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Class action lawsuits used by farmers

by Paul Beingessner
Canadian farmer, writer

(Tuesday, Feb. 24, 2004 -- CropChoice guest commentary) -- There is cause for celebration in some U.S. farm circles this week as a result of two major court decisions in that country. Each one also has implications for Canadian farmers.

The first case involves a class action lawsuit between meatpacking giant Tyson Foods and about 30,000 American cattlemen who sold cattle on the cash auction market between 1994 and 2002. The original lawsuit involved Iowa Beef Packers (IBP) which was bought out by Tyson in 2002. IBP is familiar to western Canadians because of its ownership of the huge beef processing plant at Brooks, Alberta.

At issue in the lawsuit, which began in 1996, was Tyson's use of captive supplies of cattle to drive down the price of cattle on the auction circuit. Captive supplies are cattle that are either owned by, or contracted to a packer at a predetermined and hidden price. The ranchers suing Tyson claimed that the company would dip into its captive supply for its weekly kill when prices on the open market went up. The lack of demand on open markets would drive the price down, and Tyson would then go back and purchase on the open markets. In practice, Tyson was obtaining about half its cattle from captive supplies.

The ranchers' case was based on a 1921 act called the Packers and Stockyards Act, which prohibits packers from employing any "unfair, unjustly discriminatory, or deceptive practice or device" or from making preferential agreements. American cattlemen have been calling for enforcement of this Act to deal with captive supplies for many years.

The jury sided with the ranchers, on evidence that Tyson's practices had depressed cattle prices by about 5 percent over the eight-year period. While five percent might not seem a large number, remember that farm margins are often less than that. The jury assessed the damage to ranchers at $1.28 billion. The lawyer for the ranchers said he will ask the court to require that Tyson turn to the open market to buy 90% of the cattle it slaughters.

While ranchers celebrated, large packers, and the feedlots they give preferential treatment to, were dismayed. The packers claim they need captive supplies to ensure a flow of cattle to their plants. They also claim that contracts allow them to get a superior and consistent quality of beef for their customers.

Ranchers point out that 20 years ago, most cattle were bought on the open market and supply to plants was not a problem. They also showed that at least one large feedlot has a favorable contract with Tyson that allows them to deliver very low quality cattle without being discounted. The ranchers also claim that "branded" programs like Certified Angus Beef can exist without hidden contracts.

The issue of captive supplies had seldom been raised in Canada. Farmers here have fewer legal tools to work with than in the U.S. and seem less concerned. What they may not realize is that the level of concentration in the packing business is even greater in Canada than in the U.S.

This case will take years to work through appeals in the American courts but it is one to watch. While we claim to believe in open markets, we seem to forget that consolidation in many industries works against competition. Without competition, the notion of a free market is meaningless.

The second case involved chemical giant BASF, maker of the well-known Poast herbicide. Poast was used extensively on soybeans in the U.S. but at one point was losing ground to competitors. BASF then brought out Poast Plus, a lower priced version it said was for soybeans. It continued to sell the higher priced Poast to growers of other crops. It turns out, however, that the two versions of Poast were registered with the same safety data. This lead to the conclusion that the two Poasts were the same, marketed at different prices to extract an inflated price from some users.

The lawyer for the farmers in this class action suit claims that "BASF admitted during trial that the entire industry has engaged in these marketing games. The entire industry has engaged in a charade of selling the same product as different products for different uses, while exploiting regulations intended to protect the safety of people and the environment, to extract higher prices from segments of the consumer market."

BASF has now lost two rounds in this battle. The award against it was $56 million, which will be distributed to American farmers who bought Poast between 1992 and 1996. This will not happen until BASF quits the battle or loses its final appeal.

Canada has its own class action suit pending. Organic growers are locked in a fight in Saskatchewan with Monsanto and Bayer, over the issue of GM canola. Organic growers claim the companies should be responsible for the loss of markets for organic canola. GM canolas are so prevalent in the farm environment that organic growers cannot guarantee their canola to be GM free.

This case has yet to be certified as a class action. Saskatchewan has only allowed class action suits since 2002, so this first case is taking a lot of time to work through the courts. Because the issues are so huge, you can expect it to drag on for a long time.

(c) Paul Beingessner (306) 868-4734 phone 868-2009 fax