New rules for the Grain Inspection, Packers, and Stockard Administration were released at midnight on December 14, 2016. The regulations, made through the USDA's authority under the Packers & Stockyards Act, modify the poultry tournament payment system and address livestock buying practices deemed to be anti-competitive. The new rules (dubbed the "Farmer Fair Practices Rules") have been criticized for adding regulatory costs, but praised for leveling the playing for farmers.
There are plenty of opinions on both sides. Meat and poultry industry groups have challenged the rule, saying it will open the floodgates to litigation, limit marketing options, lead to increased vertical integration, and stifle innovation. Other groups, including the American Farm Bureau, praise the rules for increasing competition and establishing a more level playing field between contract growers and poultry companies. This post looks at two main questions:
- What do the rules actually say?
- What will PEOTUS Trump do with these rules?
First, what do the three rules really say? The interim final rule (published as 9 CFR 201.3(a)) is based on a proposed rule from June 2010. Section 202 already provides "it shall be unlawful for for any packer or swine contractor with respect to livestock, meats, meat food products, or livestock products in unmanufactured form, or for any live poultry deal with respect to live poultry" to engage in certain prohibited conduct. Section 202(a) prohibits "any unfair, unjustly discriminatory, or deceptive practice or device" and 202(b) prohibits "any undue or or unreasonable preference or advantage." The new rule codifies USDA's longstanding position that a farmer can prove a violation of Section 202(a) or (b) of the Act without showing predatory intent, competitive injury, or likelihood of competitive injury. However, an act's effect on competition could certainly be relevant or even dispositive with respect to an allegation under Section 202(a) or (b).
One of the proposed rules (published as proposed 9 CFR 201.214(b)) deals with the ranking system frequently used by processors. A ranking system (sometimes called a tournament system) is the process used by live poultry dealers to determine final payments to poultry growers for each flock. Growers whose flocks are slaughtered in the same week are paid according to a system that compares feed efficiency and and live weight. Higher ranked growers receive more money. The rule would establish criteria to consider when determining whether a live dealer's use of a poultry grower ranking system is unfair. Under the rule, the USDA could consider whether a poultry dealer provides growers with comparable feed, chicks, and medication to all the growers in the ranking group. The USDA could also consider whether there is a pattern of supplying inferior inputs to a grower or growers in the same ranking group. This change is designed to level the playing field in the ranking payment system. Even if a dealer engages in such practices, if there is a legitimate business interest for the conduct, those practices may not violate the Act.
The second proposed rule was published as 9 CFR 201.210 and 9 CFR 201.211. The first part lists a number of specific practices prohibited by the P&S Act as being unfair, including retaliatory actions in response to a grower's lawful actions, conduct that attempts to limit a grower's legal rights, failing to provide adequate notice before suspending bird delivery to a poultry grower, requiring unreasonable capital investments, failing to provide a reasonable amount of time to remedy a contract breach, failing to provide an opportunity to participate in arbitration, and failing to ensure accurate scales or evaluation equipment. The second part provides criteria to consider when determining whether a packer, swine contractor, or poultry dealer engaged in deceptive conduct in violation of Section 202(b). These criteria include (but are not limited to) treating one or more growers more favorably than a grower who has lawfully asserted its rights, and treating growers differently for arbitrary reasons or based on age, sex, race, national origin, color, religion, disability, political beliefs, sexual orientation, or marital/family status.
Some parts of the new rules will affect only new contracts. Others will affect new and already-existing contracts. The USDA's frequently asked questions on the new GIPSA rule are located here.
The second big question regarding the new GIPSA rules is "does it even matter?" These rules were released about month before a new administration take over. Trump has promised to cut burdensome regulations but also promised to "drain the swamp." Will he view the GIPSA rules as just another set of burdensome regulations hindering the industry? Or as a way to give small farmers a chance to improve their negotiation position with larger poultry processors? A new Secretary of Agriculture could remove the temporary rules and put the brakes on the proposed rules or allow the rule-making process to proceed. At this point, it's anyone's guess.