The proponents of Prop 2, California Humane Farms, have filed a complaint with the state Fair Political Practices Commission that United Egg Producers and other egg producers have violated state election laws in their efforts to defeat the measure that will be on the ballot on November 4.
According to the complaint, UEP and out-of-state egg producers raised $4.5 million to defeat Prop 2 but never registered and reported timely the funds as required by state law. An AEP newsletter confirms it raised $4.5 million it has been holding "until the campaign committee actually needed funds".
The violations by United Egg Producers and other opponents of Prop 2 are only the latest alleged efforts by opponents to skirt the law to funnel large sums of money in the hope of defeating this measure. Â
Illegal Use of Federal Check Off FundsÂ
This past week U.S. District Judge Marilyn H. Patel issued a preliminaryÂ injunction against the USDA to stop that agency from allowing the American Egg Board to spend up to $3 million in federal checkoff funds for advertising against Prop 2.
The injunction was issued in a lawsuit brought by the organization, Californians for Humane Farms against Ed Schafer, Secretary of the U.S. Dept. of Agriculture.Â Â
The USDA is responsible for implementing the Egg Research and Consumer Information Act of 1974 ("the ERCIA") and the Commodity Promotion, Research and Information Act of 1996 ("the CPRIA"). That includes approval of the American Egg Board’s annual budget and expenditures.
As Judge Patel explained, "In creating the Egg Board, the ERCIA provided for "a continuous coordinated program of research, consumer and producer education, and promotion designed to strengthen the egg industry’s position in the marketplace, and maintain and expand foreign and domestic markets . . . . 7 U.S.C. Â§2701. The Egg Board is one of 19 national commodity research and promotion programs. …The purpose of these boards, including the Egg Board, is to expand the markets for their respective commodities, as well as to conduct research. Promotions sponsored by commodity boards are responsible for such iconic cultural slogans as ‘The Incredible, Edible Egg’…. Congress designed the Egg Board and the other commodity boards to overcome the collective action problem inherent in an industry comprising many producers. See 7 U.S.C. Â§ 2701… In such an industry, there is no incentive for any one producer, who has but a small share of the market, to spend money advertising for a generic commodity like eggs or beef, because its competitors could ‘free ride’ on those advertisements. A federally-created commodity board solves the free rider problem by establishing an entity, funded through a mandatory assessment mechanism, which works to promote the generic commodity. The Egg Board is funded by a mandatory assessment on producers with more than 75,000 egg-laying hens; the funds collected through such an assessment are called federal ‘check-off’ funds".
Egg Board expenditures must be approved by the Secretary. Congress included a provision explicitly prohibiting the use of the federal check-off funds for political purposes: "[N]o funds collected by the Egg Board under the order shall in any manner be used for the purpose of influencing governmental policy or action, except [for recommending to the Secretary amendments to an order]." 7 U.S.C. Â§ 2707(h).
In 1996, Congress passed the CPRIA, which applies to commodity promotion boards for which the Secretary issues national research and promotion orders. Like the ERCIA, the CPRIA includes a limitation on political activity:
A board may not engage in, and shall prohibit the employees and agents of the board from engaging in[,] using funds collected by the board under the order, any action undertaken for the purpose of influencing any legislation or governmental action or policy other than recommending to the Secretary amendments to the order. 7 U.S.C. Â§ 7414(d)(2).
On November 1, 2007, the Egg Board held an executive committee meeting in California during which it unanimously passed a motion to set aside $3 million "to be held in reserve for a consumer education campaign to educate consumers about current production practices."
The trade publication "Egg Industry" reported on the motion in its December 1, 2007, issue, in an article entitled "AEB Supports California Egg Battle." The article states, in part:
The American Egg Board unanimously passed a motion at its recent fall meeting in California that $3 million be held in reserve to assist the state if necessary in the industry’s current battle with animal activists. Animal welfare groups are attempting to place a referendum on the November 2008 ballot that would eliminate cage production in California.
News of the motion was also circulated within the Department of Agriculture (USDA). On November 5, 2007, Rex A. Barnes, Deputy Administrator for Poultry Programs reported to Lloyd C. Day, Administrator of the Agricultural Marketing Service:
In November 2008, California voters will consider a ballot initiative that threatens the California egg industry and jeopardizes the U.S. Egg Industry as a whole . . . . California egg producers are undertaking a campaign to defeat the measure. To supplement these efforts, the American Egg Board voted at its November 2, 2007, meeting to set aside $3 million to fund public relations and other projects to educate consumers about current agriculture practices. ("Weekly Activity Report")
According the minutes of the November 1, 2007, Egg Board meeting, Rex Barnes and another USDA official, Angie Snyder, had been present at the meeting. Meeting Minutes at 1.
Sometime after passing the motion, the Egg Board submitted a revised 2008 annual budget to the USDA for approval. The revised budget, dated 1/15/2008, contained a new $3 million line item for a "special project," entitled "consumer animal welfare ed. campaign."
The total "special projects" budget in the revised 2008 budget was approximately $3.7 million.Â The revised budget was approved by the Secretary on or before January 15, 2008.
On August 8, 2008, Secretary Schafer wrote an email to Humane Society President Wayne Pacelle stating, in part:
We’ve had our lawyers-way too many of them-all over this issue too and have come to the conclusion that the Egg Board’s expenditures are proper. . . . Do you think if you sue it will give ammo to those opposing your initiative measure to say that you are being unfair by not allowing those who think differently to express their opinions too? . . . We changed a bunch of copy, again to make sure we are following the intent of the law, and the final product in [sic] well within the boundaries set by Congress. . . .
In its lawsuit the Californians for Humane Farms challenged the USDA’s approval of the Egg Board’s revised 2008 budget pursuant to the Administrative Procedure Act (APA), 5 U.S.C. Â§ 706. Under the standard of review set forth in the APA, the reviewing court may hold unlawful or set aside agency action found to be "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
Judge Patel wrote in her opinion, "If the Secretary authorized the challenged Egg Board expenditures for the purpose of influencing the outcome of the Prop 2, such action would violate the ERCIA and the CPRIA and would, therefore, constitute an action ‘not in accordance with law’ under the APA. …The central issue at this stage is whether the characterization of the Egg Board advertisements as unrelated to Prop 2 is supportable. …A conclusion that the Egg Board campaign does not have the purpose of influencing the outcome of the November election would require the court to accept as merely bizarre coincidences an unlikely series of events, namely: the decision to undertake a special $3 million campaign regarding animal welfare in California only, just as the efforts in support of the California ballot initiative were getting under way; the unexplained shift from a campaign about "animal welfare" to one about fresh and local eggs; the equally unexplained choice to spend money to promote specific desirable aspects of a commodity (local origin and freshness), rather than the commodity itself a la "The Incredible, Edible Egg" or "Beef. It’s what’s for dinner;" and finally, the unlikely dovetailing of the Egg Board’s message and even specific buzzwords ("fresh," "local," "affordable") with those of Prop 2’s organized opposition. To accept these as mere coincidences would stretch the limits of credulity.
"The most extraordinary coincidence, not yet mentioned, is the prominent role of "Ryan Armstrong" in materials of both "Californians for SAFE Food" and the challenged Egg Board advertisements. In at least two "Californians for SAFE Food" press releases, Ryan Armstrong is the featured voice of California egg producers. Armstrong has also testified during at least one public hearing as a declared "Opponent of Proposition 2." The Egg Board’s choice to use the name of a prominent Prop 2 opponent as a face of its campaign supports the conclusion that the Egg Board funded advertisements are designed as "message reinforcement" of the No on Prop 2 campaign."
In issuing the preliminary injunction against the USDA, the judge added, "It is worth noting that misuse of Egg Board funds also implicates the interests of the producers who are required under federal law to contribute check-off funds. Farmers from across the country are required to pay assessments so that the Egg Board can pursue its mission of commodity promotion and research, not so that it can spend their money to fight ballot measures in other states. A dollar spent on impermissible political advertisements in California is one less dollar that could be spent actually promoting "the incredible, edible egg" or pursing the Egg Board’s legitimate programs in support of the nation’s egg industry. Moreover, not every producer who is required to pay assessments to the Egg Board opposes measures like Prop 2."
U.S. Dept. of Justice Investigation into Price Fixing
Also, the Wall Street Journal has reported that the U.S. Department of Justice is investigating possible illegal price fixing of food products, including by egg producers that oppose Prop 2.Â Records from UEP and 3 other factory egg companies, Golden Oval Eggs LLC, Michael Foods Inc. and MoArk, LLC , have been subpoenaed as part of the investigation.
These factory egg farmers have contributed more than $800,000 to oppose Prop 2. Nearly $8 million has been raised altogether by opponents. UEP has organized the fundraising to defeat Prop 2.
The Justice Department theorizes UEP organized egg producers to increase exports of eggs, thus tightening the U.S. supply and driving up prices. Prices have risen more than 40% in the past year. Watt’s Egg Industry newsletter stated in its February, 2008 issue, "Egg prices have soared at historic highs through months in which producers usually hold on for dear life."
United Egg says its collective actions, including exports handled by a United Egg affiliate, are shielded from antitrust law under the Capper-Volstead Act, 7 USCS Â§Â§ 291 et seq., which exempts from the anti-trust laws under certain conditions agriculture producers that "collectively process, prepar[e] for market, handl[e], and market" their products "in interstate and foreign commerce".
The latest poll indicates Prop 2 is favored 72-10 by Californians.