On June 22, 2010, USDA published a new draft rule regarding how meatpacking corporations must deal with farmers and ranchers in the procurement of livestock and poultry. It's not perfect, but it is the most aggressive livestock market reform to come out of Washington since the passage of the Packers and Stockyards Act itself. The rule will breathe some life and some competition back into our livestock markets.

The administrative rule covers a number of reforms to help restore competition and contract fairness to livestock and poultry markets, including establishing a definition for what constitutes an “undue or unreasonable preference.” The Packers and Stockyards Act specifically prohibits price discrimination by meatpackers against smaller volume, family farm and ranch livestock producers. Specifically, the Act makes it unlawful for packers to “make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect whatsoever.”

The Center for Rural Affairs is working hard to improve USDA’s unreasonable preference rule, and we’ll fight – tooth and nail – to ensure that the packers and their commodity group allies cannot weaken it.

USDA’s draft rule is actually several rulemaking efforts in one. This article deals almost exclusively with the “undue or unreasonable preference” sections of the rule. Visit www.cfra.org/competition for more information on the rulemaking process, how to comment, and our detailed analysis. You’ll also find links to perspectives on other aspects of the rule from the National Sustainable Agriculture Coalition, Western Organization of Resource Councils, R-CALF and others.

Improvements to the Draft Rule
USDA’s draft rule needs to be improved in three areas:

1. First, and foremost, the rule does not specifically disallow purely volume-based premiums.
2. Moreover, the unreasonable preference sections focus excessively on treatment of large-volume livestock producers in relation to “groups of producers” at the expense of individual, small-volume producers.
3. Last, the draft rule fails to exclude premiums that are based on nebulous, shadowy, so-called “operational efficiencies” that packers claim occur within the confines of the plant versus real and verifiable differences in transactional costs related to procuring and handling livestock outside the plant door.

USDA has not effectively enforced the Packers and Stockyards Act for decades. For example, packers routinely pay five or six cents per pound – more in some cases – in purely volume-based premiums to the largest hog producers just because they are large. These sweetheart deals for large-volume producers have become commonplace, but no less a violation of law.

Six cents per pound may not sound like much of a discount, but, for a family farmer with 150 sows in a farrow-to-finish operation it amounts to receiving $56,000 less annually for hogs of the same quality, simply because he or she markets fewer hogs. That’s what this rule needs to put an end to. That’s what we set out to accomplish when we worked so diligently to include an “unreasonable preference” rulemaking provision in the Livestock Title of the 2008 Farm Bill.

Giving credit where it is due, Secretary of Agriculture Tom Vilsack and GIPSA Director Dudley Butler had the courage to take that farm bill provision and run with it, resulting in a strong step in the right direction. Also, their draft rule correctly establishes that while actions by packers that damage competition in the sector are always violations of the “unreasonable preference” provision, the occurrence of competitive injury is not necessary for a violation to occur. USDA should stand their ground on this point.

What You Can Do to Finish the Job
It is absolutely crucial that USDA receive comments from as many family farmers and ranchers as possible, as well as everyone interested in making livestock markets more competitive and livestock production more economically, environmentally and socially sustainable. It’s a strong rule, which means the packers and their minions are going to whine and complain heartily. USDA needs to hear from the rest of us too, if we want to keep the rule strong and improve it along the way.

Please look here for more information on this rulemaking process, including the Center for Rural Affairs’ detailed comments and analysis, a copy of the draft rule and information about how to submit comments to USDA. If you need any assistance with writing and submitting comments, contact John Crabtree, johnc@cfra.org or 402.687.2100.

USDA has extended the period for accepting public comments on the draft rule. Comments are now due by November 22, 2010 instead of August 22.