USDA Releases GIPSA Rules

USDA Releases GIPSA Rules

On December 20, 2016, the U.S. Department of Agriculture's (USDA's) Grain Inspection, Packers and Stockyards Administration (GIPSA) released the Farmer Fair Practices Rules consisting of an interim final rule and two proposed rules that address marketing and competition issues for livestock and poultry markets. GIPSA initially proposed these rules in 2010 to implement 2008 farm bill (P.L. 110-246) provisions, and they are commonly referred to as the "GIPSA rule."

The GIPSA rule was intended to ensure fair competition in livestock and poultry markets by clarifying what constituted a violation of the Packers and Stockyards Act (P&S Act; 7 U.S.C. §181 et seq.). However, starting in FY2012, Congress blocked implementation of some provisions in the original proposed rule through the appropriations process. When Congress dropped such a provision in the FY2016 appropriations act (P.L. 114-113), USDA began the process of reissuing parts of the original rule.

Section 202 of the P&S Act describes unlawful acts that would cause packers, swine contractors, and live poultry dealers to be in violation of the act. The recently released rules address the scope of Sections 202(a) and 202(b) of the act and provide criteria that may be considered to determine if P&S Act violations have occurred.

Sections 202(a) and (b)

Section 202(a) states it is unlawful to "[e]ngage in or use any unfair, unjustly discriminatory, or deceptive practice or device." Section 202(b) says it is unlawful to "[m]ake or give any undue or unreasonable preference or advantage to any particular person or locality in any respect, or subject any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect."

The interim final rule, Scope of Sections 202(a) and (b) of the Packers and Stockyards Act, (81 Federal Register 92566) amends GIPSA regulations (9 C.F.R. 201) governing the applicability of 202(a) and (b) to include conduct or actions that may harm an individual. In short, a violation would not require a finding of harm or likely harm to competition (i.e., conduct or action that hurts the marketplace). Past P&S Act court cases have found that an individual may have been harmed by the conduct or action of packers, contractors, or live poultry dealers, but competition was not harmed and thus there was no P&S Act violation. USDA has argued in the past that conduct or actions may harm individuals and that Sections 202(a) and (b) should apply to individuals. USDA points out in the interim final rule that unlike Section 202(c), (d), and (e), which refer to "restraining commerce," the term commerce is not used in (a) and (b). USDA also believes that the criteria being proposed in the two proposed rules will provide clarity that would enable courts to find for individuals in P&S Act cases.

The first proposed rule, Unfair Practices and Undue Preferences in Violation of the Packers and Stockyards Act (81 Federal Register 92703), includes examples (not all-inclusive) of conduct or action that could be unfair or unjustly discriminatory and criteria to determine what constitutes undue or unreasonable preference. Examples of unfair conduct or action include retaliatory actions, failing to comply with record requirements, and failing to provide reasonable notice to poultry growers before suspending the delivery of birds. Criteria that may be considered include treating producers/growers unfavorably when they have engaged in lawful communication or assert their rights, treating producers/growers unfavorably for arbitrary reasons unrelated to the livestock or poultry operations, and whether or not the conduct or action harms or is likely to harm competition.

The second proposed rule, Poultry Grower Ranking System (81 Federal Register 92723), provides guidance that could be used to determine a violation when the tournament ranking system is used in settling poultry contracts.

Tournament System

Poultry processors use the tournament system to rank the quality of grower flocks. At the end of a growing period, each grower's flock of birds is ranked against a pool (settlement group) of other growers' flocks. Depending on growing performance, a discount or a premium may be applied to the base contract pay for each grower.

The proposed rule provides four examples of criteria that could be used to determine if conduct or actions are unfair or unjustly discriminatory or whether they provide undue or unreasonable preference to one producer over another: (1) whether poultry companies provide growers sufficient information to make sound business decisions; (2) whether poultry companies provide comparable quality and quantity of inputs (e.g., birds, feed, medication) to growers in the same settlement group; (3) whether companies consider production variables (e.g., bird placement density, age, and target weights) among growers in a settlement group; and (4) that poultry companies must be able to demonstrate a legitimate business reason for varying from the three criteria described above.

The recently released rules remain controversial among livestock and poultry producers, industry associations, and advocacy groups. For opponents of the GIPSA rule, the interim final rule is especially of concern because of the belief that it could lead to increased litigation. Proponents continue to support USDA efforts to implement rules that could provide additional protections to contract growers.

On January 20, 2017, the Trump Administration issued a memorandum requesting agencies to delay until 60 days after the date of the memorandum any regulations that had not taken effect but were due to go into effect during that period. On February 6, 2017, USDA announced a delay in the effective date of the interim final rule by 60 days to April 22 (originally February 21), and the comment periods for the interim final rule and the proposed rules are extended 30 days until March 24 (originally February 21). This action provides the Trump Administration more time to review these rules and decide whether to proceed with the rulemaking begun under the Obama Administration. The new Administration could still withdraw the interim final rule, likely through the notice and comment process, and decide to not finalize the two proposed rules if it chooses.