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How Farmers Can Work Together in a Competitive Market

In the United States, antitrust lawsuits have become a hot topic. Have you ever wondered how agricultural cooperatives are allowed to set prices and allow a large number of producers to act together? The Sherman Act outlaws monopolization, but the Capper-Volstead Act allows for agricultural cooperatives to be exempted.

Capper-Volstead allows farmers to work together to market their products. Before this Act, farmers were being prosecuted for uniting and marketing their products. Now, farmers can create an association, or cooperative, to sell their goods. Not only can they create an association, but associations can join forces to create a common marketing agency. This allows multiple farmers to work together and act as one farmer in the market.

The exemption is very limited, so compliance with the law is extremely important. The association must be operated for the mutual benefit of its members, and it cannot deal in the products of non-members in a greater amount than the products of members. Membership is highly important as well, if there is even one member who is not a producer the cooperative is no longer protected by this exemption.

Additionally, it must not allow a member to have more than one vote OR it must not pay dividends on membership interest over 8% per year.

So, how does a cooperative find itself in trouble and potentially open itself up to prosecution for violating antitrust laws? If an association does any of the following, it may find itself in a position of being prosecuted for violation: (1) engaging in predatory practices; (2) engaging in price discrimination; (3) restricting members’ output; (4) coercing competitors or customers; (5) colluding with third parties to fix prices; (6) conspiring with third parties to fix prices; or (7) combining with other firms to substantially lessen the competition in the marketplace.

The Capper-Volstead Act has two key provisions, one to allow farmers to join forces and one which allows the public to be protected against high prices caused by monopolistic behaviors of an association.

Be on the lookout for more information in the future. Up next, will be a blog with proactive tips a cooperative or association should take to make sure they are in compliance with the law.