March 28, 2017
Editors Note: On April 13, 2017 USDA delayed the effective date for the interim final rule on “competitive injury” until October of 2017. A separate Federal Register Notice requests comments by June 12, 2017 on the disposition of the interim final rule including whether it should be delayed further, withdrawn, suspended, or allowed to go into effect in October. NSAC issued the following comment on upon learning of the delay.
Make no mistake, the delay in implementation of this important rule is anti-farmer. The rule will help level the playing field for family farmers and ensure they have some recourse when their rights under the law are violated. We hope and expect that when Sonny Perdue is confirmed as the next secretary of Agriculture he and President Trump will support farmers and finalize the rule.”
In 1920, there was the “Big Five” of meatpackers; today, we have the “Big Four” – or the “Big Three” if you’re talking poultry. Consolidation is a problem in industry because too much control can easily lead to an abuse of power. Abuses of power in an overly consolidated meatpacking and processing industry were identified in America nearly 100 years ago, and were the impetus for the passage of the Packers and Stockyards Act of 1921. The Act was designed to decentralize the power of the Big Five and to prevent industry abuses included but not limited to: manipulation of markets, restricting the flow of foods, defrauding producers and/or consumers of food, engaging in deceptive or unfair practices, and giving undue preference to persons or localities.
Today, nearly 100 years after the passage of the Packers and Stockyards Act, America’s meat and poultry producers – especially those in the “contract agriculture” system – are still waiting for basic rights and protections under the law.
While the Packers and Stockyards Act was a much-needed regulation of corporate meatpackers, the lack of enforcement authority given to the agency charged with implementing the act (the Grain Inspection, Packers and Stockyards Administration (GIPSA)) made the law largely toothless. The U.S. Department of Agriculture (USDA) has tried many times over the last several years to overhaul the rules, but has always been thwarted by congressional appropriators’ use of backdoor “policy riders.”
2016 was the first year that no policy rider was attached to stop the GIPSA Rules – officially called the “Farmer Fair Practices Rules” (FFPR) – in either the House or the Senate appropriations bills, and thus the FFPR were finally allowed to move forward. Just as it seemed America’s contract producers would finally see some much-needed relief, the Trump administration issued an executive order (January 2017) delaying all pending final rules, and the future of FFPR is once again uncertain.
The executive order delayed the FFPR by 60 days, and effectively extended the final comment periods. The comment period on these rules is now coming to an end, and we are less than a month from when FFPR’s interim final rule on competitive injury should become final.
NSAC urges the Trump Administration and USDA to stand with family farmers by allowing the competitive injury interim final rule go into effect. We also encourage them to allow the rulemaking process FFPR’s two proposed rules to continue.
NSAC supports all three of the Farmer Fair Practices Rules, and has submitted several suggested improvements as part of the recently closed comment period. Below we will explain what the FFPR are intended to do, why they are so important, and how we think the two proposed rules can be improved during the rulemaking process.
The interim final rule on competitive injury simple confirms what previous Republican and Democratic Administrations have held, and what the underlying law plainly says: that the Packers and Stockyards Act does not require a showing of competitive injury to the industry in order for there to be a violation with respect to an individual farmer. Requiring proof of competitive injury would mean that meat and poultry farmers would have to show that injury had been caused to the whole industry in order to make a case against fraudulent or deceptive business practice perpetrated against them by a multinational meat corporation. This is akin to having to prove that the entire housing market in your state was harmed by someone setting your house on fire in order to win a court case against the arsonist. Not only is this a ludicrous standard that no one should have to meet in order to see justice served, it is is not written anywhere in the law.
Unfair Practices and Undue Preference
This proposed rule would create criteria for whether packers or processors have engaged in an unfair practice or provided an undue preference under sections 202(a) and (b) of the Packers and Stockyards Act. The first part of the rule lays out several “per se” violations of the law against unfair, unjustly discriminatory practices or devices covering actions such as a delay in payment. This part of the rule also lays out eight other actions that would be a violation absent a showing of “legitimate business justification.” Actions that would be violations of this law include: retaliation for speaking out or joining a grower organization, restricting the right to jury trial, and not providing reasonable notice of suspension of delivery of animals.
The second part of the rule provides criteria for what would be considered providing undue or unreasonable preference. The criteria include: whether similarly situated producers are treated differently for arbitrary reasons, whether similarly situated producers are treated differently based on races or sex, and whether they have a legitimate business justification for the different treatment.
While NSAC supports the goals of both portions of this rule, we have submitted several recommendations on how they could be improved.
First, we see no “legitimate business justification” for discrimination or retaliation against farmers and firmly believe this part of the rule should be removed. Second, this rules should include provisions requiring more transparency on pricing and quality of the feed and animals that corporate integrators provide to contract producers. These provisions were included in the version of the original FFPR published in 2010, and would ensure all producers have equitable access to the same information and quality of inputs. Additionally, we believe that the 2010 proposed rules’ prohibition on basing price premiums and discounts on factors outside the control of the producer should also be restored.
Tournament System Rule
The second of FFPR’s proposed rules addresses the unfair and ineffective poultry tournament system. This system pits farmer against farmer, ensures that half of all farmers in the tournament will always lose, and bases the selection of winners and losers on factors outside of the control of the producers.
The tournament system is most widely used in the contract poultry industry; 97 percent of the chicken we eat is produced by a farmer under contract with a big chicken company. Under this system, farmers receive a base payment for raising the chickens and then can either have money added or taken away based on their efficiency as compared with other farmers who received chicks on the same day. The problems with this system are myriad; chief among them is the fact that farmers do not control the two biggest factors that determine whether they perform above or below the baseline – quality of the feed and the chicks. In fact, the big meat corporations have been known to routinely manipulate these two variables in order punish growers who haven spoken out against industry abuses, or who have refused to pay for expensive upgrades.
In this version of the proposed rule, USDA pulled back significantly from their 2010 version, which prohibited some conduct and prescribed others. This rule instead provides a non-exhaustive list of criteria to determine whether a poultry integrator is using the tournament system “in an unfair, unjustly discriminatory, or deceptive manner, or in a way that gives an undue or unreasonable preference or advantage to any poultry grower.” Included among these criteria is whether or not producers were supplied with the same quality of inputs like chicks and feed.
NSAC suggests that these changes are merely working around the edges of the problem, and that the tournament systems itself should be considered a violation of the Packers and Stockyards Act because it is unfair and inequitable by design. There are may better payment systems that could replace the tournament system, such as issuing payment based on the square footage used to raise the chickens.
The False Narrative
On March 21, 2017 the House Agriculture Subcommittee on Livestock on Foreign Agriculture held a hearing that included discussion on FFFPR in preparation for the drafting of the 2018 Farm Bill. The hearing included producer representatives from a variety of livestock industries including: Mr. Craig Uden, President, National Cattlemen’s Beef Association; Mr. Carl Wittenburg, Chairman, National Turkey Federation; Mr. Bob Buchholz, Region V Executive Board Representative, American Sheep Industry Association; Mr. David Herring, Vice President, National Pork Producers Council. Sadly, the witness list included only representatives from “Big Meat,” and none of the actual producers affected by their inequitable, monopolistic systems.
The hearing showcased what we have seen in the media for years: that Big Meat thinks it is beyond regulation and should be allowed to abuse contract farmers for its own gains without reprisal. Their claims that FFPR, if passed, would impoverish livestock and poultry producers by limiting marketing opportunities is especially rich. Many of the biggest packing and processing companies, particularly in the poultry industry, are almost completely vertically integrated and control every aspect of production – leaving the farmer with little other than debt and animal waste.
Years of meat and poultry integration has forced many thousands of independent producers out of business, and consigned most of the rest of them into the serf-like system of contract agriculture. Our farmers deserve better; after nearly 100 years of waiting they deserve to see FFPR acted upon without delay.
These rules will support American family farmers and rural Americans – the very groups President Trump pledged to champion. We hope the President will keep that pledge and reject the lies of the mega corporations whose purpose is to continue to steal the dignity and livelihood of poultry and livestock farmers.
Categories: Competition & Anti-trust