US v. Archer-Daniels-Midland Co.

• Decision Date: 06 August 1987
• Docket Number: Civ. No. 83-51-D.
• Citation: 695 F. Supp. 1000
• Parties: UNITED STATES of America, Plaintiff, v. ARCHER-DANIELS-MIDLAND COMPANY and Nabisco Brands, Inc., Defendants.
• Court: U.S. District Court — Southern District of Iowa

695 F. Supp. 1000

UNITED STATES of America, Plaintiff, v. ARCHER-DANIELS-MIDLAND COMPANY and Nabisco Brands, Inc., Defendants.

Civ. No. 83-51-D.

United States District Court, S.D. Iowa, C.D.

August 6, 1987.

Michael D. McNeely, John W. Poole, Bruce K. Yamanaga, Sylvia M. Scott, Joseph Allen, U.S. Dept. of Justice, Antitrust Div., Lit. I Section, Washington, D.C., and Christopher D. Hagen, U.S. Atty., S.D. Iowa, Des Moines, Iowa, for the U.S.

Randolph Wilson, Theodore Voorhees, Washington, D.C., Lance A. Coppock, Des Moines, Iowa, and Burton H. Brody, Chief Lit. Counsel, Nabisco Brands, Inc., New York City, for Nabisco Brands, Inc. Owen Johnson, David Donohoe, Paul Hewitt, Clinton Batterton, Paul Gerlach, Washington, D.C., L. Call Dickinson, Jr., Mark Schantz, Des Moines, Iowa, for Archer-Daniels-Midland Co.

MEMORANDUM OPINION

VIETOR, Chief Judge.

This is an antitrust case brought by the United States of America ("Government") against the defendants, Archer-Daniels-Midland Company ("ADM") and Nabisco Brands, Inc. (Nabisco).

On June 12, 1982, Nabisco leased to ADM, for a specified number of years, two corn wet milling plants, one in Clinton, Iowa, and the other in Montezuma, New York. The Government alleges that the lease agreement is a contract or combination creating an unreasonable restraint of trade in violation of section 1 of the Sherman Act, 15 U.S.C. § 1, and that the lease also amounts to an acquisition which may substantially lessen competition in violation of section 7 of the Clayton Act, 15 U.S.C. § 18.¹

An essential element of both of the alleged antitrust violations is proof of injury to competition in the relevant product market. Therefore, the relevant product market must be defined. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 350, 15 L.Ed.2d 247 (1965). This memorandum opinion explains the following Rulings and Order of Dismissal deciding the relevant product market issue, entered on May 29, 1987:

All parties — the defendants through their motion for summary judgment and the plaintiff through its cross-motion for summary judgment — seek adjudication of a major issue in this antitrust case: whether the relevant product market is limited to high fructose corn syrup (HFCS). Footnote omitted.

The summary judgment record, to which I have applied the tests of interchangeability of use, cross-elasticity of demand and price correlation, shows that the relevant product market is not limited to HFCS; therefore, there is no genuine issue about relevant product market left to try. Because plaintiff's claims are dependent upon proving that the relevant product market consists solely of HFCS, defendants are entitled to judgment as a matter of law.

Plaintiff's cross-motion for summary judgment is denied. Defendants' motion for summary judgment is granted, and IT IS ORDERED that plaintiff's complaint be dismissed.

A memorandum opinion explaining this decision will be filed in the near future.

At the time of the hearing on the cross-motions for summary judgment, the parties had been allowed over four years of discovery, which was extensive. At the hearing on the motions for summary judgment, counsel for both sides agreed that the evidence now in the record on the relevant product market issue is much the same as it would be at trial and that the record is adequate for deciding the relevant product market issue on the cross summary judgment motions.² I agree.

I have relied on evidence submitted by the parties as undisputed, and this evidence consists in large part of information and data from the Government itself or from third parties: (1) documents prepared with the official sanction and approval of various agencies of the Government; (2) the affidavits and deposition testimony of present or former Government employees, including those who were responsible for the Government documents referred to above; (3) admissions and answers to interrogatories given by the Government in this litigation, as well as market share stipulations; and (4) depositions and affidavits of third parties based on personal knowledge, including independent sweetener distributors and brokers as well as food and beverage processors.

The evidentiary facts now available in the record are unusually extensive, particularly in regard to basic economic data. For example, the parties entered into a 26-page stipulation of detailed market share information with a breakdown reflecting four different approaches to the scope of the relevant market. The record also includes numerous reports and publications containing economic data and analyses prepared by personnel concerned with sweeteners in the United States Department of Agriculture (USDA), such as economists in the Economic Research Service of USDA.

For years, the Government has monitored and regulated sweeteners through a far-reaching and complex set of regulations generally called the "U.S. Sugar Program," which has been implemented in large part by USDA. As a result of the U.S. Sugar Program, the USDA as well as other agencies of the Government have issued numerous publications containing economic data and analyses. One of the more informative publications is entitled "Sugar and Sweetener Outlook and Situation Report," which is now published by USDA in March and September of each year and is supplemented annually by another report entitled "Sugar and Sweetener Outlook and Situation Yearbook." These documents and related deposition testimony are admissible as party-opponent admissions under Fed.R. Evid. 801(d)(2)(D). United States v. American Tel. & Tel. Co., 498 F.Supp. 353, 356-58 (D.D.C.1980).³

SWEETENERS AND THEIR MARKETING

A publication of the USDA identifies the sweetener market in the United States as follows:

The sweetener market consists of caloric and non-caloric sweeteners. Caloric sweeteners include beet sugar, cane sugar, corn sirup glucose, dextrose, new high fructose corn sirup HFCS, honey, edible molasses, maple sirup, sugarcane sirup and sorghum sirup. The non-caloric sweeteners consist of saccharin ... and aspartame.⁴

The great bulk of caloric or nutritive sweeteners consists of cane sugar, beet sugar and corn sweeteners (glucose, dextrose and HFCS). Non-caloric or non-nutritive sweeteners, sometimes called "artificial" or "diet" sweeteners, have little or no caloric value and consist primarily of saccharin and aspartame.⁵ The court's conclusion that the relevant market is not limited to HFCS because it includes sucrose made from sugarcane and sugarbeets makes it unnecessary to decide whether the relevant product market is broad enough to include any other sweeteners, such as aspartame or saccharin.

Production of Sweeteners

(1) Cane sugar. This type of sweetener is produced from sugarcane, a tall perennial grass grown in tropical and semi-tropical climates. Two to four crops (ratoon crops) are harvested from the original planting in the absence of frost or disease, and each crop matures in 12 to 24 months.

Sugarcane must be processed into raw sugar within hours after the cane is cut in order to maximize juice extraction and avoid a chemical breakdown of the sucrose. Such processing occurs at "sugar mills" that are located on or near sugarcane plantations. In these mills, the juice from the cane stalk is extracted, clarified, boiled and crystalized into "raw sugar," a world-wide commodity that is processed into refined cane sugar at cane refineries. Traditionally, about 70% of the refined sugar consumed in the mainland of the United States is provided by cane refineries, and historically a substantial portion of such refined cane sugar (approximately 50% in 1982) has been produced from imported raw sugar.⁶

(2) Beet sugar. This type of sweetener, like cane sugar, is a form of sucrose. However, it is derived from sugar beets, a cool weather agricultural product that can be grown in the colder climates of Minnesota, Montana, North Dakota and Idaho as well as the warmer climates of California, southwestern Kansas, southern Colorado and parts of Texas. The growing season allows plantings in the early spring and harvesting in the fall.

Unlike sugarcane, beets cannot be converted into raw sugar which can be shipped great distances and stored for an extensive period of time before refining. Instead, the processing of beets into refined sugar is accomplished in one continuous process at a beet refinery.⁷

(3) Corn sweeteners. A variety of sweeteners can be produced from corn. The United States is the world's leading producer of corn, and No. 2 Yellow Corn (grown in the corn belt states, including Iowa, Nebraska, Illinois and Indiana) is especially useful in the production of sweeteners. Unlike cane and beets, corn can be stored for a substantial period of time without serious deterioration. This allows the processing of corn sweeteners on a year-round basis.

Corn sweeteners are produced in corn wet milling plants which typically make three types of corn-derived sweeteners: (1) glucose (sometimes called regular corn syrup); (2) dextrose (sometimes called corn sugar); and (3) HFCS. These plants also produce other corn-derived products, such as corn starch, starch-derived dextrin, and several other "byproducts" such as corn oil, corn gluten meal, corn gluten feed and steep water concentrate.

It was not until the early 1970's that new technology was in widespread commercial use to process glucose or dextrose syrup into a sweeter product by the use of enzymes capable of isomerizing syrup into fructose. This isomerization process is used today, either directly or by blending, to produce corn syrup containing 42% fructose ("HFCS-42"), 55% fructose ("HFCS-55"), and 90% fructose ("HFCS-90"). Although HFCS 42 is not as sweet as sugar, it may be used as a substitute or partial substitute for sugar in sweetening various products, such as canned fruits and vegetables. HFCS-55, the most popular corn sweetener used by...