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Industry mixed on USDA’s proposed GIPSA rules

Three USDA proposed rules look to protect producers who raise poultry, swine and beef cattle from unfair marketing practices.

Wednesday the U.S. Department of Agriculture released its much-anticipated Grain Inspection, Packers and Stockyards Administration (GIPSA) regulations designed to protect livestock and poultry farmers from unfair marketing practices.

In explaining the rule releases, Secretary of Agriculture Tom Vilsack shared that it has been a “long journey” in implementing provisions called for in the 2008 Farm Bill and President Obama’s Administration was called on implementing. In 2010 the administration proposed a rule, which was later stalled due to Congress limiting funds within the appropriations process on moving forward with what has become a very controversial rule.

Vilsack said it was his “hope and prayer” that these rules administer a measure of justice and consistency and are understandable.

The Farmer Fair Practices Rules are comprised of an interim final rule and two proposed rules GIPSA sent to be published in the Federal Register. All will have 60 days for comments after publication, and the interim final rule will go into effect after those 60 days.

The interim final rule will affirmatively establish the Department’s long time position that it is not necessary to demonstrate that an unfair practice harms the entire market in order to prove a violation of the Packers and Stockyards Act (P&S Act). Vilsack said this interim rule is needed to remove the high burden for poultry growers to show that harm has been done. Such overly broad interpretations have put family farmers at a disadvantage for decades when pursuing their rights under the Act. The interim final rule addressing the scope of the P&S Act is essentially the same provision that was proposed in 2010, USDA said.

The North American Meat Institute (NAMI) said this rule would make the use of marketing and other contracting agreements between packers and livestock producers legally risky.  These agreements are often used by producers and packers to ensure an adequate supply of livestock or poultry products that meet the characteristics or attributes consumers demand, like organic, grass-fed, or raised without hormones. 

In a statement NAMI said, “The ‘Scope’ rule flies in the face of the legal standard established by eight different federal appellate courts.  It also is a last minute gift to plaintiffs’ lawyers by making it easier to file specious lawsuits and win them.”

One of the provisions in the 2010 proposed rule that contributed to the concerns was a provision that described as an unfair practice, “Paying a premium or applying a discount on the swine production contract grower’s payment or the purchase price received by the livestock producer from the sale of livestock without documenting the reason(s) and substantiating the revenue and cost justification associated with the premium or discount.” The new rules do not include this provision.

Vilsack responded to concerns from the other livestock sectors stems from the proposed rules in 2010 and what was considered normal business practices and whether contracting with a processing would now be considered unacceptable. The rules provide further assurance that packers may continue to offer premiums to livestock producers to encourage the production of meat products valued by consumers.

“We never intended in 2010 to include the use of alternative marketing arrangements,” he said during a media call. “The new proposal is modified from 2010 and allays concerns and fears that the rule would somehow preclude or prevent value added contracts. That is not the intent.” He went on to say the rule is designed to provide “greater clarity and a brighter line so folks know what they can and cannot do.”

An FAQ on the new rule specifically noted the “The Farmer Fair Practices Rules are carefully designed to continue to allow packers or swine contractors to offer innovative contracts.”

The proposed rule regarding unfair practices would clarify what GIPSA views as practices that clearly violate the Act and would establish criteria to protect the legal rights of farmers.

This rule outlines unfair practices for which growers can receive compensation. These practices include inaccurate or false weighing of birds, the abuse of arbitration procedures, the abrupt suspension of delivery of birds to a grower or termination of a contract without an opportunity for the farmer to get back into compliance. All of these types of activities would qualify as an unfair practice that would be compensated through a court proceeding. Processors can only treat growers differently if they have a legitimate business justification, not for arbitrary reasons. “This protection is especially important to poultry growers who today often find it difficult to win in court even when they are treated unfairly,” special assistant to the president for economic policy, Charlie Anderson.

The third proposal would establish criteria that GIPSA would consider in determining whether a live poultry dealer has engaged in a pattern or practice to use a poultry grower ranking system unfairly. Many poultry growers through the contract system are paid out based on a tournament how they perform against their peers; the bigger and better their birds turn out relative to other growers, the more money they make. However, because the processors own the birds, the feed, and other inputs, they can unfairly disadvantage or preference one grower over another as a way of forcing the growers to do things against their will or shut down dissent.

The third proposed rule will establish criteria to judge whether the processor is operating the ranking system in a manner that is fair to all growers. “It will push back against the unequal bargaining power between poultry purchasers and poultry growers,” said Anderson.

The National Chicken Council said the rules could lead to “rigid, one-size-fits-all requirements on chicken growing contracts that would stifle innovation, lead to higher costs for consumers, and cost jobs by forcing the best farmers out of the chicken business,” said NCC President Mike Brown.

“Some of these provisions would also have a detrimental impact on the welfare of the birds by eliminating competition and the incentive to provide the best care possible on the farm.  The performance-based contract structure of modern poultry production was instinctively designed to put the well-being of the birds as the top priority, as incentives are given to farmers who raise the healthiest birds, take risks and work hard.  It incentivizes farmers to do their best, to compete, just like every other business in America or any other free market,” Brown added.

Zippy Duvall, president of the American Farm Bureau Federation, said, “These proposed rules will strengthen GIPSA’s ability to evaluate business practices in the poultry industry and better protect individual farmers from discriminatory treatment. America’s chicken farmers have long called for greater transparency and a level playing field in our industry, and we appreciate USDA’s efforts to hold companies accountable and give farmers a voice.”

NFU President Roger Johnson said, “While the Farmer Fair Practice Rules do not fix all of the fraudulent practices in the livestock and poultry industries, these rules are certainly an important step in the right direction.”

 

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