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The U.S. Department of Agriculture’s Grain Inspection, Packers and Stockyards Administration (GIPSA) plans to propose amending part 201 of the Regulations under the Packers and Stockyards Act (P&S Act) (7U.S.C.181 229c) to address the use of tournament systems as a method of payment and settlement grouping for poultry growers under contract in poultry growing arrangements with live poultry dealers. The proposed regulation would establish certain requirements to which a live poultry dealer must comply if a tournament system is going to be utilized to determine grower payment. A live poultry dealer’s failure to comply would be deemed an unfair, unjustly discriminatory and deceptive practice according to factors outlined in the proposed rule.

Statement of Need:

This proposed section 201.214 will establish criteria that the Secretary may consider when determining whether a live poultry dealer has used a poultry grower ranking system to compensate poultry grower in an unfair, unjustly discriminatory, or deceptive manner, or in a way that gives an undue or unreasonable prejudice or disadvantage.  Proposed section 201.210(10) will link the criteria to an unfair practice in violation of section 202(a) of the P&S Act.  These provisions are needed to protect poultry growers from unfair, unjustly discriminatory or deceptive practices and devices and from undue or unreasonable prejudice or disadvantage.  SUMMARY OF 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.

Summary of the Legal Basis:

GIPSA considered three regulatory alternatives: maintain the status quo and not propose the regulation; propose a revised version of the proposed rule published in 2010; and propose a revised version that would be phased in as existing contracts expire, are replaced, or modified.

Alternatives:

Anticipated Costs and Benefits:

GIPSA estimates the annualized costs of proposed regulation 201.211 to be less than $11 million.  GIPSA estimates the costs to be greater than $100 million annually. GIPSA was unable to quantify the benefits of the regulations. However, the primary benefit of regulation 201.214 is the increased ability to protect poultry growers from unfair practices associated with the use of poultry grower ranking systems.  GIPSA also expects that the regulation will improve efficiencies and reduce market failures, by increasing the amount of relevant information available to poultry growers and reducing information asymmetries.  Potential poultry growers will make better informed business decisions regarding whether to enter the industry and established poultry growers will make better informed decisions regarding additional capital investments.

Risks:

The risk addressed by this rulemaking is the present uncertainty that poultry growers face regarding treatment in a poultry grower ranking system and the inefficient allocation of resources due to incomplete information needed for business decisions.