Packers and Stockyards Programs: Continuing Problems with GIPSA
Investigations of Competitive Practices (09-MAR-06, GAO-06-532T).
GAO discussed before Congress the U.S. Department of
Agriculture's (USDA) management and oversight of the Packers and
Stockyards Act. Within USDA, the Grain Inspection, Packers and
Stockyards Administration (GIPSA) is responsible for
administering the Packers and Stockyards Act and investigating
concerns about unfair and anticompetitive practices in the $90
billion livestock market. Prior reports issued by the USDA Office
of Inspector General (OIG) and our office have identified
weaknesses in GIPSA's investigation and enforcement activities,
and recommended actions to address them. A more recent OIG report
shows that, in several key areas, GIPSA still has not taken
sufficient steps to address those recommendations. This testimony
focuses on our prior work and discusses (1) factors that have
affected GIPSA's ability to investigate concerns about
anticompetitive practices, (2) GIPSA's actions to address our
recommendations and areas where their efforts have fallen short,
and (3) challenges and other issues we believe GIPSA should
consider as it moves to further strengthen its capacity to
address competitiveness issues.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-532T
ACCNO: A48640
TITLE: Packers and Stockyards Programs: Continuing Problems with
GIPSA Investigations of Competitive Practices
DATE: 03/09/2006
SUBJECT: Accountability
Competition
Federal law
Internal controls
Investigations by federal agencies
Livestock
Performance measures
Reporting requirements
Strategic planning
Deceptive business practices
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GAO-06-532T
* Background
* 2000 GAO Review Identified Critical Factors Detracting From
* Attorney's Participation in Investigations
* Processes and Practices For Anticompetitive Practice Investi
* Developing and Sharing Information on Competitive Conditions
* GIPSA's Actions To Address GAO's Recommendations Fell Short
* Challenges and Other Issues Associated With Addressing Longs
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
Testimony
Before the Committee on Agriculture, Nutrition, and Forestry
United States Senate
United States Government Accountability Office
GAO
For Release on Delivery Expected at 10:30 a.m. EST
Thursday, March 9, 2006
PACKERS AND STOCKYARDS PROGRAMS
Continuing Problems with GIPSA Investigations of Competitive Practices
Statement of Daniel Bertoni Acting Director, Natural Resources and
Environment
GAO-06-532T
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the U.S. Department of
Agriculture's (USDA) management and oversight of the Packers and
Stockyards Act. Within USDA, the Grain Inspection, Packers and Stockyards
Administration (GIPSA) is responsible for administering the Packers and
Stockyards Act and investigating concerns about unfair and anticompetitive
practices in the $90 billion livestock market.
As you know, prior reports issued by the USDA Office of Inspector General
(OIG) and our office have identified weaknesses in GIPSA's investigation
and enforcement activities, and recommended actions to address them.1 A
more recent OIG report shows that, in several key areas, GIPSA still has
not taken sufficient steps to address those recommendations.2 My testimony
today will focus on our prior work and discuss (1) factors that have
affected GIPSA's ability to investigate concerns about anticompetitive
practices, (2) GIPSA's actions to address our recommendations and areas
where their efforts have fallen short, and (3) challenges and other issues
we believe GIPSA should consider as it moves to further strengthen its
capacity to address competitiveness issues.
In summary, in 2000, we identified two critical factors that detracted
from GIPSA's ability to investigate anticompetitive practices in livestock
markets, and another area where improvement was needed. First, the
agency's investigations were planned and conducted primarily by economists
without the formal involvement of attorneys from USDA's Office of General
Counsel (OGC). As a result, a legal perspective that focused on assessing
potential violations was generally absent when investigations were
initiated and conducted. Second, GIPSA's investigative practices were
designed for traditional trade practices and financial issues the agency
had emphasized for years and were not suited for the more complex
competition-related concerns it was addressing. Finally, while not a
critical concern, we noted that GIPSA had an important role in keeping the
industry and the Congress informed about its monitoring of livestock
markets and could have done more to identify market operations or
activities that appeared to raise concerns under the Packers and
Stockyards Act. In our September 2000 report, we recommended that USDA
better integrate attorneys from USDA's Office of General Counsel into
GIPSA's investigative processes and develop a teamwork approach to
investigations similar to that of the Department of Justice (DOJ) and the
Federal Trade Commission (FTC). We also recommended that GIPSA adopt more
systematic approaches for selecting cases and conducting investigations.
1U.S. Department of Agriculture, Office of Inspector General, Agency
Efforts to Monitor and Investigate Anti-competitive Practices in the
Meatpacking Industry, Report No. 30801-01-Ch (Washington, D.C.: February
26, 1997) and GAO, Packers and Stockyards Programs: Actions Needed to
Improve Investigations of Competitive Practices (Washington, D.C.:
September 21, 2000).
2U.S. Department of Agriculture, Office of Inspector General, Grain
Inspection, Packers and Stockyards Administration's Management and
Oversight of the Packers and Stockyards Programs, Report No. 30601-01-Hy
(Washington, D.C.: January 10, 2006).
USDA concurred with our findings and noted specific actions it planned to
take in response to our recommendations, including (1) formalizing
consultations between GIPSA and OGC on complex investigations, and
integrating OGC attorneys into its investigative teams; (2) developing a
tiered process whereby routine investigations would be reviewed and
approved by headquarters staff, while complex investigations received an
additional OGC review; (3) adopting relevant procedures used by DOJ and
FTC for planning, developing, implementing, and reviewing investigations;
and (4) reporting publicly on changing business practices and activities
that raise fairness and competition concerns. Despite these plans, the
January 2006 OIG report identified substantial ongoing weaknesses in
GIPSA's investigative processes and noted that GIPSA's actions to respond
to the prior OIG and GAO reports had fallen short in key areas. In
particular, GIPSA had not yet developed a teamwork approach for
investigations whereby GIPSA's economists and USDA's OGC attorneys could
work together to identify violations of law, nor had it taken sufficient
steps to ensure legal specialists within GIPSA were used most effectively.
In addition, GIPSA had not followed through in adopting appropriate
investigative guidance similar to those of DOJ and FTC to strengthen its
ability to investigate anticompetitive and unfair practices.
Given GIPSA's lack of progress in addressing prior report findings and
recommendations dating back for almost a decade, continued vigilance and
monitoring of its key activities and management initiatives by the OIG and
other oversight bodies is essential. In its response to the OIG's 2006
report, GIPSA noted that it intends to reassess and develop a defined
process for managing investigations, enhancing communication among staff
and managers, appropriately dividing responsibility for its varied types
of investigations, and developing an internal review function to monitor
and report on corrective actions resulting from the OIG and GAO reviews.
Consistent with our prior recommendations, GIPSA also plans to define the
role of OGC attorneys and GIPSA legal specialists in investigations and to
move forward in identifying and adopting certain techniques used by the
DOJ and the FTC. As GIPSA moves ahead in reexamining its processes it
should consider assigning lead roles to OGC attorneys for certain
investigations involving complex anticompetitive practices. Finally, going
forward, GIPSA's efforts to periodically inform the industry and the
Congress about competitive conditions could be of further usefulness.
GIPSA plans to complete a study on livestock and red meat marketing
practices later this year. While potentially informative to the industry
and policymakers, it could also help GIPSA identify current and emerging
areas of vulnerability and better target its oversight resources.
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 existing antitrust
laws. The provisions of the act were based, in part, on prior antitrust
statutes including the Sherman Act and the Federal Trade Commission Act.
The Packers and Stockyards Act prohibits packers 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. The act also makes unlawful packer anticompetitive
practices that are antitrust-type actions, including a packer's activities
that manipulate or control prices or restrain trade.
Within USDA, GIPSA is responsible for implementing the Packers and
Stockyards Act. GIPSA initiates investigations and actions to halt unfair
and anticompetitive practices by meatpacking companies and by other
parties involved in livestock marketing. 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. OGC also has an enforcement role and, among other
activities, represents USDA in administrative and court proceedings
addressing violations of the act.
The Packers and Stockyards 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 acts 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 1996, GIPSA reported that dynamic changes had taken place in the cattle
and hog industries, including increasing concentration and vertical
integration-where packers own the animals. GIPSA stated that these changes
had reduced the role of the public markets, where terms of a trade are
visible to all. That same year, an advisory committee to the Secretary of
Agriculture reviewed the concerns of producers and others about changes in
livestock markets and recommended, among other things, a review of GIPSA's
efforts to enforce the Packers and Stockyards Act. The Secretary then
asked the OIG to review GIPSA's program.
The subsequent OIG report noted that while GIPSA had a credible record in
certain areas, it (1) did not have the capability to perform effective
anticompetitive practice investigations and (2) faced formidable obstacles
to become effective in performing such investigations. The OIG found that
GIPSA had not been organized, operated, or staffed for that purpose and
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. Along with
those changes there were relocations of staff and the addition of
economists and legal specialists to assist with investigations of
competitive practices.
Because of continued concerns about whether GIPSA was taking sufficient
action to protect competition in livestock markets, GAO was requested to
review USDA's efforts to implement the Packers and Stockyards Act. We
issued our final report and recommendations for improvement in September
2000. Subsequently, the OIG completed a follow-up review on GIPSA's
administration and oversight of the Packers and Stockyards Programs in
January 2006. It too issued a report with recommendations.
2000 GAO Review Identified Critical Factors Detracting From GIPSA's
Investigative Capabilities
We identified two critical factors that detracted from GIPSA's
investigative capability, as well as areas where GIPSA could improve its
efforts to develop and share key information. First, the agency's
investigations were planned and conducted primarily by economists without
the formal involvement of attorneys from OGC. Second, GIPSA's
investigative practices were designed for traditional trade practices and
financial issues the agency had emphasized for years and were not suited
for the more complex competition-related concerns it was addressing. While
not of a critical nature, we also found that despite prior dynamic changes
in the livestock markets, GIPSA's efforts to periodically update the
industry and Congress on competitive conditions and emerging fairness and
equity issues were lacking.
Attorney's Participation in Investigations
At the time of our review, OGC attorneys did not usually participate at
the start or throughout the agency's investigations. Assignment of OGC
attorneys typically occurred after GIPSA performed an investigation and
forwarded a developed case file to them for review and action. Thus, the
agency's investigations were planned and conducted primarily by
economists, most of whom had limited investigative experience. GIPSA
relied on OGC attorneys mainly for legal advice, and its OGC reviewed the
results of GIPSA's investigations to determine if violations of law might
have occurred. In contrast, we noted that DOJ and FTC utilized integrated
teams of attorneys and economists to perform investigations of
anticompetitive practices. Attorneys were assigned to lead and conduct
investigations from the outset so that officials with a legal perspective
focused on assessing potential violations of law. Economists were
routinely assigned as an integral part of the investigation teams. This
approach ensured that a legal perspective was brought to bear on the
interpretation of law, development of evidence, and preparation of cases
for presentation in administrative and judicial proceedings.
We also reported that OGC officials provided GIPSA with only limited
informal assistance which had declined over the years as the number of OGC
attorneys assigned to assist GIPSA decreased. In fact, the number of OGC
attorneys assigned to GIPSA cases had decreased from eight to five because
of budget constraints, according to USDA's General Counsel. These
attorneys were also not all assigned full-time to GIPSA's financial, trade
practice, and competition cases; some had responsibilities in other USDA
areas as well.
We concluded that GIPSA's program needed additional steps to become more
effective and efficient in performing investigations and recommended that
GIPSA 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 reassess current OGC
staffing needs relative to current GIPSA investigations, assign attorneys
to lead or participate in more complex investigations, and increase the
effectiveness of legal specialists by providing them with leadership
opportunities and better supervision.
Processes and Practices For Anticompetitive Practice Investigations
We also found that GIPSA's basic investigative processes and practices
were not designed for addressing the complex anticompetitive practices it
had begun to encounter in recent years-instead they were designed for the
more traditional trade practice and financial issues that the agency had
emphasized for years. In comparison, DOJ and FTC had processes and
practices specifically designed for guiding investigations of similarly
complex competition-related issues.
DOJ and FTC emphasized establishing the theory of each case and the
elements necessary to prove the case. At each stage of an investigation,
including selecting the case, planning, and conducting the investigation,
regular reviews by senior officials-attorneys and economists--focused on
developing sound cases. For example, DOJ and FTC required their attorneys,
with the assistance of 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 were reviewed early on by senior officials, and
periodically as the factual underpinnings of the case came into focus. 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 also did 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 had questions about how to interpret the law and how best
to scope and perform investigations. Also, OGC officials told us that
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 led to disagreements about the interpretation of
the act and the sufficiency of evidence. Finally, we found that GIPSA's
investigative guidance manual had not been revised since the agency's
reorganization and did 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.
Developing and Sharing Information on Competitive Conditions With Key
Stakeholders
GIPSA periodically made educational outreach efforts and shared
information via its Web site and annual reports. GIPSA also held and
participated in numerous town hall meetings and conferences with producers
and state and industry officials. Even so, GIPSA officials said they could
do more to inform the industry and others on competitive conditions. In
fact, at the time of our review, it had been several years since GIPSA had
last reported on conditions in livestock markets, despite previous
dramatic changes in industry concentration and vertical integration.
GIPSA officials also recognized that it would be helpful if producers had
a more current understanding of the Packers and Stockyards Act and how the
act applies to market activities. They also agreed that GIPSA could report
on market activities and identify those that may raise concerns about
fairness and competition, as FTC had done. In our report, we recommended
that 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 raised
concerns under the Packers and Stockyards Act. GIPSA has published four
such assessments from 2000 to 2004.3
GIPSA's Actions To Address GAO's Recommendations Fell Short in Several Areas
USDA's General Counsel and the Under Secretary for Marketing and
Regulatory Programs concurred with our recommendations and provided
encouraging details about their planned implementation. Among other
things, they stated that GIPSA and OGC would formalize their relationship
for complex investigations to ensure that all investigative, economic, and
legal issues were carefully considered before embarking on complex
investigations. As part of that process, they stated that they were
examining the procedures of the Antitrust Division of DOJ and the FTC and
would adopt relevant portions for investigation planning, development,
implementation, and review. They also stated that GIPSA and OGC senior
management would review plans for complex investigations to ensure the
effective use of investigative resources and facilitate successful
litigation if evidence demonstrates that the Packers and Stockyards Act
has been violated.
3GIPSA's report for 2004 was issued in April 2005. U.S. Department of
Agriculture, Grain Inspection, Packers and Stockyards Administration,
Assessment of Cattle, Hog, and Poultry Industries (Washington, D.C.: April
2005).
The General Counsel and Under Secretary also stated that they would
increase the integration of OGC attorneys into GIPSA's investigative teams
early in the investigative process. They noted that OGC attorneys would
work closely with GIPSA's economists, legal specialists, and other
technical specialists to ensure that investigative plans had a sound basis
and to address critical legal issues throughout the conduct of an
investigation. In addition, the effectiveness of legal specialists was
also to be enhanced. However, they stated that GIPSA's legal specialists
would not act as attorneys for either GIPSA or the Department, but would
provide front-line legal advice on investigations. Legal specialists would
also be trained by OGC attorneys and consult with them regularly.
It is troubling that these plans, which appeared to be carefully laid out
by USDA in late 2000, were never wholly or effectively implemented as
noted in the OIG's 2006 follow-up report. Unfortunately, as the report
makes clear, GIPSA's senior management review panel became a log jam to
the progress of investigations. Investigations were thwarted by management
delays in providing policy and investigative guidance and by inaction on
on-going investigations when they required management concurrence or
direction. Further, GIPSA and OGC apparently have not effectively
implemented a team approach to the investigation of complex competition
related investigations. Overall, it appears that as GIPSA officials
responded to the prior OIG and GAO reports, they did so in a manner that
prevented, rather than facilitated the desired actions and results.
Challenges and Other Issues Associated With Addressing Longstanding Weaknesses
Given GIPSA's lack of progress in addressing prior report findings and
recommendations dating back almost a decade, continued vigilance and
monitoring of its key activities and management initiatives by the OIG and
other oversight bodies is essential.
In response to the most recent OIG report GIPSA has stated that, among
other things, it is:
o developing a defined process for managing investigations,
including controls for preliminary investigations to obtain
sufficient facts to decide whether to proceed with further
investigation;
o revising its organizational structure to appropriately divide
management responsibility for work plans, managing investigations,
and the reporting of results;
o developing an internal review function to monitor and report on
the progress of corrective actions resulting from external
reviewers, such as the OIG and GAO;
o moving forward in identifying techniques used by DOJ and FTC
that are most appropriate under the Packers and Stockyards Act.
GIPSA also stated that it will enable its legal specialists to consult
with OGC and will integrate attorneys into complex competition
investigations earlier in the process.
Beyond increased monitoring, GIPSA's success in fully implementing the
above initiatives will require sustained management attention and
commitment that has, thus far, been elusive. However, we continue to
believe that such a focus is needed and will ultimately result in a more
vigilant and skillful federal presence. It will also instill greater
public confidence that concerns about the industry will be investigated
fairly and diligently. Finally, as GIPSA moves forward in developing its
processes, it should consider the feasibility of assigning lead roles to
OGC attorneys for investigations that involve more complex anticompetitive
practices-an approach we have recommended that is also consistent with DOJ
and FTC practices. Going forward, it is also possible that GIPSA's efforts
to periodically inform the industry and the Congress about its monitoring
efforts, as well as changing competitive conditions could be of further
usefulness. GIPSA has issued reports on the cattle, hog, and poultry
industries from 2000 through 2004, and has initiated a broad study on
livestock and red meat marketing practices. While informative to the
industry and policy makers, such analyses could also be internally
valuable to GIPSA as a tool for identifying current and emerging areas of
vulnerability and better targeting its oversight resources and activities.
Mr. Chairman, this concludes my formal statement. If you or other Members
of the Committee have any questions, I will be pleased to respond to them.
For future questions about this testimony, please contact me at (202)
512-5988. Charles M. Adams made key contributions to this testimony.
(360684)
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