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In June of 2010, GIPSA published a proposal to amend section 201.3 of the regulations issued under the Packers and Stockyards Act (P&S Act), 1921, as amended.  This proposed change responds to guidance from the courts. The courts, in addressing litigation brought by poultry growers alleging harm, have said that GIPSA’s statements regarding the appropriate application of subsections 202(a) and 202(b) are not entitled to deference in the absence of regulation addressing whether the P&S Act prohibits all unfair practices, or only those causing harm or a likelihood of harm to competition. The amendment to 201.3 will establish GIPSA’s interpretation of the statute which will then be entitled to judicial deference.

Statement of Need:

This rulemaking will clarify the long held position of the Department of Agriculture that it is not necessary in all cases to demonstrate harm or likely harm to competition in order to establish a violation of either Section 202(a) or (b) of the P&S Act. Several U.S. Courts of Appeals have held that it was necessary for plaintiffs to prove harm or likely harm to competition in cases alleging unfair practices in violation of the P&S Act. The 2008 Farm Bill directed the Secretary of Agriculture to establish criteria that the Secretary will consider in determining whether a live poultry dealer has provided reasonable notice to poultry growers of any suspension of the delivery of birds under a poultry growing arrangement; when a requirement of additional capital investments over the life of a poultry growing arrangement or swine production contract constitutes a violation of the P&S Act; and if a live poultry dealer or swine contractor has provided a reasonable period of time for a poultry grower or a swine production contract grower to remedy a breach of contract that could lead to termination of the poultry growing arrangement or swine production contract.  GIPSA published final rules establishing the required criteria in December 2011. However, to link the regulatory criteria and a violation of the P&S Act, requires the interpretation that it is not necessary to show harm to competition in order to prove that a packer, swine contractor, or live poultry dealer has committed an unfair practice in violation of the P&S Act.

Summary of the Legal Basis:

Section 407 of the P&S Act provides that [t]he Secretary may make such rules, regulations, and orders as may be necessary to carry out the provisions of this Act. This rule is necessary to carry out the provisions of section 202(a) and (b) of the P&S Act.

Alternatives:

GIPSA considered three regulatory alternatives: maintain the status quo and not issue the regulation; issuing regulation as an interim final regulation; and issuing the regulation as an interim final regulation but exempting small businesses.

Anticipated Costs and Benefits:

GIPSA estimates the costs to be greater than $100 million annually. GIPSA was unable to quantify the benefits of the regulation. However, the primary benefit of regulation 201.3 is the increased ability to protect producers and growers through enforcement of the P&S Act for violations of section 202(a) and/or (b) that do not result in harm or the likelihood of harm to competition.

Risks:

The risk addressed by this rulemaking is the present uncertainty that limits enforcement of section 202(a) or (b) of the P&S Act. The clarification provided by this rulemaking will allow the linkage of the regulatory criteria to a violation of the P&S Act, which is a substantial portion of the GIPSA Packers and Stockyards Program’s mission.