(DFA Leader Vol. 7 No. 3 - March 2004)

The Capper-Volstead Act enabled farmers to unite in the market place

Cooperatives have been around longer than me, so I can only imagine what it was like in the dairy industry before cooperatives were allowed to form.

I recall the stories my Dad told about when Grandpa started in the dairy business. Dairy farmers milked cows by hand and delivered their product to town in cans. There was little oversight to the marketing of milk and many farmers were taken advantage of in the marketplace.

After World War I, the public and congress became more aware of the challenges farmers were facing at getting a fair marketing price for their produce. In 1922 Senator Arthur Capper of Kansas (who during his five terms, sponsored legislation officially recognized and provided funds to create 4-H Clubs) and Representative Andrew Volstead of Minnesota (best known as author of the law that established “prohibition” in 1919) became acutely aware of these challenges facing dairy farmers.

Because of the need of their constituents and their leadership positions in congress, the two cosponsored the Capper-Volstead Act called the “Magna Carta” of cooperatives in the agriculture industry. Volstead explained at the time, “Businessmen can combine by putting their money into corporations, but it is impractical for farmers to combine their farms into similar corporate forms. The object of this bill is to modify the laws under which business organizations are now formed, so that farmers may take advantage of the form of organization that is used by business concerns.”

Acting together
There are two basic components to understanding the Capper-Volstead Act and its affect on agricultural producers, associations of producers, and the general public.

The first component appears in the act’s very first sentence: “...may act together....”

After passage of the act, farmers could lawfully unite in what we call cooperatives to collectively market their products. Before the act became law, farmers were being prosecuted for joining together to market their products.

Think of the chaos that could take place if this important component to collective action “… may act together... ” were eliminated. This would be the case if the Capper-Volstead Act were repealed.

It would simply mean, for example, that one dairy producer could not join with another dairy producer to agree on prices at which they would sell their product to a buyer. A court could find that these two producers were eliminating competition by conferring about the price they proposed to seek from a milk buyer.

Also, a particular group of dairy producers may act together not only through their own association but also by joining with other associations of producers to have a common marketing agency.

The Capper-Volstead Act provides limited antitrust exemption to associations of producers; such limited exemption comes about by legally allowing the reduction of competition among farmers when they join together and act in the marketplace, in effect, as one farmer.

Protecting the public
The second component to understanding Capper-Volstead is found in answering this question: What protection does the general public have against monopolization and undo price enhancing?

Section 2 of the act deals with the potential problem of misuse of monopoly power. It states that if an association should monopolize or restrain trade to the extent that it unduly enhanced prices of agricultural products, then legal remedies can be invoked to cause the association to “...cease and desist from monopolization or restraint of trade.”

The Capper-Volstead Act, like many other pieces of legislation, does not completely define and interpret the language included in its provisions.

Take for instance, the act specifies that only agricultural producers “may act together,” thus meaning to restrict an association’s membership to producers, but it does not define an agricultural producer. It does not define the terms “marketing” or “undue enhancement of price.” In fact, the act does not even use the word “cooperative.”

Because so many of these basic issues remain open to interpretation in a time where questions are being raised about mergers, consolidations, and joint ventures between marketing cooperatives and non-cooperative agribusiness corporations, bloc voting, non-farmer board members, and the list goes on, you might be asking: Is Capper-Volstead really needed in today’s environment?

The answer is a resounding “yes” when you consider the two basic components of Capper-Volstead:

1. It permits dairy farmers to get together to collectively market their products that, without the Act, could result in antitrust action against them.
2. It protects the consumer against the possible undue price enhancement as a result of any monopoly position that a group of dairy producers could legally reach by getting together.

The Capper-Volstead Act is constantly under review by and subject to administrative and court interpretation. Farmer cooperatives that engage in marketing activities should make every effort to act responsibly in conforming with the letter and spirit of this law.

(To learn more about the Capper-Volstead Act visit www.wisc.edu/uwcc.)