Agricultural Cooperatives and the Law: Obsolete Statutes in a Dynamic Economy

By Carstensen, Peter C. | South Dakota Law Review, Fall 2013 | Go to article overview

Agricultural Cooperatives and the Law: Obsolete Statutes in a Dynamic Economy


Carstensen, Peter C., South Dakota Law Review


Agriculture has always had a special place in American politics and public policy. This was even truer in the first third of the last century when farmers were more numerous. Section 6 of the Clayton Act, (1) the Capper-Volstead Act, (2) and the Cooperative Marketing Act (3) are the results of that "solicitude" for farmers. (4) Adopted in 1914, 1922, and 1926, these acts have remained unchanged over the succeeding decades. The Agricultural Marketing Agreement Act (5) ("AMAA"), despite many amendments since its adoption during the Depression, still authorizes the creation of enforceable output restrictions in various commodities. Moreover, the AMAA has the effect of further strengthening the hand of cooperatives in some important types of agriculture, especially dairy. Overall, this combination of statutes has the capacity to facilitate a variety of anticompetitive acts affecting both farmers and consumers. Competitive concerns most frequently arise when the cooperative is large or its members include, or might even exclusively be, vertically integrated producers of agricultural commodities.

This article will examine the problems that result from a statutory scheme adopted in an era dominated by small farms and local cooperatives that has survived into an era of immense farming operations. In this modern era, "farms" can be billon dollar enterprises that directly process and market their commodities, and "cooperatives" can have tens of thousands of members. Congress should revise these acts, particularly the Capper-Volstead Act and the AMAA, to address the dramatically different nature of American agriculture in the 21st Century. Regrettably, the iconic status of the Capper-Volstead Act among farmers and politicians makes revision politically unlikely. Hence, judicial interpretation provides the only means to limit the unintended harmful consequences to both farmers and consumers of these historic relics. Similarly, the Secretaries of Agriculture over the decades have, with rare exceptions, been unwilling to use the limited powers under the Capper-Volstead Act and the more expansive powers conferred by the AMAA to police the competitive and governance issues that exist. While only legislative or administrative action can avoid some of the undesirable consequences, the evolving pattern of judicial construction of the Capper-Volstead Act can limit a number of its potential adverse effects.

A broader concern, and the secondary focus of this article, is the weakness of both internal and external oversight with respect to the governance of large cooperatives. The combination of the statutory immunities of these enterprises with the inherent nature of the limited governance role of cooperative members creates an additional set of issues that should be of concern to farmers and lawmakers.

Part I of this article reviews the statutory scheme itself. Part II describes the varied functions that agricultural marketing cooperatives can perform. Part III describes the consequences of an obsolete and incomplete legal framework. Those consequences include competitive harms that have affected both farmers and consumers. The instances of such harm are relatively limited and usually require either a combination of statutory entitlements that create the potential for harm, or the dominance of a sector by large, vertically integrated firms. A second consequence is the lack of oversight and appropriate legal rules regulating the internal governance of large cooperatives. This systemic failure directly harms members of large cooperatives whose interests are often subordinated to managerial exploitation. It also creates additional incentives for managers to engage in anticompetitive conduct because of their ability to appropriate the resulting gains. Part IV provides a critical review of the current state of the law applicable to the concerns raised in Part III. Part V proposes a set of statutory reforms that would free some classes of productive cooperatives from the dead hand of the past while providing a better framework for authorizing and supervising cartelistic cooperatives. …

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Agricultural Cooperatives and the Law: Obsolete Statutes in a Dynamic Economy
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