Proposed Rule2022-11998
Poultry Growing Tournament Systems: Fairness and Related Concerns
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 8, 2022
Issuing agencies
Agriculture DepartmentAgricultural Marketing Service
Abstract
The Agricultural Marketing Service (AMS) seeks comments and information to inform policy development and future rulemaking proposals regarding the use of poultry grower ranking systems commonly known as tournaments in contract poultry production. AMS seeks this input in response to numerous complaints from poultry growers about the use of tournament systems. Comments in response to this request would help AMS tailor further rulemaking in addition to that already planned and under way to address specific industry practices in relation to tournament systems.
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[Federal Register Volume 87, Number 110 (Wednesday, June 8, 2022)]
[Proposed Rules]
[Pages 34814-34819]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11998]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 87, No. 110 / Wednesday, June 8, 2022 /
Proposed Rules
[[Page 34814]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
RIN 0581-AE18
[Doc. No. AMS-FTPP-22-0046]
Poultry Growing Tournament Systems: Fairness and Related Concerns
AGENCY: Agricultural Marketing Service, U.S. Department of Agriculture.
ACTION: Advance notice of proposed rulemaking; request for comments.
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SUMMARY: The Agricultural Marketing Service (AMS) seeks comments and
information to inform policy development and future rulemaking
proposals regarding the use of poultry grower ranking systems commonly
known as tournaments in contract poultry production. AMS seeks this
input in response to numerous complaints from poultry growers about the
use of tournament systems. Comments in response to this request would
help AMS tailor further rulemaking in addition to that already planned
and under way to address specific industry practices in relation to
tournament systems.
DATES: Comments must be received by September 6, 2022.
ADDRESSES: Comments must be submitted through the Federal e-rulemaking
portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, and should reference the
document number and the date and page number of this issue of the
Federal Register. All comments submitted in response to this proposed
rule will be included in the record and will be made available to the
public. Please be advised that the identity of individuals or entities
submitting comments will be made public on the internet at the address
provided above.
FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250;
Phone: (202) 690-4355; or email: <a href="/cdn-cgi/l/email-protection#a4d78ac6d6c1d0d08acbc2c2d1d0d0e4d1d7c0c58ac3cbd2"><span class="__cf_email__" data-cfemail="760558140413020258191010030202360305121758111900">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION: The majority of growers producing poultry
under production contracts are paid under a poultry grower ranking or
``tournament'' pay system. Under tournament systems, vertically
integrated poultry companies, known as ``integrators'', contract with
farmers who serve as growers. Integrators provide growers with birds
and feed; and growers provide facilities and labor to raise birds to
slaughter weight. Grower compensation is based on a grouping, ranking,
or comparison of poultry growers whose poultry was harvested during a
specified period, usually one week. Tournament group averages are
established for formulaic flock performance metrics, and growers are
ranked against the averages. Grower contract base pay rate is adjusted
by the individual grower's deviation for group average. Growers
performing better than average receive increased pay while below
average growers' contract pay rate is reduced.
Over many years, the U.S. Department of Agriculture (USDA) has
received numerous complaints from poultry growers about the use of
tournament systems and many have suggested that USDA should ban,
restrict, or condition the use of tournament systems or particular
aspects of those systems. These concerns, and countervailing views,
were extensively summarized in USDA's withdrawal of previous proposed
rulemaking on poultry tournaments, as well as in transcripts of
previous listening sessions conducted by USDA and the Department of
Justice (DOJ).\1\
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\1\ For a discussion of past views regarding poultry tournament
systems, see, e.g., Agricultural Marketing Service, USDA, ``Poultry
Grower Ranking Systems; Withdrawal of Proposed Rule,'' 86 FR 60779,
November 4, 2021, available at <a href="https://www.federalregister.gov/documents/2021/11/04/2021-23945/poultry-grower-ranking-systems-withdrawal-of-proposed-rule">https://www.federalregister.gov/documents/2021/11/04/2021-23945/poultry-grower-ranking-systems-withdrawal-of-proposed-rule</a>. See also Transcript, United States
Department of Justice, United States Department of Agriculture,
Public Workshops Exploring Competition in Agriculture: Poultry
Workshop May 21, 2010, Normal, Alabama. Additionally, see
Agricultural Marketing Service, USDA, ``Transparency in Poultry
Contracting and Tournaments,'' RIN 0581-AE03, publication in the
Federal Register forthcoming, May/June 2022.
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USDA has made previous attempts to address grower concerns arising
from the use of poultry growing arrangements and poultry grower ranking
systems.\2\ The first proposed rule, in 2010, would have required live
poultry dealers--when paying growers under poultry grower ranking
systems--to pay growers the same base pay for growing the same type and
kind of poultry. The 2010 proposed rule further would have required
that tournament system growers be settled in groups with other growers
with similar house types. USDA did not finalize certain provisions
related to poultry contracting. In December 2016, it modified the
original proposal and published a second proposed rule.\3\
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\2\ 75 FR 35338; June 22, 2010.
\3\ 81 FR 92723; December 20, 2016.
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The 2016 proposed rule would have identified criteria that the
Secretary could consider when determining whether a live poultry
dealer's use of a system for ranking poultry growers for settlement
purposes is unfair, unjustly discriminatory, or deceptive or gives an
undue or unreasonable preference, advantage, prejudice, or
disadvantage. The 2016 proposed rule was formally withdrawn in 2021.\4\
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\4\ 86 FR 60779, November 4, 2021.
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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.\5\ AMS has
considered that direction in undertaking this Advance Notice of
Proposed Rulemaking (ANPR).
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\5\ 86 FR 36987; July 9, 2021.
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[[Page 34815]]
Additionally, USDA is proposing in a separate rulemaking, under RIN
0581-AE03, 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.\6\ Furthermore, USDA is taking a range of steps to
enhance fair and competitive markets in the meat and poultry
sectors.\7\ For example, under the American Rescue Plan Act's provision
to enhance supply chain resiliency, USDA is investing directly into the
creation of new, and expansion of existing, local and regional meat and
poultry processing enterprises. Also this year, USDA and DOJ
established a joint complaints and tips portal, <a href="http://www.farmerfairness.gov">www.farmerfairness.gov</a>,
to enable both departments to respond in a more coordinated manner to a
range of competition and fair markets concerns. USDA has also announced
rulemakings to address general matters relating to unfair, deceptive,
and unjustly discriminatory practices, undue preferences and
prejudices, and competitive harms under sections 202(a) and 202(b) of
the Packers and Stockyards Act of 1921, 7 U.S.C. 181 et seq,192.\8\
Rules on those topics will be forthcoming.
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\6\ Agricultural Marketing Service, USDA, ``Transparency in
Poultry Contracting and Tournaments,'' RIN 0581-AE03, publication in
the Federal Register forthcoming, May/June 2022.
\7\ White House, ``FACT SHEET: The Biden-Harris Action Plan for
a Fairer, More Competitive, and More Resilient Meat and Poultry
Supply Chain,'' January 3, 2022, available at <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/01/03/fact-sheet-the-biden-harris-action-plan-for-a-fairer-more-competitive-and-more-resilient-meat-and-poultry-supply-chain/">https://www.whitehouse.gov/briefing-room/statements-releases/2022/01/03/fact-sheet-the-biden-harris-action-plan-for-a-fairer-more-competitive-and-more-resilient-meat-and-poultry-supply-chain/</a>; USDA,
``Meat and Poultry Supply Chain,'' available at <a href="https://www.usda.gov/meat">https://www.usda.gov/meat</a> (last accessed May 2022).
\8\ See Office of Information and Regulatory Affairs, Office of
Management and Budget, Fall 2021 Unified Agenda of Regulatory and
Deregulatory Actions, available at <a href="https://www.reginfo.gov/public/do/eAgendaMain">https://www.reginfo.gov/public/do/eAgendaMain</a> (last accessed May 2022).
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Against that policy backdrop, AMS is considering further policy
development and rulemaking under the Packers and Stockyards Act, as
amended, to address, through specific prohibitions, limits, and/or
conditionalities, potential unfairness that may arise from the use of
the tournament contracts in the poultry sector. The goal of this ANPR
is to obtain information on the industry and assess the extent to which
unfairness and deception, where it may exist, can be remedied through
additional regulation to level the playing field for growers. The focus
of any rulemaking would be contract terms in contracts relating to all
aspects of poultry production that may be unfair to growers. Such
rulemaking would also address the regulation of the operation of those
contracts so that it would be consistent with those principles.
All views are solicited so that every aspect of this potential
regulation may be studied prior to formulating a proposed rule by AMS.
This request for public comment does not constitute notification that
any aspect described in this document is being proposed or adopted. At
such future time, pursuant to the requirements set forth in the
Regulatory Flexibility Act, Executive Order 12866, and other relevant
laws and Executive Orders, AMS would consider the economic impact that
implementation of any prohibitions, limits, or conditionalities,
including costs and benefits and impacts on small entities, and would
prepare a full regulatory impact analysis and a regulatory flexibility
analysis for inclusion in any subsequent rulemaking action. The
informational impact of this action would also be considered under the
Paperwork Reduction Act, and civil rights impacts would be evaluated
under a Civil Rights Impact Analysis, among other relevant regulatory
analyses.
Background
Live poultry dealers often operate as monopsonists \9\ or
oligopsonists \10\ in a local market.\11\ According to MacDonald and
Key,\12\ about one quarter of contract growers reported that there was
just one live poultry dealer in their area; another quarter reported
two; another quarter reported three; and the rest reported four or
more. Owing to their greater negotiating power than that of the poultry
growers with whom they contract, live poultry dealers set the terms of
the contracts and important aspects of their execution, such as the
frequency of individual flock placements they receive over any
particular time period.
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\9\ Merriam-Webster online dictionary: A monopsonist is one who
is a single buyer for a product or service of many sellers. <a href="https://www.merriam-webster.com/dictionary/monopsonist">https://www.merriam-webster.com/dictionary/monopsonist</a>; accessed 3/8/2022.
\10\ Merriam-Webster online dictionary: Oligopsony is a market
situation in which each of a few buyers exerts a disproportionate
influence on the market. An oligopsonist is a member of an
oligopsonistic industry or market. <a href="https://www.merriam-webster.com/dictionary/oligopsonist">https://www.merriam-webster.com/dictionary/oligopsonist</a>; accessed 3/8/2022.
\11\ The description set forth in this background is drawn
largely from the analyses found in Agricultural Marketing Service,
USDA, ``Transparency in Poultry Contracting and Tournaments,'' RIN
0581-AE03, publication in the Federal Register forthcoming, May/June
2022. Please consult that rulemaking for additional detail.
\12\ MacDonald, James M., and Nigel Key. ``Market Power in
Poultry Production Contracting? Evidence from a Farm Survey''.
Journal of Agricultural and Applied Economics 44 (November 2012):
477-490. See also, MacDonald, James M. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, U.S.
Department of Agriculture, Economic Research Service, (June 2014):
29-30.
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Most growers producing poultry under production contracts are paid
under a poultry grower ranking or ``tournament'' pay system. Under
tournament systems, the contract between the poultry grower and the
company for whom the grower raises poultry for slaughter provides for
payment to the grower based on a grouping, ranking, or comparison of
poultry growers delivering poultry to the same company during a
specified period.
Under tournament contracts, integrators provide the birds, the
feed, and veterinary treatment as needed for the growing flock. The
poultry grower provides the poultry growing facility, flock management,
labor, and utilities (water, electricity, environmental control)
required during flock growout. At the end of growout, the poultry
company collects and weighs the mature poultry and pays the grower
according to their individual flock's performance as compared to the
performance of all other growers' flocks in the tournament.
Poultry grower investment is substantial. A 2011 study estimated a
cost of $924,000 for site preparation, construction, and necessary
equipment for four 25,000-square-foot poultry houses \13\ (or $231,000
per house) in rural Georgia at that time, independent of the cost for
the land.\14\ Costs for establishing poultry houses have increased
substantially since 2011, due to the advancement of new technologies in
poultry housing and the increased cost of materials. AMS estimates
current construction costs at $350,000 to $400,000 per poultry
house.\15\ A poultry growing contract includes the live poultry
dealer's specifications for the poultry housing and equipment the
growers are required to supply under the contract. At times, the live
poultry dealer may encourage, incentivize, or even require a poultry
grower to
[[Page 34816]]
upgrade existing housing or equipment in order to renew or revise an
existing contract.
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\13\ Assuming a target weight of 6 pounds, an average 25,000
square foot house should yield about 21,500 birds per flock.
\14\ Cunningham, Dan L., and Brian D. Fairchild. ``Broiler
Production Systems in Georgia Costs and Returns Analysis 2011-
2012.'' UGA Cooperative Extension Bulletin 1240 (November 2011),
University of Georgia Cooperative Extension.
\15\ See, for example, Cunningham and Fairchild (November 2011)
Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown, Economic
Impact of a New Broiler House in Alabama, Alabama A&M & Auburn
Universities Extension, March 1, 2019 (estimating a $479,160
construction cost for a 39,600 square foot broiler house).
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Additionally, some live poultry dealers provide income estimates to
prospective growers and lenders. Grower advocate groups have complained
these estimates are generally based on simple ``average pay''
projections, which are insufficient given fluctuations in grower
payments, particularly under the tournament system discussed next.\16\
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\16\ ``A Poultry Grower's Guide to FSA Loans'' Rural Advancement
Foundation International. July 2017, available at <a href="https://www.rafiusa.org/blog/a-poultry-growers-guide-to-fsa-loans/">https://www.rafiusa.org/blog/a-poultry-growers-guide-to-fsa-loans/</a>.
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Integrators use a relative ranking to allocate payments among
tournament participants. Tournament groupings are comprised of growers
whose flocks are harvested within a specified time period, usually a
week. Tournament group averages are established for formulaic flock
performance metrics, and growers are ranked against the averages.
Grower contract base pay rate is adjusted by the individual grower's
deviation from group average. Growers performing better than average
receive increased pay while below average growers' contract pay rate is
reduced.
In a simplified example, the poultry company places flocks with ten
growers (tournament group) under contract to deliver the same size of
finished poultry to the company's processing plant at the end of a
specified growout period. Upon harvest, each grower's performance with
respect to the weight of poultry produced and the amount of poultry
feed used during flock growout is determined. The company then compares
individual grower results against average results for all growers in
the group and ranks individual growers according to their relative
performance within the group of ten growers. Grower pay comprises a
contract base amount per pound of poultry produced plus or minus an
adjustment based on the grower's deviation from average within the
tournament grouping for that specific growout period. For example, a
contract-based pay rate of $.06 per pound might be adjusted to $.0725
for an above average grower, while a below average grower may be paid
$.048.
Group composition risk is associated with the composition and
performance of other growers in their settlement groups. A particular
grower's pay is impacted by the performance of others in the
tournament. Growers have no control over the other tournament members'
effort and performance, nor over with which other growers they are
grouped. An individual grower's effort and performance can be static,
and yet that grower's payments could fluctuate based on the grower's
relative position in the settlement group. Further, changes in payment
may not be commensurate with the changes in grower's effort and
performance. These characteristics of the tournament system can add to
the variability of pay and affect the ability of growers to plan and
measure their own effort and performance. On the other hand, the system
is designed to incentivize participants to do their best in the hopes
of gaining higher rewards.
Integrators also determine which growers are in each settlement
group. While growers in a group must have similar flock finishing
times, a live poultry dealer could move a grower into a different
grouping by altering layout times to change the week that a grower's
broilers are processed. An individual grower may perform consistently
in an average performing pool, but if the integrator places that grower
in a pool with more outstanding growers, those outstanding growers
raise the group average and reduce the fees paid to the individual. At
its discretion or per the poultry growing arrangement, an integrator
may remove certain growers it considers to be outliers from a
settlement pool. This would likely affect the average performance
standard for the settlement and affect the remaining growers' pay.
Group composition risk can be more relevant to some growers when a
tournament's settlement group contains growers with different quality
or ages of grow houses.
A number of variable factors can influence individual grower
performance, including the number, breed, sex, and condition of the
young birds and the contents and quality of the feed provided by the
poultry company, the growing facility environment, and the management
practices of individual growers. Growers have expressed concern that
the variability of inputs among tournament participants--for reasons
outside of the grower's control but which may be within the control of
the integrator--may impair the integrity of tournaments, and adversely
affects the integrator's ability to effectively convey incentives to
motivate optimal grower performance. Many growers have complained that
tournament systems are inherently unfair because growers have no
control over the inputs they receive from poultry companies, and thus
have limited control over their performance and earnings. Commenters
have also suggested input variability can be used as a tool for
unlawful discrimination, retaliation, and deception in the development
and execution of poultry growing contracts.
Agricultural production is an inherently risky endeavor, and
returns have some level of risk no matter the marketing channel or
structural arrangement. However, researchers have noted that in
addition to mitigating the risks of input cost and output price
variation, the tournament system can also help insulate poultry growers
from some aspects of what are known as common production risks. These
are systematic risks common to all growers in a tournament such as
weather or widespread disease, feed quality, or genetic strains. This
academic research finds that since those risks are likely to affect all
growers in a region, compensation is less likely to be adversely
affected under a tournament contract than it would be on a simple price
per unit of weight contract.\17\ For example, if an unusual heat wave
caused all growers in a tournament to experience poorer feed
conversion, all tournament growers may require more feed and a longer
grow period for their flocks to reach the target weight. They would
receive the same pay for the weight produced, while not being penalized
for the higher feed costs incurred to produce that weight.
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\17\ See, for example, Tsoulouhas, Theofanis and Tomislav
Vukina. ``Regulating Broiler Contracts: Tournaments Versus Fixed
Performance Standards''. American Journal of Agricultural Economics
83 (2001): 1062-1073.
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At the same time, tournament contracts still leave growers exposed
to some common risks. For example, when plants had to reduce processing
capacity due to the Covid pandemic, growers experienced reduced
compensation to the extent that they received fewer or less dense
placements from the integrators. Moreover, as noted, no contract type
will protect growers from all market risks. Tournament systems do not
insulate growers from the other risks of contracts discussed above such
as 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.
In a rulemaking being published simultaneously as a separate notice
in the Federal Register, USDA has proposed enhancing transparency in
poultry growing arrangements to address deception risks and information
[[Page 34817]]
asymmetries that growers face in modern, vertically integrated markets.
The first part of the rule would give growers information regarding
realistic outcomes relevant to poultry growing arrangements and poultry
housing upgrades--information such as the number of bird placements per
year and stocking density, earnings realized by other poultry growers
displayed across quintiles and compared to other complexes, sale-of-
farm policies, and more. The second part of the rule would give poultry
growers information about the inputs they receive under their poultry
growing arrangements, to enable them to be more effective growers and
to protect them against deception and other potential abuses.
Information--including stocking density of the placement, the breeder
facility, breeder flock age, health impairments, and more--would be
provided when the inputs are delivered and when any tournament
settlement is completed.
AMS believes that transparency will be transformative in securing a
more level playing field for growers and enabling a marketplace with
fairer contracts and the fairer operation of those contracts.
Transparency will be useful not only in addressing deception risks, in
particular those arising from information asymmetries, but also in
providing data and information needed to assess a range of potentially
unfair, unjustly discriminatory, and other unreasonable practices that
may be present or arise from time to time in the poultry marketplace.
Transparency may also complement requirements for poultry
production contracts set by USDA's Farm Services Agency (FSA), which
manages a loan guarantee program that covers poultry lending.\18\ Under
FSA standards, contracts must:
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\18\ USDA Farm Service Agency, Guaranteed Loan Making and
Servicing 2-FLP (Revision 1) pp. 8-86 (October 2008). <a href="https://www.fsa.usda.gov/Internet/FSA_File/2-flp.pdf">https://www.fsa.usda.gov/Internet/FSA_File/2-flp.pdf</a>; accessed 1/3/2022.
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(a) be for a minimum period of 3 years
(b) provide for termination based on objective ``for cause''
criteria only
(c) require that the grower be notified of specific reasons for
cancellation
(d) provide assurance of the grower's opportunity to generate
enough income to ensure repayment of the loan by incorporating
requirements such as a minimum number of flocks per year, minimum
number of bird placements per year, or similar quantifiable
requirements.
AMS 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. We
also believe that the market may benefit from greater certainty around
which specific practices relating to tournaments would be considered
unfair, unjustly discriminatory, or otherwise unreasonable under the
Packers and Stockyards Act.
Accordingly, we are considering further regulatory steps to address
live poultry dealer conduct and business practices related to
tournaments. Specific areas of consideration include whether there is a
need for, and if so, how USDA could and should establish, rules
relating to:
(a) Flock placement and density guarantees, including in relation
to debt levels incurred by the grower;
(b) Quality and timing with respect to inputs provided under a
contract that are factored into calculations in a tournament;
(c) Tournament payment allocations resulting in degradation of
contractual base pay rates;
(d) Payment floors in relation to efforts or investments made by a
grower, as opposed to a comparison on efforts or investments made by
other growers;
(e) How integrators place a grower into tournament settlement
groupings (also known as league composition);
(f) Oversight of an integrator's local agents;
(g) Alignment of incentives between growers and integrators, such
as the incorporation of wholesale values into payment mechanisms for
growers or the incorporation of grower outcomes into executive
compensation mechanisms;
(h) Matching capital investment requirements with the length of
poultry production contracts and the usable life of an asset;
(i) Obligations to provide growers with notice of breach and
opportunities to cure when contract terms are not met;
(j) Opportunities for growers to form cooperatives so as to enable
growers to collectively negotiate or arbitrate terms of poultry growing
arrangements;
(k) Competitiveness of input markets, including relating to chick
genetics, feed, and access to veterinary care;
(l) Information exchanges in poultry competition and ways to
improve information access;
(m) Lending institutions that provide credit relating to poultry
production agreements, their relationships to integrators, and their
responsibilities to borrowers, including underserved borrowers with
respect to non-discriminatory and fair credit opportunities;
(n) Availability of insurance and risk-management tools for growers
and the potential for risk-sharing with integrators with respect to
retail market demand changes.
AMS also seeks comment on whether there should be regulations that
condition integrators' permissible use of the tournament system to
circumstances in which they offer growers one or more of the following
options:
(i) Allowing each grower to decide whether they want to be compared
to other growers and to opt out of such comparisons;
(ii) Treating growers substantially equally regarding inputs,
delivery, and payment over a given time period;
(iii) Guaranteeing growers a base price that enables the grower to
pay for any debt incurred as result of technical specifications
provided by the live poultry dealer plus an appropriate profit; and
(iv) Permitting growers to form cooperatives so as to cooperate and
communicate amongst themselves and to negotiate collectively with the
live poultry dealer.
Additionally, AMS is focused on improving research in poultry
market practices and competition. AMS recognizes the presence of gaps
in publicly available data and analysis with respect to poultry grower
competition matters, which serves as a barrier for regulators and the
public to recognizing and addressing potentially problematic practices
in the poultry sector. In part, this may be because robust data of the
quality necessary to provide useful insights has not been collected or
made available on a regular basis or is otherwise made available only
to private market participants. AMS and other USDA agencies have heard
concerns regarding obstacles, burdens, and costs that may exist with
respect to growers freely and fully participating in surveys, including
risks of retaliation against growers, the costs to growers of
participating in surveys, the burden of reporting due to duplicate
requests, inefficiency in survey or gathering mechanisms, and lack of
appropriate digital access by the producer. Concerns have also been
noted regarding whether the information collected permits a
sufficiently targeted analysis with respect to poultry growing, as
opposed to the farm's economics as a whole.
With respect to the areas of focus noted above, as well as more
broadly, AMS is interested in the manner which the tournament system
pay mechanisms may be modified to better meet the needs of poultry
market participants, in particular growers, while still retaining
market flexibility and an appropriate role for performance-based
incentives.
[[Page 34818]]
Request for Comments and Information
As noted above, USDA has received numerous comments expressing
concern about the use of tournaments in poultry production, as well as
expressions of support for the tournament system. To ensure we have the
most up-to-date analyses and views, we invite comments, including
additional facts and data and views regarding their relevance to USDA
or other legal authorities, with which to evaluate the industry's use
of tournament systems and develop policy or regulations. In particular,
AMS invites responses to the following questions:
(1) What is the tournament system's intended purpose and does the
system achieve its intended purpose(s)?
(a) If yes, please describe what they are and how specific elements
of the system help achieve those purposes.
(b) If not, why not? Moreover, please describe what you believe the
intended purpose(s) are.
(c) Additionally, please describe what you believe should be the
purpose of a payment and settlement system between integrators and
growers?
(2) What specific practices under the tournament system are the
most problematic, and why?
(3) Which practices should be addressed through regulatory or other
administrative steps? Are regulatory steps the only path to curbing
these practices?
(a) Should certain practices be subject to whole or partial
prohibitions, limits, conditionalities? If so, which ones? Why or why
not?
(b) Should certain practices be subject to additional disclosures?
Why or why not?
(c) Please explain any reasoning for why such specific practices
may be unfair, unjustly discriminatory, provide undue preferences or
prejudices, are deceptive, or are otherwise unreasonable or
anticompetitive under the law. If you are suggesting a particular
regulatory standard for any such terms, please define it clearly. If
you suggest administrative (non-regulatory) steps, please explain
those.
(d) Do any specific practices harm competition among growers, among
poultry companies for the services of growers, or among poultry
companies in the sale of poultry products?
(f) Do the practices concerned give rise to significant harms that
are unavoidable by certain parties or that undermine supply chain
resiliency, price discovery, or open, competitive markets?
(g) Are there competitive or other benefits or legitimate business
justifications that should be taken into consideration with respect to
such practices?
(4) For the areas of focus listed as (a) through (n) in the
introduction above:
(a) Are there minimum regulatory standards that would help address
marketplace practices of concern, and if so, what are they? Please
discuss both the marketplace concerns and the way that the minimum
standards may address those concerns.
(b) Are any of the areas more, or less, amenable to transparency-
oriented solutions, such as disclosures? Please explain why or why not.
(c) For these areas, please share any views regarding the scope and
applicability, or inapplicability, of relevant USDA authorities, in
particular (but not necessarily exclusively) the Packers and Stockyards
Act.
(d) Are there any other Federal or state authorities that may be
relevant to USDA's analysis of these issues?
(5) Please comment on the specific conditional approaches to the
tournament system listed as (i) through (iv) in the introduction above.
(a) Which aspects of the tournament system are unfair as to warrant
the possible conditions set forth? Do the conditional approaches
appropriately address those concerns? Why or why not.
(b) What are the strengths and limitations, and costs and benefits,
for each approach?
(c) Are there any competition implications to their adoption?
(d) Are there any other risks that should be considered with
respect to the approaches?
(e) With particular respect to the cooperative negotiation option:
(I) Are there additional steps that USDA could take under the laws
governing cooperatives that could facilitate the formation of
cooperatives for those engaged in providing growout services?
(II) Alternatively, to what extent can poultry grower organizations
adequately rely on the Capper-Volstead Act (in particular it's
exemption from the antitrust statutes) to accomplish goals such as
cooperating to negotiate or arbitrate for better terms and conditions
of contracts? If not, why not?
(f) For all of these conditions, please share any views regarding
the scope and applicability, or limits and inapplicability, of relevant
USDA authorities, in particular the Packers and Stockyards Act, and
whether any other Federal or state authorities are also relevant.
(6) With respect to the following areas, to what extent can the
tournament system pay mechanisms be modified to achieve the following
goals, while still retaining performance-based incentives? If so, how?
(a) Can they be modified to avoid degradation of base pay rates?
(b) Can they be modified to reduce variability or unpredictability
in outcomes (at least over any short-term horizon)?
(c) Can they be modified to better reflect factors that are largely
within own the control of growers?
(d) Can they be modified so that an integrator cannot terminate
without cause, and if so, under what conditions would performance in
the tournament be a basis for terminating a contract?
(e) Are there other targeted ways in which they should modified?
(f) If not, what alternatives may exist to it, and what risks might
arise from such alternatives? What are the economic implications,
including relating to competition, that may arise from the alternatives
and any transition to them?
(g) For these questions, please share any views regarding the scope
and applicability, or inapplicability, of relevant USDA authorities, in
particular (but not necessarily exclusively) the Packers and Stockyards
Act, and whether any other Federal or state authorities are also
relevant.
(7) We further seek comments on the following additional related
matters:
(a) Should capital investment provisions (9 CFR 201.216) be revised
to address compensation requirements when integrators require upgrades
beyond the original housing specification?
(b) Are there minimum standards or protections needed to prevent
interference with the rights of growers to sell their farms? If so,
what should they be?
(c) Are protections needed against premature contract cancellation
without reasonable cause, and if so, how should they be designed?
(d) Should the remedy for breach of contract rules (9 CFR 201.217)
be revised to provide for a specific time period that constitutes a
reasonable period to remedy a breach of contract that could lead to
termination (and if so, how long)?
(e) Should provisions relating to the suspension of the delivery of
birds (9 CFR 201.215) be revised to protect against arbitrary
suspensions of flocks, and if so, how?
(f) For these questions, please share any views regarding the scope
and applicability, or inapplicability, of relevant USDA authorities, in
particular (but not necessarily exclusively) the
[[Page 34819]]
Packers and Stockyards Act, and whether any other Federal or state
authorities are also relevant.
(8) What role can reforms of lending and loan guarantee systems
play to ensure better alignment between borrowers and lenders? Consider
the following questions and please explain what authorities USDA or
other relevant agencies might deploy, if any.
(a) Should borrower income be evaluated by lending institutions for
justification of loan cash-flow only based on the minimum or lowest
quartile of returns, or based on median returns, or in some other way?
(b) Should limitations or additional transparency cover the
relationship between lenders and integrators? Are steering payments,
prepayment penalties, or other finders' fees of concern?
(c) Should standards and oversight be improved for ensuring that
credit is fair and nondiscriminatory? If so, how?
(d) How might relevant agencies better monitor the lending
marketplace, including through data collection, reporting, and
supervision?
(9) We also invite input on how to improve data collection and
research generally.
(a) What data and information should be collected to assist with
analyzing the concerns highlighted above?
(b) How can that information be more effectively collected?
(c) In what ways can AMS or USDA's research agencies make that
information more available to growers, academics, smaller market
participants, and other relevant parties?
(d) Please discuss concerns or risks with respect to
confidentiality or collusion that should be considered as well.
(e) How might USDA support additional academic research with
respect to poultry market practices and competition?
(10) Are there other approaches or proposals pertaining to
regulation of the tournament system that USDA should consider?
We invite all comments, suggestions, information, and data that
would inform our thinking on these areas. We are particularly
interested in views and information from poultry companies that use
tournament systems, from poultry growers who operate under such
arrangements, from rural communities that have experience with them,
and from other participants in the food supply chain. To the maximum
extent possible, and to facilitate effectiveness by AMS in analyzing
the information, please identify submitted comments by referring to the
enumerated questions in this request.
Additionally, please ensure that your comments to this ANPR are
separate from any comments that you may submit to other proposed rules
or requests for information under the Packers and Stockyards Act. To
the extent that your comment to this ANPR repeats information you are
filing in another comment file to AMS, you may reference that other
filing by name and date of your submission or simply repeat that
information in your submission to this ANPR.
Comments received by the September 6, 2022 deadline will be
considered.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2022-11998 Filed 6-7-22; 8:45 am]
BILLING CODE P
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