The U.S. Department of Agriculture’s Agricultural Marketing Service (AMS) recently closed a public comment period regarding its proposed rule specifying four criteria the agency would consider when determining whether an undue or unreasonable preference or advantage has occurred in violation of the Packers & Stockyards (P&S) Act.
The P&S Act states that it is unlawful for a packer, swine contractor or live poultry dealer to make or give any undue or unreasonable preference or advantage to a seller or grower of livestock or poultry. An undue or unreasonable preference or advantage is an action that creates excessively favorable conditions for one or more persons, reducing opportunities for optimal pricing and business success for competitors. The proposed criteria will serve as a basis to determine whether these differences are a reasonable and fair preference or advantage. Under the proposed rule, USDA would consider whether a preference or advantage meets one or more of the following criteria:
- It cannot be justified on the basis of a cost savings related to dealing with different producers, sellers or growers.
- It cannot be justified on the basis of meeting a competitor’s prices.
- It cannot be justified on the basis of meeting other terms offered by a competitor.
- It cannot be justified as a reasonable business decision that would be customary in the industry.
Many said USDA’s proposal would undermine the intent of the P&S Act, according to comments submitted by groups like the National Farmers Union, the Organization for Competitive Markets (OCM) and others. Meanwhile, groups such as the National Chicken Council (NCC) and the National Pork Producers Council (NPPC) offered minimal suggestions to the rule.
“With some minor adjustments, NPPC believes that USDA’s current proposed rule will work well for the pork sector,” NPPC said in its comments.
NPPC and NCC said the final rule should affirmatively state that in order to prove a violation of the P&S Act, a plaintiff must show a preference or advantage is likely to harm competition. While the preamble of the rule references the significant volume of judicial precedent supporting this notion, NPPC said the final rule should state clearly that a showing of competitive injury is a prerequisite to proving a P&S Act violation. “Failure to do so will lead to costly, unnecessary and unwarranted litigation,” NPPC said in its comments.
“If a preference or advantage does not cause injury or likely injury to competition, there is no Section 202 violation and, thus, no need to expend resources considering the four criteria,” NCC added in its comments.
“Indeed, reinforcing the need to demonstrate injury or likely injury to competition will eliminate much of the precedent-confirming litigation that AMS anticipates flowing from a final rule, which, in turn, will significantly reduce the anticipated costs of the rule,” NCC said.
NPPC also expressed concern over uncertainty and transparency in how USDA will evaluate contracts in the future if compounded by the rules fourth criteria that a contract term is justified as a “reasonable business decision that is customary in the industry.” NPPC said while it is supportive of the “customary in the industry standard,” whether a business decision is deemed reasonable or not can change over time and will inevitably vary from individual to individual, including from one USDA administration to another. NPPC said the agency can rectify this by better defining what it considers to be in the realm of “reasonable” in making a business decision or by simply limiting any interpretation of what was a “reasonable business decision” to the relative positions, beliefs and understandings of the parties at the time and place the contract was entered into.
NCC said it understands the fourth criterion as focusing on whether the preference or advantage cannot be justified based on the type of business decisions that are customary to the industry. “Importantly, we understand that criterion as not intended to limit contracts and poultry growing arrangements to terms that are currently, as of today, ‘customary in the industry.' To do so would prevent future innovation and restrict parties’ ability to adapt contract terms to address future developments. We recommend that AMS clarify in the preamble to the final rule that the fourth criterion is intended to focus on whether the business decision is of a type that is customary to the industry,” NCC said.
NCC said it appreciates AMS’s acknowledgment that the proposed rule is not expected to result in a decrease of differing contracting structures, such as the incentive-based contracting arrangements often used in the poultry industry.
The American Farm Bureau Federation suggested in its comments that AMS should further define what would be considered a “reasonable business decision that would be customary in the industry.” The bureau added, “We recommend the final rule include, both in general and in detail, lists of the types of AMAs and other marketing arrangements and/or other business practices that are commonly expected to constitute a ‘legitimate business justification’ across a sector or market structure. We want to avoid a situation where some unfair practices that should be considered an undue or unreasonable preference would be considered legitimate just because an unfair practice has become customary in the industry over time.”
National Farmers Union president Rob Larew noted concern that hopes of offering more protection to farmers may fall short. “We were hopeful that by more clearly defining 'undue or unreasonable preferences,' this Administration was finally taking steps towards balancing the relationship between farmers and corporations. Unfortunately, this proposed rule may just make the situation even worse. Not only does it fail to safeguard farmers from abusive practices, but it may also make it harder for them to litigate such practices,” Larew stated.
OCM said it disagreed with the proposed rule’s “inadequate criteria” and demanded the reimplementation of protections for producers that were included in the 2016 version, particularly those regarding USDA’s own interpretation of competitive harm. OCM is urging AMS to heed the purpose and intent of the P&S Act and close loopholes in the law that have allowed anti-competitive practices to become customary in the industry.
OCM stressed the importance of removing the requirement that producers must show industry-wide competitive harm when seeking action on reported violations to the P&S Act. “Nowhere in past enforcement of the [P&S Act] is a failure to protect producers more evident than in the repeated requirement for a producer to prove industrywide competitive harm,” OCM stated in its comments, adding further that “requiring a producer to prove competitive harm, in itself, is a form of competitive harm.”
The U.S. Cattlemen's Assn. does not believe the proposed regulation goes far enough in addressing producer concerns related to maintaining a transparent, fair and truly competitive marketplace. Specifically, the group said it would like to see USDA act on the following:
- Clarify "competitive harm" language;
- Strike the included "customary practice" phrase, and
- Return 2016 language related to "retaliatory action."