USDA’s “GIPSA Rule” on Livestock and
Poultry Marketing Practices
Joel L. Greene
Analyst in Agricultural Policy
March 29, 2013
Congressional Research Service
7-5700
www.crs.gov
R41673
CRS Report for Congress
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USDA’s “GIPSA Rule” on Livestock and Poultry Marketing Practices
Summary
The 2008 farm bill (P.L. 110-246) included new provisions that amended the P&S Act to give
poultry and swine growers the right to cancel contracts, to require that poultry processors clearly
disclose to growers additional required capital investments, to set the choice of law and venue in
contract disputes, and to 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 these provisions.
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. 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 saw 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.
According to proponents of the proposed rule implementing the farm bill provisions, the rule
brought fairness to contracts and reshaped interactions between producers and large meat packers
and poultry processors. Opponents argued that the proposed rule went far beyond the intent of
Congress in the 2008 farm bill, and that the rule altered business practices to the detriment of
producers, consumers, and the industries.
USDA issued a final rule on December 9, 2011, which went into effect on February 7, 2012. The
final rule, a significant modification of the proposed rule, included four provisions that address,
respectively, suspension of the delivery of birds, additional capital investments, remedy of breach
of contract, and arbitration.
Before USDA finalized the GIPSA rule in December, Congress passed in November 2011 the
FY2012 appropriations bill (P.L. 112-55), which included Section 721 prohibiting USDA from
finalizing the most contentious parts of the rule. The language from the FY2012 appropriations
bill was continued into FY2013 as part of the temporary continuing resolution (P.L. 112-175),
which provided funding through March 27, 2013, and was continued for the rest of the fiscal year
by the year-long continuing resolution (P.L. 113-6). In addition, three provisions finalized by
USDA in December 2011 were rescinded.
Repeal of the GIPSA rule may also become part of the omnibus farm bill debate in the 113th
Congress. In the 112th Congress, the House-reported farm bill, H.R. 6083, included a
provision—Section 12105—that repealed the final GIPSA rule and prohibited USDA from
implementing a similar rule.
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USDA’s “GIPSA Rule” on Livestock and Poultry Marketing Practices
Contents
Introduction ...................................................................................................................................... 1
Background ...................................................................................................................................... 2
Concern About Industry Structure and Competition........................................................................ 3
Industry Consolidation .............................................................................................................. 4
Legal Challenges ....................................................................................................................... 5
Earlier Debates in Congress on Competition ............................................................................ 6
2008 Farm Bill Provisions ............................................................................................................... 7
Production Contracts ................................................................................................................. 7
Promulgation of the Regulations ............................................................................................... 8
Summary of GIPSA’s Proposed Rule .............................................................................................. 8
Competitive Injury ..................................................................................................................... 9
Unfair Practices ....................................................................................................................... 10
Undue or Unreasonable Preference ......................................................................................... 11
Arbitration ............................................................................................................................... 11
Congressional Limits in FY2012 Appropriations .......................................................................... 13
USDA’s Final Rule ........................................................................................................................ 14
Final Provisions ....................................................................................................................... 14
Suspension of Delivery of Birds ....................................................................................... 14
Additional Capital Investment .......................................................................................... 15
Remedy of Breach of Contract .......................................................................................... 15
Arbitration ......................................................................................................................... 15
Final Rule Economic Impact ................................................................................................... 18
Reaction to Final Rule ............................................................................................................. 18
Selected Issues ............................................................................................................................... 18
Congressional Intent and GIPSA Authority ............................................................................. 20
Unfair Practice vs. Harm to Competition ................................................................................ 21
Livestock and Poultry Purchasing Practices ............................................................................ 22
Restricting Livestock Dealers to a Single Packer ............................................................. 22
Banning Packer-to-Packer Sales ....................................................................................... 23
Revising Tournament Systems .......................................................................................... 23
Record-Keeping to Explain Pricing ......................................................................................... 24
Poultry Provisions Shifting Risk to Poultry Companies.......................................................... 25
Making Contracts Publicly Available ...................................................................................... 26
Economic Impact of the Proposed Rule ........................................................................................ 26
GIPSA Cost Analysis ............................................................................................................... 27
Industry Analysis ..................................................................................................................... 28
American Meat Institute .................................................................................................... 28
National Meat Association ................................................................................................ 28
National Chicken Council ................................................................................................. 29
Congressional Interest and Oversight ............................................................................................ 29
Hearings ................................................................................................................................... 30
FY2012 Appropriations ........................................................................................................... 31
FY2013 Appropriations ........................................................................................................... 32
Farm Bill Action in the 112th Congress ................................................................................... 33
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USDA’s “GIPSA Rule” on Livestock and Poultry Marketing Practices
Figures
Figure 1. Concentration Ratios of the Top Four Processing Firms by Industry............................... 4
Tables
Table 1. Livestock Marketing Strategies, by Share of Slaughter (Cattle and Hogs) or
Production (Poultry) ..................................................................................................................... 5
Table 2. Relationship Between GIPSA Proposed Rule and Farm Bill Requirements ................... 12
Table 3. Comparison of Proposed Rule and Final Rule ................................................................. 16
Appendixes
Appendix. Views on Proposed GIPSA Rule .................................................................................. 34
Contacts
Author Contact Information........................................................................................................... 36
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USDA’s “GIPSA Rule” on Livestock and Poultry Marketing Practices
Introduction
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 Title XI (Livestock) of the
Food, Conservation and Energy Act of 2008 (2008 farm bill; P.L. 110-246).1 The proposed rule
adds new details to the implementation of the Packers and Stockyards Act of 1921 (P&S Act, 7
U.S.C. §181 et seq.) that describe and clarify conduct that violates the P&S Act.
USDA received more than 61,000 public comments on the proposed rule, and it was the subject
of considerable debate in Congress during 2010 and 2011. On November 3, 2011, after nearly a
year of review, USDA notified stakeholders that a final rule and an interim final rule on livestock
and poultry marketing practices had been sent to the Office of Management and Budget (OMB)
for final review.
USDA indicated that the final rule would contain provisions covering the suspension of delivery
of birds, additional capital investment, breach of contract, and arbitration—four provisions
addressed in Sections 11005 and 11006 of the 2008 farm bill. Also, USDA said the final rule
would contain a section on swine and poultry contracts. Importantly, USDA also indicated that it
would not go forward with proposed and controversial provisions that banned packer-to-packer
sales and limited the relationship between packers and packer buyers. USDA also dropped the
requirement that written records providing justification for pricing differentials be maintained.
However, on November 18, 2011, the FY2012 Agriculture Appropriations Act (P.L. 112-55) was
enacted and included a general provision that limited USDA’s ability to finalize a large portion of
its proposed rule. Section 721 of the act placed specific conditions and prohibitions on which
parts of the proposed rule USDA could finalize. It required that the combined annual cost to the
economy from a final rule or an interim final rule must be less than $100 million. Section
721 also prohibited USDA from using any funds to implement eight specific provisions of the
proposed rule, regardless of the annual cost to the economy of the final or interim final rule.
Furthermore, Section 721 required that USDA publish any rules in the Federal Register by
December 9, 2011, and that no funding be used to implement the final rule until after 60 days of
being published.
On December 9, 2011, USDA issued the final rule on livestock and poultry marketing practices.
The rule went into effect on February 7, 2012. The final rule was a significant modification of the
proposed rule. It included four provisions from the proposed rule, addressing suspension of the
delivery of birds, additional capital investment, remedy of breach of contract, and arbitration.
However, it did not include many of the most contentious provisions, either because of
congressional prohibitions enacted in P.L. 112-55 or because USDA decided not to pursue some
provisions at this time.
For more information on USDA and congressional actions affecting the proposed rule, see
“Congressional Limits in FY2012 Appropriations,” and “USDA’s Final Rule,” below.
1 Grain Inspection, Packers and Stockyards Administration, USDA, “Implementation of Regulations Required Under
Title XI of the Food, Conservation and Energy Act of 2008: Conduct in Violation of the Act,” 75 Federal Register
35338, June 22, 2010. Hereafter referred to as the “proposed rule” or “GIPSA rule.”
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Background
The Grain Inspection, Packers and Stockyards Administration (GIPSA) is the USDA agency that
promulgates regulations under the Packers and Stockyards Act of 1921 (P&S Act, 7 U.S.C. §181
et seq.; see box, “The Packers and Stockyards Act of 1921”) to oversee livestock and poultry
markets. GIPSA is responsible for monitoring, reviewing, and investigating livestock and poultry
markets to promote fair competition, provide payment protection through bonding and packer
trusts, and guard against deceptive and fraudulent trade practices.
Some farmers and ranchers and their advocate groups believe that as the meat and poultry
industries have become increasingly concentrated over time, competition has eroded, and
producers have little say in market transactions with large meat companies. In addition, some
claim USDA has not used the P&S Act sufficiently to protect livestock and poultry producers,
especially small producers, from perceived unfair trade practices of large meat companies.
During 2010, in order to address ongoing concerns about competition in the livestock and poultry
industries, USDA and the Department of Justice (DOJ) jointly held five workshops to discuss
competition and regulatory issues in agriculture.2 The five workshops covered farming, poultry,
dairy, livestock, and margins (the difference between the price producers receive and the price
consumers pay). These workshops provided an opportunity for stakeholders from various sectors
of the meat and poultry industries to air their concerns.
USDA issued a proposed GIPSA rule on livestock and poultry marketing practices in mid-2010.
Proponents and opponents espoused widely differing interpretations of it. According to USDA
and supporters of the proposed rule, the regulations allowed for more effective and efficient
enforcement of the P&S Act. According to USDA, the interaction between meat companies
would be more transparent, as the proposed rule required meat packers and poultry processors to
justify pricing differences and provide sample contracts to GIPSA. The proposed rule defined and
gave examples of practices that GIPSA considered unfair that would violate the P&S Act. The
proposed rule would bring fairness to marketing transactions, according to supporters.
Opponents of the proposed rule claimed that there would be unintended consequences that would
adversely affect normal livestock and poultry marketing practices. They argued that the proposed
rule amounted to the government stepping in to manage the day-to-day working of markets,
which would lead to inefficiencies, increased litigation, and the loss of gains that the industry has
experienced over the years.
The proposed rule was issued with a 60-day comment period. After considerable comment and
feedback, the comment period was extended for an additional 90 days ending November 22,
2010. The proposed rule generated more than 61,000 public comments.3
2 Background and transcripts for the workshops are at http://www.justice.gov/atr/public/workshops/ag2010/index.html.
3 Comments on GIPSA’s proposed rule are posted on http://www.regulations.gov, where nearly 300 government
agencies post copies of proposed regulations and the public can submit comments via the website.
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The Packers and Stockyards Act of 1921
Passage of the P&S Act in 1921 was “in response to concerns that, among other things, the marketing of livestock
presented special problems that could not be adequately addressed by existing antitrust laws.”4 Parts of the act, as
amended (7 U.S.C. §181 et seq.), prohibit unjustified discriminatory practices, as well as certain, specific activities that
might adversely affect competition. As stated in 7 U.S.C. Section 192 of the act, it is unlawful for a packer or poultry
dealer to “engage in or use any unfair, unjustly discriminatory, or deceptive practice or device; give
undue/unreasonable preference/advantage to [persons or localities]”; apportion supply among packers in restraint of
commerce or create a monopoly; trade in articles to manipulate or control prices, if such apportionment tends to
restrain commerce or to create a monopoly; or conspire to apportion territory, or sales, or to manipulate or control
prices.
The Secretary of Agriculture has assigned regulatory responsibility for the act to USDA’s Grain Inspection, Packers
and Stockyards Administration (GIPSA). GIPSA does not have a direct antitrust authority, and the P&S Act does not
provide the agency with premerger review authority. The agency’s role, however, is to maintain fair competition
regulations. GIPSA is authorized to initiate and conduct investigations of alleged violations in the livestock industry,
but general y not in the poultry industry. A violator of GIPSA regulations may, after a hearing before a USDA
administrative law judge, be served a “cease and desist” order, and civil fines may be imposed.
If a packer disregards an order or refuses to pay fines, GIPSA may refer the case to the Department of Justice, which
can enforce the order/fine through court action. According to GIPSA, most violations are corrected voluntarily by the
individuals or firms when a violation is brought to their attention. Except for serious violations, disciplinary action
tends to be the last resort, and is imposed only after substantial efforts to obtain compliance have failed.5
Some Members of Congress expressed considerable interest in the GIPSA rule throughout the
comment period, and during the 112th Congress there has been considerable interest in overseeing
USDA’s implementation of the final rule. This report provides background on the genesis of the
proposed and final rules and a summary of their provisions. The report discusses some of the
major concerns about the proposed rule, and describes congressional interest and oversight.
Concern About Industry Structure and Competition
Advocates for stronger anticompetitive measures in the livestock industry contend that, because
of the substantial market consolidation that has occurred over the past several decades, packers
and poultry processors/integrators or live poultry dealers6 have more market power than
individual producers when negotiating contracts and in the livestock market in general. Others
argue that this consolidation occurred in previous decades and has stabilized in recent years,
bringing with it efficiencies that benefit producers and consumers alike. Furthermore, barring
collusion, others argue that it only takes two interested buyers to have sufficient competition for a
market to work properly.
4 Government Accountability Office (GAO), Packers and Stockyards Programs: Continuing Problems with GIPSA
Investigations of Competitive Practices, March 9, 2006, testimony before the Senate Agriculture Committee.
5 See CRS Report RL33325, Livestock Marketing and Competition Issues, for discussion of other relevant authorities
that govern livestock and poultry marketing and competition.
6 A packer slaughters and/or processes livestock into meat. Similarly, a poultry processor is an enterprise engaged in
the business of converting live poultry into poultry meat products. An integrator is a poultry company that contracts
with a poultry grower to raise live birds to contract specifications. The integrator provides inputs and processes the
birds. Live poultry dealer is the term used in the P&S Act and in the proposed rule for a poultry processor or integrator.
For more information on the structure of the U.S. broiler industry, see James M. MacDonald, The Economic
Organization of U.S. Broiler Production, Economic Research Service, USDA, Economic Information Bulletin, Number
38, Washington, DC, June 2008.
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Industry Consolidation
Market concentration in the meat and poultry industries has increased over the last two decades,
with a few firms now dominating each sector. The “four-firm concentration ratio” measures the
four largest firms’ share of the market and is commonly cited as a summary indicator of
concentration and overall structural change in the industry. The historical evolution of industry
concentration ratios for the slaughter of fed cattle (steers and heifers), hogs, and poultry is shown
in Figure 1 below. From 1986 to 2008, the four-firm share of slaughter increased from 55% to
79% for cattle, 33% to 65% for hogs, and 34% to 57% for poultry. The concentration ratios
appear to have stabilized in the mid-1990s for the cattle sector, around 2003 for the hog sector,
and since about 2006 for the poultry sector.7
Figure 1. Concentration Ratios of the Top Four Processing Firms by Industry
(percent of annual slaughter or production)
100
Steers & Heifers
80
Hogs
60
40
Poultry
20
0
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Sources: Data for steers & heifers and hogs are from USDA, GIPSA, Annual Reports, various issues; poultry
concentration data are from “Competition in the U.S. Chicken Sector,” by Dr. Thomas Elam, FarmEcon LLC,
May 19, 2010, prepared for the National Chicken Council.
Note: Poultry data are available only for five-year increments beginning in 1982. Inter-period years were
extrapolated by a simple moving average. Therefore, caution should be exercised in making close comparisons of
year-to-year trends in poultry with those of steers and heifers or hogs.
Recent estimates of the various marketing strategies employed by the three major livestock
species are displayed in Table 1. Some in the industry are concerned that the share of cash
transactions is not sufficient to adequately determine cash prices, which is critical because the
cash market is often used as input for contracts or other marketing arrangements. The cash market
7 For more information on industry structure, see CRS Report RL33325, Livestock Marketing and Competition Issues.
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still comprises a relatively large share (estimated at 41% in 2008) of fed cattle sales. The hog
sector’s cash market share of sales has been declining over the past several decades and now
stands at less than 10% of all sales. However, the hog cash market is still fairly robust and
provides the basis for much of the formula and forward contract pricing. In the poultry sector,
cash sales of broilers are essentially nonexistent, with production contracts accounting for nearly
all transactions.
Table 1. Livestock Marketing Strategies, by Share of Slaughter (Cattle and Hogs) or
Production (Poultry)
Steers & Heifers
Hogs
Broilers
Type
(2008)
(2009)
(2006)
Cash market
41%
8%
< 1%
Forward or formula contract
46%
49%
0%
Negotiated grid pricing
7%
0%
0%
Production contract
0%
12%
98%
Packer or processor-owned
6%
26%
1%
Packer sold
0%
6%
0%
Total Annual Marketing
100%
100%
100%
Sources: Data for Steers & Heifers are from “Extent of Alternative Marketing Arrangements for Fed Cattle and
Hogs,” AGEC-615, by Clement Ward, Oklahoma State University, January 2010; data for hogs are from
“Wholesale Pork Price Reporting Analysis,” A Value Ag, LLC Report, commissioned by the Agricultural
Marketing Service, USDA, November 2009; and Broiler data are “The Economic Organization of U.S. Broiler
Production,” James M. MacDonald, EIB 38, Economic Research Service, USDA, June 2008.
Note: Formula contract pricing refers to establishing a transaction price using a formula that includes some
other price as a reference. Grid pricing consists of a base price with specified premiums and discounts for
carcasses above and below a base set of quality specifications. Under a production contract, a producer raises
the livestock or poultry according to the instructions of a contractor. The contract specifies inputs supplied by
the contractor and the producer’s compensation. A substantial portion of the formula contracts for hogs are
similar to production contracts in that they are enhanced formula pricing arrangements that may include some
explicit production method or input requirements, but have not been explicitly categorized as production
contracts by the data source.
Legal Challenges
Previously, producers initiated several closely watched lawsuits under the P&S Act challenging
the contracting and marketing practices of large meat and poultry companies.8 These generally
unsuccessful efforts added impetus to calls for legislative action to strengthen existing antitrust
authorities, to impose more mandates on the executive branch to enforce these authorities, and to
provide new contract protections for farmers and ranchers.
In what many analysts considered to be a landmark legal case under the P&S Act—Pickett v.
Tyson Fresh Meats, Inc.—a group of cattle feeders in 1996 sued Iowa Beef Packers (IBP), which
was bought by Tyson in 2001, for violating the P&S Act. This was reportedly the first class action
8 See http://www.nationalaglawcenter.org/assets/caseindexes/packersandstockyards.html for a comprehensive case law
index for the P&S Act.
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certified for producers against a packer in the P&S Act’s long history.9 Following eight years of
litigation, a jury in early 2004 agreed with producer arguments that the packer had used “captive
supplies”10 to control the supply of cattle available on the market, thereby causing lower cattle
prices. The jury set damages at more than $1.2 billion. However, the federal judge in the case set
aside the verdict on the grounds that the jury had insufficient evidence to find that Tyson had no
legitimate business reason for using captive supplies.
The plaintiffs appealed, but a U.S. Court of Appeals in August 2005 upheld the lower judge’s
decision. The appeals court rejected the plaintiffs’ argument that there was a violation of the P&S
Act. “If a packer’s course of business promotes efficiency and aids competition in the cattle
market, the challenged practice cannot, by definition, adversely affect competition,” the court
declared.11 The plaintiffs and their supporters asked the U.S. Supreme Court to review the case,
but the Court declined to do so in early 2006.12
In a more recent example, in January 2011, the U.S. Supreme Court declined to review the case,
Terry v. Tyson Farms, Inc., brought by a Tennessee poultry grower against Tyson Farms. Terry
sued Tyson in federal court in 2008 claiming unfair practices under the P&S Act because Tyson
would not allow him to view the weighing of his birds when they were delivered to the plant.
Eventually Tyson canceled its contract with Terry. The federal court and the U.S. Court of
Appeals, Sixth Circuit, had found that Tyson’s action had not harmed competition, and Terry’s
P&S Act claims were dismissed.13
Earlier Debates in Congress on Competition
Over the past decade, some farmer-rancher coalitions have proposed to address perceived
anticompetitive market behavior by large meat and poultry companies through legislation,
specifically by adding a “livestock competition” title to the omnibus farm bill.
Early in the debate on the 2002 farm bill (P.L. 107-171) a coalition of farm groups proposed that
Congress rework antitrust laws and change the P&S Act to reflect the consolidation in the meat
industry.14 An agriculture competition title was included in an early version of the farm bill (S.
1628) but was removed in the Senate Agriculture Committee markup.15 During subsequent floor
action on the bill, the Senate approved some individual competition amendments that were
9 Pickett v. Tyson Fresh Meats Inc., 11th Cir., No. 04-12137.
10 Captive supplies are cattle committed to a specific meatpacker two weeks or more ahead of slaughter. The three most
common captive supply methods are marketing/purchasing agreements, forward contracts, and packer feeding.
11 Pickett v. Tyson Fresh Meats Inc., as reported in Daily Report for Executives, August 24, 2005. Some discussion of
the case also is from David A. Domina, “Proving Anti-Competitive Conduct in the U.S. Courtroom: The Plaintiff’s
Argument in Pickett v. Tyson Fresh Meats, Inc.,” Journal of Agricultural and Food Industrial Organization, vol. 2,
2004.
12 “Supreme Court upholds contracts,” Feedstuffs, April 3, 2006.
13 Tom Johnston, “ Supreme Court rejects farmer’s plea to review case against Tyson,” Meatingplace.com, January 25,
2011. Available at http://www.meatingplace.com/MembersOnly/webNews/details.aspx?item=21254.
14 Steve Marbery, “Competition clause proposed in U.S. farm policy debate,” Feedstuffs, June 4, 2001,
http://www.feedstuffs.com/ME2/dirmod.asp?sid=49804C6972614A63A1A10DF54CD95D65&nm=
Search+our+Archives&type=Publishing&mod=Publications%3A%3AArticle&mid=
AA01E1C62E954234AA0052ECD5818EF4&tier=4&id=9B68F671C7F943A499F2D004477E1281.
15 Ted Monoson, “Agriculture Panel Far from Consensus on Farm Bill,” Congressional Quarterly, November 13, 2001.
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enacted in the final 2002 farm bill. One gave producers the right to discuss their contracts with
family members and advisors, and the other extended new P&S Act protections to swine
producers with production contracts (Sections 10502 and 10503 of P.L. 107-171).
In February 2007, ahead of deliberations on the 2008 farm bill in the 110th Congress, Senator
Harkin introduced the Competitive and Fair Agricultural Markets Act of 2007 (S. 622) to clarify
and strengthen the P&S Act and the Agricultural Fair Practices Act of 1967 (7 U.S.C. §2301 et
seq.). S. 622 was intended to be the basis for a competition title in the new farm bill. A similar
House bill (H.R. 2135) was introduced in May 2007.
Similar to proposals during the 2002 farm bill debate, S. 622 would have established an Office of
Special Counsel for Competition within USDA to investigate and prosecute violations of the P&S
Act and be a liaison with the Department of Justice and the Federal Trade Commission. The bill
also would have set up production contract and enforcement provisions.16 Parts of S. 622 were
incorporated into the Senate-passed version (S. 2302) of the farm bill, which contained a new
title on Livestock, Marketing, Regulatory, and Related Programs (Title X). The Senate version of
the farm bill also contained a provision to ban packer ownership of cattle. Although the final
version of the 2008 farm bill did not include a competition title or the ban on packer ownership of
cattle, the enacted farm bill contained competition provisions that provided producers with
contract and arbitration rights.
2008 Farm Bill Provisions
Although congressional interest in livestock market competition issues did not result in a
competition title, the most recently enacted omnibus farm bill in 2008 (P.L. 110-246) included a
livestock title (Title XI). Previous farm bills generally addressed livestock issues in miscellaneous
titles.17 The livestock title of the 2008 farm bill included 17 sections that cover issues such as
mandatory price reporting for livestock, country-of-origin labeling for meat, and catfish grading
and inspection.
Sections 11005 and 11006 of the farm bill specifically addressed the P&S Act. The first of these
sections dealt with production contracts and the second section with promulgating regulations for
the P&S Act. The proposed rule was issued by USDA to fulfill the requirements of the 2008 farm
bill.
Production Contracts
Section 11005 of the 2008 farm bill amended the P&S Act to add Section 208, which provides
poultry growers and swine producers the right to cancel contracts. The law now requires that
growers and producers have at least three days from the date of contract execution to cancel. In
addition, contracts have to clearly disclose the cancellation rights of producers, including the
method and deadline for cancellation.
16 Sen. Harkin, “Statements on Introduced Bills and Joint Resolutions,” Senate speeches, Congressional Record,
February 15, 2007, p. S2053.
17 The main exception is dairy price support policies, which are covered under Title I, Subtitle E.
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The 2008 farm bill also requires that production contracts state whether poultry growers or swine
producers would be required to make additional large capital investments during the life of the
contract. Specifically, if the contract requires an additional investment, the farm bill requires that
the first page of a contract include such a statement.
The farm bill also added Section 209 to the P&S Act to include provisions about the choice of law
and venue in a contract dispute. The forum for resolving disputes over a poultry, swine, or
marketing contract would be located in the federal judicial district where the contract is
performed. Also, the contract may specify which state law is to apply if there is a dispute over
production or marketing contracts.
Lastly, the farm bill added arbitration provisions in Section 210 of the P&S Act. The provisions
state that if a livestock or poultry contract contains an arbitration clause for resolving disputes,
then the grower or producer must have the option to decline arbitration. The enacted farm bill
requires that contracts clearly disclose the right of a producer or grower to decline the arbitration
provision. The law also provides that producers and growers could opt for arbitration even after
declining the arbitration provision at the time of contract execution, if both sides agree in writing
to take a dispute to an arbitrator. The Secretary of Agriculture was directed to promulgate
regulations that would ensure producers and growers have a meaningful chance to participate in
the arbitration process.
Promulgation of the Regulations
Following the addition of new laws on production contracts, Section 11006 of the farm bill
required the Secretary of Agriculture to promulgate regulations concerning violations of the P&S
Act. The regulations were to be issued within two years of the enactment of the farm bill (i.e., by
June 2010). The farm bill specifically directed the Secretary of Agriculture to establish criteria in
four areas: first, criteria to determine if producers or growers are treated with undue or
unreasonable preference or advantage; second, criteria to determine whether poultry dealers give
enough notice to poultry growers before suspending the delivery of birds; third, criteria to
determine if required additional capital investments during a poultry or swine contract were a
violation of the P&S Act; and fourth, criteria to determine if poultry growers or swine producers
are given enough time to remedy a breach of contract before contracts are terminated.
On June 22, 2010, GIPSA published the requisite proposed rule (9 C.F.R. Part 201) in the Federal
Register (75 Fed. Reg. 35338). The rule was initially opened for a 60-day comment period, to
close on August 23, 2010; however, in response to substantial industry feedback and concerns
expressed by some Members of Congress, GIPSA, on July 26, 2010, extended the comment
period until November 22, 2010.
The proposed rule generated more than 61,000 public comments. Many of the public submissions
were “form letter” comments, but USDA still received approximately 30,000 unique comments.
GIPSA reviewed and evaluated the public comments in preparation for publishing a final rule.
Summary of GIPSA’s Proposed Rule
Besides fulfilling the requirements of the farm bill, USDA also saw the proposed rule as an
opportunity to address the increasing use of contracting in livestock and poultry production.
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USDA stated that, “The goal of this regulation is to level the playing field between packers, live
poultry dealers, and swine contractors, and the nation’s poultry growers and livestock
producers.”18
The proposed rule and GIPSA’s discussion of the rule covered four broad areas: competitive
injury, unfair or unjustly discriminatory or deceptive practices, undue or unreasonable preference
or advantages, and arbitration. The proposed rule addressed the poultry grower and swine
producer contract provisions in the 2008 farm bill and also included regulations that prohibit what
USDA has deemed unfair market practices. The proposed rule introduced new requirements for
contracts and market practices with the aim of creating a fairer, transparent market for livestock
and poultry producers. The Appendix of this report includes a synopsis of the proposed rule and
a discussion of USDA’s supporting arguments and opponents’ concerns.
Competitive Injury
In the proposed rule, GIPSA established its definition of competitive injury or harm to
competition. Section 202 of the P&S Act describes actions that are unlawful. The first actions are
any unfair, unjustly discriminatory, or deceptive practices. The second involve undue or
unreasonable preferences. The other unlawful actions under Section 202 include conduct where
packers, swine contractors, or poultry dealers apportion supply, control prices, or create
monopolies that restrain commerce (harm to competition), or aid and abet in these actions.
Sections 201.2 and 201.3 of the proposed rule specifically addressed the first two unlawful acts of
Section 202 of the P&S Act.
When courts have heard P&S Act cases, the rulings usually have required that plaintiffs prove
that the conduct of meat packers or poultry processors has harmed competition. Proponents of the
proposed rule claimed that it is nearly impossible for an individual grower or producer to prove a
broad charge of harm to competition.
In Section 201.2 of the proposed rule, GIPSA defined competitive injury as any action that
distorts competition in the marketplace. GIPSA defined likelihood of competitive injury as any
reasonable basis that competitive injury will occur. This could be conduct by packers, contractors,
or poultry dealers that raises costs for competitors or misuses market power to distort competition
with rivals. In addition, the proposed rule extended the definition of likelihood of competitive
injury to conduct by packers, contractors, and poultry dealers directed toward livestock producers
and poultry growers. Conduct that depresses prices to producers and growers or prevents
producers and growers from competing with other producers or growers can be a competitive
injury or harm to competition. GIPSA also stated in Section 201.3 of the proposed rule that
depending on the circumstance, conduct could be a violation of the P&S Act without a finding of
harm or likely harm to competition.
18 Grain Inspection, Packers and Stockyards Administration, Farm Bill Regulations—Proposed Rule Outline, p. 1,
undated, http://archive.gipsa.usda.gov/psp/Farm_bill_rule_outline.pdf.
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Unfair Practices
The second category of issues in the proposed rule covered unfair, unjust discriminatory and
deceptive practices. In this area USDA described actions that it considers unfair and that would be
violations of the P&S Act. USDA specifically noted that these actions do not require a finding of
harm or likely harm to competition to be a P&S Act violation.
In Section 201.210 of the proposed rule USDA provided eight examples of unfair practices by
meat packers and poultry dealers:
1. actions that a reasonable person would consider unscrupulous or deceitful;
2. retaliatory actions, such as coercion or intimidation, in response to a lawful
action by a producer or grower;
3. refusal to provide statistical data used to determine contract payments;
4. actions to limit producers’ or growers’ legal rights;
5. paying premiums or discounts without documenting a reason;
6. terminating a production contract based only on allegations of misconduct by a
producer or grower;
7. practices that are fraudulent or likely to mislead a producer or grower; and
8. broadly, any act that causes or creates a likelihood of competitive injury.
In Section 201.215, USDA proposed that live poultry dealers provide at least 90 days’ notice that
they are going to suspend the delivery of birds to poultry growers. This period would provide
growers an opportunity to find other options for using their growing houses.
Sections 201.216 and 201.217 of the proposed rule addressed capital investment requirements and
the criteria that USDA would use to consider a required capital investment a violation of the P&S
Act. Sample criteria included whether or not a poultry grower or swine producer has the
discretion to decide against making the investment, whether or not they are coerced into making
the investment, and whether or not other similar growers or producers are required to make
additional capital investments. Also, it could be considered a violation of the P&S Act if a poultry
or swine contractor plans to substantially reduce or shut slaughter or processing facilities within
12 months of requiring additional capital investments. But contractors could get a waiver from
that regulation for catastrophic or natural disasters, or other emergencies. If additional capital
investments were required, the grower or producer would have to be given a contract of sufficient
length to allow them to recoup 80% of the cost of the investment.
Section 201.218 of the proposed rule set criteria to determine if a contract grower or producer has
been given sufficient opportunity to remedy a breach of contract. The proposed rule required that
a written notice be given to the contract grower or producer and that the notification identify the
breach, when it occurred, and how it can be remedied. Growers and producers would also have
the chance to rebut a breach of contract claim. Contractors would also consider the welfare of the
animals that growers or producers are responsible for when considering actions and timelines for
remedying a breach of contract.
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Last, USDA proposed in Section 201.212(c) that packer-to-packer sales of livestock be banned.
This would include affiliated companies and wholly-owned subsidiaries. A packer could receive a
waiver for catastrophic or natural disasters. In the rule discussion, GIPSA noted that it did not
consider these transactions as part of its definition of unfair practices, but as a “separate and
distinct regulation” intended to prevent packers from manipulation.
Undue or Unreasonable Preference
The third part of the proposed rule addressed undue or unreasonable preference or advantage, that
is, when producers who produce the same or similar poultry or livestock product receive different
treatment or payment from contractors. This includes proposed regulations for differential
pricing, record-keeping, and packer-dealer relationships. In general, the Secretary of Agriculture
would use three criteria to determine if poultry growers or livestock producers had been treated
with undue or unreasonable preference in violation of the P&S Act (§201.211):
1. whether contract terms were available to any producer or grower who could meet
the terms of the contract;
2. whether premiums for product standards were offered to a producer or group of
producers who could meet the standards; and
3. whether information about handling, processing, and the quality of livestock was
made available to all producers if made available to one.
Two sections of the proposed rule, Sections 201.94 and 201.214, addressed prices in poultry and
livestock markets. Section 201.94 required that packers, swine contractors, and live poultry
dealers keep written records to justify differential pricing. The justification would have to provide
the cost-benefit basis for different prices. GIPSA noted in its rule discussion that participation in a
branded product program could be justification for a packer paying premium prices to cattle
producers. Section 201.214 prohibited discounting base pay by live poultry dealers who use the
tournament system to pay poultry growers. In a tournament system a poultry grower’s birds are
ranked or compared with the performance of other growers. Then grower payments are adjusted
up or down based on performance relative to the group.
In Section 201.212(a), GIPSA proposed to prohibit livestock dealers from buying livestock for
more than one packer. Livestock dealers buy and sell livestock for their own account or for
another vendor or purchaser. A dealer who buys for a packer is often called a packer-buyer. Also,
Section 201.212(b) required that a packer report to USDA if a packer-buyer relationship were
established with a livestock dealer.
In order to provide more information for growers and producers, GIPSA proposed in Section
201.213 that contractors be required to provide sample copies of unique contracts to GIPSA. The
sample contracts would be made publicly available except for trade secrets, confidential business,
and personal identity information.
Arbitration
In Section 201.219 of the proposed rule, GIPSA set the criteria to be used to ensure that contract
growers have a meaningful opportunity to participate in arbitration. The first part of the proposed
arbitration regulation required that contracts clearly disclose the costs, the process, and the limits
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to legal rights and remedies associated with arbitration. It stated that the costs should be
reasonable compared with typical arbitration processes and provide reasonable time limits and
access to information discovery by growers and producers. The arbitration process should comply
with the Federal Arbitration Act (9 U.S.C. §1 et seq.). The second part of Section 201.219 also
required that contracts contain the following statement giving a grower or producer the right to
decline arbitration:
Right to Decline Arbitration. A poultry grower, livestock producer or swine production contract
grower has the right to decline to be bound by the arbitration provision set forth in this agreement.
A poultry grower, livestock producer or swine production contract grower shall indicate whether
or not it desires to be bound by the arbitration provision by signing one of the following
statements:
I decline to be bound by the arbitration provisions set forth in this Agreement ________
I accept the arbitration provisions as set forth in this Agreement ________
Failure to choose an option by signing one of the above renders the contract void.
A cross-reference of sections in the farm bill provisions and the relevant GIPSA proposed rule is
provided in Table 2. The Appendix of this report includes a side-by-side synopsis of the pro and
con positions for each provision.
Table 2. Relationship Between GIPSA Proposed Rule and Farm Bill Requirements
(sections in bold are prohibited by FY2012 Agriculture Appropriations Act, P.L. 112-55)
Farm Bill
GIPSA Proposed Rule
Provision
Sections
Issue
§201.2(l)-(u),
(l, t, & u) Terms
defined
§201.3(a)-(d), (c)
Applicability of regulations
Section 11005
§201.219
Arbitration
Section 11006(1)
§201.210
Unfair, unjustly discriminatory and deceptive practices or devices
§201.211
Undue or unreasonable preferences or advantages; undue or
unreasonable prejudice or disadvantages
§201.212(a)-(b)
Restrictions on livestock purchasing practices between packers
and livestock dealers
§201.212(c)
Prohibits packer-to-packer sales
§201.213(a)-(d)
Transparency restrictions on livestock and poultry contracts
§201.214
Restrictions on use of tournament system
§201.94
Records retention requirement for price differentials
Section 11006(2)
§201.215(a)-(b), (c)
Suspension of delivery of birds; waiver of (a)-(b)
Section 11006(3)
§201.216(a)-(g)
Capital investments criteria
§201.217(a)-(e)
Capital investment requirements and prohibitions
Section 11006(4)
§201.218(a)-(h)
Reasonable period of time to remedy a breach of contract
Source: GIPSA proposed rule (9 C.F.R. Part 201) in the Federal Register (75 Fed. Reg. 35338). The proposed rule
would revise and amend existing regulations under the P&S Act as amended and supplemented (7 U.S.C. 181 et
seq.). It is available at http://archive.gipsa.usda.gov/rulemaking/fr10/06-22-10.pdf.
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Congressional Limits in FY2012 Appropriations
On November 3, 2011, USDA submitted a final rule and an interim final rule on livestock and
poultry marketing practices to the Office of Management and Budget (OMB) for review. USDA
informed stakeholders that the proposed rule had been modified in its final form. USDA indicated
that the final rule would contain provisions covering the suspension of the delivery of birds,
additional capital investment, breach of contract, and arbitration. USDA also noted that the final
rule would include a section on sample swine and poultry contracts. In addition, USDA planned
to publish a separate interim final rule on the poultry tournament pricing system.19
However, on November 18, 2011, the FY2012 Agriculture Appropriations Act (P.L. 112-55) was
signed into law and it curtailed USDA’s ability to finalize its rule. Section 721 of P.L. 112-55
placed specific conditions and prohibitions on which parts of the proposed rule USDA could
finalize:
Sec. 721. None of the funds made available by this or any other Act may be used to write,
prepare, or publish a final rule or an interim final rule in furtherance of, or otherwise to
implement, `Implementation of Regulations Required Under Title XI of the Food, Conservation
and Energy Act of 2008; Conduct in Violation of the Act’ (75 Fed. Reg. 35338 (June 22, 2010))
unless the combined annual cost to the economy of such rules do not exceed $100,000,000:
Provided, That no funds be made available by this or any other Act to publish a final or interim
final rule in furtherance of, or otherwise implement, proposed sections 201.2(l), 201.2(t),
201.2(u), 201.3(c), 201.210, 201.211, 201.213, or 201.214 of `Implementation of Regulations
Required Under Title XI of the Food, Conservation and Energy Act of 2008; Conduct in
Violation of the Act’ (75 Fed. Reg. 35338 (June 22, 2010)): Provided further, That such rules
must be published in the Federal Register no later than December 9, 2011: Provided further, That
none of the funds made available by this or any other Act may be used to implement such rules
until 60 days from the publication date of such rules, and only unless such rules are otherwise in
compliance with this section.
Specifically, FY2012 funds could only be used to publish a final or interim final rule if the annual
cost to the economy, which would include the livestock and poultry industries, is less than $100
million. USDA’s notification on November 3, 2011, to stakeholders indicated that the final rule
and its interim final rule would have an economic impact under $100 million. Opponents of the
GIPSA rule believed the economic impact could reach into the billions of dollars and had strongly
criticized USDA for not providing a comprehensive economic analysis of the proposed rule (see
“Economic Impact of the Proposed Rule”). In February 2011 testimony, Secretary of Agriculture
Tom Vilsack had assured Members of Congress that USDA was analyzing public comments and
incorporating them into additional economic analysis of the rule.20
The FY2012 appropriations provision significantly restricted what USDA could put forward in its
final rule. Section 721 prohibited USDA from using any funds to implement eight specific
sections of the proposed rule, regardless of the annual cost to the economy of the final or interim
final rule. Section 721 prohibited USDA from using funds to finalize definitions of the
tournament system (§201.2(l)), competitive injury (§201.2(t)), and the likelihood of competitive
19 November 3, 2011, email on the proposed GIPSA rule from USDA’s Office of Congressional Relations to
stakeholders.
20 U.S. Congress, House Committee on Agriculture, Hearing to Review the State of the Farm Economy, 112th Cong., 1st
sess., February 17, 2011, Serial No. 112-4 (Washington: GPO, 2011), pp. 21-22.
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injury (§201.2(u)). It also did not allow funding for USDA’s proposed provision that recognized
the possibly of a violation of the P&S Act without necessarily there being harm or likely harm to
competition (§201.3(c)). The section prohibited USDA from using funds to issue criteria for
determining unfair, unjust discriminatory and deceptive practices or devices (§201.210) and
undue or unreasonable preferences or advantages (§201.211). Furthermore, USDA was prohibited
from using funds for collecting sample swine and poultry contracts (§201.213) and finalizing
regulations on the tournament system (§201.214).
Section 721 further required that USDA publish any rules in the Federal Register by December 9,
2011, and stated that no funding could be used to implement the published rules until 60 days
after publication.
USDA’s Final Rule
On December 9, 2011, USDA published its final rule on livestock and poultry marketing
practices.21 The rule went into effect on February 7, 2012. The final rule included four provisions
from the proposed rule: suspension of the delivery of birds (§201.215), additional capital
investment (§201.216), remedy of breach of contract (§201.217, §201.218 in proposed rule), and
arbitration (§201.218, §201.219 in proposed rule). The final rule also included three definitions—
principal part of performance (§201.2(m)), additional capital investment (§201.2(n)), and
suspension of delivery of birds (§201.2(o))—and a section on the applicability of the rule
(§201.3). See Table 3 for a comparison of the proposed rule and the final rule.
Final Provisions
Three of the final four provisions addressed three of the four parts of Section 11006 of the 2008
farm bill that required the Secretary of Agriculture to establish criteria that could be used to
determine if there is a violation of the P&S Act. In the final rule, USDA made small adjustments
to the proposed provisions based on public comments. USDA’s final rule removed parts of the
proposed rule that could be considered prescriptive, and focused on criteria. Section 11006(1),
which addressed “undue or unreasonable preference or advantage,” is not included in the final
rule because it is one of the sections of the proposed rule (§201.211) prohibited by P.L. 112-55.
The fourth provision on arbitration addressed Section 11005 of the 2008 farm bill, which required
the Secretary of Agriculture to promulgate regulations to carry out the arbitration amendment to
the P&S Act and to establish criteria to determine that poultry growers and livestock producer are
able to participate in the arbitration process.
Suspension of Delivery of Birds
Suspension of the delivery of birds (§201.215) addressed Section 11006(2) of the 2008 farm bill,
in which Congress required the Secretary of Agriculture to set criteria to determine if poultry
growers are given reasonable notification of the suspension of the delivery of birds. Under the
21 Grain Inspection, Packers and Stockyards Administration, USDA, “Implementation of Regulations Required Under
Title XI of the Food, Conservation and Energy Act of 2008; Suspension of Delivery of Birds, Additional Capital
Investment Criteria, Breach of Contract, and Arbitration,” 76 Federal Register 76874, December 9, 2011. Hereinafter
referred to as the “final rule.”
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rule, USDA will examine whether or not poultry companies give poultry growers at least a 90-day
notice that birds are not going to be delivered under their contract agreement. The notice should
include the reason for not delivering birds, how long the suspension of delivery will last, and an
estimate of when delivery will resume. Also, when considering whether or not a violation of the
P&S Act has occurred, USDA may consider natural disasters or emergencies, such as bankruptcy.
In its economic analysis of the provision, USDA estimated that the annual cost to the industry
was $75,480 based on the administrative cost of providing written notices to poultry growers.
Additional Capital Investment
The provision on additional capital investment (§201.216) addressed Section 11006(3) of the
2008 farm bill and establishes criteria that may be used to determine if contracts that require
additional capital investment violate the P&S Act. The final rule included eight criteria which are
similar to the proposed rule (see “Unfair Practices”), with small changes to account for public
comments. The final rule moved the equipment part of the proposed rule on capital investments
requirements and prohibitions (§201.217(c)) into Section 201.216. In the proposed rule, if new
equipment investments were required, the poultry dealer or livestock contractor would have been
required to provide adequate contract compensation incentives to the grower or producer. Under
the final rule, if new equipment investment is required when previously approved equipment is
functioning properly, compensation incentives are criteria to be considered in determining a
violation of the P&S Act.
Remedy of Breach of Contract
The provision on remedy of a breach of contract (§201.217) addressed Section 11006(4) of the
2008 farm bill. The provision provided criteria that could be considered to determine if a poultry
grower or livestock producer is given a reasonable time to remedy a breach of contract that could
ultimately lead to the termination of a contract. The final rule provision was similar to the
proposed provision (see “Unfair Practices”) in that the criteria to be considered included whether
or not growers or producers are given written notice with a description of the breach, the date of
the breach, the means to remedy the breach, and the date by which it should be remedied. The
proposed provision that set a 14-day period for growers or producers to rebut a breach of contract
claim was dropped because it was viewed as a requirement instead of a criterion. This final rule
provision was originally Section 208.218 of the proposed rule.
Arbitration
As in the proposed rule, the final rule on arbitration contained the provision that contracts include
on the signature page a statement providing poultry growers and livestock producers the right to
decline arbitration provisions in a contract (see “Arbitration”). The required statement was similar
to the proposed rule clause, except that in the final rule, absence of a signature is considered to
constitute declining the arbitration provision, instead of voiding the contract, as in the proposed
rule. Also, in order to determine that growers and producers have a meaningful opportunity to
participate in arbitration, USDA could consider if any costs and limits are disclosed to growers
and producers and whether costs and time limits are reasonable. Also, USDA could consider
whether or not growers and producers have a chance at reasonable discovery of information, if
arbitration covers only issues relevant to the contract, and if arbitration findings follow applicable
law and legal principles.
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Table 3. Comparison of Proposed Rule and Final Rule
Section Proposed
Rule
Final
Rule
§201.2 Terms Defined
Defines terms for tournament system,
Defines principal part of performance,
principal part of performance, capital
additional capital investment, and
investment, additional capital
suspension of delivery of birds.
investment, suspension of delivery of
Section 721 of P.L. 112-55
birds, forward contract, marketing
prohibits definitions for tournament
agreement, production contract,
system (§201.2(l)), competitive injury
competitive injury, and likelihood of
(§201.2(t)), and likelihood of
competitive injury.
competitive injury (§201.2(u)).
§201.3 Applicability of
Describes how rule applies to live
Finalized. Rule applies to pullets, laying
regulations
poultry dealers and contracts. Also
hens, breeders and broilers. Not table
proposed in Section 201.3(c) that
egg sector. Effective February 7, 2012.
conduct can be found to violate
Dropped §201.3(c). Section 721
sections 202(a) and 202(b) of the P&S
prohibited 201.3(c) which addressed
Act without a finding of harm or likely
finding of harm or likely harm to
harm to competition.
competition.
§201.94 Record retention
Requires a packer, swine contractor,
Not finalized. USDA indicated in
or live poultry dealer to maintain
November 2011 that it would not
written records that provide
finalize this provision. Public
legitimate reasons for differential
comments indicated that the provision
pricing or any deviation from standard could cause a reduction in the use of
price or contract terms offered to
premium payments, and would
poultry growers, swine production
require the creation of new records,
contract growers, or livestock
which was not the intent of the
producers.
proposed rule.
§201.210 Unfair, unjustly
Provides examples of conduct that
Not finalized. Prohibited by Section
discriminatory and deceptive
would be considered unfair, unjustly
721.
practices or devices
discriminatory and deceptive practices
to provide more clarity and allow
improved enforcement under the P&S
Act.
§201.211 Undue or
Establishes criteria the Secretary may
Not finalized. Prohibited by Section
unreasonable preferences or
consider in determining if these
721.
advantages; undue or
actions have occurred under the P&S
unreasonable prejudice or
Act.
disadvantages
§201.212 Livestock
Bans packer-to-packer sales and
Not finalized. USDA indicated in
purchasing practices
places restrictions on packer-dealer
November 2011 that it would not
(buyers), i.e., they cannot represent
finalize this provision. Public
more than one packer.
comments indicated the provision is
disruptive to the marketplace.
§201.213 Livestock and
Requires packers, swine contractors
Not finalized. Prohibited by Section
poultry contracts
and live poultry dealers to provide
721.
GIPSA with sample copies of
contracts for public distribution
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Section Proposed
Rule
Final
Rule
§201.214 Tournament
If a poultry company is paying growers Not finalized. Prohibited by Section
systems
on a tournament system (with some
721. USDA indicated in November
portion of the payment made to
2011 that it would propose an interim
poultry growers based on a
final rule on tournament systems that
comparison of one poultry grower’s
clarified its proposed provisions, but it
performance with that of other
was not issued because of the Section
grower’s performance), dealers are
721 prohibition.
required to pay the same base pay to
those raising the same type/kind of
poultry (with no one paid below the
base). Live poultry dealers would also
be required to rank growers with
others with like house types.
§201.215 Suspension of
Establishes criteria to consider when
Finalized. Poultry dealers must
delivery of birds
determining whether or not
provide growers at least a 90-day
reasonable notice has been given for
notification of suspension; notification
suspension of delivery of birds to a
must include reason, length of
poultry grower.
suspension, and expected resumption
of delivery. USDA may consider
disasters or emergencies, such as
bankruptcies, when determining if
there is a violation of this provision.
§201.216 Capital investment
Establishes criteria to consider
Finalized. Renamed Additional
criteria
whether or not additional capital
capital investments criteria.
investments required of a poultry
Incorporated equipment provision
grower or swine producer constitute
from proposed §201.217(c). Will
an unfair practice in violation of the
consider whether producers are
P&S Act.
provided adequate compensation
incentives if new equipment is
required when old equipment is still
functioning as intended.
§201.217 Capital investments
Requires a production contract to be
Not finalized. In final rule USDA
requirements and
of sufficient length to al ow poultry or
decided requirements and
prohibitions
swine growers to recoup 80% of
prohibitions should be covered as
investment costs related to the capital
criteria to determine if there is a
investment. Adequate compensation
violation of the P&S Act under
incentives required for additional
§201.216.
equipment investments.
§201.218 Reasonable period
Establishes criteria for determining
Finalized. Became §201.217 in the
of time to remedy a breach of whether a processor has provided a
final rule. Criteria includes written
contract
producer a reasonable period of time
notification with adequate information
to correct a breach of contract.
about the breach and how to remedy
the breach. Producer should have
enough time to remedy the breach.
§201.219 Arbitration
Establishes criteria to consider when
Finalized. Became §201.218 in final
determining whether the arbitration
rule. Producers have right to decline
process in a contract provides a
to be bound by arbitration clauses in
meaningful and fair opportunity for
contracts, and producers have the
the poultry grower, livestock
right to participate fully in arbitration.
producer, or swine production
contract grower to participate fully in
the arbitration process.
Source: Congressional Research Service.
Notes: Section 721 refers to Section 721 of the FY2012 Agriculture Appropriations Act (P.L. 112-55).
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Final Rule Economic Impact
One of the chief complaints by opponents of USDA’s proposed rule was the lack of a rigorous
economic impact analysis (see “Economic Impact of the Proposed Rule”). In studies conducted
for the livestock and poultry industries, the economic impact of the proposed rule ran into the
billions of dollars. In the final rule, USDA estimated the impact of the four provisions to fall in
the range of $21.3 million to $72.1 million, based on costs for industry adjustment to the new
rules, and legal and administrative costs.22 Most of the costs fall on the poultry sector. USDA
noted that many of the high cost estimates associated with the proposed rule were due to potential
litigation or administrative actions. Because proposed provisions that were considered most likely
to lead to litigation or cause market disruptions were not included in the final rule, the estimated
costs were much lower than industry estimates for the proposed rule.
Reaction to Final Rule
Reaction to the final rule was mixed. Some proponents of the proposed rule described the final
rule as a “start” or as “modest steps,” but also expressed disappointment that USDA was not able
to finalize key provisions addressing anticompetitive issues in the livestock and poultry
industries. For example, the National Farmers Union (NFU) said, “While the final rule is a good
first step, it is certainly not a last step,” and said the rule “will make the livestock market at least
somewhat more transparent and fair.”23 NFU noted that it was critical for USDA to implement the
competitive injury provisions of the proposed rule. At the same time, proponents expressed
disappointment that Congress prevented USDA from finalizing most of the proposed rule.
Opponents of the proposed rule were generally satisfied with the final rule, but also were
concerned about provisions that were not finalized and what might eventually happen with those
provisions. Provisions that define competitive injury, and set criteria for determining unfair,
unjustly discriminatory, and deceptive practices and undue or unreasonable preferences or
advantages were considered some of the most contentious of the proposed rule, and opponents
argued that these provisions would lead to increased litigation between packers and poultry
dealers and producers and growers. Opponents remained concerned that USDA could re-evaluate
and re-propose these provisions in the future.24
Selected Issues
The debate on the GIPSA rule stretched from the middle of 2010 until the end of 2011, and some
of the issues could arise in the context of the upcoming farm bill debate. The following section
includes a description of several of the major concerns about the proposed rule, as well as the
positions of those for and against the proposed rule. A description of each section of the proposed
rule and arguments for and against them also is provided in the Appendix of this report.
Proponents of the proposed rule argued that the P&S Act had not lived up to its potential because
rules had not been properly promulgated over the years and courts had incorrectly interpreted the
act. The Organization for Competitive Markets (OCM), one of the leading proponents of the
22 Final rule, pp. 76883-76885.
23 Jerry Hagstrom, “Farm groups have mixed reaction to final GIPSA rule,” The Hagstrom Report, December 9, 2011,
at http://www.hagstromreport.com/news_files/1200911_gipsa.html.
24 Steve Kay, “USDA Will Proceed With Livestock Provisions,” Cattle Buyers Weekly, November 14, 2011, p. 1.
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proposed rule, stated in its comments to GIPSA that “perhaps its most important worth is in
addressing what we believe to be errant court rulings that there is a requirement to establish ‘harm
to competition’ prior to considering harm to an individual.”25 According to proponents, the
proposed rule would bring fairness to contracts and reshape interactions between producers and
large meat packers and processors, especially for poultry growers who rely almost entirely on
contracts. The proposed rule, according to OCM, would not “reinvent” the P&S Act but
“reinvigorate” it. OCM also contended that opponents had overblown the rule’s potential impacts.
Industry Groups Choose Sides
Within the U.S. livestock sector, there appeared to be few neutral parties regarding the proposed rule. Broadly, the
industry appeared to be sharply divided into two groups:
The proponent groups argued that the rule would achieve greater price transparency in livestock markets and
greater fairness and protection for producers in production contract arrangements. A few examples of proponents
of the proposed rule include:
•
Organization for Competitive Markets (OCM): OCM is a non-profit research group whose work focuses on
market competition in the food and agriculture sector.
•
Ranchers-Cattlemen Action Legal Fund, United Stockgrowers of America (R-CALF USA): R-CALF USA
represents U.S. cattle producers on domestic and international trade and marketing issues.
•
U.S. Cattlemen’s Association (USCA): USCA represents the U.S. cattle industry, focusing on efforts in
Washington, DC, to further the interests of U.S. cattle producers on various marketing and competition issues.
•
National Farmers Union (NFU): NFU represents family farmers, ranchers, and rural communities to protect
and enhance their wel -being through grassroots-driven policy positions.
The opponent groups argued that the rule would disturb carefully developed marketing arrangements that have
evolved slowly over time to produce greater consumer choices in meat quality and variety, and would place an
undue burden on packers and poultry dealers who are competing for consumer dol ars with a wide array of other
food products. A few examples of opponents of the proposed rule include:
•
American Meat Institute (AMI): AMI represents red meat and turkey companies in the United States. AMI
keeps track of legislation, regulations, and media activity that impacts the meat and poultry industry.
•
National Cattlemen’s Beef Association (NCBA): NCBA represents U.S. cattle producers to advance the
economic, political, and social interests of the U.S. cattle business and to be an advocate for the cattle
industry's policy positions and economic interests.
•
National Chicken Council (NCC): NCC represents chicken producers/processors, poultry distributors, and
allied industry firms to promote and protect the interests of the chicken industry and is the industry’s voice
before Congress and federal agencies.
•
National Pork Producers Council (NPPC): NPPC represents U.S. pork producers and other industry
stakeholders through public-policy outreach, working for reasonable legislation and regulations, and developing
revenue and market opportunities that protect the livelihoods of pork producers.
•
National Meat Association (NMA): NMA represents meat packers, processors, equipment manufacturers, and
food suppliers to the meat industry through assistance on regulatory and technical issues.
Note: Descriptions of the groups above are taken from the groups’ own websites.
25 Letter from J. Randal Stevenson, President, Organization for Competitive Markets, to GIPSA, November 19, 2010,
http://www.competitivemarkets.com/index.php?option=com_content&task=view&id=373&Itemid=50. Also see
comments submitted to GIPSA, David A. Domina and C. Robert Taylor, OCM Support for Rules Proposed to
Implement Farm Bill Requirements for Rule-Making re Anticompetitive Market Activity, Organization for Competitive
Markets, http://www.competitivemarkets.com/index.php?option=com_content&task=view&id=373&Itemid=50.
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Opponents of the proposed rule were concerned about how USDA proposed to establish criteria
for violating the P&S Act, as well as a number of other provisions. Also, the proposed rule
contained several provisions to address the perceived unequal balance of market power between
packers or poultry dealers and individual producers or growers. Overall, opponents expected the
rule to significantly alter how business is currently conducted, to the detriment—in their view—
of producers, consumers, and industry participants. According to the critics, the proposed rule
would have resulted in increased litigation if GIPSA’s view that harm to competition is not
necessary to determine a violation of the P&S Act prevailed. Opponents also were concerned that
the proposed rule attempted to impose a “one-size-fits-all” rule on the marketing structure and
processes of different livestock sectors. They pointed to a wide range of differences in structure
and the nature of markets, with nearly all poultry produced under contract while a substantial
portion of steer and heifer slaughter is traded on the cash market. The marketing of hogs falls in
between poultry and cattle with respect to the four firm concentration and marketing methods (see
Figure 1 and Table 1). Hence they argued that several rules that might appear reasonable for one
sector might be counterproductive for another.
The box above includes a partial list of organizations that were actively involved in the debate
over the proposed rule.26
Congressional Intent and GIPSA Authority
An initial concern expressed by many opponents of the rule was whether GIPSA had exceeded
the intent of Congress as expressed in Sections 11005 and 11006 of the 2008 farm bill, and to
what extent GIPSA had authority to revise and amend existing regulations of the P&S Act.
According to opponents, the proposed rule included provisions—such as banning packer-to-
packer sales of livestock—that extended well beyond the requirements of the 2008 farm bill.
In the proposed rule, GIPSA argued that its authority derives in large part from Section 407 of the
P&S Act (7 U.S.C. 228), which provides that the Secretary “may make such rules, regulations,
and orders as may be necessary to carry out the provision of the Act.”27
GIPSA was supported in this conclusion by a group of 21 Senators who, in an August 13, 2010,
letter to USDA Secretary Vilsack,28 argued that “GIPSA authority and responsibility to address
the full scope of subject matter covered in the proposed rule is amply supported and justified by
the letter and intent of the P&S Act, as amended, and by well-established principles of federal
administrative law enunciated by the Supreme Court of the United States and other federal
courts.”
26 Comments on the proposed rule by several industry and livestock and poultry groups are available at
http://www.regulations.gov/. National Cattlemen’s Beef Association, ID# GIPSA-2010-PSP-0001-RULEMAKING-
22431.1, National Pork Producers Council, ID# GIPSA-2010-PSP-0001-RULEMAKING-22460.1, National Chicken
Council and U.S. Poultry & Egg Association, ID# GIPSA-2010-PSP-0001-RULEMAKING-22432.1, American Farm
Bureau Federation, ID# GIPSA-2010-PSP-0001-RULEMAKING-13971.1.
27 “Proposed Rule,” p. 35338.
28 Letter to Secretary Vilsack, August 13, 2010, signed by 20 Senators; available at http://johnson.senate.gov/public/
index.cfm?p=PressReleases&ContentRecord_id=76a7ec03-7013-4759-8f54-be576ea17294.
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In contrast, concerned industry groups and some Members of Congress charged that the proposed
rule went beyond what was required in the farm bill.29 Furthermore, opponents said that it
contradicted several congressional votes taken during the debate on farm bill Sections 11005 and
11006, and that the proposed rule appeared to contradict the decisions of several federal courts.
Unfair Practice vs. Harm to Competition
One of the more contentious issues surrounding the proposed rule was GIPSA’s view that harm to
competition is not necessary to conclude that certain conduct violates the P&S Act. GIPSA
argued in its discussion of the proposed rule that USDA has long believed that unfair or deceptive
practices or unreasonable or discriminatory preferences (Sections 202 (a) and (b) of the P&S Act)
can be a violation of the P&S Act without a finding of harm to competition. GIPSA contended
that Congress intended the same. They said that unlike in Sections 202 (c)-(e), which specifically
note conduct that harms competition or creates monopolies, Congress did not include “harm to
competition” and “creates monopolies” conditions in parts (a) and (b), and would have done so if
it believed that harm to competition was necessary for determining a violation.
GIPSA noted that courts of appeal have disagreed with USDA’s view on harm to competition and
stated that the courts are inconsistent with the language of the P&S Act in rulings that require
findings of harm to competition.30 GIPSA said the courts have failed to defer to USDA’s
interpretation of the regulations. This line of reasoning was supported by the August 13, 2010,
letter from the group of 21 Senators to Secretary Vilsack, which stated:
A cardinal principle is that the courts are to give deference to the interpretation of laws by the
federal agencies that are charged with implementing and administering them. Specifically, for
instance, GIPSA is to be accorded deference in its interpretation, spelled out in the proposed rule,
that the P&S Act protects individual producers against “unfair, unjustly discriminatory, or
deceptive practice[s] or devices[s]” without a necessity of showing such conduct has an impact on
the broader market.
In Sections 201.210 and 201.211 of the proposed rule, GIPSA proposed to establish criteria for
determining conduct that violates the P&S Act. GIPSA contended that conduct that is unfair or
deceptive, or discriminatory, may not harm the larger market or harm competition within that
market, but producers or growers may be hurt financially by the packer or poultry processor
actions, and GIPSA said this would violate the P&S Act.
Proponents of the rule contended that it is too difficult to prove harm to competition because
sufficient or compelling evidence is difficult to acquire. GIPSA cited numerous examples where
individual producers have been harmed by packer or poultry processor behavior that did not
necessarily involve harm to competition.31 For example, some chicken growers have stated that
even though there are two poultry processors in their areas, it is understood that growers can only
29 Copies of some letters from Members of Congress to Secretary Vilsack are available at the American Meat Institute,
http://www.meatami.com/ht/d/sp/i/61286/pid/61286.
30 Proposed rule, p. 35341. As noted earlier in this report, the Terry vs. Tyson Farms case was concluded with the
Supreme Court declining to review the case.
31 For examples of producer comments during several GIPSA town hall meetings, USDA-DOJ Workshops, and
congressional testimony, see “Examples of Market Behavior,” GIPSA, undated; available at
http://archive.gipsa.usda.gov/psp/FB_examples.pdf.
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grow for one company and cannot switch. Small hog producers claim that packers offer lower
prices for small lots of hogs, even if hogs are comparable to larger lots from large producers.
In contrast, opponents of the regulations charged that federal courts have consistently ruled that a
plaintiff must show such harm to win a case.32 In particular, the American Meat Institute (AMI)
contends that “USDA is attempting to use the rulemaking process to outflank the courts. Our
system of government, however, is designed such that if the law is going to be changed, it should
be changed by Congress, not by bureaucratic fiat.” AMI contended that if the requirement to
prove harm to competition is waived, “in virtually every case brought, a trial lawyer representing
a plaintiff in a P&S Act case will argue that there is no need for the plaintiff to show injury to
competition.”33
Many livestock groups and producers fear that this weaker standard of proof could undermine the
use of alternative marketing arrangements (AMAs).34 They are concerned it could lead to a
profusion of litigation such that the use of AMAs will be reduced or they will become so
standardized that value-added improvements and other market innovations will be unrewarded
and thus abandoned, leaving the industry less consumer-driven. In the long run, some believe the
meat industry would become more concentrated if AMAs are undermined, as packers and poultry
processors would seek more control over their slaughter supplies.
Status: Section 721 of P.L. 112-55 prohibited USDA from finalizing the provision on harm to
competition and establishing criteria for determining unfair, unjustly discriminatory and deceptive
practices or devices, and determining undue or unreasonable preferences or advantages.
Livestock and Poultry Purchasing Practices
According to opponents of the proposed rule, Sections 201.212 and 201.214 which covered the
packer and dealer relationship and tournament systems for poultry pricing, overstepped the intent
of the farm bill, and would severely disrupt livestock and poultry markets. USDA and proponents
of the proposed rule argued that these practices need to be limited because they allow packers and
processors to manipulate prices.
Restricting Livestock Dealers to a Single Packer
Currently, livestock dealers often buy livestock for multiple packers. Dealers, or packer-buyers,
often go to feedlots or sale barns and, based on packer specifications, purchase livestock for
packers. Section 201.212(a) and (b) of the proposed rule would have limited livestock dealers to
working with a single packer. Likewise, packers could only enter an exclusive arrangement with a
dealer who has been identified as the packer’s buyer and has officially notified GIPSA. USDA
argued that the regulation would open livestock markets to more buyers and prevent collusion
between multiple packers using one dealer as an exclusive agent, which it says could lead to price
32 “AMI Fact Sheet: Ten Key Facts About the Proposed GIPSA Rule,” July 2010, American Meat Institute.
33 Letter to Secretary Vilsack from J. Patrick Boyle, AMI President and CEO, July 28, 2010, and accompanying
document that responds to a GIPSA document entitled, “Farm Bill Regulations—Misconceptions and Explanations.”
34 AMAs refer to agreements to purchase livestock by means other than the cash market. They could be forward
contracts, marketing agreements, or packer owned supplies. See “GIPSA Livestock and Meat Marketing Study,”
January 2007. Available at http://www.gipsa.usda.gov/GIPSA/webapp?area=home&subject=lmp&topic=ir.
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manipulation. GIPSA noted that this would especially benefit the cow/bull slaughter market,
where a single dealer often buys for multiple packers, by opening the market to more dealers.
Rule opponents argued that restricting livestock dealers to a single packer could impose a burden
on packers, especially small packers who lack the resources to send multiple dealers across the
countryside to various auction houses, sale barns, or feedlots. Currently, small packers may share
the costs of a single dealer operating in different market zones. Similarly, a single dealer may
need to interact with multiple packers in order to obtain sufficient earnings. Opponents also
argued that restricting dealers could reduce competition, especially in small markets. Some
packers could choose to exit small markets because transaction costs would rise if they were
required to use their own packer-buyer instead of being able to share transactions costs with
multiple packers.
Status: Section 721 of P.L. 112-55 did not prohibit USDA from spending funds to implement the
proposed provision on packer-buyer relationships. However, on November 3, 2011, when USDA
submitted the final rule to OMB for review, USDA indicated that it would not finalize Section
201.212 of the proposed rule.
Banning Packer-to-Packer Sales
Section 201.212(c) would have banned packer-to-packer sales. USDA and proponents contended
that price information is exchanged during packer-to-packer transactions, which creates a
situation where packers may be able to manipulate prices to the detriment of producers. If the
packer-to-packer sale price is not publicly reported, then the marketplace and producers are
missing a crucial market signal.
Opponents argued that a ban on packer-to-packer sales as proposed in the rule could cause market
harm and speed up industry consolidation rather than slow it down. Critics of such a ban said that
packer-to-packer sales are a key tool for smoothly meeting occasional disequilibrium in supply
and demand at the plant level. Without such sales, opponents said, packers would further integrate
into the livestock production sector to limit procurement risks stemming from a loss of this
additional source of supply (i.e., purchases from other packers). Alternatively, they would have to
sell feeding facilities (perhaps to other packers) that were not within a reasonable shipping
distance to their own slaughter operations, raising animal welfare issues.35
Status: Section 721 of P.L. 112-55 did not prohibit USDA from spending funds to implement the
proposed provision packer-to-packer sales. However, on November 3, 2011, when USDA
submitted the final rule to OMB for review, USDA indicated that it would not finalize Section
201.212 of the proposed rule.
Revising Tournament Systems
The tournament system is a ranking system used by poultry processors to pay their contract
poultry growers. At the end of a seven-week growing period, the quality of each grower’s flock of
birds is ranked against a pool (settlement group) of other grower flocks. Depending on growing
35 Temple Grandin, “Ag Department Proposal Threatens Animal Welfare,” October 20, 2010,
http://www.huffingtonpost.com/temple-grandin/ag-department-proposal-th_b_769717.html.
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performance, a discount or a premium may be applied to the base contract pay for each grower.
Section 201.214 of the proposed rule would have required live poultry dealers that use a
tournament system to pay the same base pay to growers who raise the same type and kind of
poultry. They would have been required to rank growers in settlement groups with other growers
with like poultry growing facilities.
Proponents of the proposed rule, specifically some poultry producers, contended that the
tournament system is “designed to appear like a method to allow growers to compete fairly for
pay based on performance. However, because the inputs that determine a producer’s performance
are supplied by the poultry company itself, the ranking system has become a back-door,
anticompetitive mechanism for poultry companies to shift risks to growers and to discourage
dissension.”36 Proponents argued that because poultry processors provide inputs, such as chicks
and feed, the contract growers have little control over the performance of their flocks.
Opponents of the proposed tournament provisions, primarily processors, argued that the best
contract growers would be penalized. Since the proposed rule prohibits discounts to base pay,
poultry processors could reduce base pay below current levels to protect from paying poor
performers more than if discounts were allowed. Premiums on base pay to the best growers might
not match current levels. They argued that the current system already reflects the fundamentals of
a free market that rewards efficiency. Also, opponents believed that under the proposed rule’s
fairness provisions, differential pricing would invite increased litigation, further depressing the
incentive to provide premium pricing to the best growers.
USDA indicated on November 3, 2011, that it intended to publish for comment an interim final
rule on the poultry tournament pricing system.37 The proposed rule required that poultry dealers
using the tournament payment system to compensate growers must pay the same base pay to
growers who raise “the same type and kind” of poultry, and growers must be ranked by “like
house types.” The interim final rule clarified wording in the proposed rule by defining “the same
type and kind” to mean poultry that is of “the same breed and shares the same target weight
range.” “Like house types” is defined as growing houses that use “comparable production
technology.” USDA estimated that the direct cost to the industry of the interim final rule would be
$22.6 million.
Status: Section 721 P.L. 112-55 prohibited USDA from spending funds to implement provisions
on the tournament pricing system. The final rule issued on December 9, 2011, did not contain a
provision on tournament systems.
Record-Keeping to Explain Pricing
In Section 201.94, the proposed rule would have required a packer, swine contractor, or live
poultry dealer to maintain written records that provide legitimate reasons for differential pricing
or any deviation from standard price or contract terms offered to poultry growers, swine
production contract growers, or livestock producers.
36 Rural Advancement Foundation International-USA (RAFI-USA), Comments from 26 organizations for the workshop
on poultry, Letter submitted to Dept. of Justice, December 31, 2009, available at http://www.justice.gov/atr/public/
workshops/ag2010/comments/255196.pdf.
37 Draft copy of interim final rule. Grain Inspection, Packers and Stockyards Administration, USDA, “Tournament
Systems and Compensation,” unpublished.
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According to USDA, producers who appear to be able to deliver the same product but currently
receive lower prices than other producers have no means to capture higher returns that other
producers receive. The department contended that better documentation would facilitate
enforcement of the P&S Act, particularly regarding certain types of differential pricing or contract
terms deemed to be unfair.
Opponents claimed that this record-keeping rule was too vague about what documents and
justifications would be suitable to maintain compliance. Combined with the belief that the
proposed rule would lead to more litigation because a lower standard than harm to competition
would be applied, opponents believed that buyers might no longer want to pursue alternative
marketing arrangements (AMAs) that pay premiums for delivering livestock or poultry with
particular traits. Opponents asserted that buyers use these and other contracting arrangements to
ensure a steady supply of animals (as well as other agricultural commodities) to keep high-
capacity plants operating efficiently; such arrangements also allow for necessary price
adjustments for quality, grade, or other market-prescribed factors. The proposals for change
would hurt producers too, opponents added, because many of them use contracts or other
marketing agreements with packers to limit their own exposure to price volatility and to obtain
capital. According to rule opponents, the result could be the loss of economic incentives to
produce a higher quality of meat and could hurt “value-based marketing.”
Opponents wanted to know if specific documents or records would be deemed acceptable proof
for price differentials in all cases. To gain industry-wide acceptance, this could be clarified so that
companies could avoid uncertainty or error. Criteria could include feed/pasture information,
genetics, and medical history, for example. Also, livestock that command market price premiums
typically have identifiable physical attributes that distinguish them from “average quality”
livestock. Top livestock producers may already keep records that would be suitable for
enforcement of the rule. However, rule critics, in their comments, cited several examples of
market situations where price differentials might emerge (for example, due to timing or
geographic market conditions) for essentially the same livestock product.
To further illustrate, critics offered the example of a packer that needs an additional 1,000 head of
cattle to run its plant at peak efficiency. In its first market price offer, it might be able to obtain
only 500 head. As a result, it makes a second higher-priced offer to obtain the second 500 head,
even though all of the cattle are of comparable quality. In responding to market conditions, the
packer did not exert any undue market power in acquiring the 1,000 head. Yet it is not clear if this
transaction would violate the law or what documentation would justify this type of price
differential.
Status: USDA decided not to finalize the proposed provision on record-keeping. In the final rule,
USDA noted that public comments indicated that the proposed record-keeping provision could
have unintended consequences in reducing the use of premium payments. Also, the proposed
provision would require creating new records, which was not the intent of the proposed rule.
Poultry Provisions Shifting Risk to Poultry Companies
Several provisions, Sections 201.215, 201.216, and 201.217 in particular, appeared to address
poultry growers. The proposed regulations appeared to shift production risk from producers to
poultry processors, in an attempt to alter the balance of power between processors and producers
when negotiating and fulfilling contracts. For example, current business practices in the poultry
industry sometimes require successive capital investment upgrades. USDA asserted that it needed
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authority to limit these practices because they could harm a producer’s financial position. Also,
the rule would have required a production contract to be of sufficient length to allow poultry or
swine growers to recoup 80% of the costs related to the capital investment. Some questioned
whether the federal government should guarantee a certain rate of return for a producer. Critics
contended that an underperforming producer would have an unfair advantage over a more
efficient producer.
Also, the provisions guaranteed that poultry growers would receive a 90-day notice from a live
poultry dealer before bird deliveries were suspended. Opponents argued that a 90-day period is
excessive, since unforeseen events, other than the excepted catastrophic or natural disasters and
other emergencies, could warrant a shorter notification period. An example would be market
economic conditions that change rapidly.
Status: Most of these provisions were in the final rule in some form. Provisions proposed as
requirements were adjusted to make them criteria that could be considered by USDA to determine
a violation of the P&S Act. The proposed provision allowing growers to recoup 80% of the costs
related to a capital investment was dropped.
Making Contracts Publicly Available
Section 201.213, requiring public disclosure of contracts, received less criticism than some other
parts of the proposed rule because increased market transparency is considered by most to be a
desirable goal. The provision would have corresponded with the transparency requirements for
contracts in other sectors (e.g., insurance markets). However, opponents were concerned that not
all proprietary information would be concealed or removed from public view. The concern
expressed by critics was how it would be determined when an alteration or adaptation to an
existing contract is sufficient to render it a “unique” contract such that it must also be posted. If
every adjustment to a standard contract were posted, critics argued, they would reveal proprietary
marketing strategy and sacrifice market advantage to competitors.
Status: Section 721 of P.L. 112-55 prohibited USDA from finalizing its provision on livestock
and poultry contracts.
Economic Impact of the Proposed Rule
One of the primary concerns of opponents of the proposed rule was that it lacked a rigorous
economic impact analysis. The rule was declared by the Office of Management and Budget
(OMB) to be “significant,” meaning it would have an annual effect on the economy of more than
$100 million. A rule declared significant requires that an agency explain the need for the
regulation, assess potential costs and benefits, and undergo OMB review. The proposed rule was
not determined to be “economically significant,” which requires an even more thorough cost and
benefit analysis that includes a quantified assessment of the effects and possible alternatives to
the rule.
Also, there was significant criticism over the cost-benefit analysis presented in the rule, which
opponents said was incomplete and merited further discussion because it failed to account for
potential market consequences under various scenarios.
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On October 1, 2010, 115 Members of Congress sent a letter to Secretary Vilsack stating that the
proposed rule went beyond the mandate of the 2008 farm bill and would cause major changes in
livestock and poultry marketing. The letter stated, “The analysis contained in the proposed rule
fails to demonstrate the need for the rule, assess the impact of its implementation on the
marketplace, or establish how the implementation of the rule would address the demonstrated
need.”38 The Members asked that USDA’s Office of Chief Economist provide a thorough
economic analysis. In response to this request, Secretary Vilsack said in a letter to now-House
Agriculture Committee Chairman Lucas that, “beyond the cost-benefit analysis we have
conducted for the proposed rule, we look forward to reviewing the public comments to inform the
Department if all factors have been properly considered, if or how changes should be
incorporated, and to aid more rigorous cost-benefit and related analyses pursuant to the
rulemaking process.”39
Media reports stated that in a December 13, 2010, conference call with stakeholders, Secretary
Vilsack said that USDA would review the public comments and conduct a more thorough cost-
benefit analysis for the final rule.40 R-CALF USA, one of the leading proponents of the proposed
rule, endorsed USDA’s move to conduct another cost-benefit analysis that R-CALF believed
would show the proposed rule’s tremendous benefit for rural America and allow USDA to
properly implement and enforce the P&S Act.41 Opponents noted that the proposed rule would
have to be deemed economically significant in order for a meaningful analysis to be conducted.
Secretary Vilsack’s comments that the rule would be redrafted after considering public comments
raised the hope of rule opponents that the final rule would be more limited in scope.42
GIPSA Cost Analysis
Since the proposed rule was deemed significant, it was reviewed by the OMB, and GIPSA was
required to provide justification. In the proposed rule, GIPSA identified three categories of costs:
(1) administrative costs, (2) costs of analysis, and (3) adjustment costs. Most of the costs
estimates were not quantified in the proposed rule but were of a qualitative nature. For example,
the cost of the record retention requirement to support differential pricing would depend on the
current level of record-keeping. The stated benefit was that prices would be determined by supply
and demand and that there would be increased transparency in the price decision-making process.
For other provisions of the proposed rule, such as requirements for livestock dealers and the ban
on packer-to-packer sales, the costs were “adjustment costs” associated with halting prohibited
marketing practices. According to GIPSA, the costs to packers would increase because packers
would have to pay higher prices to producers. The identified benefits were the prevention of
monopolistic practices and a more fair and competitive market.
38 Letter to Secretary Vilsack, October 1, 2010, signed by 115 Members of Congress; available at
http://www.meatami.com/ht/a/GetDocumentAction/i/63222. American Meat Institute.
39 Letter to Congressman Lucas, October 15, 2010, signed by Secretary Vilsack; available at http://agri-pulse.com/
uploaded/USDA_Lucas_re_GIPSA.pdf.
40 Rita Jane Gabbett, “USDA to conduct further cost-benefit analysis of GIPSA rule,” Meatingplace, December 14,
2010, Industry News-AM.
41 R-Calf USA, “CEO Statement: We Support USDA Plan to Conduct New Cost-Benefit Analysis of GIPSA Rule,”
press release, December 14, 2010, http://www.r-calfusa.com/news_releases/2010/101215-ceo.htm.
42 Steve Kay, “USDA Will Redraft the GIPSA Rule,” Cattle Buyers Weekly, December 20, 2010.
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Beyond qualitative costs and benefits noted for provisions of the proposed rule, GIPSA quantified
several costs as required under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) for
Sections 201.94, 201.213, 201.215, and 201.218. GIPSA estimated the cost of keeping records
and conducting analysis for differential pricing to be $372,300 per year for the industry. The cost
of submitting sample contracts was estimated at $24,083 per year for the livestock and poultry
industries, and changing notifications for the suspension of bird deliveries for live poultry dealers
was $12,500 per year. The estimated cost was $6,000 for administering the remedy to breach of
contract provision.
Industry Analysis
In response to perceived weaknesses of GIPSA’s analysis, the meat and poultry industries
released three studies of the proposed rule during the comment period that analyzed its impact on
the U.S. economy and the livestock and poultry sectors. The studies were prepared for the
American Meat Institute, the National Meat Association, and the National Chicken Council. Each
study was conducted using differing assumptions and methodologies and resulted in considerably
larger impacts than indicated in GIPSA’s analysis.
American Meat Institute
The first impact analysis of the proposed rule that the meat industry released on October 21,
2010, was the Economic Impact of Grain Inspection, Packers and Stockyards Administration
Proposed Rule,43 prepared for the American Meat Institute (AMI). The analysis concluded that
the proposed rule would result in increased litigation that would cause meat producers to move
away from the use of marketing agreements and return to cash or spot market purchasing. The
study contended that this would increase inefficiencies and raise retail meat prices and reduce
meat demand. It projected that this would result in a $14 billion decline in U.S. gross domestic
product (GDP) and a loss of more than 104,000 jobs.
National Meat Association
On November 8, 2010, Informa Economics, Inc. released An Estimate of the Economic Impact of
GIPSA’s Proposed Rules.44 The study was prepared for the National Meat Association (NMA) in
cooperation with the National Cattlemen’s Beef Association (NCBA), the National Pork
Producers Council (NPPC), and the National Turkey Federation (NTF). The study’s researchers
interviewed beef, pork, and poultry industry participants to determine expected responses to the
43 John Dunham and Associates, Inc., The Impact of Proposed Grain Inspection, Packers and Stockyards
Administration Proposed Rule, Methodology and Documentation, Prepared for the American Meat Institute,
Washington, D.C., October 21, 2010, http://www.meatfuelsamerica.com/GIPSA/content/
Meat%20GIPSA%20Impact%20Methodology.pdf. The AMI website includes an interactive map that provides state
and district level impacts. John Dunham & Associates is a New York-based firm that conducts economic impact studies
on a variety of issues.
44 Informa Economics, Inc., An Estimate of the Economic Impact of GIPSA’s Proposed Rules, Prepared for the National
Meat Association, Oakland, CA, November 8, 2010, http://beefusa.org/uDocs/Gipsa-Report_2010-11-09.pdf. The
Executive Summary can be found at http://beefusa.org/uDocs/GIPSA-Executive-Summary.pdf. Informa Economics,
Inc. is a private agricultural commodity/products market research, analysis, evaluation, and consulting in Memphis,
TN.
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proposed rule and expected costs and then used the information to determine impacts on the
industries and the U.S. economy.
The Informa study made one-time estimates of the direct costs to the industries—costs associated
with compliance to the proposed rule—at $136 million ($39 million for beef, $69 million for
pork, and $28 million for poultry). Ongoing direct annual costs were projected at $169 million
($62 million for beef, $74 million for pork, and $33 million for poultry). The estimated indirect
costs—losses due to reductions in product quality and/or efficiencies—were substantially higher.
The annual losses were estimated at more than $1.3 billion ($780 million for beef, $259 million
for pork, and $302 million for poultry). The Informa study estimated the economy-wide impact to
be a reduction of $1.56 billion in GDP and nearly 23,000 lost jobs. The Informa study noted that
it would take two to three years for the decline in efficiency to result in the losses, and that the
costs would lessen over the long term as the industries adjusted.
National Chicken Council
The National Chicken Council released Proposed GIPSA Rules Relating to the Chicken Industry:
Economic Impact on November 11, 2010.45 The report was prepared by FarmEcon LLC and
focused only on the chicken industry. The study estimated that the proposed rule would cost the
chicken industry more than $1 billion over five years, with costs increasing each year. Over the
fiver-year period of 2011 to 2015, feed and housing costs would increase $794 million; costs
associated with bird death loss from less efficient management and increased feed sampling and
analysis costs would increase $225 million. In addition, the study projected a one-time
administrative cost of $6 million for the industry during the first year. Furthermore, the FarmEcon
study found that the proposed rule would lead to higher costs associated with increased litigation,
which it said would cause the U.S. chicken industry to be less innovative.
Congressional Interest and Oversight
The 112th Congress showed considerable interest in GIPSA’s intent and implementation of the
proposed rule. Immediately after the November 2010 election, Representative Frank Lucas,
chairman of the House Committee on Agriculture, indicated that the proposed GIPSA rule could
be of interest as part of the committee’s oversight responsibilities during the first session of the
112th Congress.46 Also, in a letter to Senator Debbie Stabenow, chairwoman of the Senate
Agriculture Committee, and Senator Pat Roberts, ranking Member, Senator Mike Johanns stated
that hearings on GIPSA’s proposed rule should be one of several issues included in the
Agriculture Committee’s oversight responsibilities.47 Eventually, the 112th Congress used the
appropriations process to place restrictions on USDA’s finalization of GIPSA’s proposed rule. The
45 Dr. Thomas E. Elam, FarmEcon LLC, Proposed GIPSA Rules Relating to the Chicken Industry: Economic Impact,
Prepared for the National Chicken Council, Washington, D.C., November 11, 2010,
http://www.nationalchickencouncil.com/files/
FarmEcon%20study%20of%20GIPSA%20rule%20impact%20Nov%202010.pdf. FarmEcon LLC is an agricultural and
food industry consulting firm located in Carmel, IN.
46 Andy Eubank, “Frank Lucas Anxious to Assume House Ag Leadership,” Hoosier Ag Today, November 3, 2010,
http://www.hoosieragtoday.com/wire/news/01167_lucashouseag_225014.php.
47 Letter to Senators Stabenow and Roberts, January 12, 2011, signed by Senator Johanns. Available at
http://johanns.senate.gov/public/?p=PressReleases&ContentRecord_id=e4e13759-37f3-4d6c-9e1c-05ab03483205.
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113th Congress continued to enforce GIPSA rule restrictions through September 30, 2012, in the
Consolidated and Further Continuing Appropriations Act, 2013 (P.L. 113-6), which was enacted
March 26, 2013.
Hearings
On February 17, 2011, during separate oversight hearings on the farm economy conducted by the
House Committee on Agriculture48 and the Senate Committee on Agriculture, Nutrition, and
Forestry,49 Secretary Vilsack was asked about the proposed rule and when USDA’s economic
analysis would be completed and the proposed rule finalized. Without providing a time frame, he
indicated that USDA was working on the economic analysis, using the numerous public
comments, and would take the time necessary to complete a thorough analysis. The Secretary was
also asked if USDA’s economic analysis would be peer-reviewed and made available for a public
comment period, but no commitment was given. In a May 18, 2011, letter to Secretary Vilsack,
147 Members of the House of Representatives followed up the hearing by requesting that USDA
allow for public comment on any revisions to the proposed rule and on the new economic
analysis.50
In addition to these initial hearings where questions and concerns about the proposed rule were
raised, the proposed rule was questioned and discussed in several other hearings. Witnesses in
three hearings on the state of the beef, pork, and poultry sectors conducted by the House
Committee on Agriculture’s Subcommittee on Livestock, Dairy, and Poultry raised concerns that
the proposed rule would hamper or damage the way they conducted business.51 A hearing on the
state of the livestock industry held by the Senate Committee on Agriculture Nutrition and
Forestry also aired concerns about the proposed rule by Senators and industry representatives,
while a witness from the National Farmers Union testified that farmers and ranchers needed the
proposed rule to provide fairness in the marketplace.52
In addition, the GIPSA proposed rule was the subject of oversight hearings by the House
Committee on Small Business, Subcommittee on Agriculture, Energy, and Trade, and the House
Committee on Oversight and Government Reform.53 As in the earlier hearings, industry witnesses
48 U.S. Congress, House Committee on Agriculture, The State of the Farm Economy, 112th Cong., February 17, 2011.
49 U.S. Congress, Senate Committee on Agriculture, Nutrition, & Forestry, Agriculture: Growing America’s Economy,
112th Cong., February 17, 2011.
50 Letter from Members of the House of Representatives to Secretary Vilsack, May 18, 2011. Available at
http://agriculture.house.gov/pdf/letters/GIPSAletter110518.pdf.
51 U.S. Congress, House Committee on Agriculture, Subcommittee on Livestock, Dairy, and Poultry, 112th Cong., 1st
sess., Hearing to Review the State of the Beef Industry, April 6, 2011, Serial No. 112-8, Hearing to Review the State of
the Poultry Industry, April 13, 2011, Serial No. 112-11, and Hearing to Review the State of the Pork Industry, May 4,
2011, Serial No. 112-14, (Washington: GPO, 2011). Available at http://agriculture.house.gov/hearings/default.aspx?
CID=28&GID=21.
52 U.S. Congress, Senate Committee on Agriculture, Nutrition, and Forestry, The State of Livestock in America, 112th
Cong., 1st sess., June 28, 2011. Video and testimony available at http://ag.senate.gov/hearings/the-state-of-livestock-in-
america.
53 U.S. Congress, House Committee on Small Business, Subcommittee on Agriculture, Energy and Trade, Regulatory
Injury: How USDA’s Proposed GIPSA Rule Hurts America’s Small Businesses, 112th Cong., 1st sess., July 7, 2011.
Testimony available at http://smbiz.house.gov/Calendar/EventSingle.aspx?EventID=249313. House Committee on
Oversight and Government Reform, How A Broken Process Leads to Flawed Regulations, 112th Cong., 1st sess.,
September 14, 2011. Testimony available at http://oversight.house.gov/index.php?option=com_content&view=article&
id=1429%3A9-14-2011-qhow-a-broken-process-leads-to-flawed-regulationsq&catid=12&Itemid=20.
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mostly expressed their concerns that the proposed rule would economically damage their
operations. In the Small Business hearing, a witness from a Pennsylvania farm organization
testified that the proposed rule would help protect poultry growers and hog producers from the
loss of competition due to industry consolidation.
FY2012 Appropriations
In response to significant concerns by some Members of Congress, the FY2012 appropriations
bill—H.R. 2112—that passed the House on June 16, 2011, contained Section 721, prohibiting
USDA from using any appropriated funds to “write, prepare, develop, or publish a final rule or
interim final in furtherance of, or otherwise to implement” the proposed rule. During debate on
H.R. 2112, Representative Marcy Kaptur opposed Section 721 in floor comments but did not
offer an amendment to remove it. Instead, she argued that the proposed rule benefitted farmers
and ranchers and that GIPSA should be allowed to proceed with the rulemaking process.
Representative Kaptur also entered statements from the American Farm Bureau and a group of
140 farm organizations that supported allowing USDA to move the proposed rule forward.54
The House Committee on Appropriations’ report on H.R. 2112 expressed concern that GIPSA’s
proposed rule misinterpreted the intent of Congress concerning the regulation of livestock
marketing practices and underestimated the cost of the proposed rule. The report also expressed
concern that USDA might not have complied with the Administrative Procedures Act that governs
rulemaking by publishing its “Farm Bill Regulations—Misconceptions and Explanations”
document. In addition, by closing the comment period in November 2010 before holding the last
of five workshops on competition held jointly with the Department of Justice in December 2010,
the committee report stated, the Department might have limited the public’s ability to comment
on the proposed rule.
The Senate version of H.R. 2112 that was passed on November 1, 2011, did not include a similar
provision. However, the FY2012 Agriculture appropriations conference report included Section
721 with its conditions and prohibitions on USDA’s authority to finalize parts of the proposed
rule. On November 18, 2011, the FY2012 Agriculture Appropriations Act (P.L. 112-55) was
enacted (see “Congressional Limits in FY2012 Appropriations”).
Proponents of the proposed rule characterized the considerable restrictions as a “mortal blow” to
the proposed rule, and the “death knell” of the P&S Act. In a November 16, 2011, letter to
Members of the Senate, the National Farmers Union noted that Section 721 blocked USDA action
that would have helped independent farmers and ranchers.55 On the other hand, opponents of the
proposed rule believe many of their concerns have been addressed through Section 721. In its
statement on the Agriculture Appropriations Act, the American Meat Institute said, “We also
commend lawmakers’ action to prevent GIPSA from proceeding with the most disruptive and
costly provisions contained in its 2010 proposed rule.”56
54 Rep. Kaptur, Congressional Record, June 15, 2011, p. H4261.
55 Letter from Roger Johnson, President, National Farmers Union, to Senators, November 16, 2011,
http://www.nfu.org/images/stories/11_16_11_Concerns_with_FY_12_Ag_Approps_Conference_Report_-_Senate.pdf.
56 American Meat Institute, “House, Senate Pass 2012 Agriculture Spending Bill,” press release, November 17, 2011,
http://www.meatami.com/ht/d/ArticleDetails/i/73939.
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FY2013 Appropriations
The provisions that blocked USDA from implementing the majority of the GIPSA rule in FY2012
were continued in FY2013. Section 742 of the Consolidated and Further Continuing
Appropriations Act, 2013 (P.L. 113-6), which was enacted March 26, 2013, includes language
from the FY2012 agriculture appropriations bill that restricts how USDA could finalize its
proposed rule on livestock and poultry marketing practices. In addition, the section includes a
provision that requires the Secretary of Agriculture to rescind three provisions that USDA
finalized in December 2011 (see “USDA’s Final Rule”). The three provisions were the definition
of the “suspension of delivery of birds” (§201.2(o)), the provision that made the rule applicable to
live poultry (§201.3(a)), and the 90-day notification period required when a poultry company
intends to suspend the delivery of birds to a grower (§201.215(a)). Under Section 742, USDA is
required to rescind the three provisions within 60 days of the enactment of the bill.
The provision to rescind parts of the GIPSA rule that had already been finalized first appeared in
Section 719 of the House-reported FY2013 appropriations bill, H.R. 5973. The only difference
was that the House bill would have also rescinded the definitions of “additional capital
investment” (§201.2(n)). The Senate FY2013 appropriations bill, S. 2375, did not contain a
provision similar to Section 719.
The rescinding provisions of Section 719 were not included in the first FY2013 continuing
resolution (CR), P.L. 112-175, which was enacted September 28, 2012, to provide appropriations
through March 27, 2013. The extension of the appropriations and authorities from FY2012’s P.L.
112-55 resulted in the majority of the GIPSA rule remaining blocked.
In March 2013, the 113th Congress began addressing appropriations for the remainder of FY2013.
The House-passed appropriations bill, Department of Defense, Military Construction and
Veterans Affairs, and Full-Year Continuing Appropriations Act, 2013 (H.R. 933), did not include
language regarding the GIPSA rule, other than extending the limiting provision from the FY2012
appropriations. However, the Senate-amended version of H.R. 933, the Consolidated and Further
Continuing Appropriations Act, 2013, included a full Agriculture appropriations bill, which
included Section 742. Reportedly, Section 742 was included during negotiations between the
House and Senate over Agriculture appropriations in December 2012.57
During the debate, proponents of the GIPSA rule sent a letter to the Senate Appropriations
Committee objecting to the inclusion of Section 742 in the appropriations bill stating that it
limited USDA’s ability to “address anti-competitive and fraudulent practices in the livestock and
poultry sectors.”58 The American Farm Bureau Federation also weighed in with a letter to
Senators that expressed opposition to Section 742.59 Senators Tester, Johnson (SD), Brown, and
Leahy proposed an amendment (S.Amdt. 75 to H.R. 933) that would have struck the GIPSA
57 David Rogers, “Big Agriculture flexes its muscle,” Politico, March 25, 2013, http://www.politico.com/story/2013/
03/big-agriculture-tom-vilsack-monsanto-89268.html.
58 Letter from 15 family farm and consumer groups to Chairwoman Mikulski and Ranking Member Shelby, Senate
Committee on Appropriations, March 12, 2013, http://www.nfu.org/images/
03%2013%2013%20Oppose%20Senate%20FY13%20CR%20GIPSA%20Rider.pdf.
59 Bob Stallman, President, American Farm Bureau Federation, letter to Senators, March 14, 2013,
http://www.hagstromreport.com/assets/2013/2013_0314_FBltr.pdf.
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provisions from the Senate appropriations bill.60 However, the amendment did not receive a floor
vote.
Farm Bill Action in the 112th Congress
On July 11, 2012, during the House Agriculture Committee markup of the 2012 farm bill (H.R.
6083), Representatives Conaway (TX) and Costa (CA) offered an amendment to halt USDA from
conducting further work on the GIPSA rule. The amendment would have prevented USDA from
finalizing or implementing Sections 201.2(l), 201.2(t), 201.2(u), 201.3(c), 201.210, 201.211,
201.213, and 201.214 of the proposed rule. The amendment also contained similar language to
Section 719 of H.R. 5973 that would have repealed four provisions—§201.2(n), §201.2(o),
§201.3(a), and §201.215(a)—that USDA finalized in December 2011 and implemented in
February 2012. The amendment was passed by the House Agriculture Committee on a voice vote
and became Section 12105 of the House-reported farm bill.
The Senate-passed 2012 farm bill, S. 3240, did not contain a similar provision.
The FY2013 appropriations bill prevents USDA from finalizing parts of the GIPSA rule only
through September 30, 2013. When the 113th Congress addresses the omnibus farm bill later this
year, there is likely to be interest in including provisions similar to the one offered in the House
farm bill in the 112th Congress that would permanently halt USDA action on the GIPSA rule or a
similar rule. Also, during the farm bill debate, supporters of the work that USDA did on the
GIPSA rule might offer proposals to revive some of the GIPSA rule provisions that have been
blocked in the appropriations process.
60 Senator Tester, Text of amendments, Congressional Record, March 13, 2013, p. S1820.
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Appendix. Views on Proposed GIPSA Rule
Section number and
description of proposed
changesa
Supporting arguments by USDAa
Counterarguments by criticsb
§201.2 Terms Defined. Defines
Two key definitions would allow USDA to
These two definitions are vague and much
terms for tournament system,
address anticompetitive issues: A “competitive broader than proving harm to competition.
principal part of performance,
injury” occurs when conduct distorts
Because there are varying levels of
capital investment, additional capital competition in the market channel or
competition, setting “perfect competition” is a
investment, suspension of delivery
marketplace. “Likelihood of competitive injury” very high standard.
of birds, forward contract,
means there is a reasonable basis to believe
marketing agreement, production
that a competitive injury is likely to occur in
contract, competitive injury, and
the market channel or marketplace.
likelihood of competitive injury.
§201.3 Applicability of
Congress did not intend these sections to be
The proposed rule does not provide guidance
regulations. Conduct can be found limited only to harm to competition. Congress on when proof of injury is required. This
to violate sections 202(a) and
amended the P&S Act to specify instances of
would invite significant litigation and
202(b) of the P&S Act without a
conduct prohibited as unfair that do not
discourage the use of marketing agreements
finding of harm or likely harm to
involve any inherent likelihood of competitive
that benefit the industry.
competition.
injury.
§201.94 Record retention.
No recourse is currently available for
The rule does not define “standard price or
Requires a packer, swine
producers who appear to be able to deliver
contract terms” and the vagueness of
contractor, or live poultry dealer to the same product but receive lower prices
requirements for justifying payments will
maintain written records that
than other producers. Better documentation
discourage use of marketing agreements (and
provide legitimate reasons for
would facilitate enforcement of the P&S Act,
practices) that have increased product
differential pricing or any deviation
particularly regarding certain types of
demand and value to producers and the
from standard price or contract
differential pricing or contract terms deemed
marketing chain. The meat industry
terms offered to poultry growers,
to be unfair.
(particularly beef and pork) might return to a
swine production contract growers,
“commodity” business with all animals “sold
or livestock producers.
on the average” to the detriment of
producers and consumers.
§201.210 Unfair, unjustly
Court decisions that require proof of
The “open-ended” nature of the rule will
discriminatory and deceptive
“competitive harm” have limited USDA’s
result in packers being reluctant to pursue
practices. Provides examples of
enforcement capabilities. USDA needs
practices that have benefited the entire
conduct that would be considered
authority to address unfair practices that do
livestock and meat marketing chain for fear
unfair, unjustly discriminatory and
not have anticompetitive implications,
they may be sued. For example, it does not
deceptive practices to provide more Examples include not al owing producers to
appear that timing or marketing conditions or
clarity and allow improved
watch their birds being weighed and providing historical performance by the producer will be
enforcement under the act.
growers with poor quality feed.
considered sufficient reasons for price
differences. The proposed rule will increase
vertical integration across the industry as
packers increase animal ownership to avoid
potential litigation. Inefficient or unreliable
producers could be rewarded.
§201.211 Undue or
USDA needs authority to address practices
See arguments in above two boxes. Certain
unreasonable preferences/
that can reduce business opportunities for
industry groups, including the National Pork
prejudice or advantages/
producers if a packer or processor cannot
Producers Council, fear the rule will prevent
disadvantages. Establishes criteria provide a legitimate justification for price
contracts from addressing a producer’s unique
the Secretary may consider in
disparities. For example, a packer or swine
situation and prevent packers from rewarding
determining if these actions have
contractor might offer better price terms to
efficient producers. Also, these provisions fall
occurred under the P&S Act.
producers who can provide a large volume of
outside the scope of the mandate of the 2008
livestock than to a group of producers who
farm bill. Finally, the rule does not prevent
col ectively can provide the same volume of
frivolous and unnecessary litigation that would
livestock of equal quality. Smaller producers
disrupt normal business.
will have restored ability to compete with
larger-sized operators.
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Section number and
description of proposed
changesa
Supporting arguments by USDAa
Counterarguments by criticsb
§201.212 Livestock purchasing
During packer-to-packer transactions, price
USDA has not provided any evidence (or
practices. Bans packer-to-packer
information is exchanged, which creates a
pursued cases) that packer-to-packer sales
sales and places restrictions on
situation where packers may be able to
have resulted in price manipulation. Banning
dealers (buyers), that is, they
manipulate prices to the detriment of
sales and requiring buyers to represent only
cannot represent more than one
producers. Also, the regulation opens livestock one packer would increase costs to the entire
packer.
markets to more buyers in certain markets
marketing chain, including producers, because
(e.g., cow/bull slaughter) by requiring each
livestock would need to be shipped further or
packer to have its own buyer and prevent
a third-party dealer would need to be created
collusion between multiple packers using one
as a “pass-through” agent. Overall,
dealer as an exclusive agent to manipulate
competition decreases and industry
prices.
consolidation could increase.
§201.213 Sample contracts.
Improved transparency of contracts puts
In many cases producers have unique
Requires packers, swine contractors producers on equal footing with
agreements with their packer, and the
and live poultry dealers to provide
packers/dealers and reduces misperceptions of potential exists for requiring that each of
GIPSA with sample copies of
unfair or preferential treatment. GIPSA has
those agreements be released publicly,
contracts for public distribution.
received complaints of preference or
creating a burden for the industry. The
retaliation by packers and live poultry dealers
proposed rule seems to exclude producers
in contracts and marketing agreements that,
from the decision on what information is
upon investigation, were found to be in
confidential and would not be made public. A
compliance with the act.
decrease in the variety of contracts that
address various risk management strategies is
possible.
§201.214 Tournament systems. Complaints from poultry producers indicate
The tournament method of compensation
If a poultry company is paying
that current practices, including paying
may be unworkable if al producers receive
growers on a tournament system
disparate rates to producers raising the same
the same base pay, raising questions about
(with some portion of the payment type and kind of poultry, injures individual
how to pay producers with different cost
made to poultry growers based on a producers. The new regulation would allow for structures if they produce the same type and
comparison of one poultry grower’s better assessment of contract values at the
kind of poultry. Will the acceptable alternative
performance with that of other
time of contract negotiation, specifically by
result in compensating inefficient producers?
grower’s performance), dealers are providing poultry growers with a more
Efficient producers may have difficulty
required to pay the same base pay
consistent benchmark to compare different
obtaining additional credit to grow their
to those raising the same type/kind
contracts.
business.
of poultry (with no one paid below
the base). Live poultry dealers
would also be required to rank
growers with others with like house
types.
§201.215 Suspension of delivery Poultry producers are currently not given
Ninety days is too long given the potential for
of birds. Establishes criteria the
sufficient notice of suspension in order to
rapid changes in market conditions.
Secretary may consider when
consider options for utilizing their facilities and
determining whether or not
for keeping up with any loan payments.
reasonable notice (at least 90 days) Without sufficient information, a poultry
has been given for suspension of
grower is unable to protect his or her financial
delivery of birds.
interests and make informed decisions.
§201.216 Capital investment
Current business practices in the poultry
The provisions are ambiguous and subject the
criteria. Establishes criteria the
industry sometimes require successive capital
processor to increased risk. Also, the type of
Secretary may consider when
investment upgrades. USDA needs authority to investment is not specified, such as those
determining whether a requirement limit these practices because they can harm a
required by the packer for efficiency (or other
that a poultry grower or swine
producer’s financial position or can require
reasons) or by law (e.g., animal welfare) which
producer constitutes an unfair
investments for some producers but not
are beyond the packer’s control.
practice in violation of the act.
others as a way to “punish” certain producers.
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Section number and
description of proposed
changesa
Supporting arguments by USDAa
Counterarguments by criticsb
§201.217 Capital investment
Currently, producers are often required to
Some question whether the federal
requirements and prohibitions. make capital investments as a condition to
government should guarantee a certain return
Requires a production contract to
enter into or continue a production contract,
for a producer. An underperforming
be of sufficient length to allow
which can send producers or growers into
producer would have an advantage over a
poultry or swine growers to recoup severe debt, potentially increasing loan
more efficient producer. The word
80% of investment costs related to
defaults. Producers who make large capital
“opportunity” is missing from the language
the capital investment.
investments will have basic protections from
providing for the recovery of the investment.
being forced further into debt.
§201.218 Reasonable period of
Proposed regulation addresses directive on
The criteria establish considerable leeway for
time to remedy a breach of
remedies for breach of contract provided in
favoring the producer over the packers,
contract. Establishes criteria for
the 2008 farm bill. Producers often are not
contractors, and dealers.
determining whether a processor
given sufficient information or time to remedy
has provided a producer a
a breach of contract.
reasonable period of time.
§201.219 Arbitration. Establishes Proposed regulation addresses directive on
Procedures of the American Arbitration
criteria the Secretary may consider ensuring producers have the opportunity to
Association should be used instead of the
when determining whether the
fully participate in the arbitration process if
criteria for “fair” arbitration contained in the
arbitration process in a contract
they so choose, as provided in the 2008 farm
rule.
provides a meaningful and fair
bill. Many contracts (unilaterally drafted by
opportunity for the poultry grower, processors) contain provisions limiting the
livestock producer, or swine
legal rights and remedies afforded by law to
production contract grower to
producers. Also, producers with contracts that
participate fully in the arbitration
require binding arbitration are often left with
process if he/she so chooses.
no means to resolve disputes if they lack
resources to pay fees.
Source: Congressional Research Service.
a. Summarized from USDA documents: (1) USDA, Grain Inspection, Packers and Stockyards Administration,
“Implementation of Regulations Required Under Title XI of the Food, Conservation and Energy Act of
2008; Conduct in Violation of the Act,” 75 Federal Register 35338-35354, June 22, 2010; (2) “Farm Bil
Regulations—Proposed Rule Outline,” http://archive.gipsa.usda.gov/psp/Farm_bill_rule_outline.pdf; and (3)
“Questions and Answers for Proposed Rule,” http://archive.gipsa.usda.gov/psp/farm_bill_QA.pdf.
b. Summarized from statements by the American Meat Institute, National Cattlemen’s Beef Association,
National Pork Producers Council, National Chicken Council, and others.
Author Contact Information
Joel L. Greene
Analyst in Agricultural Policy
jgreene@crs.loc.gov, 7-9877
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