Brazil’s Marfrig Locks Up 82% Interest in National Beef; Two Brazilian Companies Now Processing The Majority Of Beef In America
How do you make money – real money – in the cattle business? Well, if you’re a Madison Avenue financial services company you buy controlling interest in the fourth largest U.S. meat packing plant for a cool $868 million and, over the course of eight years, sell your interest to a Brazilian-based, global food conglomerate and rake in billions of dollars in profit.
Here’s how it all unfolded.
In 2011, Jefferies Financial Group (formerly known as Leucadia National Corporation) bought 79% of Kansas City-based National Beef for $868 million. Six years later, in 2017, Jefferies announced it was selling 48% of its interest to Sao Paulo, Brazil-based Marfrig Global Foods. In the same buying spree, Marfrig picked up an additional 3% of National Beef shares from smaller shareholders, bringing its total interest to 51%. In December 2019, Jefferies unloaded its remaining 31% of National Beef – again to Marfrig – for $970 million. The sale included all of National’s business segments, including beef processing plants in Dodge City and Liberal, KS, consumer-ready operations in Hummers Wharf, PA and Moultrie, GA as well as a leather tannery in St. Joseph, MO.
The Jefferies Group was delighted with the sale, saying in a press release last December, “Having initially invested $868 million to acquire 79% of National Beef eight years ago, we persevered during National Beef’s severe downturn and were rewarded with strong cash distributions from operations, and now the sale of our remaining interest. We will have realized an aggregate of almost $3 billion in cash, or 3.3 times our original investment in National Beef.”
Whew, that’s a mountain of dough.
National Beef has been a little like a phoenix, rising from the ash heap of bankruptcy and financial stress on several occasions. Founded in 1992, National was part of Farmland Industries, a farmer-owned cooperative that went bankrupt in 2002. In 2003, Kansas City-based U.S. Premium Beef bought a majority stake in National for $232 million. By 2009, National needed a cash infusion and announced an initial public offering (IPO) aimed at raising $300 million, but the company abruptly pulled the plug on the IPO. Eighteen months later, Leucadia (which became the Jefferies Group) stepped in and purchased 48% of the company.
By March 2019, with Marfrig in control, National Beef made public its intent to acquire Iowa Premium, LLC, a beef packing company in Tama, IA. The Iowa Premium plant processes primarily Angus fed cattle purchased primarily in Iowa and surrounding states and specializes in marketing USDA Choice and Prime grade beef. The addition of Iowa Premium to National Beef’s business lines added another 1,100 head per day harvest capacity to National Beef’s previous capacity of 12,000 head per day, accounting for about 14% of the total U.S. cattle slaughtering capacity. The Iowa Premium deal was completed in June 2019 without a whimper from the U.S. Department of Justice’s antitrust division.
Marfrig’s acquisition of 79% in National Beef makes the company the world’s second largest beef producer, right behind JBS SA. While we’re on the subject of JBS, we should note that in 2008 JBS announced its own intention to purchase National Beef, but the deal was blocked when the Obama Administration’s Department of Justice filed a civil antitrust lawsuit.
According to its website, Marfrig has holdings in Brazil, Argentina, Uruguay, Chile and the U.S. and an estimated consolidated sales north of $13 billion in U.S. dollars. The company operates in South America, the U.S., Europe and Asia where it markets beef, pork, lamb, poultry, frozen vegetables, canned meats, fish, ready meals and pasta. The company has 31 production units in Brazil, Uruguay and Chile, four distribution centers and the capacity to process up to 4.7 million head of cattle. Beef processing is the company’s original core business and Marfrig readily admits the National Beef deal consolidates the company’s strong position in the beef industry.
Brazilian-owned companies (JBS and Marfrig) now control two of the four meatpacking companies processing around 74% of all beef in the U.S., according to the North American Meat Institute. In 2019, the top four beef packers will process about three-quarters of the nation’s beef in 27 facilities across the country. Marfrig’s CEO Martin Secco said, “With the transaction, we will have operations in the world’s two largest beef markets, will gain access to extremely sophisticated consumer countries and will be able to grow while maintaining rigorous financial discipline.”
In case you’re wondering who owns the remaining 18% of National Beef, according to the Kansas City Business Journal those companies are: Kansas City-based U.S. Premium Beef owns 15%, South Dakota-based Beef Products Inc. holds 2.4% and National Beef CEO Tim Klein owns 0.89% of those remaining shares.
ICMISC: Industry Wide Cooperative Meat Identification Standards Committee. ICMISC is a nationwide group of retailers, packers, industry partners, government agencies and trade associations. In 1973, ICMISC established URMIS.
URMIS: Uniform Retail Meat Identity Standards. URMIS is a program developed in 1973 to standardize fresh meat cuts and their names related to barcode labeling development.
Authorization Requests: Commonly called ARs, these are the documents by which a potential beef checkoff contractor applies for checkoff funding for projects surrounding promotion, research and education of and about beef.
CBB: Cattlemen’s Beef Board, a national board providing administrative support and oversight of the national mandatory beef checkoff.
USDA-AMS: Department of Agriculture’s (USDA) Agriculture Marketing Service (AMS). This is the federal agency responsible for federal oversight of the beef checkoff’s compliance with the Beef Act and Order.
BPOC: Beef Promotion Operating Committee. The BPOC is specifically defined in the Beef Act as the body responsible for developing the beef checkoff’s annual budget, which is then approved by the full CBB and USDA, for developing programs in the areas of promotion, research, consumer information, industry information, foreign marketing and producer communications. The BPOC is comprised of 20 members: ten producers elected by the CBB and ten producers elected by NCBA’s Federation Division. The Beef Act and Order currently require the BPOC to contract with national, non-profit, industry-governed organizations to implement Beef Checkoff Programs.
NCBA: National Cattlemen’s Beef Association, which is comprised of two divisions: a policy division and a checkoff division called the Federation of State Beef Councils. NCBA is the majority contractor every year for beef checkoff funds.
In May 2013, Leo McDonnell, a rancher from Columbus, MT and a member of the Cattlemen’s Beef Board (CBB) representing his state, filed a formal complaint with the Department of Agriculture’s Ag Marketing Service (USDA-AMS) over the beef checkoff’s role in and collaboration with the pork checkoff to develop and roll-out new standardized meat cut names.
A month earlier, the Beef Checkoff Program, represented by NCBA, and the National Pork Board had jointly unveiled a new plan to rename cuts of pork with traditional names attached to beef cuts. The plan, approved by ICMISC and USDA’s Ag Marketing Service and funded in part with the buck-a-head beef checkoff, handed over names like ribeye, T-bone, porterhouse, New York and brisket to pork.
Imagine McDonnell’s surprise when, himself a CBB member, the years-long project went public and he had no idea it had been unfolding. He started digging for more information, scrutinizing ARs covering the project, and could find no reference to a partnership between the beef checkoff and pork checkoff, nor could he unearth any information that would’ve described how meat cut names would be applied across species as a result of the project. “In multiple phone calls with past members of the BPOC not one could recall any disclosure by the contractor (NCBA) or by CBB staff of the true extent of this effort,” he said.
“Like most ranchers I understand the historic use and value of beef cut names. The reputation behind names like ribeye, porterhouse and T-bone was built by beef and beef alone,” McDonnell noted. “There’s great equity and value in that reputation. This value was immediately diluted and those historic names were turned into something generic that could be applied to pork. This project just further commoditized beef and put beef’s market share at risk. That’s not consistent with the mission of the beef checkoff. I believed, and still do, that it was my fiduciary duty as a CBB member to file a complaint with USDA, particularly when there was, in my opinion, an inappropriate use of beef checkoff funds and resources.”
NCBA, representing the beef checkoff, and the National Pork Board argued that the renaming project was an effort to update nomenclature used on beef and pork in order to standardize meat cut names for consumers and to reduce consumer confusion at the meat case. They claimed the name give-away was supported by “extensive consumer research identifying an opportunity for retailers to build consumer confidence in how to shop and prepare beef and pork. Jim Henger, a senior executive at NCBA at the time said, “We are pleased to have industry support to introduce new, simplified fresh meat names that will help consumers better understand the beef and pork cuts they see every day in the meat case.” By the time the two groups went public in April 2013 with their announcement the deal was done, having received unanimous approval from ICMISC and had been green lighted for implementation by USDA-AMS. All of this had taken a lot of time. (Some reports show that the project dated back to 2010 or earlier.)
On June 19, McDonnell received a response to his complaint from USDA’s Craig Morris, who at the time was serving as Deputy Administrator, USDA’s Livestock, Poultry and Seed Program. Morris said his agency had undertaken a review of the ARs surrounding the project and it had concluded that the work was appropriate under the Beef Act and Order. But, Morris added, officials agreed that the funding requests could have been written more clearly to reflect the partnership with a competing protein whose objective was not to increase demand and develop new uses for beef.
(In October 2017, USDA’s Morris was named by the Pork Board to head its International Marketing division.)
“Accordingly, we have directed the CBB to implement a new requirement for contractors to include clear-cut language in ARs when such partnerships or collaborations will occur, along with the nature of the partnering organization(s). Specifically, we have directed the CBB to implement new safeguards with any contractors submitting authorization requests to the BPOC. We have also initiated a review of National Pork Board promotions about the new cuts, which include radio spots and print materials, and are looking into our approvals for those pieces. We will follow up with CBB staff on the outcomes of that review,” wrote Morris.
Sadly, the horse was already out of the barn. The pork industry’s web site had already been revamped, featuring “The Power of a Name,” where the pork industry touted its adoption of cut names traditionally used by beef, expounding on the consumer trust and familiarity associated with those names. “So there’s nothing run-of-the-mill about the pork chop’s new name,” said the Pork Board’s VP of of Marketing. “It’s evocative of a fancy steakhouse. And pork producers and retailers hope the changes will help drive up sales.” The site suggested to retailers that consumers could now be charged more for pork cuts because of the new names historically used on beef.
“Approval for these cut name changes was unanimous by the Industry Wide Cooperative Meat Identification Standards Committee, which the contractor (NCBA) is a member of and obviously voted to support,” said McDonnell. “The contractor was representing the beef checkoff and the industry as a whole when it did so and without providing full disclosure to the CBB as the project moved forward. Hopefully, we have ensured that nothing like this will ever happen again.”
But the story doesn’t end there.
Two months later, in August 2013, fourteen CBB members, including McDonnell, presented a resolution to the full CBB on the meat cut name change disaster during the CBB’s business session in Denver during the joint CBB and NCBA cattle industry summer conference.
The resolution read in part, “Such actions diminish the identity and subsequent competitiveness of beef…CBB members and CBB appointees to the Beef Promotion Operating Committee were never made aware that beef checkoff funds, research, projects, etc., through authorization requisitions, would be used by the contractor (NCBA) to develop common names with pork…the contractor’s staff, in response to a CBB member’s concern regarding pork using historical beef cut names stated ‘the beef checkoff could not have completed a project as big as this – with all the research components, web developments and industry expertise – without splitting expenses with the pork board’ and that ‘beef checkoff funds were used in partnership to contract Midan Marketing to assist the two checkoffs’ several meetings to receive USDA approval for the name changes and also in getting ICMISC approval’ for the changes.”
The resolution called for beef checkoff funds “to be restricted from engaging in any project or program that would, in any way, assist competing meats or species in using or promoting the use of traditional beef cut names for their use and that CBB authorization requests from contractors must clearly disclose the objectives and goals for checkoff funded projects and, in the event of any such third party actions, CBB contractors must notify the CBB of such activities and potential outcomes and cease from being involved with such activities.”
It seemed like a reasonable, easy-to-support resolution that would provide more transparency for CBB members in the future when reviewing and approving budgets submitted by the BPOC but it wasn’t that easy. The resolution stirred debate among CBB members and the whole cut name give-away debacle was certainly the hot topic in the hallways, social hours and many committee meetings throughout the summer conference that year. A separate committee was established to review the language in the resolution and adjust it slightly in order to address some CBB members’ concerns about how the changes might affect ongoing checkoff-funded projects and programs conducted through the Meat Export Federation. Dean Black, a CBB member from Iowa, was named chairman of the committee.
The committee came up with two recommendations, which were approved: The first was language to be added to contracts between the BPOC and contractors for beef checkoff funded projects: “If contractors, during the course of the execution of the contract, see any potential for harm to beef demand, or loss of beef market share, such potential shall be disclosed to the BPOC immediately.” The second recommendation was for language to be added to USDA’s Requirement Guidelines for contracts between the BPOC and all contractors regarding partnership disclosures: “It is agreed by the contractor that all partnerships with organizations involving checkoff funds will be disclosed to the committee prior to execution of programming involving such partnerships.”
McDonnell says the CBB was told it could only make recommendations and not offer directives to the BPOC. Given that scenario, it’s a little difficult to see how the CBB exercises complete oversight of the beef checkoff. The Beef Act stipulates that the Beef Promotion Operating Committee (BPOC) shall “develop plans or projects of promotion and advertising, research, consumer information, and industry information, which shall be paid for with assessments collected by the CBB. The BPOC shall be responsible for developing and submitting to the CBB, for its approval, budgets on a fiscal year basis…the CBB shall approve or disapprove such budgets and, if approved, shall submit such budget to the Secretary of Agriculture for the Secretary’s approval.” So, where does the buck stop when the BPOC sends a project up the budget pipeline to the CBB for approval or disapproval? On one hand, if the CBB doesn’t receive the information it should, as happened in this name give-away scheme, it can’t disapprove a budget submitted by the BPOC. On the other hand, is the CBB just a rubber stamp with no questions asked for whatever the BPOC sends along for approval? Was CBB staff aware of what was happening and stayed silent? Exactly where does the buck stop?
And THAT, dear readers, is how a pork chop became a porterhouse.
Author’s Note: Although I wrote The Bray Case in 1996, the article is still relevant today because of the legal precedent the lawsuit established. The Bray Case story resides today in the Library of Congress after it was submitted by Farmer’s Union as testimony during a congressional hearing on antitrust issues. George Levin died in 2016 in Sturgis, SD. He was a man of great courage and conviction.
”If history repeats itself, then let us embrace history and make it a learned thing . . .” Theodore Roosevelt
This is the stuff a cowboy’s nightmares are made of. It’s the true story of how the beef cattle industry was sold out . . . to the point of collapse . . . and how a small group of determined ranchers fought to prove what they instinctively knew was wrong . . . and won. Today, there is an increasing interest in the ”Illinois Brick” Case. But, to understand the significance of that, you must first know the amazing events that played out twenty-five years ago in a California court room, where a producer from South Dakota, along with others, stared down a monster of fear, intrigue and greed, in a world where deceit and corruption would take them from the retail meat cases of the country’s largest food chains, all the way to the Oval Office and the hallowed Halls of Congress.
This is their story . . .
In 1974, George Levin, a rancher from Hereford, SD, climbed on an airplane and flew to San Francisco, California, armed with the facts and figures he had been working on for years. Frightened, he entered a courtroom, put his hand on the Bible and swore an oath before Judge Oliver J. Carter to tell the truth about his research on the profit margins the retail beef markets had been reaping for years at the hands of producers who were broke, and going broker. As he took the witness stand, highly paid, powerful attorneys for the defendants, Safeway Stores, Inc., The Great Atlantic & Pacific Tea Company, Inc. (A & P) and Kroger Grocers, Inc., objected to his testimony, refuting George’s qualifications as an economist. They formally requested the judge to disallow the testimony of this simple, honest man from South Dakota. ”What you’re suggesting is pure poppycock!” responded an angry Judge Carter, ”To suggest that this man can’t testify to his own livelihood is outrageous to me and this court, and we shall proceed without further comment.”
From there, George Levin provided testimony that eventually proved to be key in a landmark, winning case for the beef industry on a national scale. Other ranchers spoke before the court, too. When Jack Tool of Selby, Montana took the stand to testify he said, ”there’s more cattle rustling going on behind the counters of the nation’s food chains than ever has gone on in the rangelands of the West.”
The story really begins when groups of producers, pressured by receding markets, forced to watch retail meat prices climb while the prices they received declined, began to meet and question why they couldn’t gain lingering attention of government officials, along with other national agencies and organizations responsible for watchdogging monopolization of an industry like theirs. The ranchers believed the grocers, using their national organization, the National Association of Food Chains (NAFC), as a cloak, were participating in secretive meetings to establish the prices paid, and the markets each grocer would participate in. Documents introduced at trial proved the association’s constituency was made up of the largest retail food chains in the U.S.; small grocery companies and independents were not eligible for membership. The retail chains comprising NAFC were the largest purchasers of carcass beef in the U.S.
With their very lifestyles at stake, cattlemen came together, each contributing to a retainer fund, and began searching for an attorney who would take their case on a contingency basis, but more than that, one who could understand their business and was sympathetic to their cause. As in most everything, it became a matter of ‘who knows who’, and a young attorney named Joseph M. Alioto, specializing in anti-trust law, was eventually found in California, who agreed to take their case. ”The Bray Case” charged the defendants with violation of Section 1 of the Sherman Act, in that they conspired to, and in fact did, regulate the price the plaintiffs received for their beef.
For 18 months, Alioto flew to points throughout the United States, taking depositions from the CEO’s and meat procurers of Safeway, Kroger and A & P. Alioto’s staff was busy in San Francisco researching corporate financial statements, discovering tidbits of information, that when pieced together, proved emphatically the companies had conspired to withdraw from one another’s markets, allowing one major grocer the opportunity to leverage pricing throughout a number of states, while the others leveraged prices in the same way within other areas of the nation. If meat wasn’t cheap enough on the east coast, A & P simply went west and purchased elsewhere, leaving meatpackers to sit with a perishable product, driving prices into a downward spiral, wreaking havoc within an industry that was sick, and getting sicker.
Alioto’s firm discovered the grocers were utilizing what was known as ”The Yellow Sheet”, a publication listing the prices of beef during various time periods. The attorney argued successfully that the publication was a device through which the defendants and co-conspirators kept informed about meat prices, calculated the prices they would pay, and communicated the amount paid to the other stores.
During the 1970’s ”The Yellow Sheet”, formally known as the Daily Market & News Service, was published in Chicago, Illinois by National Provisioner, Inc. Every week, Monday through Friday, twelve men met in a converted 100-year old townhouse, five minutes from Michigan Avenue. They would spend the next eight hours or so on old, black telephones calling slaughterers, brokers, wholesalers and other people in the meat business. By 3:30 p.m., with the assistance of their director, Lester Norton, they determined the closing prices of beef, pork, lamb and offal products. Printed on eight and one half by fourteen inch sheets of yellow paper, the publication was rushed into the mailstream for circulation around the country. Little was known about those men, whose techniques were ambiguous at best and unscrutinized by the government. In those days, ”The Yellow Sheet” was used for sale of an estimated 80 to 90 percent of the meat sold in the U.S.
As the evidence mounted, Safeway Stores, Inc. and Kroger settled with the plaintiffs out of court, leaving A & P as the only remaining defendant.
It wasn’t an easy battle. The grocery giant and their legal counsel used every legal maneuver conceivable to delay the case. Judge Carter, who at that time, was the newly appointed Chief Judge of the District, scheduled hearing after hearing to rule on the countless motions filed, as he plowed his way through a complex case. ”Judge Carter was a fair man, and he tried an extremely complex suit in a thoroughly fair manner,” said Levin. ”Ours was a highly unusual case; he saw to it that both parties followed the letter of the law.”
What the ranchers discovered when they flew to San Francisco to attend the trial insulted their strong senses of character and truthfulness. In sunny California, by the bay, they heard dark tales of treachery, lies and a ruthless greed that was slowly sinking America’s cow/calf industry.
Initial evidence presented by Alioto proved beyond a doubt, that through central buying offices in Chicago, intricate meat purchasing mechanisms had been initiated, providing the basis for the price-fixing of meat throughout the United States. George Levin’s careful monitoring of price spreads proved that the spread between wholesale and retail markets continued to increase from 1952 until the case went to court. The only period when it leveled off was during May of 1965, when the US Government conducted a study of meat prices, and representatives of the three grocers testified in Washington. Following the conclusion of the brief investigation, the price spread continued its increase.
Evidence also placed the CEO’S of the three companies in meetings together, outside of the normal gatherings within their national association. Testimony proved that, because of the division of markets, the different defendants met with representatives of other food chains, compelling them to compete. In this vein, striking evidence revealed that representatives of Safeway Stores had been in contact with another grocery chain, Lucky Stores, immediately prior to Safeway’s announcements that it was reinstating its former practices of discounting product.
Testimony by an owner of Winn-Dixie Food Stores, one of the alleged co-conspirators, revealed that meat margins had been discussed at NAFC meetings as early as 1963. NAFC documents, subpoenaed as evidence, were significant aspects of the case, proving that meeting topics, agendas, and minutes were labeled as confidential and were generally unavailable.
Alioto was astonished when the defendant’s expert witness on economics, Adam Smith, stated during cross-examination, ”seldom do members of the same trade industry gather together in the same setting for merriment . . . their conversations inevitably surround their business and price fixing conspiracies are born of that.” Alioto incorporated that statement in his closing arguments before the six member jury.
Court documents showed the meat departments of each chain substantially supported the operations of each defendant, accounting for 15% of the profits, as compared to less than 1% on grocery and produce items. As attorneys for the plaintiffs in the case dug deeper, they uncovered layer after layer of deception, discovering the grocers ‘regularly received higher discriminatory prices on rendering products than any other competitor’.
Near the end of the trial, the silent courtroom was rocked by testimony from an individual who proved the rancher’s suspicions were correct in their belief the NAFC had provided the vehicle through which the price fixing conspiracy was developed and implemented. The testimony and documents submitted to the jury related the sort of secret meetings worthy of Hollywood filmmaking. In smoke-filled, darkened rooms in undisclosed locations, representatives of the major markets had met, wearing color coded badges assuring anonymity of the participants, and they proceeded to conspire to fix the wholesale prices that would be paid for beef products. S. Kent Christensen provided the evidence, including documents, that a conscious effort was made by members of NAFC to meet secretly. Christensen, at that time, was CEO of the NAFC and was, at the same time, a member of the National Livestock & Meat Board, a capacity he served in for 24 years. Whether it was an attack of conscience, or simply the pressure applied by an adept attorney, the testimony provided the final nails in the coffin for the price-fixing giants.
The physical evidence list included a nondescript color brochure, used to promote NAFC, which Alioto’s firm had researched, placing corporate officials in meetings they were reluctant to disclose. One A & P official in charge of meat marketing went so far as to deny even meeting representatives of other retail chains under any circumstances—a denial that withered when confronted with photographic evidence including the brochure.
In the end, the evidence was insurmountable. After six weeks of trial, the jury returned a decision that would ignite the press and the cattle industry, finding A & P in violation of antitrust laws, including price-fixing and duplicity. The largest food retailer in the United States was fined a total of $32.5 million dollars. Further, Judge Carter allowed what was known as the ”Bray Case” to become a class action suit, opening the door for other cattle producers to sue for damages that would be calculated at a rate of 20 cents per pound of beef sold through the retail food market during a five year period.
The food retailers immediately appealed their case, and time slipped by. News of the class action suit opportunity was picked up by the press. Through the ranks of an organization known as the Independent Stockgrower’s of America, and by word of mouth, information was passed to a growing group of ranchers, who slowly began to sign releases allowing the Alioto law firm to represent them in the expanding suit, and paying their portion of the retainer needed to meet legal expenses.
But, in the State of Illinois, something was brewing that would stop the class action suit dead in its tracks and would have far-reaching implications within the world of anti-trust laws.
In Chicago, a little known company called Illinois Brick was being sued by the State of Illinois in US District Court for violation of the Clayton & Sherman Acts, the same anti-trust laws A & P were found in violation of. Illinois Brick, a concrete block manufacturer, sold blocks to masonry contractors who submitted bids to general contractors for the masonry portions of construction projects, and the general contractors, in turn, submitted bids for these projects to customers such as the State of Illinois and local governmental entities. The State of Illinois, as the plaintiff in the case, brought suit claiming that the manufacturers’ price fixing injured the plaintiffs because the overcharges were ”passed on” to them by masonry and general contractors. The manufacturers’ motion for partial summary judgment, based on the contention that only direct purchasers could sue for the alleged overcharge, was granted by the District Court. However, the U.S. Court of Appeals for the Seventh Circuit reversed the lower court’s decision, holding that indirect purchasers could recover if they could prove that the overcharge was passed on to them.
When the case finally reached the U.S. Supreme Court, the Appeals Court decision was reversed and remanded. Holding to the original decision of the District Court, the Justices found, ”state and local governmental entities, as indirect purchasers, could not recover treble damages on the theory that the overcharges paid by a direct purchaser to an alleged antitrust violator were passed on to the indirect purchaser.”
Justices Brennan, Marshall and Blackman dissented, stating ”the Clayton & Sherman Acts were intended to protect individual consumers who purchase through middlemen.”
And so, it came to be, that a lawsuit surrounding a concrete block manufacturer in Chicago, Illinois provided the decision disallowing ranchers from claiming damages from meat retailers, since the retailers did not purchase their product ‘directly’ from producers of cattle. Today, twenty-five years later, the ruling still stands.
As the outcome of the Illinois Brick Case became apparent, the original litigants in the ”Bray Case” settled their claim with A & P out of court, and Alioto shared with his clients more of his fee than they anticipated. When the Bray Case ended, A & P fired their CEO and Executive Vice President of Marketing and Purchasing.
Today, George Levin has retired from ranching. After fifty years in the business, he and his wife, Laura, moved ‘to town’, but he remains actively involved in the family-owned cow/calf operation which is now in the hands of the next generation. George hasn’t however, retired from monitoring the retail price spread. This quiet, well-read, highly intelligent man still maintains graphs where he charts pricing. He makes frequent trips to the Sturgis Library, where he researches statistics and trade publications. He remains passionate in his thinking that today’s producers, who point fingers of blame at the packing industry, fail to recognize the retail market’s role in beef prices.
S. Kent Christensen retired from NAFC 15 years ago, and resides in Arlington, VA. He suffers from Parkinson’s Disease and doesn’t recall some of the specifics surrounding the case. He does, however, remember the day that Alioto came to Washington, DC to depose him, and said, ”I remember thinking, that if any of the things Mr. Alioto was questioning were true, how could I continue my career with the organization . . . I come from a farm/ranch background, and it was inconceivable to me that anything of that nature was occurring.” Christensen testified for an entire day during his deposition, and was accompanied by the NAFC legal counsel at that time, James Rill. Rill would later serve as the Reagan Administration’s Anti-Trust Chief.
”The Yellow Sheet” is still in publication today and is also available on the internet. Today it is owned by Urnar Barry Communications located in New Jersey. The publication employs ‘reporters’ who spend each day on the telephone contacting sources within the meat marketplace researching prices. Those prices and commentary are then published, along with USDA reported figures for comparison. After The Bray Case, the publication was investigated by the House Small Business Committee which subpoenaed the reporters’ worksheets and other materials. The committee chairman at that time, Rep. Neal Smith, D-Iowa, charged that ‘The Yellow Sheet fabricates a large percentage of its prices . . . the meat industry is about as far from a free market system of transaction as we can get’. Then Secretary of Agriculture Bob Bergland, announcing a departmental investigation of meat price reporting services, including ”The Yellow Sheet”, said, ”No one really knows how the values they put on meat are arrived at.” Lester Norton, the publication’s director at that time responded, ”We get used to criticism . . . it doesn’t bother us a damn bit . . . all that any of these things do is increase our circulation.” Norton objected to the subpoena, arguing the news publication should have been protected under the First Amendment, but that it lacked the resources to contest the government. The materials were turned over, he said, under the assurance from the committee that the information be kept confidential. Norton was known as ‘the man who sets meat prices.’
Judge Carter, who presided over the ”Bray Case” has passed away. He went on to become a legend in the California judicial system, and became nationally known when he presided over the Patty Hearst Trial. His cases, and his rulings, are studied by law students across the nation. Judge Carter’s written opinion and summary of the case are carefully researched and thorough. His expert guidance brought clarity to an extremely complex suit which could have easily confused jurors. His ‘no-nonsense’ style ensured a fair and impartial trial that ended with the largest anti-trust damage award at that time.
Joseph M. Alioto is still practicing anti-trust law in San Francisco. Most recently he won a case in Amarillo, Texas against Archer Daniels Midland and Cargill, representing the interests of a corn growers cooperative. Alioto came to the Bray Case fresh out of law school in 1969. His father, Joseph L. Alioto, had originally accepted the case in 1968. Upon the elder Alioto’s election to the Mayor’s Office in San Francisco, he assigned the case to his son.
Alioto’s recollections of the Bray Case are passionately sharp. He refers to the Illinois Brick decision as an ‘outrage’. In his view, the anti-trust laws that were enacted in the 1890’s were based on the needs of the cattle industry, and for cattlemen to be put into the position that Illinois Brick takes them is ‘beyond understanding’. Over the years he has testified before Congressional hearings, telling members exactly how he feels. He was particularly offended when the Reagan Administration was asked to investigate retail beef price fixing and denied the request.
Alioto didn’t stop there. ”When we submitted the same request to the Carter Administration, they justified their inaction by saying that they could not agree with the Bray Case decision, and that the verdict and damage awards had more to do with the judge and the plaintiff’s lawyer than with the validity of the case.” ”While we were proceeding to trial in the Bray Case, the court granted an injunction precluding the grocers from proceeding with their buying practices of the past, and because of that injunction the beef industry experienced an influx of $4 billion dollars in the first year. If that isn’t proof enough, I’m not sure what would be.”
Alioto is quick to point out that federal judges, appointed by the President of the United States., are usually a reflection of an administration’s position on anti-trust. In the late ’60’s and early ’70’s President Richard M. Nixon had appointed many judges to the Courts of Appeals. The Nixon Administration held an openly antagonistic position against anti-trust. As the Bray Case came to trial, Nixon had just resigned from the Oval Office, but Alioto knew the legacy of his position with anti-trust suits would linger for years. Hence, he advised his clients to settle out of court for the original $10 million dollars (which had been trebled to $32.5 million under anti-trust laws).
”Appeals Courts were dismissing anti-trust cases right and left in those days, and I felt it was prudent for my clients to settle their case as quickly as possible,” he said.
”Nixon’s legacy of antagonism towards anti-trust suits lives on today . . . Earl Warren, who was appointed by President Dwight D. Eisenhower, was the last federal judge who held a positive, forceful position towards enforcement of anti-trust laws,” says Alioto. ”Judge Carter was appointed by President Truman . . . how I wish the judicial system today embodied the sort of fairness with regard to anti-trust laws that they did back then . . . things would be different in agriculture today, if that were the case.”
Files surrounding the case include letters Alioto wrote to Senator Edward Kennedy, requesting action by Congress. ”The ranchers who came forward with this suit . . . people like George Levin . . . were men with old-fashioned courage. Today’s cattlemen need to refocus . . . consumers must be brought to understand that ranchers are receiving less than their cost of production, and that retailers are taking advantage of the situation at both ends of the market. Conspiring to fix margins, by manipulating prices to purchase beef low and sell high, defies the principals of supply and demand in this country. It’s ludicrous for the justice system to stand by and watch.”
Those same files about the ”Bray Case” tell a wonderful story about Alioto, and how his sense of respect grew for the men and the industry he represented. After the ”Illinois Brick” Supreme Court ruling, he sent letters to producers refunding their retainer fees, advising them not to spend any more of their money on a class action lawsuit in which no damages could be claimed. One paragraph from a twenty-five year old letter says it all. Informing George Levin of the high court’s ruling he wrote, ”I cannot express my regret that we cannot pursue this case further; although I suppose we should find some gratification in what’s already been accomplished. I have come to believe the cattlemen are the backbone of this country, and for their justice system to fail them, is incomprehensible. Thereupon, you will find a check enclosed, returning the retainer fee you submitted . . .”
Today, ”Illinois Brick” is slowly becoming a buzzword in the Midwest’s cattle industry. Most recently, a US Senator from one of the major cattle producing states alluded to introducing legislation that would change anti-trust laws to allow protection of consumers and producers who purchase or sell through middlemen. Senator Paul Wellstone, D-Minnesota, has asked the Clinton Administration to consider investigating anti-trust law enforcement saying, ”I’m going to push hard. I’m not going to let up on this. Every way I can keep talking about anti-trust action, I’m going to do so”. The old adage about taking ‘An Act of Congress’ to change things, may not be far from reality.
For those who experienced the ”Bray Case”, or study it today, the impact of ”Illinois Brick” fosters lingering questions. Was it the hand of fate at work when the ”Illinois Brick” case originated in the City of Chicago, so quickly on the heels of an enormous anti-trust damage award? Without the ”Illinois Brick” decision, the implications of the ”Bray Case” were infinite. Those answers may never be known. But, there are enormous possibilities . . . if a groundswell of support occurs within the industry for Congress to alter anti-trust laws, perhaps the gate George Levin has spent a lifetime trying to open will finally swing wide.