to 
make changes that available resources will allow.

    The Chairman. Thank you, Mr. Dunn.
    Mr. Dyckman.

                STATEMENT OF LAWRENCE J. DYCKMAN

    Mr. Dyckman. It is a pleasure to be here, Chairman 
Grassley. With me is Chuck Adams, to my right, the Assistant 
Director of the work, and Susan Poling, our Associate General 
Counsel, which helped us with the legal issues in our report. 
Again, I want to thank you for the opportunity to testify on 
our review of the Department's efforts to investigate concerns 
about competition in the marketing of cattle and hogs.
    As you know, dynamic changes have taken place in these 
industries over the recent decades, transforming them and 
creating new opportunities. However, these changes have also 
led to concerns--and you have described them--about the effects 
of increasing industry concentration, including the possibility 
that there have been anticompetitive actions.
    Our testimony today focuses on USDA's efforts to 
investigate concerns about such actions. USDA's legal authority 
in this area is the Packers and Stockyards Act. GIPSA is 
responsible, as we all know, for that implementation. My 
testimony is based on our report issued last week to you and 
the House and Senate Agriculture Committees that addresses 
GIPSA's authority the Act, the results of GIPSA's 
investigations, and the agency's capability to effectively 
investigate concerns about these types of practices.
    I won't bore you with the background of the Act. I believe 
you are familiar with it, but let me just say that the Act 
gives GIPSA broad authority. GIPSA has to prove that a practice 
is unfair. It must show that a packer intended to injure 
another party, or that the packer's action caused injury or is 
likely to do so. The Act provides for GIPSA to start 
investigations and take administrative actions to halt packer 
practices that violate the Act. USDA has an administrative law 
process. It hears cases, and these cases are decided by an 
administrative law judge.
    In terms of the status of the investigations, what we found 
was that recent GIPSA investigations have identified very few 
anticompetitive activities. From October 1997 to December 1999, 
GIPSA investigated 74 allegations or concerns about 
anticompetitive activity involving cattle or hogs. At the end 
of March 2000, 57 investigations were completed and 17 were 
ongoing. Our report has a full description of the status of 
these cases. GIPSA identified a total of five alleged 
violations of the Act which involved actions by one or more 
companies in such areas as deceptive pricing and improper 
bidding practices.
    We also observed, and Secretary Dunn has just described, 
the major effort that the Department has started to improve its 
investigative capabilities. They have reorganized, they have 
tried to hire additional staff, and they are to be commended 
for that. However, our work identified significant problems in 
the way GIPSA conducts its investigations. And these are not 
new findings on our part; the IG reported many of them several 
years ago.
    First, they are being performed without the direct 
involvement of attorneys. Consequently, the legal perspective 
of USDA's attorneys is generally absent until GIPSA has 
performed an investigation and forwarded a case file to them 
for review and action. In comparison, we know that the 
Department of Justice and the Federal Trade Commission do not 
perform investigations of potential anticompetitive practices 
without an experienced attorney leading the way, not just 
involved in the case.
    Second, we found that GIPSA's investigative practices have 
not been designed for complex investigations involving 
competition. Rather, they were designed years ago for 
traditional practice investigations and financial type 
investigations. Moreover, GIPSA's investigative guidance manual 
was last revised 4 years ago, prior to the agency's 
reorganization, to develop anticompetitive practice 
investigation capabilities. The manual does not contain 
specific guidance for anticompetitive practice investigations, 
such as the contents of an investigative plan, the information 
needed for approval of an investigation, or how frequently 
these investigations should occur.
    We concluded that USDA needs to make substantial 
improvements in these areas. First, USDA needs to integrate 
OGC's attorneys into the investigative teams along with GIPSA's 
economists. Attorneys should be in a lead role on the complex 
competition-related investigations, just as they are at the 
other departments that we mentioned.
    We recommend that they adopt a more systematic approach to 
performing investigations, including much more up-front 
planning. Like Justice and FTC, they should start with a 
preliminary phase to develop a theory of the alleged violation 
and an investigative plan. We do that actually on our reviews. 
We have audit program. We agree on what are the critical 
questions. We involved our attorneys on investigations like 
this one that involve legal issues up front, and they are equal 
partners on these investigations and our reviews.
    At this stage of the investigative plan, senior officials 
with GIPSA and OGC could approve the initial theory of the 
case, the plan, and commit the necessary resources. 
Subsequently, periodic reviews should be held at major decision 
points. We recommend that GIPSA consult with the Attorney 
General and the Chairman of the Federal Trade Commission on 
these recommendations, to implement them.
    We are heartened and encouraged that USDA's response is a 
positive one because it reflects an acknowledgement that 
actions are needed to make GIPSA's investigations even more 
effective than they are now.
    Mr. Chairman, that concludes my statement and we would be 
happy to participate in questions and answers.
    [The prepared statement of Mr. Dyckman follows:]

               Prepared Statement of Lawrence J. Dyckman

    Mr. Chairman and Members of the Subcommittee: Thank you for the 
opportunity to testify on the work we have completed on the U.S. 
Department of Agriculture's (USDA) efforts to investigate concerns 
about competition in the marketing of cattle and hogs. Our testimony 
today is based on our September 21, 2000, report entitled Packers and 
Stockyards Programs: Actions Needed to Improve Investigations of 
Competitive Practices (GAO-RCED-00-242), which you requested. As you 
know, within USDA, the Grain Inspection, Packers and Stockyards 
Administration (GIPSA) is responsible for investigating concerns about 
unfair and anticompetitive practices in the $43 billion cattle and hog 
market.
    Our testimony today focuses on the three areas covered in our 
report: (1) the number and status of investigations conducted by GIPSA 
in response to complaints and concerns about anticompetitive activity 
involving the marketing of cattle and hogs, (2) factors that affect 
GIPSA's ability to investigate concerns about anticompetitive 
practices, and (3) GIPSA's authority under the Packers and Stockyards 
Act to address concerns about anticompetitive and unfair practices. In 
summary, we found the following:
    From October 1, 1997, through December 31, 1999, GIPSA investigated 
74 allegations or concerns about anticompetitive activity involving 
cattle or hogs. At the end of March 2000, 57 of these investigations 
had been completed, and the remaining 17 were ongoing. GIPSA identified 
a total of five alleged violations of the Packers and Stockyards Act. 
These violations involved acts by one or a few companies in such areas 
as deceptive pricing.
    GIPSA has strengthened its ability to address competition concerns 
since a highly critical report was issued by USDA's Inspector General 
in 1997. However, two principal factors continue to detract from 
GIPSA's ability to investigate concerns about anticompetitive practices 
in these markets. First, the agency's investigations are planned and 
conducted primarily by economists without the formal involvement of 
attorneys from GIPSA's Office of General Counsel (OGC). As a result, a 
legal perspective that focuses on assessing potential violations is 
generally absent when investigations are initiated and conducted. 
Second. GIPSA's investigative processes and practices are designed for 
the traditional trade practice and financial issues that the agency has 
emphasized for years and are not suited for the more complex 
competition-related concerns that it is also now addressing.
    USDA has authority under the Packers and Stockyards Act, which has 
been delegated to GIPSA, to initiate actions to halt unfair and 
anticompetitive practices by meatpacking companies and by other parties 
involved in livestock marketing. Specifically, the agency can take 
action to stop companies from engaging in or using any unfair, unjustly 
discriminatory, or deceptive practice or device, or making or giving 
any undue or unreasonable preference or advantage to another party. In 
addition, the agency can take action to halt unlawful anticompetitive 
practices that are antitrust-type actions, such as a packer's 
activities that manipulate or control prices or restrain trade.
    In our report, we recommended several actions to improve GIPSA's 
investigations. Specifically, we recommended that USDA integrate the 
attorneys from OGC into GIPSA's investigative teams. The teamwork 
approach used at the Department of Justice (DOJ) and the Federal Trade 
Commission (FTC) to perform comparable investigations of 
anticompetitive practices would benefit GIPSA's investigations. We also 
recommended that GIPSA adopt more systematic approaches to its 
investigative work, including approaches on how cases are selected and 
investigations conducted.
    Mr. Chairman, we are encouraged by USDA's positive response to our 
draft report. The Department concurred with our recommendations and 
spelled out specific steps that it is considering in responding to the 
problems that we identified.

                               BACKGROUND

    The Packers and Stockyards Act was passed in 1921 in response to 
concerns that, among other things, the marketing of livestock presented 
special problems that could not be adequately addressed by the federal 
antitrust laws existing at that time. The act's provisions were based, 
in part, on prior antitrust statutes, including the Sherman Act and the 
Federal Trade Commission Act. GIPSA is responsible for implementing the 
Packers and Stockyards Act. USDA's OGC also has a role in enforcing the 
act and, among other activities, represents the Department in 
administrative and court proceedings addressing alleged violations of 
the act.
    In general, DOJ and FTC are responsible for enforcing federal 
antitrust laws that protect the marketplace from practices that 
adversely affect competition. DOJ is responsible for enforcing the 
Sherman Act, and FTC has responsibility for the Federal Trade 
Commission Act.\1\ If GIPSA identifies an activity that appears to be 
criminal or a violation of antitrust law, GIPSA officials may consult 
with DOJ on whether the case should be forwarded to DOJ for action. DOJ 
and FTC also share responsibility for reviewing proposed mergers under 
the Clayton Act.\2\
---------------------------------------------------------------------------
    \1\ FTC has a specific responsibility under the Packers and 
Stockyards Act to address anticompetitive and unfair practices in 
retail sales of meat and meat products.
    \2\ The Packers and Stockyards Act does not provide USDA with 
premerger review authority. However, GIPSA may initiate administrative 
actions to halt unfair and anticompetitive practices of a company 
formed by a merger.
---------------------------------------------------------------------------
    In 1996, GIPSA reported that dynamic changes had taken place in the 
cattle and hog industries in recent years, including increasing 
concentration and vertical integration--where packers own the animals. 
GIPSA stated that these changes had reduced the role of public markets, 
where terms of a trade are visible to all. GIPSA also reported that 
past studies wee inconclusive about whether the industry remained 
competitive. Also, in 1996, an advisory committee to the Secretary of 
Agriculture reviewed the concerns of producers and others about the 
changes in livestock markets and recommended, among other things, a 
review of GIPSA's efforts to enforce the Packers and Stockyards Act. 
The Secretary of Agriculture then asked USDA's Office of Inspector 
General (OIG) to review GIPSA's program.
    In 1997, USDA's OIG reported that GIPSA had a credible record of 
investigating claims of fraud and unfair business dealings, such as 
false weighing and failing to pay for livestock. However, the report 
stated that GIPSA (1) did not have the capability to perform effective 
anticompetitive practice investigations and (2) faced formidable 
obstacles to become effective in performing such investigations because 
it had not been organized, operated, or staffed for this purpose. The 
Inspector General stated that GIPSA should employ an approach similar 
to that used by DOJ and FTC, and integrate attorneys and economists 
from the beginning of the investigative process.
    In response, GIPSA completed a major restructuring of its 
headquarters and field offices in 1999 and hired staff to strengthen 
its investigations of alleged anticompetitive practices. GIPSA now has 
regional offices in Denver, Colorado, for its work on the cattle 
industry; in Des Moines, Iowa, for handling work on the hog industry; 
and in Atlanta, Georgia, for its work on the poultry industry. During 
the reorganization, GIPSA experienced substantial employee changes: 
Over 40 staff relocated, and 44 staff left the agency. Also, the agency 
hired 67 new employees from April 1998 through July 2000, including 
economists and legal specialists to assist with its investigations of 
competitive practices.

  RECENT GIPSA INVESTIGATION HAS FOUND LITTLE ANTICOMPETITIVE ACTIVITY

    Our review disclosed that GIPSA has found few instances of 
anticompetitive activity in recent years. Specifically, GIPSA conducted 
74 investigations involving concerns about potential anticompetitive 
activity in the cattle and hog markets from October 1, 1997, through 
December 31, 1999, and identified alleged anticompetitive actions in 
only five cases.\3\ (See table 1.) The alleged violations involved acts 
by specific meatpacking companies, such as deceptive pricing, rather 
than industrywide practices. Thirty-six of these investigations were in 
direct response to specific complaints about anticompetitive actions; 
the other 38 cases were initiated by GIPSA.
---------------------------------------------------------------------------
    \3\ We did not evaluate the effectiveness of GIPSA's efforts and 
findings in these cases.

[GRAPHIC] [TIFF OMITTED] T3877A.002

    During this period, GIPSA also conducted various other examinations 
that were designed primarily to develop information about the cattle 
and hog markets, including how prices for animals are determined. 
Specifically, a major examination of cattle buying in Texas was 
completed in 1999; another involving the procurement of hogs in four 
states in the Western Cornbelt was completed in 1998.\4\ Neither found 
violations of the Packers and Stockyards Act.
---------------------------------------------------------------------------
    \4\ GIPSA published the results of these examinations in papers 
entitled Investigation of Fed Cattle Procurement in the Texas Panhandle 
(Dec. 28, 1999) and Western Cornbelt Hog Procurement Investigation 
(Oct. 8, 1998).
---------------------------------------------------------------------------
    TWO PRINCIPAL FACTORS DETRACT FROM GIPSA'S CAPABILITY TO FULLY 
                 INVESTIGATE CONCERNS ABOUT COMPETITION

    We identified two principal factors that detract from GIPSA's 
capability to investigate anticompetitive practices. The first factor 
concerns the composition of GIPSA's investigative teams. We found that 
attorneys from USDA's OGC are not directly involved in GIPSA's 
investigative work and the economists that GIPSA has hired since 1998 
are inexperienced in investigative work. The second factor we 
identified is that GIPSA does not have investigative processes and 
practices appropriate for conducting complex anticompetitive practice 
investigations.

Attorneys' participation in investigations
    GIPSA relies on USDA's OGC attorneys for legal advice, and OGC 
reviews the results of GIPSA's investigations to determine if 
violations of law might have occurred. However, OGC attorneys usually 
do not participate at the start or throughout the agency's 
investigations. OGC attorneys are not assigned until GIPSA has 
performed an investigation and forwarded a developed case file to them 
for review and action. The agency's investigations are planned and 
conducted primarily by economists, most of whom have limited 
investigative experience.
    In contrast, DOJ and FTC have teams of attorneys and economists to 
perform investigations of anticompetitive practices. Attorneys are 
assigned to lead and conduct the investigations from the outset so that 
a legal perspective is focused on assessing potential violations of 
law, and economists are routinely assigned as an integral part of the 
investigation teams. These agencies use this approach so that a legal 
perspective is brought to bear on the interpretation of law, 
development of evidence, and preparation of cases for presentation in 
administrative and judicial proceedings.
    We also found that OGC officials have provided GIPSA with informal 
assistance in the investigations, but this assistance has been limited 
and has declined along with the number of OGC attorneys assigned to 
assist GIPSA. Since 1998, the number of OGC attorneys assigned to 
GIPSA's cases has decreased from eight to five because of budget 
constraints, according to USDA's General Counsel. Also, these attorneys 
are not all assigned full-time to GIPSA's financial, trade practice, 
and competition cases; some are assigned to responsibilities in other 
USDA areas as well. OGC officials told us that at least six full-time 
attorneys are needed for GIPSA's casework and the agency's 
reorganization plan called for up to eight attorneys.
    Furthermore, GIPSA has had difficulty recruiting economists with 
specialties that are particularly useful in anticompetitive practice 
investigations. The grade levels that GIPSA has offered for these 
positions (up to GS-11) are not competitive with the grade levels 
offered by other agencies such as DOJ and FTC (up to GS-15). Also, the 
legal specialist position that GIPSA developed appears to be more 
limited than anticipated. USDA's General Counsel informed GIPSA that 
(1) its legal specialists can assist on investigations but that they 
are not lawyers for GIPSA and cannot give legal opinions even if they 
have law degrees and (2) only OGC's lawyers are authorized to provide 
legal services in support of all USDA activities. In addition, the 
legal specialists in GIPSA's field offices are not supervised by 
attorneys.
    In our report, we concluded that GIPSA's program has additional 
steps to take to become more effective and efficient in performing 
investigations. One step forward would be to integrate OGC's attorneys 
into GIPSA's investigative teams. A teamwork approach has been used at 
DOJ and FTC and would also be beneficial in GIPSA's investigations. In 
addition, the role of GIPSA's legal specialists could be strengthened 
if they have the leadership and supervision of OGC's attorneys, and 
GIPSA may also be able to improve its recruitment of economic 
specialists. Therefore, we recommended that the Secretary of 
Agriculture develop a teamwork approach for investigations with GIPSA's 
economists and OGC's attorneys working together to identify violations 
of the law. We also recommended that the Secretary (1) determine the 
number of attorneys that are needed for USDA's OGC to participate in 
GIPSA's investigations and, as needed, assign attorneys to lead or 
participate in the investigations, (2) ensure that legal specialists 
are used effectively by providing them with leadership and supervision 
by USDA's OGC attorneys, and (3) ensure that GIPSA has the economic 
talents its requires by considering whether to modify the GS grade 
structure for GIPSA's economists.

Processes and practices for anticompetitive practice investigations
    The second factor affecting GIPSA's capabilities is that its 
investigative processes and practices were not designed for addressing 
complex anticompetitive practice concerns--they were designed for the 
trade practice and financial issues that the agency has emphasized for 
years. In comparison, DOJ and FTC have processes and practices 
specifically designed for guiding investigations of competition-related 
issues.
    DOJ and FTC emphasize establishing the theory of each case and the 
elements that will prove a case. At each stage of an investigation, 
including selecting the case, planning, and conducting the 
investigation, there are reviews by senior officials--who are attorneys 
and economists--that focus on developing sound cases. For example, DOJ 
and FTC require their attorneys, assisted by economists, to establish a 
theory explaining how a company's (or companies') behavior may be a 
violation of the law. The case theory and evidence are reviewed by 
senior officials after a preliminary inquiry, prior to approving an 
investigation, and then periodically as the factual underpinnings of 
the case come into focus as the investigation proceeds. The plan is to 
consider all the evidence that may be needed to determine if there is a 
violation. The theory of the case and an outline of proof are revised 
through the course of an investigation.
    In contrast to DOJ and FTC, GIPSA does not require investigations 
to be (1) planned and developed on the basis of how a company's actions 
may have violated the law and (2) periodically reviewed as they 
progress by senior officials with anticompetitive practice experience. 
GIPSA's investigation work is led by regional staff with minimal 
oversight; headquarters officials generally do not require reviews 
until investigation cases are developed. We identified nine steps in 
the process for handling concerns about anticompetitive practices; 
GIPSA's headquarters performs a review of the case in the sixth step, 
and OGC is not involved until the eighth step, as shown in figure 1.

[GRAPHIC] [TIFF OMITTED] T3877A.001

    According to GIPSA's headquarters and OGC officials, regional staff 
informally discuss some plans for investigations with them, but the 
agency does not have specific requirements for approving an 
investigation or an investigation plan. These conditions were reflected 
in the comments of GIPSA's regional office managers and economists, who 
said that they often have questions about how to interpret the law and 
how best to scope and perform investigations. Also, OGC officials told 
us that the anticompetitive practice cases that GIPSA had forwarded 
often had weaknesses that needed to be addressed before they could 
determine whether a violation had occurred. Both OGC and GIPSA 
officials said that OGC's reviews of GIPSA's cases have led to 
disagreements about interpretation of the act and the sufficiency of 
evidence.
    We also found that GIPSA's investigative guidance manual was last 
revised in 1996, prior to the agency's reorganization to develop 
anticompetitive practice investigation capabilities. The manual does 
not contain specific guidance for anticompetitive practice 
investigations, such as the contents of an investigative plan, the 
information needed for approval of an investigation, or the frequency 
of reviews of the investigations.
    In our report, we concluded that GIPSA needs to adopt a more 
systematic approach to planning and performing investigations. An 
approach similar to DOJ's and FTC's would start with a preliminary 
phase to develop a theory of the alleged violation and a plan of 
investigation. At this stage, senior officials within GIPSA and OGC 
would approve the initial theory of the case, the plan, and the 
commitment of resources. Thereafter, periodic reviews would be held at 
major decision points. If GIPSA and OGC officials consult with DOJ and 
FTC officials, they may obtain suggestions about how to promote 
teamwork on investigations and ideas about how to shape a program 
suited for GIPSA's and OGC's workload and organizational structures. 
Therefore, we recommended that the Secretary of Agriculture improve 
GIPSA's investigation processes and practices by adopting methods and 
guidance similar to DOJ's and FTC's for selecting, planning, 
conducting, and reviewing investigations. In doing so, we recommended 
that the Secretary (1) provide for senior GIPSA and OGC officials to 
review the progress of investigations at main decision points and 
provide feedback, guidance, and approval of investigations as they 
progress, and (2) consult with the Attorney General and the Chairman of 
the Federal Trade Commission on investigation management, operations, 
and case development processes.

         GIPSA'S AUTHORITY UNDER THE PACKERS AND STOCKYARDS ACT

    The Packers and Stockyards Act \5\ prohibits packers \6\ from 
engaging in or using any unfair, unjustly discriminatory, or deceptive 
practice or device, or making or giving any undue or unreasonable 
preference or advantage to another party.\7\ The act does not define 
``unfair practices'' and consequently what is unfair must be determined 
by regulation or on a case-by-case basis by applying ``a rule of 
reason.'' To prove that a practice is unfair, GIPSA must show that the 
packer intended to injure another party (predatory intent) or that its 
action caused injury (e.g., injury to competitors) or is likely to do 
so.
---------------------------------------------------------------------------
    \5\ A more detailed discussion of GIPSA's authority under the act, 
including references to statutory and regulatory provisions and court 
decisions is contained in appendix I of our September 21, 2000, report.
    \6\ The act defines the term ``packer'' to include any person who 
in commerce (1) buys livestock for slaughter; (2) manufactures or 
prepares meat products for sale or shipment; or (3) markets meat, meat 
products, or livestock products in an unmanufactured form as a 
wholesale broker, dealer, or distributor.
    \7\ It is also unlawful under the act for any stockyard owner, 
market agency, or dealer to engage in any unfair, unjustly 
discriminatory, or deceptive practice in connection with, among other 
things, the marketing, buying, or selling of livestock on a commission 
basis. The Secretary of Agriculture may, pursuant to a complaint or on 
his own initiative, bring an administrative action to halt such 
practices.
---------------------------------------------------------------------------
    In addition, the Packers and Stockyards Act specifically makes 
unlawful packer anticompetitive practices that are antitrust-type 
actions, including a packer's activities that manipulate or control 
prices or restrain trade. To prove that such an activity has occurred 
under the act, GIPSA, in most instances, must show that the purpose of 
the packer's action or its actual effect was to carry out the 
prohibited activity. GIPSA may also choose to treat such activity as an 
unfair practice, which may be easier to prove than a violation of the 
act's antitrust-type provisions. Also, while mergers are a concern 
because they can reduce competition, the act does not provide USDA with 
premerger review authority.
    The act allows GIPSA to start investigations and administrative 
actions to halt packer practices that it deems to be unfair or 
anticompetitive. When an investigation finds and develops evidence to 
show that a packer may have engaged in an anticompetitive or unfair 
practice, GIPSA may file a complaint against the packer. The packer has 
a right to a hearing, which is held before a USDA administrative law 
judge. If, after reviewing the evidence presented by GIPSA and the 
packer, the administrative law judge decides that there has been a 
violation of the act, a cease and desist order may be issued, and a 
civil fine may be levied. An administrative law judge's decision can be 
appealed to USDA's Judicial Officer, who act on behalf of the Secretary 
of Agriculture. The packer, but not USDA, may file a further appeal to 
a Federal Circuit Court of Appeals.
    In our report, we concluded that GIPSA has strengthened its program 
since 1997 by reorganizing to focus on specific livestock industries. 
Also, GIPSA's economists, with some experience and guidance, will 
enable the agency to be more effective in its investigations of 
complicated market issues. Presently, however, GIPSA is better 
positioned for performing economic analyses than fully developing the 
complete cases needed to prove that anticompetitive practices have 
occurred. We also noted that DOJ, FTC, and GIPSA have been involved in 
monitoring the industry and have taken producers' concerns into 
account. We believe, however, that GIPSA and USDA's OGC need to 
continue improving their investigative capabilities and processes.
    GIPSA also has an important role in periodically keeping the 
industry and the Congress informed about its monitoring of livestock 
markets. Since GIPSA's last major report in 1996, there have been 
further dynamic changes in the cattle and hog markets. These changes 
involve integration within the industry and changes in market 
operations and production margins. GIPSA could further help shape the 
understanding and views of industry participants by reporting again on 
such changes and by providing its perspective on issues involving 
competition. Therefore, we also recommended in our report that the 
Administrator, GIPSA, provide industry participants and the Congress 
with clarifications of GIPSA's views on competitive activities by 
reporting publicly on changing business practices in the cattle and hog 
industries and identifying market operations or activities that appear 
to raise concerns under the Packers and Stockyards Act.
    USDA reviewed a draft of our report before it was issued and 
concurred with our report and recommendations. USDA's written comments 
discussed actions that GIPSA and OGC are taking or planning to take to 
improve investigations of anticompetitive practices. Specifically, USDA 
said, among other things, that it (1) will seek to formalize 
consultations between GIPSA and OGC on complex investigations of 
anticompetitive practices, and integrate OGC's attorneys into GIPSA's 
investigative teams early in the investigative process; (2) will adopt 
relevant portions of the procedures used by DOJ and FTC for planning, 
developing, implementing, and reviewing investigations; and (3) 
anticipates developing a tiered review process for investigations in 
which routine investigations are subject to oversight by GIPSA's 
headquarters and complex investigations are subject to review and 
approval by GIPSA's headquarters and OGC. In addition, USDA also agreed 
that GIPSA could report on how the Packers and Stockyards Act applies 
to market activities and identify those activities that raise concerns 
about fairness and competition.
    Mr. Chairman, we believe that the implementation of our 
recommendations will improve GIPSA's capabilities, processes, and 
practices for investigating alleged anticompetitive practices. These 
improvements will reflect a more vigilant and skillful federal presence 
and instill greater confidence that industry's concerns will be 
investigated fairly and diligently.
    Mr. Chairman, this concludes our formal statement. If you or other 
Members of the Subcommittee have any questions, we will be pleased to 
respond to them.

                       CONTACT AND ACKNOWLEDGMENT

    For future contacts regarding this testimony, please contact 
Lawrence J. Dyckman on (202) 512-5138. Individuals making key 
contributions to this testimony and/or to the report on which it was 
based include Charles M. Adams, Patrick J. Sweeney, Alan R. Kasdan, 
Gary T. Brown, Larry D. Van Sickle, Fredrick C. Light, and Mary C. 
Kenney.

    Senator Grassley. Now, this is what I would like to do in 
questioning, and I want to make sure that each side gets an 
opportunity to have their statements. I want to ask Mr. Dyckman 
a series of questions and then I am going to ask Mr. Dunn to 
respond. And if you would keep track of the things that you 
want to make comments on, I will see that you and your team get 
an opportunity to respond to each. By the way, any or all of 
your team can respond.
    I am going to start on the report of the General Accounting 
Office assessment of the parameters of the U.S. Department of 
Agriculture's authority in addressing livestock competition 
matters.
    As you know, Mr. Dyckman, there is some controversy here in 
Congress as to what the USDA presently can or cannot do under 
the Packers and Stockyards Act. Your report states that, 
``USDA's responsibilities under the Packers and Stockyards Act 
are, in part, based on and go further than''--and I would 
emphasize that--``and go further than the Sherman Act in 
addressing unfair practices, and aim to protect buyers and 
sellers of livestock.''
    Your report then indicates that the Act gives the U.S. 
Department of Agriculture investigative, enforcement, and 
regulatory authority to halt practices by packers that it has 
reason to believe are in violation of the Act. The authority 
sounds pretty broad to me, so let me ask, Mr. Dyckman, if you 
would answer these questions.
    Am I correct in saying that GIPSA has broad authority to 
take action against unfair and anticompetitive activity in the 
livestock industry under the Packers and Stockyards Act?
    Mr. Dyckman. I would agree with that, Mr. Chairman. The 
courts have described USDA's authority as very broad. Our 
review showed that it is broad, and the IG in their earlier 
views agrees with the statement that you just made. So they do 
have broad authority to rein in on antitrust type activities 
and to prevent such things from occurring.
    Senator Grassley. How broad compared to the Sherman and 
Clayton Antitrust Acts? Is the USDA's authority more expansive 
than what DOJ and the FTC have under those laws?
    Mr. Dyckman. The legislative history, I believe, makes it 
clear that the intent was to actually make the Packers and 
Stockyards Act even broader, and to give USDA even more 
authority than under those.
    Would either of you like to add something?
    Mr. Adams. Mr. Chairman, I would like to add that the 
Packers and Stockyards Act addresses a category of potential 
violations called unfair practices. That is a section that is 
not present in the Sherman Act. GIPSA also has authority issue 
regulations. The Justice Department does not issue regulations 
under the Sherman Act. There is a difference in the 
enforcement, however, in that the Sherman Act cases go to court 
and can be brought under criminal statutes. The work under the 
Packers and Stockyards Act is civil and it is handled through 
the judicial process within GIPSA. One final point. The Packers 
and Stockyards Act doesn't provide for restitution, and there 
are differences in damages if there are fines against a 
company.
    Ms. Poling. I will just add one more thing. There is no 
premerger approval authority in the USDA. That is just 
delegated to the Department of Justice and the Federal Trade 
Commission.
    Senator Grassley. Now, there has been some inference that 
case law has curtailed the authority of the U.S. Department of 
Agriculture and GIPSA in recent years. So I want to ask you, 
what does case law indicate about the authority of GIPSA? Do 
you believe that case law has curtailed GIPSA's ability to 
investigate, regulate, or take enforcement action against 
unfair and anticompetitive activity in the livestock and 
meatpacking industry under the Act, because this is one of the 
main arguments being made?
     The reason I am asking the question is because I have read 
some of these cases, and while in those instances the decisions 
found that there was no violation of the Act, they still 
strongly affirm USDA's broad authority. I would like to quote 
from the IBP decision, ``The Act does not require the USDA to 
prove actual injury before a practice may be found unfair, in 
violation of the Act. A potential violation can suffice. The 
purpose of the Act is to halt unfair trade practices in their 
incipiency, before harm has been suffered.''
    Then it goes on to say that, ``A practice which is likely 
to reduce competition and prices paid to farmers for cattle can 
be found an unfair practice under the Act. However, we,'' 
meaning the judges, ``are also mindful that the purpose behind 
the Act was not to so upset the traditional principles of 
freedom of contract as to require an entirely level playing 
field for all.''
    What it seems the courts are saying is that USDA has broad 
power, but when the USDA prosecutes a case or issues a 
violation, it also needs to have evidence that there was the 
effect or potential effect of suppressing or reducing 
competition.
    I asked you two questions before I quoted from the case. I 
also want to ask, finally, if my interpretation of that case is 
accurate.
    Mr. Dyckman.
    Mr. Dyckman. Yes, our attorneys tell us it is. The courts 
have said that the authority goes beyond the Sherman Act. USDA, 
I believe, will agree with that. Their OGC has said that they 
have broad authority under the Act. The IGhas said that, and 
our attorneys have, too. Of course, USDA has the obligation of proving 
something, but in our opinion they clearly have authority to take 
action.
    Senator Grassley. Your report indicates that unfair and 
anticompetitive practices under the Packers and Stockyards Act 
are not specifically defined. Then consequently, Mr. Dyckman, I 
understand that the USDA would have to test what this standard 
is on a case-by-case basis in the courts, or USDA itself would 
have to clarify what an unfair or anticompetitive practice 
would be in the livestock industry. They would have to do that 
either through guidance or policy documents or rulemakings, is 
that correct? In addition, does USDA have the power to issue 
regulations dealing with market transparency and business 
practices in the livestock industry?
    Mr. Dyckman. Yes; the Secretary can issue regulations, 
obviously, necessary to carry out the Act. Generally speaking, 
they would gather sufficient information to prove that there is 
a need for these regulations, but they clearly have the 
authority to do that, sir.
    Senator Grassley. I am trying to assess whether USDA really 
has been proactive in formulating competition rules and 
policies to address concerns about unfair and anticompetitive 
activity.
    So, Mr. Dyckman, what Packers and Stockyards competition-
related rulemaking or guidance did the General Accounting 
Office find that the USDA has generated in, let's say, the last 
decade? Do you think that the USDA has been aggressive with 
respect to initiating rulemakings or issuing guidelines dealing 
with competition-related matters?
    Mr. Dyckman. ``Aggressive'' is not a term I would use in 
describing USDA's actions. No, they have not been aggressive, 
sir. They have not issued, to my knowledge, any regulations or 
substantial guidelines in this area.
    Senator Grassley. I also want to clarify what USDA can 
currently do under the Act with respect to mergers and 
acquisitions in the livestock industry. What actions can the 
USDA take, or is the review of mergers and acquisitions 
specifically related to the Justice Department or the FTC? 
Second, what can the USDA do under the Act about increased 
concentration in the industry?
    Mr. Dyckman. Well, as I indicated in my statement, my 
earlier remarks, GIPSA doesn't have premerger approval 
authority. They can, like anyone else, refer instances to the 
Justice Department where they suspect things, but they don't 
have authority for action in this area.
    Ms. Poling. If, after there is a merger, they do find 
anticompetitive activity, they, of course, can take action. But 
they do not have premerger approval authority.
    Senator Grassley. From the U.S. Department of Agriculture's 
Office of Inspector General report of 1997, page 2, it is 
pretty clear the types of anticompetitive activities that 
Packers and Stockyards may investigate include--and I am not 
going to read the paragraphs associated with each, but captive 
supply, vertical coordination and vertical integration, 
apportionment of territory, price-fixing and turn-taking, and 
things of that nature.
    Mr. Dyckman, do you believe that Congress needs to enact 
additional legislation to give GIPSA the authority to take 
action with respect to unfair and anticompetitive practices in 
the livestock and meatpacking industries under the Packers and 
Stockyards Act?
    What I am distinguishing here is GIPSA's ability to act 
with respect to unfair and anticompetitive practices rather 
than mergers and acquisitions, which you have stated are under 
the bailiwick of the Department of Justice and FTC. I am asking 
you this question because Congress is currently considering 
several bills that would either modify or build upon the U.S. 
Department of Agriculture's Packers and Stockyards current 
authority.
    I indicated in my opening statement that I have a bill that 
would give the packers and stockyards agency authority not just 
on livestock and poultry, but all agricultural commodities. But 
it is important for us to know whether legislation other than 
current law is truly necessary in terms of the USDA's authority 
to specifically address issues of unfair and anticompetitive 
practices in the livestock industry.
    Mr. Dyckman. Our review in terms of the legal authority was 
primarily descriptive. We were asked to look at what legal 
authority does the agency have, and we concluded that they have 
substantial legal authority and we did not find a need for 
additional authority. That is not to say that the Congress, in 
its prerogative and its policy-setting agenda, might not feel 
that there are some things that GIPSA needs additional 
authority.
    Of course, that is really a question that Mr. Dunn probably 
should answer, but our review did not disclose any obvious gaps 
in the legislative power that GIPSA has.
    Ms. Poling. But our analysis also didn't look into specific 
instances. You mentioned the eighth circuit cases, for example, 
and they do reflect on what could just be a lack of evidence. 
If there are additional problems there, it would be something 
that the U.S. Department of Agriculture should address.
    Senator Grassley. Now, Mr. Dunn, what I would like to do is 
state three or four questions for you to respond to, and that 
will also give you an opportunity not only to respond to my 
questions, but I think these questions also give you the 
opportunity to state any exceptions that you might have to what 
the General Accounting Office has said.
    Basically, how do you respond, but more specifically, if 
GIPSA has broad authority to halt unfair and anticompetitive 
practices in the livestock and meatpacking industries under the 
Act, why hasn't more been done to address all these concerns, 
particularly since we are hearing so much about this from small 
and midsize producers?
    Is there some reason that you haven't proposed rulemaking 
and opened that up as one way of maybe making more clear what 
the law says and what you want to do? I would also ask why we 
haven't seen more enforcement actions, although you may have 
addressed that by your statement that you said that you agree 
with the General Accounting Office that legal people ought to 
be involved more up front in a team manner. Could all of this 
be because no unfair or anticompetitive activity is taking 
place in the livestock or meatpacking business, or is there 
something else?
    So I will be glad to just listen to you, and then I suppose 
I ought to say to Mr. Dyckman, because we want to lay 
everything out here on the table, without my asking any 
specific questions of you following what Secretary Dunn says, 
you may want to clarify some points, too.
    Mr. Dunn.
    Mr. Dunn. Thank you, Mr. Chairman. In the first setof 
questions you asked the General Accounting Office, I did look at page 
26 of their report on what GIPSA can or cannot do. In the bottom 
paragraph of that first page it says, ``GIPSA is not authorized to 
prescribe by regulations the price that packers may charge or the items 
that packers and producers contract. Also, the Act does not confer upon 
the Secretary of Agriculture the authority to directly regulate prices, 
discounts, or sales methods.''
    On page 26, then, it goes on to say, ``To be unlawful, the 
Act requires that a practice be unfair or unduly 
discriminatory. The Act does not define unfair practices, and 
consequently what is unfair must be determined by regulations 
or on a case-by-case basis. In interpreting these rules, GIPSA 
and the courts must apply the rule of reason.'' At the bottom 
of the page it says, ``The courts noted that the Act was not 
designed to upset traditional principles of freedom of 
contract.''
    And I think, Mr. Chairman, if we go back talking about the 
evolution of Packers and Stockyards and what resources, both 
human and fiscal, are there, they simply have not been designed 
over the past decade, since 1991, to really address these 
issues. And it wasn't until Secretary Glickman asked for the 
audit in 1996 that the agency seriously began saying what type 
of resources are we going to need to be able to address those 
issues.
    I would hasten to add that those are fiscal resources and 
human resources, as well. In 1996, the agency had asked for 
additional resources to look at the electronic filing and 
packer market competition, $480,000, $225,000, and industry 
structure and performance surveillance of $550,000. We received 
no monies to do that.
    In fiscal 1998, the agency asked again for $225,000 for 
electronic filing to get a better overview of what is going on. 
It asked for poultry compliance, $750,000, and asked for 
$1,595,000 to look at packer competition in the industry. Of 
that, all they received was $800,000 to look at competition, of 
the almost $1.6 million that they had asked for.
    Again, in 1999 they agency had asked for $225,000, again, 
for electronic filing. We did not get that. Another $750,000 
for poultry compliance. We did not get that. We asked for 
packer competition in the industry, $795,000, and another $3 
million to do restructuring. And $397,000 was given for looking 
at the competition issue, when $795,000 was asked for in that 
arena.
    It fared much better in fiscal 2000. Again, electronic 
filing--it asked for $225,000 on that. It did receive it. For 
packers competition and industry structure, asked for $636,000, 
did receive all of that, and asked for $750,000 to look at 
poultry compliance and received all of that. So it was really 
fiscal 2000 before the agency did receive all the dollars that 
had been requested to address these very issues on competition.
    I believe that I will ask that Mr. Baker address the issue 
on rulemaking and what rulemaking we currently have in process 
and have received comments on.
    Senator Grassley. Please proceed.
    Mr. Baker. Thanks, Mr. Chairman. Presently, we have six 
rulemaking procedures that we are going out with. I will give 
you the titles: Prohibit String Sales. String sales means 
average selling; prohibit this. We want the cattle to sell on 
the merits, or the livestock to sell on the merits.
    Require production contracts be written in plain language. 
Prohibit nondisclosure of terms in production contracts. 
Specify types of records that packers are required to maintain 
in procurement transactions. Specify conditions under which 
packers may pay different prices for the same quality of cattle 
purchased on a carcass-merit basis.
    The one that has been completed that is on the books now is 
implementing the feed weighing regulation, which it never had a 
regulation on feed weighing where contracts were involved. 
After this rule is implemented this year, we have reviewed all 
the major companies and they are in compliance with our feed 
weighing.
    So we expect between now and the end of the year to have 
these out, comments moving, and moving forward on these majors 
in our rulemaking. This is six. We have some more on the 
drawing board I am not at liberty to talk about, but this is 
six.
    Mr. Dunn. Mr. Chairman, in the report GAO reports that in 
the competition arena Packers and Stockyards did initiate--or 
there were some 74 different investigations that had gone on. 
Thirty-six of those were as a result of complaints that we 
heard from outside. Thirty-eight of those, over half of them, 
were self-initiated by the agency.
    Now, the determination of what has been filed, of course, 
were five, as had been put out in the report. But it does 
demonstrate in my mind that the agency is being much more 
aggressive than it had in the past in initiating its own 
investigations to go about this.
    There are legal concerns that you had brought up, and I 
would ask the General Counsel for USDA to address some of those 
issues.
    Senator Grassley. Please do, sir.
    Mr. Rawls. Thank you, Mr. Chairman. I wanted to respond to 
two of the issues. First of all, I wouldn't want anything that 
we say in this hearing to reflect that anybody has a view of 
the Act that is not very broad, because I think the Packers and 
Stockyards Act is very broad in the authority that it confers 
on the Department to investigate and regulate activities that 
are ongoing in the livestock market.
    However, I think Under Secretary Dunn appropriately cited 
you to the GAO report which discusses those authorities. I 
believe that the report is accurate. They cite the appropriate 
cases and I think their analysis is sound.
    Briefly, what causes us some difficulty are the ``uns'' in 
the Act, that we must show that activities are unreasonable, 
undue preference, and that language requires us to prove up a 
case and does prove to be a challenge for us. I think I have 
probably said all I need to say about that.
    The other issue that I wanted to mention is you talked 
about mergers and acquisitions, and the Department's 
authorities in that area are fairly limited. But as noted in 
the GAO report, I believe, is the recent memorandum of 
understanding that we signed with the FTC and the Department of 
Justice related to monitoring competitive conditions in the 
agricultural marketplace.
    We are working with those other agencies, providing them 
information, citing studies that we have at USDA which are 
extensive. I recently read, and I believe this to bethe case, 
that the red meat industry is the most studied industry within the U.S. 
economy. So we do have a lot of information to bring to the table.
    We are working cooperatively with those other agencies with 
which we share responsibilities and in areas where they have 
primary jurisdiction, which would be more in mergers, 
acquisitions, and antitrust.
    Senator Grassley. Before I ask GAO if they want to respond 
to anything that was just said, is the inference in your--well, 
it is not an inference. We didn't appropriate the money you 
asked for 2 or 3 years. Now, you are getting the money now that 
was requested, right?
    Mr. Dunn. That is correct.
    Senator Grassley. Is it fair to assume that you are going 
down the road you want to go down, only 3 years late because 
Congress didn't give you the money, and that you are able with 
these resources to do some of the things that maybe you could 
legitimately say to the GAO you haven't been doing because 
Congress didn't specifically give you the money?
    Mr. Dunn. I think it is fair to say that we are beginning 
moving in that direction that GAO has indicated. But there have 
been difficulties, Mr. Chairman, in recruiting the type of 
personnel that we need to really become an effective 
enforcement of Packers and Stockyards in this anticompetitive 
arena.
    Am I happy with where we are? No, I am not. Do I think we 
are going in the right direction? I think we are going in the 
right direction. The report does say that we have done that, 
but it also points out that we need recruitment of specific 
types of individuals and that we need to do training of those 
individuals. That is an area that we have to work much harder 
on jointly with Congress to ensure that we get the 
appropriations.
    Currently, we have asked for an increase of about $3.9 
million for Packers and Stockyards. We got about $200,000 of 
that in a supplemental a few weeks ago, but we are still 
waiting to find out what happens with that $3.7 million that we 
have asked for for the upcoming fiscal year which would help us 
tremendously.
    Senator Grassley. Before I go on to my next line of 
questioning, do you have anything to say in response to what 
the team from the USDA has stated?
    Mr. Dyckman. It is an impressive team. It is hard for me to 
take exception to what they have said, but I guess I have a 
question, maybe, for the general counsel. When we looked at the 
fiscal year 2001 budget, we couldn't find anything that was 
specifically--while they asked for a $3.7 million increase, we 
couldn't find that any of that was labeled specifically for 
packers and stockyards work. Now, it could be that is what it 
was intended for, but we couldn't figure that out, unless it is 
in GIPSA's budget.
    Senator Grassley. Assume that that is a question I ask, so 
maybe you will feel more comfortable responding to it.
    Mr. Dyckman. I am sorry.
    Senator Grassley. That is OK.
    Please, would you respond to that?
    Mr. Rawls. I am happy to do so. It allows me to explain a 
little bit about some of the difficulties that we have had 
within my small office.
    In recent years, Mr. Chairman, as discretionary budgets 
have been frozen and the caps that the appropriators have used 
have had their intended effect of holding down discretionary 
appropriations, small offices like the Office of General 
Counsel which are 90-percent or more personnel-based have 
suffered. We have suffered because we are not getting 
appropriations for certain fixed things like pay costs which 
are going to increase every year.
    We therefore have been in a situation of not being able to 
backfill positions that are vacated through attrition, through 
retirements, and so on. I believe the report notes that we have 
gone from eight lawyers to five lawyers, not counting the two 
managers in this trade practices area.
    So the question as asked--I think the answer is, yes, there 
is not a specific amount requested for this work within the 
Office of General Counsel. But, frankly, our effort has been to 
hold on to the base that we have. We are doing everything that 
we can do try to maintain the resources that we have.
    Now, in responding to the GAO report, as the GIPSA 
reorganization has evolved we have identified since that budget 
was submitted to OMB, which I think was almost 2 years ago, 
that there are needs here and we are committed to doing 
everything that we can to address those needs. We want to 
implement this team approach. That will take resources, and so 
we are going to have to find those resources, and hopefully the 
appropriators will see fit to help us do that.
    Senator Grassley. Isn't a follow-through of the statement 
you just made that if this concentration issue and competition 
issue is a real priority in the Department that you will get 
resources for that from within the Department? I mean, there is 
some discretion on allocation of resources within the 
Department.
    Mr. Rawls. Mr. Chairman, because of the appropriations law, 
I can't go outside my office. I can reposition within the 
office, but I will tell you, which is why I gave a too lengthy 
answer to the question, because of the decline in discretionary 
spending and the attrition that we have had, it is very 
difficult within our office to move lawyers around.
    I am going to do that if that is what it comes down to and 
we can't get these resources. It will not be at the level that 
I think we need to fully implement the GAO report and implement 
this team approach, but I am going to do everything that I can. 
And as I say, if we don't get the resources, I am going to find 
some to put to this.
    Senator Grassley. Thank you.
    Mr. Dyckman, in the 1991 GAO report your agency found that 
the meatpacking industry was significantly more concentrated, 
which, ``could increase the opportunities for buyers to use 
anticompetitive practices that could lower the prices paid to 
producers to below the level that would be set in a competitive 
market.''
    Yet, the General Accounting Office report also found that 
GIPSA's approach to developing concentration statistics was 
``no longer sufficient for monitoring competitiveness'' and 
that GIPSA needed to enhance its competition activities and 
implementing regulations to effectively address changes in 
livestock marketing.
    Then in 1997 a review of USDA's own Office of Inspector 
General found that implementation of the packers andstockyards 
program was woefully inadequate. I believe the Inspector General's own 
words were ``insurmountable obstacles'' in terms of USDA's 
organization, structure, and expertise, to the point where it even 
recommended that USDA may want to consider transferring its 
competition-related responsibilities under the Act to another agency.
    Your report picks up on several of the recommendations 
identified in these two reports. So, Mr. Dyckman, in response 
to both of these reports, the USDA indicated that it would 
review and update its Packers and Stockyards Act regulations 
dealing with competition matters. Did they do that? If they 
did, in your opinion how effective do you think they were?
    Mr. Dyckman. In our 1991 report, much of it was pointing 
out deficiencies in their evaluations and examinations of 
regional markets. And they have taken steps in that direction 
and they have developed some work and some additional 
information on regional markets, and pointed out the importance 
of the national markets.
    The 1997 Inspector General report was quite critical, and 
as I mentioned earlier, unfortunately our current review found 
the same deficiencies, basically. And if you look at, I guess, 
the chart to my left, which is somewhat difficult to read but 
it is also in our report, it points out that the major findings 
of the Inspector General, particularly as they pertain to 
developing a case, putting the expertise where it has to be, 
having a team approach--you know, we were really surprised that 
those things had not been accomplished. Part of it is 
resources, but part of it, I believe, is trying to address some 
underlying causes for problems. It is surely not entirely just 
resources.
    So a long answer to say, yes, they were somewhat responsive 
to our 1991 report, but they were not responsive to the major 
recommendations in the IG's report.
    Senator Grassley. So, Mr. Dunn, I am going to ask you for 
your response to that. Considering the fact that one of these 
was implemented--you already spoke about that, and you also 
spoke about your intention of accepting the recommendation of 
involving general counsel people in the early stages of the 
complaint.
    I guess it is this simple: what about the implementation of 
all the recommendations, then, of the OIG?
    Mr. Dunn. Again, Mr. Chairman, I would go through here and 
look at what GAO has had to say about where we are on 
implementation. On No. 1, it says GIPSA's reorganization 
concentrates its resources on major industries and issues, 
which is, I think, a direction that we are certainly trying to 
go.
    On No. 2, assess staff qualifications and hire staff with 
legal, economic and statistical background, the GAO says 
GIPSA's additional staff improves its organization.
    Thank you, GAO. We appreciate that.
    ``A detailed assessment of staffing levels was not 
performed. USDA has requested a budget increase for additional 
GIPSA staff because of its workload.'' Again, let me go back to 
our request since 1996 for full-time employees.
    In 1996, the agency had requested 185 and Congress gave us 
185 after review by the OIG, at a time when the rest of the 
Department of Agriculture was cutting back on employees. 
Remember, we had gone from about 120,000 to----
    Senator Grassley. Yes, but don't forget most of those were 
out in the field.
    Mr. Dunn. That is correct.
    Senator Grassley. And with the service agencies.
    Mr. Dunn. That is correct. But at that time when the 
Department was cutting back on operations, we were increasing 
the number in our field operations in Packers and Stockyards.
    In 1997, the agency had requested 197 FTE's. We again got 
only the 185 that we had from the previous year. In fiscal year 
1998, we requested 208 additional FTE's. We still were at the 
185 level. In fiscal year 2000, then, we requested 203 FTE's. 
We received 178, a decrease from the 185 we had prior to that. 
So in 2000, we thought maybe we had better cut back to just the 
178 that we had previously. In 2000, we were only given 168, so 
we had a decrease of 10 employees.
    So in fiscal year 1997 we didn't get 12 that we asked for. 
In fiscal year 1998, we didn't get 23 that we had asked for. In 
fiscal year 1999, we didn't get 25 that we had asked for. In 
fiscal year 2000, we didn't get 10 that we had asked for.
    Senator Grassley. Are you saying, though, that these 
requests are all related to efforts to enforce the Packers and 
Stockyards Act more vigorously, and anticompetition things?
    Mr. Dunn. Those were at a point in time when we were 
following through with the recommendations from the OIG to get 
more economists, more statisticians, and more legal expertise 
in Packers and Stockyards to be able to do what had been 
identified, and I think everyone will understand is very, very 
complex analysis to bring these cases to court. And during that 
time, we have put on 18 new field economists. We have put on 
six new attorneys out in the field and one at the headquarters 
level to address just what we had been asked to do in the 
restructuring of Packers and Stockyards.
    Senator Grassley. Why would you decrease the number of 
lawyers during that period of time, then?
    Mr. Dunn. In Packers and Stockyards, we did not. We went 
from zero lawyers up to where we presently are with seven 
attorneys.
    Senator Grassley. The point that I think the General 
Accounting Office is trying to make is that these should be 
people who are giving legal advice in the direction that the 
investigation ought to take with the potential enforcement of 
the law, as opposed to just people who may be lawyers, but 
staff people not giving the advice that the Office of General 
Counsel would give.
    Mr. Dunn. I think, Mr. Chairman, it goes back to the 
recommendation that is in the report here that attorneys 
should, in fact, lead the investigation, as they do in the 
Department of Justice and FTC. Now, you also have to keep in 
mind that they are a law enforcement entity, whereas Packers 
and Stockyards is a regulatory and law enforcement entity. And 
we rely on the delegated authorities to the Office of General 
Counsel on many of the law enforcement activities.
    Senator Grassley. I want to pose some questions to the 
panel about the process by which GIPSA investigates a case and 
determines whether to proceed on a claim of unfair and 
anticompetitive activity.
    The process that spells out what goes on in a GIPSA field 
office is this chart here. GIPSA headquarters and the USDA 
Office of General Counsel actually review competition-
relatedallegations. The reason I am disturbed is because I read the 
General Accounting Office report spelling out in great detail how 
important it is that attorneys be at the helm at the outset, 
formulating the theory of a case and collecting the proper evidence so 
that a competition case can proceed in the best manner possible, as is 
done at the Department of Justice.
    Mr. Dyckman, am I correct when I say that attorneys do not 
review possible Packers and Stockyards Act competition-related 
cases until only very late in the stages of the GIPSA 
investigation?
    Mr. Dyckman. Yes; the Office of General Counsel, as our 
chart shows and you have up there on the board, really don't 
get involved as a general rule until about step number eight. 
Now, you could argue whether or not we have characterized the 
steps correctly or whether there should be seven steps or nine 
steps. But the main issue is that OGC basically approves and 
reviews after the work is done, and what we are suggesting is 
that they get involved much early in the process.
    Senator Grassley. For the record, tell us how important it 
is that we have somebody in counsel-related work to be part of 
the investigative team and to develop a proper investigative 
and case plan in terms of prosecuting a successful case.
    Mr. Dyckman. Mr. Adams will take that.
    Mr. Adams. Mr. Chairman, we think that is essential. I want 
to point out that the OGC's office has attempted to provide 
some additional consultation to the field staff, but based on 
our work we feel that that level of consultation that the field 
staff wanted was certainly less than the amount that was 
desirable. They felt that the consultation they got was 
excellent, but just not enough. And then also we have got this 
problem of the OGC's office not leading the cases. So they are 
not involved on a day-to-day basis with making the decisions. 
And we would like to see all those things taken care of.
    Senator Grassley. Well, is it possible then that 
allegations which could have constituted a violation of the 
Packers and Stockyards Act were not pursued by GIPSA because 
they were closed out before they were ever looked at or 
evaluated by an attorney with sufficient knowledge in antitrust 
matters and the capacity to act with official legal advice?
    Mr. Dyckman. You know, it is difficult for us to answer 
that question, although we did notice that several 
investigations were deferred and not continued because of a 
lack of staff. And I am assuming it was general counsel staff, 
as well, so it is quite possible that the events that you 
describe could have taken place.
    Mr. Adams. In addition, Mr. Chairman, cases are closed in 
the field without referring the body of the case to the general 
counsel's office for their review. And we have suggested 
through our recommendations that that practice not occur.
    Senator Grassley. And obviously Mr. Dunn says that he 
accepts that part of the recommendation. We have already talked 
about it a lot.
    Is it fair to say, then, in kind of summary of what you 
already said, Mr. Dunn, that you see this as a weakness in the 
process up until now, and consequently we would see USDA then--
by involving official legal advice early on the process, there 
might be higher usage of the Packers and Stockyards Act finding 
anticompetitive activity?
    Mr. Dunn. Mr. Chairman, I think this very accurately 
portrays one of the major weaknesses of where we have been in 
the past of not having involvement with the Office of General 
Counsel from the inception.
    Now, I just say that there were a lot of informal 
activities that have taken place. For instance, Mr. Chairman, 
you are familiar with the rapid response teams that we have 
sent out to nine different States, including your State of 
Iowa, to look at the Dubuque plant when it was being bought 
out.
    Before rapid response teams went out, we did sit down with 
the Office of General Counsel to determine what should be 
looked for, how do we look for violations in these particular 
cases. There has been an ongoing exchange of information, but 
again it has not been any formal process. And I think it is 
important that you recognize in our response that we are 
talking about setting up this tiered approach so that we do 
have the Office of General Counsel in top management of the 
Packers and Stockyards involved at a much earlier time to 
reflect the concerns that were brought up in this report.
    Senator Grassley. Mr. Dyckman, would you care to respond 
how you would look at that tiered approach as to whether or not 
that satisfies your recommendations?
    Mr. Dyckman. Well, I think it is an improvement, and 
obviously they are going to have to--USDA has to deal with the 
shortages of skilled personnel that they have. However, 
notwithstanding that, we have recommended a much more heavy 
involvement by OGC throughout the cases.
    What I would envision--and I believe this is what the FTC 
and the Department of Justice do, is that they assign a lead 
attorney to the case, and that attorney can decide how much of 
his or her time is necessary on the case, as opposed to GIPSA 
officials. So I would caution against the committee accepting 
USDA's response to eliminate the problems that we have 
identified by addressing it through a tiered approach. It is a 
step forward, but I don't think it gets at the heart of the 
issue, which is having the attorneys involved in all cases, but 
let them decide which cases they have to spend less time on.
    Senator Grassley. The fact now that from your very first 
words, Mr. Dunn, you are stating that that is a very good 
recommendation of having attorneys involved in a team 
approach--let me follow through, then, with a question to you 
as to whether or not the Office of General Counsel has an 
estimate at this time of the number of attorneys that would 
need to be assigned to lead anticompetitive practice 
investigations.
    Second, does the Office of General Counsel envision hiring 
attorneys with competition-related experience to lead 
investigations? And if that were not the case, how could the 
USDA then expect to perform in this area of legal expertise?
    Mr. Rawls. Mr. Chairman, thank you. I think as I indicated 
earlier, and perhaps I was not clear enough, the Department 
thinks this team approach is a great idea, and would be the 
most effective, efficient way to do these investigations and 
would result in the most efficient allocation of resources and 
successful cases.
    The bottom line, though, is to implement this fully, I need 
more lawyers. And we looked at the issue.
    Senator Grassley. Well, here is your opportunity totell me 
how many you need. That is what my question is.
    Mr. Rawls. Specifically, we think with five additional 
attorneys, we could do this investigatory support and provide 
the leadership envisioned by the GAO report. That would allow 
just this model where attorneys are brought in on the very 
front end and are assigned to investigations and are involved 
in the whole process.
    Senator Grassley. How many attorneys did the Office of 
General Counsel hire over the last 3 years and where were they 
assigned?
    Mr. Rawls. I have to admit I couldn't give you a precise 
number over the last 3 years. I could provide that for you. We 
have, as I have noted, struggled mightily with simply 
maintaining our base. We have not backfilled generally 
positions every time someone leaves. However, we were provided 
additional resources in the civil rights area and we staffed up 
a very small civil rights division with about seven lawyers. 
But, overall, as I have told my staff, we have managed by 
attrition, and to balance our budget we have not backfilled 
positions.
    Senator Grassley. You haven't specifically hired antitrust 
attorneys?
    Mr. Rawls. No, sir.
    Senator Grassley. How many attorneys are there in the 
USDA's Office of General Counsel?
    Mr. Rawls. I believe at the present time there are 234.
    Senator Grassley. I think what I need is a breakdown of 
your attorneys in terms of their expertise and 
responsibilities, and how many attorneys work on packers and 
stockyards issues and how much of their time is dedicated to 
working on competition and unfair practices issues of the 
Packers and Stockyards Act.
    Mr. Rawls. Yes, sir.
    Senator Grassley. Mr. Dyckman, the GAO report identifies as 
one of the primary factors hampering USDA's ability to address 
competition concerns the fact that GIPSA does not have in place 
the proper investigative methods, processes, and procedures. 
You have indicated that the Department of Justice and FTC are 
good models in terms of the appropriate way by which the agency 
should pursue competition-related claims. At this point, how 
deficient is USDA's current investigation manual, case methods, 
and processes relative to competition-related allegations?
    Mr. Dyckman. Well, as our report indicates in full detail 
on page 19, the manual is basically obsolete. It was not 
written, as I understand it, for trade practice investigations 
that deal with anticompetitive issues. It doesn't lay out the 
types of planning that we would like to see in cases. It 
doesn't talk about case selection in the detail that we would 
like to see. It really is woefully deficient. I believe they 
recognize that. It is out of date. It needs to be updated to 
address the realities of the marketplace now.
    Senator Grassley. And they can't effectively do their work 
without doing that?
    Mr. Dyckman. I think it is unfair to ask their employees to 
conduct these types of investigations, these complex 
investigations, without a good framework, a good set of 
guidance, and a good manual.
    Senator Grassley. How do you feel about that, Secretary 
Dunn and your team?
    Mr. Dunn. Mr. Chairman, I concur with that, but it would be 
difficult to write a manual until we knew what the new 
structure would look like at Packers and Stockyards. And now 
that we are, in essence, 90 percent complete with our 
reorganization, we do feel that it is time to go forward and we 
have recently hired an economist to take the point on writing 
this manual. This is someone who has a background in criminal 
investigation.
    Senator Grassley. Does anybody on your team have any idea 
how much time this would involve, updating this?
    Mr. Baker. It is being updated right now, sir, and it has 
been a work in process for the last 4 months. It is not a quick 
process.
    Mr. Dunn. We should have it in early spring, Mr. Chairman.
    Senator Grassley. OK; here is something that is a little 
more specific along the lines of our agreement among all of us 
of having attorneys lead investigative work. Does the Office of 
General Counsel need to have a delegation of authority from the 
Secretary to implement these recommendations of the General 
Accounting Office?
    Mr. Rawls. Mr. Chairman, we do not believe so. I don't 
think we do at all.
    Senator Grassley. OK; could you discuss for us how you 
would envision decisionmaking in these cases?
    Mr. Rawls. Well, I wouldn't want to prejudge discussions 
that I think we need to have between GIPSA and OGC on how to 
formalize this. But I guess, in general, I would see certainly 
a consultative process. I think it is important for the lawyers 
to discuss with the economists and the other experts what the 
allegations are and what evidence may be available, what 
information needs to be collected, sort of the threshold that 
is needed to prove a case. And as I say, I think that should be 
a very collaborative process.
    Senator Grassley. In this process, would you follow the 
recommendations of the General Accounting Office by seeking 
advice from the Department of Justice and the FTC in regard to 
this?
    Mr. Rawls. Absolutely, and I think that that is an 
important part of the work that we are doing now, talking to 
the FTC and DOJ about how they handle similar types of 
investigations. And I think we need to continue to work with 
them to share process ideas as well as information.
    Senator Grassley. Mr. Dunn, evidently the General 
Accounting Office said it was very necessary to periodically be 
reviewed by managers with antitrust experience when theyget 
feedback from investigators in developing sound cases. The Inspector 
General's 1997 recommendation was to hire a manager qualified in 
anticompetitive practice investigations. That was not implemented.
    Does the U.S. Department of Agriculture need to consider 
whether GIPSA and the USDA Office of General Counsel have 
sufficient expertise in anticompetitive practice investigations 
to be able to provide leadership in this area, both for the 
program that needs to develop and for the investigations which 
need review as they progress?
    Mr. Dunn. Mr. Chairman, the new Deputy Administrator that I 
introduced to you has exactly that background.
    Senator Grassley. OK; also, Mr. Dunn, the report from the 
General Accounting Office reported that GIPSA seldom finds 
instances in which meatpacking companies or other parties 
involved in the marketing of cattle and hogs engage in 
anticompetitive practices. The General Accounting Office report 
then talks about factors that detract from GIPSA's ability to 
investigate concerns about anticompetitive practices.
    A somewhat related area that is not addressed in the 
General Accounting Office report is the USDA's system of 
internal controls which are intended to ensure that your staff 
are doing the proper job. Specifically, what internal checks 
and controls are in place to provide an assurance that a proper 
job is being done in conducting investigations of alleged 
anticompetitive practices?
    Mr. Dunn. I will turn to the Administrator to tell you 
about his internal checks and controls within GIPSA.
    Mr. Baker. Mr. Chairman, we log in every case that we take 
and we track it through a logging system with oversight in all 
three general offices and in Washington. The cases are logged 
in. That is our number one control. We have just recently 
established a hotline, and we know exactly how many calls we 
have had on that hotline. And they are logged in and we track 
those. Being logged in is our best tracking source right now.
    Mr. Adams. Mr. Chairman.
    Senator Grassley. Yes.
    Mr. Adams. I think the question you ask actually goes to a 
question about how investigations are conducted and if they are 
covering all of the right kinds of issues and asking the right 
kinds of questions. And based on the work we do, they haven't 
been in a position to have that kind of quality control. The 
control that Administrator Baker talks about is at a different 
level than we are talking about here, which goes to the quality 
of the investigative work itself.
    Senator Grassley. He describes, as I hear him, about 
internal controls on making sure that every complaint is 
monitored and looked into. And you are stating beyond that 
point that there are not controls in place.
    Mr. Dyckman. Yes; that would get to the issue of the manual 
and the planning that we spoke about earlier to make sure that 
there is a consistent, high-level, quality approach to every 
investigation. I think that is what it sounds like you are 
really interested in. Obviously, it is important also to make 
sure that all complaints are handled, but you want to make sure 
that they are handled consistently at a high level.
    Mr. Dunn. Mr. Chairman, if I could, I would like to ask the 
Deputy Administrator to come in and address this particular 
issue because I think it is extremely important that everyone 
understands that we are working toward having that level of 
review of actions that were taken and why those actions were 
taken.
    Senator Grassley. Yes, that is OK. Please come forward. 
Just give your name, please.
    Ms. Waterfield. Thank you. My name is Joanne Waterfield. 
What happens now is when we receive a complaint, we will make 
an initial determination out in the field if the complaint 
warrants further investigation. That is a very preliminary 
review. If it is a straightforward case, that decision is made 
at the field level. If it is more complicated, that decision 
will be made at headquarters, with input from the field staff.
    Once an investigation is completed, and investigative file 
is compiled with the help of legal specialists. The legal 
specialists out in the field review the file, then consult with 
a supervisor. The file is then referred to D.C. D.C. will work 
in conjunction with the supervisors in the field to make sure 
that there isn't any further work. If it is a particularly 
complicated case, we will consult informally with OGC until we 
have the tiered process fully formalized. Once the case is 
actually referred to the Office of General Counsel, we will 
continue to work with them through the litigation.
    Senator Grassley. Thank you.
    Now, Mr. Dyckman or your team, after you have heard that, 
does that satisfy some of what you--to what extent do you 
modify what you have already said as a result of that 
explanation?
    Mr. Dyckman. Let me just say at the outset that we are 
talking about a process that is in evolution, so it is 
difficult for me to give GAO's opinion in terms of whether or 
not the tiered approach will address our recommendations. As I 
indicated earlier, my initial reaction is I have some 
reservations, and I think I stated those. I would like to see a 
uniform process where attorneys at least have a chance to weigh 
in on every case, whether it is, yes, I agree with the 
investigators that there are not really legal issues here.
    And maybe that is what they intend. I don't want to sell 
what USDA is planning short, so I would feel more comfortable 
if, after they finalized their approach, we had a chance to 
look at it. You know, we would be happy to get back to you or 
your staff in terms of what we think about it. But I do have 
some initial questions, if you will, about it.
    Senator Grassley. Mr. Dyckman, in your opinion, what are 
the challenges that GIPSA and the Office of General Counsel 
face to improve their performance with respect to competition 
issues? Would they be leadership issues, priority issues, 
expertise, organization, funding?
    And I suppose it could be all of the above and more, but it 
appears to me that so far the USDA has taken, and possibly 
still wants to take a very different approach to organizational 
and procedural issues to best accomplish their Packers and 
Stockyards Act responsibilities than what you have recommended 
in your report.
    Mr. Dyckman. Mr. Chairman, Comptroller General Walker has 
spoken much on human capital issue challenges facing the 
Government, and I think this is an example of that. What we are 
talking about is very complex work where you need highly 
skilled people with legal backgrounds and economicbackgrounds 
working together as a team.
    This has not really occurred at USDA in the past, and what 
it will take is management's attention to bringing to bear the 
types of skills necessary, both from a legal standpoint, an 
investigative standpoint, an economic standpoint, and also 
changing the culture of the organization. The culture of USDA, 
as we have seen it, is not a teamwork approach. It is ``I will 
do this, let me send it to headquarters, they will review it 
and they will get back to us.'' That is not the intent of our 
recommendations. We are talking about a teamwork approach.
    Obviously, you mentioned funding issues. We have had some 
discussion on whether or not they have the resources to bring 
to bear to resolve some of these management issues. Clearly, 
that is an obstacle that will have to be overcome. But, quite 
frankly, the ability to hire the types of skills that are 
needed at Federal pay levels is another human capital issue 
that has to be addressed not only at GIPSA but throughout the 
Government.
    Senator Grassley. Mr. Dunn, do you agree, or how do you see 
the challenges that I have presented in the sense of asking Mr. 
Dyckman the question I did?
    Mr. Dunn. I think, Mr. Chairman, that there has been 
inertia that has taken place. Someone once described running 
the Department of Agriculture like being on the Queen Mary at 
full steam, and you turn the helm and it takes a long time for 
that ship to change in the right direction. I think that is 
what is going on here now.
    But I think the reports that OIG has given us and the GAO 
audits are things that I take very, very seriously. I look at 
those at the compass to see that we are moving in the right 
direction to do things. And I would agree that the cultural 
changes are there and that it takes a long time to get those 
changes and to begin that teamwork and leadership that takes 
place. The interaction between the General Counsel and I--we 
have to be held accountable, and it has to be perceived by the 
folks in the field that we are working together to address this 
issue, to get there.
    And, finally, the human resources that are available. Mr. 
Chairman, this is a tremendous problem for us to be able to 
hire the quality of people with the expertise that everyone 
agrees needs to be here at the pay levels that we have. Very, 
very frankly, to go out and ask a Ph.D. economist or an 
attorney to come to work at a GS-9 or 11 level in the field is 
simply not realistic in today's labor market.
    Senator Grassley. My last series of questions won't be very 
long, and I thank you very much for being attentive to my 
concerns here. This deals with the legislation that I put in 
specifically as a result of the GAO report, and that is to 
implement the recommendations within one year.
    I believe it is imperative that we fix the staff, the 
organization, investigation and case procedure and 
methodological problems identified in the General Accounting 
Office report as soon as possible so that the USDA can do its 
job and best address the many concerns that we have been 
hearing about alleged unfair and anticompetitive practices. I 
think that if the USDA doesn't make these changes, there will 
never be an effective enforcement of the Act. GIPSA will not be 
performing its mission, and family farmers then would not be 
protected.
    So now, Mr. Dyckman, you and your staff wrote the report, 
so I am sure that you would support implementation of its 
recommendations. But do you believe that it is a good idea for 
us to mandate that the U.S. Department of Agriculture implement 
these recommendations within a set timeframe rather than wait 
for the USDA to address them as they might see fit? Do you see 
any pitfalls in making these changes required by law?
    Mr. Dyckman. Mr. Chairman, I don't. That is an interesting 
approach. We frequently in our reports--we just didn't do it in 
this case--we frequently ask the agency to come up with 
milestones and time lines for implementing things that they 
agree with. Or when they feel that they have done something, 
they have made some progress and have taken action but have not 
concluded it, we frequently recommend that they come up with 
milestones, and your legislation does that. So I think that is 
a very novel and useful idea. Obviously, there are other 
options, but surely the Congress can--that is one option that 
would be quite effective.
    Mr. Adams. Mr. Chairman, we would also suggest that 
oversight be continued on this program to observe the changes 
as they take place.
    Senator Grassley. Do you have any improvements in the 
legislation that you would suggest? Then I am going to ask Mr. 
Dunn for his opinion of the legislation.
    First of all, Mr. Dyckman or Mr. Adams, do you have any 
changes?
    Mr. Dyckman. No; it is simple, it is to the point.
    Ms. Poling. I would just take another look at it before we 
make any recommendations. My quick look said it looked fine.
    Senator Grassley. Mr. Dunn.
    Mr. Dunn. Mr. Chairman, we have not had an opportunity to 
fully look at the legislation and vet it through the 
administration, but I would hope that we don't have imposed 
upon the Department any further unfunded mandates that require 
us to do something without the resources to be able to do that.
    And I would sincerely hope that the Department, the Under 
Secretary, whoever is sitting here a year from now, is in tune 
with what you are trying to do, Mr. Chairman. I know I have 
been out in the field with you, in Iowa, and we have listened 
to farmers and ranchers talk very, very emotionally about this. 
And they feel that their Government has not been doing 
everything they need to do to assist them, and I know that is 
what drives you. That is what drives me.
    I would hope that we wouldn't have to have this type of 
very, very rigorous oversight, that we would be doing the right 
thing simply because it is the right thing and it is what we 
ought to be doing. That really is the prerogative of Congress 
to say we want to put you in this very, very tight parameter. I 
would also like to look at this and make sure that we feel that 
we have enough discretion in there to be able to move in the 
direction that we have to move based upon the very, very rapid 
changes that are taking place in the livestock industry. It is 
changing so fast and so furiously that what you and I might 
agree to today may change just in six short months from now.
    Senator Grassley. I would keep the record open because 
there might be members who could not come on a Monday afternoon 
to the subcommittee meeting. They might have some questions to 
submit to you for answers in writing, and I would leave the 
record open for 2 weeks for that purpose.
    Also, Senator Brownback and Senator Ashcroft have submitted 
statements for the record. They will be included.
    [The prepared statement of Senator Brownback follows:]

Prepared Statement of Hon. Sam Brownback, A U.S. Senator From the State 
                               of Kansas

    Thank you for allowing me to submit this statement today on such an 
important issue--the enforcement of anti-trust laws in the agriculture 
industry. I also want to thank my friend, Sen. Grassley for his recent 
bill--the Packers and Stockyards Enforcement Improvement Act of 2000, 
of which I am a co-sponsor. this is a common sense approach to a very 
controversial issue and I applaud his leadership.
    Concerns about concentration and market monopolization have risen 
in the past few years as prices remain low and farmers struggle to 
adapt to the new global commerce. It is tempting to blame all large 
agri-business for the bad economic conditions many farmers find 
themselves in today. But blame does nothing to change the situation.
    Sen. Grassley's bill spells our specific reforms that will make a 
direct difference in the way anti-trust issues and anti-competitive 
practices are dealt with. The bill comes after a thorough examining of 
USDA's enforcement of the Packers and Stockyards Act by the General 
Accounting Office. That report,discussed here today, found numerous 
problems in the way the agency approaches these investigations. 
Specifically, GAO found that USDA has not been attacking the concerns 
of anti-trust in the most effective and efficient way. As you have 
discussed at this hearing, there are relatively simple steps that can 
and should be taken to make sure that anti-trust concerns are being 
adequately addressed.
    Today's agricultural markets are in very bad shape. We can not, 
however, make assumptions about concentration as the cause without 
having accurate information and thorough investigations. With Sen. 
Grassley's bill, this process will be greatly improved because it 
requires USDA to re-tool and devote more resources to the area of anti-
trust enforcement. This bill avoids the pitfall of lumping the innocent 
in with the guilty and instead, sorts our anti-competitive practices 
where they occur. These reforms are necessary to restore producer 
confidence in the Packers and Stockyards Act--and USDA's a ability to 
police this increasingly concentrated industry.
    Again, I thank Sen. Grassley for his wise approach on this tough 
issue and his continued sincere concern for the farmers of this nation.

    [The prepared statement of Senator Ashcroft follows:]

Prepared Statement of Hon. John Ashcroft, a U.S. Senator From the State 
                              of Missouri

    Thank you, Senator Grassley, for holding this hearing today on an 
issue that is one of the top priorities to farmers in my home state of 
Missouri--the freedom to market their products at fair prices without 
anti-competitive practices by corporate buyers.
    As my constituents know, this is a priority for me. By definition, 
anti-competitive behavior harms Missouri farmers that produce hogs and 
cattle. Rural Missouri is built on family farming. We have 99,000 farms 
in Missouri, more than any state except Texas. Nearly 90 percent of 
Missouri's farms are owned by individuals or families. As I've traveled 
around the state, Missourians say they're concerned about a trend that 
leads to only a handful of corporate purchasers for their food and 
allows collusion or anti-competitive behavior among those purchasers or 
processors. Missouri farmers and ranchers need a market that is 
competitive and transparent, now more than ever, when they are 
experiencing lower prices and limited buyers.
    Congress must do what it can to address these concerns, and I have 
introduced three bills that will tighten federal regulation of 
corporate agriculture mergers and that will encourage farmers to 
increase their income by starting ``value added'' agricultural 
projects. My three bills are designed to level the playing field for 
individual farmers and farmer-owned entities.
    Mr. Chairman, it was deeply troubling to me to review a copy of the 
report you commissioned by the General Accounting Office (GAO) on the 
U.S. Department of Agriculture's failure to fulfill its current 
responsibility to enforce the law against anti-competitive behavior 
among the packers and processors. I thank you for requesting this 
report. It sheds light on another area on which we must focus--
oversight of USDA's authority to enforce the Packers and Stockyard Act 
(P&S). As I've traveled around Missouri, I have been told repeatedly 
that the USDA, and more specifically, the Grain Inspection, Packers and 
Stockyard Administration (GIPSA), is failing to address anti-
competitive behavior that is prohibited by P&S.
    As we see from the GAO report released to Congress last week, my 
constituents are exactly right--that there is some evidence that the 
administration has failed to protect independent producers by ensuring 
competition in the livestock industry. Furthermore, USDA has failed to 
enforce the law despite two other reports in the 1990s that outlined 
similar failures.
    Mr. Chairman, that is why I have joined you in introducing S. 3091, 
the Packers and Stockyards Enforcement Improvement Act of 2000, which 
will force the USDA to use its authority to stop anti-competitive 
practices in the livestock and meat packing industries that rob 
Missouri family farmers and ranchers of competitive prices for their 
products.
    S. 3091, will require USDA to take the following specific actions:
    Implement the recommendations of the new GAO report within one year 
and in consultation with the Justice Department and the Federal Trade 
Commission.
    Work with the Justice Department and the Federal Trade Commission 
to identify and investigate complaints of anti-competitive activity and 
to enforce P&S during this interim one-year period.
    Develop and implement a training program for competition 
investigations within one year for USDA staff.
    Provide an annual report to Congress on the state of the cattle and 
hog industries, identifying business activities that represent possible 
violations of P&S.
    Report to Congress within one year on actions taken to comply with 
S. 3091, the Packers and Stockyards Enforcement Improvement Act.
    Mr. Chairman, I thank you for holding this important hearing today. 
I look forward to reviewing the testimony given. It is my hope that we 
can address these issues of concentration and anti-competitive behavior 
in the agricultural sector soon.

    Senator Grassley. I believe that Senator Grams, of 
Minnesota, will submit a statement that hasn't been submitted 
yet, and if he does that, that will be included.
    I want to thank everybody for their participation. I am 
going to put my closing remarks in the record.
    [The closing remarks of Senator Grassley follow:]

             Closing Remarks of Senator Charles E. Grassley

    This was a good hearing, I think we all learned a lot today, and 
hopefully we'll be moving toward a more effective and capable GIPSA. 
While we've heard from USDA that they'll be addressing these issues, I 
want to make sure that it is done in a timely manner. Because I feel 
that USDA has had warning and time enough to make the appropriate 
changes to the way it does business, I think that we can best help 
family farmers and protect against anti-competitive activity by 
guaranteeing that USDA will make these changes by a time specific. 
That's why I think my legislation is so important--give USDA deadline 
to enact these recommendations. No more spinning wheels with pathetic 
results. USDA and the Clinton/Gore Administration have known since 1991 
that more had to be done to monitor and investigate anti-competitive 
practices in the livestock industry. But left on their own, little has 
been accomplished, notwithstanding their own 1997 OIG Report and the 
overwhelming number of concerns voiced by family farmers across 
America. It is high time for this Administration and this USDA to get 
their priorities straight and make these changes. I hope we can move 
quickly on our bill, so that the shortcomings of USDA's OGC and GIPSA 
are addressed and their efforts are enhanced to protect family farmers 
and to preserve competition in the livestock industry.
    Finally, I'd like to complement the GAO staff who conducted this 
investigation. This report reflects substantial work on the GAO's part. 
I'd like to thank you, Mr. Dyckman, and your staff. In particular, I'd 
like to compliment the hard work of Mr. Chuck Adams in leading this 
investigation and producing a report that will help improve the way 
USDA and the Packers and Stockyards program works. A log of family 
farmers and producers, as well as consumers, depend on the effective 
administration of this program, and I think that significant 
improvements will be made because of your efforts.

    Senator Grassley. Thank you all very much.
    [Whereupon, at 2:33 p.m., the subcommittee was adjourned.]
                                APPENDIX

                              ----------                              


                         Questions and Answers

                              ----------                              


Responses of the General Accounting Office to Questions From the Senate 
                       Committee on the Judiciary

    Question 1A. Could you give me the specifics of what was requested 
and granted to USDA GIPSA and OGC in terms of competition-related 
appropriations for FY99, FY00, and FY01?
    Answer 1A. USDA's budget submission to the Congress for fiscal 
years 1999 through 2001 included the following requests for increased 
funding for competition work involving cattle and hogs.
    For GIPSA's competition work:
    For FY99, USDA asked for a $795,000 (15 staff years) increase in 
GIPSA's budget for packers and stockyards work related to livestock 
competition and industry structure. The appropriation for FY99 was 
approved with an increase of $397,000 for this work. For FY99, USDA 
also asked for $3 million for cost associated with GIPSA's 
restructuring; and, the Congress appropriated $2.5 million.
    For FY00, USDA asked for a $636,000 increase (7 staff years) in 
GIPSA's budget for work related to livestock competition and industry 
structure. The appropriation act for FY00 included this $636,000 
request.
    For FY01, USDA asked for a $1.2 million (5 staff years) increase in 
GIPSA's budget for work to develop models to help identify 
anticompetitive behavior and to examine the implication of contract 
livestock production. The budget request also included $1.3 million (12 
staff years) for rapid response teams in GIPSA's regional offices to 
address complex, high priority investigations that are time sensitive. 
As of October 11, 2000, the Congress was still working on the 
Department's appropriation for FY01.
    For OGC's competition work:
    For FY99, USDA asked for a $1.9 million increase in OGC's budget. 
None of this requested increase related to packers and stockyards work.
    For FY00, USDA asked for a $3.5 million increase in OGC's budget. 
Of this, $1,250,000 was for legal services to support USDA activities 
in natural resources, trade practices, and general law, and in the 
central and pacific parts of the country. The trade practices area 
includes:
    (1) perishable commodities work of the Agricultural Marketing 
Service and (2) the Packers and Stockyards Programs work of GIPSA. The 
budget request did not provide specific details on the portion of the 
request that applied to trade practices or to the Packers and 
Stockyards Programs work of GIPSA. The appropriation act for FY00 was 
not approved with this request.
    For FY01, USDA asked for a $3.7 million increase in OGC's budget. 
Of this, almost $1 million (16 staff years) was for increased legal 
services but none was identified as being related specifically to the 
Packers and Stockyards Programs work of GIPSA.

    Question 1B. Were any attorneys requested for Packers and 
Stockyards Act competition-related responsibilities in USDA's OGC FY01 
appropriations request?
    Answer 1B. No attorneys or legal services were requested or 
referred to in USDA's FY01 budget request for OGC for work involving 
livestock competition or the Packers and Stockyards Programs work of 
GIPSA.

    Question 1C. Do the USDA GIPSA and OGC appropriations requests 
reflect an indication that USDA sees competition-related issues as a 
priority for the agency as compared to other areas of responsibility?
    Answer 1C. USDA's appropriation requests for GIPSA have emphasized 
the need for additional work on competition issues, but the OGC 
requests have not reflected a priority in this area.

    Question 2A. At the Subcommittee hearing, the Agriculture 
Department witnesses indicated that USDA has issued six Packers and 
Stockyards Act competition-related rulemakings proceedings. Is that 
testimony accurate?
    Answer 2A. GIPSA has announced plans for regulations related to 
competitive activity, but has not issued final regulations on 
competitive issues. On September 5, 2000, GIPSA proposed that packers 
should file swine marketing or purchase contracts with GIPSA. GIPSA 
plans to publish information about these contracts as required by the 
Livestock Mandatory Reporting Act of 1999. Also, accordingto GIPSA, on 
September 14, 2000, it submitted a draft proposed regulation to the 
Office of Management and Budget for review that would prohibit a packer 
from requiring that livestock sellers not report sale prices as a 
condition of purchase. In addition, in September 2000, GIPSA announced 
that it is drafting other regulations that would be designed to 
increase the transparency of market transactions. Since 1995, GIPSA has 
amended several existing trade practice related regulations. For 
example, in May 2000, GIPSA amended its existing regulations regarding 
the weighing of feed.

    Question 2B. Do you believe that USDA has been aggressive with 
respect to initiating rulemaking or issuing guidelines dealing with 
competition-related matters?
    Answer 2B. In our opinion, GIPSA has not been aggressive with 
competition related rulemakings or guidance.

    Question 3. At this Subcommittee hearing, I asked the USDA what 
internal checks and controls were in place at USDA GIPSA to provide an 
assurance that a proper job was being done in conducting investigations 
of alleged anti-competitive practices. Would you like to respond to 
USDA's answer regarding their internal operations?
    Answer 3. During the hearing, USDA referred to GIPSA's process of 
assigning a control number to each investigation for tracking purposes. 
This tracking system is not by itself an internal control system. An 
internal control system or periodic quality assessments could be used 
to test and ensure that the agency has conducted full and complete 
investigations.

    Question 4. In your opinion, what are the challenges for USDA GIPSA 
and OGC to improve their performance with respect to competition 
issues?
    Answer 4. The challenges are several. First, USDA needs to adopt a 
fundamentally different approach to investigations than the agency 
currently practices. Second, USDA will need to overcome the limited 
experience of GIPSA and OGC staff with competition related 
investigation work aimed at the practices of major companies. Also, OGC 
has not traditionally led GIPSA investigation cases, and doing so in a 
teamwork environment is likely to call for cultural changes in 
organizational behavior. Third, GIPSA and OGC will need to work with 
the Department of Justice and Federal Trade Commission to obtain their 
advice and counsel on changes before implementation. This will call for 
a consultative relationship between the agencies.

    Question 5. At the hearing and in their response to the GAO report, 
USDA spelled out in some detail what it needs to do to address the 
problems raised in your report. Do you believe that USDA's proposals 
will effectively address the current shortcomings in GIPSA's 
performance in regard to their competition duties? Do any of USDA's 
proposed changes raise any concerns?
    Answer 5. Overall, we believe that the steps that GIPSA has 
proposed are a positive response to our recommendations. Nevertheless, 
USDA's initial proposals as described in USDA's testimony vary from our 
recommendations in several respects.
    We recommend that USDA's OGC attorneys lead GIPSA's investigations 
involving competition issues using a team approach with GIPSA's 
economists, and also supervise GIPSA's legal specialists. USDA's 
testimony indicates that OGC attorneys may lead some of these 
investigations, but not others. If so, USDA may not achieve a full 
teamwork approach. Also, USDA did not directly address the limitations 
on the responsibilities of GIPSA's legal specialists, and how these 
legal specialists would be led and supervised. We believe that USDA 
needs to assure that competition-related investigations are led by 
attorneys with experience in this field of practice (or at least that 
they are in an active part of the team), and that there is a teamwork 
approach between GIPSA and OGC throughout the investigative work and 
litigation phase when that is necessary.
    In addition, USDA's testimony does not address our recommendation 
that it consult with DOJ and FTC on the changes it is planning, 
including the organizational relationships needed to achieve a teamwork 
approach. Hopefully, this process will be undertaken early on before 
USDA adopts its plans. Also, USDA officials stated that 5 additional 
USDA OGC attorneys are needed for competition investigation work. While 
we have not reviewed the basis for this initial estimate, adding 5 OGC 
attorneys would clearly be an improvement, particularly if they have 
experience in this field of practice. Also, we believe USDA/GIPSA 
should consult with DOJ and FTC on the appropriate ratio of attorneys 
to economists involved in competition-related investigations.

                 Additional Submissions for the Record

                              ----------                              


Prepared Statement of Hon. Rod Grams, a U.S. Senator From the State of 
                               Minnesota

    Mr. Chairman, I appreciate the opportunity to offer a statement to 
your subcommittee concerning the enforcement of provisions of the 
Packers and Stockyards Act. I also want to commend you for your 
diligence in fulfilling your legislative oversight responsibilities and 
your concern for the plight of family farmers across America's 
heartland. I am a proud original cosponsor of the ``Packers and 
Stockyards Enforcement Improvement Act of 2000,'' which is a common-
sense piece of legislation that sets aside the contentious issue of 
expanding the statutory authority of federal agencies, and instead 
focuses on guaranteeing that existing law is being thoroughly and 
competently enforced.
    As I have said before, the extent of market competition protection 
provided in federal law is certainly of concern to all stakeholders in 
American agriculture, but we must be careful to avoid taking measures 
that may reduce America's global competitiveness and have negative, 
unintended consequences on producers. Nevertheless, we should be able 
to reach a consensus that the current responsibilities of federal 
agencies should be discharged with energy and focus, and with the 
technical competency necessary to get the job done. Unfortunately, the 
GAO report you are examining today indicates that may not be true for 
GIPSA in recent years.
    I believe that your bill will take important steps towards 
improving GIPSA's investigation methods and performance, and will bring 
legal expertise and improved review methods to bear from the beginning 
of the investigations. I am hopeful that with the additional required 
training mandated by the bill, and by tapping the experience and 
resources of the Department of Justice and Federal Trade Commission, 
that GIPSA will soon be better equipped to fulfill its statutory duties 
of protecting livestock producers against unfair trade practices.
    The nation's producers are uneasy about the number of mergers and 
the degree of concentration that has occurred in the livestock industry 
in recent years. Family farmers need to have confidence that the laws 
that protect them are being diligently enforced, and that is why I 
again salute you for your efforts and am glad to be an original 
cosponsor of your bill.
                                 ______
                                 
Department of Agriculture, Grain Inspection,        
                                                   
               Packers and Stockyards Administration,      
                                Washington, DC, September 28, 2000.
Hon. Charles E. Grassley,
Chairman, Administrative Oversight and the Courts Subcommittee, Hart 
        Senate Office Building, Washington, DC.
    Dear Chairman Grassley: Thank you for the opportunity to interact 
with your Subcommittee on Monday, September 25, 2000. I enjoyed 
speaking with you after the hearing.
    Enclosed is a document addressing the Grain Inspection, Packers and 
Stockyards Administration's FY 2000 Regulatory Initiative that outline 
regulatory actions the Agency is pursuing in order to better serve 
American agriculture.
    It is my desire that the attached be added to the record of the 
Subcommittee's hearing on Monday, September 25, 2000.
            Sincerely,
                                            James R. Baker,
                                                     Administrator.
    Enclosure.

           FY 2000 Regulatory Initiatives, September 27, 2000

   GRAIN INSPECTION, PACKERS AND STOCKYARDS ADMINISTRATION (GIPSA), 
                    PACKERS AND STOCKYARDS PROGRAMS

    During fiscal year 2000, the Packers and Stockyards Programs, 
GIPSA, has worked on seven regulatory initiatives. The title, status, 
and a brief description of each regulatory initiative are provided 
below.
Feed weigh final rule
    Status: Published April 5, 2000, effective as of May 5, 2000.
    Description: The feed weigh final rule amended existing scales and 
weighing regulations to include requirements regarding the weighing of 
feed. The feed weigh regulations are intended to assure livestock and 
poultry growers that feed weights are accurately or reasonably 
determined.
Swine packer marketing contracts library proposed rule
    Status: Published on September 5, 2000, comments are due by October 
5, 2000.
    Description: The proposed rule adds a new regulation to implement 
the Swine Packer Marketing Contracts subtitle of the Livestock 
Mandatory Reporting Act of 1999. The new regulation would require 
certain packers to file swine marketing or purchase contracts with 
GIPSA and would require GIPSA to publish monthly reports about 
available swine marketing contracts.
Non-reporting of price proposed rule
    Status: Submitted to OMB for review on September 14, 2000, the 90-
day OMB review period ends on December 12, 2000.
    Description: The proposed rule would prohibit a packer from 
requiring that the seller not report the price as a condition of the 
purchase or sale of livestock.
Proposed rules for livestock and poultry marketing
    Status: GIPSA is drafting and reviewing four proposed rules.
    Description: The series of four proposed rules are intended to help 
ensure fair competition in the livestock, poultry, and meat packing 
industries. These new regulations will help level the playing field by 
increasing the transparency of market transactions. Specifically, the 
new regulations are intended to:
    Clarify recordkeeping requirements for packers;
    Mandate disclosure of specific production contract terms in plain 
language and prohibit restrictions on the disclosure of contract terms;
    Require that livestock owned by different people be purchased, 
sold, or offered for purchase or sale on its own merits; and
    Specify conditions under which packers may offer premiums and 
discounts in carcass merit transactions.

                                
