CME: GIPSA's Livestock and Poultry Marketing Rule

US - USDA’s Grain Inspection, Packers and Stockyards Administation (GIPSA) released on Friday a proposed rule to define the terms of Section 202 of the Packers and Stockyards Act of 1921, write Steve Meyer and Len Steiner.
calendar icon 23 June 2010
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In addition, the rule addresses the increased use of contract for production and marketing of livestock and poultry. The first issue was required of GIPSA as part of the 2008 Farm Bill. The second is, it appears, GIPSA’s own idea.

First, a bit of history. The Packers and Stockyards Act of 1921 was passed following a period when a highly concentrated packing industry substantially controlled prices for meat and livestock. It followed the famous Consent Decree of February 1920 in which the five largest packers agreed to a number of terms, the most important of which were 1) to own no public stockyard, stockyard terminal railroad or stockyard newspaper or journal and 2)to own or operate no retail meat market. At the time, the largest packers exerted a great degree of control up and down the market channel. The Consent Decree was vacated in 1981.

The Packers and Stockyards Act created the Packers and Stockyards Administration which is now part of GIPSA. Packers and Stockyards Programs is a working division of the agency charged with enforcing the Act. Central to the Act is Section 202: Unlawful practices enumerated which prohibits unfair, unjustly discriminatory and deceptive practices, undue or unreasonable preference or advantage (or prejudice or disadvantage) to any particular person. Section 202 also prohibits packers from selling to or buying from other packers, contractors, dealers or any other persons or engaging in any other course of business for the purpose of apportioning supply to restrain trade or create a monopoly or manipulating or controlling prices or restraining commerce.

But that is as far as the Act goes. The meaning of all of those terms has been left up to the courts on a case-by-case basis much to the chagrin of those who believe, more or less, that packers are always guilty of manipulating prices and never pay as much as animals are worth. Congress, in the last Farm Bill, called for GIPSA to define the terms and lay down what is and is not legal in the form of regulations instead of going through legal channels to define the terms with case law.

The proposed rule will be published in today’s Federal Register. It and several explanatory documents can be found at the GIPSA homepage.

It should be noted that the Act now covers poultry and swine contractors as well as packers and stockyards. These were added over the past several years to give USDA authority over the contracting relationships that developed within the industries. Most allegations of wrongdoing and abuse have centered on poultry production contracts. There have been a few instances of swine contractors breaking contract agreements but swine contractors were added pretty much “just in case” problems were to develop in that industry.

GIPSA’s outline of the proposed rule states 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.” Some key items in the regulations are:

  • Requiring packers, contractors and dealers to keep written records that justify any differential pricing or any deviation from standard price or contract terms offered to growers or livestock producers. GIPSA points out that packers/contractor/dealers must have a “legitimate” reason for any differentials but that the justification “need not be extensive but [must] be enough to identify the benefit/cost basis of any differentials.” GIPSA will consider particular circumstances to determine if a violation has occurred.

  • Examples of conduct that would be considered an unfair, unjustly discriminatory and deceptive practices. These include not allowing a poultry grower to watch birds being weighed, using inaccurate scales, providing poor quality feed or sick birds, failing to provide a grower the growing contract in a timely manner or retaliation against a grower. NOTE: Courts have consistently held, most recently in the Wheeler decision, that such practices do not violate the Act if they do not have a detrimental impact on competition. Some in Congress and at lest the present administration believe that standard is too high and that these practices should be a violation of the Act if they harm an individual, regardless of whether they harm competition. This rule attempts to fulfill that viewpoint and is, it appears, at odds with case law.

  • Establishes criteria to be used in determining if an undue/unreasonable preference/prejudice has occurred. The outline uses as an example a packer offering better price terms to producers who can provide larger volumes of livestock of equal quality if “it cannot provide a legitimate justification for the disparity.” The rule says nothing of what might be a legitimate justification. It does point out that packers will not be required to buy livestock if their needs are already satisfied. Nor will they be required to deal with all sellers.

  • Prohibits packers from purchasing, acquiring or receiving livestock from another packer or another packer’s affiliated company except in the case where a waiver might be granted in cast of a catastrophic or natural disaster or other emergency. The feature is intended to prevent packers from signaling each other though inter-packer trades. It should be noted, though, that prices and volumes of those trades are already reported and published daily through the mandatory price reporting system, allowing everyone to see what is being done.

Further Reading

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