Proposed Rule2022-21114
Inclusive Competition and Market Integrity Under the Packers and Stockyards Act
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Published
October 3, 2022
Issuing agencies
Agriculture DepartmentAgricultural Marketing Service
Abstract
The U.S. Department of Agriculture's (USDA) Agricultural Marketing Service (AMS) is soliciting comments on proposed revisions to the regulations under the Packers and Stockyards Act, 1921. The proposal would prohibit certain prejudices against market-vulnerable individuals that tend to exclude or disadvantage covered producers in those markets. The proposal would identify retaliatory practices that interfere with lawful communications, assertion of rights, and associational participation, among other protected activities, as unjust discrimination prohibited by the law. The proposal would also identify unlawfully deceptive practices that violate the Packers and Stockyards Act with respect to contract formation, contract performance, contract termination, and contract refusal. The purpose of the rule is to promote inclusive competition and market integrity in the livestock, meats, poultry, and live poultry markets.
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[Federal Register Volume 87, Number 190 (Monday, October 3, 2022)]
[Proposed Rules]
[Pages 60010-60055]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-21114]
[[Page 60009]]
Vol. 87
Monday,
No. 190
October 3, 2022
Part IV
Department of Agriculture
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Agricultural Marketing Service
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9 CFR Part 201
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act; Proposed Rule
Federal Register / Vol. 87 , No. 190 / Monday, October 3, 2022 /
Proposed Rules
[[Page 60010]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-21-0045]
RIN 0581-AE05
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act
AGENCY: Agricultural Marketing Service, Department of Agriculture
(USDA).
ACTION: Proposed rule.
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SUMMARY: The U.S. Department of Agriculture's (USDA) Agricultural
Marketing Service (AMS) is soliciting comments on proposed revisions to
the regulations under the Packers and Stockyards Act, 1921. The
proposal would prohibit certain prejudices against market-vulnerable
individuals that tend to exclude or disadvantage covered producers in
those markets. The proposal would identify retaliatory practices that
interfere with lawful communications, assertion of rights, and
associational participation, among other protected activities, as
unjust discrimination prohibited by the law. The proposal would also
identify unlawfully deceptive practices that violate the Packers and
Stockyards Act with respect to contract formation, contract
performance, contract termination, and contract refusal. The purpose of
the rule is to promote inclusive competition and market integrity in
the livestock, meats, poultry, and live poultry markets.
DATES: Comments must be received by December 2, 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. AMS strongly prefers comments be submitted electronically.
However, written comments may be submitted (i.e., postmarked) via mail
to S. Brett Offutt, Chief Legal Officer, Packers and Stockyards
Division, USDA, AMS, FTPP; Room 2097-S, Mail Stop 3601, 1400
Independence Ave. SW, Washington, DC 20250-3601. 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. Parties who wish
to comment anonymously may do so by entering ``N/A'' in the fields that
would identify the commenter.
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#3d4e135f4f58494913525b5b4849497d484e595c135a524b"><span class="__cf_email__" data-cfemail="34471a56465140401a5b525241404074414750551a535b42">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Outline of the Notice of Proposed Rulemaking
I. Introduction (Statutory Authority)
A. Background to This Rulemaking
B. Previous Rulemakings
II. Undue Prejudices or Disadvantages and Discriminatory Practices
A. Agency Interpretation of Undue or Unreasonable Prejudice or
Disadvantage and Unjust Discriminatory Practices
B. Prohibited Undue Prejudices or Disadvantages and Unjust
Discrimination--Proposed Sec. 201.304(a)(1)--Generally
i. Authority Provided by the Act
ii. Economic Rationale
iii. Specific Proposed Protected Bases
C. Cooperatives--Proposed Sec. 201.304(a)(2)
D. Enumerated Undue Prejudices
E. Retaliation
i. Retaliation as Discrimination Under the Act
ii. Economic Rationale
F. Prohibition on Retaliation--Proposed Sec. 201.304(b)
G. Bases of Protected Activities--Proposed Sec. 201.304(b).
i. Assertion of Rights
ii. Associational Participation
iii. Lawful Communications
H. Delineation of Protected Activities
I. Recordkeeping--Proposed Sec. 201.304(c)
J. Request for Comments
III. Deceptive Practices
A. Scope of Deceptive Practices Regulated
B. Deceptive Practices in the Formation of Contract
C. Deceptive Practices in the Operation of Contract
D. Deceptive Practices in the Termination of Contract
E. Deceptive Practices in Refusal To Deal
F. Request for Comments
IV. Severability
V. Required Regulatory Analyses
VI. Request for Comments
I. Introduction and Regulatory Background
The rise of vertically integrated contract agriculture and highly
concentrated local markets in livestock and poultry over the last four
decades have increasingly left many producers and growers (hereinafter
producers, unless otherwise noted) vulnerable to a range of practices
that unjustly exclude them from and undermine their economic
opportunities in the marketplace. The regulatory toolkit embodied in
the Packers & Stockyards Act, as amended (P&S Act or Act) (7 U.S.C. 181
et seq.), has not been deployed to keep pace with these issues. AMS is
proposing this regulation to enhance those basic protections that
modern livestock and poultry producers need to promote inclusive
competition and market integrity. We invite comment on a range of
questions in this proposal.
Specifically, AMS is proposing to:
<bullet> Prohibit, as undue prejudices, disadvantages, and adverse
actions against ``market vulnerable individuals'' who are at heightened
risk in relevant markets;
<bullet> Prohibit, as unjust discrimination, retaliatory and
adverse actions that interfere with lawful communications, assertion of
rights, associational participation, and other protected activities;
<bullet> Prohibit, as deceptive practices, regulated entities
employing pretexts, false or misleading statements, or omissions of
material facts, in contract formation, contract performance, contract
termination, and contract refusal; and
<bullet> Require recordkeeping to support USDA monitoring,
evaluation, and enforcement of compliance with aspects of this rule.
AMS is proposing these modernized regulations under the Act's
provisions prohibiting undue prejudice, unjust discrimination, and
deception to provide for clearer, more effective standards to govern
the modern marketplace and to better protect, through compliance and
enforcement, individually harmed producers and growers. Enacted in 1921
``to comprehensively regulate packers, stockyards, marketing agents and
dealers,'' \1\ the P&S Act, among other things, prohibits actions that
hinder integrity and competition in the livestock and poultry markets.
Section 202(a) of the Act states that it is unlawful for any packer,
swine contractor, or live poultry dealer to engage in or use any
unfair, unjustly discriminatory, or deceptive practice or device.\2\
Section 202(b) of the Act states that it is unlawful for any packer,
swine contractor, or live poultry dealer to make or give any undue or
unreasonable preference or advantage to any particular person or
locality, or subject any particular person or locality to any undue or
unreasonable prejudice or disadvantage in any respect. The Secretary of
Agriculture (Secretary) has
[[Page 60011]]
delegated the responsibility for administering the P&S Act to AMS.
Within AMS, the Packers, and Stockyards Division (PSD) of the Fair-
Trade Practices Program has responsibility for the day-to-day
administration of the P&S Act. The current regulations implementing the
P&S Act are found in title 9, part 201 of the Code of Federal
Regulations (CFR). Section 407 of the P&S Act (7 U.S.C. 228) provides
that the Secretary ``may make such rules, regulations, and orders as
may be necessary to carry out the provisions of this Act.'' This
proposed rule, if finalized, would amend 9 CFR part 201.
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\1\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498
F.2d 925, 927 (10th Cir. 1974).
\2\ 7 U.S.C. 192(a).
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A. Background to This Rulemaking
Congress enacted the P&S Act after many years of concern about
farmers and ranchers being cheated and mistreated. At the time,
Congress worried that the five very large meatpackers' control over the
nation's food supply tended toward monopolization, which could put
economic opportunity for producers and their communities at risk,
destroying individual economic opportunity for producers and smaller
food businesses and harming rural communities, among other harms.\3\
Moreover, Congress believed that existing antitrust and market
regulatory laws, including the Sherman Act and Federal Trade Commission
Act, did not sufficiently protect farmers and ranchers.\4\ Accordingly,
in the P&S Act, Congress gave the Secretary of Agriculture broad
authority to regulate the meatpacking industry. The House of
Representatives' report on the P&S Act stated that it was the ``most
comprehensive measure and extends farther than any previous law in the
regulation of private business, in time of peace, except possibly the
interstate commerce act.'' \5\ The Conference Report on the P&S Act
stated that: ``Congress intends to exercise, in the bill, the fullest
control of the packers and stockyards which the Constitution permits .
. .'' \6\
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\3\ See 61 Cong. Rec. 1860 (1921) (House Floor Debate).
\4\ See, Shively, J. and Roberts, J., ``Competition Under the
Packers and Stockyards Act: What Now?'' 15 Drake Journal of
Agricultural Law 419, 422-423 (2010); and Current Legislation, 22
Columbia Law Review 68, 69 (1922).
\5\ House Report No. 67-77, at 2 (1921).
\6\ House Report No. 67-324, at 3 (1921).
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In the early 1900s, meat packing in the United States was highly
concentrated, with approximately 50 to 70 percent of the beef packing
industry controlled by the industry's ``Big Five:'' Armour, Cudahy,
Morris, Swift, and Wilson.\7\ A 1918 Federal Trade Commission (FTC)
meat industry investigation found that in 1916 the Big Five controlled
the slaughter and processing of 82 percent of cattle, 79 percent of
calves, 87 percent of sheep, and 63 percent of swine in the U.S.\8\
Those five dominant operators also controlled an interlocking network
of the feed mills, stockyards, and transportation infrastructure that
supported the industry. As extensively documented in a report by the
FTC, which set the stage for Congressional passage of the P&S Act,
those five packers deployed from their positions in that market
structure a range of practices to further entrench their dominance.\9\
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\7\ Mathews, K. H. Jr., W. F. Hahn, K. E. Nelson, L. A. Duewer,
and R. A. Gustafson. April 1999. U.S. Beef Industry: Cattle Cycles,
Price Spreads, and Packer Concentration. U.S. Department of
Agriculture, Market and Trade Economics Division, Economic Research
Service. Technical Bulletin No. 1874.
\8\ Federal Trade Commission. 1918. Annual Report for 1918, p.
23., available at ftc_ar_1918.pdf (last accessed 8/9/2022).
\9\ Id.
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At that same time, the Department of Justice (DOJ) brought
enforcement cases under the Sherman Act against the packing industry,
which resulted in a series of consent decrees (judicially overseen
agreements) that restructured the market.\10\ The consent decrees,
together with the adoption of the P&S Act, reformed market practices by
eliminating packer ownership of cattle and their means of transporting
it, and reinforced market structures that--for a period of time in the
20th century--secured open, fair marketplaces for all, such as terminal
auction yards regulated as stockyards by the Packers and Stockyards
Administration of USDA.\11\ By 1963, the four-firm concentration ratio
(the standard economic tool used to evaluate the degree of
concentration in markets) had fallen to 26 percent in beef and 33
percent in hogs.
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\10\ United States v. Swift & Co., Equity No. 37623, (Sup. Ct.
of D.C. 1920).
\11\ Harl, Agricultural Law, sec. 71.03 (1993).
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Amidst slowing demand in the beef and hog sectors, the dramatic
growth of demand in the poultry industry, technological advances and
increased returns to scale in meat processing, and a decline in Federal
antitrust and fair markets enforcement, concentration returned to the
meat packing industry.\12\ Between 1980 and 2020, the four-firm
concentration ratio grew from 36 percent to 81 percent in beef packing
(steers and heifers) and rose by 34 percent to 64 percent in hogs.\13\
Between 1977 and 2020, the four-firm concentration ratio in the poultry
broiler industry increased from 22 percent to 53 percent.\14\
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\12\ MacDonald, J.M., M. E. Ollinger, K. E. Nelson, and C. R.
Handy. Consolidation in U.S. Meatpacking. Food and Rural Economics
Division, Economic Research Service, U.S. Department of Agriculture.
Agricultural Economic Report No. 785. Available at <a href="https://www.ers.usda.gov/publications/pub-details/?pubid=41120">https://www.ers.usda.gov/publications/pub-details/?pubid=41120</a>, accessed 9/
19/22.
\13\ U.S. Department of Agriculture, Agricultural Marketing
Service., Packers and Stockyards Division, Annual Report. Various
years.
\14\ U.S. Department of Agriculture, Agricultural Marketing
Service, Packers and Stockyards Division, Annual Report, 2020. 2021
draft pending as of 07/11/22. United States Department of
Agriculture Grain Inspection, Packers and Stockyards Administration.
``Assessment of the Livestock and Poultry Industries Fiscal Year
2007.'' May 2008.
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The above data reflects the state of concentration nationally, but
concentration in local markets that exceeds national averages has been
observed in the poultry, hog and pig, and cattle industries. In the
last available survey of local markets (2011), MacDonald and Key found
that 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.\15\
Regional concentration is often higher than national concentration for
hogs.\16\ And in cattle, based on AMS's experience conducting
investigations and monitoring markets, there are commonly only one or
two buyers in some local geographic markets, and few sellers have the
option of selling fed cattle to more than three or four packers.
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\15\ 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.
\16\ Wise, T. A., S. E. Trist. ``Buyer Power in U.S. Hog
Markets: A Critical Review of the Literature,'' Tufts University,
Global Development and Environment Institute (GDAE) Working Paper
No. 10-04, August 2010, available at: <a href="https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl">https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl</a> (last accessed 8/9/2022).
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The move towards heightened concentration was accompanied by a
dramatic shift from the spot market towards various types of vertical
contracts. In the early 20th century, farm-finished cattle and hogs
were primarily shipped by rail and slaughtered in urban centers close
to large consumer bases, and fresh meat was rail-shipped only by the
largest packers. Prices for cattle and hog purchases were largely
negotiated in spot, cash markets in person. In 1921, poultry
consumption accounted for a small share of total U.S. meat consumption,
and retail distribution outlets (i.e., local food markets) were not
centralized.
[[Page 60012]]
In successive decades, as concentration in the industry increased
and as the size of plants increased, large packers needed to ensure
constant and secure supplies of animals to keep these larger plants
running at peak capacity.\17\ Buying animals through contracts with
producers was believed to facilitate their ability to do so. Vertical
contracts took the form of production, marketing, and forward
contracts.
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\17\ MacDonald. J. M. and W. D. McBride. The Transformation of
U.S. Livestock Agriculture: Scale, Efficiency, and Risks. January
2009. Economic Information Bulletin No. (EIB-43). Available at
<a href="https://www.ers.usda.gov/webdocs/publications/44292/10992_eib43.pdf?v=0">https://www.ers.usda.gov/webdocs/publications/44292/10992_eib43.pdf?v=0</a>, accessed 9-20-2022.
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Livestock and poultry production contracts are agreements between a
producer and a contractor, where the livestock (generally hogs) or
poultry are grown by a grower on behalf of the contractor under
specific guidelines (production practices or target weight, for
example) identified in the contract. The producer is generally paid a
contract fee by the contractor for growing the livestock or poultry.
Once the livestock or poultry reach a specific weight, they are often
marketed to a packer or live poultry dealer under a marketing contract,
though they could also be marketed on the spot market. Under a
marketing contract, the ownership of the livestock or poultry (mostly
livestock) remains with the producer until they are ready to be
marketed to a packer or live poultry dealer. A marketing contract is an
agreement between a producer and a packer or live poultry dealer that
identifies a price (or a pricing formula), quantities/qualities, and a
delivery schedule for the livestock or poultry to the packer or live
poultry dealer. A forward contract is a specific type of marketing
contract (generally for livestock) under which a specific group of
livestock is negotiated for sale by a producer or contractor to a
packer several months in advance of delivery of the livestock. The
producer or contractor and packer agree to the delivery month and
pricing method for the specific group of livestock to be delivered. The
producer generally picks the day of delivery in the delivery month.
The growth of these vertical contract relationships, in the context
of highly concentrated markets, has led to concerns that firms have
greater control over producers and thus have more ability to abuse
their market power, impede producer choices, exclude some market
participants, and coerce producers unwittingly into inefficient farm
decisions.\18\ Many have expressed concern that the decline in the use
of spot markets to market livestock has also led to harder-to-quantify
losses of independent ways of life, adversely impacting rural economies
and communities.\19\
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\18\ Hendrickson, M.K., and H.S. James, Jr. 2005. ``The Ethics
of Constrained Choice: How the Industrialization of Agriculture
Impacts Farming and Farmer Behavior.'' Journal of Agricultural and
Environmental Ethics, 18: 269-291. In: Hendrickson, M., James, H.,
Heffernan, W.D. 2013. ``Vertical Integration and Concentration in
U.S. Agriculture.'' In: Thompson, P., Kaplan, D. (eds) Encyclopedia
of Food and Agricultural Ethics. Springer, Dordrecht, 7. See also
Christopher Leonard, ``The Meat Racket'' (2015); C. Robert Taylor,
``Harvested Cattle, Slaughtered Markets,'' April 27, 2022, available
at <a href="https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/">https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/</a>; Peter Carstensen, ``Buyer
Power and the Horizontal Merger Guidelines: Minor Progress on an
Important Issue,'' 14 U. Pa. J. Bus. L. 775 (2012), available at
<a href="https://repository.law.wisc.edu/s/uwlaw/item/29746">https://repository.law.wisc.edu/s/uwlaw/item/29746</a>.
\19\ James, H.S. Jr., M.K. Hendrickson, and P.H. Howard. 2013.
``Networks, Power and Dependency in the Agrifood Industry.'' In H.S.
James, Jr. (ed.), ``The Ethics and Economics of Agrifood
Competition'' (pp. 99-126). Dordrecht, The Netherlands: Springer
Publishers. In: Hendrickson, M., James, H., Heffernan, W.D. 2013.
``Vertical Integration and Concentration in US Agriculture.'' In:
Thompson, P., Kaplan, D. (eds) Encyclopedia of Food and Agricultural
Ethics. Springer, Dordrecht, 8.
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Among the four major meat markets, chicken companies adopted
production contracting earliest and most completely. Between 1950 and
1955, along with increased vertical integration through ownership of
the flocks, the use of production contracts rose from 5 to 85 percent
of the broiler industry's production to become nearly universal by
1975. The same switch was slower in turkey production, exceeding 80
percent in 1977.\20\ The share of hogs sold through long-term marketing
contracts increased from 10 to 72 percent between 1993 and 2001.
Packer-owned hogs increased from 6.4 percent of U.S. hog production in
1994 to 24 percent in 2000.\21\ Comparatively, in the cattle industry
32 percent of production was under contract in 2013--referring again to
contractual agreements for growing cattle to a certain weight or under
a certain production method.<SUP>22 23</SUP> Marketing contracts have
seen far greater adoption. Cattle being marketed through forward
contracts and Alternative Marketing Arrangements (AMAs), where cattle
are already dedicated to certain packers or end-buyers, have risen from
about 35 percent in 2005 to 73 percent today.\24\ As a result, since
2005, negotiated cash trades have declined from 65 percent to about 27
percent today.\25\
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\20\ Martinez, S. W. (2002). ``Vertical Coordination of
Marketing Systems: Lessons From the Poultry, Egg, and Pork
Industries.'' (No. 1473-2016-120694) Economic Research Service,
USDA, Washington, DC.
\21\ Martinez, S. W. (2002). ``Vertical Coordination of
Marketing Systems: Lessons From the Poultry, Egg, and Pork
Industries'' (No. 1473-2016-120694) Economic Research Service, USDA,
Washington, DC.
\22\ Crespi, John, and Tina L. Saitone. (2018) ``Are Cattle
Markets the Last Frontier? Vertical Coordination in Animal-Based
Procurement Markets.'' Annual Review of Resource Economics 10(1):
207-227.
\23\ Macdonald, James M. (2015) ``Trends in Agricultural
Contracts.'' Choices 30(3):1-6.
\24\ Packers and Stockyards Division, ``Annual Report'' (2020).
\25\ U.S. Department of Agriculture, Agricultural Marketing
Service, Market News, as of May 2022.
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Some of these developments were driven in part by technological and
marketing changes.\26\ In cattle, for example, the development of boxed
beef to ship standardized cuts allowed packers to move their slaughter
facilities closer to producers. With cattle no longer shipped from
terminal auction markets to the large cities, packers played a more
dominant role in the procurement of cattle directly from producers
within a surrounding area, and marketing practices shifted, for a time,
towards bilateral cash negotiation and, then eventually, longer-term
marketing contracts with pricing formulas.\27\
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\26\ Lonergan, S. M., and D. N. Marple. ``Historical
perspectives of the meat and animal industry and their relationship
to animal growth, body composition, and meat technology,'' ``The
Science of Animal Growth and Meat Technology.'' Lonergan, S. M., D.
N. Marple, Eds., Second Edition, Elsevier, (2019) 1-17, available at
The Science of Animal Growth and Meat Technology [verbar]
ScienceDirect.
\27\ Lawrence, J.D., Schroeder, T.C. and Hayenga, M.L. (2001),
``Evolving Producer-Packer-Customer Linkages in the Beef and Pork
Industries.'' Applied Economic Perspectives and Policy, 23: 370-385.
Available at <a href="https://doi.org/10.1111/1467-9353.00067">https://doi.org/10.1111/1467-9353.00067</a>.
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[[Page 60013]]
The increased use of long-term production and marketing contracts
in livestock and poultry markets, can foster greater vertical
coordination, and potentially allows certain production and marketing
efficiencies related to scale and certain enhanced aspects of packer,
or even retailer, control over product differentiation. The use of
vertical contracts may be appealing to livestock or poultry producers
for a range of reasons, including more secure access to markets. In
poultry markets, for example, contracts shift some aspects of market
risks from producers to live poultry dealers, such as grain prices or
certain weather-related risks.\28\ In the case of livestock, contracts
can also reduce a producer's output price risk.\29\
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\28\ Knoeber, Charles R., and Walter N. Thurman. (1995) ``Don't
Count Your Chickens. . . : Risk and Risk Shifting in the Broiler
Industry.'' American Journal of Agricultural Economics 77(3): 486-
496.
\29\ Key, N. and MacDonald, J.M. (2006) ``Agricultural
Contracting: Trading Autonomy for Risk Reduction'' Amber Waves, U.S.
Department of Agriculture Economic Research Service. <a href="https://www.ers.usda.gov/amber-waves/2006/february/agricultural-contracting-trading-autonomy-for-risk-reduction/">https://www.ers.usda.gov/amber-waves/2006/february/agricultural-contracting-trading-autonomy-for-risk-reduction/</a>
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On the other hand, as they facilitate packers and live poultry
dealers' control across the supply chain, contracts can shift certain
risks onto or between producers.\30\ In particular, without robust open
spot markets, cattle producers have complained of less ability to enter
the markets and less competition between buyers for better prices.\31\
As one notable commentator has termed them, these markets appear to be
by ``invitation only.'' \32\
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\30\ See, e.g., Michael Kades, ``Protecting Livestock Producers
and Chicken Growers,'' Washington Center for Equitable Growth (May
5, 2022), available at <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>; Mary K.
Hendrickson, et al., ``The Food System: Concentration and Its
Impacts,'' A Special Report for Farm Family Action Alliance, May
2021, available at <a href="https://farmaction.us/concentrationreport/">https://farmaction.us/concentrationreport/</a>; C.
Robert Taylor, ``Harvested Cattle, Slaughtered Markets,'' April 27,
2022, available at <a href="https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/">https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/</a>; Peter
Carstensen, ``Buyer Power and the Horizontal Merger Guidelines:
Minor Progress on an Important Issue,'' 14 U. Pa. J. Bus. L. 775
(2012), available at <a href="https://repository.law.wisc.edu/s/uwlaw/item/29746">https://repository.law.wisc.edu/s/uwlaw/item/29746</a>.
\31\ See, e.g., Bill Bullard, ``Chronically Besieged: The U.S.
Live Cattle Industry,'' Presentation to Thurman Arnold Project at
Yale and Law, Ethics, & Animals Program at Yale Law School, ``Big Ag
& Antitrust Conference,'' Jan. 2021, available at <a href="https://www.r-calfusa.com/wp-content/uploads/2021/01/210116-Chronically-Beseiged-The-U.S.-Live-Cattle-Industry-Final.pdf">https://www.r-calfusa.com/wp-content/uploads/2021/01/210116-Chronically-Beseiged-The-U.S.-Live-Cattle-Industry-Final.pdf</a>; see also Nathan Miller et
al., ``Buyer Power in the Beef Packing Industry: An Update on
Research in Progress,'' April 2022, available at <a href="http://www.nathanhmiller.org/cattlemarkets.pdf">http://www.nathanhmiller.org/cattlemarkets.pdf</a>.
\32\ C. Robert Taylor, ``The Many Faces of Corporate Power in
the Food System.'' Presented at DOJ/FTC Workshop on Merger
Enforcement, February 2004, available at <a href="https://www.justice.gov/atr/many-faces-power-food-system">https://www.justice.gov/atr/many-faces-power-food-system</a>.
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Limited options for producers heighten the risks of prejudicial
exclusion and retaliation. Over the years, these concerns have been
reported to USDA, but the Department has not been able to effectively
address complaints, in part owing to insufficient clarity around P&S
Act rules and standards and related questions around the ability for
individuals to bring cases based on specific instances of harm.
The rise of concentrated and vertically integrated markets also
gives rise to certain abuses that may take the form of deception. For
example, cattle producers have complained to USDA that they are
provided with false pretexts as to why a packer would not accept cattle
from a producer or would pay less for it. Similarly, poultry and swine
growers have complained they have not been told the truth regarding why
they were terminated from contracts or otherwise treated differently
under them. These forms of deception may also be connected with efforts
to discriminate, retaliate, or otherwise unjustly exclude certain
producers or growers from the marketplace.\33\
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\33\ See, e.g., ``Transition Recommendations: On Issues Related
to Agricultural Concentration and Competition,'' Campaign for
Contract Agriculture Reform . . . Western Organization of Resource
Councils, et al., Nov. 9, 2020.
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Concerns with the rise of vertically integrated contracting across
concentrated markets were highlighted in a series of workshops
conducted by the U.S. Department of Justice (DOJ) and USDA in 2010.\34\
And indeed, following the workshops, a number of producers reported to
USDA that they suffered retaliation, and that racial and other
exclusionary prejudices were problems. In 2010 and 2016, USDA proposed
regulations seeking to address many of these concerns, given their
pervasiveness in the marketplace and the longstanding challenges that
USDA faced in addressing them. However, the relevant provisions of the
proposed regulations were not finalized.\35\
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\34\ Department of Justice. ``Competition and Agriculture:
Voices from the Workshops on Agriculture and Antitrust Enforcement
in our 21st Century Economy and Thoughts on the Way Forward.'' May
2012. Available at <a href="https://www.justice.gov/sites/default/files/atr/legacy/2012/05/16/283291.pdf">https://www.justice.gov/sites/default/files/atr/legacy/2012/05/16/283291.pdf</a>.
\35\ Poultry Grower Ranking Systems; Withdrawal of Proposed
Rule, 86 FR 60779 (November 4, 2021).
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Unfortunately, the concentrated nature of livestock and poultry
markets exposes all producers to potential market abuses, but some may
not be well positioned to protect themselves. Racial and ethnic
minorities are arguably more exposed to market abuses, as evidenced by
their participation in the agricultural sector having declined sharply
over the last many decades. The most recent data from the 2017 Census
of Agriculture (Figures 1 and 2) indicate that non-white racial and
ethnic groups constitute a very small share of contracted livestock and
poultry producers--a trend likely due in part to historical
discrimination against these groups.
Undoubtedly, discrimination such as what has been experienced by
these groups in the past continues in some form today, which is why
additional protections are needed. Further, the same USDA Census of
Agriculture data show that producers who identify as Black and Native
Hawaiian are more likely to have lower gross revenue than their white
counterparts, which makes these producers relatively more vulnerable to
the market abuses observed in the sector today. These longstanding
challenges have prompted Congress and USDA to promote more equitable
market access. Section II.B.ii, below provides a more extensive
discussion of AMS's concerns regarding the exclusion from, or
disadvantages in, certain markets.
Retaliation remains a prevalent concern in today's concentrated and
highly integrated markets. For example, as recently as April 2022,
threats and fear of retaliation interfered with plans for invited
witnesses to testify at each of the House and Senate Agriculture
Committees' hearings on livestock competition practices. In his opening
remarks, House Agriculture Committee Chair David Scott noted:
We were supposed to have a 4th witness, a rancher, on our panel,
but due to intimidation and threats to this person's livelihood, to
this person's reputation, they chose not to participate out of fear.
Witness intimidation is unacceptable. . .
Only a day before, Senator Deborah Fischer had stated:
I wish we had a Nebraska producer here, but as is noted in their
letter, none of our producer members we encouraged to testify were
willing to put themselves out front for fear of possible retribution
from other market participants, an unfortunate reality of today's
cattle industry.\36\
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\36\ House Chair David Scott D-GA, Opening remarks, U.S. House,
Committee on Agriculture, ``An Examination of Price Discrepancies,
Transparency, and Alleged Unfair Practices in Cattle Markets,''
April 27, 2022, (14 min: 24 sec), available at <a href="https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies-Transparency-and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk">https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies-Transparency-and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk</a>. U.S. Senate Committee on Agriculture, Nutrition, and
Forestry, ``Legislative hearing to review S. 4030, the Cattle Price
Discovery and Transparency Act of 2022, and S. 3870, the Meat and
Poultry Special Investigator Act of 2022,'' April 26, 2022 (1 hour
39 min), available at <a href="https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022">https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022</a>.
[[Page 60014]]
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Producer organizations have also recently reported to USDA concerns
relating to possible coercion in the rulemaking comment process.\37\
Section II, and in particular II.E.ii, below, provide a more fulsome
discussion of concerns regarding retaliation for engaging in protected
activities.
---------------------------------------------------------------------------
\37\ See, e.g., U.S. Department of Agriculture, ``USDA Extends
Public Comment Period to August 23 and Posts Public Webinar for the
Proposed Rule to Promote Transparency in Poultry Grower Contracting
and Tournaments,'' Aug. 5, 2022, available at <a href="https://www.usda.gov/media/press-releases/2022/08/05/usda-extends-public-comment-period-august-23-and-posts-public">https://www.usda.gov/media/press-releases/2022/08/05/usda-extends-public-comment-period-august-23-and-posts-public</a> (last accessed Aug. 2022).
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Deception in various forms and guises also remains a concern in the
marketplace, including during the COVID-19 pandemic, where producers
had dramatically reduced access to markets.\38\ We discuss these
concerns extensively in Section III, below.
---------------------------------------------------------------------------
\38\ On limits to market access in the pandemic, see U.S.
Department of Agriculture, Agricultural Marketing Service,
``Agricultural Competition: A Plan in Support of Fair and
Competitive Markets,'' May 2022, available at <a href="https://www.ams.usda.gov/reports/agricultural-competition-plan-support-fair-and-competitive-markets">https://www.ams.usda.gov/reports/agricultural-competition-plan-support-fair-and-competitive-markets</a> (last accessed Aug. 2022).
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The historic Executive order issued by the Biden-Harris
administration, Executive Order (E.O.) 14036--Promoting Competition in
the American Economy (86 FR 36987; July 9, 2021), 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 market abuses
and enhanced competition in the livestock, poultry, and related
markets, including unjustly discriminatory, unduly prejudicial, and
deceptive practices, in particular retaliation. E.O. 14036 also
underscored that an individual should not have to show market-wide harm
to secure relief under the Act. AMS has considered that direction in
undertaking this rulemaking.
The P&S Act is a remedial statute enacted to address problems faced
by farmers, producers, and other participants in certain livestock,
poultry, and related agricultural markets; to protect the public from
predatory practices; and to help ensure a stable food supply. Thus, as
academics and courts have noted, the Act has ``tort-like provisions
that are concerned with unfair practices and discrimination'' that
fulfill a ``market facilitating function,'' which Congress designed to
prevent ``market abuse.'' \39\ AMS interprets and implements the Act to
affect its core statutory purposes.\40\ AMS is concerned that the
current regulations do not adequately address many unduly prejudicial,
unjustly discriminatory, and deceptive practices, which are exacerbated
by increased horizontal concentration and vertical contracting. This
proposed rule aims to address those concerns.
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\39\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a> (``subsections (a) and (b) appear to be tort-like provisions
that are concerned with unfair practices and discrimination, but not
with restraint of trade or monopoly as such''); Peter Carstensen,
The Packers and Stockyards Act: A History of Failure to Date, CPI
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that
the practices of buyers and sellers in livestock (and later poultry)
markets were fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.''); Michael C. Stumo
& Douglas J. O'Brien, Antitrust Unfairness vs. Equitable Unfairness
in Farmer/Meat Packer Relationships, 8 Drake J. Agric. L. 91 (2003);
Michael Kades, ``Protecting livestock producers and chicken
growers,'' Washington Center for Equitable Growth (May 2022),
<a href="https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf">https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf</a> (``Section 202's prohibitions on
unjust discrimination and undue preference are not limited to
conduct that destroys or limits competition or creates a monopoly.
These provisions address conduct that impedes a well-functioning
market and deprives livestock and poultry producers of the true
value of their animals. Taken together, these provisions seek to
prevent market abuses.'').
\40\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th
Cir. 1966).
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B. Previous Rulemakings
At the direction of Congress, through the Food, Conservation, and
Energy Act of 2008 (2008 Farm Bill) (Pub. L. 110-246), USDA's then
Grain Inspection, Packers, and Stockyards Administration (GIPSA), which
administered the Packers and Stockyards Act, published a proposed rule
(75 FR 35338; June 22, 2010) (2010 Proposed Rule).\41\ The 2010
Proposed Rule, among other things, banned retaliation as an ``unfair,
unjustly discriminatory, and deceptive practice,'' and clarified when
certain conduct in the livestock and poultry industries represents the
making or giving of an undue or unreasonable preference or advantage or
subjects a person or locality to an undue or unreasonable prejudice or
disadvantage. Congress then prohibited finalization of portions of the
2010 Proposed Rule through appropriations acts for fiscal years 2012
through 2015.
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\41\ In 2017, GIPSA merged with the Agricultural Marketing
Service (AMS). AMS now administers the regulations under the Act and
undertook this rulemaking to meet the statutory requirement.
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In 2015, after increased public awareness of issues that the 2010
Proposed Rule attempted to address,\42\ Congress ceased including the
prohibition in appropriations bills, and GIPSA undertook another
rulemaking to address these issues. In 2016, the agency published
another proposed rule (81 FR 92703; December 20, 2016) (2016 Proposed
Rule) attempting to establish what constituted unfair practices and
undue preferences, along with a related interim final rule (81 FR
92566) (2016 IFR). Following the change of administration, the agency
decided to take no further action on the rule. In a notification of no
further action published in the Federal Register (82 FR 48603; October
18, 2017) (2017 No Further Action Notification), GIPSA acknowledged
that some producers, growers, and farm trade groups generally supported
the proposed rule, and many commenters had raised concerns about
growing power imbalances, discrimination, and retaliation. GIPSA,
however, decided not to finalize the 2016 Proposed Rule, in part on the
grounds that it raised the stakes for regulated entities in ways that
could suppress innovation, and contained ambiguous terms that were
likely to increase and prolong litigation between producers and
regulated entities and between regulated entities and AMS. The 2016
Proposed Rule listed six non-exclusive criteria for the Secretary to
consider when determining whether conduct constituted an unfair
practice or preference. In contrast, the current proposed rule focuses
on discrimination, deception, and retaliation.
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\42\ ``Chickens: Last Week Tonight with John Oliver,'' HBO, May
17, 2015, available at <a href="https://www.youtube.com/watch?v=X9wHzt6gBgI">https://www.youtube.com/watch?v=X9wHzt6gBgI</a>;
see also Nathaniel Haas, ``John Oliver v. chicken,'' Politico, June
1, 2015, available at <a href="https://www.politico.com/story/2015/06/john-oliver-vs-chicken-118510">https://www.politico.com/story/2015/06/john-oliver-vs-chicken-118510</a>.
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In 2020, AMS issued a proposed rule (85 FR 1771; January. 13, 2020)
(2020 Proposed Rule), which was finalized later that year (85 FR 79779;
December. 11, 2020) (2020 Final Rule), which that set out several
(nonexclusive) criteria the Secretary would consider concerning undue
or unreasonable preferences or advantages: whether the preference or
advantage cannot be justified on the basis of a cost savings related to
dealing with different producers, sellers, or growers; cannot be
justified on the basis of meeting a
[[Page 60015]]
competitor's prices; cannot be justified on the basis of meeting other
terms offered by a competitor; and cannot be justified as a reasonable
business decision. In response to the 2020 Proposed Rule, AMS received
numerous comments raising concerns regarding discriminatory and
retaliatory practices; however, AMS stated that the 2020 Final Rule was
intended for the narrower purpose of establishing criteria to
consider.\43\ Specifically, the 2020 Proposed Rule's preamble noted
that discrimination on the basis of race, gender, and other such
protected bases was unlawful and would be addressed as potential
violations of the Act's prohibition against undue prejudices. In August
2021, AMS reiterated this policy in a series of Frequently Asked
Questions (FAQs).\44\ AMS's FAQs also underscored that the rule's
criteria were ``not exhaustive and not determinative.''
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\43\ Undue and Unreasonable Preferences and Advantages Under the
Packers and Stockyards Act, 85 FR 79779 (January 11, 2021), 9 CFR
part 201. Comments available at <a href="https://www.regulations.gov/document/AMS-FTPP-18-0101-0001/comment">https://www.regulations.gov/document/AMS-FTPP-18-0101-0001/comment</a>.
\44\ 85 FR 79779; U.S. Department of Agriculture, Agricultural
Marketing Service, ``Frequently Asked Questions on the Enforcement
of Undue and Unreasonable Preferences under the Packers and
Stockyards Act,'' August 2021, available at <a href="https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq">https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq</a>
(last accessed June 2022).
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In the context of each of these rulemakings spanning the last
decade, GIPSA, and later AMS, received comments regarding the power
imbalances in the livestock and poultry industries and highlighting the
need for regulations that adequately protect farmers against recurrent
retaliation, deception, and discrimination. Given the consistency of
these assertions, as well as the concerns further brought to light
during the COVID-19 pandemic regarding today's increasingly
concentrated livestock and poultry markets,\45\ AMS believes this
proposed rule is needed to effectuate its responsibility to protect
producers against unlawful practices that exclude, disadvantage,
discriminate against, retaliate against, or deceive them, and that the
rulemaking would promote markets with integrity that are competitive
and inclusive to all.
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\45\ U.S. Department of Agriculture, ``Agri-Food Supply Chain
Assessment: Program and Policy Options for Strengthening
Resilience,'' 12-17, February 2021, available at <a href="https://www.ams.usda.gov/supply-chain">https://www.ams.usda.gov/supply-chain</a> (last accessed Aug. 2022); see also
Agricultural Marketing Service, U.S. Department of Agriculture,
``Agricultural Competition: A Plan in Support of Fair and
Competitive Markets,'' May 2022, available at <a href="https://www.ams.usda.gov/reports/agricultural-competition-plan-support-fair-and-competitive-markets">https://www.ams.usda.gov/reports/agricultural-competition-plan-support-fair-and-competitive-markets</a> (last accessed Aug. 2022).
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II. Undue Prejudices or Disadvantages and Unjust Discriminatory
Practices
A. Agency Interpretation of Undue or Unreasonable Prejudice or
Disadvantage and Unjust Discriminatory Practices
This proposed rule addresses concerns related to undue prejudices
or disadvantages and unjust discrimination. First, proposed Sec.
201.304(a) would establish clearer duties on packers, swine
contractors, and live poultry dealers to ensure full and non-
discriminatory market access for market vulnerable individuals. This
section would also prohibit undue prejudices and disadvantages against
cooperatives.
Second, proposed Sec. 201.304(b) would address retaliation by
setting out protected activities that a covered producer may engage in
but that a regulated entity may not use as grounds for unjust
discrimination or undue prejudice or disadvantage. The proposed
regulations would prohibit regulated entities from retaliating against
a covered producer for participating in a protected activity by
terminating a contract, refusing to renew a contract, offering more
unfavorable contract terms than those generally or ordinarily offered,
refusing to deal, interfering with third-party contracts, and other
actions with a an adverse impact to covered producers. These acts of
retaliation would be unjustly discriminatory and unduly prejudicial and
disadvantageous.
Section 202(b) of the P&S Act (7 U.S.C. 192(b)) prohibits regulated
entities from ``subjecting any particular person or locality to any
undue or unreasonable prejudice or disadvantage in any respect[.]''
Though not defined by the Act, in 1921, legal definitions of prejudice
included anything that ``places the person affected in a more
unfavorable or disadvantageous position than he would otherwise have
occupied.'' \46\ <a href="http://Merriam-Webster.com">Merriam-Webster.com</a> defines prejudice to include
``injury or damage resulting from some judgment or action of another in
disregard of one's rights'' and ``an irrational attitude of hostility
directed against an individual, a group, a race, or their supposed
characteristics.'' \47\ USDA's Judicial Officer has defined prejudice
in an administrative adjudication as ``subjecting any person to any
injury or damage and not subjecting all similarly situated persons to
the same injury or damage [.]'' \48\
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\46\ Roberto v. Catino, 140 Md. 38, 116 A. 873, 875 (1922).
\47\ Merriam-Webster online dictionary, <a href="https://www.merriam-webster.com/dictionary/prejudice">https://www.merriam-webster.com/dictionary/prejudice</a> (accessed June 15, 2022).
\48\ In Re: IBP, Inc., 57 Agric. Dec. 1353 (U.S. Department of
Agriculture July 31, 1998).
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Likewise, sec. 202(a) of the P&S Act (7 U.S.C. 192(a)) prohibits
``unjust discrimination.'' but does not expressly define the term.
<a href="http://Merriam-Webster.com">Merriam-Webster.com</a> defines ``unjust'' as: ``characterized by
injustice: unfair.'' \49\ The common meaning of the word
``discrimination'' means ``differential treatment; especially a failure
to treat all persons equally where no reasonable distinction can be
found between those favored and those not favored.'' \50\ While the
meaning of the word ``discriminatory'' varies depending on the context,
the common definition includes ``applying or favoring discrimination in
treatment.'' \51\ Therefore, under sec. 202(a) of the Act, a regulated
entity treating similar entities differently with respect to livestock,
meats, meat food products, livestock products in unmanufactured form,
or live poultry based on certain conditions is an unjustly
discriminatory practice.\52\
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\49\ Merriam-Webster online dictionary, <a href="https://www.merriam-webster.com/dictionary/unjust">https://www.merriam-webster.com/dictionary/unjust</a> (accessed June 15, 2022).
\50\ Black's Law Dictionary, p. 586 (11th ed. 2019).
\51\ Merriam-Webster online dictionary, <a href="https://www.merriam-webster.com/dictionary/discriminatory">https://www.merriam-webster.com/dictionary/discriminatory</a> (accessed June 15, 2022).
\52\ See, also In Re: IBP, Inc., 57 Agric. Dec. 1353 (1998),
rev'd on other grounds by Excel Corp. v. United States Dep't of
Agri., 397 F.3d 1285 (10th Cir. 2005).
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The terms ``unjust discrimination'' and ``undue or unreasonable
prejudice or disadvantage'' in the P&S Act do not follow the precise
language of any law that preceded it. This is not without reason. The
P&S Act ``would never have been adopted by the Congress if the
marketing of livestock and the distribution of meat products did not
present problems [that] were insufficiently met by the [then existing]
antitrust laws[.]'' \53\ There were two laws, however, that preceded
the passage of the P&S Act that influenced the inclusions of ``unjust
discrimination'' and ``undue or unreasonable prejudice or
disadvantage'' in the P&S Act: the Clayton Act, and the Interstate
Commerce Act. While both the Clayton Act and the Interstate Commerce
Act informed the P&S Act's prohibition on unfair and discriminatory
practices, the P&S Act has a broader application.
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\53\ Crosse & Blackwell Co. v. F.T.C., 262 F.2d 600, 604 (4th
Cir. 1959).
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The Clayton Act, passed in 1914, used the language of
discrimination specifically with respect to discriminatory pricing,
prohibiting anyone from ``either directly or
[[Page 60016]]
indirectly [discriminating] in price between different purchasers of
commodities . . . where the effect of such discrimination may be to
substantially lessen competition or create a monopoly in any line of
commerce.'' \54\ The Clayton Act was careful to expressly prohibit
discriminatory pricing in particular. In contrast, the P&S Act does not
include this textual limitation. In addition, the Clayton Act requires
that the discrimination ``may be to substantially effect competition or
create a monopoly.'' The P&S Act, again, is broader:
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\54\ The Clayton Act, sec. 2, Public Law No. 63-212, 38 Stat.
730 (1914).
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[T]he prohibitions of [the Act] go further than the prohibitions in
the Clayton Act. For instance, one of the sections of the Clayton Act
prohibits discrimination in prices as between localities, and then
contains a sort of nullification clause, to the effect that it shall
not prevent anybody from choosing his own customers or making
discriminations in prices where there is a difference in quality or a
difference in transportation charges, and so forth, while this bill
makes any undue or unreasonable discrimination as between localities or
between persons unlawful.\55\
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\55\ 61 Cong. Rec. 1888 (1921) (statement of Rep. Anderson).
Likewise, the Interstate Commerce Act was an important template for
the P&S Act. The P&S Act's statutory history is replete with references
and comparisons, in general terms, to the Interstate Commerce Act.
Passed in 1887, the Interstate Commerce Act forbade common carriers--
primarily meaning railroads--from undue preferences, prejudices, and
discrimination in their rates and charges between connecting lines.\56\
As the Supreme Court explained the Interstate Commerce Act in 1934:
``The purpose . . . was to bring into existence a body which, from its
special character, would be best fitted to determine, among other
things, whether upon the facts in a given case there is an unjust
discrimination against interstate commerce.'' \57\
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\56\ Act of February 4, 1887 (Interstate Commerce Act), sec. 3,
Public Law 49-41, February 4, 1887; Enrolled Acts and Resolutions of
Congress, 1789; General Records of the United States Government,
1778--1992; Record Group 11; National Archives.
\57\ State of Fla. v. United States, 292 U.S. 1, 12, 54 S. Ct.
603, 608, 78 L. Ed. 1077 (1934) (citing United States v. Louisville
& Nashville R.R. Co., 235 U.S. 314, 320 (1914)).''[F]rom the
beginning the very purpose for which the Commission was created was
to . . . decide whether from facts, disputed or undisputed [whether
a] preference or discrimination existed.'' Louisville and Nashville
R.R. Co., 235 U.S. at 320.
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With respect to the courts' interpretation of unjustly
discriminatory practices under the P&S Act, there are few Federal cases
that explore the difference between unjust discrimination and the other
provisions of the Act. Because of the P&S Act's similarity to the
Clayton Act, the Seventh Circuit holds that unjust discrimination has
included below-cost sales which injure sellers or primary line
competition, even if the buyers or secondary-line competition are not
affected. See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir.
1961). Likewise, that circuit holds that price discrimination in favor
of a larger grocery store chain, and higher prices to its competitors,
are another type of unjust discrimination that the Act has prevented.
Swift & Co. v. United States, 317 F.2d 53, 55-56 (7th Cir. 1963).
Moreover, the Supreme Court has held that when discrimination is used
as an attempt to limit competition, it is a monopoly practice. See
Denver Union Stock Yard Co. v. Producers Livestock Mktg., 356 U.S. 282,
289 (1958) (interpreting sec. 312 of the Act and finding that
regulations aimed at preventing market agencies registered at one
stockyard from doing business for producers at any other market within
a normal marketing area to be a monopoly practice).
AMS proposes this regulation to protect the integrity of the market
as a competitive, price-clearing, economically open commercial endeavor
by eliminating or restraining prejudicial discrimination. This includes
prejudicial discriminatory behaviors such as those that adversely
impact open access by competitors and market participants (through
certain exclusionary prejudices, such as denying or disadvantaging an
individual's access to market on grounds which could include race,
gender, religion, or other bases; or retaliatory discrimination for
engaging in certain basic protected activities closely tied to the
basic requirements of being in the business of livestock, poultry, and
related markets covered under the Act), and otherwise exert forms of
control or dependency that limit the economic freedom of those
participating in the market.\58\ The harms these proposed regulations
aim to prevent are the kinds of discrimination (and, as discussed
below, deceptive) practices that dominant firms can use to limit
competition and interfere with the operation of the market, including
across the entire supply chain with respect to livestock, meats, meat
food products, livestock products in unmanufactured form, or for any
live poultry dealer with respect to live poultry.
---------------------------------------------------------------------------
\58\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth (May 5, 2022),
available at <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
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B. Prohibited Undue Prejudices or Disadvantages and Unjust
Discrimination--Proposed Sec. 201.304(a)(1)
Section 201.301 of the proposed regulations would protect the
integrity of the market, promoting fairness and competition by
prohibiting undue prejudices and disadvantages and unjust
discrimination that inhibit inclusive market access and treatment.
Specifically, proposed Sec. 201.304(a)(1) would prohibit prejudice,
disadvantage, or the denial or reduction of market access by regulated
entities against covered producers based on their status, as defined in
the regulation, of being ``market vulnerable'' producers. This term is
defined as membership in a group that has been subjected to, or is at
heightened risk of, adversely differential treatment in the
marketplace. AMS seeks comments on whether specific groups should be
named in the definition of a market vulnerable individual as examples
of market vulnerable individuals and, if so, requests supporting
evidence on the historical treatment of such groups. AMS also seeks
comment on whether, alternatively, prohibitions on undue prejudice or
disadvantage or unjust discrimination would best be addressed by
identifying defined protected classes, and if so, which protected
classes. The intent of the proposed regulation is to help break down
barriers that may serve to exclude or disadvantage certain covered
producers, while leaving room for differential treatment based on
legitimate business purposes.
This proposal defines a covered producer as a livestock producer
(as defined in the regulation at proposed Sec. 201.302) or swine
production contract grower or poultry grower as defined in sec. 2(a) of
the Act. While swine contract producers and poultry growers are defined
in the Act, AMS believes the Act is properly read to protect livestock
producers from unjustly prejudicial and discriminatory practices. To
effectuate this purpose, this proposed rule defines livestock producer
as any person engaged in the raising and caring for livestock by the
producer or another person, whether the livestock is owned by the
producer or by another person, but not an employee of the owner of the
livestock. This definition is designed to
[[Page 60017]]
capture the vast majority of market participants who are dependent on
regulated entities to engage in the livestock business. AMS seeks
comment on whether to limit the definition to persons engaging in the
raising and caring for livestock in the chain of slaughter, or whether
such limitation is unnecessary or improperly limits the coverage of the
Act.
The principal purpose of this proposed approach is to address
prejudices in the marketplace against producers that are more
vulnerable to such treatment and to stop unjust discrimination. AMS
views vulnerability to adverse marketplace treatment to include, but
not be limited to, exclusion or disadvantage on the basis of race,
ethnicity, or sex or gender prejudices (including discrimination
against an individual for being lesbian, gay, transgender, or queer),
religion, disability, or age.\59\ AMS seeks comment on these bases, and
whether there are other bases for vulnerability to adverse marketplace
treatment.
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\59\ Supreme Court case law has established that discriminating
against an individual for being lesbian, gay, transgender or queer
is discrimination on the basis of sex or gender prejudices. Bostock
v. Clayton Cnty., Georgia, 140 S. Ct. 1731, 1741 (2020) (``[I]t is
impossible to discriminate against a person for being homosexual or
transgender without discriminating against that individual based on
sex.'').
---------------------------------------------------------------------------
This proposed rule aims to ensure more inclusive market competition
and address allegations related to undue prejudices through enforceable
regulatory prohibitions. The proposed prohibitions would protect
producers at both individual and market-wide levels from undue
prejudices and disadvantages and unjust discrimination--both of which
AMS has determined violate the P&S Act. The Secretary is empowered
under the P&S Act to address harms in their incipiency.\60\ Moreover,
given its experience interacting with producers and regulated entities,
AMS believes that individual instances of prejudice and discrimination
can have a cumulative adverse effect on relevant markets, including the
national market.
---------------------------------------------------------------------------
\60\ E.g. Bowman v. United States Dep't of Agric., 363 F.2d 81,
85 (5th Cir. 1966) (```the Act is designed to `* * * prevent
potential injury by stopping unlawful practices in their incipiency.
Proof of a particular injury is not required.' '').
---------------------------------------------------------------------------
AMS believes the proposed regulatory scheme results in a flexible
approach to resolving marketplace vulnerabilities. AMS's proposed
regulatory approach of prohibiting unjust discrimination and undue
prejudices and disadvantages against market vulnerable producers
recognizes that discrimination against producers may evolve. AMS
expects the proposed definition will be sufficiently responsive to the
particular facts of given cases and particular markets over time. AMS
is considering issuing guidance on the proposed regulatory approach.
AMS is seeking comment on the definition of ``market vulnerable
producers.'' AMS's goal is to appropriately govern regulated entities'
conduct for the purpose of ensuring inclusive competition in the
marketplace, grounded in the Act's authorities. This includes seeking
comment on whether it should delineate specific categories of
vulnerable producers on the basis of membership in groups that have
historically been subject to adverse treatment owing to racial, ethnic,
gender, or religious prejudices. If so, AMS solicits supporting
evidence regarding the historical adverse treatment of such groups.
AMS also seeks comment on the use of a ``market vulnerable
producer'' approach--rather than a list of protected classes that may
not be discriminated against--to the regulatory prohibition against
discrimination. In the alternative to using the market vulnerable
producer approach, the agency is considering whether this regulation
should ban discrimination against specific classes, such as on the
basis of race, color, national origin, religion, sex, sexual
orientation, gender identity, age, disability, marital status, or
family status. Such an approach would differ from the market vulnerable
individual approach and would instead more closely follow the civil
rights laws that prohibit prejudicial discrimination against certain
protected classes.
The prohibition on prejudice against cooperatives also seeks to
prevent barriers to market access for cooperatives. Congress has long
recognized the need to provide enhanced protections for cooperatives,
as embodied for example in the Agricultural Fair Practices Act of 1967
(Pub. L. 90-288), which protects producers' rights to form a
cooperative.\61\
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\61\ For the purposes of this preamble, a cooperative is an
incorporated or unincorporated association of producers, with or
without capital stock, formed for mutual benefit of its members.
Farm cooperatives are formed under state, not Federal law, even
though cooperatives have Federal protections. See James B. Dean &
Thomas Earl Geu, The Uniform Limited Cooperative Association Act: An
Introduction, 13 Drake J. Agric. L. 63, 67 (2008) (``There is,
however, no single type of cooperative. Although much of the law
that has developed around cooperatives has developed with respect to
agricultural cooperatives, cooperatives exist in many areas . . .
including housing, insurance, banking, health care, and retail
sales, among others.''). Cooperatives can both be buyers and sellers
of agricultural products. Cooperatives made up of sellers, because
they jointly fix the prices of their goods, are legally permitted to
market the products they produce when the cooperative organization
meets the requirements of the Capper-Volstead Act (see 7 U.S.C. 291)
or the Clayton Act (see 15 U.S.C. 17).
---------------------------------------------------------------------------
i. Authority Provided by the Act
There is no indication that Congress intended to exempt any
practice of regulated entities affecting producers covered under the
Act.\62\ The P&S Act, through secs. 202(a) and (b), broadly prohibits
certain practices or devices, including undue or unreasonable
prejudices and disadvantages and unjust discrimination. Sections 202(a)
and (b) of the Act identify a number of prohibited actions with respect
to livestock, meats, meat food products, or livestock products in
unmanufactured form, or for any live poultry dealer with respect to
live poultry. To effectuate these statutory prohibitions, AMS proposes
to prohibit specific undue and unreasonable prejudices, disadvantages,
and discrimination against any covered producer. AMS also seeks comment
on whether to extend these protections to all persons buying or selling
meat and meat food products in markets under the jurisdiction of the
Act.
---------------------------------------------------------------------------
\62\ See 7 U.S.C. 193. C.f. Mitchell v. United States, 313 U.S.
80, 94, 61 S. Ct. 873, 877, 85 L. Ed. 1201 (1941) (``We have
repeatedly said that it is apparent from the legislative history of
the Act that not only was the evil of discrimination the principal
thing aimed at, but that there is no basis for the contention that
Congress intended to exempt any discriminatory action or practice of
interstate carriers affecting interstate commerce which it had
authority to reach.'').
---------------------------------------------------------------------------
In enacting the P&S Act, Congress cast a wide net to capture all
acts of unjust discrimination and unreasonable prejudice against any
particular person. The Act's prohibition of anti-competitive,
discriminatory, and unreasonably prejudicial actions against a
particular person was not a new statutory concept, as the Interstate
Commerce Act also banned unreasonable prejudices and discriminatory
practices well before the enactment of the P&S Act. While a finding of
being within the Interstate Commerce Act's (ICA) scope is not a
necessary precondition for a violation of the P&S Act, the comparison
is nevertheless useful, especially with respect to the structure and
design of provisions governing undue prejudices. A comparison is
provided in Table 1, below.
In Mitchell v. U.S., the Supreme Court decided that the Interstate
Commerce Act prohibited discrimination based on race. 313 U.S. 80
(1941). The Supreme Court held that ``it is apparent from the
legislative history of the Interstate
[[Page 60018]]
Commerce Act that not only was the evil of discrimination the principal
thing aimed at, but that there is no basis for the contention that
Congress intended to exempt any discriminatory action or practice of
interstate carriers affecting interstate commerce which it had
authority to reach.'' \63\ Further, the Court isolated a section of the
Interstate Commerce Act and noted that, ``Paragraph 1 of Section 3 of
the Act says explicitly that it shall be unlawful for any common
carrier subject to the Act `to subject any particular person * * * to
any undue or unreasonable prejudice or disadvantage in any respect
whatsoever.'' \64\ (Emphasis added) The Court found that unreasonable
prejudice against an individual based on race was a violation and
concluded that, ``the Interstate Commerce Act expressly extends its
prohibitions to the subjecting of `any particular person' to
unreasonable discriminations.'' \65\
---------------------------------------------------------------------------
\63\ Id. at 94.
\64\ Id. at 95.
\65\ Id. at 97.
---------------------------------------------------------------------------
The P&S Act contains similar but broader language than the
Interstate Commerce Act sec. 3 in sec. 202, which reads, ``It shall be
unlawful for any packer or swine contractor with respect to livestock,
meats, meat food products, or livestock products in unmanufactured
form, or for any live poultry dealer with respect to live poultry, to:
(a) Engage in or use any unfair, unjustly discriminatory, or deceptive
practice or device; or (b) Make or give any undue or unreasonable
preference or advantage to any particular person or locality in any
respect, or subject any particular person or locality to any undue or
unreasonable prejudice or disadvantage in any respect. . .'' (emphasis
added). Table 1 illustrates where the text between the two Acts is
similar, and also how the Packers and Stockyards Act is broader.\66\
---------------------------------------------------------------------------
\66\ For more on the relationship between the Interstate
Commerce Act and the P&S Act in this area, see Michael Kades,
``Protecting Livestock Producers and Chicken Growers,'' Washington
Center for Equitable Growth, at 66 (May 2022) discussing Wheeler v.
Pilgrim's Pride Corp., 591 F.3d 355, 368-369 (5th Cir 2009) (en
banc) (J. Jones concurring): ``In all the cases discussed by the
concurrence dealing with both terms [under the ICA], the defendant
faced charges that it treated customers differently. According to
the court, `railway companies are only bound to give the same terms
to all persons alike under the same conditions.' If the conditions
are different, then different treatment is merited. Further,
`competition between rival routes is one of the matters which may
lawfully be considered in making rates.' Differential treatment
driven by competitive forces is not a violation. Acknowledging that
competition can justify differential treatment of customers is
different than requiring the plaintiff to prove anticompetitive harm
to establish a violation.''
Table 1--Comparison of the Interstate Commerce Act and the Packers &
Stockyards Act
------------------------------------------------------------------------
P&S Act, Section 202 [7
Interstate Commerce Act (1887 text) U.S.C.192]. Unlawful practices
Sec. 3. enumerated
------------------------------------------------------------------------
That it shall be unlawful for any It shall be unlawful for any
common carrier subject to the packer or swine contractor
provisions of this act to make or give with respect to livestock,
any undue or unreasonable preference meats, meat food products, or
or advantage to any particular person, livestock products in
company, firm, corporation, or unmanufactured form, or for
locality, or any particular any live poultry dealer with
description of traffic, in any respect respect to live poultry, to:
whatsoever, (a) Engage in or use any
or to subject any particular person, unfair, unjustly
company, firm, corporation, or discriminatory, or deceptive
locality, or any particular practice or device; or
description of traffic, to any undue (b) Make or give any undue or
or unreasonable prejudice or unreasonable preference or
disadvantage in any respect advantage to any particular
whatsoever. person or locality in any
Every common carrier subject to the respect, or subject any
provisions of this act . . . shall not particular person or locality
discriminate in their rates and to any undue or unreasonable
charges between such connecting prejudice or disadvantage in
lines[.] (emphasis added). any respect; (emphasis added).
------------------------------------------------------------------------
As shown in Table 1, unlike the Interstate Commerce Act, the P&S
Act in secs. 202(a) and (b) prohibits undue or unreasonable prejudices
or disadvantages as well as deception and unjust discrimination
(without limitation to discrimination in rates and charges in
particular). In this proposed rulemaking, AMS incorporates the language
from sec. 202 to prohibit acts of unreasonable prejudice and to prevent
unreasonable discrimination including but not limited to the race
discrimination that the Court found to be violative of the Interstate
Commerce Act in Mitchell.
This proposed regulation sets forth specific prohibitions on
prejudicial or discriminatory acts or practices against individuals
that are sufficient to demonstrate violation of the P&S Act without the
need to further establish broad-based, market-wide prejudicial or
discriminatory outcomes or harms. The prohibitions on regulated
entities adversely treating individual producers set forth in this
proposed rule address the types of harms the P&S Act is intended to
prevent. AMS believes that preventing broad-based exclusion is most
effectively enforced at the individual producer level when the conduct
is in its incipiency.\67\ To further allow for effective enforcement of
the statute, AMS is also proposing a recordkeeping requirement to
support evaluation of regulated entity compliance.
---------------------------------------------------------------------------
\67\ ``[T]he purpose of the Act is to halt unfair trade
practices in their incipiency, before harm has been suffered.'' See
Farrow v. U.S. Dep't of Agr., 760 F.2d 211, 215 (8th Cir. 1985)
(citing De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329,
1336-37 (9th Cir. 1980)); Swift & Co. v. United States, 393 F.2d
247, 252 (7th Cir. 1968); Armour and Company v. United States, 402
F.2d 712, 723 n. 12 (7th Cir.1968).
---------------------------------------------------------------------------
ii. Economic Rationale
Marketplace integrity and market access were leading policy goals
at the time of the Act's passage. ``The primary purpose of [the P&S
Act] is to assure fair competition and fair-trade practices in
livestock marketing and in the meatpacking industry . . . The Act
provides that meatpackers subject to its provisions shall not engage in
practices that restrain commerce or create a monopoly. They are also
prohibited from engaging in any . . . unjust discriminatory practice or
device. . .'' (emphasis added). AMS believes that discrimination in the
form of prejudice or retaliation against a covered producer on the
basis of certain non-economic prejudices restrains commerce, including
competition, and effects undue and unjust trade practices by denying or
inhibiting full market access for producers. These limitations on
market access are contrary to the primary purposes of the Act--assuring
fair trade practices and competitive markets that producers can access,
as well as prohibiting unjust discrimination. For these reasons, AMS
has determined that prejudice on certain non-economic bases, as set
forth under ``market vulnerable individual,'' is undue and unjust.
[[Page 60019]]
Undue prejudice is, furthermore, a market abuse that undermines
market integrity, deprives the producer of the benefit of the market,
and prevents the producer from obtaining the true market value of the
livestock, or their services.\68\ While such a pathway for harm is
sufficient justification for the rulemaking, prejudicial discrimination
is also anti-competitive and leads to economic inefficiencies. This
section addresses the economics of these issues, including by
describing the history of prejudice and discrimination and their
economic consequences in the agricultural sector and other economic
sectors for market vulnerable individuals and groups.
---------------------------------------------------------------------------
\68\ See Stafford v. Wallace, 258 U.S. 495 (1922).
---------------------------------------------------------------------------
Background and History of Economic Impacts of Prejudice and Unjust
Discrimination in Agricultural and Other Economic Sectors
While not necessarily tied exclusively to the operation of
livestock markets, it is well-documented that undue prejudice has
occurred and persists in agricultural markets and has led to market
abuse. For example, in the earlier part of the 1900s agricultural
landholders conspired to restrict land sales and the administration of
Federal farm support programs to Black people, including those engaged
in livestock production.\69\ A 1959 paper reported ``significant market
discrimination'' against Black American producers in the Southern
United States.\70\ The loss of heirs' property--land that is passed
down from generation to generation without a will or other legal
documentation--has been the leading cause of Black land loss in US
agriculture.\71\ Some of the loss of heirs' property was the direct
result of predatory and discriminatory abuse of partition sales
processes and inequities in access and use of legal and other estate
planning tools among Black populations.\72\
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\69\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell,
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss:
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42.
American Economic Association, 2022.
\70\ Tang, Anthony M. ``Economic development and changing
consequences of race discrimination in Southern agriculture.''
Journal of Farm Economics 41, no. 5 (1959): 1113-1126.
\71\ U.S. Department of Agriculture, National Agricultural
Library, ``Heirs' Property,'' <a href="https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property">https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property</a> (last accessed Aug.
2022).
\72\ Mitchell, Thomas W. 2019. Historic Partition Law Reform: A
Game Changer for Heirs' Property Owners. In Heirs' property and land
fractionation: fostering stable ownership to prevent land loss and
abandonment. <a href="https://www.fs.usda.gov/treesearch/pubs/58543">https://www.fs.usda.gov/treesearch/pubs/58543</a> (last
accessed 8/9/2022).
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The Federal Government also played a role in discriminatory
practices, which had significant economic consequences for Black
producers especially. Reports from the U.S. Commission on Civil Rights
in 1965 and 1982 documented discrimination in the provision of USDA
programs and other prejudicial factors leading to the decline in Black
farming.\73\ In the late 1990s, Black producers won a lawsuit filed
against USDA for engaging in discriminatory practices in its farm loan
programs--practices which led to financial ruin and land loss for many
Black farmers.\74\
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\73\ U.S. Commission on Civil Rights. 1965. Equal Opportunity in
Farm Programs: An Appraisal of Services Rendered by Agencies of the
U.S. Department of Agriculture. <a href="https://files.eric.ed.gov/fulltext/ED068206.pdfUS">https://files.eric.ed.gov/fulltext/ED068206.pdfUS</a> Commission on Civil Rights. 1982. ``The Decline of
Black Farming in America.'' <a href="https://eric.ed.gov/?id=ED222604">https://eric.ed.gov/?id=ED222604</a>.
\74\ Feder, J. and T. Cowan. 2013. ``Garcia v. Vilsack: A Policy
and Legal Analysis of a USDA Discrimination Case'', Congressional
Research Service report number 7-5700, February 22, 2013.
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These, and other widespread discriminatory practices, help explain
the relative greater decrease in the number of Black producers over the
course of the twentieth century.\75\ Indeed, White farm ownership
declined 62 percent and Black farm ownership 96 percent between 1930
and 2012.\76\ Over the same period, total acres operated by Whites
declined 9 percent and Blacks by 90 percent.\77\
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\75\ Touzeau, Leslie. 2019. ``Being Stewards of Land Is Our
Legacy': Exploring the Lived Experiences of Young Black Farmers.''
Journal of Agriculture, Food Systems, and Community Development 8
(4): 1-6. <a href="https://doi.org/10.5304/jafscd.2019.084.007">https://doi.org/10.5304/jafscd.2019.084.007</a>.
\76\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell,
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss:
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42.
American Economic Association, 2022; Wood, S., & Gilbert, J. (2000,
Spring). Returning African-American farmers to the land: Recent
trends and a policy rationale. The Review of Black Political
Economy, 27, 43-64. Available at <a href="https://doi.org/10.1007/BF02717262">https://doi.org/10.1007/BF02717262</a>.
Touzeau, Leslie. 2019. ```Being Stewards of Land Is Our Legacy':
Exploring the Lived Experiences of Young Black Farmers.'' Journal of
Agriculture, Food Systems, and Community Development 8 (4): 1-6.
<a href="https://doi.org/10.5304/jafscd.2019.084.007">https://doi.org/10.5304/jafscd.2019.084.007</a>.
\77\ The Agricultural Census figures on farm operations for 2012
are downloaded from the National Agricultural Statistics Service's
Quick Stats and figures from 1930 are from volume 4 of the 1930
Census, <a href="https://agcensus.library.cornell.edu/census_year/1930-census/">https://agcensus.library.cornell.edu/census_year/1930-census/</a>.
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Other racial and ethnic minorities have also been negatively
impacted by prejudicial acts. Latino and Indigenous people farming on
reservations lost their farmland through the same abuses of partition
sale processes as Black farmers. Between 1900 and 2017, the percent of
all producers identifying as White increased nine percentages points to
96 percent, while American Indian or Alaska Native producers increased
by only 1.3 percentage points, to 2.3 percent.\78\ Hispanic or Latino
farmers increased by only 2.4 percentage points between 1920 and 2017,
to 3.4 percent. Racial and ethnic inequities in farmland ownership and
indicators of farm-related wealth have also been observed in recent
years.\79\ Concerns have also been highlighted regarding the treatment
of Asian American and Pacific Islander poultry growers, in particular
that immigrant communities may not appreciate the risks of contractual
arrangements due to language barriers.\80\
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\78\ Casey, Alyssa R. Racial Equity in U.S. Farming: Background
in Brief 2021. Congressional Research Service. <a href="https://crsreports.congress.gov/product/pdf/R/R46969">https://crsreports.congress.gov/product/pdf/R/R46969</a>.
\79\ Horst, M., Marion, A. ``Racial, ethnic and gender
inequities in farmland ownership and farming in the U.S.'' Agric Hum
Values 36, 1-16 (2019). <a href="https://doi.org/10.1007/s10460-018-9883-3">https://doi.org/10.1007/s10460-018-9883-3</a>.
\80\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt,
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May
15, 2006. Available online at: <a href="https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html">https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html</a>.
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Complete foreclosure of market access, for example through the loss
of land or other capital, has clear adverse economic outcomes for
protected groups who wish to engage in the agricultural sector but
cannot. At the same time, discriminatory acts reduce economic
opportunity for individuals in protected groups who are able to
maintain market access. This not only causes economic harm to these
groups but also has broader impacts.
Studies documenting these economic impacts of prejudicial
discrimination in the agricultural sector are relatively sparse, partly
due to data limitations. However, economic studies focused on
employment practices, financial transactions, housing, and other
markets outside the agricultural sector demonstrate how discrimination
may cause economic harm across all types of markets, including
agricultural ones. As early as the 1950s, economic studies documented
racial wage gaps between
[[Page 60020]]
workers.\81\ Enabled by a lack of competition among employers, this
discrimination not only had adverse economic impacts for protected
groups but also for employers who, due to their own discriminatory
actions, ultimately paid higher wages for some equally productive
workers.\82\ Recent studies highlight how racial wealth disparities
reduce labor market competition, since reduced wealth hinders job
search abilities.\83\ On the flip side, recent research shows that
increased labor market participation among racial minorities and women
contributed to increased economic output during the second half of the
twentieth century.\84\ Research on the U.S. patent system finds that
racially-motivated violent acts reduced the number of patents by Black
inventors in the U.S. during the late 1800s and through the middle of
the twentieth century.\85\ These patents could have led to new wealth
for the inventors and increased business investments, potentially
contributing to overall economic growth. In an analysis of data from
the National Survey of Small Business Finances, Black led-businesses
were found to have been more frequently issued loans with higher
interest rates and other unfavorable terms relative to white or male-
led businesses, which could reduce productivity and innovation in the
broader economy.\86\ In housing, recent evidence shows that minority
households are steered towards areas with higher rates of poverty,
crime, and pollution, and less economic opportunity.\87\ Combined,
these discriminatory practices have large economic consequences. A 2020
study estimates that if racial gaps in wages, housing, access to higher
education, and lending were closed, the U.S. would experience a $5
trillion dollar increase in gross domestic product (GDP) from 2020 to
2025.\88\
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\81\ Bayer, P., and K. K. Charles. ``Divergent Paths: A New
Perspective on Earnings Differences Between Black and White Men
since 1940.'' The Quarterly Journal of Economics (2018), 1459-1501.
Becker, G.S. The Economics of Discrimination. First Edition, The
University of Chicago Press, 1957.
\82\ Becker, G.S. The Economics of Discrimination. First
Edition, The University of Chicago Press, 1957.
\83\ Kate Bahn, Mark Stelzner, and Emilie Openchowski, ``Wage
discrimination and the exploitation of workers in the U.S. labor
market,'' Washington Center for Equitable Growth, September 2020,
available at <a href="https://equitablegrowth.org/research-paper/wage-discrimination-and-the-exploitation-of-workers-in-the-u-s-labor-market/?longform=true">https://equitablegrowth.org/research-paper/wage-discrimination-and-the-exploitation-of-workers-in-the-u-s-labor-market/?longform=true</a>.
\84\ Hsieh et al., ``The Allocation of Talent and U.S. Economic
Growth,'' 2019, available at <a href="https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA11427">https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA11427</a>.
\85\ Cook, Lisa D. ``Violence and economic activity: evidence
from African American patents, 1870-1940.'' Journal of Economic
Growth 19, no. 2 (2014): 221-257.
\86\ Laura Alfaro, Ester Faia, and Camelia Minoiu,
``Distributional Consequences of Monetary Policy Across Races:
Evidence from the U.S. Credit Register'' April 2022, available at
<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096092">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096092</a>; Ken S.
Cavalluzzo, Linda C. Cavalluzzo, and John D. Wolken, ``Competition,
Small Business Financing, and Discrimination: Evidence from a New
Survey,'' The Journal of Business, October 2022, available at
<a href="https://www.jstor.org/stable/pdf/10.1086/341638.pdf?refreqid=excelsior%3Ab05443d9a80629ef03bbe4cb6e7747e4&ab_segments=&origin=&acceptTC=1">https://www.jstor.org/stable/pdf/10.1086/341638.pdf?refreqid=excelsior%3Ab05443d9a80629ef03bbe4cb6e7747e4&ab_segments=&origin=&acceptTC=1</a>.
\87\ Christensen, Peter, and Christopher Timmins. ``Sorting or
steering: The effects of housing discrimination on neighborhood
choice.'' Journal of Political Economy 130, no. 8 (2022): 2110-2163.
\88\ Closing the Racial Wealth Gap: The Economic Costs of Black
Inequality in the United States. Citi GPS: Global Perspectives and
Solutions. 2020. Available at <a href="https://ir.citi.com/NvIUklHPilz14Hwd3oxqZBLMn1_XPqo5FrxsZD0x6hhil84ZxaxEuJUWmak51UHvYk75VKeHCMI%3D">https://ir.citi.com/NvIUklHPilz14Hwd3oxqZBLMn1_XPqo5FrxsZD0x6hhil84ZxaxEuJUWmak51UHvYk75VKeHCMI%3D</a>.
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Undue Prejudice and Economic Inefficiency
Prejudicial discrimination has been theorized and observed to be an
artificial barrier to market activities, and as such, it can create a
market distortion.\89\ A variety of pathways for agricultural market
distortions due to discrimination are possible. For example, if prices
paid for otherwise identical cattle differed because of the race,
ethnicity, or other producer characteristics that do not have any
bearing on productivity, rather than the on the value of the marginal
product of the cattle, then the prejudice based on these
characteristics distorts prices and in turn both output and investment.
While the specifics of producer returns in contract production are
different from marketed production, producers receiving a lower
contract payment rate or other unfavorable contract terms simply
because of the producers' race or other personal characteristics would
likewise induce market distortions.
---------------------------------------------------------------------------
\89\ Stiglitz, J. ``Approaches to the Economics of
Discrimination'', American Economic Review, vol. 63/2, May 1973:
287-295.
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Prejudicial discrimination can take other forms besides wage,
contract, or price differentials, such as exclusionary practices in
product purchases or sales, or higher lending costs. These examples of
artificial barriers preventing resources from moving to their highest
and best uses via allocative efficiency, such that marginal benefits
equal marginal costs, lead to market inefficiency. Lowering the level
of this market distortion would increase market efficiency, albeit
noting there is limited information to empirically assess the impacts
of discrimination on efficiency in agricultural markets.
Undue Prejudice and Potential Market Abuse in Concentrated Livestock
Markets
Like in other parts of the economy and in other types of markets,
those participating in agricultural markets from groups that have and
continue to suffer racial, ethnic, gender, and religious prejudices may
be particularly vulnerable to market abuses, especially in concentrated
markets such as in the livestock sector. This is because they currently
represent not only a very small share of producers in the industry,
including those in the livestock sector and among producers who have
production contracts, but their size, sales, and incomes are lower than
other producers, leaving them more economically isolated and with fewer
economic resources to counteract concentrated market forces and actors.
In the livestock sector, the results of historical prejudice and
the risk of present-day prejudice are apparent when looking at data
from the 2017 Census of Agriculture, which show that currently a very
small fraction of livestock farms with production contracts are
operated by Black, Asian, American Indian, or Native Hawaiian producers
(Figure 1). As described earlier in this section, discriminatory acts,
especially against Black producers, undoubtedly contributed to the
current low levels of racial and ethnic minority participation in the
livestock sector, including among producers with production contracts.
These remaining producers may be particularly vulnerable to market
abuses in concentrated livestock markets.
[[Page 60021]]
[GRAPHIC] [TIFF OMITTED] TP03OC22.069
Disparities in farm size and income across racial and ethnic groups
also exist among livestock and poultry farms with production contracts,
highlighting additional vulnerability for particular groups in the
sector. Figure 2 shows the percentage and number of livestock and
poultry farms with production contracts by the reported race or
ethnicity of their producers, categorized by level of Gross Cash Farm
Income (GCFI), which includes commodity cash receipts, farm-related
income, and Government payments.\90\ USDA's Economic Research Service
(ERS) classifies small farms as having a GCFI less than $150,000 and up
to $349,999 per year, mid-sized farms as having GCFI between $350,000
and $999,999, and large-scale farms as having a GCFI equal to or
greater than $1,000,000. Farms are also classified as being non-family
farms, which are farms in which an operator or persons related to the
operator do not own a majority of the business.\91\ These data indicate
that contracted livestock and poultry farms with producers who identify
as Black and Native Hawaiian are more likely to be in the lower income
GCFI categories than their white counterparts. To a lesser extent,
farms with producers identifying as Native American also tend to be in
the lower income GCFI categories than their White counterparts' farms.
Markets dominated by one or a few large packers or live poultry dealers
may be less accessible to these smaller farms, which have limited
financial or other economic resources with which to engage. They may
also be more vulnerable to discriminatory acts or market abuses such as
retaliation.
---------------------------------------------------------------------------
\90\ U.S. Department of Agriculture, Economic Research Service,
``Most farms are small, but large-scale farms account for almost
half of production,'' available at: <a href="https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58288">https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58288</a> (last
accessed Aug, 2022).
\91\ U.S. Department of Agriculture, Economic Research Service,
``Farm Structure and Contracting,'' available at: <a href="https://www.ers.usda.gov/topics/farm-economy/farm-structure-and-organization/farm-structure-and-contracting/">https://www.ers.usda.gov/topics/farm-economy/farm-structure-and-organization/farm-structure-and-contracting/</a> (last accessed Aug.
2022).
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[[Page 60022]]
[GRAPHIC] [TIFF OMITTED] TP03OC22.070
iii. Specific Proposed Bases
In determining the proposed bases for protection under this
section, AMS looked to several sources, including the Statement of
General Policy Under the Packers and Stockyards Act published by the
Secretary of Agriculture in 1968 (Statement of General Policy) (9 CFR
203.12(f)), the regulations governing USDA-conducted programs, and a
series of statutes identifying producers that Congress has determined
face special disadvantages, are underserved, or are otherwise more
vulnerable to prejudices.
The Statement of General Policy reflects the current USDA policy on
the enforcement of the P&S Act. The Statement of General Policy
provides in part that it's a violation of sections 304, 307, and 312(a)
of the Packers and Stockyards Act for a stockyard owner or market
agency to discriminate, in the furnishing of stockyard services or
facilities or in establishing rules or regulations at the stockyard,
because of race, religion, color, or national origin of those persons
using the stockyard services or facilities. Such services and
facilities include, but are not limited to, the restaurant, restrooms,
drinking fountains, lounge accommodations, those furnished for the
selling, weighing, or other handling of the livestock, and facilities
for observing such services.
While this part of the Statement of General Policy applies to
violations of secs. 304, 307, and 312(a) of the Act--related to the
provision of services and facilities at stockyards on an unreasonable
and discriminatory basis, almost identical prohibitive language is used
in sec. 202 of the Act. Section 202 pertains to packers, swine
contractors, and live poultry dealers. Section 202(a) of the Act
prohibits any unjustly discriminatory practice or device with respect
to livestock, meats, meat food products or livestock products in
manufactured form, or live poultry.
AMS also considered USDA's general regulatory prohibition against
discrimination in USDA programs, which governs how USDA provides
services to producers and growers. Most recently updated in 2014, it
offers a more current interpretation of anti-discrimination standards.
The relevant provision provides that no agency, officer, or employee of
the USDA shall, on the grounds of race, color, national origin,
religion, sex, sexual orientation, disability, age, marital status,
family/parental status, income derived from a public assistance
program, political beliefs, or gender identity, exclude from
participation in, deny the benefits of, or subject to discrimination
any person in the United States under any program or activity conducted
by the USDA.\92\
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\92\ 7 CFR 15d.3; U.S. Department of Agriculture,
``Nondiscrimination in Programs or Activities Conducted by the
United States Department of Agriculture,'' 79 FR 41406, July 16,
2014, available at <a href="https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture">https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture</a> (last
accessed 8/9/2022).
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In that rulemaking, USDA identified areas where discrimination
against a producer is an unacceptable denial of access to USDA's
services.
[[Page 60023]]
AMS also looked to the legislative mandates that emerged over the
last thirty years, directing USDA to make extra efforts to overcome the
barriers that prevent members of those groups from accessing USDA's
services and agricultural markets generally.\93\ Congress adopted
numerous statutes seeking to remedy market access barriers on the basis
of prejudices across a wide range of areas, including: 7 U.S.C. 8711
(base acres); 7 U.S.C. 2003 (target participation rates); 7 U.S.C. 7333
(Administration and operation of noninsured crop assistance program); 7
U.S.C. 1932 (Assistance for rural entities); 16 U.S.C. 2202a, 3801,
3835, 3839aa-2, 3841, and 3844 (conservation); 7 U.S.C. 8111 (Biomass
Crop Assistance Program); 7 U.S.C. 1508 (Federal crop insurance,
covering underserved producers defined as new, beginning, and socially
disadvantaged farmers or ranchers and including members of an Indian
tribe); and 16 U.S.C. 3871e(d) (conservation, covering historically
underserved producers defined as beginning, veteran, socially
disadvantaged, and limited-resource farmers and ranchers). In 25 U.S.C.
4301(a) and elsewhere, Congress has clearly expressed its intent for
the United States government to encourage and foster tribal commerce
and economic development.\94\
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\93\ For background, see Congressional Research Service,
Defining a Socially Disadvantaged Farmer or Rancher (SDFR): In Brief
(March 19, 2021), available at <a href="https://crsreports.congress.gov/product/pdf/R/R46727/6">https://crsreports.congress.gov/product/pdf/R/R46727/6</a>.
\94\ See, e.g., Native American Business Development Act, 25
U.S.C. 4301(a).
---------------------------------------------------------------------------
The definitions and coverage in these statutes varies to some
extent. Some focus principally on members of groups that have
experienced racial or ethnic prejudices, while others include gender
prejudices. Additionally, some provide further assistance to new and
beginning farmers and military service veterans who are farmers. In
sum, these statutes reflect the now multi-decade priority of U.S.
agricultural policy to overcome barriers that stand in the way of full
market access for all producers and growers, with significant emphasis
placed on overcoming certain persistent forms of racial, ethnic, and
gender prejudices that obstruct full market access for some producers.
In interpreting the P&S Act, AMS has sought to propose a rule that
would remove barriers to market access for producers and growers most
vulnerable to being denied access. For the purposes of this proposed
rule, AMS is proposing a prohibition on undue prejudice on the basis of
a covered producer's membership in a vulnerable group. We seek comment
on whether to adopt one of several options for the term ``market
vulnerable individual,'' and if so, which one we should adopt. We are
also seeking comment on whether to specifically delineate certain
protected classes.
Because of the Act's broad application discussed in an earlier
section, ``II.B.i., Authority provided by the Act,'' the similar
language used in secs. 202, 304, 305, and 312 of the Act, and the
series of statutes outlining a range of prejudices identified as being
deserving of public policy efforts to ensure full market access, AMS
finds it reasonable that members of groups who have been subjected to
discrimination, prejudice, disadvantage, or exclusion on the basis of
race, ethnicity, or gender should be considered vulnerable and covered
by the prohibitions against undue prejudice or disadvantage and unjust
discrimination as enumerated by sec. 202 of the Act.
AMS is proposing, and seeking comment on, whether a flexible
definition of vulnerable group would be advantageous to ensuring
inclusive market access for covered producers by permitting an evolving
as well as market-specific application of the regulation. Such an
approach could address barriers to inclusion as they may arise. At the
same time, AMS is seeking comment on how to ensure that most persons
that would be protected under the Statement of General Policy and under
USDA's general regulations prohibiting discrimination, as noted above,
could be protected under this regulation.\95\ In particular, as noted
above AMS seeks comment on whether to delineate certain specific groups
as examples of market vulnerable groups, and also seeks comment on
whether it is preferable instead to prohibit discrimination based on
protected classes, such as on the basis of race, color, national
origin, religion, sex, sexual orientation, gender identity, age,
disability, marital status, and family status. AMS seeks additional
comment on the appropriate approach to protect market access for and
stop unjust discrimination against Indian tribes and tribal members.
---------------------------------------------------------------------------
\95\ See, e.g., Pregnancy Discrimination Act, see also Bostock
v. Clayton Cnty., Georgia, 140 S. Ct. at 1741.
---------------------------------------------------------------------------
Refusing to deal, providing less compensation, or any other type of
discrimination because of a person's particular non-economic
characteristics is the type of behavior both the Act and USDA aim to
prevent.
C. Cooperatives--Proposed Sec. 201.304(a)(1)
Proposed Sec. 201.304(a)(1) also specifies that regulated
entities, which include packers, swine contractors, or live poultry
dealers, may not discriminate against a cooperative of covered
producers--i.e., covered producers who collectively work together. For
example, individual covered producers may form a cooperative to meet
volume or other contractual requirements when they may not be able to
meet those requirements by themselves. A covered producer is defined in
the proposed regulations at Sec. 201.302 as a livestock producer as
defined in this section or swine production contract grower or poultry
grower as defined in section 2(a) of the Act. Covered producers acting
as a cooperative are an association or group made up of one or more
producers collectively processing, preparing for market, handling, and
marketing livestock or poultry. The P&S Act includes cooperative
associations in the definition of ``person'' at 7 U.S.C. 182(1),
providing that when used in the Act ``[t]he term ``person'' includes
individuals, partnerships, corporations, and associations. . .''
Covered producer cooperatives improve economic conditions for
individual producers. They have been demonstrated to be competitive and
responsive to meeting the needs of regulated entities and the
market.\96\ For example, smaller livestock producers may move towards
cooperative agreements on a regional basis to meet buyers' volume
requirements.
---------------------------------------------------------------------------
\96\ At least some of the drafters of the Act fully expected the
Act to be consonant to the goals of cooperatives: ``My own
conviction is that the cooperative effort of producers and consumers
to get closer together in an effort to reduce the spread between
them is the most favorable tendency of our time, so far as the
question of marketing and distribution is concerned.'' 61 Cong. Rec.
1882 (1921).
---------------------------------------------------------------------------
Producers have indicated to AMS that they feel such a move is
necessary, owing to the rise of concentration in the markets and the
decline in options for smaller producers. Small cattle producers have
expressed their concerns to AMS about disparate treatment by packers
between large and small producers. Large packers have commonly shown
limited interest in dealing with producers that operate on a smaller
capacity. On this point, producers have informed AMS that packers are
in search of deals with large quantities of product, and if a producer
is unable to meet demand for readily available bulk quantities, that
producer is unable to compete in the industry.
[[Page 60024]]
Producers testified in 2010 about packer buyers pulling out of
their small-scale feedlots for months in retaliation for producers
seeking higher prices and not allotting their entire herd capacity.
Packer buyers often prefer to include large quantities on single
transactions to lower transactions costs and maximize profits.\97\
Adding protections for smaller producers that wish to work together to
form cooperatives would enable smaller producers to (1) form
cooperatives without fear of prejudice or disadvantage, and (2) reduce
transactions costs for individual member producers.
---------------------------------------------------------------------------
\97\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops, Exploring Competition Issues in
Agriculture Livestock Workshop: A Dialogue on Competition Issues
Facing Farmers in Today's Agricultural Marketplaces, Fort Collins,
Colorado, August 27, 2010. Available at <a href="https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf">https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf</a>.
---------------------------------------------------------------------------
This proposed regulation is intended, in part, to benefit smaller
producers--who lack the necessary land, capital, or financing (or for
other reasons may not wish) to establish a large enough operation to
meet preferred contractual requirements--by preventing discrimination
against their cooperative operations. Through cooperation, one or more
producers may be able to jointly meet the requirements and participate
as a producer in the industry, allowing producers to operate more
efficiently. Preventing discrimination against producer cooperatives
will provide another avenue for producers who otherwise might not have
been able to participate in the market.
While this section proposes that regulated entities may not
prejudice or disadvantage cooperatives of covered producers, based on
their protected status as a cooperative under this regulation, AMS
notes that regulated entities may decline contracting with cooperatives
for other justified economic reasons--i.e., for reasons other than the
prospective business partner's status as a cooperative. For example, a
regulated entity may refuse to contract with a cooperative of covered
producers when the contract would not be cost-effective for the entity,
regardless of the cooperative status of the producers. In this
hypothetical example, the regulated entity would not be unduly
prejudicing cooperatives of covered producers based on their status as
a cooperative. Instead, the regulated entity would have a
nonprejudicial basis for their business decision. AMS notes that
antitrust laws also prohibit cooperatives themselves from participating
in certain anticompetitive behavior. As discussed earlier, undue
prejudice and disadvantage may inhibit producers' ability to obtain
fair market value for their livestock and poultry and would be
prohibited under proposed Sec. 201.304(a)(1). Proposed Sec.
201.304(a)(1) aims to encourage a diverse agricultural market and
prevent undue prejudice and disadvantage and unjust discrimination
against cooperatives.
Congress has long protected cooperatives in the agricultural space,
acknowledging the need for farmers to meet the economic demands of the
market. One year after the passage of the P&S Act, Congress passed the
Capper-Volstead Act (Pub. L. 67-146), which permits producer
cooperatives to collectively process, prepare for market, handle, and
market their products. In a decision related to an antitrust action
against a nonprofit cooperative association whose members were involved
in production and marketing of broiler chickens, the Supreme Court
noted that farmers faced special challenges in the agricultural market
and therefore cooperatives are afforded legal protections in helping
them address those challenges.\98\ Congress also passed the
Agricultural Fair Practices Act,\99\ which provides enhanced
protections to those seeking to form a cooperative. In particular, that
statute prevents handlers from performing certain types of pricing and
contract discrimination, coercion, and other practices that undermine
cooperatives.
---------------------------------------------------------------------------
\98\ Nat'l Broiler Mktg. Ass'n v. United States, 436 U.S. 816,
825-26, 98 S. Ct. 2122, 2129, 56 L. Ed. 2d 728 (1978) (``Farmers
were perceived to be in a particularly harsh economic position. They
were subject to the vagaries of market conditions that plague
agriculture generally, and they had no means individually of
responding to those conditions. Often the farmer had little choice
about who his buyer would be and when he would sell. A large portion
of an entire year's labor devoted to the production of a crop could
be lost if the farmer were forced to bring his harvest to market at
an unfavorable time. Few farmers, however, so long as they could act
only individually, had sufficient economic power to wait out an
unfavorable situation. Farmers were seen as being caught in the
hands of processors and distributors who, because of their position
in the market and their relative economic strength, were able to
take from the farmer a good share of whatever profits might be
available from agricultural production. By allowing farmers to join
together in cooperatives, Congress hoped to bolster their market
strength and to improve their ability to weather adverse economic
periods and to deal with processors and distributors.'').
\99\ Public Law 90-288, Apr. 16, 1968, 82 Stat. 93 (7 U.S.C.
2301 et seq.).
---------------------------------------------------------------------------
This proposed rule would provide additional protection for
cooperatives by preventing a regulated entity from isolating
cooperatives through contract termination and preventing cooperatives
from accessing markets for their products. As noted above, the P&S Act
intended to improve the agricultural market and includes associations
in the definition of ``person'' when referred to in the Act. The Act
affords cooperative associations the same protections against
discrimination as are afforded to all other covered producers. 7 U.S.C.
182(1). Thus, protections for cooperatives against discrimination were
contemplated at the time of the Act's passage.\100\
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\100\ H.Rep. No. 85-1048, 1957.
---------------------------------------------------------------------------
D. Enumerated Prejudices
Proposed Sec. 201.302(a)(2) outlines an inexhaustive list of
prejudices that, if based upon the covered producer's status, the
regulation prohibits. The harm that may be done through discriminatory
actions cannot be neatly cataloged, but the proposed Sec.
201.302(a)(2) sets forth injuries that the agency believes are
inherently prejudicial: offering less favorable terms, refusing to
deal, differential contract enforcement, and contract termination or
non-renewal. Under proposed Sec. 201.302(b), prejudicial actions are
to be considered together with the covered producer's membership in a
market vulnerable group or cooperative, and they would not by
themselves be violations. AMS seeks comment on the scope of these acts.
E. Retaliation
i. Retaliation as Discrimination Under the Act
Proposed Sec. 201.304(b) would establish protected activities for
covered producers and would prohibit regulated entities from
retaliatory conduct on the basis of those activities. Regulated
entities wield significant economic power given their vertical
relationships with producers. Regulated entities choosing to
discriminate among producers using their market power advantages for
the purpose of preventing certain producers, or groups of producers,
from engaging in the behaviors and activities discussed below, is
disparate treatment that is unjustly discriminatory. This type of
discrimination is oftentimes exercised through retaliation. The method
of retaliation may take many forms. Accordingly, the proposed rule is
designed to prohibit a variety of adverse actions. However, the
proposed regulations are also narrowly tailored, requiring the adverse
action to be linked to specific protected activities. Adverse actions
not tied to the activities
[[Page 60025]]
proposed would not be regulated under this proposal.
ii. Economic Rationale
While the statute does not require market-wide harm as a condition
to forbid retaliation, which is an abuse that undermines market
integrity, this section explains the adverse economic effects of
retaliation, which include harm across the marketplace. Indeed,
oligopsonistic or monopsonistic market structures can allow firms with
large market shares to use their market power advantage to punish
certain producer behaviors that the firm believes could offset their
market power advantage or even to punish producer behaviors that are
unrelated to the product or service they provide. When firms retaliate
by canceling contracts, selectively enforcing contract terms, renewing
contracts with unfavorable terms for the producer, or otherwise
impairing producers' ability to remain economically competitive as a
penalty for their engagement in the activities identified in the next
section, that conduct likely results in economic inefficiencies and
should be prohibited on a market wide basis, even if the specific
retaliatory act only affects one individual. Such impacts are
especially difficult to address when those firms maintain dominant
positions in the markets.
Retaliation against even one seller could presumably have a market-
wide chilling effect on others (at least within the area where the
retaliating entity is dominant). However, the ability to use such a
tool does require the right conditions, such as those that exist in
concentrated livestock markets where, in many cases, few or one firm
hold a dominate position. It is unlikely that packers or poultry
dealers operating in highly competitive markets (in which they are not
in a dominant economic position) could effectively use retaliation,
since livestock producers could simply find other buyers with whom to
do business.
Economic measures of firm concentration may help to identify when
retaliation may be more easily employed in a market, albeit noting that
an empirical relationship between retaliation and concentration
measures in livestock markets has not been established.
The following table shows the level of concentration in the
livestock and poultry slaughtering industries for 2010-2020 using four-
firm Concentration Ratios (CR4).
Table 2--Four-Firm Concentration Ratio in Livestock and Poultry Slaughter \101\
----------------------------------------------------------------------------------------------------------------
Steers &
Year heifers (%) Hogs (%) Broilers (%) Turkeys (%)
----------------------------------------------------------------------------------------------------------------
2010............................................ 85 65 51 56
2011............................................ 85 64 52 55
2012............................................ 85 64 51 53
2013............................................ 85 64 54 53
2014............................................ 83 62 51 58
2015............................................ 85 66 51 57
2016............................................ 84 66 50 57
2017............................................ 83 66 51 53
2018............................................ 84 70 54 55
2019............................................ 85 67 53 55
2020............................................ 81 64 53 55
----------------------------------------------------------------------------------------------------------------
The table shows the combined market share of the four largest steer
and heifer slaughterers remained stable between 83 and 85 percent from
2010 to 2019 and dropped to 81 percent in 2020. Four-firm concentration
ratios for hog and broiler slaughter has also remained relatively
stable between 62 and 70 percent and 51 and 54 percent, respectively.
The data above are estimates of national four-firm concentration ratios
at the national level, but the relevant economic markets for livestock
and poultry may be regional or local, and concentration in the relevant
market may be higher than the national level.
---------------------------------------------------------------------------
\101\ U.S. Department of Agriculture, AMS Packers and Stockyards
annual reports. Available at <a href="https://www.ams.usda.gov/reports/psd-annual-reports">https://www.ams.usda.gov/reports/psd-annual-reports</a> (last accessed 8/9/2022).
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As discussed previously, regional concentration is often higher
than national concentration for hogs.\102\ Based on AMS's experience
conducting investigations and monitoring cattle markets, there are
commonly only one or two buyers in some local geographic markets, and
few sellers have the option of selling fed cattle to more than three or
four packers.
---------------------------------------------------------------------------
\102\ Wise, T. A., S. E. Trist. ``Buyer Power in U.S. Hog
Markets: A Critical Review of the Literature,'' Tufts University,
Global Development and Environment Institute (GDAE) Working Paper
No. 10-04, August 2010, available at: <a href="https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl">https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl</a> (last accessed 8/9/2022).
---------------------------------------------------------------------------
Though poultry markets may appear to be the least concentrated in
terms of their national four-firm concentration ratios, relevant
economic markets for poultry growing services are more localized than
markets for fed cattle or hogs, and local concentration in poultry
markets is often greater than in hog and other livestock markets. The
following table highlights this issue by showing the limited ability a
poultry grower has to switch to a different integrator using the
Herfindahl-Hirschman Index (HHI).\103\ Similar to a CR4, HHI is an
indicator of market concentration, with the index being increasing as
market shares across firms (packers) become more unequal and/or the
number of these firms decrease. Markets with HHIs above 2,500 are in
some cases considered highly concentrated. The following table is a
modification of a table in MacDonald (2104), adding HHI indices to the
latter's calculations of the integrators in the broiler grower's
geographic region. The HHIs in the table assume equal market share for
each integrator, and as such are the minimum HHIs possible (at least
with 2 to 4 growers). They show that 88.4% (72.2%) of growers are
facing an integrator HHI of at least 2,500 (3,333). The data suggests
that the majority of contract broiler growers in the U.S. are in
markets where the sellers have the potential for market power
advantage.
---------------------------------------------------------------------------
\103\ MacDonald, James M., and Nigel Key. ``Market power in
poultry production contracting? Evidence from a farm survey.''
Journal of Agricultural and Applied Economics 44, no. 4 (2012): 477-
490.
[[Page 60026]]
Table 3--Integrators in the Broiler Growers' Region and Associated Market Power Indices
--------------------------------------------------------------------------------------------------------------------------------------------------------
Minimum HHI of
Integrators in grower's area integrators in Farms Birds Production Can change to
grower's area another integrator
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number Percent of total Percent of farms
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.................................................................. 10,000 21.7 23.4 24.5 7
2.................................................................. 5,000 30.2 31.9 31.7 52
3.................................................................. 3,333 20.4 20.4 19.7 62
4.................................................................. 2,500 16.1 14.9 14.8 71
>4................................................................. .............. 7.8 6.7 6.6 77
No Response........................................................ .............. 3.8 2.7 2.7 NA
--------------------------------------------------------------------------------------------------------------------------------------------------------
Retaliation by oligopolistic or monopolistic firms can be
effectuated in the pursuit of economic self-interest or be done against
such interest for some nonpecuniary reason.\104\ In the case of
economic self-interest, oligopsonistic or monopsonistic integrators or
packers may use retaliation to facilitate their ability to earn excess
rents. However, this use of retaliation, as a means to protect excess
profits, is only possible when markets for livestock are characterized
by few integrators or packers. Where producers have few, if any,
alternative packers, or integrators to engage with, the act of not
renewing a contract, as retaliation for unfavorable behavior or
actions, can cause economic inefficiencies.
---------------------------------------------------------------------------
\104\ Fehr, Ernst, and Simon G[auml]chter. ``Fairness and
retaliation: The economics of reciprocity.'' Journal of economic
perspectives 14, no. 3 (2000): 159-181.
---------------------------------------------------------------------------
Retaliation may also be used by integrators and packers to ensure
that regulators or new entrants cannot discipline their behavior in the
marketplace. Both regulators and new entrants may be inhibited by the
inability to communicate with market participants. Regulators may be
unable to obtain the information needed to learn of or establish
violations, while prospective new entrants may be unable to establish
necessary market relationships with industry participants.
Many producers have expressed concerns about retaliatory behavior
from regulated entities with respect to activities inextricably
relevant to the livestock and poultry markets. Examples include
contract poultry and hog producers afraid to talk with USDA
representatives, file comments with USDA (or not file comments that
adopt their integrator's view), seek enforcement of contracts, organize
associations, or even attend association meetings, opt out of
arbitration, complain about feed outages and company personnel
behavior, and question the need for farm upgrades.\105\ In cattle and
independent hog production, private complaints to AMS include fear that
packers will refuse to visit farms or feedlots, offer bids on
livestock, purchase livestock from disfavored producers, and other more
subtle behaviors, like delaying delivery or shipment and manipulating
where producers fall in order of procurement.
---------------------------------------------------------------------------
\105\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript (<a href="http://justice.gov">justice.gov</a>).
---------------------------------------------------------------------------
In addition, it is also possible that discriminatory or retaliatory
acts by packers or integrators intended to prevent the transfer of
rents also negatively affect efficiency by reducing the incentives for
investment, beneficial coordination of actions, or adoption of
innovative production process. In one case, a court found that an
integrator retaliated against a grower who was a leader of a growers'
association,\106\ suggesting both that producer coordination may reduce
the packers'/integrators' oligopsony excess profit and that growers'
ability to compete in these markets may be harmed by retaliation. In
another court case, James v. Tyson Foods, Inc., fifty-four poultry
growers sued the integrator for retaliatory actions and were awarded
$10 million in damages as a result.\107\
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\106\ Terry v. Tyson Farms, Inc., 604 F.3d 272 (6th Cir. 2010).
\107\ James v. Tyson Foods, Inc., 292 P.3d 10 (Okla., 2012).
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F. Prohibition on Retaliation--Proposed Sec. 201.304(b)
To address the dangers of the retaliatory practices described
above, AMS is proposing to add Sec. 201.304(b) to the regulations.
Proposed Sec. 201.304(b)(1) would prohibit and provide examples of
retaliatory practices by regulated entities against covered producers
who engage in protected activities. Proposed Sec. 201.304(b)(2)(i)
through (vi) lists these protected activities.
Under Sec. 201.304(b)(1), regulated entities would be prohibited
from retaliating or otherwise taking an adverse action against a
covered producer because the covered producer participated in the
activities described in Sec. 201.304(b), to the extent that these
activities are not otherwise prohibited by Federal or state antitrust
laws. While a group of producers might be protected from retaliation
when associating in the production or marketing of livestock, producers
would not be protected from the adverse action of packers if the
producers engaged in a violation of Federal or state antitrust law. AMS
expects that prohibited retaliation would include, but not be limited
to termination of contracts, non-renewal of contracts, refusing to deal
with a covered producer, and interference in farm real estate
transactions or contracts with third parties. The proposed rule is
designed to prohibit all such actions with an adverse impact on a
covered producer.
AMS has chosen these specific examples of retaliation because they
represent the retaliatory practices that have been the most common
causes for complaints or because AMS has otherwise determined them to
be recurring problems in the livestock and poultry industries. Covered
producers have experienced termination or non-renewal of their
contracts for numerous reasons. Covered producers who have not
personally experienced these forms of retaliation have nevertheless
expressed fear of such retaliation through direct communication with
AMS personnel, at workshops, and in comments on previous related
rulemakings. Related to termination and non-renewal of contracts is a
regulated entity's refusal to deal. This proposed rule extends
protections against retaliation to covered producers who are refused a
new contract due to their involvement in protected activities. A
regulated entity would also be prohibited from interfering in a covered
producer's farm real estate transactions
[[Page 60027]]
or contracts with third parties. Impeding or obstructing a covered
producer's attempts to sell his or her farm or ability to contract with
a third party as a result of his or her participation in certain
activities hinders a covered producer's ability to freely participate
in the market. AMS believes that punishing covered producers or denying
them opportunities afforded to other covered producers because they
engaged in certain activities is an unjustly discriminatory practice.
Not only do retaliatory practices harm individual covered producers;
recurrent instances and patterns of retaliation erode market integrity
and discourage fairness and competition in the livestock and poultry
markets.
The specific examples of retaliatory practices listed in the
proposed regulation are not meant to be exhaustive; other retaliatory
actions with an adverse impact on covered producers would be prohibited
as well. When investigating complaints of retaliatory practices that do
not conform to one of these examples, AMS would, as it has in the past,
continue to use its expertise to determine whether a regulated entity's
action has an adverse impact on the covered producer.
G. Bases for Protected Activities--Proposed Sec. 201.304(b)
AMS has identified three categories of producer activities that we
propose to be protected due to concerns about retaliatory behavior from
packers, live poultry dealers, and swine contractors. Starting with the
recognition that these activities are related to the business of being
a producer or grower or involvement in that sectoral or geographic
community, the criteria used to establish the three categories--
consistent with the Act's purpose to safeguard farmers and ranchers
against receiving less than the true market value of their livestock
\108\--include the extent to which the activities are supported under
existing legal doctrine and the activities' potential to mitigate
market power abuses or enhance economic efficiency. The following
sections discuss three categories of protected activities: (i)
assertion of rights, (ii) associational participation, and (iii) lawful
communication, in the context of the criteria.
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\108\ Stafford v. Wallace, 258 U.S. 495 (1922).
---------------------------------------------------------------------------
i. Assertion of Rights
The basis of rights in this context is two-fold, including both
legal rights derived under various statutes and contractual rights
contained in agreements with regulated entities. Assertions of rights
may be necessary to ensure that covered producers are receiving
appropriate treatment in their dealings with regulated entities.
Disputes relating to contract terms and legal compliance could be over
differences between the buyer and seller over what constitutes mutually
agreeable returns or could even be over issues extraneous to the actual
product or service provided by the covered producer. Access to existing
legal remedies under state and Federal law may be necessary for covered
producers to effectuate their bargained-for exchange in contracting and
to address their inability to make complete contracts and associated
hold-up risk, which leads to under investment and less efficient market
allocations. Hold-up is the risk growers face at the time of contract
renewal when integrators make contract renewal dependent on further
grower investments not disclosed at the time of the original
agreements.\109\
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\109\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony
Power, Asset Specificity, and Hold-Up: Evidence from the Broiler
Industry.'' American Journal of Agricultural Economics 88 (2006).
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Some regulated entities may prefer to limit, minimize, or otherwise
eliminate producer assertions or legal and contractual rights, as they
are likely associated with additional economic costs. For example, a
poultry grower may seek to enforce a production contract term providing
the grower with the right to five flocks annually, when the grower only
received four flocks. If a regulated entity sought to punish a grower
seeking enforcement of this term, the grower's risk of contract
termination would likely outweigh the benefit to them of contract
enforcement, and thereby undermine their contract, from the grower's
perspective. On the other hand, the regulated entity's cost of
breaching or terminating the agreement may be lower than their cost of
performance under the contract. Systemic conduct of this type would be
an abuse of market power and result in reduced allocative efficiency.
Attempts to limit, deter, or curtail producers' assertions of rights
mitigates or removes a primary producer tool for proper enforcement of
their rights.
ii. Associational Participation
While individual producers and growers operate at a tremendous
informational deficit compared to the larger sophisticated packer
operations, producer and grower organizations and associations can
mitigate incomplete and asymmetric information frictions in the market.
Producer and grower organizations may provide individual covered
producers the opportunity to counter other market power imbalances that
exist in the livestock and poultry industries. Associational
participation is connected to the provision of the product or service
of growing poultry or raising livestock and can serve to improve
producer productivity. Agriculture associations and organizations have
historically been favored under Federal \110\ and state laws and
exempted from certain types of Federal antitrust violations under the
Capper-Volstead Act.\111\ By narrowing the asymmetrical information gap
and creating other benefits, associations can enhance production and
allocative efficiencies.
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\110\ See 7 U.S.C. 2301; 7 U.S.C. 291. The Agriculture Fair
Practices Act prevents agricultural handlers from discrimination and
coercion against individuals who belong to cooperatives. Among other
things, this statute prohibits handlers from undermining a
cooperative's ordinary operations by either bribing members of the
cooperative or making false reports about the cooperative's
operations.
\111\ For example, under Missouri's Nonprofit Cooperative
Marketing Law, RSMo 1939 section 14362, a nonprofit cooperative is
exempt from a number of taxes (including sales tax), and only pay an
annual fee of ten dollars.
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Growers have expressed concern that associations and organizations
have repeatedly been targets of retaliatory behavior, and in some
instances, USDA and DOJ have intervened under the P&S Act. In the
1960s, poultry growers in Arkansas and Mississippi joined organizations
to try to advance their interests and protections in their contracts
with poultry companies. The poultry companies with which they had
contracts engaged in harassment, threats, intimidation, and retaliation
against the associations and the growers that joined them. A USDA
Administrative Law Judge held that the poultry companies' conduct was a
violation of the P&S Act and ordered the companies to cease and desist
from their unlawful actions and reinstate the growers who were
retaliated against.\112\
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\112\ See In re: Arkansas Valley Industries, Inc., Ralston
Purina Company, and Tyson's Foods, Inc., 27 Ag. Dec. 84 (January 23,
1968), and In Re: Curtis Davis, Leon Davis, and Moody Davis d/b/a
Pelahatchie Poultry Company, 28 Ag. Dec. 406 (April 3, 1969).
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In 1989, a company operating a poultry slaughtering complex in
northern Florida, terminated its contract with a poultry grower who was
the president of a poultry growers' association. The U.S. District
Court issued an injunction against the company, finding that it acted
to hamper legal action by the growers' association and to discourage
other growers from presenting grievances to
[[Page 60028]]
governmental authorities. USDA and DOJ filed a lawsuit,along with
poultry growers, to enjoin the company's actions as constituting an
unfair, unjustly discriminatory, and deceptive practice and device, and
an undue and unreasonable prejudice and disadvantage, in violation of
the P&S Act.\113\ The Court agreed and also determined that the
company's actions would constitute obstruction of justice, extortion,
mail fraud, and wire fraud in furtherance of a pattern of racketeering
activity.
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\113\ Baldree v. Cargill, Inc. and United States v. Cargill,
Inc., et al., 758 F.Supp.704 (M.D.Fla. 1990)
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In these cases, courts determined that attempts to limit, deter, or
curtail associational participation limits lawful information exchanges
and prevents or dilutes the potential for covered producers to engage
in pro-competitive collaboration. This proposed regulation seeks to
codify this line of analysis, which has arisen under direct enforcement
of the statutory terms, and in the face of more recent court decisions
involving private litigation, to provide clarity to market participants
regarding USDA enforcement priorities going forward.\114\
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\114\ See, e.g., Terry v. Tyson Farms Inc. 604 F.3d 272, 275
(6th Cir. 2009). On these line of cases, see also Michael Kades,
``Protecting Livestock Producers and Chicken Growers,'' Washington
Center for Equitable Growth (May 5, 2022), available at <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
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iii. Lawful Communications
Under this proposed rule, covered producer communications would
include any lawful communications with government agencies or other
persons for the purpose of improving the production or marketing of
livestock or poultry, exploring a possible business relationship, or
supporting proceedings under the Act against a regulated entity.
Broadly, these types of communication improve transparency, facilitate
compliance with and enforcement of relevant laws and regulations, and
can serve to mitigate market power abuse and enhance production and
allocative efficiencies, as well as protect market integrity.
Communications With Government Agencies and Communications Related to
Proceedings Under the Act
Related to ``assertions of rights,'' covered producers seeking the
enforcement of a regulatory scheme designed to benefit them will likely
need to communicate with government representatives. This communication
is only incidental to the product or service provided to the regulated
entity, and communication with government representatives serves
numerous public policy interests. Abuses of market power to restrict
communication related to government compliance programs would
systematically result in deprivation of legal rights, losses in income
or welfare for producers, and costs to markets and society.\115\
Covered producers have expressed concerns regarding their
communications with government agencies and support for government
actions. For example: a cattle producer believes he has been the victim
of weight fraud by a regulated entity, but as a producer with limited
alternative outlets for sale of his cattle, the producer may be
hesitant to report the fraud to USDA or other authorities for fear the
regulated entity will refuse to engage in future business.
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\115\ Heese, Jonas, and Gerardo P[eacute]rez-Cavazos. ``The
effect of retaliation costs on employee whistleblowing.'' Journal of
Accounting and Economics 71, no. 2-3 (2021): 101385. European
Commission, Directorate-General for Internal Market, Industry,
Entrepreneurship and SMEs, Rossi, L., McGuinn, J., Fernandes, M.,
Estimating the economic benefits of whistleblower protection in
public procurement: final report, Publications Office, 2017, <a href="https://data.europa.eu/doi/10.2873/125033">https://data.europa.eu/doi/10.2873/125033</a> (last accessed Aug. 2022).
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Communications for the Purpose of Improving Production/Marketing or
Exploring a Business Relationship
As with communications related to enforcement, communications for
the purpose of improving production or marketing or exploring business
relationships aid covered producers in obtaining fair market value for
their livestock and poultry. Protecting such communications would
protect the producer's ability to obtain help from experts and
professionals unaffiliated with the regulated entity. In addition,
covered producers would be able to explore business opportunities
without fear of reprisal from firms with which they currently do
business. Communications of this type can improve production efficiency
and price discovery mechanisms.
Retaliatory actions can also result from a blend of protected
activities. In Philson v. Cold Creek Farms, Inc., turkey growers
alleged in part that the poultry company provided them with lower
quality poults than it provided to other growers, and that the
company's motivation for doing that was to punish and discourage
growers from voicing their complaints (lawful communication) about the
company's practices. Some of the turkey growers also alleged that their
poultry contracts were terminated in retaliation for their objections
to the poultry company's weighing and computing practices (assertion of
rights). The Court noted that ``[s]uch a retaliatory act is properly
challenged under the PSA as it adversely affects competition and could
be considered unfair, unjustly discriminatory or deceptive.'' \116\
Here, we see retaliation related to two categories of protected
activities.
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\116\ Philson v. Cold Creek Farms, Inc., 947 F. Supp. 197 at 202
(E.D.N.C. 1996).
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H. Delineation of Protected Activities
Paragraphs (b)(2)(i) through (vi) of proposed Sec. 201.304 list
activities that would be protected. Regulated entities would be
prohibited from retaliating against covered producers due to the
covered producer's participation in these protected activities. AMS has
determined that a covered producer's ability to freely participate in
these activities without fear of retaliation is essential to promoting
fair and competitive markets in the livestock and poultry industries.
Many of these activities also represent activities for which covered
producers have experienced or expressed fear of retaliation.
Specifically, proposed paragraph (b)(2)(i) would protect a covered
producer's ability to communicate with a government agency regarding
the production of poultry or livestock, or to petition for redress of
grievances before a court, legislature, or government agency. A covered
producer's ability to communicate with a government agency is an
essential tool for ensuring that a covered producer's rights are
protected. Likewise, a covered producer must be able to freely petition
for the redress of grievances for the protections afforded to covered
producers by laws and regulations to have their intended effect.
Proposed paragraph (b)(2)(ii) would protect a covered producer's
ability to assert any of the rights granted under the Act or the
regulations in 9 CFR part 201, or to assert rights afforded by their
contact. These rights include, for example, growers' rights to view the
weighing of flocks, which is legally protected but which growers have
complained is not practically enforceable. Although these rights are
ostensibly protected by laws, regulations, or legal contracts, they
lose their efficacy if covered producers suffer repercussions for
asserting them.
Proposed paragraph (b)(2)(iii) would protect a covered producer's
ability to assert the right to formor joinaproducer or grower
association or organization, or to collectively process, prepare for
market, handle, or market livestock or poultry.An assertion of rights
in this context may involve expressing interest
[[Page 60029]]
or intent to engage in these activities or engaging in these
activities. Associations and organizations provide a means for covered
producers to share information regarding the production of poultry and
livestock, to potentially uncover recurrent problematic practices in
the industry, and to potentially organize to seek redress of
grievances, among other benefits. Collectively processing, preparing
for market, handling, or marketing livestock or poultry affords covered
producers the opportunity to combine their resources to potentially
counteract market imbalances. AMS believes that retaliating against
producers for engaging in these activities hinders the free flow of
information and hampers producers' ability to fairly compete in the
market.
Proposed paragraph (b)(2)(iv) would protect a covered producer's
ability to communicate or cooperate with a person for the purposes of
improving production or marketing of livestock or poultry. Such
communication may include, for example, communication with extension
programs or with independent veterinarians and animal health experts.
Proposed paragraph (b)(2)(v) would protect a covered producer's
ability to communicate or negotiate with a regulated entity for the
purposes of exploring a business relationship. A covered producer may
want to seek information from a regulated entity with which they do not
currently have a business relationship regarding the possibility of a
future business relationship, such as entering into a contract.
Protecting this activity would allow covered producers to freely
compare potential business relationships and choose between several
regulated entities, encouraging competition.
Finally, proposed paragraph (b)(2)(vi) would protect a covered
producer's ability to support or participate as a witness in any
proceeding under the Act or a proceeding that relates to an alleged
violation of law by a regulated entity. Owing to the close-knit and
concentrated markets in which covered producers operate, protecting
some covered producers as witnesses may enable other covered producers
to effectuate their rights under the Act and related laws. Without such
protections, enforcement of the Act may be frustrated overall.
I. Recordkeeping
To help lessen these threats of retaliation, the proposed rule
contains compliance systems for monitoring and facilitating compliance
and change within companies. Vital to such an effort will be AMS's
ability to inspect relevant records, as they may exist, such as
policies and procedures, staff training and producer information
materials, data and testing, board of directors' oversight materials,
and other relevant materials. AMS may utilize compliance inspections,
company reports to AMS, and public analyses to benchmark industry
practice and improve market standards. AMS believes that its
recordkeeping approach will enable it to monitor and facilitate a
regulated entity's approach to compliance at the highest levels,
including the tone at the top: chief executive officers and boards of
directors. The tone and compliance practices set by senior executives
can be expected to play a vital role in establishing a corporate
culture of compliance, which is a critical defense against legal and
regulatory violations and a first step towards more inclusive market
practices.
Proposed paragraph (c) would ensure appropriate recordkeeping
regarding compliance. It indicates certain specific records should be
kept for a period of 5 years. Specifically, regulated entities would be
required to retain, to the extent that they produce them, policies and
procedures, staff training materials, materials informing covered
producers about reporting mechanisms and protections, compliance
testing, board of directors' oversight materials, and records about the
number and nature of complaints received relevant to prejudice and
retaliation. AMS is proposing 5 years to provide a broader ability to
monitor the evolution of compliance practices over time in this area,
and to ensure that records are available for what may be complex
evidentiary cases.
Recordkeeping, as described in the proposed rule, is a commonly
utilized regulatory compliance and monitoring mechanism among market
regulators.\117\ Access to these records will assist AMS in assessing
the effectiveness of the regulated entity's compliance with Sec.
201.304. Existing gaps in both generally applicable agricultural and
PSD-specific data collection make addressing widespread reports of
discriminatory behavior difficult. Recordkeeping is critical if AMS is
to fulfill its duties to prevent and secure enforcement against undue
prejudice and unjust discrimination in the relevant agricultural
sector.
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\117\ See, e.g., generally, Board of Governors of the Federal
Reserve System, ``Federal Trade Commission Act, Section 5: Unfair or
Deceptive Acts or Practices,'' Consumer Compliance Handbook,
available at <a href="https://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf">https://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf</a> (last accessed June 2022).
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J. Request for Comments on Proposed Sec. 201.304
AMS specifically invites comments on various aspects of the
proposal to prohibit undue prejudices and unjust discrimination as
described above. Please fully explain all views and alternative
solutions or suggestions, supplying examples and data or other
information to support those views where possible. Parties who wish to
comment anonymously may do so by entering ``N/A'' in the fields that
would identify the commenter. While comments on any aspect of the
proposed rule are welcome, AMS specifically solicits comments on the
following.
Undue Prejudices and Unjust Discrimination
1. Would the regulatory protections provided by the prohibition on
undue prejudices for market vulnerable individuals and cooperatives, as
described above, assist those producers and growers in overcoming
barriers to market access or equitable and reasonable treatment, or
otherwise address prejudices or the threat thereof in the marketplace?
If so, why? If not, why not?
2. With respect to undue prejudices, are the proposed prohibited
bases of market vulnerable individuals and cooperatives broad enough to
provide appropriate flexibility and ensure equitable market access? If
not, please suggest changes.
3. Should AMS delineate specific examples of groups that are market
vulnerable? If so, please provide supportive evidence regarding
historical adverse treatment of such groups.
4. Should AMS delineate specific forms of prejudice, such as
racial, ethnic, gender, or religious prejudices, that would apply for
producers who are members of the relevant group without regard to their
individual qualities?
5. Is the proposed list of undue prejudices appropriately clear and
inclusive--for example, is it sufficiently clear that prejudices
relating to gender include sexual orientation?
6. As an alternative or in addition to the market vulnerable
individual approach, should AMS prohibit discrimination based on
protected classes (i.e., prohibit discrimination on the basis of race,
color, national origin, religion, sex, sexual orientation, disability,
age, marital status, family/parental status, income derived from a
public assistance program, political
[[Page 60030]]
beliefs, or gender identity)? Why or why not?
7. Should prejudices be more specifically delineated in the
rulemaking to cover some or all of the bases governing non-
discrimination in conducted programs as discussed in the section on
specific proposed bases, and specifically: race, color, national
origin, religion, sex, sexual orientation, disability, age, marital
status, family/parental status, income derived from a public assistance
program, political beliefs, or gender identity? Why or why not?
8. With respect to undue prejudices, should localities be addressed
in any special way, such as localities where producers or growers are
underserved or otherwise face persistent challenges of equitable and
reasonable market access owing to the locality or related reasons?
Please provide specific examples, if possible.
9. What specific challenges or burdens may regulated entities face
in complying with the undue prejudices provisions of the proposed rule?
How do they differ from existing policies, procedures, and practices of
regulated entities?
10. Should AMS clarify how producers and growers demonstrate
qualification for the protections as market vulnerable individuals in a
local market? If so, what factors should be included?
11. Are the specific prejudicial acts specified in proposed Sec.
201.304(a)(2) appropriate? Are there additional forms of prejudicial
conduct that should be specifically delineated? If so, please identify
them and provide examples of how such actions have been used to target
market vulnerable individuals or cooperatives.
12. Are there different types of purchase arrangements than those
generally or ordinarily offered, such as forward contracts, formula
contracts, other alternative marketing agreements, or cash market
purchases, which could be employed in a prejudicial manner as a class
of contract or in specific circumstances? If so, please identify them
and provide examples of how such actions have been used to target
market vulnerable individuals or cooperatives.
13. Does the undue prejudices provision provide sufficient
protection regardless of the type of business organization of the
covered producer? If not, please suggest specific changes.
14. Should prejudicial discrimination and retaliation provisions be
extended to all persons buying or selling meat and meat food products,
including poultry, in markets subject to the Act? Why or why not?
15. Does the proposed rule appropriately enable the production of
religiously compliant meats? Do any concerns turn on whether the
prohibited prejudices in proposed Sec. 201.304(a)(1) are defined to
include religious bases? Please explain your views and suggest specific
approaches to address any concerns.
16. Do the provisions on undue prejudice adequately address
concerns regarding inequitable market access for Tribal members and
Tribes? If not, what additional changes should be proposed?
17. How should AMS handle Tribal government entities that sponsor
or manage regulated entities? Should AMS permit compliance with
proposed Sec. 201.304(a) be substituted for compliance with Tribal
government rules, policies, or guidance governing equitable market
access?
18. AMS is aware of at least one private industry program aimed at
establishing preferences intended to create ``a more equitable
agricultural economy''--in response to ``systemic inequality''--by
partnering with Black producers.\118\ Were such a program (or a similar
program designed to address socially inclusive supply chains) present
in livestock and poultry markets, should AMS evaluate and determine
that such program is an undue preference pursuant to the criteria set
forth in 9 CFR 201.211? Please explain views and offer suggestions on
ways to address relevant concerns.
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\118\ Cargill's ``Black Farmer Equity Initiative'': <a href="https://www.cargill.com/about/black-farmer-equity-initiative">https://www.cargill.com/about/black-farmer-equity-initiative</a> (last accessed
8/9/2022).
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19. Does the proposed regulation provide appropriate protection for
cooperatives, in particular as the structure and organization of
cooperatives vary across livestock and poultry markets? Please explain
any particular concerns that should be better addressed by the proposed
regulation.
20. Prejudice and other prohibited actions the agency proposes
refers to offering contract terms that are less favorable than those
generally or ordinarily offered. Should the agency be more specific to
include differential contract terms, such as: price terms, including
any base or formula price; formulas used for premiums or discounts
related to grade, yield, quality, or specific characteristics of the
animals or meat; the duration of the commitment to purchase or to
contract for the production of animals; transportation requirements;
delivery location requirements; delivery date and time requirements;
terms related to who determines date of delivery; the required number
of animals to be delivered; layout periods in production contracts;
financing, risk-sharing, and profit-sharing; or terms related to the
companies' provision of inputs or services, grower compensation, and
capital investment requirements under production contracts? Please
explain why or why not, and what terms the agency could add or change.
21. Should the Agency include among the prejudices, the action of
offering less favorable price terms, contract terms, and other less
favorable treatment in the course of business dealings than those
generally offered to similarly situated producers? Should an allowance
be made for legitimate business reasons? Please explain why or why not,
and what terms the Agency could add or change.
Retaliation
22. Would the regulatory protections provided by the prohibition on
retaliation, as described above, assist producers and growers in
avoiding unjust discrimination in the market or otherwise help them
access markets, obtain meaningful and accurate price discovery, or
avoid anticompetitive or unjust practices or the threats thereof? If
so, why; if not, why not?
23. Are the specific acts of retaliation listed in proposed Sec.
201.304(b)(3) appropriate? Are there additional forms of retaliatory
conduct that should be specifically delineated?
24. Should prohibitions on retaliation protect producers and
growers who choose not to participate in protected activities? For
example, should the provision prohibit the giving of any premiums or
discounts with respect to joining or not joining livestock or poultry
associations?
25. Are the bases of protected activities appropriate, including
their nexus to the business, industry, and community, criteria for
selection, and application of those criteria? Should they be broader,
narrower, or different in some way? Please explain your views.
26. Should the protected activities relating to communication and
cooperation, beyond government entities, be limited to USDA extension
and USDA supported (grantees and cooperators) non-profit entities? Why
or why not?
27. Does the proposed anti-retaliation provision provide sufficient
protection regardless of the covered producer's type of business
organization? If not, please suggest specific changes.
28. Should protections for exploring a business relationship be
extended to such activities with any person, or
[[Page 60031]]
should they be limited, as they are in the proposal, to exploring a
business relationship with a regulated entity?
29. Should the proposed list of retaliatory actions include a
catch-all clause, such as ``offering unfavorable contract terms that
otherwise effect reprisal'' or ``offering contract terms that are less
favorable than those generally or ordinarily offered''? That is, is the
offering of a contract term a proper subject of retaliation? If so,
should we also include a non-exclusive list of contract terms that
could affect reprisal, such as price terms, including any base or
formula price; formulas used for premiums or discounts related to
grade, yield, quality, or specific characteristics of the animals or
meat; the duration of the commitment to purchase or to contract for the
production of animals; transportation requirements; delivery location
requirements; delivery date and time requirements; terms related to who
determines date of delivery; the required number of animals to be
delivered; layout periods in production contracts; financing, risk-
sharing, and profit-sharing; or terms related to the companies'
provision of inputs or services, grower compensation, or capital
investment requirements under production contracts? Please explain why
or why not, and what terms the agency could add or change.
30. What specific challenges or burdens might regulated entities
face in complying with the anti-retaliation provisions of the proposed
rule? How do the proposed provisions differ from existing policies,
procedures, and practices of regulated entities?
Recordkeeping
31. Are the recordkeeping obligations of the proposed regulation
appropriate to permit AMS to monitor regulated entities for compliance?
Why or why not, and what changes, if any, should be made?
32. Should AMS require regulated entities to produce and maintain
specific policies and procedures, specific compliance practices or
certifications, or specific disclosures to help ensure compliance with
the undue prejudices and anti-retaliation provisions of the proposed
rule? Please explain why for specific items.
33. What specific challenges or burdens might regulated entities
face in complying with recordkeeping duties of the proposed rule? How
do they differ from existing policies, procedures, and practices of
regulated entities?
III. Deceptive Practices
AMS also proposes a new Sec. 201.306 designed to prohibit
regulated entities from specified deceptive practices in contracting.
Because of the power of the regulated entities over their vertical
relationships, deceptions in contracting are of considerable concern.
Similar to its broad prohibition of unjustly discriminatory
practices, the Act does not specifically define the ``deceptive
practices'' it prohibits in sec. 202(a). The agency's interpretation of
``deceptive practices'' here relates to trends underlying the Act's
passage. At the time of the Act's passage, state common law already
prohibited deceptive practices, such as fraudulent inducement of
contract and misattribution of the source of goods. These are not, as
the Act is not, limited to deceived and injured contracting parties,
but also include deceptions that directly injure competitors.
Regardless, courts were cautiously expanding common law beyond
misrepresentations of source to misrepresentations concerning other
characteristics or qualities of the seller's goods.\119\ Likewise, in
1920--shortly before the passage of the Act--Congress passed a Federal
trademark law that prohibited intentional deception regarding the
origin of goods. Public Law 66-163, 41 Stat. 534 (1920). So, in 1921,
the Act was one of the earliest Federal prohibitions against deceptive
practices. It did not remain so for long.
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\119\ Restatement (Third) of Unfair Competition sec. 2 (1995),
comment b.
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Less than a decade after the passage of the Act, in 1930, the
Perishable Agricultural Commodities Act followed with its prohibitions
against ``deceptive practices in connection with the weighing,
counting, or in any way determining the quantity of any perishable
agricultural commodity received, bought, sold, shipped, or handled in
interstate or foreign commerce.'' See 7 U.S.C. 499b. In 1938, the
Federal Trade Commission Act was amended to declare unlawful
``deceptive acts or practices in or affecting commerce.'' Public Law
75-447, 52 Stat. 111 (1938). As observed in 1967, ``[d]eceptive trade
practices victimize honest merchants as well as consumers, and impair
rational allocation of economic resources.'' \120\ The FTC has
characterized deception as: involving a material representation,
omission or practice that is likely to mislead a consumer acting
reasonably in the circumstances.\121\
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\120\ Richard F. Dole, Jr., Merchant and Consumer Protection:
The Uniform Deceptive Trade Practices Act, 76 Yale L.J. 485 (1967).
\121\ Federal Trade Commission, Policy Statement on Deception,
1983, available at <a href="https://www.ftc.gov/legal-library/browse/ftc-policy-statement-deception">https://www.ftc.gov/legal-library/browse/ftc-policy-statement-deception</a> (last accessed Aug. 2022).
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``[I]ntegrity and ethics of those engaged in marketing livestock''
is a vital concern.\122\ With respect to regulating deception, the
supply of meat to the American consumer depends on a market that is
safe, reliable, and honest.\123\ Protecting the market from the harms
of deception starts with protecting suppliers: producers, market
agencies, dealers, and packers. To achieve a market free of deceptive
practices, the Secretary has established regulations and pursued
administrative and Federal enforcement cases.
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\122\ See, e.g., Midwest Farmers v. United States, 64 F. Supp.
91, 95 (D. Minn. 1945).
\123\ In re: Frosty Morn Meats, Inc., 7 B.R. 988, 1020 (M.D.
Tenn. 1980).
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In the case law and through regulations, as described below,
violative deceptions under the Act include false statements or
omissions that occur even before contracting that prevent or mislead
sellers or buyers from making an informed decision. Thus, obvious
falsehoods, such as false weighing and false accounting have always
been considered deceptive practices under sec. 202(a) of the Act.
Another obvious falsehood, delivering checks drawn on accounts with
insufficient funds--whether for livestock or meat--is also deceptive.
Moreover, the Act requires honest dealing, so misleading omissions are
also prohibited. Prohibited omissions include failure to tell a
business partner that the regulated entity was receiving a commission
from a competitor, sales tactics that omit relevant information, or
failure to have the required bond. And finally, where regulated
entities have close business relationships, secret payments and bribes
undermine the ability of producers and consumers to rely on an honest
market and are therefore deceptive.
This proposed regulation would not be the first to prohibit
deception. Current Packers and Stockyards regulations require honesty
in weighing (Sec. Sec. 201.49, 201.71), price reporting (Sec.
201.53), fees (Sec. 201.98), and business relationships (Sec.
201.67). Even in the consideration of whether termination of a contract
violated the Act, AMS currently considers the quality of the
communication, and therefore considers its honesty. (See Sec.
201.217.)
Producers and consumers cannot make rational decisions in a
dishonest market, and honest competitors cannot compete when regulated
entities deceive. For example, if one packer is paying more for
livestock by weight but is also deceptively weighing livestock to lower
the total value of the livestock during processing, the honest packer
[[Page 60032]]
must compete with that deception. On the other hand, if the weight of
livestock from a packer were to be regularly more favorable, due to
falsely increasing the weight, honest competitors would have to respond
to a reputation that their weights are lower. A packer that fails to
pay for meat promptly is not only deceiving the seller--by financing
their operations using the seller's goods--but is also forcing honest
meat packers to compete without financing their operations in this
deceptive manner. Proposed Sec. 201.306--Deceptive practices--would
name practices and devices that AMS considers deceptive in violation of
sec. 202(a) of the Act, which prohibits deceptive practices and devices
by packers, swine contractors, and live poultry dealers. AMS intends
that this proposed regulation would address broad areas of specific
concern, but it may not exhaustively identify all deceptive practices
that would violate sec. 202(a) of the Act.
As outlined extensively in the separately proposed transparency
rule, poultry growers face incomplete information regarding contracting
and tournaments and have complained of inaccurate information
influencing their decisions to be growers or make additional capital
investments. While AMS has separately proposed specific disclosures
relating to transparency in poultry growing contracts and tournaments
in another proposed rule, Transparency in Poultry Growing Contracting
and Tournaments, 87 FR 34980 (June 8, 2022), the provisions of this
proposed rule are broader. These provisions also encompass poultry
growing contracting and tournaments; for example, this proposed rule
would address communications by the live poultry dealer and its agents
in the context of contracting or tournaments. Further, this rulemaking
addresses deception in hog and cattle markets, which is not addressed
in the proposed transparency rule.
The provisions of this proposed rule would also focus on general
circumstances that may give rise to the provision of false or
misleading information in the production or growing of poultry or
livestock. Such circumstances could include where a live poultry
dealer's poultry nutrition adviser provides misleading advice to a
contract grower, where a swine production contract provides false
information regarding manure compliance procedures, or where a packer
provides false or misleading information about cash market trading in
livestock.
These proposed provisions respond, in part, to the range of
complaints lodged with USDA, Congress, and the media over the years
regarding inaccurate, incomplete, or otherwise misleading
representations or pretexts that affect the decision-making or access
to markets by producers and growers of livestock and poultry. For
example, packers and industry representatives have routinely indicated
that producers may choose the form of pricing mechanism for their
transactions. However, as cash-negotiated markets have declined,
producers have increasingly complained to USDA that they are not
provided such a choice, and in fact are commonly given a take-it-or-
leave-it offer to buy their cattle off of a pricing formula provided by
the company. Producers have complained that they have been told their
cattle are not of sufficiently high quality or that formula market
arrangements are necessary to incentivize such quality, but cattle
procured under those marketing arrangements may not in fact be of any
higher quality. This raises legitimate concerns that certain refusals
to deal are based upon pretext or deception, which hinders the free
flow of livestock from producer to consumer. If producers have been
misled, they are hindered from organizing their operations so that they
can correctly identify competitor packers that will accept their
livestock or otherwise contract with them.
Poultry growers have complained over the years regarding
unfavorable provision of inputs made to certain producers despite
statements by live poultry dealers that there are no differences in
treatment. Growers have also complained of terminations, suspensions,
or reductions in flocks on the basis of pretext, such as animal welfare
contractual violations, when in fact other reasons may exist for the
termination, including but not limited to the discrimination and
retaliation noted above, or other unreasonable bases such as a
preference for family or friends of the local agent of a live poultry
dealer or for a poultry grower connected to a senior executive of a
live poultry dealer.\124\ If misleading information in connection with
a termination is provided to a bank that forecloses on the grower, this
may be actionable as well by the grower who was the victim of the
deception. While this would not necessarily be an undue preference or
unjust discrimination, it would be covered by this deception
rulemaking. Therefore, the proposed rule supports market integrity more
broadly by ensuring that producers and growers can make decisions and
operate in the market based on complete and accurate information.
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\124\ Wheeler v. Pilgrim's Pride, 536 F.3d 455 (5th Cir. 2008).
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Hog producers and growers, as well as cattle producers, have also
highlighted concerns regarding preferential market access for company-
owned or controlled livestock. Again, while this part of the proposed
rule would not prohibit undue preferences, this deception rulemaking
would establish a clearer duty on regulated entities regarding honesty
and market integrity in the relationships with covered producers,
including with respect to statements made regarding market access and
other aspects of contracting.
The high levels of oligopsony in the local marketplaces in which
many producers and growers operate today, and the extensive reliance on
vertical integration, forward contracting, and long-term marking
agreements, mean that producers and growers are more vulnerable to
being excluded from, or to suffering adverse pricing in, the
marketplace by these deceptions in contracting, if and where they may
arise.
More than 100 years of history illustrate the types of conduct
prohibited as deceptive by the Act, which provide a foundation for some
of the specific deceptions that this proposed rule addresses. The FTC
employed a similar approach when developing its policy on deceptive
practices. Recognizing that there was no single definitive statement of
the FTC's authority on ``deceptive acts or practices,'' it reviewed its
own history of decided cases to identify the most important principles
of general applicability and provide a greater sense of certainty as to
how the concept of deception will be applied. The FTC's approach
informs AMS in identifying and prohibiting deceptive practices. Past
cases indicate that USDA's approach, generally, is to view
representations, omissions, and practices from the perspective of a
reasonable party receiving them and determine if those deceptions
affect the conduct or decision of the recipient. As the court explained
in Gerace v. Utica Veal Co., 580 F. Supp. 1465, 1469 (N.D.N.Y. 1984),
regulated entities are liable to anyone for the damages they sustain in
consequence of an entity's deceptive practice, even if they are not a
direct party to the transaction.
AMS believes that a substantial arc of deceptive practices in the
marketplace that this specific rulemaking intends to prohibit can be
organized and summarized as deceptions in contract formation, contract
operation, contract cancellation, and refusals to contract.
[[Page 60033]]
Deceptions in the contracting process present harms that cause the type
of injury the Act was designed to prevent. This proposed regulation
addresses these four types of deceptions.
A. Scope of Deceptive Practices Regulated
Proposed Sec. 201.306(a), Deceptive practices, sets forth the
scope of the prohibition of deceptive practices in the rest of Sec.
201.306. The P&S Act limits the Secretary's jurisdiction to the
regulated entities' operations subject to the P&S Act. Thus, the
proposed regulation's scope relates to those operations with respect to
livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry.
B. Deceptive Practices in the Offering or Formation of Contract
Proposed Sec. 201.306(b) would prohibit a regulated entity from
making or modifying a contract when the entity employs a pretext, false
or misleading statement, or fails to state a material fact necessary to
make the statement made not otherwise false or misleading. Therefore,
this proposed regulation is intended to prevent deception in contract
offering or formation.
Deception in the offering or formation of a contract has taken many
forms through the Act's history. One example is false advertising,
specifically bait and switch advertising, which occurs through
advertising on price when, in fact, the customer has to pay a higher
price at the point of sale. This practice is illegal under both the P&S
Act and the FTC Act. In the case under the P&S Act, In re: Larry W.
Peterman, d/b/a Meat Masters, 42 Agric. Dec. 1848 (1983), aff'd
Peterman v. United States Dep't of Agric, 770 F.2d 888 (10th Cir.
1985), the packer advertised meat at a very attractive low price.
Customers responded to the advertised price, only to be subjected to
deceptive sales tactics, causing them to purchase higher priced meats.
The advertised meat was ``so fat [the customer] could see very little
red muscle tissue in it,'' causing the customer to purchase primal cuts
rather than what they intended to buy because the packer represented
that the fat loss and yield would be a better option. After their
purchase, customers determined that they had paid significantly more
than they were led to believe, and they could have paid much less even
at retail grocery stores.
Under certain circumstances, failures to disclose information are
also deceptive. The Act's purposes include protecting farmers and
ranchers from receiving less than fair market value for their livestock
and protecting consumers from unfair practices. Solomon Valley Feedlot,
Inc. v. Butz, 557 F.2d 717, 718 (10th Cir. 1977). ``Among the means
employed to accomplish this purpose is the use of surety bonds.'' Id.
at 720. Sellers of livestock are entitled to the protection of a
packer, dealer, or market agency's surety bond securing its
obligations. Failure to maintain an adequate bond is therefore a
deceptive practice.\125\ When a packer fails to maintain a bond, the
seller does not know that the sale is unsecured, and therefore the
seller is at greater risk of nonpayment.
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\125\ United States v. Hulings, 484 F. Supp. 562, 567 (D. Kan.
1980). See also In Re: Mid-W. Veal Distributors, 43 Agric. Dec.
1124, 1139-40 (1984), citing In re: Norwich Veal and Beef, Inc., 38
Agric. Dec. 214 (1979), In Re: Raskin Packing Co., 37 Agric. Dec.
1890, 1894-6 (1978).
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Deception in contract formation is not limited to false statements
and omissions with respect to regulatory requirements. The Act includes
affirmative duties to be truthful. For instance, a court has recognized
that the P&S Act prohibits a regulated entity from negotiating using
published prices it knows are inaccurate because using incorrect prices
deceives the livestock seller. See Schumacher v. Tyson Fresh Meats,
Inc., 434 F.Supp.2d 748 (Dist. S.D. 2006). In Schumacher, the packer
failed to disclose inaccurately reported boxed beef prices when it
negotiated the purchase of cattle on the basis of those prices. Because
the Act prohibits deceptive practices with respect to the price paid to
the producer, the court found that those deceptive practices do not
need to adversely affect competition to violate the Act. Id.
Likewise, Bruhn's Freezer Meats of Chicago, Inc. v. U.S. Dept. of
Agriculture, 438 F.2d 1332 (8th Cir. 1971), affirmed that a variety of
deceptions violate the Act, including short weighing, misrepresenting
grades and cuts of meat, and false advertising in the selling of meat
to customers. The agency's proposed regulation with respect to
deceptive practices in contract formation prohibits all these types of
deception.
More importantly, AMS is concerned that transparency in market
transactions--reported prices, offered contracts, and long-term
contracts--is inhibited by potentially deceptive practices and
statements. AMS has long received complaints regarding statements that
entice producers to contract to their eventual detriment. This
provision would make clear that statements at the time of contract
formation will be evaluated to determine if there is deception in order
to prevent injury to the producers in their inception.
C. Deceptive Practices in the Operation of Contract
Proposed Sec. 201.306(c) would prohibit a regulated entity from
performing under or enforcing a contract by employing a pretext, false
or misleading statement, or omission of a material fact necessary to
make the statement not false or misleading.
Deceptive practices take many forms throughout the operation of a
contract. USDA and the courts have recognized these forms in a variety
of administrative and Federal enforcement actions, including false
weighing, false or deceptive grading (including failure to disclose the
formulas for determining payment), commercial bribery, and failing to
pay for purchases.
False or inaccurate weighing has long been recognized as deceptive
under secs. 202(a) and 312 of the Act. See Bruhn's Freezer Meats, 438
F.3d 1337 (8th Cir. 1971); Solomon Valley Feedlot, 557 F.2d at 717;
Gerace v. Utica Veal Co., 580 F. Supp. 1465, 1470 (N.D.N.Y. 1984).
False weighing can occur in various ways. In some cases, the regulated
entity records inaccurate weights using an improperly calibrated scale.
In other cases, a regulated entity uses the scale improperly. Among
examples where packers have been found to have committed this deceptive
practice, in in re: DuQuoin Packing Company, Decatur Packing Division
and William S. Martin, 41 Agric. Dec. 1367 (1982), a weigher committed
a deceptive practice when he failed to properly adjust an otherwise
properly working scale to a zero balance prior to weighing, which
caused the scale to register less than actual weights. Weighing is ``a
serious matter and one of paramount importance to the farmer, industry
and consumers.'' In re Trenton Livestock, Inc., 33 Agric. Dec. 499, 510
aff'd 510 F.2d 966 (4th Cir. 1975). Even if a regulated entity does not
intentionally set out to deceive with respect to the weight of
livestock, the Act does not require proof of a particularized intent.
Parchman v. U.S. Dep't of Agric., 852 F.2d 858, 864 (6th Cir. 1988)
(interpreting sec. 312 of the Act). Short weighing alone is enough to
be an unfair and deceptive practice under the Act, without regard to
the competitive injury the short weighing causes. Garace, 580 F. Supp.
at 1470.
False or inaccurate grading has the same effect as false weighing
because deceptive grading prevents the seller from receiving the full
value of their livestock or poultry. USDA's Judicial Officer found a
deceptive practice when
[[Page 60034]]
a packer failed to inform hog producers of a change in the formula it
used to estimate lean percent in hogs. Lean percent was one factor used
in determining price when the packer purchased hogs on a carcass merit
basis. USDA determined that nearly twenty thousand lots of hogs were
purchased under the changed formula without notice to producers,
resulting in payment of $1.8 million less than they would have received
under the previous formula. In re: Excel Corporation, 63 Agric. Dec.
317 (2004), aff'd Excel Corp. v. United States Dep't of Agric., 397
F.3d 1285, 1293 (10th Cir. 2005). This type of deceptive practice harms
honest competitors because ``[h]ad hog producers been alerted to the
change, they could have shopped their hogs to other packers.'' 397 F.3d
at 1291.
Paying ``kickbacks'' and commercial bribery may occur both in the
contract formation and during the operation of a contract. Whether the
payment comes before or after the contract was formed, those payments
are a deceptive practice. For example, in Holiday Food Serv., Inc. v.
Dep't of Agric., 820 F.2d 1103, 1105 (9th Cir. 1987), a packer paid the
purchasing agents of hotels and restaurants ``kickbacks'' after they
purchased meats for their principals. And, in Nat'l Beef Packing Co. v.
Sec'y of Agric., 605 F.2d 1167, 1168 (10th Cir. 1979), not only was the
commercial bribery a violation of the Act, but the court also agreed
with the Secretary that a packer's executives had a positive duty to
inquire into the payment of commissions that served as bribes. Id.
Payment violations can be deceptive, especially issuance of
insufficient funds checks. E.g. In Re: Mid-W. Veal Distributors, d/b/a
Nagle Packing Co., & Milton Nagle, 43 Agric. Dec. 1124, 1140 (1984).
Failing to pay for meat has also been found to be deceptive in numerous
instances.\126\ Under the similar language of sec. 312 of the Act, the
Eighth Circuit explained that timely payment was unfair and deceptive
even prior to the enactment of sec. 409 of the Act: ``Timely payment in
a livestock purchase prevents the seller from being forced, in effect,
to finance the transaction.'' Van Wyk v. Bergland, 570 F.2d 701, 704
(8th Cir. 1978).
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\126\ See, e.g. Milton Abeles, Inc. v. Creekstone Farms Premium
Beef, LLC, No. 06-CV-3893(JFB)(AKT), 2009 WL 875553, at *19
(E.D.N.Y. Mar. 30, 2009) (citing Liberty Mutual Ins. Co. v. Bankers
Trust Co., 758 F.Supp. 890, 896 n. 7 (S.D.N.Y.1991); In re FLA
Packing & Provision, Inc., and C. Elliot Kane, P & S Docket No. D-
95-0062, 1997 WL 809036, at *6 n. 1 (1997); In re: Central Packing
Co., Inc. d/b/a Plat-Central Food Services Co., Inc., a/k/a Plat-
Central Food Service Supply Co., and Albert Brust, an individual, 48
Agric. Dec. 290, 297-99 (1989)); see also In Re: Ampex Meats Corp. &
Laurence B. Greenburg., 47 Agric. Dec. 1123, 1125 (1988) (citing In
Re: Rotches Pork Packers, Inc. & David A. Rotches., 46 Agric. Dec.
573, 579-80 (U.S.D.A. Apr. 13, 1987) In Re: George Ash, 22 Agric.
Dec. 889 (1963); In re Goldring Packing Co., 21 Agric. Dec. 26
(1962); In Re: Eastern Meats, Inc., 21 Agric. Dec. 580 134 (1962)).
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The live poultry dealer's honesty is vitally important to poultry
growers. Because much of the payment system relies on information that
is wholly within the live poultry dealer's control, deception is
particularly dangerous. The Department has received complaints
regarding statements made during the operation of the contract that led
producers to believe that specific terms would not be enforced, only to
see the live poultry dealer implement policy changes that led to
immediate changes to contracting requirements. These sorts of
communications may reach the level of unlawful deception under the P&S
Act, which reaches beyond common-law fraud. Likewise, for the market to
function, livestock producers must be able to reasonably rely on a
packer's calculation of value, and they must be able to rely on
statements and accountings the packers deliver.
D. Deceptive Practices in the Termination of Contract
Proposed Sec. 201.306(d) would prohibit regulated entities from
terminating a contractortaking any otheradverse action against a
covered producer by employing pretext, false or misleading statements,
or omission to state a material fact necessary to make the statement
not false or misleading.
AMS notes, for example, that poultry growers complain of c
[…truncated; see source link]Indexed from Federal Register on October 3, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.