Center comments on Farmer Fair Practice Rules

March 23, 2017

M. Irene Omade
Grain Inspection and Packers and Stockyards Administration
United States Department of Agriculture
1400 Independence Ave. SW, Room 2542A-S
Washington, DC 20250-3613

Re: Comments on the Farmer Fair Practices Rules: Interim final rule on Scope of Sections 202(a) and (b) of the Packers and Stockyard Act 81 FR 92566, proposed rule Unfair Practices and Undue Preferences in violations of the Packers and Stockyards Act 81 FR 92703, and proposed rule on Poultry Grower Ranking System 81 FR 92723 (December 20, 2016)

Dear: Ms. Omade:

The Center for Rural Affairs welcomes the opportunity to comment on the Grain Inspection, Packers & Stockyards Administration’s (GIPSA) Interim Final Rule and two Proposed Rules implementing provisions of the Packers & Stockyards Act (PSA), known collectively as the Farmer Fair Practices Rules. The Center for Rural Affairs, based in Lyons, Nebraska, pursues a mission to establish strong rural communities, social and economic justice, environmental stewardship, and genuine opportunity for all while engaging people in decisions that affect the quality of their lives and the future of their communities.

In 1997, the National Commission on Small Farms issued a call for a number of livestock market reforms that were included in the proposed 2010 rules. Chuck Hassebrook, then director of the Center for Rural Affairs, was named by Secretary Dan Glickman as a member of the National Commission on Small Farms and we vociferously supported the livestock market reforms called for in the final report of the Commission, entitled “A Time to Act.”

Two years later, the Center for Rural Affairs independently petitioned Secretary Glickman to utilize his existing authority under the Packers and Stockyards Act to write a rule that would provide a definition for what constitutes an “undue or unreasonable preference” as prohibited by the Packers and Stockyards Act, Section 202(b). Secretary Glickman declined to act on our petition.

Since that time, the Center for Rural Affairs has been one of the most outspoken voices on the need for defining an “undue or unreasonable preference” under the Packers and Stockyards Act. During both the 2002 and 2008 Farm Bill debates the Center for Rural Affairs called for the inclusion of a livestock market competition title that included a provision compelling the Secretary of Agriculture to write rules defining an “undue or unreasonable preference” under the Packers and Stockyards Act. In 2008 those efforts were rewarded when just such a provision was included in the Food, Conservation and Energy Act of 2008. We supported the proposed rule that USDA published in 2010 to address a number of concerns raised by family farmers and ranchers across the country regarding livestock and poultry markets.

Today, we applaud the United States Department of Agriculture's (USDA) decision to move forward with these three rules, and we wholeheartedly support and encourage USDA-GIPSA to finalize the two proposed rules.

Livestock and poultry production has long been a pillar of economic opportunity for rural communities. But for too long, the lack of clarity on what constitutes unfair practices or undue burdens has unfairly limited poultry and livestock producers’ ability to conduct business with packers on fair and equal terms. These rules represent an opportunity to level the playing field for hard-working poultry and livestock producers.

Thank you for considering our viewpoint and recommendations on the Interim Final and the Proposed Rules.

Sincerely,
Anna Johnson
Policy Program Associate
Center for Rural Affairs

Comments of the Center for Rural Affairs

This document encompasses the Center for Rural Affairs' comments for Interim Final Rule on the Scope of Sections 202(a) and (b) of the Packers and Stockyards Act 81 FR 92566, the proposed rule on Unfair Practices and Undue Preferences in violation of the Packers and Stockyards Act 81 FR 92703, and the proposed rule on Poultry Grower Ranking System 81 FR 92723, all published on December 20, 2016.

The Center for Rural Affairs has been engaged in supporting rural communities for over forty years, and we have many longstanding farmer and rancher supporters. We know that independent livestock and poultry producers play an important role in rural economies. We see the lack of economic opportunity for smaller livestock and poultry operations as posing major economic, environmental, and health problems for all of America, and particularly for rural America.

We applaud the positive impact that these rules will have for the poultry, hog, and cattle industries, and our supporters are particularly concerned with the positive impact it will have on the hog industry. Many of the farmers and ranchers we work with once raised hogs but had to give them up when the industry moved towards favoring and prioritizing large scale contract hog production. Because basic protections for producers like those in these rules were not in place, many producers were unable to confront the meatpacking companies about unfair treatment they were receiving. This trend is not limited to our supporters - the number of hog producers in the United States has dwindled drastically over the past few decades. In 1980, there were over 666,000 hog farms in the United States; the 2012 Census of Agriculture reported 63,246 farms with hogs and pigs, a decline of over 90 percent. This decline the financial viability of hog farms has helped to undercut the health of many rural communities. These rules will help ensure that the remaining contract hog producers are able to receive fairer treatment from packing companies.

In addition to pursuing the establishment of strong rural communities, the Center for Rural Affairs also supports the environmental health of rural communities. We see these rules as having the potential to positively impact the environment of rural communities. As these rules increase protections for producers, they would allow many smaller contract livestock producers to enter and stay in business. Livestock can play an important ecological role on farms and ranches as part of a diverse crop and pasture rotation. However, a major barrier for producers in implementing these diverse rotations is finding a market for smaller numbers of animals. Leveling the playing field for livestock producers will do a great deal towards providing economic opportunity for producers to raise smaller numbers of animals and for rural communities to reap the environmental benefits.

The Center for Rural Affairs supports USDA finalizing the Interim Final Rule. We also support finalizing both proposed rules, and suggest various improvements in the below sections.

I.  Interim Final Rule

We wholeheartedly support this rule, which clarifies that farmers and ranchers who have been wronged by a packing company do not have to also prove that there was harm to competition – in other words, the entire industry. The content of this rule is consistent with historic USDA interpretation of the Packers and Stockyards Act, as well as the plain language of the PSA. We supported a similar proposal in the 2010 rule and support this rule today.

We stated in our comments in 2010 and repeat here that USDA has long argued that a violation of section 202(a) or (b) can be proved without proof of predatory intent, competitive injury, or likelihood of injury to competition. This is an interpretation that has been held by both Republican and Democratic administrations

We have seen that there is some confusion on this matter with the courts. In recent years, a few federal courts of appeals have ruled – in some cases overruling juries of the people – that farmers and ranchers bringing cases against packers under Sections (a) and (b) must also demonstrate harm to industry competition. Those courts ruled in this way even though neither the federal law nor the legislative history of the PSA require finding harm to competition within the industry. This interim final rule will clear up this confusion and return implementation of the law to its original meaning.

We cannot overstate the importance of the clarification that this rule provides. Without it, producers have been required to show that a company harmed not only them but competition across their industry. This is an impossibly high and incredibly unfair barrier for producers to prove when seeking redress from packing companies. For many, it is sufficiently high to push them out of business. We applaud USDA’s decision to clarify that producers do not have to meet this impossible standard.

II. Proposed Rule on Unfair Practices and Undue Preference in Violation of Packers and Stockyards Act

The Center for Rural Affairs supports this proposed rule, with a few below improvements described below.

Examples of Unfair, Unjustly Discriminatory, or Deceptive Practices

We support the inclusion of robust examples of what actions constitute unfair, unjustly discriminatory, or deceptive practices. We support those that were included in the 2010 rule as well as those proposed here.

Specifically, in the 2010 rule, USDA included eight clear examples of common actions that constitute unfair, unjustly discriminatory, and deceptive practices or devices. We urge the USDA to retain those.

We also support the inclusion of examples of “per se” violations of 202(a) of the PSA that are included in this proposed rule.

We support the inclusion of the non-exhaustive list of examples of Section 202(a) violations in that are proposed here under 201.210(b).

Finally, we also support inclusion of Section 201.210(c), which provides that a conduct or an action that harms or is likely to harm competition is an unfair, unjustly discriminatory, or deceptive practice or device and thus a violation of Section 202(a).

Legitimate Business Justification

We strongly urge you to remove the “legitimate business justification” loophole from this rule. Actions such as retaliation, limiting the legal rights of farmers under contract, and limiting producers’ rights to juries or full arbitration participation are clear violations of Section 202(a). The door should not be left open for these actions to occur under a “legitimate business justification” - they should instead be fully prohibited.

Criteria for Determining Unfair, Unjustly Discriminatory, or Deceptive Practices

We support the inclusion of the criteria in 201.211 to allow the Secretary of Agriculture to determine if there has been an unfair, unjustly discriminatory, or deceptive practice. We also support the clarification included here under the introductory text that the given criteria are not exhaustive.

In addition, there are two criteria from the 2010 rule that were removed in this rule and that we would like to see restored.

The first criteria we propose to be restored is the consideration of whether price premiums and discounts are being offered equitably to different producers. We would like to reiterate from our 2010 comments that we see price discrimination as a major systemic problem for livestock producers. We urge USDA in the final rule to strengthen protections for producers by including price premiums as a criteria for determining whether an action violates the Packer and Stockyards Act.  

We also request restoration of the volume related language and a strengthening of the language to prohibit volume related premiums or discounts. Premiums or discounts should be allowed for:

  • Measurable and verifiable differences in carcass and meat quality, if those premiums are available to producers of all sizes;
  • Specified time of delivery and for delivery at times of urgent need, if those premiums are available to producers of all sizes; and
  • Volume related savings that result from real and verifiable efficiencies in the cost of procuring, transporting, or handling livestock and conducting other transactions that occur outside the plant.

The second criteria for the Secretary of Agriculture to use in determining whether an action has violated the P&S Act that we would like to see restored is with regards to disclosure of information to producers. Critical information regarding acquiring, handling, processing and quality of livestock should be disclosed to all producers when it is disclosed to one or more producers. It will reduce the practice where packers and processors provide more favorable terms to certain producers and less favorable terms to others.

Alternative Marketing Arrangements

We appreciate that the background text of the rule clarifies that the intent of the rules is not to prohibit alternative marketing arrangements. We urge the agency to include these provisions in the final rule.

III. Proposed Rule on Poultry Grower Ranking System

This proposed rule seeks to clarify how Section 202(a) and (b) apply to the poultry grower ranking system or tournament system for calculating farmer pay. The Center for Rural Affairs supports USDA in finalizing this Proposed Rule, and also proposes some improvements.

This proposed rule provides a non-exhaustive list of criteria to determine whether a poultry integrator is using a 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 or subjects any poultry grower to an undue or unreasonable prejudice or disadvantage.”

We support this proposed rule that would prevent companies from using the tournament system to target specific producers to receive inferior chicks or feed. We encourage USDA to move forward with this rule. We also ask USDA that, when finalizing this rule, to strengthen it by clearly designating that any tournament system is an undue preference in any case where a farmer’s pay is penalized based on inputs affecting performance outside of their control.

IV. Conclusion

The Center for Rural Affairs urges the Secretary of Agriculture and the Administrator of the Grain Inspection, Packers and Stockyards Administration to move forward with these rules. We support the interim final rule and we urge the USDA to finalize the two proposed rules.

For many years, we have seen that farmers and ranchers are the lifeblood of rural communities. When they can no longer make a living as producers, the vibrancy of rural communities drains away. Schools close, businesses leave, and young people neither migrate in nor return home because there is no way to make a living, much less build a life or raise a family.

The re-structuring of the poultry and livestock industries has undercut the foundation of many rural communities. For too long, packing companies and the like have been allowed to squeeze poultry and livestock producers in unfair ways. These rules would not only provide clarity on a long-overdue legal issue, they offer USDA a chance to level the playing field and support poultry and livestock producers and rural communities. Because these rules are good for producers, they are good for rural America.

We urge the new USDA administration to pick up this important work and continue to move it forward. Thank you for the opportunity to comment on this important issue.

For more on the interim final rule and two proposed rules, check out our blog.