Minnesota Economic FEDERAL RE ULATI N Regulation Monograph 4 F THE U~S~ D ARKETIN STEM Miscellaneous Report AD-MRm2338 Agricultural Experiment Station University of Minnesota 1985 FEDERAL REGULATION OF THE U.S. FOOD MARKETING SYSTEM Tim Burke and Dale C. Dahl Minnesota Economic Regulation Monograph #4 Minnesota Agricultural Experiment Station Miscellaneous Report AD-MR-2338 University of Minnesota St. Paul, Minnesota February 1985 FOREWORD This monograph is part of the Minnesota Economic Regulation Monograph series, a comprehensive survey of law pertaining to the production, processing and distribution of food and other farm comr modities in the United States. It outlines two types of regulations: (1) those designed to protect the health and safety of consumers and improve their knowledge about food purchasing; and (2) those that protect the farmer's product and input markets, particularly in terms of trade practices and bargaining power. Dale c. Dahl Project Leader CONTENTS Preface. vii Chapter 1. HISTORICAL BACKGROUND. 1 Development of American Food Laws in the Nineteenth Century 1 Evolution of the Major Federal Acts • 1 Federal Food and Drugs Act of 1906 • 2 Packers and Stockyards Act • 3 Fair Packaging and Labeling Act. 3 Notes to Chapter 1. 4 Chapter 2. CONSUMER-ORIENTED REGULATION • 7 Major Legislation • 7 Federal Food, Drug, and Cosmetic Act • 7 Structure of the Act. 7 Relevant Definitions. 7 General Provisions. 7 Special Provisions. 10 Fair Packaging and Labeling Act. 11 Basic Provisions. 12 Enforcement Authority • 13 Poison Prevention Packaging Act. 13 Inspection Acts • 14 Federal Meat Inspection Act. 14 Basic Provisions. 14 Personal Exemption. 15 Imported and Exported Meat. 15 Federal and State Cooperation • 15 Poultry Products Inspection Act. 16 Basic Provisions. 16 Exemptions. 17 Federal and State Cooperation • 17 Egg Products Inspection Act. 18 Basic Provisions. 18 Exemptions. 19 Imports • 19 State and Local Regulation. 19 Quality Control Legislation • 19 Federal Insecticide, Fungicide, and Rodenticide Act. 19 iii Classification of Pesticides. 20 Cancellation or Suspension of Registration. 20 Registration of Establishments. 20 Penalties • 21 Filled Milk Act. 21 Filled Cheese and Adulterated Butter Acts. 22 Federal Import Milk Act. 22 Food Grading Acts. 22 Agricultural Marketing Act of 1946. 22 U.S. Grain Standards Act. 23 Export Standards. 25 Food Inspection and Grading by the Department of Commerce • 25 u.s. Warehouse Act • 26 Inspection and Grading. 26 Federal-State Relationship. 27 Penalties • 27 Standards of Weight and Measure. 27 Comparison of Legal Standards: Packaging and Labeling. 28 Federal Food, Drug, and Cosmetics Act and the Fair Packaging and Labeling Act. 28 Basic Regulations • 28 Nutrition Labeling. 29 Special Regulations Under the Fair Packaging and Labeling Act. 30 Federal Meat Inspection Act. 30 Poultry Products Labeling. 31 Notes to Chapter 2. 32 Chapter 3. PRODUCER-ORIENTED MARKET REGULATION. 57 Packers and Stockyards Act. 57 General Prohibitions • 57 Regulation of Stockyards and Stockyard Dealers • 58 Regulation of Poultry Dealers and Handlers • 59 Records. 59 Enforcement Authority. 59 Perishable Agricultural Commodities Act • 60 General Prohibitions • 60 Licensing. 60 Remedies • 61 Produce Agency Act. 61 Federal Seed Act. 61 iv Legislation Affecting Agricultural Producers' Associations. 62 Clayton Act. 62 Capper-Volstead Act. 62 Cooperative Marketing Act of 1926, 62 Agricultural Fair Practices Act. 63 Agricultural Narketing Agreement Act. 63 Nilk Orders. 65 Nonmilk Orders • 65 Handler Regulation • 65 Administration of the Order. 66 Records. 66 Enforcement. 66 Commodity Futures Trading Commission Act. 66 Contract Markets • 67 Registration With the CFTC • 67 Records. 68 Registered Futures Associations. 61:1 Investigatory Power. 69 Antitrust Considerations • 69 Farmer-to-Consumer Direct Marketing Act • 69 Food Research and Promotion , 70 Potato Research and Promotion. 70 Beef Research and Promotion. 70 Wheat Research and Promotion , 7l Egg Research and Promotion • . 71 Tobacco Statistics 72 Transportation of Agricultural Products • 72 Forestry. 73 Notes to Chapter 3. 74 Chapter 4. COMPARISON OF REGULATORY SCHE¥iliS • 89 Notes to Chapter 4. 90 v PREFACE Few people would be surprised at the amount of money spent annually in our nation for domestic agricultural products. Rising food prices and increased consumer attention to the food industry have probably served to make most consumers aware of the magnitude of agricultural production rela­ tive to our gross national product. Yet, many consumers may not be a~•are of how much of the agri­ cultural dollar is attributable to marketing costs. Recent government statistics put that figure at nearly t1;m thirds of the total amount spent by American consumers annually for domestic foods.l/ This immense and increasingly complex marketing system is the subject of this monograph. - Any attempt to cover this system entirely would be monumental. Therefore, the scope of this project will be more narrowly drawn. The focus here is on those legal constraints that regulate our domestic food marketing system. This limitation necessarily means that topics such as agricultural price and income maintenance policy, foreign markets and international trade, and the regulation of farm production will not be discussed directly, although each undeniably affects the domestic food marketing system. Limited attention, however, will be given to the regulation of food imports since this type of regulation has a more direct impact on the domestic market. The distinction between production and marketing aspects of agriculture is sometimes difficult, particularly regarding com­ modities handled through a vertically integrated system.~/ Nonetheless, the distinction is necessary to place manageable bounds on the scope of this project. The legal constraints that regulate agricultural markets (or any other segment of our economy) are basically of two types: (1) statutes enacted by state and federal legislative bodies, and (2) regulations adopted by administrative agencies for the purpose of implementing those statutes. As in other areas, the regulations are far more numerous than the statutes, Since this monograph can provide only a broad overview of the subject area, the statutes will receive primary attention, although the more important regulations will also be covered; the approach taken in considering sta­ tutory regulation will be descriptive rather than analytical. The interpretation of statutes and regulations by judicial or administrative bodies is equally a part of the regulatory process, and some of the more far-reaching decisions from these sources 1iJill like\vise be covered. Given the large number of statutes germane to this area, it is hard to develop an analytic fra­ mework organizing them into a meaningful fashion. The scheme utilized here discusses the statutes according to whether they were primarily enacted for the benefit of agricultural producers or con­ sumers. These categories are not mutually exclusive, and some statutes could properly be classified in both. Uniform grain inspection legislation, for example, may ultimately serve the interests of pro­ ducers as well as consumers, And, it is obvious that the Commodity Futures Trading Commission Act3/ benefits not only producers of agricultural commodities, but also others who trade or hedge in those commodities. These examples underscore the fact that the characterization of the law as a "seamless web" is especially appropriate when applied to food marketing reulation in our country. Notes to Preface 1. U,S. Department of Agriculture, Fact Book~riculture 33 (Miscellaneous Pub. No. 1063, revised edition, 1976). Marketing costs include the expense of transporting, processing, and distributing food items. For the year 1974, the estimated cost of marketing domestic food pro- ducts was $92 billion. The total amount spent consumers on food was $1L;8 billion, leaving $56 billion as the gross return received by farmers. Id. 2. Sundquist, Removing Legal Constraints on Agriculture--Likely Impacts on Producers, Agribusiness Interests, and Consumers, 19 S.D,L, Rev. 512, 514, (1974). 3. Act of October 23, 1974, Pub.L.li!o. 93-463, 88 Stat. 1389, (codified) as amended in 7 u.s.c. § 1-22 (1976), vii 1 HISTORICAl, BACKGROUND Government regulation of agricultural products is not a recent phenomenon. Its origins can be traced back at least to early Greece and Rome, where wine inspectors guarded against adulteration. 1/ During the Middle Ages, brewers who adulterated their product were fined or severely punished. 'J:j The Magna Carta of 1215, perhaps more widely known for its revolutionary political ramifica­ tions, also established standardized measures for wine, ale, corn, and other farm products. ll Laws of a similar nature were enacted in other European nations in later yearsof::../ Development of American Food Laws in the Nineteenth Century In our country, the movement for regulating food market trade on a national level did not really reach fruition until the latter part of the nineteenth century. Regulation of this type of commercial activity had at that time two general objectives: (1) protection of the health and vJelfare (not unlike the la1<1S of ancient or medieval times) a_nd (2) promotion of fair trade prac­ tices (a more recent objective, arising contemporaneously with more generalized trade regulation and antitrust laws). Since other trade problems were beginning to be addressed by federal legisla~ tion, it does