In comments filed on March 24 with the U.S. Department of Agriculture's Grain Inspection, Packers and Stockyards Administration (GIPSA), the National Chicken Council (NCC) explained in great detail the numerous reasons why the agency's interim final rule and proposed rules are ill-advised, would inflict billions of dollars of economic harm to American agriculture, exceed GIPSA's statutory authority, and represent an arbitrary and capricious abuse of federal regulatory authority.
"GIPSA fails to provide an adequate justification for imposing such sweeping and detrimental changes to the poultry industry and does not explain corresponding benefits to counterbalance the billions of dollars of detrimental effects this proposal will have on the U.S. economy," said NCC President Mike Brown in the comments. "The agency also fails even to consider the negative consequences for consumers, innovation, competition and food safety that would result from the proposal.
"We are particularly troubled that the interim final rule and proposed rules appear designed to increase uncertainty and costly litigation—GIPSA even admits that substantial litigation will ensue—with no quantifiable benefits."
Eight different circuit courts of appeal have addressed a key issue underpinning the rules—the need to prove competitive injury to demonstrate a violation—and they have uniformly and resoundingly rejected the position advanced by GIPSA in these three rules. Rather than acquiesce in these decisions, however, the Obama administration sought to misuse the rulemaking process to achieve what GIPSA has not won in court – and in doing so, gave a gift to trial lawyers on the way out the door.
Throughout the rules, GIPSA consistently substitutes government fiat for private, market-based decision making. "The rules reflect little or no understanding of the practical implications of these mandates and often no inkling of their cost to industry participants and the consuming public or the effect on the competitiveness of the U.S. poultry industry both domestically and globally," Brown said.
NCC also explained that the rules are contrary to President's Trump's regulatory reform agenda. GIPSA has failed to identify regulations to remove in conjunction with finalizing these rules, and GIPSA has not identified the regulations that would have to be removed to ensure a net zero total cost increase from the regulations.
Moreover, the strong likelihood that the rules will increase litigation and uncertainty flies in the face of the current administration's priorities.
GIPSA's own economic analysis estimates the costs of these rules to the livestock and poultry industry to be over $1 billion dollars - a figure that underestimates the true costs of the regulations - and are not offset by repealing any existing regulations. The agency's economic impact analysis is as shocking in its methods as its results, and the proposed rules would themselves invite substantial litigation not acknowledged in GIPSA's economic impact analysis.
"In fact, given the Administration's emphasis on clearing red tape, lowering costs, and increasing certainty for American businesses," Brown noted, "it is shocking that GIPSA would continue to move forward with a set of rules that GIPSA expressly recognizes will cause extreme uncertainty and significant amounts of needless litigation for years to come with zero quantifiable benefits."
NCC's comments also include an analysis conducted by Dr. Thomas Elam, President of FarmEcon LLC, which was commissioned by NCC because of the lack of a comprehensive economic analysis in GIPSA's proposal. Dr. Elam concludes that the rules would significantly increase costs for the poultry industry and consumers by reducing the rate of efficiency improvements, increasing administrative overhead, increasing the costs and frequency of litigation, and likely have little impact on overall grower pay.
Not only would the proposal have significant and adverse economic consequences, but it would undermine the very relationships between processors and farmers the proposal purportedly seeks to protect.
The performance-based contract structure of modern poultry production was instinctively designed to put the well-being of the birds as the top priority, as incentives are given to farmers who raise the healthiest birds, take risks and work hard. It incentivizes farmers to do their best, to compete, just like every other business in America or any other free market.
The provisions regarding poultry grower ranking systems would reward the most inefficient growers by in effect closing the pay gap between them and the best growers. This would result in decreased incentives for growers to make capital improvements or increase efficiency. This would make American chicken farmers less competitive against growing international competition, ultimately placing at risk the very family farmers GIPSA claims to be trying to protect.
"GIPSA fundamentally misunderstands the role of the risk-allocating contract model, does not establish that the alleged market abuses are anything more than theoretical possibilities, establishes arbitrary criteria contradicted by GIPSA's own findings, and threatens to undermine the competitiveness of the American chicken industry," Brown added. "Despite having pursued this rulemaking for seven years, GIPSA provides no concrete evidence of actual problems with the current poultry grower ranking system."
"The vast majority of chicken farmers in rural America are happy and prosper raising chickens in partnership with companies, and they don't want the government meddling on their farms and telling them how they should run their businesses," Brown said separately. "Business under the current contract structure has given thousands and thousands of farm families the opportunity to live in rural America and operate profitable businesses that allowed them to build nice homes, expand other aspects of their farm enterprises and put their children through college."
Brown also noted that today's livestock and poultry contracting and marketing practices are already and remain regulated by GIPSA, which administers and enforces the Packers and Stockyards Act to protect farmers, ranchers and consumers, and farmers already benefit from the protections of the Act.
"For the numerous reasons discussed in these comments, we urge the agency to rescind the interim final rule and withdraw the proposed rules," Brown concluded.