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USDA Unveils Landmark New Rules to Protect Farmers

Posted by Brian K. Mabry, USDA Office of Communications and Charlie Anderson, Senior Adviser to the Director of the National Economic Council in USDA Results
Dec 14, 2016

Cross-posted from the White House blog:

Today, the United States Department of Agriculture (USDA) is taking some major steps forward to protect farmers – including swine, beef cattle, and especially poultry growers – from unfair treatment by the often much larger processors who purchase their fully grown hogs, cattle, and chickens. These three rules are another step forward in response to the President’s Competition Initiative announced in April, which has the goal of enhancing competition to help consumers, workers, and small businesses get a fair shake in the economy.

What’s the problem being addressed?

The poultry, pork, and beef industries include growers who raise chickens, turkeys, hogs, and cattle, and processors who buy the full-grown animals from the growers, package up the meat, and ship it to your local butcher, supermarket, or restaurant. In recent years, similar to what has been occurring across a number of other industries, processing has become increasingly concentrated, with fewer companies controlling a larger share of the market. This has inhibited farmers’ ability to get a fair deal from the processors.

For example, the four largest poultry processors control 51 percent of the broiler market and 57 percent of the turkey market.  In part due to this concentration, poultry growers often have limited options for processors available in their local communities: 52 percent of growers have only one or two processors in their state or region to whom they can sell.  That means processors can often wield market power over the growers, treating them unfairly, suppressing how much they are paid, or pitting them against each other.

For example, if a chicken grower attempts to organize other chicken growers to bargain for better pay or publicly expresses unhappiness with the way they are treated by a processor, they can suffer retaliation. Processors can require growers to make investments that are not economically justifiable for the grower or can terminate contracts with little notice. In contract growing (which has governed an increasing share of the market in recent years), the processors own the birds and provide inputs like feed, so they can choose to provide poultry growers with bad feed or sickly birds that have a higher mortality rate, which cuts deeply into a grower’s opportunity to earn income on those birds. Without much of a choice for where to sell their birds, poultry growers often have to either put up with the unfair behavior, take a pay cut, or take their case to court.

What do the rules do?

USDA is releasing three rules – collectively known as the Farmer Fair Practices Rules – to empower farmers so they get fair treatment by the processors or get their day in court:

  1. Rule #1 – the “scope” rule – means that poultry growers will no longer have to meet an impossibly high standard to get compensated when they are treated unfairly. The interim final “scope” rule makes clear to the courts – as has long been USDA’s interpretation – that farmers don’t have to demonstrate that an unfair practice by processors harms the entire industry in order to prove a violation of the Packers and Stockyards Act. This impossibly high standard had previously put small farmers at a disadvantage for decades when pursuing their rights under the law. With this new rule in place, if a farmer is being treated unfairly, they’ll now have their day in court and be able to win.
  2. Rule #2 enumerates some of the specific unfair practices that violate the law. To make the rules more clear for processors and growers alike – and to help courts understand where to draw the line – the second rule being proposed today clearly outlines unfair practices for which growers can receive compensation. These practices include inaccurate or false weighing of birds, the abuse of arbitration procedures, the abrupt suspension of delivery of birds to a grower or termination of a contract without an opportunity for the farmer to get back into compliance. All of these types of activities would qualify as an unfair practice that would be compensated through a court proceeding. Processors can only treat growers differently if they have a legitimate business justification, not for arbitrary reasons. This protection is especially important to poultry growers who today often find it difficult to win in court even when they are treated unfairly.
  3. Rule #3 reforms the poultry growing tournament system to make it more of a level playing field and avoid processors aiding and disadvantaging certain growers relative to others. Many poultry growers through the contract system are paid out based on a tournament how they perform against their peers; the bigger and better their birds turn out relative to other growers, the more money they make. However, because the processors own the birds, the feed, and other inputs, they can unfairly disadvantage or preference one grower over another as a way of forcing the growers to do things against their will or shut down dissent. The third rule, also proposed, will establish criteria to judge whether the processor is operating the ranking system in a manner that is fair to all growers. It will push back against the unequal bargaining power between poultry purchasers and poultry growers.

These rules respond to the directive USDA was given in the 2008 farm bill but were only allowed to move forward with implementing this year, once an unnecessary and harmful rider that had been in place for years was defeated in this year’s appropriations bill. By continuing to move forward with finalizing these rules, USDA will make important progress in ensuring that farmers get a fair shake and can push back on inappropriate and unfair treatment by the processors. These are a meaningful step forward to make sure that rural Americans are getting paid what they deserve for supplying the high-quality chickens, turkeys, hogs, and beef that Americans enjoy around their dinner tables and at their local restaurants every single day.

For more information, you can read the Frequently Asked Questions and the three rules on the USDA website.

Category/Topic: USDA Results