cation of inaction. This arises, in part at least, from the Department following the procedure, where appropriate, of disposing of alleged violations by obtaining when possible from the party involved an agreement to cease and desist from the practice in question. This results in prompt corrective action and makes unnecessary the issuance of formal complaints followed by protacted hearings. This type of procedure is well established and widely recognized. It has long been approved and recommended by leaders in the field of administrative law (see S. Doc. No. 186, 76th Cong., 3d sess., pt. 6, p. 10; S. Doc. No. 8, 77th Cong., 1st sess., pp. 41 and 137). The present Secretary of Agriculture appreciates the importance of effective administration of the act, and earlier this year, Secretary Benson, himself, initiated a survey of the activities and regulations under the Packers and Stockyards Act. A report of that study recently was made public, and we are now following through to make the necessary changes and improvements indicated by this report. I should like to request that the report be included in the record of this hearing immediately following my testimony. The CHAIRMAN. Without objection that will be done. Mr. BUTZ. There have been a number of changes in the livestock and meat industry in recent years which have tended to complicate the administration of the Packers and Stockyards Act. Among these changes are such things as an increased number of livestock markets, changes in methods of marketing livestock and meat, increases in the number and kind of firms in the meat industry, and the growth and expansion of the food industry, particularly the retail segment. Regulatory problems applying to stockyards and the purchase of livestock have been greatly expanded by the developments in transportation and the decentralization of livestock marketing. At the time the Packers and Stockyards Act was passed, there were around 80 livestock markets which were eligible for posting under the act. These were mostly rail-centered terminal markets. Since that time the number of important livestock markets has greatly increased, due to developments in transportation. There has been a great increase in the number of auction markets, buying stations, concentration yards, etc. As a result, it is estimated that currently there are some 900 to 1,000 markets which are eligible for posting and regulating under the act. Another factor which has helped make administration of the act more difficult has been the rapid increase in the number of meatpacking establishments. The rate of expansion between 1939 and 1947 was very rapid with the number of plants increasing by 46 percent in a span of just 8 years. The increase has been somewhat slower since then, although there has been about a 10-percent increase in the past 7 years. Even with the large number of firms in the meatpacking industry, there is considerable concentration, and there has been for a long time. But there has not been increased concentration nor is there any unusual degree of concentration in the meatpacking industry when compared with a number of other industries. In fact, today the four largest packers are slaughtering a smaller share of total commercial slaughter than in 1920. The actual number of livestock slaughtered by the 4 largest firms has increased by 40 percent since 1920, but during the same period total commercial slaughter has increased 64 per cent. During recent years vertical integration has developed to a considerable degree within many industries. This has been the case, particularly in the retail food field. Insofar as livestock and meat are concerned, some firms have developed vertical integration in their operations to the extent that some are now producers, feeders, slaughterers, processors, wholesalers, retailers, and they also carry on other related activities. Some chains dealing in food and nonfood products have come within the jurisdiction of the Packers and Stockyards Act in recent years by acquiring interest in meatpacking operations even though their principal business is not meatpacking or activities related to it. During 1955, there were 14 food-chain organizations filing reports as meatpackers under provisions of this act. This number included 6 of the leading food chains in the country, with approximately 10,000 retail outlets, and 8 smaller food chains having less than 100 stores each, in addition to their packing operations. The possibility has been expressed by some that nonfood firms would buy into the meatpacking field as a means of avoiding laws administered by the Federal Trade Commission. H. R. 7743 and the provisions proposed by the Department would amend the Packers and Stockyards Act in such a manner as to prevent the possibility of such occurrences. Also, they would clarify the jurisdiction of the Department of Agriculture and the Federal Trade Commission in effectively regulating the livestock and meat industry. (The document referred to is as follows:) UNITED STATES DEPARTMENT OF AGRICULTURE, REPORT ON CURRENT ACTIVITIES AND PROBLEMS UNDER THE I. THE ACT AND ITS MAIN PROVISIONS This report is the result of a survey of current activities and problems relating to the investigation and regulation of trade practices in livestock buying and meat merchandising under the Packers and Stockyards Act. The survey was undertaken in the Department of Agriculture at the direction of the Secretary of Agriculture. The purpose was to review problems relating to livestock-buying and meat-merchandising practices in order to appraise the adequacy of the Department's resources and current policies in this field. The Packers and Stockyards Act was enacted by Congress in 1921. The primary purpose of this act is to assure fair competition and fair-trade practices in livestock marketing and in the meatpacking industry. The objective is to safeguard farmers and ranchers against receiving less than the true market value of their livestock and to protect consumers against unfair business practices in the marketing of meats, poultry, etc. Protection is also provided to members of the livestock marketing and meat industries from the unfair, deceptive, unjustly discriminatory, and monopolistic practices of competitors, large or small. Three general areas of regulation are encompassed by the act. The regulation of packers is provided for in title II. Title III provides for the regulation of stockyards posted under the act (operating in interstate commerce and having an area of 20,000 square feet or more) and of market agencies and dealers operating at such stockyards. Title V provides for the regulation of live poultry dealers and handlers at cities or places that may be designated under the act. The other titles of the act, title I and title IV, cover definitions and general provisions. Summary of principal provisions The act provides that meatpackers subject to its provisions shall not engage in practices that restrain commerce or create a monopoly. They are prohibited from buying or selling any article for the purpose of or with the effect of manipulating or controlling prices in commerce. They are also prohibited from engaging in any unfair, deceptive, or unjustly discriminatory practice or device in the conduct of their business, or conspiring, combining, agreeing, or arranging with other persons to do any of these acts. Commission men, dealers, and stockyard operators at markets posted under the act are prohibited by its provisions from engaging in any unfair, deceptive, or unjustly discriminatory practice or device in the conduct of their business. The Secretary of Agriculture is authorized to require such commission men and dealers to furnish reasonable bonds to assure payment for livestock bought or sold at a stockyard. Stockyard owners and market agencies are required to furnish reasonable stockyard services without discrimination and to charge reasonable and nondiscriminatory rates. Stockyard owners and market agencies are also required by the act to file with the Secretary schedules of their rates and charges and of any changes that may be made in them. These rates and charges are subject to review by the Secretary, and if found to be unreasonable the Secretary may fix ones that are reasonable. Meatpackers, commission men, dealers, and stockyard operators are required by the act to keep such books and records as fully and correctly disclose all their transactions. Such books and records are required to be made available to authorized representatives of the Secretary for examination and copying as may be deemed necessary. Provision is made in the act for filing such reports as the Secretary may require and for the issuance of subpenas to compel production of such books and records and for the giving of testimony by witnesses. Under the act, commisison men and dealers found to be violating its provisions may be suspended from doing business. Among the various enforcement provisions, the act also provides for the issuance, after formal hearings, of cease-anddesist orders against meatpackers and all other persons subject to it. II. BACKGROUND OF THE ACT Some years following enactment of the Sherman Antitrust Act, which sought to make more effective the common-law doctrine against restraint of trade, agitation arose for legislation dealing directly and separately with the packers or at least the dominant firms in the industry. In 1917, after legislative hearings had been held by committees of both Houses of Congress on a series of bills dealing with the packer-monopoly problem, the President directed the Federal Trade Commission to investigate meatpacking and related activities. The resulting report indicated that the big meatpacking firms virtually had complete control of the trade, from the producer to the consumer. The report also indicated that one of the essential means by which this control of the trade was made possible was through the packers' ownership of a controlling part of the stock in the stockyards companies of the country. This controlling interest gave the meatpackers a whip hand over not only the operations of the stockyards but also over the activities of the commission men and dealers. Two actions followed in the chain of events. One was a Department of Justice action which led to the consent decree of 1920 under which the 4 largest meatpacking firms agreed to divest themselves of the ownership of stockyard properties and to refrain from the retail merchandising of meat. The other was the action by Congress which resulted in the enactment of the Packers and Stockyards Act of 1921. KEY POSITION OF STOCKYARDS RECOGNIZED The bill that provided the basis for the Packers and Stockyards Act recognized that if the packer problem was to be solved it was necessary to have additional authority. This was needed particularly with respect to the stockyards and the transactions in livestock conducted there in order to protect the producers of livestock from the results of unfair practices. Therefore, although in the first instance the question was raised by reason of monopolistic practices among the large meatpackers, the legislative program enacted embraced two largely separate legislative schemes-the one dealing with packers and the other with the regulation of stockyards and transactions taking place at stockyards by all persons including packers. Thus, in some respects the Packers and Stockyards Act provided for new legal authorities while in some others it provided for trade practice or antitrust powers additional to the general authorities already available to the Department of Justice. The act vested the Department of Agriculture with authority to issue cease-and-desist orders after hearing with respect to packers who engaged in practices such as those prohibited under the Federal Trade Commission Act and the so-called antitrust laws administered by the Department of Justice. The Department of Agriculture was also vested with authority to regulate stockyards and all persons engaged in business on such yards in connection with livestock transactions. This regulatory phase of the act encompassed a field of regulation outside the scope of the antitrust laws; namely, prescribing reasonable rates for stockyards and market agencies, posting stockyards, registering market agencies and dealers, requiring bonds for the protection of producers, prohibiting unfair trade practices whether or not relating to restraint of trade or monopoly, providing reparation procedures to insure protection of producers and others suffering from unfair trade practices, and so forth. This field of stockyards regulation was not only primarily but solely the responsibility of the Department of Agriculture. The fundamental purpose was to insure the fairness of the market place where the country's livestock production first enters the channels of commerce to reach the consumer in the form of meat products. The keystone position held by the stockyards in the flow of livestock from the country's farmers and of meat to the Nation's consumers is highlighted in a Supreme Court decision, in a 1922 case involving the Packers and Stockyards Act, in which Chief Justice Taft stated: "Thousands of head of livestock arrive daily (in the large stockyards) by carload and trainload lots, and must be promptly sold and disposed of and moved out to give place to the constantly flowing traffic that presses behind. The stockyards are but a throat through which the current flows, and the transactions which occur therein are only incident to this current from the West to the East, and from one State to another ***" (Stafford v. Wallace, 258 U. S. 495, 515– 516). The object sought by the regulation of marketing at the stockyards, Chief Justice Taft stated, "is the free and unburdened flow of livestock" in interstate commerce, and the "chief evil feared is the monopoly of the packers, enabling them unduly and arbitrarily to lower prices to the shipper who sells, and unduly and arbitrarily to increase the price to the consumer who buys * III. ADMINISTRATION OF THE ACT IN THE DEPARTMENT OF AGRICULTURE After its enactment in 1921 the Packers and Stockyards Act was administered in the Department of Agriculture under the Office of the Secretary until 1927, when it was placed in the Bureau of Animal Industry. It remained in the Bureau of Animal Industry until 1939, when the administration of the act was transferred to the Agricultural Marketing Service. The successor agencies of this earlier Agricultural Marketing Service have had various names and responsibilities, but since 1942 the Packers and Stockyards Act has been administered by the Packers and Stockyards Branch of the Department's Livestock Division— now one of the chief operating divisions in the new Agricultural Marketing Service established in the fall of 1953. During the first 2 years under the act, 1922 and 1923, all of the stockyards then eligible for posting or regulation were brought under the act. The organization was built up on the basis of 260 positions in fiscal year 1923, sufficient not only for regulation of the stockyards but also for a substantial volume of investigative activities. Over the next 2 years this was cut in half, or to 130 people in fiscal year 1925. Over the next twenty-odd years attention was given chiefly to regulating the stockyards, including particular stress on returns and charges in connection with the servicing and selling of livestock at the yards. The position of the Department in this regulatory work was upheld by the favorable court decisions on its approach to ratemaking cases initiated in the first few years after the act became law. During the twenty-odd years from 1924 to 1945, appropriations provided by Congress for administering the act ranged mostly from a little more than $300,000 to somewhat over $400,000 a year, sufficient to maintain a staff of around 100 employees. After World War II greater emphasis was placed on trade practices, with less emphasis on ratemaking investigations. The investigations were concerned principally with the practices of buyers and sellers at stockyards. Operations of meatpackers beyond the stockyards also came under scrutiny, particularly with respect to investigation of complaints received. The Department continued to cooperate with the Department of Justice in any investigations or other actions taken in connection with their enforcement of the antitrust laws against meatpackers. During the postwar period appropriations for administering the Packers and Stockyards Act have ranged mostly between more than $500,000 to well in excess of $600,000 per year. However, the higher wage-scale and operating costs did not permit increasing personnel above the previous average figure of around 100 employees-in fact, the number fell below that figure. The course followed in administering the act was aimed at making the most effective use of the rather limited funds available from the standpoint of the broad public interest and the most direct and immediate value to producers of livestock. Increased stress on trade practices Within the last 2 years there has been a broadened emphasis on the operation of meatpackers under the act. As a result, more work is now being done in connection with trade practices of meatpackers as well as trade practices of buyers and sellers at stockyards. Among the many inquiries currently underway, there are about 46 important investigations being made under the act. Of this total, 29 are concerned primarily with the operations and practices of stockyard companies and registrants and 17 involve investigations of meatpackers. Among the 29 investigations which primarily involve operations and practices of stockyard companies and registrants under the act, 2 have so far reached the stage of formal charges. Although the 29 investigations cover many types of violations under the act, they may be grouped into the following 4 broad categories: Six involve restriction of competition, monopoly, and price manipulation; Two concern stockyard rate determinations; and Thirteen involve unfair or deceptive practices, failure to furnish adequate services, etc. Among the 17 investigations of meatpackers subject to the act are some that originated as far back as 2 years ago and are at or near the stage of formal charges. These 17 packer investigations may be grouped into 3 broad categories as follows: Six concern primarily questions of monopoly, price discrimination or price manipulation, or restriction of competition in the sale of meats or other products; Six involve unfair practices in merchandising or advertising of meat or other products; and Five pertain to unfair livestock buying practices of packers or restriction of competition in buying livestock. The broadened emphasis that has been placed on scrutinizing trade practices, monopoly, and related problems in the meatpacking industry is expected to continue. To a considerable extent, however, the attention that can be devoted to this depends upon the funds and personnel available. In general, with the rather limited funds available over the last 15 years, the Department has felt that the most returns to livestock producers, as well as the public generally, could be obtained from regulatory and investigative activities at the market or livestock-buying level. The regulatory problems under the Packers and Stockyards Act, especially as they apply to stockyards and to the day-to-day purchase of livestock, have been greatly expanded by the development of truck transportation and the rapid decentralization of livestock marketing which started in the mid-1920's. Where there were around 80 major rail-centered livestock markets at the time the Packers and Stockyards Act was passed, the number has greatly increased since then, especially with the rise of auction markets. As a result, it is estimated that currently there are altogether some 900 to 1,000 markets with 20,000 square feet or more of space which the act provides shall be posted or regulated. |