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ISU's new ag expert brings a warning for area growers

Tuesday, September 7, 2004

Tyson Foods cited in several cases

Farmers beware: Contract production can be hazardous to your health.

That was the message Roger McEowen, Iowa State University's new ag legal expert, offered to farmers Wednesday in Storm Lake. McEowen and outgoing ag legal head Neil Harl are touring the state as a 'good-bye and thank-you' tour for Harl and a 'hello and let's-get-down-to-business' tour for McEowen.

McEowen, who comes from Kansas State University where he held a similar position to his new job at ISU, has a law degree from Drake and received a master's from the ISU ag graduate program. He and Harl first became acquainted when McEowen was one of Harl's students.

McEowen ran through reams of ag case law. Regarding contract production, McEowen said the producer can lose freedom and control over an ag operation.

One case that affected northwestern Iowa and southwestern Minnesota farmers was when Campbell Soup Company told producers they had to build large facilities in order to be able to fill their contracts with the company. Six years into their contracts, Campbell's closed its Worthington, Minn., plant and backed out of the contracts via a legal loophole.

McEowen said an error that farmers' attorneys made was that they prosecuted the case as a contract violation. Only a Minnesota law that forced Campbell's to compensate for construction costing over $100,000 allowed farmers to recoup part of their losses. Iowa contract producers, meanwhile, got nothing.

In another case involving Tyson Foods, Inc. in Arkansas, McEowen told the contact holders' attorneys of the Campbell's suit and suggested they try the case as a fraud-in-the-inducement and misrepresentation case. The attorneys followed McEowen's suggestion. The jury awarded a verdict of almost $900,000 which was upheld on appeal.

In other case, Tyson Foods, Inc. v. Archer, decided before the Arkansas Supreme Court Feb. 19 of this year, the court ruled that, according to the wording of Tyson's contract with its producers, Tyson could sue producers for nonperformance but contractors could only enter into arbitration with Tyson if the company failed to meet its contractual agreements.

In a 2003 Kentucky decision, Sierra Club, Inc. v. Tyson Foods, Inc., the court held that Tyson was responsible for a complaint that the livestock production operation was larger than what had originally been indicated. The judge said Tyson was essentially acting as employer of the contractor and so responsible.

In a 2003 Oklahoma decision, Tulsa v. Tyson Foods, Inc., the court held that as the contracting firm Tyson was liable as a matter of law for any nuisance or trespass caused by the known or foreseeable contract activities of the growers.

In a 2003 decision involving Smithfield Foods, Inc., the court ruled on a case involving Iowa's attempt to prohibit vertical integration in the cattle and pork industry. The law was struck down an unconstitutional. McEowen said the judges relied on statements by the government and legislators who said they were "going after Smithfield". McEowen said judges used those statements alone in rendering their decision rather than looking at the merits of the case.

Just as there are antitrust laws in effect for sellers, McEowen said there are contract-buyer antitrust issues in agriculture that need to be dealt with. While controlling the market as a seller is known as a monopoly, McEowen said monopsony describes market control by buyers in the livestock and dairy industries and other areas.

If a buyer if powerful enough, it can force prices lower, McEowen said. He reviewed industries where historically buyers have controlled the market. They include the sugar beet industry in the 1940s, durum wheat in the 1960s, pulp wood in the 1980s, oil company employees in 2001.

McEowen cited the Pickett v. IBP case in which IBP was found in violation of the Packers and Stockyards Act which prohibits manipulating or controlling prices. The judge ruled that IBP could not use a captive supply of fed cattle to depress the cash market. As a result, the plaintiff was awarded $1.28 billion.

One recent key case that addresses monopsony is the Microsoft case. McEowen said that case showed that if a company profits by lowering prices for the products it purchases, monopsony has clearly occurred.

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