Packers and Stockyards Programs
Continuing Problems with GIPSA Investigations of Competitive Practices Gao ID: GAO-06-532T March 9, 2006GAO discussed before Congress the U.S. Department of Agriculture's (USDA) management and oversight of the Packers and Stockyards Act. Within USDA, the Grain Inspection, Packers and Stockyards Administration (GIPSA) is responsible for administering the Packers and Stockyards Act and investigating concerns about unfair and anticompetitive practices in the $90 billion livestock market. Prior reports issued by the USDA Office of Inspector General (OIG) and our office have identified weaknesses in GIPSA's investigation and enforcement activities, and recommended actions to address them. A more recent OIG report shows that, in several key areas, GIPSA still has not taken sufficient steps to address those recommendations. This testimony focuses on our prior work and discusses (1) factors that have affected GIPSA's ability to investigate concerns about anticompetitive practices, (2) GIPSA's actions to address our recommendations and areas where their efforts have fallen short, and (3) challenges and other issues we believe GIPSA should consider as it moves to further strengthen its capacity to address competitiveness issues.
In summary, in 2000, we identified two critical factors that detracted from GIPSA's ability to investigate anticompetitive practices in livestock markets, and another area where improvement was needed. First, the agency's investigations were planned and conducted primarily by economists without the formal involvement of attorneys from USDA's Office of General Counsel (OGC). As a result, a legal perspective that focused on assessing potential violations was generally absent when investigations were initiated and conducted. Second, GIPSA's investigative practices were designed for traditional trade practices and financial issues the agency had emphasized for years and were not suited for the more complex competition-related concerns it was addressing. Finally, while not a critical concern, we noted that GIPSA had an important role in keeping the industry and the Congress informed about its monitoring of livestock markets and could have done more to identify market operations or activities that appeared to raise concerns under the Packers and Stockyards Act. USDA concurred with our findings and noted specific actions it planned to take in response to our recommendations, including (1) formalizing consultations between GIPSA and OGC on complex investigations, and integrating OGC attorneys into its investigative teams; (2) developing a tiered process whereby routine investigations would be reviewed and approved by headquarters staff, while complex investigations received an additional OGC review; (3) adopting relevant procedures used by DOJ and FTC for planning, developing, implementing, and reviewing investigations; and (4) reporting publicly on changing business practices and activities that raise fairness and competition concerns. Despite these plans, the January 2006 OIG report identified substantial ongoing weaknesses in GIPSA's investigative processes and noted that GIPSA's actions to respond to the prior OIG and GAO reports had fallen short in key areas. In particular, GIPSA had not yet developed a teamwork approach for investigations whereby GIPSA's economists and USDA's OGC attorneys could work together to identify violations of law, nor had it taken sufficient steps to ensure legal specialists within GIPSA were used most effectively. In addition, GIPSA had not followed through in adopting appropriate investigative guidance similar to those of DOJ and FTC to strengthen its ability to investigate anticompetitive and unfair practices. Given GIPSA's lack of progress in addressing prior report findings and recommendations dating back for almost a decade, continued vigilance and monitoring of its key activities and management initiatives by the OIG and other oversight bodies is essential. In its response to the OIG's 2006 report, GIPSA noted that it intends to reassess and develop a defined process for managing investigations, enhancing communication among staff and managers, appropriately dividing responsibility for its varied types of investigations, and developing an internal review function to monitor and report on corrective actions resulting from the OIG and GAO reviews. Consistent with our prior recommendations, GIPSA also plans to define the role of OGC attorneys and GIPSA legal specialists in investigations and to move forward in identifying and adopting certain techniques used by the DOJ and the FTC. As GIPSA moves ahead in reexamining its processes it should consider assigning lead roles to OGC attorneys for certain investigations involving complex anticompetitive practices. Finally, going forward, GIPSA's efforts to periodically inform the industry and the Congress about competitive conditions could be of further usefulness. GIPSA plans to complete a study on livestock and red meat marketing practices later this year. While potentially informative to the industry and policymakers, it could also help GIPSA identify current and emerging areas of vulnerability and better target its oversight resources.
GAO-06-532T, Packers and Stockyards Programs: Continuing Problems with GIPSA Investigations of Competitive Practices
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Testimony:
Before the Committee on Agriculture, Nutrition, and Forestry:
United States Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:30 a.m. EST:
Thursday, March 9, 2006:
Packers and Stockyards Programs:
Continuing Problems with GIPSA Investigations of Competitive Practices:
Statement of Daniel Bertoni, Acting Director, Natural Resources and
Environment:
GAO-06-532T:
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss the U.S. Department of
Agriculture's (USDA) management and oversight of the Packers and
Stockyards Act. Within USDA, the Grain Inspection, Packers and
Stockyards Administration (GIPSA) is responsible for administering the
Packers and Stockyards Act and investigating concerns about unfair and
anticompetitive practices in the $90 billion livestock market.
As you know, prior reports issued by the USDA Office of Inspector
General (OIG)and our office have identified weaknesses in GIPSA's
investigation and enforcement activities, and recommended actions to
address them.[Footnote 1] A more recent OIG report shows that, in
several key areas, GIPSA still has not taken sufficient steps to
address those recommendations.[Footnote 2] My testimony today will
focus on our prior work and discuss (1) factors that have affected
GIPSA's ability to investigate concerns about anticompetitive
practices, (2) GIPSA's actions to address our recommendations and areas
where their efforts have fallen short, and (3) challenges and other
issues we believe GIPSA should consider as it moves to further
strengthen its capacity to address competitiveness issues.
In summary, in 2000, we identified two critical factors that detracted
from GIPSA's ability to investigate anticompetitive practices in
livestock markets, and another area where improvement was needed.
First, the agency's investigations were planned and conducted primarily
by economists without the formal involvement of attorneys from USDA's
Office of General Counsel (OGC). As a result, a legal perspective that
focused on assessing potential violations was generally absent when
investigations were initiated and conducted. Second, GIPSA's
investigative practices were designed for traditional trade practices
and financial issues the agency had emphasized for years and were not
suited for the more complex competition-related concerns it was
addressing. Finally, while not a critical concern, we noted that GIPSA
had an important role in keeping the industry and the Congress informed
about its monitoring of livestock markets and could have done more to
identify market operations or activities that appeared to raise
concerns under the Packers and Stockyards Act. In our September 2000
report, we recommended that USDA better integrate attorneys from USDA's
Office of General Counsel into GIPSA's investigative processes and
develop a teamwork approach to investigations similar to that of the
Department of Justice (DOJ) and the Federal Trade Commission (FTC). We
also recommended that GIPSA adopt more systematic approaches for
selecting cases and conducting investigations.
USDA concurred with our findings and noted specific actions it planned
to take in response to our recommendations, including (1) formalizing
consultations between GIPSA and OGC on complex investigations, and
integrating OGC attorneys into its investigative teams; (2) developing
a tiered process whereby routine investigations would be reviewed and
approved by headquarters staff, while complex investigations received
an additional OGC review; (3) adopting relevant procedures used by DOJ
and FTC for planning, developing, implementing, and reviewing
investigations; and (4) reporting publicly on changing business
practices and activities that raise fairness and competition concerns.
Despite these plans, the January 2006 OIG report identified substantial
ongoing weaknesses in GIPSA's investigative processes and noted that
GIPSA's actions to respond to the prior OIG and GAO reports had fallen
short in key areas. In particular, GIPSA had not yet developed a
teamwork approach for investigations whereby GIPSA's economists and
USDA's OGC attorneys could work together to identify violations of law,
nor had it taken sufficient steps to ensure legal specialists within
GIPSA were used most effectively. In addition, GIPSA had not followed
through in adopting appropriate investigative guidance similar to those
of DOJ and FTC to strengthen its ability to investigate anticompetitive
and unfair practices.
Given GIPSA's lack of progress in addressing prior report findings and
recommendations dating back for almost a decade, continued vigilance
and monitoring of its key activities and management initiatives by the
OIG and other oversight bodies is essential. In its response to the
OIG's 2006 report, GIPSA noted that it intends to reassess and develop
a defined process for managing investigations, enhancing communication
among staff and managers, appropriately dividing responsibility for its
varied types of investigations, and developing an internal review
function to monitor and report on corrective actions resulting from the
OIG and GAO reviews. Consistent with our prior recommendations, GIPSA
also plans to define the role of OGC attorneys and GIPSA legal
specialists in investigations and to move forward in identifying and
adopting certain techniques used by the DOJ and the FTC. As GIPSA moves
ahead in reexamining its processes it should consider assigning lead
roles to OGC attorneys for certain investigations involving complex
anticompetitive practices. Finally, going forward, GIPSA's efforts to
periodically inform the industry and the Congress about competitive
conditions could be of further usefulness. GIPSA plans to complete a
study on livestock and red meat marketing practices later this year.
While potentially informative to the industry and policymakers, it
could also help GIPSA identify current and emerging areas of
vulnerability and better target its oversight resources.
Background:
The Packers and Stockyards Act was passed in 1921 in response to
concerns that, among other things, the marketing of livestock presented
special problems that could not be adequately addressed by existing
antitrust laws. The provisions of the act were based, in part, on prior
antitrust statutes including the Sherman Act and the Federal Trade
Commission Act. The Packers and Stockyards Act prohibits packers from
engaging in or using any unfair, unjustly discriminatory, or deceptive
practice or device, or making or giving any undue or unreasonable
preference or advantage to another party. The act also makes unlawful
packer anticompetitive practices that are antitrust-type actions,
including a packer's activities that manipulate or control prices or
restrain trade.
Within USDA, GIPSA is responsible for implementing the Packers and
Stockyards Act. GIPSA initiates investigations and actions to halt
unfair and anticompetitive practices by meatpacking companies and by
other parties involved in livestock marketing. To prove that such an
activity has occurred under the act, GIPSA, in most instances, must
show that the purpose of the packer's action or its actual effect was
to carry out the prohibited activity. GIPSA may also choose to treat
such activity as an unfair practice, which may be easier to prove than
a violation of the act's antitrust-type provisions. Also, while mergers
are a concern because they can reduce competition, the act does not
provide USDA with premerger review authority. OGC also has an
enforcement role and, among other activities, represents USDA in
administrative and court proceedings addressing violations of the act.
The Packers and Stockyards Act allows GIPSA to start investigations and
administrative actions to halt packer practices that it deems to be
unfair or anticompetitive. When an investigation finds and develops
evidence to show that a packer may have engaged in an anticompetitive
or unfair practice, GIPSA may file a complaint against the packer. The
packer has a right to a hearing, which is held before a USDA
administrative law judge. If, after reviewing the evidence presented by
GIPSA and the packer, the administrative law judge decides that there
has been a violation of the act, a cease and desist order may be
issued, and a civil fine may be levied. An administrative law judge's
decision can be appealed to USDA's Judicial Officer, who acts on behalf
of the Secretary of Agriculture. The packer, but not USDA, may file a
further appeal to a Federal Circuit Court of Appeals.
In 1996, GIPSA reported that dynamic changes had taken place in the
cattle and hog industries, including increasing concentration and
vertical integration--where packers own the animals. GIPSA stated that
these changes had reduced the role of the public markets, where terms
of a trade are visible to all. That same year, an advisory committee to
the Secretary of Agriculture reviewed the concerns of producers and
others about changes in livestock markets and recommended, among other
things, a review of GIPSA's efforts to enforce the Packers and
Stockyards Act. The Secretary then asked the OIG to review GIPSA's
program.
The subsequent OIG report noted that while GIPSA had a credible record
in certain areas, it (1) did not have the capability to perform
effective anticompetitive practice investigations and (2) faced
formidable obstacles to become effective in performing such
investigations. The OIG found that GIPSA had not been organized,
operated, or staffed for that purpose and stated that GIPSA should
employ an approach similar to that used by DOJ and FTC, and integrate
attorneys and economists from the beginning of the investigative
process. In response, GIPSA completed a major restructuring of its
headquarters and field offices in 1999 and hired staff to strengthen
its investigations of alleged anticompetitive practices. GIPSA now has
regional offices in Denver, Colorado, for its work on the cattle
industry; in Des Moines, Iowa, for handling work on the hog industry;
and in Atlanta, Georgia, for its work on the poultry industry. Along
with those changes there were relocations of staff and the addition of
economists and legal specialists to assist with investigations of
competitive practices.
Because of continued concerns about whether GIPSA was taking sufficient
action to protect competition in livestock markets, GAO was requested
to review USDA's efforts to implement the Packers and Stockyards Act.
We issued our final report and recommendations for improvement in
September 2000. Subsequently, the OIG completed a follow-up review on
GIPSA's administration and oversight of the Packers and Stockyards
Programs in January 2006. It too issued a report with recommendations.
2000 GAO Review Identified Critical Factors Detracting From GIPSA's
Investigative Capabilities:
We identified two critical factors that detracted from GIPSA's
investigative capability, as well as areas where GIPSA could improve
its efforts to develop and share key information. First, the agency's
investigations were planned and conducted primarily by economists
without the formal involvement of attorneys from OGC. Second, GIPSA's
investigative practices were designed for traditional trade practices
and financial issues the agency had emphasized for years and were not
suited for the more complex competition-related concerns it was
addressing. While not of a critical nature, we also found that despite
prior dynamic changes in the livestock markets, GIPSA's efforts to
periodically update the industry and Congress on competitive conditions
and emerging fairness and equity issues were lacking.
Attorney's Participation in Investigations:
At the time of our review, OGC attorneys did not usually participate at
the start or throughout the agency's investigations. Assignment of OGC
attorneys typically occurred after GIPSA performed an investigation and
forwarded a developed case file to them for review and action. Thus,
the agency's investigations were planned and conducted primarily by
economists, most of whom had limited investigative experience. GIPSA
relied on OGC attorneys mainly for legal advice, and its OGC reviewed
the results of GIPSA's investigations to determine if violations of law
might have occurred. In contrast, we noted that DOJ and FTC utilized
integrated teams of attorneys and economists to perform investigations
of anticompetitive practices. Attorneys were assigned to lead and
conduct investigations from the outset so that officials with a legal
perspective focused on assessing potential violations of law.
Economists were routinely assigned as an integral part of the
investigation teams. This approach ensured that a legal perspective was
brought to bear on the interpretation of law, development of evidence,
and preparation of cases for presentation in administrative and
judicial proceedings.
We also reported that OGC officials provided GIPSA with only limited
informal assistance which had declined over the years as the number of
OGC attorneys assigned to assist GIPSA decreased. In fact, the number
of OGC attorneys assigned to GIPSA cases had decreased from eight to
five because of budget constraints, according to USDA's General
Counsel. These attorneys were also not all assigned full-time to
GIPSA's financial, trade practice, and competition cases; some had
responsibilities in other USDA areas as well.
We concluded that GIPSA's program needed additional steps to become
more effective and efficient in performing investigations and
recommended that GIPSA develop a teamwork approach for investigations
with GIPSA's economists and OGC's attorneys working together to
identify violations of the law. We also recommended that the Secretary
reassess current OGC staffing needs relative to current GIPSA
investigations, assign attorneys to lead or participate in more complex
investigations, and increase the effectiveness of legal specialists by
providing them with leadership opportunities and better supervision.
Processes and Practices For Anticompetitive Practice Investigations:
We also found that GIPSA's basic investigative processes and practices
were not designed for addressing the complex anticompetitive practices
it had begun to encounter in recent years--instead they were designed
for the more traditional trade practice and financial issues that the
agency had emphasized for years. In comparison, DOJ and FTC had
processes and practices specifically designed for guiding
investigations of similarly complex competition-related issues.
DOJ and FTC emphasized establishing the theory of each case and the
elements necessary to prove the case. At each stage of an
investigation, including selecting the case, planning, and conducting
the investigation, regular reviews by senior officials-attorneys and
economists--focused on developing sound cases. For example, DOJ and FTC
required their attorneys, with the assistance of economists, to
establish a theory explaining how a company's (or companies') behavior
may be a violation of the law. The case theory and evidence were
reviewed early on by senior officials, and periodically as the factual
underpinnings of the case came into focus. In contrast to DOJ and FTC,
GIPSA does not require investigations to be (1) planned and developed
on the basis of how a company's actions may have violated the law and
(2) periodically reviewed as they progress by senior officials with
anticompetitive practice experience.
GIPSA also did not have specific requirements for approving an
investigation or an investigation plan. These conditions were reflected
in the comments of GIPSA's regional office managers and economists, who
said that they often had questions about how to interpret the law and
how best to scope and perform investigations. Also, OGC officials told
us that anticompetitive practice cases that GIPSA had forwarded often
had weaknesses that needed to be addressed before they could determine
whether a violation had occurred. Both OGC and GIPSA officials said
that OGC's reviews of GIPSA's cases led to disagreements about the
interpretation of the act and the sufficiency of evidence. Finally, we
found that GIPSA's investigative guidance manual had not been revised
since the agency's reorganization and did not contain specific guidance
for anticompetitive practice investigations, such as the contents of an
investigative plan, the information needed for approval of an
investigation, or the frequency of reviews of the investigations.
Developing and Sharing Information on Competitive Conditions With Key
Stakeholders:
GIPSA periodically made educational outreach efforts and shared
information via its Web site and annual reports. GIPSA also held and
participated in numerous town hall meetings and conferences with
producers and state and industry officials. Even so, GIPSA officials
said they could do more to inform the industry and others on
competitive conditions. In fact, at the time of our review, it had been
several years since GIPSA had last reported on conditions in livestock
markets, despite previous dramatic changes in industry concentration
and vertical integration.
GIPSA officials also recognized that it would be helpful if producers
had a more current understanding of the Packers and Stockyards Act and
how the act applies to market activities. They also agreed that GIPSA
could report on market activities and identify those that may raise
concerns about fairness and competition, as FTC had done. In our
report, we recommended that GIPSA provide industry participants and the
Congress with clarifications of GIPSA's views on competitive activities
by reporting publicly on changing business practices in the cattle and
hog industries and identifying market operations or activities that
raised concerns under the Packers and Stockyards Act. GIPSA has
published four such assessments from 2000 to 2004.[Footnote 3]
GIPSA's Actions To Address GAO's Recommendations Fell Short in Several
Areas:
USDA's General Counsel and the Under Secretary for Marketing and
Regulatory Programs concurred with our recommendations and provided
encouraging details about their planned implementation. Among other
things, they stated that GIPSA and OGC would formalize their
relationship for complex investigations to ensure that all
investigative, economic, and legal issues were carefully considered
before embarking on complex investigations. As part of that process,
they stated that they were examining the procedures of the Antitrust
Division of DOJ and the FTC and would adopt relevant portions for
investigation planning, development, implementation, and review. They
also stated that GIPSA and OGC senior management would review plans for
complex investigations to ensure the effective use of investigative
resources and facilitate successful litigation if evidence demonstrates
that the Packers and Stockyards Act has been violated.
The General Counsel and Under Secretary also stated that they would
increase the integration of OGC attorneys into GIPSA's investigative
teams early in the investigative process. They noted that OGC attorneys
would work closely with GIPSA's economists, legal specialists, and
other technical specialists to ensure that investigative plans had a
sound basis and to address critical legal issues throughout the conduct
of an investigation. In addition, the effectiveness of legal
specialists was also to be enhanced. However, they stated that GIPSA's
legal specialists would not act as attorneys for either GIPSA or the
Department, but would provide front-line legal advice on
investigations. Legal specialists would also be trained by OGC
attorneys and consult with them regularly.
It is troubling that these plans, which appeared to be carefully laid
out by USDA in late 2000, were never wholly or effectively implemented
as noted in the OIG's 2006 follow-up report. Unfortunately, as the
report makes clear, GIPSA's senior management review panel became a log
jam to the progress of investigations. Investigations were thwarted by
management delays in providing policy and investigative guidance and by
inaction on on-going investigations when they required management
concurrence or direction. Further, GIPSA and OGC apparently have not
effectively implemented a team approach to the investigation of complex
competition related investigations. Overall, it appears that as GIPSA
officials responded to the prior OIG and GAO reports, they did so in a
manner that prevented, rather than facilitated the desired actions and
results.
Challenges and Other Issues Associated With Addressing Longstanding
Weaknesses:
Given GIPSA's lack of progress in addressing prior report findings and
recommendations dating back almost a decade, continued vigilance and
monitoring of its key activities and management initiatives by the OIG
and other oversight bodies is essential.
In response to the most recent OIG report GIPSA has stated that, among
other things, it is:
* developing a defined process for managing investigations, including
controls for preliminary investigations to obtain sufficient facts to
decide whether to proceed with further investigation;
* revising its organizational structure to appropriately divide
management responsibility for work plans, managing investigations, and
the reporting of results;
* developing an internal review function to monitor and report on the
progress of corrective actions resulting from external reviewers, such
as the OIG and GAO;
* moving forward in identifying techniques used by DOJ and FTC that are
most appropriate under the Packers and Stockyards Act.
GIPSA also stated that it will enable its legal specialists to consult
with OGC and will integrate attorneys into complex competition
investigations earlier in the process.
Beyond increased monitoring, GIPSA's success in fully implementing the
above initiatives will require sustained management attention and
commitment that has, thus far, been elusive. However, we continue to
believe that such a focus is needed and will ultimately result in a
more vigilant and skillful federal presence. It will also instill
greater public confidence that concerns about the industry will be
investigated fairly and diligently. Finally, as GIPSA moves forward in
developing its processes, it should consider the feasibility of
assigning lead roles to OGC attorneys for investigations that involve
more complex anticompetitive practices--an approach we have recommended
that is also consistent with DOJ and FTC practices. Going forward, it
is also possible that GIPSA's efforts to periodically inform the
industry and the Congress about its monitoring efforts, as well as
changing competitive conditions could be of further usefulness. GIPSA
has issued reports on the cattle, hog, and poultry industries from 2000
through 2004, and has initiated a broad study on livestock and red meat
marketing practices. While informative to the industry and policy
makers, such analyses could also be internally valuable to GIPSA as a
tool for identifying current and emerging areas of vulnerability and
better targeting its oversight resources and activities.
Mr. Chairman, this concludes my formal statement. If you or other
Members of the Committee have any questions, I will be pleased to
respond to them.
For future questions about this testimony, please contact me at (202)
512-5988. Charles M. Adams made key contributions to this testimony.
FOOTNOTES
[1] U.S. Department of Agriculture, Office of Inspector General, Agency
Efforts to Monitor and Investigate Anti-competitive Practices in the
Meatpacking Industry, Report No. 30801-01-Ch (Washington, D.C.:
February 26, 1997) and GAO, Packers and Stockyards Programs: Actions
Needed to Improve Investigations of Competitive Practices (Washington,
D.C.: September 21, 2000).
[2] U.S. Department of Agriculture, Office of Inspector General, Grain
Inspection, Packers and Stockyards Administration's Management and
Oversight of the Packers and Stockyards Programs, Report No. 30601-01-
Hy (Washington, D.C.: January 10, 2006).
[3] GIPSA's report for 2004 was issued in April 2005. U.S. Department
of Agriculture, Grain Inspection, Packers and Stockyards
Administration, Assessment of Cattle, Hog, and Poultry Industries
(Washington, D.C.: April 2005).
