The comment period on USDA’s proposed regulation governing poultry and livestock contracting ends November 22. The publication of the final regulation, when it comes, will likely be only the beginning of a battle over the legality of its provisions and how they are to be applied and enforced. The outcome may well change the integrated structure and relationships of the U.S. poultry industry.

Who will be well served by the proposed rules – poultry integrators, growers or both groups? Sadly, the answer is likely to be none of the above.

Integrators see ‘overreaching’ in provisions  

Poultry integrators, all along, have been wary of USDA opening what they considered to be a regulatory Pandora’s box in grower contracts. And while they viewed the framework for the rulemaking forged by Congress in the 2008 Farm Bill as reasonable, they believe USDA has gone far beyond that mandate and are alarmed at the vague language and provisions in the proposed regulation.

The Farm Bill said the Secretary of Agriculture was to promulgate regulations to establish criteria to consider in determining the following things:

  • Whether an undue or unreasonable preference has occurred in violation of the Packers and Stockyards (P&S) Act
  • Whether a live poultry dealer (poultry integrator) has provided reasonable notice of suspension of birds
  • When a requirement of additional capital investment is violation of the P&S Act
  • Whether reasonable time has been provided to a grower to remedy breach of contract

The proposed Grain Inspection, Packers and Stockyards Administration (GIPSA) regulation covers areas not in the Congressional mandate, for example, including rules that deal with tournament payment systems. And one significant surprise was that the proposed regulation says that an act or practice does not have to adversely affect competition to be ruled a violation.

“The rule’s terms are vague,” said Gary Kushner, a partner with Hogan Lovells US and National Chicken Council (NCC) legal counsel. “What is unfair? What is anticompetitive? What are the standards? I can go on and on naming things that open the doors to plaintiff lawyers bringing lawsuits.

“A number of aspects of the rules are invitations to plaintiffs’ lawyers to enter cases alleging unfair conduct, which would be so broad under the proposed provisions, that almost anybody could be in violation of them no matter what is done to try and make sure that they are compliant with the law,” he said.

GIPSA rules may disappoint growers  

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Grower expectations about the regulation’s benefits may exceed reality, according to Pete Thomson, minority senior professional staff member of the House Agriculture Committee.

“I find in my conversations with producers that there is a lot of misunderstanding about this rule and its effects,” he told listeners at the NCC annual meeting. “Yesterday, I met with a room full of poultry contract growers. These were hard-working people, who are diligent and care about their industry and their livelihood.

“I asked them, ‘What’s the reason that you are supporting this rule?” And the elder statesman of the group said, ‘It will prevent the integrators from retaliating against us.’ I said to them, ‘Show me in the rule where it causes that to occur?’ They said, ‘Well, it doesn’t say that in the rule.’ And I said, ‘Explain to me the mechanism in the rule that will prevent that from happening.’ They could not show that, of course, but it was their perception.

“So, I asked, ‘What’s the second reason you are supporting this rule?’ They responded, ‘We don’t get paid enough for our work.’ I said, ‘Show me in the rule what’s going to cause you to get paid more for your work.’ Of course, they couldn’t do that either.

“I am afraid those growers were laboring under misconceptions about what this rule is and what it’s about,” he said.

The future  

No surprise that poultry integrators, who are seriously concerned about the economic handicaps and legal liabilities that the proposed rules would impose, would like to see modifications in the proposed rules. Growers, on the other hand, depending on their experiences with the contracting system, may favor or may oppose the regulation. One group bound to be ecstatic over the prospects are the trial lawyers. For them, the proposed regulation represents a bonanza in new business.

Whatever the outcome – whether or not the proposed rules are modified before final publication or subsequently challenged in the courts – for the poultry contracting system to survive, integrators and growers will need to work together even more closely in the future. Each side has a stake in the business, and all the regulations and courts in the world aren’t enough to accomplish this without mutual responsibility-taking and trust-building. That’s the work ahead.