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Wednesday, February 22, 2012

USDA’s “GIPSA 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 to implement regulations on livestock and poultry marketing practices as mandated by the 2008 farm bill (P.L. 110-246). The proposed rule, commonly referred to as the “GIPSA rule,” added new regulations to clarify conduct that violates the Packers and Stockyards Act of 1921 (P&S Act). The P&S Act regulations are used by USDA to ensure fair competition in livestock and poultry markets.

In what some see as a major change from current practice, GIPSA proposed that a violation of the P&S Act does not require a finding of “harm or likely harm to competition.” The proposed rule set criteria for “unfair, discriminatory, and deceptive practices”, and “undue or unreasonable preference or advantages” that violate the P&S Act. The proposed rule also included arbitration provisions to ensure that contract growers have a meaningful opportunity to participate in 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 companies. Then and now, advocates for stronger anticompetitive measures contend that substantial market consolidation over the past several decades has given meat packers and poultry processors 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.

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. The farm bill required USDA to propose rules to implement the farm bill provisions.

According to proponents of the proposed rule implementing the farm bill provisions, the rule would bring fairness to contracts and reshape interactions between producers and large meat packers and poultry processors. Opponents argue that the proposed rule went far beyond the intent of Congress in the 2008 farm bill, and that the rule would alter business practices to the detriment of producers, consumers, and the industries.

On November 3, 2011, USDA started to finalize the proposed rule by sending it to the Office of Management and Budget (OMB) for review. However, Members of Congress used the appropriations process to curtail what USDA could do to finalize the proposed rule. Section 721 of the FY2012 Agriculture Appropriations Act (P.L. 112-55), signed November 18, 2011, included conditions and prohibited USDA from finalizing certain parts of the proposed rule.

USDA issued the final rule on December 9, 2011, and it went into effect on February 7, 2012. The final rule, a significant modification of the proposed rule, includes four provisions that address, respectively, suspension of the delivery of birds, additional capital investments, remedy of breach of contract, and arbitration. The final rule does not include many of the most contentious provisions of the proposed rule. It is possible that some of the competition provisions could reemerge in the next farm bill debate.

Date of Report:
February 8, 2012
Number of Pages:
Order Number: R41
Price: $29.95

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