September 12, 2019
Consolidation of the livestock sector has severely damaged competitive markets, livestock producer livelihoods, and rural qualities of life. The National Sustainable Agriculture Coalition (NSAC) and our allies have long fought against this trend, and secured many significant victories for family farmers; ensuring, for example, that the 2008 Farm Bill require the Packers and Stockyards Act of 1921 (P&SA) to go through the rule making process. P&SA is the primary law governing livestock and poultry markets, and was designed to promote antitrust policies, and prevent consolidation and corporate control in the poultry and livestock industries. P&SA has several core elements that address many issues facing livestock and poultry farmers, including: competitive injury, undue practices and undue preference, and contract fairness.
Without strong regulations to enforce these provisions, however, producers have been left defenseless. The lack of regulation to support the P&SA – a result of congressional brinksmanship, stalling by the Administration, and agency inaction – has stymied the P&SA’s ability to fulfill its purpose and protect producers.
One proposed rule that could add much-needed enforcement, however, is currently undergoing the rule making process at the U.S. Department of Agriculture (USDA).
The proposed rule will address the so-called “undue preference” provision and could provide criteria to determine if there has been a violation of Section 202(b) of the P&SA, which prohibits “any undue or unreasonable preference or advantage to any particular person or locality in any respect” regarding livestock and poultry production contracts. The rule is expected to be released this fall and will have a 60-day comment period. Once released, NSAC will conduct an in-depth analysis and submit recommendations to the Administration in how to implement these regulations.
However, this is not the first attempt to rein in corporate control and curb the exploitation of producers through the administrative reform process. NSAC has continually fought alongside our members to level the playing field for contract livestock and poultry producers. As part of our campaign efforts, we submitted comments and led advocacy on the Grain Inspection, Packers & Stockyards Administration (GIPSA) proposed rule in 2010, and also commented and led advocacy efforts on an interim final rule on P&SA in 2017. Now that the opportunity to act on the undue preference provision is before us, NSAC is fighting for provisions that would allow for a more competitive and transparent market.
In this post, we detail the key issues that NSAC will be looking at and evaluating in the pending regulations.
The undue preference provision of P&SA is intended to prevent meat and poultry processing companies (also known as “integrators”) from giving unwarranted advantages or disadvantages to contract producers who produce the same type and quality of livestock or poultry in the same relative geographic area. Integrators require producers to enter into a production contract that outlines the terms of how a farmer is paid and specifics about how a farmer must raise the livestock or poultry that is produced under contract.
Integrators supply farmers with the feed, veterinary care inputs, and the animals themselves. In short, integrators control the entire system thanks to vertical integration. This control enables companies to discriminate against and disadvantage producers, particularly as a means of retaliation.
Producers who speak out or question unfair contract terms or practices have repeatedly reported:
Integrators can also use their control to express “undue preference” by giving fairer contract terms and higher quality animals and feed to favored producers, even though they produce the same type and quality of livestock or poultry as others in the same relative geography.
In the upcoming rule, NSAC will be urging USDA to eliminate the tournament pay system, restore the language regarding price premiums and discounts, and close the “legitimate business justification” loophole. These issues are further detailed in the following sections.
The tournament pay system is a structure organized and controlled by integrators that determines the amount of pay each livestock or poultry producer receives. Producers in close geographic proximity are grouped into “tournament” pools and compete against each other for pay. If one producer in the tournament receives a premium, it means another in the tournament is receiving a deduction in their payment.
Pay and premiums are determined by the quality and weight of the livestock or poultry, but quality and weight are both entirely based on the inputs provided by the integrator, and thereby largely controlled by the integrator. This reality places the tournament pay system squarely within the enforcement of strong undue preference criteria. Simply put, any implementation of a tournament pay system by an integrator should be prohibited under undue preference criteria.
Large producers can receive an unwarranted advantage in the form of a price premium or discount that is solely based on volume of product. Small and mid-size producers are therefore unable to access this discount because they cannot compete based on volume, even when the quality of their product is the same as large producers.
In comments regarding the 2016 proposed rule, NSAC urged for the restoration of language that would prohibit volume related premiums or discounts. This language would ensure that premiums and discounts would only be available on the basis of measurable and verifiable differences in carcass and meat quality, specified and/or urgent time delivery, and volume related savings by way of efficiencies from procuring, transporting, or handling livestock or poultry outside of plant operations. These premiums and discounts would only be allowed if made available to producers of all sizes.
NSAC urges the careful implementation of allowable price premiums and discounts as to allow producers of all sizes the same accessibility to opportunities, and the same footing and influence in the marketplace.
In the 2016 proposed rules that included undue preference, the proposed language allowed integrators, processors, and livestock dealers to escape specified violations of Sections 202(a) and 202(b) by claiming a “legitimate business justification” for the violating action. Unfair practices, like retaliation, restricting the right to a jury trial, and not providing reasonable notice of suspension of delivery of animals, could be excused if the alleged violator demonstrated that there was a “legitimate business justification” for engaging in that behavior.
NSAC firmly opposed the inclusion of language regarding “legitimate business justification” in the 2016 proposed rule. There is no justification for treating producers unfairly and discriminating against them. The “legitimate business justification” language should not be included in the upcoming rule; instead, the rule should articulate an illustrative list of clear violations of P&SA.
USDA implementation of the aforementioned proposed changes would send a clear signal to producers that the agency is listening and working to support them. Producers have done their job in clearly identifying the abuses inflicted by large processing companies and the protections that they need. All the agency has to do is listen to them.
Fair and clear criteria that protect producers is long overdue. Stunting corporate consolidation in the poultry and livestock industries could and should serve as the start of a larger action to combat consolidation in other sectors. Indeed, many other agricultural sectors are struggling under the incredible pressures of consolidation.
Rural food animal veterinarians are being shut out of jobs, small and medium-sized meat processors are closing their doors at alarming rates, and the crops grown to feed livestock are controlled by a few powerful corporations that often dictate both the seed used as well as require use of in-house pesticides and herbicides.
Consolidated markets are also pushing farmers out of business, and in some cases, to suicide. Razor thin profit margins are exacerbating farm stress across the country. For example, Farm Aid’s farmer help hotline saw a 93 percent hike in year-to-date calls during their first quarter of this year. Farming is hard enough, and corporate consolidation is making it near impossible. With this impending rulemaking, USDA has the chance to take a long overdue step to address consolidation in agriculture and stand in solidarity with farmers.
For the past several months, NSAC has supported and partnered with the Stand with Family Farmers Campaign, which is organized by NSAC member organizations Rural Advancement Foundation International – USA and the Organization for Competitive Markets in collaboration with the Government Accountability Project. As part of the campaign, a petition to the USDA advocating for producer protections in the upcoming rule has reached over 83,000 signatures. Farmers demands are clear and simple:
Additional information on the rule and mobilization efforts around it can be found here.