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New GIPSA regulations expected on poultry contracts

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Regulatory and legal issues involving U.S. poultry growing contracts are heating up with new regulations and more government audits expected.

September 21, 2016

New regulations governing poultry growing contracts are expected soon from the U.S. Grain Inspection, Packers and Stockyards Administration (GIPSA), according to an attorney with extensive experience litigating cases involving the Packers and Stockyards Act.

Speaking at the U.S. Poultry & Egg Association’s Poultry Production and Welfare seminar, Clayton E. Bailey said GIPSA can be expected to promulgate rules on issues initially noticed in 2010 but which never made it into final regulations.

Here’s what to expect from GIPSA this fall on poultry growing contracts, according to Bailey:

  • New requirements that poultry growers be ranked against those with similar housing in the tournament systems that determine their flock settlements
  • Poultry companies would be required to submit their growing contracts to GIPSA for publication
  • Poultry companies that terminate growing contracts on the basis of a grower’s violation of state environmental regulations would be required to notify the state agency with jurisdiction.

GIPSA audits and notices of violations

Bailey told listeners to expect GIPSA to be in the field conducting more audits at poultry companies in the coming months.

“GIPSA is looking into contracts and ready to conduct audits,” Bailey said. “So don’t be surprised if you get a telephone call from GIPSA soon saying that the agency wants to come to your offices to review documents.”

It is expected that GIPSA auditors will be focusing on the following three clauses in grower contracts:

  • Arbitration clauses will be scrutinized to make sure details and language required in an earlier GIPSA notification are included in contracts.
  • Confidentiality clauses are being interpreted by GIPSA as potentially interfering with the growers sharing information with the government.
  • Biosecurity clauses are being interpreted as potentially interfering with GIPSA’s access on farms.

Arbitration out of favor

“The reason [for extensive new requirements for arbitration clauses] is to frustrate you and cause you to take the arbitration clauses out of the grower contracts,” Bailey told poultry company managers in the audience.

“Now is the time for poultry companies to make the determination as to policy whether to continue arbitration or not,” he said. Arbitration is an expensive process, he said, and many companies are no longer including a requirement for arbitration in their contracts.

Contention over confidentiality and biosecurity clauses

USDA is looking at confidentiality and biosecurity clauses very carefully based on a very broad interpretation of their regulations, Bailey said.

“The regulation says that each live poultry dealer (a chicken company) upon proper request shall permit authorized representatives of GIPSA to enter a place of business during normal business hours to examine records pertaining to its business,” he said.

GIPSA regulators, however, are attempting to broaden their enforcement powers to include coming onto the farms of growers to inspect records there.  

“GIPSA regulates the chicken company, not the chicken grower. But GIPSA is using the regulation to suggest that it has broader powers to go to the chicken grower’s farm and do whatever they want to do. It is up to the chicken grower to determine who they want on their farm or don’t want on their farm,” he said.

Notices of violation may be on the way

“If your poultry grower contracts have confidentiality or biosecurity clauses, don’t be surprised if you get a notice of violation as a result of an audit,” Bailey said.

“If you experience this issue, you need to decide how you are going to address it. It is not only important for your company but for the industry. Also the government needs to know that they are misinterpreting the rule and trying to do more than they have the power to do.”

“The client that I am dealing with on these issues is fighting back,” he said.

“A letter sent to the growers said the company has never prohibited growers from speaking to the government, and the contract does not prohibit the grower from doing so. However, what the company asks growers to do, particularly as regards biosecurity, is to make sure people are not coming onto the property and jeopardizing [the health and welfare of] the flock.”

Regulatory, legal environment heating up

Bailey concluded, “A lot has gone on in the last year [related to GIPSA and legal issues surrounding growers], and there is going to be a lot more to occur in the next month or two and going forward.”


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