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Friday, March 11, 2011

USDA’s Proposed Rule on Livestock and Poultry Marketing Practices

Joel L. Greene
Analyst in Agricultural Policy

On June 22, 2010, the U.S. Department of Agriculture’s (USDA’s) Grain Inspection, Packers and Stockyards Administration (GIPSA) published a proposed rule on the implementation of regulations dealing with livestock marketing practices as mandated by the 2008 farm bill (P.L. 110-246). The proposed rule adds new details to the implementation of the Packers and Stockyards Act of 1921 (P&S Act) to clarify conduct that violates the P&S Act. The P&S Act regulations are used by USDA to ensure fair competition in livestock and poultry markets. USDA is now reviewing public comments in preparation for issuing a final rule.

In what some see as a major change from current practice, GIPSA proposes that a violation of the P&S Act does not require a finding of “harm or likely harm to competition.” The proposed rule sets criteria for unfair, discriminatory, and deceptive practices, and covers undue or unreasonable preference or advantages that violate the P&S Act. Lastly, the proposed rule includes arbitration provisions to ensure that contract growers have the opportunity to participate in meaningful arbitration and the right to decline arbitration.

During congressional debate on the 2008 farm bill, some advocates proposed that a competition title be added to the farm bill to address perceived anticompetitive market behavior by large meat and poultry processing companies. Then and now, advocates for stronger anticompetitive measures contend that, because of substantial market consolidation over the past several decades, meat packers and poultry processors wield considerable market power over individual producers when negotiating contracts. Others argue that consolidation occurred in previous decades and has stabilized in recent years, bringing with it efficiencies that benefit producers and consumers alike.

A competition title was not passed, but the enacted farm bill included new provisions that amend the P&S Act to give poultry and swine growers the right to cancel contracts, require the clear disclosure by poultry processors to growers of additional required capital investments, set the choice of law and venue in contract disputes, and give poultry and swine growers the right to decline an arbitration clause that requires arbitration to resolve contract disputes.

Proponents of the proposed rule argue that the P&S Act has not lived up to its potential because rules have not been properly promulgated over the years and courts have incorrectly interpreted it. According to proponents, the proposed rule will bring fairness to contracts and reshape interactions between producers and large meat packers and processors. Opponents argue that the proposed rule goes far beyond the intent of Congress in the 2008 farm bill, particularly the proposed criteria for violating the P&S Act. Critics expect the rule to greatly alter how business is currently conducted to the detriment of producers, consumers, and the industry. Critics also say the proposed rule will result in increased litigation. In addition, one of the primary complaints by opponents of the proposed rule was that it lacked rigorous impact analysis that would uncover severe economic consequences.

USDA has not provided a specific timeframe for finalizing the proposed rule. Media reports have speculated that it will take several months to process the public comments, and a more thorough economic analysis as promised by USDA would also likely take a few months to complete. Last year, some Members of Congress commented on the proposed rule, and there may be considerable interest in the 112
th Congress to further examine USDA’s intent and implementation of the proposed rule.

Date of Report: March 8, 2011
Number of Pages: 30
Order Number: R41673
Price: $29.95

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