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This action seeks comments on proposed amendments to regulations that promote transparency in the poultry grower ranking systems, more commonly known as tournaments, in contract poultry production. Proposed amendments serve to remove obstacles to fair contracting.

Statement of Need:

Executive Order 14036 Promoting Competition in the American Economy, directs the Secretary of Agriculture to address unfair treatment of farmers and improve conditions of competition in their markets by considering rulemaking to address, among other things, certain practices related to poultry grower ranking systems.  AMS is responding to numerous complaints from poultry growers about the use of tournament systems and recognizes that measures beyond disclosure and transparency may be necessary to address those practices, given the economic power imbalances and competition concerns that exist in today’s markets.  Responses to requests for comment have helped AMS tailor further policy development and rulemaking under the Packers and Stockyards Act, as amended, to address, through specific prohibitions, limits, and/or conventionalities, potential unfairness that may arise from the use of the tournament contracts in the poultry sector.  

Summary of the Legal Basis:

Sections 202(a) and 202(b) of the Packers and Stockyards Act prohibits unfair practices and undue preferences.

Alternatives:

The alternative considered is to continue with other efforts already underway to enhance fair and competitive markets in poultry.  These include:  (1) a separate rulemaking, under RIN 0581-AE03, in which USDA proposed a series of new transparency measures designed to address many grower concerns relating to deception and lack of access to critical information in connection with poultry contracting and tournament systems; (2) under the American Rescue Plan Act’s provision to enhance supply chain resiliency, investing directly into the creation of new, and expansion of existing, local and regional meat and poultry processing enterprises; and (3) in partnership with DOJ, through such means as a newly established joint complaints and tips portal, www.farmerfairness.gov, enhancing enforcement activities including responding in a more coordinated manner to a range of competition and fair markets concerns. 

Anticipated Costs and Benefits:

AMS is at an early stage of evaluating the costs and benefits of the contemplated regulatory interventions. However, expected benefits include greater certainty, investment, and supply of poultry products, greater returns to poultry growers and enhanced rural economic welfare, and expanded competitive choices in the poultry sector.  Expected costs may include compliance costs, such as certain contract change costs.

Risks:

Agricultural production is an inherently risky endeavor, and returns have some level of risk no matter the marketing channel or structural arrangement.  Tournament systems do not insulate growers from the financial risk, liquidity risk, the risk from incomplete contracts, and the lack of control over inputs and production variables.  Tournaments also introduce new categories of risks to growers:  Group composition risk and added risks of settlement-related deception or fraud.  The risks of deception or fraud as discussed above include the inability of growers to verify the accuracy of payments, and to detect discrimination or retaliation.