The month of February 2022 marked the 100th anniversary of the Capper-Volstead Act. The Capper Volstead limited antitrust protection provides assurance to agricultural producers that if they organize as a cooperative and adhere to specific rules, they will be able to conduct joint marketing activities without being subject to claims that they are engaged in an illegal restraint of trade.
Before the Capper-Volstead Act was enacted, individual farmers were at a disadvantage in the marketplace. They produced a perishable commodity that particularly subjected them to manipulation by processors and distributors who could force them to sell at prices and terms of sale dictated by the buyers. Congress reasoned that if farmers could join together in cooperatives, their economic strength would be bolstered, enabling them to weather adverse economic periods and deal on a more equal basis with processors and distributors. As Rep. Andrew Volstead said before the law was enacted, “Businessmen can combine by putting their money into corporations, but it is impractical for farmers to combine their farms into similar corporate form. 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 [non-agricultural] business concerns.”
Provisions of the Act
Section 1 of Capper Volstead provides a limited exemption from the antitrust laws for agricultural producers to market their products on a cooperative basis. Cooperative membership is limited to persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers. The cooperative association must be operated for the mutual benefit of the members as producers. These producers may act together to collectively process, prepare for market, handle, and market their products. The cooperative may have marketing agencies in common and make contracts.
The cooperative may engage in these activities so long as:
- They are operated for the mutual benefit of the members as producers;
- No member is allowed more than one vote, or the association does not pay dividends of more than 8 percent per year: and.
- The cooperative may not deal in nonmember products in an amount greater in value than member products.
Section 2 assures that the antitrust shield does not encourage producers to take advantage of the public. If the Agriculture Secretary has reason to believe a cooperative has monopolized or restrained trade resulting in the undue enhancement of the price of the agricultural product, the Secretary has the power to serve a complaint on the cooperative with a notice of hearing requiring the association to show cause why it should not cease and desist from monopolizing or restraining trade. The Department of Justice is required to enforce the complaint.
Advantages of Cooperatives
Farmers invest time and resources in planting crops and raising livestock and produce their perishable products subject to the vagaries of climate and economics. Capper Volstead allows them to pool their resources to achieve a better price. The increased size and reach of cooperatives allow them to negotiate with multiple buyers when an individual farmer might only have access to one. Cooperatives regularly negotiate terms earlier in the production cycle, effectively sharing more of the price risk with the purchaser. In the past, purchasers delayed negotiating with farmers until late in the growing season when the crop was at risk of spoiling. Cooperatives can provide specialized services for farmers including data collection and economic forecasting, providing them with negotiation tools. Further, cooperatives can be a guaranteed purchaser for their members’ product, reduce costs associated with dealing with smaller, diverse producers, in addition to achieving efficiencies in dealing with downstream buyers.
More Information on Capper Volstead
For more information on Capper Volstead, see the following USDA Cooperative Service publications and articles:
- Miller and L. Clippinger, “Still the Legal Bedrock: Despite Recent Challenges, Capper-Volstead Continues to Provide Ag Coops With Antitrust Protection,” Rural Cooperatives Magazine, May/June 2017.
- Understanding Capper Volstead, U.S. Department of Agriculture, Rural Business-Cooperative Service, Cooperative Information Report 35 (April 1995).
- Donald Frederick, Antitrust Status of Rural Cooperatives: The Story of Capper Volstead, U.S. Department of Agriculture, Rural Business-Cooperative Service, Cooperative Information Report 59 (September 2002).