Packers and Stockyards Programs: Actions Needed to Improve Investigations
of Competitive Practices (Letter Report, 09/21/2000, GAO/RCED-00-242).

Pursuant to a legislative requirement, GAO reviewed the Department of
Agriculture's (USDA) efforts to implement the Packers and Stockyards
Act, focusing on: (1) the number and status of investigations conducted
by the Grain Inspection, Packers and Stockyards Administration (GIPSA)
in response to complaints and concerns about anticompetitive activity
involving the marketing of cattle and hogs; and (2) factors that affect
GIPSA's ability to investigate concerns about anticompetitive practices.

GAO noted that: (1) from October 1, 1997, through December 31, 1999,
GIPSA investigated 74 allegations or concerns about anticompetitive
activity involving cattle or hogs; (2) 36 of these investigations were
in direct response to specific complaints about anticompetitive
activity, and 38 were initiated by GIPSA; (3) at the end of March 2000,
57 of these investigations had been completed and the remaining 17 were
ongoing; (4) GIPSA identified a total of five alleged violations of the
Packers and Stockyards Act; (5) these alleged violations involved acts
by one or a few companies in such areas as deceptive pricing; (6) two
principal factors detract from GIPSA's ability to investigate concerns
about anticompetitive practices in the cattle and hog markets; (7) the
agency's investigations are planned and conducted primarily by
economists without the formal involvement of attorneys from USDA's
Office of General Counsel (OGC); (8) in contrast, the Department of
Justice (DOJ) and the Federal Trade Commission (FTC) have teams of
attorneys and economists to perform investigations of anticompetitive
practices--attorneys lead the investigations from the outset so that a
legal perspective is focused on assessing potential violations of law;
(9) also, as GIPSA has built up its staff to include 18 economists to
investigate competitive concerns about the cattle and hog markets, the
number of OGC attorneys assigned to GIPSA's cases overall has decreased
since 1998 from eight to five because of budget constraints, according
to USDA's OGC; (10) in addition, most of the 18 economists conducting
GIPSA's investigations were hired since 1998 and have limited experience
with investigative work related to competition; (11) GIPSA's
investigative methods 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;
and (12) in comparison to DOJ and FTC, GIPSA does not require
investigations to be: (a) planned and developed on the basis of how a
company's actions may have violated the law; and (b) periodically
reviewed as they progress by senior officials with anticompetitive
practice experience.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-00-242
     TITLE:  Packers and Stockyards Programs: Actions Needed to Improve
	     Investigations of Competitive Practices
      DATE:  09/21/2000
   SUBJECT:  Meat packing industry
	     Cattle
	     Marketing
	     Law enforcement
	     Competition
	     Livestock products
	     Investigations by federal agencies
	     Antitrust law
	     Restrictive trade practices

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GAO/RCED-00-242

Appendix I: GIPSA's Authority to Address Unfair and
Anticompetitive Activities in the Livestock
Industries

26

Appendix II: Overview of Past and Current Conditions Affecting Competition
in the Livestock Industries

31

Appendix III: Additional Information on the Results of GIPSA's
Investigations

35

Appendix IV: Objectives, Scope, and Methodology

38

Appendix V: Comments From the U.S. Department of
Agriculture

41

Appendix VI: GAO Contacts and Staff Acknowledgments

45

Table 1: Results of GIPSA's Investigations of Allegations of
Anticompetitive Actions From the Start of Fiscal Year 1998 Through the First
Quarter of Fiscal 2000 9

Table 2: GIPSA's Implementation of the Recommendations Made by
USDA's OIG and GAO's Analysis of the Actions Taken 14

Figure 1: GIPSA's Process for Handling Concerns About
Anticompetitive Practices 18

DOJ Department of Justice

FTC Federal Trade Commission

GAO General Accounting Office

GIPSA Grain Inspection, Packers and Stockyards Administration

OGC Office of General Counsel (USDA)

OIG Office of Inspector General (USDA)

USDA U.S. Department of Agriculture

Resources, Community, and
Economic Development Division

B-284827

September 21, 2000

The Honorable Richard G. Lugar
Chairman
The Honorable Tom Harkin
Ranking Minority Member
Committee on Agriculture,
Nutrition, and Forestry
United States Senate

The Honorable Larry Combest
Chairman
The Honorable Charles W. Stenholm
Ranking Minority Member
Committee on Agriculture
House of Representatives

The Honorable Charles E. Grassley
Chairman, Subcommittee on Administrative
Oversight and the Courts
Committee on the Judiciary
United States Senate

The production and marketing of cattle and hogs were U.S. agriculture's
first and seventh largest businesses in 1998 with cash receipts of $33.7
billion and $9.4 billion, respectively. The responsibilities of the U.S.
Department of Agriculture (USDA) under the Packers and Stockyards Act for
monitoring the cattle and hog industries, and halting unfair and
anticompetitive practices in the marketing of cattle and hogs, are assigned
to the Grain Inspection, Packers and Stockyards Administration (GIPSA).1
USDA's Office of General Counsel (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.

Cattle and hog producers have raised concerns about changes in their
industries that affect competition. For example, they have pointed out that
as mergers have occurred among meatpacking companies, there have been fewer
bidders for livestock and some meatpacking plants have closed; that as
livestock have increasingly been marketed through contracts, the volume of
livestock sold through competitive open market bidding has decreased; and
that meatpacking companies have been increasing their control over livestock
production and marketing. GIPSA, the Department of Justice (DOJ), and the
Federal Trade Commission (FTC) have monitored developments in these
industries.2 In recognition of producers' concerns about these and other
agricultural industries, DOJ appointed a Special Counsel on Agriculture
within its Antitrust Division in January 2000. In addition, the Congress
passed the Livestock Mandatory Reporting Act of 1999 to ensure, among other
things, better disclosure of livestock prices. Also, bills have been
introduced in the Congress to provide additional oversight of agricultural
industries by USDA and to better ensure competitive agricultural markets.3
On the other hand, meatpacking company officials point out that livestock
price fluctuations have resulted from changes in the supply of livestock and
the demand for meat products, that producers often request private contracts
with value-added features, that their industry is regulated and monitored
and mergers have been reviewed by DOJ, and that GIPSA has not found
anticompetitive activities.

In 1997, USDA's Office of Inspector General (OIG) reviewed GIPSA's efforts
to investigate competitive practices. The 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 OIG 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 OIG
recommended extensive improvements within GIPSA or, alternatively,
transferring this responsibility to DOJ or FTC. In response, GIPSA completed
a major restructuring of its headquarters and field offices in 1999 and has
hired staff to strengthen its investigations of alleged anticompetitive
practices.

Because of continued concerns about whether GIPSA is taking sufficient
action to protect competition in the livestock markets, Senator Charles E.
Grassley, Chairman, Subcommittee on Administrative Oversight and the Courts,
Senate Committee on the Judiciary, requested that we review USDA's efforts
to implement the Packers and Stockyards Act. Subsequently, USDA's
appropriation act for fiscal year 2000 required us to analyze USDA's
authority to ensure competition in the marketing of hogs. In response, this
report discusses (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 and (2) factors that affect
GIPSA's ability to investigate concerns about anticompetitive practices. In
addition, appendix I contains information on GIPSA's authority under the
Packers and Stockyards Act to address concerns about anticompetitive and
unfair practices in the cattle and hog markets.

From October 1, 1997, through December 31, 1999, GIPSA investigated 74
allegations or concerns about anticompetitive activity involving cattle or
hogs. Thirty-six of these investigations were in direct response to specific
complaints about anticompetitive activity, and 38 were initiated by GIPSA.
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 alleged violations
involved acts by one or a few companies in such areas as deceptive pricing.

Two principal factors detract from GIPSA's ability to investigate concerns
about anticompetitive practices in the cattle and hog markets. First, the
agency's investigations are planned and conducted primarily by economists
without the formal involvement of attorneys from USDA's OGC. In contrast,
DOJ and FTC have teams of attorneys and economists to perform investigations
of anticompetitive practices; attorneys lead the investigations from the
outset so that a legal perspective is focused on assessing potential
violations of law. Also, as GIPSA has built up its staff to include 18
economists to investigate competitive concerns about cattle and hog markets,
the number of OGC attorneys assigned to GIPSA's cases overall has decreased
since 1998 from eight to five because of budget constraints, according to
USDA's General Counsel. In addition, most of the 18 economists conducting
GIPSA's investigations were hired since 1998 and have limited experience
with investigative work related to competition. Second, GIPSA's
investigative methods 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
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.

We are recommending that USDA improve its capability to investigate
allegations of anticompetitive practices by having integrated teams of
attorneys and economists perform GIPSA's investigative work, improving the
planning and review of these investigations, and consulting with DOJ and FTC
on the design of program improvements. USDA concurred with our report and is
initiating actions to implement our recommendations.

Under the Packers and Stockyards Act, GIPSA is responsible for providing
financial protection for participants in livestock transactions and halting
unfair and anticompetitive practices. GIPSA addresses its financial and
trade practice responsibilities by regulating livestock buyers' business
practices to ensure, among other things, that sellers are paid promptly for
their animals and that the animals are weighed accurately. GIPSA addresses
concerns about competition by investigating complaints and concerns about
anticompetitive activities4 and by analyzing data on the structure and
operations of the livestock, poultry, and meatpacking industries. Overall,
these functions of GIPSA are referred to as its Packers and Stockyards
Programs.

DOJ, FTC, and USDA have signed a memorandum of understanding to cooperate on
monitoring competitive conditions in agriculture. 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. DOJ and FTC also share responsibilities
under the Clayton Act, including

responsibility for reviewing proposed mergers. USDA's responsibilities under
the Packers and Stockyards Act were, in part, based on and go further than
the Sherman Act in addressing unfair practices and aim to protect buyers and
sellers of livestock. FTC also has a specific responsibility under the
Packers and Stockyards Act to address anticompetitive and unfair practices
in retail sales of meat and meat products. FTC does not, however, have
jurisdiction over the livestock or wholesale meat industries.

In the past, cattle were usually sold by producers at stockyards through a
bidding process to meat-processing firms, which are generally referred to as
packers. In recent years, the process has changed such that packers usually
purchase the animals at feedlots, where they are fed for a period of time
before being offered for sale. Also, rather than being sold through open
market bidding, cattle are now increasingly sold through contracts between
producers and/or feedlot managers and packers.

The process is different for hogs. In the past, hog producers generally sold
hogs through the spot market, delivering them either to a packing plant or
to a centralized facility where the animals were sold through a bidding
process. Now, most hogs are sold under contracts in which packers and
producers coordinate production methods and delivery schedules, and less
information about prices has been publicly available.

Concerns about competition in the livestock industries have varied over
time. For example, in the earlier part of the 20th century, collusive
practices by five large meatpacking companies resulted in their prosecution,
a consent decree with these packers, and the passage of the Packers and
Stockyards Act in 1921. Concerns about competition then generally subsided
for many years until resurfacing over the last decade, when a small number
of cattle and hog packers grew to control large shares of their respective
livestock markets. For example, four firms account for over 80 percent of
the steers and heifers slaughtered. As a result, producers are concerned
that continued concentration, due to mergers and acquisitions that have
taken place in the industry, has affected and will affect their ability to
market animals and reduce selling prices. Appendix II further discusses the
act's history and the current conditions of and concerns about the cattle
and hog industries.

In 1998, GIPSA started a major reorganization of the Packers and Stockyards
Programs primarily to enhance its capability to address concerns about
anticompetitive activity. At the headquarters level, the reorganization
included establishing the Office of Policy/Litigation Support with separate
branch offices to oversee the agency's competition, financial, and trade
practice work. At the field level, the number of regional offices was
reduced from 11 to 3: Offices are now in Atlanta, Georgia, to lead
competition, financial, and trade practice work involving poultry; in
Denver, Colorado, to lead work involving cattle; and in Des Moines, Iowa, to
lead work involving hogs. 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.

GIPSA's Packers and Stockyards Programs are funded through an annual
appropriation. In fiscal year 1999, GIPSA used 153 staff years and had
obligations totaling slightly more than $16 million on these programs,
including, according to GIPSA's officials, about $2 million on relocation
activities. (In comparison, GIPSA used 587 staff years and $45.6 million of
appropriated funds and user fees that year for work related to grain
inspections.) According to information that GIPSA provided us with on its
Packers and Stockyards Programs for fiscal year 1999, which includes the
period when GIPSA was completing its reorganization and hiring new staff,
about 30.4 percent of its staff time was used on financial work; 23.6
percent on trade practice work; 13.2 percent on competition work; and 32.8
percent on administrative activities, information resource management
functions, and other activities.

Industries

GIPSA conducted 74 investigations involving concerns about competition in
the cattle and hog markets from October 1, 1997, through December 31, 1999;
alleged violations were identified in 5 cases. These alleged violations
involved acts by specific meatpacking companies, such as deceptive pricing,
rather than industrywide practices. 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. Neither found
violations of the Packers and Stockyards Act. In addition, at the time of
our review, GIPSA had entered into cooperative agreements with university
researchers to conduct three studies of livestock-marketing issues to obtain
more complete information on the operation of the cattle and hog markets and
had plans for other efforts to expand its knowledge of these markets.

GIPSA has found few instances in which meatpacking companies or other
parties involved in the marketing of cattle or hogs engaged in
anticompetitive practices. Specifically, 74 investigations involving
allegations of or concerns about anticompetitive actions were ongoing at the
start of fiscal year 1998 or were started during fiscal years 1998-99 and
the first quarter of fiscal year 2000. Thirty-six of these investigations
were in direct response to specific complaints about anticompetitive
actions; the other 38 cases were initiated by GIPSA. As table 1 shows, the
agency reported anticompetitive actions in 5 cases and no such actions in 57
cases.5

                                                          Did GIPSA find
                                        Status of         anticompetitive
                                     investigation
                                                             action?
    Alleged
  violator and      Number of       Open    Closed        Yes        No
 type of animal  investigations
 Meatpacking
 company
 Cattle         39                  11     28          3          27
 Hogs           12                  6      6           2          7
 Subtotala      51                  17     34          5          34
 Otherb
 Cattle         21                  0      21          0          21
 Hogs           2                   0      2           0          2
 Subtotal       23                  0      23          0          23
 Total
 Cattle         60                  11     49          3          48
 Hogs           14                  6      8           2          9
 Total          74                  17     57          5          57

Note: The information on the status of investigations and whether GIPSA
found anticompetitive actions is as of the end of March 2000.

aThe total number of cases that had or did not have anticompetitive actions
exceeds the total number of closed cases because, for example, some cases
that did not have violations were open for informational purposes at GIPSA's
headquarters when we were conducting our review.

bIncludes livestock markets, dealers, and others who buy or sell livestock
on commission.

Source: GAO's analysis of information obtained from GIPSA's
complaint/investigation automated system, the agency's files and records,
and the agency's officials.

Each of the five cases in which GIPSA reported competition-related problems
involved meatpacking companies; three of these cases remained open at the
time of our review. In summary, GIPSA reported that some companies had
engaged in improper pricing or bidding practices involving the acquisition
of animals or had inadequate records covering purchases. For example, in a
case involving a major company, GIPSA alleges that the firm engaged in
deceptive practices by changing to its advantage the method used to
calculate the price paid for hogs and then failing to notify producers of
the change. A hearing on this case by a USDA Administrative Law Judge was
started in July 2000 and is scheduled to reconvene in September 2000.
Appendix III summarizes two other cases in which GIPSA found that
anticompetitive actions had occurred.

Thirty-four of the 57 cases in which GIPSA did not find anticompetitive
activities involved allegations that meatpacking companies had acted
wrongfully. Twenty-three cases involved allegations that other parties, such
as livestock markets, dealers, and others who buy or sell livestock on
commission, had acted improperly. The following illustrates a case in which
GIPSA received and investigated a complaint but did not find evidence to
support anticompetitive practices. GIPSA initiated an investigation in
August 1999 after receiving a complaint from a livestock market that buyers
for two meatpacking companies were colluding by taking turns when bidding
for cattle. The agency reviewed documentation covering purchases by the
buyers at the market and did not find evidence to support the allegation.
The investigation was closed in October 1999. Appendix III summarizes two
additional cases that GIPSA closed after finding no evidence of violations
of the act.

In addition to the 3 open cases referred to above in which the agency
alleges competition problems, GIPSA had 14 ongoing investigations at the end
of March 2000, each of which involved meatpacking companies. For example,
GIPSA initiated an investigation in April 1999 after a major company (1)
closed a plant where hogs were slaughtered and (2) purchased, but did not
reopen, a hog-slaughtering plant that another company had closed. The
purpose of GIPSA's investigation is to determine if these actions restricted
competition. GIPSA initiated another investigation in June 1999 after
receiving a complaint that some major companies conspired to pay low prices
for cattle after a state passed a law requiring the reporting of prices.
Furthermore, some of GIPSA's ongoing investigations are designed to obtain
information on the competitive implications of various methods that major
meatpacking companies use for acquiring animals, including certain
contractual arrangements and pricing methods for acquiring cattle.

There were also two investigations closed during the period covered by our
review that the agency's field staff said needed further work, which was not
done. Specifically, in January 1997, the agency started an investigation
after receiving complaints that a major meatpacking company had apportioned
territory among cattle dealers to avoid competition. GIPSA decided to halt
the investigation in July 1998 until its reorganization was completed and an
economist could be assigned to the effort. GIPSA officials told us in May
2000 that this investigation had not been restarted and there were no plans
to do so because the agency's Denver staff had been working on other
efforts. In another case, which started in October 1997, the agency was
investigating a livestock auction market to determine if there were
competition problems. When this case was closed in November 1997, the
agency's field staff said that only a few buyers were purchasing cattle at
the market and that an investigation of a local meatpacking company was
needed. As of May 2000, the agency had not followed up on this suggestion,
and had no plans to do so. In August 2000, GIPSA officials added that these
efforts were not pursued further because of the agency's priorities.

Not Found Competition Problems

Two major efforts were started by GIPSA prior to fiscal year 1998 and were
completed before January 2000; each was designed primarily to develop
information on the operation of the livestock markets, including how prices
for cattle and hogs are determined. Neither identified violations of the
act. Specifically, one examined the procurement of cattle at four plants in
Texas.6 The initial result of this effort was statistical information on
cattle procurements and prices. Subsequently, the data that had been
collected were analyzed to determine if cattle owned or acquired through
contracts by meatpacking companies (captive supplies) had an adverse impact
on the prices paid for cattle bought on the spot market. This analysis was
performed by two university economists and resulted in a finding that while
differences existed in the prices paid for cattle acquired through captive
supply and the spot market, the data did not show that reducing captive
supply or increasing spot market purchases would increase the spot market
price. The second effort involved the procurement of hogs at 12 plants in
four states (Iowa, Minnesota, Nebraska, and South Dakota).7 In reporting on
its results, GIPSA said that the sales prices reported to USDA for hogs were
generally lower than the actual prices paid to producers and that hogs sold
by smaller sellers tended to be of lower quality and received lower prices.
Appendix III contains a more detailed description of these efforts.

Furthermore, to obtain more complete information on the competitive
conditions in the cattle and hog markets, GIPSA has cooperative agreements
with university professors to conduct analytical research on various
livestock competition issues. For example, at the time of our review, a
professor with Texas A&M University was performing a follow-up to GIPSA's
examination of cattle procurement in Texas; the study involves using an
analytical approach that was not used in the initial effort. A second
ongoing study involves professors from the University of Wyoming who are
using simulations to analyze the possibility of collusive behavior in
livestock auction markets; the purpose of the study is to compile
information on bidding practices in a controlled setting to gain insights on
possible bidding behavior in actual markets. A third ongoing study involves
researchers from Utah State University who are using modeling to assess the
possible use of market power by cattle packers.

GIPSA also has plans for other efforts to expand its knowledge about the
cattle and hog markets. For example, the agency plans to develop economic
models to provide a framework for analyzing and explaining packers' use of
various procurement and pricing arrangements and for identifying price and
other market impacts that may indicate improper behavior. The agency also
will be conducting statistical analyses of information on hog prices, which
are reported by USDA's Agricultural Marketing Service on the basis of
reports submitted by packers, to determine if publicly reported prices
accurately reflect what packers paid and if inaccuracies are due to packers'
erroneous submissions.

About Competition

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. In addition, GIPSA's investigative
processes and practices were adopted to guide the financial and trade
practice work that it has performed for years, rather than the
competition-related concerns that it is also now addressing. Furthermore,
GIPSA's processes and practices for complex competition-related
investigations are less developed than those in place in DOJ and FTC, where
antitrust and anticompetitive practice investigations have been performed
for decades.

DOJ and FTC assign attorneys to lead and conduct investigations of alleged
unfair and anticompetitive business practices, 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, the development of evidence, and the preparation of
cases for presentation in administrative and judicial proceedings. GIPSA's
investigations, however, are led and conducted by economists or other
technical specialists, who perform the agency's anticompetition
investigations without a USDA OGC attorney being assigned from the outset.
OGC attorneys become involved after a GIPSA investigation is completed and a
case report is forwarded for review and further action. OGC officials said
that they do provide GIPSA with informal assistance and respond to inquiries
about cases, but this assistance has been limited and has declined along
with the number of OGC attorneys assigned to assist GIPSA.

In its February 1997 report, USDA's OIG highlighted the importance of having
attorneys participate in GIPSA's investigations of complex anticompetitive
practices. The OIG reported that only 4 of 84 investigations of
anticompetitive practices from 1994 through 1996 had been referred to OGC
for review because (1) the investigations had been conducted by staff
without appropriate backgrounds or training, (2) attorneys from OGC were not
involved in the investigations, and (3) there was a climate of
noncooperation between various branches of GIPSA that were then responsible
for the investigations. The OIG concluded that GIPSA had difficulty
developing sufficient evidence to prove that an anticompetitive practice had
occurred. Overall, the OIG reported that GIPSA faced formidable obstacles to
become effective because it was not organized, operated, or staffed for this
type of work. The OIG 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. The OIG recommended that USDA either
make extensive program improvements within GIPSA or that the responsibility
for performing anticompetitive practice investigations be transferred to
another agency, such as DOJ or FTC.

GIPSA agreed with the OIG's report and has made improvements. Nevertheless,
as table 2 indicates, the integration of legal and economic resources from
the outset of investigations has not been achieved, and other related
recommendations need further attention.

(Continued From Previous Page)

  OIG's recommendation    Action taken in response
                             to recommendation         GAO's analysis of
                                                    actions taken by GIPSA
                          In 1998, GIPSA started
                          to reorganize its
                          headquarters and field
                          offices. It established
                          branches for leading its
                          competition, trade
 1. Reorganize GIPSA's    practice, and financial  GIPSA's reorganization
 headquarters and         work. Regional offices   concentrates its
 regional offices.        were reduced from 11 to  resources on major
                          3; Atlanta began leading industries and issues.
                          poultry industry work,
                          Denver began leading
                          cattle industry work,
                          and Des Moines began
                          leading hog industry
                          work.
                          As of July 2000, GIPSA   GIPSA's additional staff
                          had staffed its          improve its
                          competition              organization. A detailed
                          investigation units in   assessment of staffing
                          Denver and Des Moines    levels was not
                          with 9 economists each;  performed, and USDA has
                          about 15 of these        requested a budget
                          economists were hired    increase for additional
                          since 1998. In addition, GIPSA staff because of
                          GIPSA has hired four     its workload.
                          attorneys as legal
                          specialists for its      The legal specialist
                          Denver and Des Moines    position that GIPSA
 2. Assess staff's        offices to assist with   developed appears to be
 qualifications and hire  its investigations.      more limited than
 staff with legal,                                 anticipated because OGC
 economic, and            GIPSA also hired         informed GIPSA that the
 statistical backgrounds. additional marketing     legal specialists are
                          specialists and auditors not authorized to
                          for trade practice and   provide legal advice. In
                          financial investigative  addition, OGC's
                          work to replace staff    attorneys are not
                          lost during the          integrated into GIPSA's
                          restructuring of its     investigations, and
                          field offices.           OGC's assistance has
                                                   declined since 1998
                          GIPSA based its hiring   because of staff
                          levels primarily on its  attrition. Consequently,
                          budget and the number of GIPSA has insufficient
                          vacancies that resulted  legal assistance for its
                          from reorganization.     investigations.
                                                   Economists have been
                                                   hired. GIPSA managers
                                                   are pleased with the new
                                                   talents that have been
                                                   brought into the agency
                                                   but recognize that time
                                                   is needed for the
                                                   economists to gain
                                                   experience with
                                                   investigation work.

                          The competition units in However, managers and
                                                   staff of competition
 3. Integrate economists  GIPSA's regional offices units in the regional
 into the investigations. have been staffed by     offices reported that
                          economists who perform
                          investigations.          they have received
                                                   insufficient expert
                                                   advice about methods of
                                                   investigation and
                                                   interpretation of the
                                                   law. GIPSA and OGC have
                                                   started to develop
                                                   specialized training and
                                                   contacted FTC to obtain
                                                   advice on alternative
                                                   techniques for gaining
                                                   access to company
                                                   records.
                                                   OGC has made efforts to
                                                   provide additional
                                                   consultation. However,
 4. Develop procedures    Procedures have not been the number of OGC staff
 for GIPSA to consult     developed. Some informal assigned has decreased.
 with OGC.                assistance has been      As of May 2000, five
                          provided.
                                                   attorneys were available
                                                   to assist GIPSA, as well
                                                   as other USDA programs.
                                                   The reports of USDA's
 5. Obtain research       USDA's Economic Research Economic Research
 assistance from USDA's   Service has continued to Service have addressed
 Economic Research        report on concentration  industry trends but do
 Service.                 issues.                  not analyze the actions
                                                   of individual companies.
                                                   The appointment of an
                          The GIPSA Deputy         OGC attorney as GIPSA's
                          Administrator for        Acting Deputy
                          Packers and Stockyards   Administrator should be
                          position was vacant for  helpful.
 6. Hire a manager        about 1 year until it
 qualified in             was filled in May 2000   During its
 anticompetitive practice by a USDA OGC attorney   reorganization, GIPSA
 investigations or obtain with GIPSA case          did not have a manager
 DOJ's or FTC's           experience.              qualified in
 assistance in GIPSA's                             anticompetitive practice
 reorganization.          Also, in 1997, GIPSA     investigations. Also,
                          hired a former DOJ       GIPSA did not consult
                          economist to analyze and directly with DOJ or FTC
                          make recommendations on  on its reorganization,
                          its reorganization plan. structure, or
                                                   operations.

GIPSA and OGC officials agree that OGC should be more involved in the
agency's investigations of anticompetitive practices. GIPSA and OGC have
attempted to work more closely and OGC has provided additional consultation.
Nevertheless, according to GIPSA and OGC officials, OGC's participation has
been less than what is needed because relatively few OGC attorneys were
assigned to GIPSA's casework prior to the reorganization and the number of
attorneys has decreased since then. From November 1998 through May 2000, the
number of OGC attorneys who were available to be assigned to GIPSA's
casework decreased from eight to five. 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.

To illustrate OGC's workload on one of its large cases in recent years, the
Assistant General Counsel of the Trade Practices Division said that after
GIPSA investigated a major meatpacking company for an alleged
anticompetitive practice, the full-time attention of two attorneys for over
a year was needed to prepare the case for a judicial hearing. In addition,
several other attorneys assisted the lead attorney for over 2 months in the
preparation of the exhibits and witnesses to be presented at the hearing on
the case. At DOJ and FTC, one or more attorneys are assigned to
anticompetitive practice investigations, which, in some cases, may require
more than a year to complete.

In addition, the legal specialist position that GIPSA designed for assisting
its staff on legal issues appears to be more limited than GIPSA anticipated.
Questions about the role of legal specialists surfaced after GIPSA hired a
few attorneys as legal specialists. 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. Also, the legal specialists in
GIPSA's field offices are not supervised by attorneys. In July 2000, GIPSA's
Acting Deputy Administrator for Packers and Stockyards agreed that these
conditions are a management concern and said that the role of the legal
specialists within GIPSA was under review.

GIPSA has also had some difficulty recruiting economists with certain skills
that are helpful in competition-related investigations. For its Denver and
Des Moines offices, GIPSA has tried to recruit up to four economists with
doctoral degrees in industrial organization economics and econometrics--two
areas of expertise used in antitrust investigative work by DOJ and FTC. The
grade levels that GIPSA authorized for its economists (up to GS-11) are
similar to some of GIPSA's other field staff grade levels but are not
competitive with the grade levels that DOJ, FTC, and other USDA offices
authorize for economists (up to GS-15). Consequently, GIPSA officials said
that as of July 2000, they had hired only one of these specialists for their
field offices and that the absence of these skills limits the agency's
capability to address highly complex industry practices. GIPSA officials
recognized that recruiting could be improved by offering competitive grade
levels.

GIPSA's investigative processes and practices were designed for addressing
financial and trade practice complaints. In contrast, 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--which focus on developing sound cases. Within GIPSA,
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 reviews the
case at the sixth step, and OGC is not involved until the eighth step, as
shown in figure 1.

Practices

Legend: P&S Act = Packers and Stockyards Act

Note: There are no time criteria for completing any step in this process,
except for step six, in which the initial review by GIPSA's headquarters is
generally to be completed within 30 days.

aIn some instances, the field office sends a case file to GIPSA's
headquarters for review for informational purposes. When this happens, the
case remains open until the agency's headquarters completes its review.

bStep six is generally the first time that GIPSA's headquarters becomes
involved in a case, and step eight is generally the first time that OGC
becomes involved.

Source: GAO's analysis based on discussions with GIPSA officials.

GIPSA's investigation guidance manual was last revised in 1996, prior to the
agency's reorganization to develop anticompetitive practice investigation
capabilities. The manual covers GIPSA's responsibilities for ensuring the
prompt payment for livestock and fair trade practices in livestock
transactions, such as those that apply to the grading and weighing of
livestock, misrepresentation in sales, and bidding irregularities. DOJ's and
FTC's operating manuals, however, were specifically designed for addressing
concerns about competition. Several differences between DOJ's, FTC's, and
GIPSA's guidance manuals are described as follows.

Case Selection

DOJ and FTC provide internal guidance on case selection. For example, DOJ's
manual contains guidance on the information and conditions necessary for
approving a preliminary inquiry as well as a full investigation. A
preliminary inquiry may be approved if there is sufficient evidence of a
violation, if the amount of commerce is substantial, and if sufficient
resources are available. GIPSA's manual does not discuss case selection, and
the agency attempts to respond to all complaints that are received.

Investigation Planning and Approval

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. DOJ's premise in planning is that the staff's theory
of the case should be well defined from the outset of an investigation and
that the theory of the case and an outline of the evidence should be refined
as the case proceeds. 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.

GIPSA's manual does not set forth the contents of an investigative plan, the
information needed to obtain approval of an investigation, or the frequency
of reviews. 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 over the act's interpretation and the sufficiency of
the evidence. These issues have been difficult to resolve, according to
GIPSA and OGC officials, even, in a few cases, through high-level
departmental meetings.

Conducting Investigations

DOJ and FTC have guidance on many aspects of investigative work pertaining
to antitrust and competition concerns. For example, DOJ provides guidance on
proceeding with a civil or a criminal investigation; obtaining evidence
through compulsory processes; consultation with economists; how and by whom
cases should be developed, reviewed, and approved; settlement options; and
the hiring of experts for presentations in court. In contrast, GIPSA's
investigation manual contains detailed checklists of documentation to be
obtained for specific types of financial and trade practice investigations,
such as those involving the failure of a buyer to pay for livestock; a
packer operating when insolvent or without a required bond; a dealer
providing payoffs, rebates, and kickbacks; false weighing; bait-and-switch
selling; and price discrimination.

GIPSA officials told us that their program guidance and operating methods
are not designed for complex competition-related investigations. They said
that they would consider adding reviews of investigations in progress and
develop guidance that addresses this area of responsibility. They also said
that they would like to reform the agency's work processes, including how
GIPSA interacts with OGC. GIPSA's Acting Deputy Administrator of the Packers
and Stockyards Programs said that she would work to ensure improvement in
the relationship of GIPSA and OGC. GIPSA officials further said that the
agency could benefit from periodically consulting with DOJ and FTC as GIPSA
develops its program.

In addition, DOJ and FTC go beyond law enforcement efforts and promote
competition by providing information and conducting other activities, such
as issuing merger guidelines. Also, FTC's Bureau of Economics has published
documents, such as a 1999 report on the pharmaceutical industry, that
analyze industries undergoing dynamic change with possible competitive
problems.8 The report on the pharmaceutical industry was intended to inform
the industry's participants, regulators, and the Congress of the industry's
competitive issues and possible antitrust concerns. The report also
identified a need to evaluate alternative efficiency explanations for market
practices before challenging any of the competition issues in the
pharmaceutical industry.

GIPSA also has conducted educational outreach efforts after major
examinations as part of its efforts to respond to specific complaints, and
through its Web site and annual reports. In addition, GIPSA has held and
participated in numerous town hall meetings and conferences with producers
and state and industry officials. Even so, GIPSA officials agreed that their
efforts have room for improvement. GIPSA's last reports providing an
overview of competitive conditions in the cattle and hog industries were
issued in 1996. GIPSA officials 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 has done.

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. However, several problems
detract from GIPSA's effectiveness: USDA's OGC attorneys are not involved in
the investigative process; GIPSA's traditional process is not suited for
anticompetitive practice investigations; GIPSA's guidance does not address
complex anticompetitive practices; and there are a few staffing issues to
resolve. Presently, GIPSA is better positioned for performing economic
analyses than fully developing the complete cases needed to prove that
anticompetitive practices have occurred.

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. Another step would be for GIPSA to adopt a more
systematic approach. 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. 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.

We 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. These improvements will reflect a
more vigilant and skillful federal presence, as well as instill greater
confidence that concerns about the industry will be investigated fairly and
diligently.

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.

To improve GIPSA's investigations of concerns about anticompetitive
practices, we recommend that the Secretary of Agriculture do the following:

ï¿½ Develop a teamwork approach for investigations with GIPSA's economists and
OGC's attorneys working together to identify violations of the law. Also,
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, consult with the Attorney General
and the Chairman of the Federal Trade Commission on investigation
management, operations, and case development processes.

ï¿½ Determine the number of OGC attorneys that are needed for USDA's OGC to
participate in GIPSA's investigations and, as needed, assign attorneys to
lead or participate in these investigations. Also, 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. In addition, ensure that legal specialists are used
effectively by providing them with leadership and supervision by USDA's OGC
attorneys and ensure GIPSA has the economic talents it requires by
considering whether to modify the GS grade structure for GIPSA's economists.

We also recommend 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.

We provided USDA with a draft of this report for review and comment. USDA
concurred with our report and recommendations. USDA's 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. USDA's comments are contained in
appendix V. In addition, USDA officials provided technical suggestions for
clarifying the report, which we incorporated as appropriate.

Furthermore, we provided officials in DOJ's Antitrust Division and FTC's
Bureau of Competition, Bureau of Economics, and Office of the General
Counsel with a draft of this report for review. These officials suggested
various technical corrections and clarifications, which we made as
appropriate.

We performed our review of GIPSA's efforts to address questions involving
competition in the marketing of cattle and hogs from September 1999 through
August 2000 in accordance with generally accepted government auditing
standards. Our scope and methodology are discussed in appendix IV.

We are sending copies of this report to the appropriate Senate and House
committees; interested Members of Congress; the Honorable Dan Glickman,
Secretary of Agriculture; Mr. James R. Baker, Administrator, GIPSA; the
Honorable Janet Reno, Attorney General; the Honorable Robert Pitofsky,
Chairman, Federal Trade Commission; the Honorable Jacob J. Lew, Director,
Office of Management and Budget; and other interested parties. We will also
make copies available to others upon request.

Please call me at (202) 512-5138 if you or your staff have any questions
about this report. Key contributors to this report are listed in appendix
VI.
Lawrence J. Dyckman
Director, Food and
Agriculture Issues

GIPSA's Authority to Address Unfair and Anticompetitive Activities in the
Livestock Industries

This appendix contains information on the authority of the U.S. Department
of Agriculture's (USDA) Grain Inspection, Packers and Stockyards
Administration (GIPSA) to address unfair and anticompetitive activity in the
cattle and hog industries.

The Congress passed the Packers and Stockyards Act in response to concerns
that, among other things, the marketing of livestock presented special
problems that could not be adequately addressed by the existing federal
antitrust laws. The provisions of the Packers and Stockyards Act were based,
in part, on prior antitrust statutes, including the Sherman Act and the
Federal Trade Commission Act. According to its legislative history, the
Packers and Stockyards Act went beyond prior federal antitrust laws and
aimed to safeguard both the interests of the public and elements of the
industry from the producer to the consumer without destroying any unit of
it.9

USDA has authority under the Packers and Stockyards Act, which has been
delegated to GIPSA, to initiate administrative actions to halt unfair and
anticompetitive practices by packers10 in livestock marketing and
meatpacking.11 7 U.S.C. sect. 192 and 193 (2000).12 Also, GIPSA can issue
regulations to address what it regards as an unlawful activity. 7 U.S.C. sect.
228 (2000). However, GIPSA is not authorized to prescribe by regulation the
price that packers may charge or the terms of packers and producers
contracts. Also, the act does not confer on the Secretary of Agriculture the
authority to directly regulate packers' prices, discounts, or sales
methods.13

More specifically, GIPSA investigates complaints and initiates actions to
halt various practices by packers that it has reason to believe are
violations of the Packers and Stockyards Act. The 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.14 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 regulation
or on a case-by-case basis. In interpreting these rules, GIPSA and the
courts must apply "a rule of reason."15

GIPSA's implementing regulations provide some examples of unfair business
(trade) practices by packers, such as inaccurate weighing of livestock, 9
C.F.R. sect. 201.71 (2000), and erroneous reporting of the price paid for
animals, 9 C.F.R. sect. 201.53 (2000). The regulations also provide some
examples of unfair practices affecting competition, such as a packer's
ownership interest in a market agency, 9 C.F.R. sect. 201.67 (2000), and a
restriction of competition between a packer and a dealer, 9 C.F.R. sect. 201.70
(2000). 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.16
Recently, the 8th Circuit Court of Appeals has found certain contracting
practices not to be violations of the act. In a 1995 decision, for example,
the 8th Circuit Court of Appeals concluded that a live poultry grower was
not entitled to the same kind of contract as offered by the dealer to other
poultry growers.17 The court noted that the act was not designed to upset
the traditional principles of freedom of contract. This case was also
referred to in the following example involving cattle. In a 1999 decision,
the 8th Circuit Court of Appeals concluded that a packer's contracting
arrangement with a group of producers to obtain cattle by matching the
highest bid made by others (right of first refusal) was not unlawful.18

The Packers and Stockyards Act makes unlawful packer anticompetitive
practices that are antitrust-type actions, such as a packer's activities
that manipulate or control prices, restrain trade, apportion territory, or
create a monopoly. 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 any of such activities as an unfair practice, which
may be easier to prove than a violation of these antitrust-type provisions.

Although mergers are a frequent concern because they can reduce competition,
the Packers and Stockyards Act does not provide USDA with premerger review
authority of packers. However, GIPSA may initiate administrative actions to
halt unfair and anticompetitive practices of a company formed by a merger.
Both the Department of Justice (DOJ) and the Federal Trade Commission (FTC)
review business mergers under the Clayton Act, as amended, and decide which
of them will review a proposed merger. Given FTC's statutory limited
jurisdiction regarding the livestock and meatpacking industries, DOJ has
taken the lead on these issues in recent years. GIPSA has assisted in these
reviews by providing information, if requested, about the markets and
companies that are involved in proposed mergers.

Some of GIPSA's responsibilities are similar to those of DOJ and FTC. For
example, as previously indicated, GIPSA has authority to address
antitrust-type violations under the Packers and Stockyards Act. DOJ
addresses monopoly and restraint of trade issues under the Sherman Act.
GIPSA officials said that when they identify an activity that appears to be
criminal or a violation of antitrust law, after consultation with USDA's
Office of General Counsel (OGC), USDA may consult with DOJ on whether the
case should be forwarded to DOJ for action.

Also, while GIPSA addresses unfair practices in livestock industries, FTC
addresses unfair or deceptive acts or practices, and unfair methods of
competition in other industries. By addressing acts that are anticompetitive
or deceptive, FTC seeks to ensure that markets function competitively and
free of undue restrictions.19 Furthermore, while DOJ's antitrust actions and
FTC's unfair practice cases focus, to a large extent, on protecting
competition and consumers, GIPSA's actions are aimed at obtaining fair
treatment for producers. As previously noted, the Packers and Stockyards Act
provides FTC with authority only over the retail sales of meat and meat
products.

To address violations by packers, the Packers and Stockyards Act sets up an
administrative enforcement process to enable USDA to take action when
evidence of an unlawful activity is found. Specifically, when GIPSA finds
and develops evidence to show that a packer may have engaged in an
anticompetitive or unfair practice, the case is referred to USDA's OGC for
review and action. If USDA's OGC concurs that there is sufficient evidence
to show that a packer has violated or is violating the act, or its
activities are likely to cause competitive injury, OGC prepares and GIPSA
may file a complaint.

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 packers, but not USDA, may file a further appeal to a
Federal Circuit Court of Appeals. Also, any person may sue in federal
district court to recover damages caused by any packer's violation of the
Packers and Stockyards Act or any cease and desist order of the Secretary of
Agriculture (7 U.S.C. 209).

In recent years, some groups have expressed concern that GIPSA has not taken
full advantage of the authority that the Packers and Stockyards Act
provides. For example, a 21-member advisory committee to the Secretary of
Agriculture reported in 1996 that the Secretary has a mandate under the act
to address packers' abuses of market power before harm is done or can be
documented by studies. Furthermore, the committee stated that this mandate
is to be proactive to (1) induce healthy competition rather than to react to
unhealthy competition and (2) assure fair trade practices and not merely to
prevent unfair practices. The Western Organization of Resource Councils, a
grassroots farm organization, presented a similar viewpoint when it
petitioned USDA in October 1996 to issue rules prohibiting meatpacking
companies from owning or procuring cattle through contracts (captive
supplies) unless the purchases occur through spot market bidding. The view
of USDA's OGC is that the Packers and Stockyards Act provides authority to
halt a practice when GIPSA can demonstrate that a violation of the act's
provisions has occurred or is likely to occur. USDA's OGC has also reported
that to prohibit the activities of packers through regulation or
administrative action requires GIPSA to develop evidence that the packers
either intend to harm producers or there is a likelihood that the activity
has resulted or will result in competitive injury or injury to competition.

In the petition of the Western Organization of Resource Councils, the
organization said that packers' ownership of cattle and use of captive
supplies resulted in decreased prices paid to producers. The organization
also said that these practices unjustly discriminate against some producers
and provide unreasonable preferences to others. USDA published the petition
in the Federal Register in January 1997 and requested public comments. In
August 1997, GIPSA reported on its review of the petition and the public
comments it had received. GIPSA reported that there was no compelling
evidence to suggest that (1) anything other than basic economic conditions
determined the general price levels in the cattle market and (2) captive
supplies resulted in lower cattle prices. GIPSA concluded that the rules
suggested by the Western Organization of Resource Councils were not
warranted. Nevertheless, there has not yet been a final ruling on the
organization's petition, and on July 28, 2000, USDA announced that it will
hold further public forums on the petition of the Western Organization of
Resource Councils.

Overview of Past and Current Conditions Affecting Competition in the
Livestock Industries

This appendix contains a brief description of the development of the Packers
and Stockyards Act and an overview of concerns about concentration and
competitive activities involving the livestock industries.

In a 1918 report, FTC concluded that five large packing firms had
monopolistic control over the livestock industry. FTC found that five large
packing firms of the era--"the big five"--dominated the industry by (1)
owning and controlling public stockyards, (2) owning transportation and
distribution networks, (3) slaughtering approximately two-thirds of all
livestock, and (4) possessing financial interests in market outlets and
retail stores. Thereafter, DOJ filed a criminal antitrust suit against the
packers that resulted in a 1920 consent decree enjoining the firms from
engaging in the retailing of meat, groceries, and livestock by-products. The
consent decree also directed the firms to divest their financial interests
in public stockyards, railroad terminals, and market outlets. In addition,
the Packers and Stockyards Act was passed in 1921 to make unlawful various
activities of packers, which had been reported on by FTC, and to authorize
USDA to regulate activity at stockyards.

Subsequently, the conditions that gave rise to the passage of the Packers
and Stockyards Act ended, including the control by meatpacking companies of
railroad terminals, major stockyards, and market outlets. The meatpacking
industry became less concentrated, and a larger number of buyers better
assured competition for the available livestock. Therefore, USDA focused its
efforts under the act on overseeing the fairness and promptness of livestock
transactions and the financial protection of market participants.

Because of mergers and acquisitions in recent decades, the meatpacking
industry has again become concentrated. For example, four firms account for
over 80 percent of steer and heifer slaughter. In 1991, we reported that
USDA's monitoring of the livestock industry had not kept pace with the
changes in concentration and market structure and that USDA needed to
improve its monitoring of the industry's activities. In 1996, GIPSA reported
that concentration as well as vertical integration--where the meatpackers
own the hogs--and coordination in the industry had reduced the role of
public markets, where terms of a trade are visible to all; that past studies
were inconclusive about whether the industry remained competitive; and that
the industry should continue to be monitored.

In 1996, an advisory committee to the Secretary of Agriculture reviewed
concerns about livestock markets and recommended, among other things, (1)
increased monitoring of conditions in the cattle and hog markets, (2)
enforcement of antitrust and regulatory policy, and (3) a review of GIPSA's
enforcement practices. The Secretary then asked USDA's Office of Inspector
General (OIG) to report on the act and GIPSA's program, which the OIG did as
discussed earlier in this report.

In the increasingly concentrated livestock industries, the number of
producers has declined, and there is increasing coordination of production
from the producer to the meatpacker. Hog production, in particular, has been
revolutionized with the adoption of large production buildings, special
diets, and other specialized production techniques. With both cattle and
hogs, there has been an increasing use of contracts or other private
agreements for buying and selling and less reliance on spot markets to set
prices. These changes have been driven in part by industrywide efforts to
control costs and raise the quality and consistency of the industry's
products. Since these changes have occurred over a relatively short time
frame, they have affected producers and firms at each level of these
industries.

Hog production has shifted to fewer larger producers. By the end of 1999,
about 2,000 hog farms produced almost half of all hogs. About 98,000 farms
were producing hogs in 1999--down from about 300,000 hog-producing farms 10
years previously. Also, farms marketing 5,000 or more hogs per year
increased their share of hogs sold from 28 percent in 1988 to 63 percent in
1997. In addition, the size of meatpacking plants has increased, and the
largest four meatpacking firms slaughtered about 56 percent of all hogs in
1998--up from 32 percent in 1985. Hogs are also now more often sold through
contracts in which meatpacking firms and producers coordinate production
methods and delivery schedules. The selling price of these hogs has usually
been based on the spot market price, but these prices have not been publicly
disclosed. As contractual marketing arrangements and vertical integration
have increased, spot market sales have fallen to 26 percent of all hogs
produced and will likely fall further.20 Consequently, the hog industry is
discussing pricing mechanisms to serve as alternatives to spot market
pricing.

In view of hog production's increasing industrialization and the packing
industry's increasing concentration, many hog producers have expressed
concerns about packing firms' procurement practices. For example, some
producers believe that packers may be using their market power to depress
spot market prices or otherwise manipulate the spot market to their benefit.
In addition, some producers contend that the declining proportion of hogs
sold in the spot market and the resulting decline in publicly disclosed
price information make it difficult for producers to determine a fair price.
Also, the 1996 USDA-chartered advisory committee concluded that improved
transparency in price and other sales information is critical to both buyers
and sellers for the efficient functioning of market systems and for
evaluating whether markets are competitive. Many producers also have
concerns that the contractual marketing agreements that packers have offered
to some large producers are not offered to all producers and that contracts
often have inequitable terms.

Structural changes in the beef industry have also occurred but more slowly
than in the hog industry. Concentration among beef-packing firms is
relatively high, and four companies controlled 81 percent of steer and
heifer slaughter in 1998--up from 72 percent in 1990 and 36 percent in 1980.
Large meatpacking plants slaughtering over half a million steers and heifers
a year handle 80 percent of the fed-beef slaughter--up from about 16 percent
in 1977. On the cattle production side, the number of cattle feedlots
declined from 190,000 in 1987 to 111,000 in 1997. About 200 large commercial
feedlots accounted for more than half of the 28 million to 29 million steers
and heifers sold to meatpackers, which is more than double the percentage of
20 years ago. Also, an increasing percentage of cattle are not sold on the
spot market, and their selling price has not been publicly disclosed. In
1997, about 19 percent of the feedlot cattle slaughtered by the largest
packers were not sold on the spot market. These cattle (captive supplies)
either are committed to a packer more than 2 weeks prior to slaughter
through a private marketing agreement or are owned by a packer.

Like some hog producers, some cattle producers believe that packers are
using their market power at the expense of producers. These producers
believe that increasing concentration among packing firms and captive
supplies reduces competition among packers in the purchase of feedlot cattle
and thereby reduces the price that packers pay for cattle.

Packers say that spot market prices are determined by supply and demand--not
packers' market power--and that this is consistently supported by economic
studies. Furthermore, packers maintain that their contractual marketing
arrangements with producers are, in some instances, requested by producers
themselves; are motivated by consumer demand for high-quality meat products;
often contain value-based pricing; help keep their plants operating at full
capacity; and are not an effort to exploit producers. Studies of the cattle
and hog markets have shown that changes in supply and demand are a
substantial influence on prices.21

In response to producers' concerns, the Livestock Mandatory Reporting Act of
1999 was passed as a part of USDA's appropriation act for fiscal year 2000.
The act requires medium and large hog-slaughtering plants to report to USDA
the details--such as the prices, volumes, and terms of sale--of all
transactions involving purchases of hogs. Also, USDA is required to publish
detailed reports on hog purchases and slaughter and must maintain an
electronic library on hog-marketing contracts offered by packers. In
addition, the requirements for medium and large beef packing plants include
reporting prices to USDA on all cattle purchases, including non-spot-market
purchases and boxed-beef sales. The act requires USDA to publish the data on
beef at regular intervals--some of it several times per day. USDA plans to
implement the mandatory price-reporting law in mid- to-late summer 2000.

Additional Information on the Results of GIPSA's Investigations

This appendix contains additional cases that were the subject of GIPSA's
investigations of anticompetitive practices. Also, a more detailed
discussion of the agency's two examinations to obtain information about the
competitive conditions in the cattle and hog markets is provided.

Problems

GIPSA reported that it found competition-related problems in five cases
involving meatpacking companies; three of these cases were open at the time
of our review. One of these open cases is discussed in the body of the
report; the following summarizes the other two open cases:

ï¿½ In a case involving a major company, GIPSA alleges that the firm engaged
in anticompetitive and deceptive practices by retaliating against a cattle
feedlot. Specifically, the company would not bid on or purchase cattle at
the feedlot. The feedlot's manager had complained to GIPSA that the
company's action was in retaliation for an article he had written about its
marketing system. This ongoing case is scheduled for a hearing before a USDA
Administrative Law Judge in March 2001.

ï¿½ In an ongoing case involving multiple major companies, GIPSA said there
were deficiencies in the records pertaining to the acquisition of hogs.
Specifically, the agency identified problems with the companies' procurement
records involving spot market purchases, forward contracting, and marketing
agreements. GIPSA officials told us that the companies were notified of the
deficiencies and that some, but not all, had taken action to correct their
record keeping. The officials also said that the agency is developing a
proposed regulation to address record-keeping requirements.

Problems

The following cases illustrate some of the complaints that GIPSA received
and investigated but did not find evidence to support anticompetitive
practices. One example is provided in the body of the report; the following
is a summary of two additional cases:

ï¿½ GIPSA received a complaint in September 1998 alleging that buyers for two
meatpacking companies were conspiring at livestock markets to depress cattle
prices and to force the complainant out of the market for slaughter bulls
and cows. According to GIPSA's field office officials, the start of an
investigation in response to this allegation was delayed because of a lack
of resources. Subsequently, an investigation was conducted, the agency did
not find evidence to support the allegation, and the case was closed in
September 1999.

ï¿½ Another review was initiated in June 1999 after GIPSA received a complaint
that major meatpacking companies were refusing to buy cattle through an
Internet marketing system. The agency's field office closed the case in
August 1999 when it decided that the system was a marketing tool not covered
by the Packers and Stockyards Act.

Examinations

Two major efforts were completed by GIPSA in recent years; one in 1999
involving an examination of cattle buying in Texas and the second in 1998
involving an examination of the procurement of hogs in the Western Cornbelt.
Each examination was designed primarily to develop information about the
competitive conditions in the livestock markets, including how prices for
cattle and hogs are determined. A discussion of each effort follows:

GIPSA initiated an examination in mid-1996 involving the procurement of
cattle at four plants in the Texas Panhandle, which are operated by the top
three meatpacking companies in the country. The overall objective was to
obtain an understanding of the competitive conditions in the cattle market
in that area, including information on the methods used to acquire and
determine the price of cattle. In conducting this examination, GIPSA
compiled extensive data on cattle procurements at the four plants from
February 6, 1995, through May 18, 1996; interviewed feedlot managers and
cattle sellers; and reviewed the pricing formulas used by the three
companies. In an April 1997 report, GIPSA presented a series of tables,
charts, and maps showing comparative and contrasting statistical information
that it had obtained and tabulated. The report was silent on anticompetitive
practices in the Texas cattle market.

Subsequently, the data collected during the examination were used to
determine if the companies were manipulating prices. To accomplish this
objective, GIPSA entered cooperative agreements in March 1998 with
economists from two universities to conduct an econometric analysis of the
Texas cattle data to determine if marketing agreements and other contracting
methods used for procuring cattle (captive supplies) had an adverse impact
on the prices paid for cattle on the spot market. According to GIPSA, the
researchers said in a November 1998 draft report that the data showed some
difference between the price paid for cattle acquired through captive
supplies compared with the price paid for spot market purchases. The
researchers also said that their statistical analysis did not support the
notion that reducing captive supply purchases or increasing spot market
purchases would result in an increase in the spot price. This was because,
for example, feedyard managers control when cattle are delivered under
captive supply arrangements and the captive supply price is set the week
before the cattle are delivered. GIPSA then entered into cooperative
agreements with seven other outside authorities to review its Texas cattle
study and to "peer review" the analysis of the two economists. In 1999, the
peer reviewers reported to GIPSA that they generally agreed with its study,
but they raised questions about the overall scope of the effort, the data
collection process, and the descriptive analysis of the data. The reviewers
also generally agreed with the analysis of the university economists but
raised questions about how the analysis could have been improved.
Thereafter, the researchers incorporated the comments of the peer reviewers
in a final report, which reiterated the findings of their draft report.
GIPSA was provided with the final report in November 1999, and the agency
announced its results in December 1999.

GIPSA also initiated an effort in 1996 involving the procurement of hogs at
12 plants in 4 states (Iowa, Minnesota, Nebraska, and South Dakota) operated
by 4 of the largest meatpacking companies in the country. GIPSA's work was
aimed at understanding the contractual arrangements between packers and
producers and the relationship between the quality of hogs, seller size, and
price. GIPSA's Chief of the Competition Branch told us that the overall
objective was to determine how packing companies set prices for hogs and not
to address any specific complaints regarding prices. During its work, GIPSA
compiled extensive data on hog procurements at each plant during January
1996. The agency's field offices submitted detailed reports on each plant to
GIPSA's headquarters from August 1996 through January 1997. In reporting its
results in late 1998, GIPSA identified two areas of concern: (1) the sales
prices reported to USDA did not reflect the actual prices paid to producers
and (2) price variations exist between various groups of sellers.
Specifically, GIPSA found that the reported prices were generally lower than
the prices actually paid for hogs and that the hogs sold by smaller sellers
tended to be of lower quality and received lower prices.

Objectives, Scope, and Methodology

This appendix contains information on our objectives, scope, and methodology
in conducting this review. Concerned about concentration and anticompetitive
practices in the cattle and hog markets, Senator Charles E. Grassley, as
Chairman of the Subcommittee on Administrative Oversight and the Courts,
Senate Committee on the Judiciary, asked us to review GIPSA's efforts to
enforce the competition provisions in the Packers and Stockyards Act.
Shortly thereafter, section 934 of USDA's appropriation act for fiscal year
2000 (P.L. 106-78, Oct. 22, 1999) mandated that we analyze and report to the
House Committee on Agriculture and the Senate Committee on Agriculture,
Nutrition, and Forestry on USDA's ability to ensure free competition in the
marketing of hogs. In response, after discussing the request and the mandate
with staff of Senator Grassley and majority and minority staff of the House
and Senate agriculture committees, we reviewed (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
and (2) factors that affect GIPSA's ability to investigate concerns about
anticompetitive practices. In addition, we reviewed GIPSA's authority under
the Packers and Stockyards Act to address concerns about anticompetitive and
unfair practices in the cattle and hog markets.

To compile background information on GIPSA and the issues surrounding
competition in the cattle and hog industries, we interviewed agency
officials, including GIPSA's Administrator, Acting Deputy Administrator of
the Packers and Stockyards Programs, Director of the Office of
Policy/Litigation Support, Chief of the Competition Branch, and supervisors
and various staff in the Denver and Des Moines offices. We interviewed
USDA's Associate General Counsel, Regulatory and Marketing, and the
Assistant General Counsel of the Trade Practices Division. We discussed our
findings and recommendations with USDA's General Counsel. We also
interviewed officials of four meatpacking companies, including a few of the
largest meatpackers; representatives of livestock producer groups and farm
organizations; agricultural economists; and state office officials.

We reviewed GIPSA's annual reports and other materials that it has published
on the Packers and Stockyards Programs; those parts of USDA's 1997 strategic
plan involving GIPSA's packers and stockyards program, the fiscal year 1999
performance report, and the revised performance plans for fiscal years 2000
and 2001; and reports issued by USDA's Economic Research Service involving
competition in the meatpacking industry. We also reviewed USDA's Budget
Explanatory Notes for Committee on Appropriations for fiscal years 1999
through 2001. Furthermore, we reviewed prior reports addressing GIPSA's
involvement in competition matters that were issued by USDA's OIG and by us.

Our analysis of the investigations conducted by GIPSA in response to
allegations of anticompetitive activities or initiated by the agency covered
cases that were ongoing at the start of fiscal year 1998 and those that
started in fiscal 1998, 1999, and the first quarter of fiscal 2000. We used
GIPSA's complaint/investigation summary log, which is the agency's record
system for identifying competition cases. Agency officials also provided us
with log records for trade practice cases that they indicated had
competition implications. We reviewed each case to determine, for example,
the type of livestock involved; whether a meatpacking company or another
party, such as a livestock market, was alleged to have acted improperly; the
alleged anticompetitive practice and whether GIPSA found evidence to support
the allegation; and the length of time the cases were ongoing. To ensure
that we had a clear understanding of the cases, we discussed many of them
with GIPSA's Chief of the Competition Branch and regional staff in the
Denver and Des Moines offices. Furthermore, we excluded from our analysis
those cases that did not involve cattle or hogs, such as those involving
poultry and lambs, and those that involved financial, trade, or other
practices but not competition. Also, we did not evaluate the effectiveness
of GIPSA's investigations. To report on the status of the agency's open
cases, we used the end of the second quarter of fiscal year 2000 as the
cutoff date.

We also included various other major efforts by GIPSA covering, for example,
the procurement of feeder cattle in Texas and hogs in four Western Cornbelt
states, which the agency reported on during 1999 and 1998, respectively.
These efforts were designed primarily to develop information about the
competitive conditions of markets and the pricing of cattle and hogs. In
addition, we reviewed GIPSA's documentation covering studies of
livestock-marketing issues being conducted by university researchers and the
agency's plans for future investigative efforts.

To identify factors that limit GIPSA's ability to investigate concerns about
anticompetitive practices, we interviewed officials at GIPSA's headquarters
and at its regional offices in Denver, Colorado, and Des Moines, Iowa;
USDA's OGC and OIG; DOJ; and FTC. We also discussed GIPSA's efforts to
address anticompetitive practices with, for example, representatives of
livestock producer groups and farm organizations. We reviewed USDA's OIG
report of 1997 on GIPSA's effectiveness in investigating anticompetitive
activities and analyzed the actions taken by the agency in response to the
report's recommendations, including the agency's 1997 reorganization plan.
We reviewed various closed GIPSA case files in Denver, Des Moines, and
GIPSA's headquarters to gain a perspective on the agency's investigations
and discussed GIPSA's investigation planning, practices, and performance
with regional and headquarters officials. We reviewed and compared the
operating manuals that GIPSA, DOJ, and FTC use as guidance in conducting
competition-related investigations and the budget requests of GIPSA and
USDA's OGC for fiscal years 1999 through 2001.

To review GIPSA's authority to address concerns about unfair and
anticompetitive practices in the cattle and hog markets, we reviewed the
Packers and Stockyards Act; the act's legislative history, including the
events that led to its enactment in 1921; the agency's implementing
regulations and internal memoranda; and relevant past cases, court
decisions, and law review articles. We reviewed the records of congressional
hearings on concentration and competition in agriculture. We discussed
GIPSA's authority with officials at the agency's headquarters, USDA's OGC,
DOJ, and FTC, and law professors. We also discussed GIPSA's authority with
representatives of two grassroots farm organizations: the Organization for
Competitive Markets and the Western Organization of Resource Councils.
Furthermore, we reviewed the 1996 report by the advisory committee to the
Secretary of Agriculture that addressed concerns in the livestock markets,
the 1996 petition by the Western Organization of Resource Councils, and
USDA's response to the petition.

We conducted our review from September 1999 through August 2000 in
accordance with generally accepted government auditing standards.

Comments From the U.S. Department of Agriculture

GAO Contacts and Staff Acknowledgments

Lawrence J. Dyckman, (202) 512-5138
Charles M. Adams, (202) 512-8010

In addition to those named above, Fredrick C. Light, Larry D. Van Sickle,
Gary T. Brown, Alan R. Kasdan, Mary C. Kenney, and Patrick J. Sweeney made
key contributions to this report.

(150158)

Table 1: Results of GIPSA's Investigations of Allegations of Anticompetitive
Actions From the Start of Fiscal Year 1998 Through the First Quarter of
Fiscal 2000 9

Table 2: GIPSA's Implementation of the Recommendations Made by USDA's OIG
and GAO's Analysis of the Actions Taken 14

Figure 1: GIPSA's Process for Handling Concerns About Anticompetitive
Practices 18
  

1. The act (7 U.S.C. 181 et seq.) also covers (1) other livestock, such as
sheep and goats, and poultry and (2) the protection of industry participants
by, among other things, ensuring that sellers are paid promptly and that the
animals are weighed accurately. This report focuses primarily on the
agency's efforts to address competition-related concerns involving cattle
and hogs.

2. In 1996, GIPSA published the results of several years of effort to
examine cattle and hog market issues by GIPSA itself; university
researchers; and advisers from DOJ, FTC, the Commodity Futures Trading
Commission, and USDA's Economic Research Service. GIPSA did not find
anticompetitive activity but did call for continued monitoring of the
industry. More recently, in 1999, GIPSA, DOJ, and FTC, under the direction
of the National Economic Council, reviewed the sharp decreases in hog market
prices and, among other things, commented that the industry should continue
to be monitored for anticompetitive activity.

3. For example, S. 2252, S. 2411, and H.R. 4339, 106th Congress 2nd session
include, among other things, authority for USDA to review mergers.

4. GIPSA defines "anticompetitive practices" as those including antitrust
types of violations and other unfair practices affecting competition.

5. We did not evaluate the effectiveness of GIPSA's efforts and findings in
these cases.

6. GIPSA reported the results of this examination of cattle pricing in a
paper entitled Investigation of Fed Cattle Procurement in the Texas
Panhandle (Dec. 28, 1999).

7. GIPSA reported the results of this examination of hog pricing in a paper
entitled Western Cornbelt Hog Procurement Investigation (Oct. 8, 1998).

8. The Pharmaceutical Industry: A Discussion of Competitive and Antitrust
Issues in an Environment of Change, FTC Bureau of Economics Staff Report
(Mar. 1999).

9. 61 Cong. Rec. 1805 (1921); H. Rep. 77, 67th Cong. 1st sess., at 2 (1921).

10. 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.

11. Such practices by live poultry dealers are also unlawful under 7 U.S.C.
sect. 192, but 7 U.S.C. sect.193 does not authorize the Secretary to bring
administrative actions against such dealers. Injured parties may sue dealers
under 7 U.S.C. sect. 209.

12. Under the Packers and Stockyards Act, the Federal Trade Commission is
responsible for halting such practices with respect to retail sales of meat
and meat products, 7 U.S.C. sect. 227(b) (2000). Also, section 5(a)(2) of the
Federal Trade Commission Act, 15 U.S.C. sect. 45(a)(2) (2000), exempts from the
Commission's authority any activity assigned to USDA under the Packers and
Stockyards Act.

13. Swift v. Wallace, 105 F.2d 848, 853 (7th Cir. 1939).

14. 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. 7 U.S.C. sect. 213 (2000).

15. Armor & Co. v. United States, 402 F.2d 712, 717 (7th Cir. 1968).

16. Armor, 402 F.2d at 717; De Jong Packing v. USDA, 618 F.2d 1329,
1336-1337 (9th Cir. 1980); Daniels v. United States, 242 F.2d 39, 42 (7th
Cir. 1957), cert. denied, 354 U.S. 939, reh'g denied, 355 U.S. 852 (1957);
IBP v. Glickman, 187 F. 3rd 974, 977 (8th Cir. 1999).

17. Jackson v. Swift Eckrich, Inc., 53 F. 3rd 1452, 1458 (8th Cir. 1995).

18. IBP, 187 F.3rd at 977.

19. FTC may challenge alleged unfair methods of competition, including
unfair methods of competition that would violate the Sherman Act through an
administrative proceeding, as it does with unfair or deceptive practices.
The basic consumer protection provision of the Federal Trade Commission Act
is section 5(a), which provides that unfair or deceptive acts or practices
in or affecting commerce are unlawful. 15 U.S.C. sect. 45(a) (2000). Unfair
practices under section 5(a) are defined to mean those that cause or are
likely to cause substantial injury to consumers and that are not reasonably
avoidable by consumers themselves and not outweighed by countervailing
benefits to consumers or competition. 15 U.S.C. sect. 45(n) (2000).

20. The reasons for the increased use of contractual marketing arrangements
and vertical integration are discussed in Pork Industry: USDA's Reported
Prices Have Not Reflected Actual Sales (GAO/RCED-00-26, Dec. 14, 1999).

21. For example, in December 1999, we reported that hog prices plummeted in
1998, principally because supply exceeded slaughter capacity. (See
GAO/RCED-00-26, Dec. 14, 1999). Also, a report that reviews studies on
changes in the beef industry and cattle pricing is contained in Status,
Conflicts, Issues, Opportunities, and Needs in the U.S. Beef Industry,
Purcell, W.D., Research Institute on Livestock Pricing, Virginia Polytechnic
Institute and State University (May 1999).
*** End of document. ***