March18,2017
LitigationandEconomicAnalysisDivision
Packers&StockyardsProgram
GrainInspection,PackersandStockyardsAdministration
U.S.DepartmentofAgriculture
1400IndependenceAvenue,SW
Washington,DC20250-3601
Re: ScopeofSections202(a)and(b)ofthePackersandStockyardsAct;InterimFinalRule
(RIN0580-AB25);PoultryGrowerRankingSystems;ProposedRule(RIN0580-AB26);
UnfairPracticesandUnduePreferencesinViolationofthePackersandStockyardsAct(RIN
0580-AB27)
DearSirorMadam:
NationalFarmersUnion(NFU)appreciatestheopportunitytocommentontheFarmer
FairPracticesRules(ScopeofSections202(a)and(b)ofthePackersandStockyardsAct;Interim
FinalRule;PoultryGrowerRankingSystems;ProposedRule;andUnfairPracticesandUndue
PreferencesinViolationofthePackersandStockyardsAct)publishedbytheU.S.Departmentof
Agriculture(USDA)intheFederalRegisteronDecember20,2016.TheFarmerFairPractices
RuleswillupdatethePackersandStockyardsAct,1921withbasicprotectionsforfarmersand
ranchers.
NFUisagrassrootsgeneralfarmorganizationwithnearly200,000familyfarmer,
rancher,andfishermenmembersnationwide.Since1902,NFUhassupportedfamilyagriculture
andruralcommunitiesthroughadvocacy,education,andcooperativedevelopment.Delegates
toNFU’sannualconvention,throughavigorouslydebatedanddemocraticprocessestablish
NFU’spolicies.NFUpolicystatessupportof“ClarificationofthePackerandStockyardsActto
allowindividualproducerstoseekrecourseforabuseofmarketpowerwithouthavingtoprove
competitiveinjurytotheentiremarketplace.”1Theinterimfinalruleonthescopeof202(a)and
(b)directlyaddressesNFU’sconcerns.Additionally,NFUpolicysupports,“Modificationsto
regulationsunderthePackersandStockyardsActthatgovernintegratorfair-tradepractices
andstrengthentheenforcementmechanismstherein.”2
I.
Background
ThePackersandStockyardsActof1921waspassedinresponsetothe1919Reportofthe
FederalTradeCommissionontheMeat-PackingIndustry,thatstated,“ThepoweroftheBig
FiveintheUnitedStateshasbeenandisbeingunfairlyandillegallyusedtomanipulate
livestockmarkets;restrictinterstateandinternationalsuppliesoffoods;controlthepricesof
1
NationalFarmersUnion,PolicyoftheNationalFarmersUnion,(March,2016),henceforth
“NFUPolicy”.
2
NFUPolicy.
1
dressedmeatsandotherfoods;defraudboththeproducersoffoodandconsumers;crush
effectivecompetition;securespecialprivilegesfromrailroads,stockyardcompanies,and
municipalities;andprofiteer.”In1916,the“BigFive’s”percentageofinterstateslaughterwas
82.2percentforcattleand61.2percentforhogs.ThepassageofthePackersandStockyards
Actin1921followedtheShermanAntitrustActof1890,theFederalTradeCommissionActof
1914,andtheClaytonActof1914.Thebasicpremiseofthecoreantitrustlawswastoprotect
competitionforthebenefitofconsumers.
TheP&SActwaspassedinorder“toregulatethesaleoflivestockbyfarmerstothemore
economicallypowerfullivestockbuyers.”3CongresspassedtheActwithrecognitionthatthe
previousantitrustactsdidnotadequatelyprotectfarmersandconsumersfromthe
monopolisticpracticesofthemeatpackingindustry.TheActsetouttoregulatemeatpackers
engaginginunfairordeceptivepracticesthatharmindividualfarmers.4WhiletheP&SActhas
sometypicalantitrustcomponents(Sections202(c)through(f)),thelawisbroaderthanjust
antitrustinthatitalsoestablishesstatutorytrustsforthebenefitofallunpaidcashsellersand
deliveryoffullamountdue,forexample.ThesearenotantitrustcomponentsoftheP&SAct
andweredesignedforthebenefitofindividualfarmersandranchers.
II.
ConsolidationofPowerintheIndustry
OnehundredyearsafterpassageoftheP&SAct,theconcentrationratioamongthetop
fourmeatpackingcompaniesis85percentforbeef,74percentforpork,and54percentfor
poultry.5Farmersandranchersaresubjecttobothmonopolisticpracticesintheagricultural
inputssectorandmonopsonisticpracticesintheagriculturalproductionsector.Duetoalackof
competitionacrosstheagriculturalsector,farmersaresubjecttoboththebargainingpowerof
sellersofagriculturalinputsandthebargainingpowerofbuyersoftheproductsfarmersgrow.
Thedevelopmentofcontractfarmingasthemodelinthepoultryandhogsectorhas
institutionalizedthe“monopsony/monopolyrelationsbetweenfarmandagribusinessandthe
abilityofthelattertocapturevaluebytheproducerthroughpricemanipulation.”6Thetwo
partiesthatnegotiatethecontractarenotequal.Thisasymmetricalpowerresultsinundue
influenceovercontractfarmers.
Contractpoultrygrowersareoftenrequiredtoinvesthundredsofthousandsofdollarsfor
poultryhousesandequipmentthathasasinglepurpose–raisingbirds.Farmersofteninvest
withloansamortizedoverdecades.Becauseofthelackofcompetitioninthemeatpacking
sector,farmersmayonlyhaveaccesstoonetotwoprocessorsintheirimmediatearea.The
3
SeeVanWykv.Bergland,570F.2d701,704(8thCir.1978).
4
Stumo,MichaelJ.,andDouglasJ.O'Brien."AntitrustUnfairnessvs.EquitableUnfairnessin
Farmer/MeatPackerRelationships."AntitrustUnfairnessvs.EquitableUnfairness(2003):n.
pag.TheNationalAgriculturalLawCenter.
5
ScopeofSections202(a)and(b)ofthePackersandStockyardsAct,81Fed.Reg.92565,
(December20,2016).
6
Jyotishi,Amalendu."MonopsonisticExploitationinContractFarming:ArticulatingaStrategy
forGrowerCooperation."JournalofInternationalDevelopment.N.p.,n.d.Web.18Mar.2017.
2
poultryhousesandequipmentaresunkcosts,whichputsfarmersatatremendous
disadvantagewhennegotiatingcontracts.AsonefarmerstatedattheU.S.Departmentof
JusticeandUSDAPublicWorkshopsExploringCompetitioninAgriculture:PoultryWorkshop,
“Andwhenyouhavethatkindofdebtloadoveryou,ofcourseyou’regoingtochoosetosign
thecontract.Youfeelthatthere’snootheroptionwhenyouowe,youknow,halfamillion
dollarsoramilliondollars.”7
Foryears,USDAhasattemptedtoaddresstheanticompetitivebehaviorsofthe
meatpackingindustrybypromulgatingrulesthatwouldhelpclarifytheP&SActanditsscope.
Blockedbycongressionalridersfueledbyoutragefromthemeatpackingcompanies,USDAhas,
thusfar,beenunabletopromulgaterules.Thestatusquosystemofindenturedservitudeby
contractgrowerswhoaresubjecttoincreasinglyoffensivedemandsbyintegratorsissimply
unacceptable.NFUstronglysupportstheinterimfinalruleonScopeofSections202(a)and(b)
ofthePackersandStockyardsActandtheproposedrulesonUnfairPracticesandUndue
PreferencesinViolationofthePackersandStockyardsActandPoultryGrowerRanking
Systems.
III.
CompetitiveInjury
Section202(a)and(b)oftheP&SActstate,“Itshallbeunlawfulforanypackerorswine
contractorwithrespecttolivestock,meats,meatfoodproductionsorlivestockproductsin
unmanufacturedform,orforanylivepoultrydealerwithrespecttolivepoultry,to:(a)Engage
intheuseofanyunfair,unjustlydiscriminatory,ordeceptivepracticeordevice,or(b)Makeor
giveanyundueorunreasonablepreferenceoradvantagetoanyparticularpersonorlocalityin
anyrespect,orsubjectanyparticularpersonorlocalitytoanyundueorunreasonableprejudice
ordisadvantageinanyrespect.”8
TheInterimFinalRuleontheScopeofSections202(a)and(b)oftheP&SActstates,Ҥ201.3
Applicabilityofregulationsinthispart.(a)Scopeofsections202(a)and(b)oftheAct.The
appropriateapplicationofsections202(a)and(b)oftheActdependsonthenatureand
circumstancesofthechallengedconductoraction.Afindingthatthechallengedconductor
actionadverselyaffectsorislikelytoadverselyaffectcompetitionisnotnecessaryinallcases.
Certainconductoractioncanbefoundtoviolatesections202(a)and/or(b)oftheActwithouta
findingofharmorlikelyharmtocompetition.”
Thislanguageclarifiesthelong-heldpositionofUSDAthatharmtocompetitionisnot
requiredforafindingofharmundertheP&SAct.Inaccordancewithcongressionalintent,
USDAhasfiledamicicuriaecontendingthatitisnotnecessarytoprovecompetitiveinjuryor
likelihoodofinjurytoprovethatapracticeis“unfair”.FordecadesafterpassageoftheP&S
Act,thisclarificationwouldhavebeensuperfluous.However,inLondonvs.FieldaleFarms,
Wheelerv.Pilgrim’sPrideCorp.,andBeenv.O.K.Indus.,Inc.,thecourtsfoundthatclaimsunder
202(a)and/or(b)requiredademonstrationofharmtocompetitionorlikelyharmto
competition,typicalofanantitrustlawbutamisapplicationoftheP&SAct.InLondon,theU.S.
7
USDOJ&USDAPublicWorkshopsExploringCompetitioninAgriculture(2010),Normal,
Alabama.Print.
8
7U.S.C.181
3
CourtofAppeals,EleventhCircuitfoundthat“eliminationofacompetitiveimpactrequirement
wouldsubvertthepolicyjustificationsforthePSA’sadoption.”Thisfindingiscountertothe
intentandplainlanguageoftheP&SAct.
InLondon,contractgrowersHaroldandChristineLondonfiledsuitundertheP&SAct
assertingthattheirpoultrycontractwaswrongfullyterminated.TheLondonsfacedretaliation
fromthepoultrycompany,FieldaleforHarold’stestimonyinadiscriminationcaseagainstthe
company.ThedecisionquotesaninterpretationoftheP&SActfromUnitedStatesv.Perdue
Farms.,Inc.,“Section202oftheoriginalActmadeitunlawfulforany‘packer’toengageinany
anticompetitive,monopolistic,discriminatory,ordeceptivepractices.”9Thisisnotacorrect
interpretationoftheact.WhileSection202(c)through(e)clearlycontainantitrustlanguage
regardingrestrainingcommerceorcreatingamonopoly,Sections(a)and(b)donotcontain
suchantitrustlanguage.Thereforethecompetitiveinjurytestisnotrequiredforthesetwo
sections.IfCongresshadwantedanapplicationofthistesttoSections(a)and(b),itwouldhave
includeditintheplainlanguagelikewhatwasincludedinSections(c)through(e).
AstheInterimFinalrulenotes,morethan95percentofallbroilersintheU.S.areraised
anddeliveredunderproductioncontracts.10Thesystemofverticalintegrationwherepoultry
growersreceivebirdsfrom“company-ownedhatcheries”andfeed.11Poultrygrowersdonot
one,raiseorselladomesticanimal.Thecompanyownsthebirdsandthepoultrygrowerraise
andcareforthebirds.Becauseofthisverticalintegration,thelawandtheregulationsrelated
totheowning,raising,andsellingofadomesticanimalarelimited.
InLondon,Been,andWheeler,thecourtsinaccuratelyconveytheauthorityofthe
SecretarygrantedbytheP&SAct.Section410,however,outlinestheparametersfortimeliness
ofpaymentstogrowers,butalsostates,“(b)Delayorattempttodelaycollectionoffundsas
“unfairpractice”.Anydelayorattempttodelay,byalivepoultrydealerwhichisapartytoany
suchtransaction,thecollectionoffundsashereinprovided,orotherwiseforthepurposeofor
resultinginextendingthenormalperiodofpaymentforpoultryobtainedbypoultrygrowing
arrangementorpurchaseinacashsale,shallbeconsideredan“unfairpractice”inviolationof
thisAct.Nothinginthissectionshallbedeemedtolimitthemeaningoftheterm“unfair
practice”asusedinthisAct.”12
WhiletheSecretarydoesnothaveexhaustiveadministrativeauthorityoverlivepoultry
dealers,hedoeshaveparticularauthorityoverenforcementoflivepoultrydealersthat
includes“unfairpractices”dealingwithimproperpaymentand/orlatepaymentforthegrower
services.Section410outlinesboththeparametersfortimelinessofpaymenttogrowers,but
alsothatanyattempttodelaycollectionoffundsisan“unfairpractice”.Section411statesin
plainlanguagetheSecretaryhasadministrativeauthorityoversection410and207.
9
Londonv.FieldaleFarmsCorp.,410F.3d1295,1304-05(11thCir.2005)
10
ScopeofSections202(a)and(b)ofthePackersandStockyardsAct,81Fed.Reg.92566,
92594(December20,2016).
11
"VerticalIntegration."TheNationalChickenCouncil.N.p.,n.d.Web.18Mar.2017.
http://www.nationalchickencouncil.org/industry-issues/vertical-integration/
12
7U.S.C.181
4
Onceineffect,NFUurgesthecourtstogivedeferencetoSection201.3.Thesecretaryof
agricultureisanexpertinagricultureandhasadministrativeauthorityovertheP&SAct,and
therefore,thecourtsshoulddefertothisplainlanguageclarificationoftheP&SAct.
IV.
PoultryGrowerRankingSystems
NFUappreciatestheeffortsUSDAhastakentopromulgaterulesonthepoultrygrower
rankingsystem.ThissystemisthepredominantpaymentsystemforbroilersraisedintheUS.
Underpoultrygrowerrankingsystems,theintegratorownsthehatchery,thegenetics,the
chicks,thefeed,thetrucksandtheprocessingfacility.Thefarmerownstheland,thebuildings,
andthewastefromthechickens.Asetamountoffundingisavailableforapoolofgrowers.The
averagegrowerinthepoolreceivesthebasepay,andthosethatperformbetterorworse
receivehigherorlowercompensation.Thisisnotanincentives-basedsystem.Itpitsfarmer
againstfarmerinthesamecommunity,competingagainstoneanotherforthelimited
compensation.Somefarmersare“winners”inthisscenario,whileothersarelosers.Somemay
arguethatthisisafairsystemtoincentivizegrowerstoperformbetterandrewardinggrowers
whoperformwell.
Unfortunately,intheverticallyintegratedcontractpoultrymodel,growershavevery
littleimpactontheirperformance.Inotherwords,thetournamentisrigged.Thevastmajority
ofthefactorsthatimpactfeedconversion(orthegrower’ssuccessinthetournament)are
basedoninputsthatarebeyondthegrower’scontrol.Thechickgeneticsandhealth,density,
feedandmedicationlargelydeterminetheconversionfeedratio,andthegrower’s
performance.
Thetournamentsystemandzero-sumpaymentschemeallowspoultrycompaniesto
offloadinherentriskorcostsinagriculturetofarmers.Youngandoldbreedinghensproduce
inferiorchicksthatresultinlessefficientfeedconversion.Thecompanydeliversallofthechicks
tothegrowers,despiteknowingthatsomeofthechickswillbeinferior,resultinginlesspayfor
thegrower.Thecompanyultimatelyrewardsorpenalizesgrowersbasedoffofchicksofvarying
quality.Thereisnotransparencyinthissystem.
TheproposedruleonPoultryGrowerRankingSystemsamendsthePackers&
StockyardsActtohelpprovideadditionalinformationonundueorunreasonablepreferences,
advantage,prejudice,ordisadvantageforpoultrygrowerrankingsystems.Theproposedrule
identifiescriteriafortheSecretarytoconsiderwhendeterminingwhetheranintegratorhas
violatedtheAct.
Proposed201.214(a)enablestheSecretarytoevaluatewhetheralivepoultrydealer
gavesufficientinformationtogrowerstoallowthemtomakeinformedbusinessdecisions.
Informationlikeanticipatednumberofflocksperyearandaveragegrossincomeisimportant
informationforagrowertohave.Poultrycompaniesoftentargeteconomicallydepressedareas
andsuggestthatgrowerswillhavegreatsuccesswithpoultrygrowing.Theseprospectusesare
oftenwildlyinaccurate.Growersmakebusinessdecisions,includinglong-terminvestmentsthat
requirecollateralizationoflandandhomes,basedontheinformationinprospectuses.This
proposedrulewouldhelpaddressthisharmfulpractice.
Proposed201.214(b)addressesanotherharmfulpracticethatoccurswithpoultry
growerrankingsystems.Theinferiorchicksandfeedhavebeentargetedtowardsindividual
5
growersasameansofretaliationforanynumberofdifferentactions,includingaskingformore
pay,speakingtomembersofCongress,orforminggrowerassociations.201.214(b)makesit
clearthattargetinginferiorchicksorfeedtogrowerswouldbeaviolationoftheAct.Whileit
wouldbepreferableforcompaniestoabsorbthecostsofinferiorchicksintotheirbusiness
costsratherthanoffloadingthemtofarmers,thisproposedrulewouldmakesurethatpoultry
companiesrandomizedthedistributionoftheinferiorchicksandotherinputs.
Proposed201.214(c)createscriteriafordeterminingwhetheracompanyranked
growerswithdissimilarproductionvariables.Asitcurrentlystands,poultrycompaniescanand
dorankgrowerswithothergrowerswithdifferingdensity,ages,andbreeds,allofwhichcan
greatlyimpactagrower’sperformance,andultimately,compensation.
NFUstronglysupportstheabovecriteriaandencouragesUSDAtofinalizethesecriteria
immediately.Thesearecommonsensereformsthatwilllimittheworstabusesofthepoultry
companiesandareclearexamplesofwherethepoultrygrowerrankingsystemisunfairand
violatesthePackersandStockyardsAct.
Thefinalcriteriaproposed,202.214(d),on“whetheralivepoultrydealerhas
demonstratedalegitimatebusinessjustificationforuseofapoultrygrowerrankingsystemthat
mayotherwisebeunfair,unjustlydiscriminatory,ordeceptiveorgivesanundueor
unreasonablepreferenceoradvantagetoanypoultrygrowerorsubjectsanypoultrygrowerto
anundueorunreasonableprejudiceoradvantage”isincrediblyproblematic.Thiscriteria
providesastrongdefenseforpoultrycompaniesinanylegalchallenges.Forexample,the
criteriawouldallowpoultrycompaniestodefendtheiractionstopurposefullytargetgrowers
withinferiorchicksbecausetheyspokewithamemberofCongress.IsittheintentofGIPSAto
haveretaliationbealegitimatebusinessjustification?Withoutfurtherclarity,thiscriterion
couldthreatentheeffectivenessoftheotherlistedcriteria.NFUopposesthislanguageand
encouragesUSDAtoeliminateitinthefinalrule.
V.
UnfairPracticesandUnduePreferencesinViolationofthePackersandStockyards
Act
NFUalsosupportstheproposedruleonUnfairPracticesandUnduePreferencesin
ViolationofthePackersandStockyardsAct.Thenewproposedruleoffersmuchneededclarity
on“perse”violationsofthePackersandStockyardsAct.Theterms“unfair,”“unjustly
discriminatory”,and“deceptive”haveneverbeenadequatelydefinedbylaworregulation,
leadingtoambiguitythathasbeeninconsistentlytreatedinthecourts.Additionally,this
proposedrulerestatestheplainlanguageoftherulethatafindingofcompetitiveinjuryor
likelihoodofcompetitiveinjuryisnotrequiredunder202(a).
ThePackersandStockyardsActenumeratesunlawfulpracticesinSection202(a)
through(g).Section202(a)statesthatisunlawfulforanypacker,swinecontractororlive
poultrydealerto“engageinoruseanyunfair,unjustlydiscriminatory,ordeceptivepracticeor
device”butthereareadditionalunfairpracticesenumeratedintheAct.Section409(c)deemsa
delayinpaymentorattempttodelaypaymentasanunfairpractices.Thisproposedrulewould
makeitclearthataviolationofsection409(c)isalsoaviolationof202(a).Thisisadditional
claritythatwillhelpmakeitclearthattheapplicationofthecompetitiveinjuryrequirementto
Section202(a).TheadditionalunfairpracticesenumeratedintheactmakeitclearthattheAct
6
isnotsolelyanantitrustactandcompetitiveinjuryisnotalwaysarequirementforaviolation
oftheAct.
Additionally,thisproposedruleclarifieswhatconsistsofan“unfair,unjustly
discriminatory,ordeceptivepracticeordevice”underSection202(a),regardlessofharmto
competition.Theproposedruleoffersanillustrativelistofconductthatisaviolationincluding:
• Retaliationorthreatofretaliation
• Limitingthelegalrightsandremedies
o Righttoatrialbyjury
o RighttoatrialintheFederaljudicialdistrictinwhichtheprincipalpartof
theperformancetookplaceunderthearrangementorcontract
o Righttopursuealldamagesavailableunderapplicablelaw
o Righttoseekanawardofattorneyfees
• FailingtocomplywiththerequirementsofSection201.100regardingrecordsto
befurnishedtopoultrygrowersandsellers
• Failingtoprovidenoticetogrowerofsuspensionofdeliveryofbirds
• Requiringunreasonableadditionalcapitalinvestments
• Failingtoprovideareasonableperiodoftimetoremedyabreachofcontract
• Failingtoprovideameaningfulopportunitytoparticipatefullyinthearbitration
process
• Failingtoensureaccuratescalesandweighingoflivestock,poultryorfeed
• Failingtoensuretheaccuracyofelectronicevaluationsystems
Thislistaddressessomeofthemanyunfairpracticesthatoccurinthelivestockandpoultry
sector.
Theproposedrulealsooffersadditionalcriteriafor202(b),furtherdefiningundueor
unreasonablepreferencesoradvantages.Section202(b)statesthatitshallbeunlawfulforany
packerorswinecontractorwithrespecttolivestock,meats,meatfoodproducts,orlivestock
productsinunmanufacturedform,orforanylivepoultrydealerwithrespecttolivepoultry,to
“makeorgiveanyundueorunreasonablepreferenceoradvantagetoanyparticularpersonor
localityinanyrespect,orsubjectanyparticularpersonorlocalitytoanyundueorunreasonable
prejudiceordisadvantageinanyrespect.”
NFUappreciatestheadditionalclarityUSDAprovideswiththenon-exhaustivelistof
criteriaincludedunder201.211.Theplainlanguageoftheproposedruledoesnotpreclude
packerorswinecontractorsorlivepoultrydealersfromofferingpremiumsfornatural,organic
orCertifiedAngusBeef,ashasbeensuggestedbythemeatpackers.Theplainlanguageofthe
proposedruledoesnotinterferewithacontractor’sabilitytoofferpremiums.Theproposed
ruleincludescriteriaforaviolationof202(b)ifagrowerorproduceristreateddifferentlyfor
engaginginlawfulcommunication,associationorassertionoftheirrights;forallegedlyviolating
anylaw,ruleorregulationwithoutareasonablebasistodeterminewhetherornotaviolation
wascommitted;foranarbitraryreason;oronthebasisofrace,color,nationalorigin,sex,
religion,age,disability,politicalbeliefs,sexualorientation,ormaritalorfamilystatus.Theseare
importantcriteriathatwillhelpensureclaritybothforproducersandgrowers,butalsoforthe
companiestheycontractwith.
7
NFU,however,adamantlyopposestheinclusionof“legitimatebusinessjustification”
language.Asstatedabove,thisisaloopholethatprovidesprotectiontolivepoultrydealersand
packerandswinecontractorstoviolatethelawiftheyhaveagoodbusinessreasontodoso. VI.
Conclusion
ThankyoufortheopportunitytosubmitcommentsonScopeofSections202(a)and(b)of
thePackersandStockyardsAct;InterimFinalRule(RIN0580-AB25);PoultryGrowerRanking
Systems;ProposedRule(RIN0580-AB26);UnfairPracticesandUnduePreferencesinViolation
ofthePackersandStockyardsAct(RIN0580-AB27).Theserules,theFarmerFairPractices
Rules,arelongoverdue.Familyfarmersandranchersoperatinginanextremelyconsolidated
marketplaceshouldhavethefullprotectionofthePackersandStockyardsActof1921.Over
thelastfewdecades,judicialdecisionshaveweakenedtheoriginalact,providingfarmersand
rancherswithlessprotectioninamorechallengingmarketplace.Theseruleswillgoalongway
tomakesurethatfarmersandrancherscancontinuetooperatewithbasicprotectionsunder
thelaw.
Sincerely,
RogerJohnson
President
8