Thursday, 15 December 2011

This Welcome Change May Be Illegal

I was looking forward to meeting Albert Wada back in 2005. He had taken on a task that was badly needed in the North American potato industry, trying to convince farmers that they were their own worst enemies, over planting every Spring, and suffering through bad prices through the Fall and Winter. He had  a lot at stake himself in this effort. Wada Farms grows twelve thousand acres of potatoes near Blackfoot, Idaho, the heart of the U.S. potato industry.  Albert Wada is an unimposing man, but with very strong beliefs. He sums up the marketing challenge for farmers this way:

"They occupy the lowest position in the economy… above them in the marketing chain are processors, packers, sales organizations, marketers, brokers, transporters, wholesalers and retailers…

Farmers get paid after all of them subtract their expenses and margins…

Risk must be passed back to the farmer for those above them to remain healthy and viable…"

Wada was determined to make things better.  There is a law in the U.S. called the Capper-Volstead Act which allows farmers to set up co-operatives to control the marketing of farm products, usually  to hold back surpluses and keep prices from falling.  (It's a role the U.S. Government used to play until the 1970's). Wada spent months visiting potato growing areas in the U.S. to get farmers to join what became the United Potato Growers of America. 
Wada did visit PEI as well. Canada does not have anything comparable to Capper-Volstead but  there were efforts here too to cut back acreage. (remember all the controversy over using  potato board levies to pay farmers to cut plantings).  Wada was successful in the U.S., and here, to better link potato demand to production, and prices did improve. There is also much better communication between provinces with the creation of the United Potato Growers of Canada. It can't control marketing or production, but growers here at least share market information and try to keep prices from falling.   
Now all of Wada's efforts may be for naught. A large produce marketer in New York State called Brigiotta’s Farmland Produce and Garden Center Inc., went to court and made this argument: Capper-Volstead does allow farmers to control the marketing of farm products, but not the production. In other words the effort by United to limit planting is illegal.  U.S. District Court Judge Lynn Winmill ruled last week it is:
"The Court first notes that there are no cases where a court specifically approved, under the Capper-Volstead Act, a pre-production agricultural output limitation as opposed to a post-production marketing decision such as withholding of product from market. Likewise, there are no cases where a court has concluded that Capper-Volstead immunizes cooperatives and their members who seek to collectively implement production controls in order to raise prices.
However, the language of the Capper-Volstead Act itself indicates that it does not apply to production limitations. The Court must construe statutory terms in accordance with their ordinary meaning. Federal Deposit Ins. Corp. v. Meyer, 510 U.S. 471, 476 (1994); United States v. Nader, 542 F.3d 713, 717 (9th Cir. 2008). The key phrase of the Act, “processing, preparing for market, handling, and marketing,” applies to acts done to an agricultural product after it has been planted and harvested. Thus, under the plain language of the statute, coordinating and reducing acreage for planting is not allowed.

Still, Defendants argue that because Capper-Volstead cooperatives are allowed to fix prices, they must also be allowed to restrict production. This argument is unpersuasive. The reason an agricultural cooperative can fix the price at which their good is sold is because if the price rises, farmers will produce more and consumers will not be overcharged. Individual freedom to produce more in times of high prices is a quintessential safeguard against Capper-Volstead abuse, which Congress recognized in enacting the statute.

For these reasons, the Court concludes that acreage reductions, production restrictions, and collusive crop planning are not activities protected by the Capper- Volstead Act.

There is some better news for Canadian growers. United of Canada had originally been linked to the lawsuit, but has now been excused. 

Maritime potato farmers went through a similar exercise years ago. In the mid '80's there was an effort to set-up the Eastern Canadian Potato Marketing Agency (yes a dreaded supply management marketing board), that would have controlled potato production and could have had an extraordinary impact in PEI and New Brunswick. Potato production would not have jumped on PEI during the 1990's, with all of the environmental and marketing problems associated with it.  A court case killed this effort too. Irving owned Cavendish Farms argued in Federal Court that potato production could not be reasonably controlled through acreage quotas because of variations in weather year to year. The judge agreed, and the proposed agency was dead.   

Getting farmers to work together is very difficult. Their instincts are that they're smarter, and work harder than their neighbours,  and cutting back production is for sissies.  Now a very genuine effort to bring some sense to the North American potato industry is at risk. Consumers will likely benefit, and farmers once again will be left licking their wounds and wondering what they have to do to regain some marketing clout.  With increasing price competition at the retail level (hello Walmart), national business commentators smelling blood in their effort to kill supply management in dairy poultry and eggs, and a Federal Government that's decided the only worthwhile Canadian farmer is one who can compete at a global scale, the challenges for farmers in high cost areas like the Maritimes  will only get more difficult.

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