Poultry Industry Blasts Proposed GIPSA Rule, Urges Agency to Withdraw It

November 22, 2010

A massive regulation proposed by the U.S. Department of Agriculture (USDA) on the production and marketing of poultry and livestock is unconstitutional, unsupported by any meaningful economic analysis, and is in defiance of court rulings and Congressional mandates, the poultry industry said in comments filed with the agency today. The proposed regulation should be withdrawn and rewritten, the industry said.

The industry comments take dead aim at the legal basis for the rule proposed by USDA‟s Grain Inspection, Packers & Stockyards Administration (GIPSA), which would force sweeping changes in the relationship between the nation‟s chicken companies and the farmers who grow chickens under contracts with the companies.

“The proposed rule is ill-advised, exceeds GIPSA‟s statutory authority, and, for some provisions, is unconstitutionally vague,” said a 45-page letter signed by George Watts, president of the National Chicken Council, and John Starkey, president of the U.S. Poultry & Egg Association. “GIPSA fails to provide an adequate justification for imposing such sweeping and detrimental changes to the poultry industry and does not explain corresponding benefits to counterbalance the hundreds of millions of dollars of detrimental effects this proposal will have on the U.S. economy.”
Today is the final day on which comments on the proposed rule can be submitted to GIPSA. The agency is legally required to consider all comments before deciding whether or how to finalize the rule.

The poultry industry comments said the proposed rule is unconstitutional because it has so many vague and undefined terms that people and companies who have to comply with the rule will not know what is illegal and what‟s not. The courts have repeatedly held that regulated entities must have “fair notice” of what is prohibited so that they may comply, especially with regard to what is called “likelihood of competitive injury,” the industry comments said.

“A party subject to the proposed rule, therefore, could not reasonably anticipate, much less determine with any reasonable degree of certainty, what business practices would ultimately be held illegal under these and other provisions,” rendering at least some portions of the rule unconstitutional, the statement said.

The industry comments also objected to the changes proposed by GIPSA in the so-called “tournament” system of compensation for poultry growers, in which more efficient farmers are paid premiums based on their performance. The GIPSA proposal would establish a “base rate” that, in effect, would likely reduce the premiums given to higher-performing growers, the comments said.

“The result would be increased production costs for poultry dealers coupled with a decreasing incentive for growers to deliver high quality chickens because compensation would not be tied to performance or quality,” the comments said.

GIPSA also failed to conduct a thorough economic analysis, which is undoubtedly required by Executive Order, the industry comments said.

USDA‟s economic analysis of the rule is “cursory at best” and reaches the “untenable” conclusion that the impact would be less than $100 million per year. If the impact is expected to be more than that, the rule is considered “significant” and the agency would have to conduct a detailed cost-benefit analysis. A study commissioned by NCC concluded that the rule‟s impact on the broiler industry alone would be more than $83 million in 2011 and $137 million in 2012, totaling over $1.025 billion in the first five years of enforcement. Studies commissioned by the meatpacking and livestock industries also projected costs far in excess of the $100 million benchmark.

“The agency‟s disregard of its obligation to conduct an adequate economic analysis and its unsubstantiated conclusion that this is not a „significant regulatory action‟ are arbitrary and capricious,” the comments said.

One of the most contentious aspects of the proposed rule is that GIPSA seeks to apply the legal concept of “competitive injury” to interactions between an individual farmer and the company with which the farmer has a contract to grow chickens, rather than to the broader competitive process affecting overall industry output and prices to consumers.

“That position is contrary to the plain language of the statute and the unanimous construction given it by every federal appellate court to have addressed the issue,” the industry comments say. Eight federal courts of appeal have already found that “competitive injury” applies to the broader marketplace, the industry notes, a trend that is directly contrary to the rule proposed by the agency.

The comments noted that in several of those cases, the agency unsuccessfully argued its position directly to the court in question, while in others it filed friend-of-the-court briefs urging the court to adopt its preferred construction.

“Rather than acquiesce in these decisions, however, GIPSA now seeks to misuse the rulemaking process to achieve what it has not won in court,” the industry comments said.

GIPSA was directed to develop certain regulations by the 2008 Farm Bill enacted by Congress. The industry maintains that the agency went far beyond the intent of Congress in drafting the proposed rule.

“Congress gave the agency no authority” to write the regulations that it did, the industry comments said, adding that Congress “considered and expressly rejected” many of the provisions included in the draft regulations.

“Considered in its entirety, the proposed rule seems aimed more at punishing business efficiency and innovation rather than redressing any identifiable economic distortions that might not ordinarily be corrected by market forces,” the comments said. “Congress has not authorized the agency to engage in central planning or empowered it to redistribute income based on its own conception of „fairness‟ at the expense of rational, legitimate, and efficient business practices that benefit both industry participants and the consumers that they serve.”

GIPSA should withdraw the rule as proposed and rework it to meet the Farm Bill mandate, the industry said.

The National Chicken Council, based in Washington, D.C., represents integrated chicken producer-processors, the companies that produce and process chickens, as well as distributors and allied companies. Member companies of NCC account for more than 95 percent of the chicken sold in the United States.

The U.S. Poultry & Egg Association, based in Tucker, Georgia, is the world‟s largest poultry organization, whose membership includes producers of broilers, turkeys, ducks, eggs and breeding stock, as well as allied companies. The Association focuses on research, education, technical services and communications to keep members of the poultry industry current on important issues.

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