U.S. Department of Agriculture/Grain Inspection, Packers and Stockyards Administration (GIPSA)

GIPSA regulates and monitors the activities of live poultry dealers, packer buyers, packers, swine contractors, stockyard owners and market agencies in order to detect prohibited unfair, unjust, discriminatory, or deceptive, and anti-competitive practices in the livestock, meat, and poultry industries. The agency also reviews the financial records of these entities to promote the financial integrity of the livestock, meat and poultry industries. Its efforts help USDA enhance international competitiveness of American agriculture and the competitiveness and sustainability of rural and farm economies.

2008 Farm Bill

In the 2008 farm bill, (USDA) was directed by Congress to develop criteria in five areas of poultry and swine contracts.  The five areas were:

  • Undue or unreasonable contractual preference/advantages to/for p articular contracting parties
  • Whether a live poultry dealer or swine contractor has provided reasonable notice to a poultry  grower or hog farmer of any suspension of delivery of birds or hogs
  • Reasonable requirements for additional capital investments over the life of a contract
  • Provide reasonable period of time for a poultry/swine grower to remedy a breach of contract
  • Reasonable terms for arbitration in poultry and swine contracts

Proposed Rule

When USDA published the proposed rule in the Federal Register on June 22, 2010, interested parties were given 60 days to comment, a very short comment period, plus there was no credible, adequate economic impact analysis accompanying the rule.  Most egregious, the proposed rule went far beyond what Congress had instructed USDA to consider.

Six areas in the proposed rule where GIPSA went beyond what Congress instructed are:

  • Onerous recordkeeping requirements
  • Redefines “competitive injury” requirements
  • Redefines the term “fairness”
  • Additional capital investment requirements for grower to recoup 80% of costs
  • Modification in the payment system to growers
  • Disclosure and online publication of contracts

The rule, as proposed, would have cost the broiler industry over $1 billion during the first five years, and further, would change the way processors and growers do business that has been successfully conducted for more than five decades. However, in the FY2012 Agriculture Appropriations measure (H.R.2112) agreed to November 14, 2011, House and Senate Conferees reached an agreement in the proposed GIPSA rule.

The Conference Report states that USDA/GIPSA is not permitted to use any funds to finalize or implement the following sections of the farm bill rulemaking:

  • Competitive injury and undue or unreasonable preferences or advantages
  • Unfair, unjustly discriminatory and deceptive practices or devices
  • Any changes to the tournament system
  • Livestock and poultry contract

Final Rule

GIPSA on December 9th issued four final regulations implementing portions of the 2008 Farm Bill. Although the new rules impose some limitations on how poultry dealers contract with growers, many of the more controversial aspects of the agency’s June 2010 proposed rule were not been finalized. In brief, the GIPSA rules affect suspension of delivery of birds, criteria for additional capital investments, the period of time permitted for a grower to remedy a breach of contract, and arbitration. They will take effect on February 7, 2012.

Although Congress directed the agency to implement parts of the 2008 Farm Bill, GIPSA went beyond its statutory mandate, proposing rules that would strictly limit producers’ use of tournament systems for growers, require justifications for differential pricing, and make it significantly easier for a grower to prove competitive injury under the Packers and Stockyards Act. The provisions proved quite controversial, and NCC worked aggressively to oppose these provisions to make the final regulations consistent with the Farm Bill, more reasonable, and less onerous.

The new rules provide criteria GIPSA may use to determine whether a producer has violated the Packers and Stockyards Act when dealing with a grower. The regulations are intended to present criteria, not hard-and-fast rules, but they can be expected to guide GIPSA’s evaluation of a producer’s dealings with a grower. The criteria fall into four categories:

  • Suspension of Delivery of Birds. The rules provide additional protections for growers before producers can suspend delivery of birds, including a requirement that a producer provide written notice at least 90 days in advance, explaining the reason for the suspension and when the grower should anticipate delivery to resume.
  • Additional Capital Investments. The rules implement special protections concerning capital improvements made to growers’ facilities, generally requiring growers be given the opportunity to decline, free of coercion or retaliation, requests to make significant capital improvements to their facilities.
  • Breach of Contract Remedies. When a grower breaches a growing contract, a producer must provide a grower a reasonable period of time to remedy a breach of contract before terminating the contract.
  • Arbitration. All grower contracts requiring arbitration must include a specific disclaimer on the signature page allowing the grower to opt out of the arbitration clause.

In response to the publishing of the final rule, the NCC said:

“The National Chicken Council appreciates the work of Congress to limit the final regulations to the requirements of the 2008 Farm Bill, as Congress intended, and we will work with our members to facilitate compliance with the rule when it takes effect on February 7, 2012. However, we are disappointed that the final rule still includes provisions estimated to cost the chicken industry as much as $55.5 million annually. This is especially burdensome on an industry that has struggled financially in the face of this difficult economic climate and record-high costs of production.”

Although, producers will have to adjust to the new rule, Congress’ pulling back the proposed GIPSA rule to the original intent saved hundreds of millions of dollars of detrimental effects that proposal would have had on the U.S. chicken industry, the U.S. economy, consumers, farm families and farm/rural communities. Although this website concerns the chicken industry, the proposed rule would have had a severe negative impact on the turkey, hog and cattle industries as well as their customers and consumers.

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