Farmers deprived of the opportunity to buy crop inputs at transparent, competitive prices
What legal experts called one of the largest class-action lawsuits ever undertaken on behalf of U.S. farmers was recently filed in U.S. District Court for the Southern District of Illinois. Plaintiffs brought the complaint, obtained by Wisconsin State Farmer to redress what is being called “coordinated unlawful actions” among several levels of crop input manufacturers and sellers.
In Charles Lex v. Bayer CropScience, et al. (case number 3:21-cv-00122) plaintiffs claim that these coordinated actions had the effect of forcing U.S. farmers to pay artificially high prices for “crop inputs” – seed and crop protection chemicals including fungicides, herbicides and insecticides.
Farmers are forced to pay more for crop inputs than they would in a competitive market, the complaint alleges, in large part because they “lack the objective information and data” that would be necessary to do price comparisons before they make their purchases. And this is happening because the group of named defendants worked together to keep that information hidden from farmers.
Based on a national survey of farmers, the complaint states that the price farmers paid for a popular widely used herbicide varied by as much as 270 percent when farmers were buying identical products. The complaint notes that a similar situation was true for seeds, with some farmers paying over $20 more per acre than other farmers pay for the same seed.
The list of defendants includes major makers and distributors of crop protection chemicals: Bayer CropScience, LP and Bayer CropScience, Inc.; Corteva, Inc.; Cargill, Inc.; BASF; Syngenta Corporation; Winfield Solutions, LLC; Univar Solutions, Inc.; Federated Cooperatives, Ltd.; CHS, Inc.; Nutrien Ag Solutions; GROWMARK, Inc.; GROWMARK FS, LLC; Simplot AB Retail, Inc. and Tenkoz, Inc.
Attorney Arthur Bailey, Rupp, Baase, Pfalzgraf and Cunningham, LLC., of Buffalo, NY, told the Wisconsin State Farmer that the case is not one of price fixing, which would be where sellers conspired to set a given price. Rather it is a case where allegedly the defendants – both makers and distributors of farm inputs – decided to deprive farmers of data. Without information on what they would pay for the crop inputs, farmers were unable to make informed decisions on what price they would be paying. In this way it cost all farmers more than it should have, the complaint alleges.
The complaint includes some major manufacturers of crop inputs but alleges that the scheme went farther. Those top-level players needed to have cooperation from the next level of distributors and retailers closer to farmers; and those sellers also had to agree to withhold data from farmers. When that second level of sellers joined in on the effort to withhold accurate prices from farmers, they “supported the conspiracy,” the source told us. With that, they rose to the level of the “top-line defendants” – the manufacturers of the crop inputs.
In decades of working on class action cases, Bailey – who has served as the lead counsel organization of approximately 50 percent of all the “price fixing” class actions filed in the entire United States – has only seen one other case where the “second level” defendants were raised to the same level as the top-line defendants.
The case alleges that defendants established “an opaque distribution process” that prevented farmers from effectively comparison-shopping. The groups of defendants allegedly did this by withholding and deliberately hiding product information and maintained strict secrecy with respect to wholesale prices.
Around 2016, several innovators launched electronic platforms with the goal of offering to farmers a relatively cheap and transparent means of purchasing crop inputs. The idea was that farmers could compare prices and get themselves the best deal. However, the complaint alleges that the named defendants conspired to boycott these online platforms, and in doing so, the defendants deprived farmers of the opportunity to buy their crop inputs at transparent, competitive prices.
Crop Input market - $65 billion
The U.S. market for crop inputs has annual sales of over $65 billion and is dominated by four manufacturers after much consolidation in the industry over recent years. What the complaint calls “manufacturer defendants” in the case – Bayer CropScience, Inc., Corteva, Inc., Syngenta Corporation and BASF Corporation – together have a global market share encompassing 75 percent of all agrochemicals, as well as more than 75 percent of the U.S. seed market for each of the leading crops.
Defendant Bayer CropScience Inc. is a wholly-owned subsidiary of Bayer AG – a German company that patented aspirin in 1899 and has since become a multinational drug and chemical company. It finalized a $66 billion deal to buy out St. Louis-based Monsanto in June 2018, after U.S. antitrust officials signed off.
The named “manufacturer defendants” market their products through large wholesalers. Defendants Cargill, Incorporated; Winfield Solutions, LLC; Univar Solutions, Inc. are named as “wholesaler defendants” because collectively they dominate the sale of crop inputs to farmers and retailers. The “retailer defendants” in this case include CHS, Inc., Nutrien Ag Solutions, GROWMARK, Inc., GROWMARK FS, LLC, Simplot AB Retail, Inc., Tenkoz, Inc. and Federated Cooperatives Ltd.
The 44-page complaint alleges that to ensure that their “boycott” of the budding e-commerce sites was successful, the defendants “enforced strict discipline on retailers who failed to comply.” Attorneys cited an example from 2018 when several retailers sold some product to one of these platforms – Farmers Business Network (FBN) – despite the boycott. At that point Syngenta allegedly initiated an audit of its authorized retailers to identify and punish the retailers who had made those sales.
Mandatory contract language
According to the complaint, Bayer, BASF and Corteva inserted mandatory language into all their contracts with authorized retailers, which grants them the authority to audit the books and records of these authorized retailers and perform on-site inspections at any time. The complaint alleges that Bayer, BASF and Corteva used these provisions to ensure that electronic platforms like FBN could not secure their crop inputs by buying them from an authorized dealer.
The entrepreneurs who created these e-commerce platforms geared their new businesses toward providing subscribers with a cheaper, transparent method of buying crop inputs – by purchasing products directly from manufacturers and selling them directly to farmers. To achieve these savings, they “cut out the middleman” as the old saying goes.
The lawsuit alleges that in “furtherance of their boycott”, the manufacturer and wholesaler defendants repeatedly blocked access to crop inputs for FBN (and other similar businesses) by agreeing among themselves not to sell products to FBN, despite the fact that doing so would have created a lucrative stream of new sales.
According to the complaint, the defendants’ boycott froze FBN out of selling any of their products.
At the heart of the case is this, as stated in the complaint – the defendants’ boycott “has resulted in the maintenance of supra-competitive crop input prices by denying farmers accurate product information, including pricing information, that would enable them to make well-informed purchasing decisions.”
As a direct result of the defendants’ “ongoing unlawful conduct, farmers in the United States continue to be locked into accepting supra-competitive price increases for crop inputs that outpace any increases in their yield . . . to their detriment and injury,” the complaint added.
The case was filed in the U.S. District Court for the Southern District of Illinois because “one or more of the defendants resided, transacted business, were found, or had agents in this district, and a substantial portion of the affected interstate trade and commerce described in this complaint was carried out in this district.” The case has been assigned to Chief Judge Nancy J. Rosenstengel.
The case is being brought on behalf of a group of plaintiff farmers in a number of states and on behalf of all other “U.S. persons and entities” who purchased crop inputs from these defendants. A jury trial is being demanded. The case is expected to determine whether the defendants conspired to unreasonably restrain trade in violation of federal antitrust laws and will also determine the duration of the alleged conspiracy.
It will determine the amount of injury suffered by the plaintiffs and members of the classes – other affected farmers.
By engaging in the conspiracy alleged in this complaint, the three groups of defendants “have kept a market structure in place that benefits each of them at the expense of farmers,” the complaint states. It also notes that farmers continue to be threatened with “future injury to their business” because the defendants continue their violations of the Sherman Act.
Among the defendants is CHS, Inc., headquartered in Minnesota, which is one of the largest crop input wholesalers in the United States. It also operates retail networks bearing the CHS brand around the country and its brick-and-mortar stores sell crop inputs.
Defendant Nutrien Ag Solutions, Inc. is both a crop input wholesaler and the largest crop input retailer in the United States, according to the complaint.
The complaint describes defendant Tenkoz, Inc., which is incorporated and headquartered in Georgia, as one of the largest crop input retailers in the United States. The company purchases and sells 25 percent of all crop protection chemicals sold in the United States annually through 550 retail locations and 70 wholesale locations around the country.
Defendant Federated Cooperatives Ltd. is a large crop input retailer, which like the other defendants in this group, maintains contracts with the big four manufacturing defendants, which authorizes it to get special rebates. According to the complaint, Federated is currently under investigation by the Canadian Competition Bureau for engaging in coordinated anticompetitive practices designed to exclude competition in the crop input market.
The complaint noted that U.S. farmers are increasingly unable to maintain financial stability with operating expenses that skyrocket while yields grow only marginally. Between 1995 and 2011, the cost of growing soybeans and corn tripled, but yields for those same crops rose by only 19 percent and 30 percent respectively, according to statements made in the complaint.
One study observed that fertilizer, pesticide and seed costs constituted 32 percent of crop revenue between 1990 and 2006, the complaint noted. That figure had risen to 48 percent by 2016. The cited study’s authors concluded that “farmers need to take proactive actions to reduce rates and amounts of inputs applied. Even with aggressive input usage cuts, it will be difficult for cash flow losses to be reduced without input price decreases.”
The cost increases for fertilizer, pesticides, and seed “are not attributable to any legitimate cause” the complaint alleges. “Manufacturers’ research and development expenditures have decreased considerably in recent years.”
Rather, the complaint continues, the cost increases are the result of “massive and baseless disparities in the prices farmers pay for crop inputs, which can vary by as much as 60 percent within a geographic region, and the supra-competitive prices paid by farmers as a result of defendants’ boycott” of e-commerce platforms that would have allowed farmers to take advantage of transparent and competitive pricing.
The complaint noted that in a nationwide survey of farmers, the price per gallon paid by farmers for Bayer AG’s herbicide “Roundup Power MAX” – which is used extensively on crops that are genetically engineered to withstand applications of glyphosate (Roundup) – varied by as much as 270 percent. In the seed market, some farmers paid $20 more per acre than other farmers paid for the same seed.
These striking price disparities “persist by defendants’ design,” the complaint alleges. “The crop input market is fraught with secrecy, to maximize opacity and preclude farmers from making informed decisions” about crop inputs that they must purchase for their farming operations.
“Farmers are forced to pay more for crop inputs than they would in a competitive market, in large part because they lack the objective information and data necessary to assess their purchases,” according to the complaint.
The manufacturer defendants named in the suit produce between 75 percent and 90 percent of the largest selling crop inputs and “closely guard their product prices,” according to the complaint.
These manufacturer defendants control the market and information on prices by allowing only wholesalers, retailers that are owned or operated by the manufacturers and specified “authorized retailers” to sell their crop inputs, the complaint alleges.
The contracts granting “authorized retailer” licenses include strict confidentiality provisions that prevent these retailers from disclosing manufacturers’ prices. Those contracts also require confidential “zone pricing,” the complaint alleges, under which identical products are priced differently based strictly on consumers’ locations.
The case also exposes the practice used by seed companies by which they re-package, re-label, re-name, or re-number seed varieties to deprive farmers of the ability to compare performance data or prices. This allows the sale of seed at higher prices because farmers aren’t sure exactly what they are buying – plant genetics might be exactly the same as another “variety” but with a different name.
Likewise, retail pricing is opaque, the complaint alleges. Wholesalers’ contracts with authorized retailers also contain strict confidentiality provisions, preventing these retailers from disclosing either their wholesale prices or the prices available to other farmers.
In this opaque market, e-commerce entrepreneurs saw an opportunity to provide farmers with transparent prices and access to crop inputs direct from the manufacturer – bypassing the system controlled by wholesalers and retailers. Those efforts began in 2016 and were initially successful, as farmers took advantage of the electronic platforms’ price transparency. Over 12,000 farmers registered for access to Farmers Business Network’s objective performance data and 6,000 farmers registered for access to FBN’s electronic sales platform.
According to this complaint, that’s when the wholesaler and retailer defendants recognized the threat to their place in the market and to their profit margins. The complaint quotes from a report published by CoBank, a major player in farm lending, which explained the threat this way: “Despite relatively low sales, e-commerce companies pose a threat to brick-and-mortar ag retailers in two ways. First any new competitor will erode sales and margins to some degree and second, e-commerce sites increase transparency for product prices.”
Even farmers who were not subscribers to one of these e-commerce sites might use the prices published there to negotiate lower prices from established retailers, the complaint noted.
According to the complaint, Bayer secretly formed an internal task force in 2016 to study the long-term competitive impact of FBN’s electronic platform; eventually those companies now listed as “manufacturer defendants” in this case instituted a group boycott of e-commerce platforms, including FBN and others. When FBN sought to purchase crop inputs from the manufacturer defendants and wholesaler defendants, all refused.
The claim alleges that this boycott by the big players in the crop input system even affected sales of generic products – those products sold by non-defendant manufacturers after their patents expire. The complaint includes the following: “In a recent Forbes article, one CEO of a generic chemical products company admitted he was hesitant to supply FBN because he was ‘wary of angering their existing sales channels.’ That CEO added that ‘in an ideal world, if I could flip the switch and sell to these guys, I would do it in a heartbeat’.”
Farmers Business Network attempted to get around the boycott by purchasing a Yorkton, Canada retailer with a long history of supply agreements with defendants Bayer, Syngenta, BASF, Corteva and Winfield United. Those existing agreements should have provided FBN with crop input inventory to sell to American farmers.
But the wholesaler and retailer defendants threatened to retaliate against the manufacturer defendants if they maintained those agreements. According to the complaint, faced with those threats, the manufacturer defendants agreed to boycott Yorkton and abruptly canceled their long-standing supply contracts, within a few months of the March 2018 acquisition by FBN.
This activity at Yorkton drew the attention of Canada’s Competition Bureau which started a formal investigation of some of defendants in this case under the Competition Act Canada. As part of that investigation – and over defendants’ objection – a Canadian federal court found sufficient evidence to require defendants to produce records concerning their coordinated anticompetitive conduct in the United States as well.
The U.S. Department of Justice is deciding whether to launch its own investigation into defendants’ concerted refusal to supply e-commerce businesses with crop inputs.