Pork Industry Awaits Judge's Ruling

Roughly four months after the last vote was cast, the outcome of the pork checkoff referendum remains suspended in judiciary limbo.Referendum results were expected in early December, then got delayed by USDA maneuvering and the holidays.Nearing mid-January and the end of his appointment, Secretary of Agriculture Dan Glickman declared those opposing the pork checkoff the victors. In doing so, the outgoing

Roughly four months after the last vote was cast, the outcome of the pork checkoff referendum remains suspended in judiciary limbo.

Referendum results were expected in early December, then got delayed by USDA maneuvering and the holidays.

Nearing mid-January and the end of his appointment, Secretary of Agriculture Dan Glickman declared those opposing the pork checkoff the victors. In doing so, the outgoing Secretary ordered the termination of checkoff collections under the Pork Promotion, Research and Consumer Information Act of 1985.

Glickman's directive set off a series of legal activity on both sides of the issue, thereby postponing a final ruling on the outcome. A chronological recap of those activities looks like this:

Jan. 11 - Glickman announces his decision to terminate the mandatory pork checkoff, citing the results of the referendum vote: 15,951 votes to discontinue, 14,396 votes favoring continuation - a 1,555-vote margin. The referendum was Sept. 19-21; absentee ballots were eligible between Aug. 18 and Sept. 21.

Jan. 12 - The Michigan Pork Producers Association (MPPA), including members Pete Blauwiekel, Bob Bloomer and High Lean Pork Inc. and the National Pork Producers Council (NPPC) file a civil suit in the U.S. District Court for the Western District of Michigan against Secretary of Agriculture Dan Glickman and Kathleen Merrigan, administrator of the Agricultural Marketing Service (responsible for overseeing the checkoff). The suit cites irregularities and discrepancies in referendum voting and questions the secretary's authority to call the pork referendum. Chief Judge Richard A. Enslen is assigned.

Jan. 19 - Enslen grants a temporary restraining order (TRO) to the plaintiffs to preserve the status quo of the pork checkoff until a full and fair hearing has occurred. The TRO prohibits the USDA from publishing a rule to end the pork checkoff based on the pork referendum. A preliminary injunction hearing was set for Feb. 2.

As entered in the court files, the judge wrote: "Allowing the secretary to violate the Pork Act by usurping more authority than he was given by Congress does not serve the public. Likewise, allowing the secretary to terminate a program relied on by many, when the process used to arrive at termination is allegedly flawed, is not in the public interest. The entire process leading to the termination of the pork checkoff program was arguably flawed. It is in the public's interest that a court examine the proceedings and their result."

Likewise, in accordance with the court order, because the Pork Act remains in effect, producers and importers must continue to pay pork checkoff assessments. Failure to do so is subject to a fine of up to $1,100/violation.

Jan. 20 - Glickman leaves office. Shortly after his inauguration, President George W. Bush issues an executive order that essentially says all regulations issued during the waning days of the Clinton administration, including legal and policy perspectives, "were subject to review... and were going to be set aside for 60 days." In the meantime, the USDA and the Farmer's Legal Action Group (FLAG) join forces; the Justice Department becomes the "lawyers of record."

Jan. 25 - Enslen rejects a Justice Department request for a "stay" in the Feb. 2 hearing. The stay request was driven by Bush's executive order directives and the need for the Justice Department to abide by them while clarifying the policy positions of the new administration.

Before a stay can be granted, all parties must agree to reschedule the hearing. Failing to do so, the Feb. 2 hearing will stand. If rescheduled, the Bush administration's review will still take the full 60 days. In other words, Bush's executive order mandates that no final rules can occur before March 20. However, the judicial process can advance during those 60 days.

Once Enslen has heard the arguments from both sides, he is expected to rule on the case fairly quickly, probably within 30 days. His verdict then would be filed in the Federal District Court.

If the judge rules in favor of the plaintiffs and no appeals are filed, the case would be closed.

If the judge upholds Glickman's termination order and there are no appeals, the Federal Register filing would occur and a notice that checkoff assessments will be terminated, including a date when assessments will cease.

With the outcome of the checkoff temporarily on hold, we asked National Pork Board (NPB) Executive Vice President Mike Simpson and NPPC Chief Executive Officer Al Tank to outline and comment on the two likely scenarios.

Scenario #1: The court upholds the vote as reported and supports Glickman's directive to terminate the legislative checkoff program.

In this scenario, the 15-member NPB would nominate five trustees from the board and submit their names to the secretary of agriculture for approval.

The trustees would then be responsible for documenting all NPB reserves and assets at the state and national levels. The trustees will offer a plan outlining how all reserves will be spent and assets dispersed. This plan must be approved by USDA.

Assets include checkoff dollar reserves, furniture, intellectual properties - such as the Pork Quality Assurance (PQA) and the On-Farm Odor Assistance programs and trademarked products such as "the Other Burger," "America's Cut." The trademarked "Pork - The Other White Meat" logo and slogan were developed and introduced before the Pork Act was passed and therefore are not NPB assets.

"The five trustees will be charged with acting in the best interests of pork producers," explains Simpson. "The value of a program may not necessarily be determined by the highest dollar but rather by a plan where the program will benefit all producers. Also, some things may have no value," he adds.

Simpson speculates the phasing-out process could take a considerable amount of time. "If the checkoff is terminated, we will get a letter from the department (USDA) which will say `we're withdrawing the approvals of your plans and budgets that are currently in place,'" Simpson says. "This will include our relationship with programs at NPPC as well as plans and budgets for the 44 state members."

In other words, all state plans and budgets lose their approval and therefore have no authority to operate under their current existing plan. Each state must resubmit new plans and budgets to spend any reserves plus funds collected in 2001, Simpson explains. "It will be a nightmare to gather up all of the information and close this program down."

The trustees also will be responsible for verifying that the asset disbursement plans are completed.

"If termination occurs, I think most producers don't appreciate the impact that is going to be felt virtually instantaneously," says Tank. "All future programming ceases; all relationships with existing vendors cease; all relationships in the industry are going to be severed; and the ability to retain a professional staff is going to be extremely challenging. The fragmentation in the industry starts to emerge and comes fairly quickly."

Tank uses the PQA program to drive the point home. By May 31, nearly 28,000 pork producers must be recertified to PQA Level III. Many packers require their suppliers to be PQA certified because it is part of their Hazard Analysis and Critical Control Point (HACCP) plan; therefore, the requirement probably cannot be waived. "Without checkoff funding, who does it?" he asks.

Scenario #2: The district court judge rules that Secretary Glickman did not have the authority to call for the referendum and/or he rules that there were too many irregularities, flaws and inconsistencies in the voting. Therefore, the referendum is invalid and non-binding.

"I don't think anyone could assume it would be `business as usual' even if all these issues are thrown aside as invalid," Simpson says. "The implications are that it was a 50:50 vote. That's unsatisfactory, so we have to go back and re-examine all programs and how we are getting the word out about what checkoff dollars are doing for producers. Apparently, half of the people either lack information or they feel their checkoff dollars are being improperly handled."

Tank agrees, citing directives from the 2000 Pork Forum delegates in which they called for a comprehensive review of industry structure, NPPC governance, representation and checkoff return-to-the-states formulas. "That process is under way," he assures. "Under any circumstances, whether we continue the checkoff, terminate the checkoff, or whether legal challenges result in some other remedy, the organization (NPPC) is going to be changing."

Closing Thoughts Simpson and Tank speculate that many producers do not understand the limitations on how their checkoff dollars can be spent. The Pork Act specifically points out that collections cannot be spent on legislative activities.

"Being a 14-year-old program, it's easy to assume that people know the limitations of the Pork Act," Simpson says. "Truth is, no one has looked at them in any depth for some time. If the ruling favors continuation of the checkoff, expect some government oversight to improve the effectiveness of the checkoff allocations," Simpson adds.

"There seems to be a sense that if the checkoff ends, it's kind of every man for himself. I think that would be very unhealthy for the industry," Simpson concludes.

Tank is more emphatic about the potential fallout. "It is very clear that the loss of the checkoff has monumental implications on our industry, on producers, on the flow and access of information, the ability to create opportunities and address challenges."

Tank also wants producers to understand that during the court hearings, any arguments about damage or disadvantage to the industry are moot. Those arguments were effective in defending the need for the temporary restraining order, but the actual case is predicated on the law - whether Secretary Glickman had the authority to call for the referendum and/or whether the voting was so flawed that the outcome is in question.