USDA releases first of 3 proposed rule reforms to Packers and Stockyards Act

The government agency charged with overseeing the marketplace for livestock has announced the first of what it called a suite of major actions under the Joe Biden administration.

On May 26, the U.S. Department of Agriculture, in a news release, announced a proposed rule that will require poultry companies and live poultry dealers to provide key information contract producers need to make production contract decisions best suited to their businesses. This action is part of a set of significant policy changes USDA is undertaking to achieve the goals of the president’s Executive Order on Promoting Competition in the American Economy, it said.

Second, USDA is seeking input from stakeholders through a separate policymaking action to determine whether the current tournament-style system in poultry growing could be modernized to create a fairer marketplace that allows more producers to participate.

And third, USDA released a Competition Report outlining its strategy for enhancing competition in the food and agricultural sectors. With this report, USDA is also announcing plans to complete a top-to-bottom review of programs for alignment with supporting competition and a new review of the most widely used animal-raising claims to help ensure those claims are adequately verified.

“The Packers and Stockyards Act is crucial for protecting farmers and ranchers from excessive concentration and unfair, deceptive practices in the poultry, hog, and cattle markets. But after 100 years, it needs to take modern market dynamics into account,” said Agriculture Secretary Tom Vilsack.

“Increased transparency is the essential starting point for modernizing our rules, protecting producers, and countering the damaging effects of concentration,” Secretary Vilsack added. “Today, with this proposed rule, we are taking a huge step forward, to increase transparency by providing the sunlight needed to ensure poultry markets are fair and well-functioning. And by ensuring that growers have access to the information they need to make informed contract decisions, we also are improving their chances of success, ensuring more vibrant rural communities.”

Poultry has long been a contract marketing system, said Glynn Tonsor, a professor in agricultural economics at Kansas State University who studies meat supply chains and consumer demands.

Regardless of the meat supply chain, regulatory matters ultimately come down to final details and that will impact those who are the stewards. “Exactly how any program is implemented directly impacts the time and effort involved in reporting, complying with associated assessments, etc.”

How the poultry announcement crosses over to the beef and hog interests remains to be seen, he said.

“That is hard to forecast as the core drivers leading to these announcements blend politics and economics,” Tonsor said. “The real impact of any PSA reforms is hard to project. Moreover in the absence of objective, rather than subjective, goals it is hard to assess the success of any program meeting its stated goals.”

One CEO of a livestock group praised the USDA’s step in a news release issued May 26. “We welcome USDA’s release of this proposed poultry rule because we know the concentrated beef packers are working to capture control of the live cattle supply chain just as they already control the poultry supply chain,” said R-CALF USA CEO Bill Bullard. “If USDA restores competition in the captured poultry industry through effective reforms, then similar reforms can more readily be implemented to prevent any further erosion of competition in the cattle industry.”

Bullard said the second and third proposed rules will more directly impact the cattle industry and his organization is looking forward to their release.

“We intend to work aggressively to offer the USDA with helpful comments in each of its three planned rulemakings to ensure their swift finalization and implementation,” Bullard concluded.

Also released was the “Agricultural Competition: A Plan in Support of Fair and Competitive Markets,” USDA’s report to the White House Competition Council under President Biden’s Executive Order on Promoting Competition in America’s Economy. The report sets out USDA’s strategies to increase competition through investing in new competitors to address major bottlenecks in the food and agricultural supply chains, in particular meat and poultry processing and domestic fertilizer capacity. It also highlights USDA’s comprehensive efforts to reinvigorate competition and fair market regulation and oversight, including partnering with the Department of Justice to establish farmerfairness.gov, a joint complaints and tips web portal.

The report also highlights USDA’s efforts to enhance value-added competitive opportunities for producers, including the already-announced top-to-bottom review of the “Product of USA” label for beef and a newly announced review of animal-raising claims, among many other strategies and efforts.

Highlights of USDA’s efforts include:

• Launching an unprecedented multibillion dollar investment plan to directly incentivize competition in food processing and fertilizer, creating more market opportunities and input options for producers.

• Reinvigorating USDA’s century-old fair and competitive market laws to establish a regime that counters unfair and anti-competitive practices and empowers producers and growers.

• Partnering with the Department of Justice to enforce antitrust laws vigorously. This includes standing up a new one-stop shop at FarmerFairness.gov to make it easier to report complaints of potential violations, with confidentiality protections and whistleblower protections against retaliation for reporting criminal antitrust concerns.

• Working in concert with the White House and other agencies to call out bad actors and firms that are padding their profits at the expense of farmers, ranchers, workers, and consumers.

• Partnering with the Federal Trade Commission to enhance access to retail markets for farmers and smaller food processors.

• Working with the Department of Commerce’s United States Patent and Trademark Office to promote access to affordable seeds, fertilizer, and other inputs.

• Reviewing USDA programs to encourage fair competition and ensure that they are not inadvertently supporting systems and relationships that are prone to abuse.

• Providing technical assistance and support as Congress considers legislation to modernize and improve transparency and price discovery in livestock markets.

• Enhancing value-added market access and protecting those markets from consumer confusion.

• Promoting competition in transportation networks that producers depend on.

Under the proposed rule, poultry companies will be required to make certain disclosures to poultry growers with whom they contract to raise birds, to provide current and prospective growers with the accurate information they need to be make informed business decisions and avoid the risks of deception. Specifically, it would require poultry companies to provide a Live Poultry Dealer Disclosure Document that includes information on bird placements, stocking density, prior litigation with poultry growers, prior bankruptcy filings, and payments realized by other poultry growers in prior years broken out by quintiles to reflect a realistic range of outcomes for different growers. Small live poultry dealers, those harvesting less than 2 million live pounds of poultry weekly, would be exempt from the disclosure requirements of the proposed rule.

Additionally, the proposed rule will provide growers who are paid using a poultry grower ranking system with disclosures around the inputs they receive from the poultry company, at time of placement and at settlement. These placement disclosures will improve growers’ ability to monitor issues and to compete on a real-time basis using the inputs they receive.

Settlement disclosures—which show the distribution of the inputs, the housing specification, and any feed disruptions for the growers in the tournament—will help growers understand the relative importance of inputs, housing investments, and skills/efforts in tournament outcomes. In doing so, it will prevent deception and help growers plan and improve their ability to compete and deliver positive outcomes.

The proposed rule is being published in the Federal Register and will be available for public comment. It is currently available for review on USDA’s Agricultural Marketing Service website. Stakeholders and other interested parties have 60 days from the date it is published in the Federal Register to submit comments via the Regulations.gov web portal. All comments submitted will be considered as USDA develops a final rule.

The parallel release of an advance notice of proposed rulemaking seeks public input around additional steps USDA can take to ensure the fair operation of those poultry growing contracts. It seeks input on the fairness of the tournament system overall, as well as on additional ways to address concerns relating to specific practices. In the months ahead, USDA also intends to propose rules that provide greater clarity to strengthen enforcement of unfair and deceptive practices, unjust discrimination, and undue preferences and prejudices, as well as address requirements relating to harm to competition under section 202(a) and 202(b) of the P&S Act.

Dave Bergmeier can be reached at 620-227-1822 or [email protected].