Livestock & Poultry Fair Competition
The 2008 Farm Bill contains a new Livestock Title which covers a wide array of issues and amends a number of federal laws governing livestock and poultry marketing, animal health, food safety and other livestock issues. This section of the Grassroots Guide focuses on the competition provisions in the Title intended to give livestock producers and poultry growers fairer conditions in their market relationship with meat and poultry processors and packers. The Livestock Title also includes revisions for Mandatory Country of Origin Labeling and a new provision for the Interstate Shipment of State-inspected Meat and Poultry.
2008 Farm Bill Changes
The 2008 Farm Bill includes the following improvements related to the rights of contract producers, livestock market regulations, and reporting and enforcement.
Right of Contract Producers to Cancel Production Contracts A poultry grower or swine producer may now cancel a poultry growing arrangement or swine production contract by mailing a cancellation notice to the live poultry dealer or swine contractor by either the date three business days after the date on which the contract is executed or any cancellation date specified in the contract. A poultry growing arrangement or swine production contract must clearly disclose:
- the right of the poultry grower or swine producer to cancel the contract;
- the method by which the poultry grower or swine producer may cancel the contract; and
- the deadline for canceling the contract.
Required Disclosure of Additional Capital Investments in Production Contracts The first page of a poultry or swine production contract must now contain a statement identified as “Additional Capital Investments Disclosure Statement.” This Statement will conspicuously state any additional capital investments that may be required of the poultry or swine producer during the term of the growing arrangement. This provision will affect any contract entered into, amended, altered, modified, renewed or extended after the date of enactment of the 2008 Farm Bill.
Location for Resolving Contract Disputes — When a legal dispute arises over a contract, a poultry grower or hog producer may face considerable financial hardship if the contract designates a distant location for resolving the dispute. The 2008 Farm Bill provides that the forum for resolving disputes among the parties to a poultry or hog production or marketing contract will be the federal judicial district in which the principal part of the performance of the contract takes place. For most production and marketing contracts this will be the federal jurisdiction in which the poultry grower or hog producer lives. Note that the state law that is applied to a contract dispute may not be the law of the state where the poultry grower of hog producer lives. Poultry growers and hog producers should know which state law applies and should seek advice about the applicable state law before signing a production or marketing contract.
Arbitration Issues — Private arbitration is often more expensive than going to court, with the livestock or poultry growers required to deposit fees of thousands of dollars before the arbitration even begins. The arbitration procedures do not have many of the basic legal rights and protections provided by the courts. There is no right of discovery that allows a farmer access to company records. There is rarely any right to appeal an arbitration decision. There is no jury of your peers, only an arbitrator resolving the dispute. The arbitration is generally favorable to the poultry dealer or swine contractor companies. They routinely include a measure in contracts to require mandatory arbitration of a contract dispute, which cuts off most of a livestock or poultry grower’s other legal remedies.
The 2008 Farm Bill includes the following requirements for arbitration clauses in livestock and poultry contracts:
- A contract that has an arbitration clause must also have a provision to allow a producer or grower to decline to be bound by the arbitration clause before entering into the contract and that provision must be conspicuous;
- A contract producer or grower who declines the arbitration clause before entering into the contract may request that the dispute be settled by arbitration if both parties consent to arbitration in writing; and
- Any action by the company and its representatives to intimidate the livestock or poultry grower from declining an arbitration clause, for example threatening to withhold birds or animals, is an unlawful act under the PSA.
All contracts offered to livestock and poultry growers after enactment of the Farm Bill, including new, amended altered, modified renewed or extended contracts should contain the new provision allowing the grower to decline arbitration. For example, a poultry grower with a flock-to-flock contract should get a new contract or a new provision allowing the grower to decline an arbitration clause with each flock of chickens.
In addition, USDA is required to issue regulations that establish the criteria for determining whether an arbitration process provided for in a contract provides a meaningful opportunity for the grower or producer to participate fully in the arbitration process.
Requirements for New Rules
The 2008 Farm Bill requires USDA to issue regulations as soon as practicable but not later than 2 years after enactment of the Farm Bill to establish the criteria that USDA will consider in making the following determinations:
- whether a packing or processing company has given an undue or unreasonable preference or advantage to one livestock producer over another in violation of the PSA;
- whether a live poultry dealer has provided reasonable notice to the poultry grower that the delivery of birds is being suspended under a poultry growing arrangement;
- when a requirement of additional capital investments over the life of a poultry growing arrangement or swine production contract constitutes a violation of the PSA; and
- what is a reasonable time period for a poultry grower or swine producer to remedy the breach of contract that could lead to the termination of the contract.
Annual Report from USDA on PSA Enforcement and Compliance
The 2008 Farm Bill amends the PSA by requiring the USDA Secretary, no later than March 1 of each year, to submit a report on PSA enforcement and compliance to Congress and make it available to the public. The report must provide detailed information for the preceding year on investigation, referrals and resolution of PSA complaints, including:
- number of investigations for livestock and poultry, by enforcement area (financial, trade or competitive practices); and
- length of time investigations are pending with the USDA’s Grain Inspection, Packers and Stockyards Administration, the USDA Office of General Counsel and the U.S. Department of Justice.
Section 11004 of the Food, Conservation, and Energy Act (FCEA) of 2008 amends Section 416 of the Packers and Stockyards Act (PSA) to provide the requirement of annual report from USDA to Congress on PSA enforcement and compliance, to be codified at 7 U.S.C. Section 229.
Section 11005 of the Food, Conservation, and Energy Act (FCEA) of 2008 amends Title II of the Packers and Stockyards Act by adding new Sections 208-210 which provide new production contract rights for swine producers and poultry growers, concerning contract cancellation, additional capital investments, choice of law and venue, and limitations on mandatory arbitration requirements in production contracts, to be codified at 7 U.S.C. Sections 197a, 197b, and 197c.
Section 11006 of the Food, Conservation and Energy Act (FCEA) of 2008 requires that the USDA Secretary promulgate regulations with respect to the Packers and Stockyards Act to establish criteria for determining whether an undue or unreasonable preference or advantage has occurred in violation of the Act; whether a live poultry dealer has provided reasonable notice to a poultry grower of suspension of delivery of birds under a poultry growing arrangement; whether a requirement of additional capital investments over the life of a poultry growing arrangement or swine production contract constitutes a violation of the Act; and whether a livestock poultry dealer or swine contractor has provided a reasonable period of time for a poultry grower or swine production contract grower to remedy a breach of contract. This provision is to be codified at a note to 7 U.S.C. Section 228.
The 2008 Farm Bill does not provide specific funding for the competition provisions. Administration and enforcement will be funded through annual GIPSA appropriations.
The production contract reforms provided for in Section 11005 of the 2008 Farm Bill are self-executing and do not require rulemaking to be enforceable. These provisions include: new production contract rights for swine producers and poultry growers concerning contract cancellation, additional capital investments, choice of law and venue, and limitations on mandatory arbitration requirements in production contracts.
Under Section 11006, Congress directed USDA to promulgate the new regulations for specific criteria for making Packers and Stockyard Act determinations as soon as practicable, but no later than two years after the 2008 Farm Bill’s enactment. On December 3, 2009, USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) issued a final rule that increases fairness and equity between live poultry dealers and poultry growers. The rule declares that actions that had commonly been taken by poultry dealers are unfair and deceptive practices under the Grain Inspection, Packers and Stockyards Act. Major provisions of the rule include:
Poultry Growing Arrangement; Timing of Disclosure — A live poultry dealer who offers a poultry growing arrangement to a poultry grower must provide the poultry grower with a true written copy of the offered poultry growing arrangement on the date the dealer provides the poultry grower with poultry house specifications. This measure is intended to prevent live poultry dealers from requiring major and costly improvements to poultry houses after the poultry grower has signed a contract to grow poultry for the dealer. Contracts often guarantee the grower only one or a few flocks, while the grower must pay for and maintain specialized poultry housing that can cost thousands of dollars.
Right to Discuss the Terms of a Poultry Growing Arrangement — Poultry dealers must allow poultry growers to discuss the terms of a poultry growing arrangement with: (1) a Federal or State agency; (2) the grower’s financial advisor or lender; (3) The grower’s legal advisor; (4) an accounting services representative hired by the grower; (5) other growers for the same live poultry dealer; or (6) a member of the grower’s immediate family or a business associate. A business associate is a person not employed by the grower, but with whom the grower has a valid business reason for consulting with when entering into or operating under a poultry growing arrangement.
Disclosure of a Performance Improvement Plan — The poultry growing agreement must disclose whether there is a Performance Improvement Plan that applies to the grower. If there is a Plan, the agreement must state: (1) the factors that are considered when placing a grower on a Plan;( 2) the guidance and support provided to a grower on a Plan; and (3) the factors considered when either removing a grower from a Plan and placing the grower back in good standing or when terminating the agreement. There must also be clause that allows the poultry grower to terminate the growing agreement upon a 90-day written notice.
Notice of Contract Termination — The live poultry dealer must provide a 90-day written termination notice if the poultry growing agreement is terminated, not renewed, or expires with no subsequent replacement of the agreement. The notice must state the reason(s) for termination, the effective date of termination, and any appeal rights that the grower may have with the live poultry dealer.
Taken together these provisions should provide a more level playing field for poultry growers in their business relations with poultry dealers.
The 2008 Farm Bill also directed USDA to issue a regulation addressing “undue or unreasonable preferences” in the livestock and poultry sector which are prohibited by the Packers & Stockyards Act. These are preferences given to larger livestock and poultry producers, packing and processing company insiders or to others that cannot be justified on an objective economic basis. GIPSA is completing work on a proposed regulation that will likely be issued for public comment in early Spring 2010.
In addition to these regulatory actions, the Obama Administration announced in August 2009 that it was concerned about the impacts of the concentration of power in the agricultural sector on food costs, the effect of agricultural regulatory statutes or other applicable laws and programs on competition, issues relating to patent and intellectual property affecting agricultural marketing or production, and the impact on farmers of market practices such as price spreads, forward contracts, packer ownership of livestock before slaughter, market transparency, and increasing retailer concentration.
As a result of these concerns, USDA and the Department of Justice’s Antitrust Division announced that they will be holding a series of five workshops in 2010 across the U.S. The workshops are intended to give these agencies and the public in-depth information about the impacts of increasing concentration and decreasing competition in the agricultural sector. Attendance at all the workshops is free and open to the public.
These workshops could provide the groundwork for additional regulations or measures in the next Farm Bill to protect farmers caught between concentration in markets in which they sell their products and concentration in the markets in which they buy agricultural supplies.
USDA Contact Information
Grain Inspection, Packers and Stockyards Administration (GIPSA) website: www.gipsa.usda.gov
USDA Contact: J. Dudley Butler GIPSA Administrator 202-720-0219.
To report violations or suspected violations and abuses in the livestock, meat, and poultry industries contact: USDA’s Violation Hotline: 1-800-998-3447; PSPComplaints@usda.gov.