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The U.S. Department of Agriculture’s Agricultural Marketing Service proposes to amend the regulations issued under the Packers and Stockyards Act (P&S Act) to address the use of poultry grower ranking 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 with which a live poultry dealer must comply if a poultry grower ranking system is utilized to determine grower payment. A live poultry dealer’s failure to comply would be deemed an unfair, unjustly discriminatory, and deceptive practice.

Statement of Need:

Although poultry grower ranking systems may promote healthy competition among growers and the use of improved technologies, differences in size and imbalances of power between parties in contractual poultry growing arrangements can have detrimental effects on one of the contracting parties and may result in marketplace inefficiencies.  An often-cited concern is the live poultry dealer’s full control over inputs, e.g., chick, feed, medication, etc., to the poultry growing process.  Industry members have asked the Agricultural Marketing Service (AMS) to address such imbalances by specifying the conduct that would be considered violative of the Packers and Stockyards Act (Act).

Summary of the Legal Basis:

The Agricultural Marketing Service (AMS) is delegated authority by the Secretary of Agriculture to enforce the P&S Act. AMS has received numerous complaints regarding the imbalance of power in poultry growing agreements, wherein one side controls all of the inputs, then arbitrarily ranks grower performance against other growers to determine pay.

Alternatives:

AMS considered finalizing a 2016 proposed rule that would have identified criteria for determining whether a live poultry dealer’s use of a grower ranking system for payment purposes might be unlawful under the Packers and Stockyards Act.

Anticipated Costs and Benefits:

USDA estimates the first-year costs associated with this proposed rule to be $17.37 million. Subsequent year costs are expected to be significantly less than first-year costs, resulting in a ten-year total cost of $34.64 million. USDA expects the primary benefit of the regulation will be the increased ability to protect poultry growers from unfair practices associated with the use of poultry grower ranking systems. At the same time, the rule is expected to improve efficiencies through the use of new technologies and to reduce market failures among poultry growers.

Risks:

Extended litigation over legal challenges from the industry could result in the rule being struck down by the courts, hindering the agency’s ability to enforce the Act for years.