Rule2023-24922
Transparency in Poultry Grower Contracting and Tournaments
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 28, 2023
Effective
February 12, 2024
Issuing agencies
Agriculture DepartmentAgricultural Marketing Service
Abstract
This final rule amends the regulations under the Packers and Stockyards Act, 1921 (Act), to add disclosures and information that live poultry dealers engaged in the production of broilers must furnish to poultry growers with whom dealers make poultry growing arrangements. The rule also establishes additional disclosure requirements for live poultry dealers engaged in the production of broilers who use poultry grower ranking systems to determine settlement payments for broiler growers. These requirements add targeted transparency to the market for grower services that will inhibit deceptive practices related to broiler contracting and performance. The Act protects fair trade, financial integrity, and competitive markets for livestock, meat, and poultry.
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[Federal Register Volume 88, Number 227 (Tuesday, November 28, 2023)]
[Rules and Regulations]
[Pages 83210-83301]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-24922]
[[Page 83209]]
Vol. 88
Tuesday,
No. 227
November 28, 2023
Part II
Department of Agriculture
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Agricultural Marketing Service
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9 CFR Part 201
Transparency in Poultry Grower Contracting and Tournaments; Final Rule
Federal Register / Vol. 88, No. 227 / Tuesday, November 28, 2023 /
Rules and Regulations
[[Page 83210]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-21-0044]
RIN 0581-AE03
Transparency in Poultry Grower Contracting and Tournaments
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Final rule.
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SUMMARY: This final rule amends the regulations under the Packers and
Stockyards Act, 1921 (Act), to add disclosures and information that
live poultry dealers engaged in the production of broilers must furnish
to poultry growers with whom dealers make poultry growing arrangements.
The rule also establishes additional disclosure requirements for live
poultry dealers engaged in the production of broilers who use poultry
grower ranking systems to determine settlement payments for broiler
growers. These requirements add targeted transparency to the market for
grower services that will inhibit deceptive practices related to
broiler contracting and performance. The Act protects fair trade,
financial integrity, and competitive markets for livestock, meat, and
poultry.
DATES: This final rule is effective February 12, 2024.
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#eb98c589998e9f9fc5848d8d9e9f9fabd78acb83998e8dd6" http: usda.gov">usda.gov</a>">s.brett.offutt@<a href="http://usda.gov">usda.gov</a></a>.
SUPPLEMENTARY INFORMATION: At the beginning of the 20th century, a
small number of meat packing companies dominated the industry and
engaged in practices that were deemed anticompetitive and harmful to
livestock producers. In response, Congress enacted the Packers and
Stockyards Act, 1921 (Act), 7 U.S.C. 181 et seq., which seeks to
promote fairness, reasonableness, and transparency in the livestock
marketplace by prohibiting practices that are contrary to these goals.
In the 100 years since the Act went into effect, livestock business
practices have changed significantly, particularly in the poultry
industry, for which provisions were added to the law in 1935 (Act of
August 14, 1935, 49 Stat. 648).
Within the last 40 years, the poultry industry has become highly
integrated, with most live poultry dealers operating as ``integrators''
who frequently own or control all segments of the production process
except growout, where poultry growers raise young poultry to harvest
size under poultry growing arrangements (contracts). Most integrators
employ a relative performance or grower ranking system to determine
grower payment, as explained later in this section. Thus, AMS's
references to ``integrator'' in the discussion of this final rule refer
specifically to those live poultry dealers who are vertically
integrated and generally use a relative performance or grower ranking
system to determine grower payment.
Over the same 40-year time span, the industry has also become more
concentrated.\1\ One measure of industry concentration is the four-firm
concentration ratio, which is the combined market share of the four
largest firms in the industry. A higher four-firm concentration ratio
means a higher level of industry concentration. In 1963, the four firm
concentration ratio for chickens was 14 percent.\2\ By 1980, the four-
firm concentration ratio for integrators processing broilers was 32
percent.\3\ By 2022, the four-firm concentration ratio increased to 57
percent.\4\ Concentration is even higher at the local level in which
growers operate. In the last available survey of local markets,
MacDonald and Key (2011) found that about one quarter of contract
growers reported that there was just one live poultry dealer close
enough to grow for; another quarter reported two; another quarter
reported three; and the rest reported four or more.\5\
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\1\ One measures of industry concentration is the four-firm
concentration ratio, which is the combined market share of the four
largest firms in the industry. A higher four-firm concentration
ratio means a higher level of industry concentration. Rapid
increases in broiler productivity, an important factor driving
consolidation, did not begin until after World War II. Charles R.
Knoeber. ``A Real Game of Chicken: Contracts, Tournaments, and the
Production of Broilers.'' Journal of Law, Economics, & Organization,
Vol. 5, No. 2. (Autumn, 1989).
\2\ Michael Ollinger, James MacDonald, and Milton Madison.
Structural Change in U.S. Chicken and Turkey Slaughter. U.S.
Department of Agriculture, Economic Research Service. Agricultural
Economic Report No. 787, September 2000, p. 7.
\3\ John M. Crespi, Tina L. Saitone, and Richard J. Sexton
Competition in U.S. Farm Product Markets: Do Long-Run Incentives
Trump Short-Run Market Power?, Applied Economic Perspectives and
Policy (2012) volume 34, number 4.
\4\ WATT Poultry USA, March 2023. Companies ranked by weekly
ready to cook pounds.
\5\ James M. MacDonald, Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, U.S. Department of
Agriculture, Economic Research Service, June 2014: 30, <a href="https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=0">https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=0</a>.
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There are approximately 16,500 broiler (chicken grown for meat)
growers--those who actually raise the chickens from chicks, often under
contract with live poultry dealers--in the U.S.\6\ Based on comments
from the industry, broiler growers typically have no employees, but
some may employ a handful of workers outside themselves and their
families.\7\ According to annual reports filed with the Department of
Agriculture (USDA), there were 42 live poultry dealers engaged in
broiler production in the U.S. in their fiscal year 2021.\8\ Of those,
20 have fewer than 1,250 employees each, and have average annual sales
of $77 million.\9\ Fewer than 5 percent of approximately 20,000 U.S.
broiler grower contracts are with these 20 dealers.\10\ More than 95
percent of broiler grower contracts are with the 22 larger live poultry
dealer companies that employ more than 1,250 employees each and have
average annual sales of $3.6 billion.\11\ Total U.S. chicken sales for
these dealers was $58.6 billion in 2019.
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\6\ USDA, NASS. 2017 Census of Agriculture: United States
Summary and State Data. Volume1, Part 51. Issued April 2019.
\7\ AMS has no exact data on grower revenues but assumes most
broiler growers are small businesses as defined by the Small
Business Administration (SBA), with annual sales of less than $3.5
million.
\8\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public on
the internet at <a href="https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf">https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf</a>.
\9\ Live poultry dealers annual report submissions PSD form 3002
``Annual Report of Live Poultry Dealers,'' to AMS. OMB control
number 0581-0308.
\10\ Ibid.
\11\ Ibid.
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Most broiler growers raise poultry under a contractual growing
arrangement commonly known as a tournament system.\12\ Under this
system, integrators use a relative performance or grower ranking system
for settlement purposes, i.e., to determine grower payment among a
group of competing growers. Poultry growers in tournament systems find
themselves competing for payment without access to information in the
possession of the integrators that would allow growers to manage, as
best they can, poultry production under the
[[Page 83211]]
payment systems established by the integrators.
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\12\ Citing data from the 2011 ARMS survey, MacDonald states
``97 percent of broilers were grown under contract, 94 percent of
contracts included payment incentives tied to grower performance,
and 93 percent of those contracts tied the incentives to relative
performance--that is, performance compared to other growers.'' See
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: 27.
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Live poultry dealers generally do not provide, and poultry growers
and prospective poultry growers find themselves unable to negotiate
access to, (1) critical information needed to properly assess farm
revenue streams and the operation of poultry growing contracts, and (2)
information related to the distribution of inputs delivered to growers
affecting performance among tournament participants. Whether from a
representation, omission or practice, the inability to secure this
information exposes growers to deception and risks of deception that
could be reduced or eliminated with the provision of the information.
Additionally, live poultry dealers possess or are reasonably expected
to possess this information and are able to provide it to growers with
minimal costs. For more than two decades, USDA, through the
Agricultural Marketing Service (AMS) and its Packers and Stockyards
Division (PSD) which now administers the Act, and formerly through
Grain Inspection Packers and Stockyard Administration (GIPSA), has
received numerous complaints from poultry growers about poultry growing
contracting in general and tournament systems particularly. While the
complaints cover a range of concerns, a central concern is the gap
between expected earnings and the ability to achieve those outcomes
through reasonable efforts by the grower. This central concern is
manifested specifically where live poultry dealers fail to make
transparent the range of financial outcomes possible in these
arrangements, where they exert high degrees of discretion that can and
do adversely affect growers, and where they fail to provide information
necessary for growers to understand and respond to changing factors
(i.e., input differences) in the operation of their contracts.
Among other things, the Act protects growers from deceptive
practices wherein they can be misled through lack of information from
live poultry dealers regarding both potential revenues and the risks
growers assume in the course of making and operating their contracts.
Accordingly, AMS is establishing rules that will increase transparency
in broiler growing contracting, including tournament systems, targeted
at key decision points for growers--at the time of contracting and
housing upgrades, and at the provision of inputs during tournaments.
These are points where live poultry dealers repeatedly and consistently
either omit vital information or make misleading statements, which
prevents growers from understanding the risks they are taking on. Such
misrepresentations may inhibit growers' ability to choose amongst
competing live poultry dealers on a level playing field.
This rulemaking sets forth enforceable transparency requirements
under section 202(a) of the Packers and Stockyards Act that will secure
a more level playing field for growers and foster a marketplace with
fairer contracts and the fairer operation of those contracts under the
contract production model. Deception undermines the integrity of the
market and deprives producers of the true value of their livestock.
In addition to the prohibitions on deceptive practices set forth
this final rule, AMS is also evaluating additional specific
prohibitions and regulatory limitations. To facilitate additional
input, data, and ideas that may inform further efforts to regulate the
poultry tournament system, USDA put forward an Advance Notice of
Proposed Rulemaking seeking stakeholder input. Based on that input, AMS
has included in the Office of Management and Budget's Spring 2023
Regulatory Agenda an upcoming proposed rule entitled ``Poultry Grower
Payment Systems and Capital Improvement Systems.'' \13\ AMS welcomes
engagement with interested stakeholders around ideas to be developed in
that further rulemaking on poultry tournaments.
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\13\ RIN: 0581-AE18, available at <a href="https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=0581-AE18">https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=0581-AE18</a>.
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I. Overview
On June 8, 2022, AMS published in the Federal Register (87 FR
34980; Docket No. AMS-FTPP-21-0044) a proposal to amend the regulations
implementing the Packers and Stockyards Act. AMS solicited comments on
the proposed rule for an initial period of 60 days and extended the
comment period 15 days on August 8, 2022 (87 FR 48091) through August
23, 2022. AMS received 504 comments, some with multiple signatories,
from individual poultry growers, trade organizations representing
producers, poultry companies, the meat industry, State- and national-
level agriculture groups, other associations, and non-profit
organizations. After consideration of all comments, AMS adopts the
proposed rule, with modification. Section V details the regulatory
changes made by this final rule. Modifications to the proposed
rulemaking are discussed in Section VI. Public comments are discussed
by topic in Section VII.
This rulemaking adds two new sections to PSD regulations under the
Act, introducing new disclosure requirements that live poultry dealers
engaged in the production of broilers must furnish to broiler growers
with whom they establish broiler growing arrangements. In doing so, the
final rule builds on existing disclosure concepts under the Act in 7
U.S.C. 197(a) through (c) and in the regulations that effectuate the
Act at 9 CFR 201.55; 9 CFR 201.56(d); 9 CFR 201.99; and particularly 9
CFR 201.100, with respect to the poultry industry, which provide for a
range of disclosures such as settlement sheets and establish other
regulatory requirements. The current disclosure framework has improved
transparency in poultry contracting and has helped close the asymmetric
information gap between the parties, thus reducing the market failure
caused by asymmetric information.\14\ However, the modern poultry
industry, in particular the broiler chicken segment, now requires
increasingly large capital investments; and under the tournament
system, growers are subject to intense pressures to perform, as well as
financial and operational risks that may exacerbate the dangers of
deception.
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\14\ The concept of asymmetric information and associated market
failures is discussed in a seminal article: Akerlof, G.A. ``The
Market for `Lemons': Quality Uncertainty and the Market Mechanism.''
The Quarterly Journal of Economics Vol. 84, No. 3 (August 1970).
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Section 202(a) (7 U.S.C. 192(a)) of the Act prohibits live poultry
dealers from engaging in deceptive practices. This rulemaking
establishes prohibitions against specific deceptive practices, such as
withholding important information on the economic, financial, and
operational risks growers take when entering into and operating their
growing agreements. Growers can make more informed business decisions
when they know the economic, financial, and operational risks
associated with poultry growing. A lack of transparency for growers in
poultry growing arrangements also creates an environment where growers
are more vulnerable to other marketplace abuses.
Live poultry dealers have possession of key information that is
materially useful for growers as they make decisions. This information
asymmetry can be exploited by dealers to impede growers' ability to
understand, evaluate, and compare contracts offered by dealers, bargain
efficiently with competing dealers where and to the extent possible
given the highly concentrated nature of the poultry industry, and
manage their farm effectively for the risks they confront.
[[Page 83212]]
This type of deceptive conduct denies growers the benefits of market
and the full value of their services, and results in misallocation of
grower resources, heightened live poultry dealer bargaining power, and
significant financial risk to growers.
This rule adds a new Sec. 201.102 to the regulations, adding to
the list of required disclosures a live poultry dealer must make to
broiler growers and prospective broiler growers in connection with
poultry growing arrangements. By obtaining these disclosures prior to
making the underlying capital investment, growers are better positioned
to understand and evaluate growing arrangements. The rule further
requires live poultry dealers to specify additional terms in broiler
growing contracts about variables that are highly correlated with
grower annual revenue. This information is not routinely shared with
growers. AMS intends for these new requirements to improve transparency
and inhibit deceptive practices in poultry growing arrangements.
Additionally, this rule adds a new Sec. 201.104 to the regulations
to require live poultry dealers to provide information related to the
integrator-controlled input distribution to poultry growers paid under
grower ranking systems (tournaments), where growers are paid based on
their performance relative to a grouping of other growers. These
disclosures allow growers to evaluate the distribution of inputs
affecting performance such as poultry breed, gender ratio, and flock
health--of their own flock and as compared to flocks of all tournament
participants. These new data points will help growers better
understand, evaluate, and compare the relationships between inputs,
flock performance, and payment under their poultry growing arrangement.
The requirements in this rule are intended to provide greater
transparency and inhibit deceptive practices in the operation of
poultry grower ranking systems.
Finally, this rule makes conforming changes to the regulations by
adding to the list of definitions in Sec. 201.2 to define terms used
in new Sec. 201.102 and new Sec. 201.104.
Specifically, this final rule requires the following of live
poultry dealers engaged in the production of broilers:
1. A Live Poultry Dealer Disclosure Document (Disclosure Document),
to be provided to prospective or current broiler growers that contains
critical information about the broiler growing arrangement when seeking
to establish, renew, revise, or replace a broiler growing arrangement
with the grower, including when a broiler growing arrangement would or
might reasonably require a broiler grower to make an original or
additional capital investment to comply with the live poultry dealer's
housing specifications. A governance framework and CEO-certification
enhances the accuracy and enforceability of the disclosures.
a. The Disclosure Document includes summaries of the dealer's
litigation history with broiler growers and its bankruptcy filings over
the past 5 years, the dealer's policies and procedures regarding sale
of the grower's farm or assignment of the growing arrangement to
another party, and the dealer's average annual turnover rate for
broiler growers over the past five years.
b. The Disclosure Document describes the live poultry dealer's
policies and procedures regarding certain instances of heightened
discretion or unusual circumstances which would otherwise be opaque--
specifically, increased layout times; sick or diseased flocks; natural
disasters, weather-related events, or other events adversely affecting
the physical infrastructure of the local complex or the grower
facility; other events potentially resulting in massive depopulation of
flocks affecting grower payments; feed outages including outage times;
grower complaints relating to feed quality, formulation, or
suitability; as well as any appeal rights growers may have relating to
any of those items.
c. The Disclosure Document provides a more fulsome set of financial
disclosures, including average annual gross payments to growers over
the past 5 years broken out by quintiles to reflect the full range of
outcomes, and a summary of information pertaining to grower variable
costs inherent to broiler production.
2. Mandated disclosures in the contract that also set out the
minimum number of placements to be delivered to the broiler grower's
farm for each year of the broiler growing arrangement contract, as well
as the minimum stocking density of each placement.
3. When a poultry grower ranking system is used, disclosures of
critical information about the flock (e.g., stocking density, breed
names and ratios, breeder facility identifiers, and breeder flock age)
placed with the grower must be disclosed within 24 hours of delivery.
4. When a poultry grower ranking system is used, dealers must
provide settlement disclosures regarding critical information about
each grower's ranking within the system, in particular the nature of
the inputs received (e.g., stocking density, breed names and ratios,
breeder facility identifiers, and breeder flock age) and housing
specifications for each growout period, without the identities of the
growers to each other.
II. Background
A. Demand for This Rulemaking
For more than two decades, poultry growers have complained to USDA
of abuses that arise in the contracting process and the operation of
those contracts under poultry grower ranking systems, also known as the
tournament system, a payment method which dominates the broiler chicken
industry. To address these longstanding concerns regarding the fairness
and competitive functioning of the market, Executive Order 14036
``Promoting Competition in the American Economy'' (86 FR 36987; July 9,
2021), directs the Secretary of Agriculture (Secretary) to consider
rulemaking to address, among other things, unfair treatment of farmers
arising from certain practices related to poultry grower ranking
systems. AMS has considered that direction in undertaking this
rulemaking, as well as in undertaking an Advance Notice of Proposed
Rulemaking around ideas to be developed in further rulemaking on
poultry tournaments.
USDA's efforts to address grower complaints of malfeasance and
abuses in the broiler industry now span more than a decade.\15\ In
2010, USDA held a series of workshops in conjunction with the
Department of Justice (DOJ) to hear from producers about concentration
and trade practice issues in agriculture. At the workshop in Normal,
Alabama, poultry growers complained that their success or failure is
dependent on factors controlled by their integrators.\16\ Further,
growers were troubled by the lack of alternative integrators in many
regional relevant markets, which further heightens the bargaining
position of integrators.\17\ Grower public comments at the workshop
were consistent with numerous comments submitted to USDA in connection
with previous rulemaking efforts, as well as on the June 8, 2022,
proposed rulemaking.
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\15\ See, generally, Leonard, Christopher, The Meat Racket
(2014).
\16\ Transcript, United States Department of Justice, United
States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop May 21, 2010, Normal,
Alabama (<a href="https://youtu.be/j11GXzvA7u0?t=1822">https://youtu.be/j11GXzvA7u0?t=1822</a>).
\17\ See Domina, David A. and Robert Taylor. ``The Debilitating
Effects of Concentration Markets Affecting Agriculture,'' Drake
Journal of Agricultural Law 15 (May 2010): 61-108. See also Leonard,
Christopher, The Meat Racket (2014).
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Growers expressed concerns about contract dependency, uncertainty
of
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pay, and informational asymmetries related to farm revenues and debt.
Poultry growers have indicated they lack information about certain
crucial production factors controlled by live poultry dealers, such as
the anticipated frequency and density of flock placements and bird
target weight under poultry growing arrangements, which heavily
influence grower payments on an individual flock basis and over the
long term.\18\
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\18\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshop May 21, 2010; Normal, Alabama (<a href="https://youtu.be/8CvEGyMQ9v8?t=2156">https://youtu.be/8CvEGyMQ9v8?t=2156</a>).
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Growers cited the level of control and discretion reserved to
integrators under their contracts, remarking how discretionary
decisions controlled by integrators related to inputs quality, flock
placements, housing specifications, tournament grouping, and other
production factors can significantly affect grower revenue and
profitability. Many growers were worried that contract terms did not
cover the time required to repay the debt on their farms, noting that--
sometimes unforeseen--additional capital investments, such as those
necessitated by integrators' housing specifications, can plunge growers
into further debt without assurances of adequate or stable returns.\19\
Growers indicated they do not have adequate information with which to
assess original and additional capital investments because pay rates
alone are insufficient for long-term revenue estimates without
assumptions related to integrator discretionary production
decisions.\20\ Growers have also raised concerns regarding the use of
overly rosy ``pro forma'' financial estimates, including income
projections, during the contracting process, which in the growers'
experience are not realized.\21\
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\19\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama
(<a href="https://youtu.be/j11GXzvA7u0?t=2422">https://youtu.be/j11GXzvA7u0?t=2422</a>) (<a href="https://youtu.be/j11GXzvA7u0?t=3032">https://youtu.be/j11GXzvA7u0?t=3032</a>).
\20\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama
(<a href="https://youtu.be/j11GXzvA7u0?t=2453">https://youtu.be/j11GXzvA7u0?t=2453</a>).
\21\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama
(<a href="https://youtu.be/8CvEGyMQ9v8?t=4226">https://youtu.be/8CvEGyMQ9v8?t=4226</a>; <a href="https://youtu.be/j11GXzvA7u0?t=3084">https://youtu.be/j11GXzvA7u0?t=3084</a>; <a href="https://youtu.be/j11GXzvA7u0?t=3091">https://youtu.be/j11GXzvA7u0?t=3091</a>).
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Finally, poultry growers complained to USDA about being prohibited
by dealers from asserting their rights under the current regulations to
discuss poultry growing contracts with USDA government representatives
(including PSD), family members, lenders, and other business
associates. Some growers allege they have been threatened or retaliated
against by integrators for asserting those rights, including for
responding to Federal Government requests for information--
specifically, the 2010 DOJ Workshop.\22\ USDA also received comments to
the proposed rule that alleged some growers were harassed, intimidated,
and retaliated against for refusing to make expensive upgrades to their
growing operations.
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\22\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops May 2010; Normal, Alabama (<a href="https://youtu.be/8QJ_K06lp5M?t=1051">https://youtu.be/8QJ_K06lp5M?t=1051</a>).
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Similar to the comments received during the 2010 workshop, comments
received in response to this proposed rule specifically reaffirmed that
one prevalent deceptive practice involves live poultry dealers'
omission of key information in the contracts with growers. This
omission of information caused growers to believe that they were
signing up for a contract that in practice they did not end up
receiving or provide providing services under. Numerous comments to the
proposed rule described how dealers provide growers with inadequate
information on settlement sheets, particularly related to payment, and
how, without this information, growers could not make sound business
decisions.
Commenters have noted live poultry dealers do not provide critical
information about--
<bullet> typical upfront associated costs;
<bullet> revenues and the full range of possible outcomes thereto;
<bullet> sale-of-farm policies;
<bullet> dealer bankruptcy and litigation history with poultry
growers;
<bullet> grower turnover rate;
<bullet> how dealers handle--and growers are affected by--
depopulation, sick chicks, natural disaster, weather-related events,
and impairments to the physical infrastructure of the local complex or
the grower's facility; feed outages; feed quality, formulation, and
suitability; and appeals processes related thereto;
<bullet> minimum flock numbers and stocking densities;
<bullet> information about inputs and any differences between them,
such as about the breeds, chick weights, breeder facilities, breeder
flock age, and bird sexing--both at delivery and at settlement; and
<bullet> at settlement, information about housing type. Growers
expressed a strong need for such information, as they could use it when
deciding how to manage their farms, grow chicks, and take on--or not
take on--additional risks in growing broiler chicken.
B. Market Structure and Production Contracts
Integrated live poultry dealer firms typically own and manage local
``complexes'' of integrated operations that include hatcheries, feed
mills, transportation systems, and processing facilities, and they
contract with individual growers within a local region to raise birds
for meat and hatchery eggs.\23\ As explained earlier, these live
poultry dealers that own and manage vertically integrated operations
are referred to in the industry as ``integrators.''
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\23\ 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.
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Through vertical integration, integrators control the complete
supply chain from the genetics of breeder stock to slaughter. While
integrators own most of the inputs and manage the operation of the
supply chain, they outsource the function and major costs of raising
poultry to broiler growers--and control much of that process through
production contracts. Contracting with individual growers to grow out
broilers, rather than procuring broilers from company-owned farms, is
advantageous to integrators for two reasons: (1) the rapid pace of
technological change in broiler production since the 1950s requires
ongoing significant capital investments, and (2) the use of tournaments
to compensate growers insulates growers from common production risks
(such as disease and extreme weather) and lowers transaction costs.\24\
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\24\ Charles R. Knoeber. ``A Real Game of Chicken: Contracts,
Tournaments, and the Production of Broilers.'' Journal of Law,
Economics, & Organization, Vol. 5, No. 2. (Autumn, 1989).
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Through the poultry growing arrangement, broiler growers provide
the growout facilities and the equipment, labor, and management
associated with those facilities. Broiler growers are typically
responsible for utilities, fuel, maintenance, and repairs. Growers are
responsible for ensuring the equipment functions properly and the
environment inside the poultry house is satisfactory at all times
throughout placement, including waste removal and disposal of deceased
birds. These activities are subject to significant discretion and
control by the integrator through contract terms and integrator-
supplied supervisors or service technicians who oversee growers.
Integrators exert significant power over contract poultry grower
operations
[[Page 83214]]
through individual production contracts and payment systems.
Grower revenue is a function of payment per flock multiplied by the
number of flocks over a time period. While the specific formula for
flock payment varies among integrators, it typically involves the
evaluation of three variables: payrate, farm weight, and feed consumed.
Where used to allocate payment, the tournament system is supposed to
essentially rank growers on their efficiency in production, with
payrates adjusted up or down based upon the growers' deviation from
average performance of all growers over the growout period.
Growers' annual revenues are heavily dependent upon the annual
number of flock placements and stocking density \25\ of each placement,
which are typically discretionary functions controlled by the
integrator. Empty poultry houses do not produce revenue. Additionally,
under tournament contract payments, flock performance--and therefore
per flock payments--can be influenced by integrator discretionary
decisions related to variation in input distributions like poultry
breeds,\26\ bird sex,\27\ breeder stock age,\28\ stocking density,\29\
consistency of feed availability,\30\ and the type and administration
of veterinary medicines.\31\
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\25\ Often expressed as a ratio of birds per square foot, or
pounds (target weight of poultry at harvest) per square foot,
stocking density reflects the number of birds placed on a farm or in
a poultry house.
\26\ Muir, W.M. and SE Aggrey. Poultry Genetics, Breeding, and
BioTechnology (2003).
\27\ See Burke, William, and Peter J. Sharp. ``Sex Differences
in Body Weight of Chicken Embryos.'' Poultry Science 68.6 (1989):
805-810; and Beg, Mah, et al. Effects of Separate Sex Growing on
Performance and Metabolic Disorders of Broilers. Diss. Faculty of
Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural
University, Dhaka, Bangladesh, 2016.
\28\ See Washburn, K.W., and R.A. Guill. ``Relationship of
Embryo Weight as a Percent of Egg Weight to Efficiency of Feed
Utilization in the Hatched Chick.'' Poultry Science 53.2 (1974):
766-769; Weatherup, S.T.C., and W.H. Foster. ``A Description of the
Curve Relating Egg Weight and Age of Hen.'' British Poultry Science
21.6 (1980): 511-519; Wilson, H.R. ``Interrelationships of Egg Size,
Chick Size, Posthatching Growth and Hatchability.'' World's Poultry
Science Journal 47.1 (1991): 5-20; Goodwin, K. ``Effect of Hatching
Egg Size and Chick Size Upon Subsequent Growth Rate in Chickens.''
Poultry Science 40 (1961): 1408-1409; Morris, R.H., D.F. Hessels,
and R.J. Bishop. ``The Relationship Between Hatching Egg Weight and
Subsequent Performance of Broiler Chickens.'' British Poultry
Science 9.4 (1968): 305-315; Peebles, E. David, et al. ``Effects of
Breeder Age and Dietary Fat on Subsequent Broiler Performance. 1.
Growth, Mortality, and Feed Conversion.'' Poultry Science 78.4
(1999): 505-511. AMS notes additionally that research in this and
related areas has limitations. It is older and results are mixed.
AMS is concerned that publically available research has stagnated,
despite the introduction of new breed strains in the intervening
years. Because integrators now own the genetics companies, AMS has
additional concerns that research has, in effect, been privatized,
creating informational asymmeteries. Based on regulatory experience
and on public comments, growers believe these factors affect
performance, highlight its value to growers from disclosure.
\29\ Dozier III, W.A., et al. ``Stocking Density Effects on
Growth Performance and Processing Yields of Heavy Broilers,''
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler
performance at different stocking densities.'' Journal of Applied
Poultry Research 4.1:55-60 (1995).
\30\ Dozier III, W.A., et al. ``Effects of Early Skip-A-Day Feed
Removal on Broiler Live Performance and Carcass Yield.'' Journal of
Applied Poultry Research 11.3 (2002): 297-303.
\31\ Treatments may be necessary to mitigate disease within a
single poultry house or an entire flock, or to boost the performance
of suboptimal progeny from impaired breeder flocks, as described
above. These treatments may affect the flock's growth rate or
mortality. See Wells, R.G., and C.G. Belyawin. ``Egg quality-current
problems and recent advances.'' Poultry science symposium series.
No. 636.513 W4. 1987. (citing Spackman, D. ``The Effects of Disease
on Egg Quality.'')
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Moreover, when integrators encounter problems in performing their
contract obligation to provide inputs, they often seek to resolve them
via discretionary functions reserved to the integrator under the
contract. From growers' points of view, these are operational risks
that can result in actual or perceived disparate treatment among
growers. When natural disasters or weather events affect the
integrators' ability to provide chicks and feed or other key physical
infrastructure of the local complex or grower facility, growers are
unlikely to be aware of the integrators' policies and procedures that
dictate allocation of inputs or determine availability or supplemental
pay. Similarly, if a disease outbreak or massive depopulation event
affects growers, growers have a right to be informed of the policies
and procedures that will be implemented to control the outbreak, assign
payment, and reallocate inputs. As feed is a primary input for growout,
growers must be made aware of policies and procedures to report issues
of feed suitability and quality to company personnel. Integrators do
not necessarily share these policies and procedures with growers and
often use informal rules with respect to the above-mentioned issues.
Without this critical information, growers' ability to understand and
evaluate, as well as compare contracts among integrators, is impeded,
and the potential for deception in contracting and deceptive practices
in the operation of those contracts increases.
Due to market consolidation combined with certain natural factors
(such as the fragility of birds, limiting their transport), many
integrators operate as monopsonists \32\ or oligopsonists \33\ in their
relevant regional market. Some research \34\ shows a correlation in
local markets between the number of available integrators and grower
payments, with payments shrinking as the number of integrators
decreases. In local markets, the lack of alternative integrators,
coupled with integrator control and discretion over production
contracts, leaves growers with little bargaining power to obtain
reasonable contract assurances and transparency.
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\32\ Merriam-Webster online dictionary: A monopsonist is one who
is a single buyer for a product or service of many sellers. <a href="https://www.merriam-webster.com/dictionary/monopsonist">https://www.merriam-webster.com/dictionary/monopsonist</a>; accessed 3/8/2022.
\33\ Merriam-Webster online dictionary: Oligopsony is a market
situation in which each of a few buyers exerts a disproportionate
influence on the market. An oligopsonist is a member of an
oligopsonistic industry or market. <a href="https://www.merriam-webster.com/dictionary/oligopsonist">https://www.merriam-webster.com/dictionary/oligopsonist</a>; accessed 3/8/2022.
\34\ MacDonald, James M., and Nigel Key. ``Market Power in
Poultry Production Contracting? Evidence from a Farm Survey''.
Journal of Agricultural and Applied Economics 44 (November 2012):
477-490. See also, MacDonald, James M. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, U.S.
Department of Agriculture, Economic Research Service, (June 2014):
29-30.
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Under the existing poultry industry market structure, growers are
dependent on a live poultry dealer and receive only nominal assurances
related to production levels and the variables composing farm revenue,
while integrators set those production levels and have significantly
more data related to grower payment variables, which generate costs
integrators seek to minimize. The failure to provide critical
information is deceptive given the conditions of asymmetrical
information that compound as growers accumulate debt and operate in a
tournament they do not control, both of which are discussed in greater
detail below.
C. Grower Debt and Hold-Up Risk
Poultry growout operations require significant financial
investments on the part of poultry growers, who typically provide the
facilities (poultry housing and necessary equipment), utilities
(electricity, gas, and water), manure management, compliance with
environmental regulations, labor, and day-to-day management of growing
poultry. One of the costliest investments is in poultry housing and
equipment, the requirements of which are dictated to the poultry grower
by the live poultry dealer through the contract. Throughout the term of
the contract, live poultry dealers may encourage, incentivize, or even
require a poultry grower, at the grower's expense, to upgrade existing
[[Page 83215]]
housing or equipment in order to renew or revise an existing contract.
Revenue instability and continuing debt accumulation may explain the
low returns to equity \35\ in this space.
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\35\ MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the
Agricultural Resource Management Survey--Version 4, Financial and
Crop Production Practices, 2011, and U.S. Census Bureau, 2011
Quarterly.
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1. Construction Costs
A 2011 study estimated a cost of $924,000 for site preparation,
construction, and necessary equipment for four 25,000-square-foot
poultry houses (or $231,000 per house) in rural Georgia at that time,
independent of the cost for the land.\36\ Costs for establishing
poultry houses have increased substantially since 2011, due to the
advancement of new technologies in poultry housing and the increased
cost of materials. AMS estimates current construction costs at nearly
$500,000 per poultry house.\37\
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\36\ Cunningham, Dan L., and Brian D. Fairchild. ``Broiler
Production Systems in Georgia Costs and Returns Analysis 2011-
2012.'' UGA Cooperative Extension Bulletin 1240 (November 2011),
University of Georgia Cooperative Extension.
\37\ See, for example, Cunningham and Fairchild (November 2011)
Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown, Economic
Impact of a New Broiler House in Alabama, Alabama A&M & Auburn
Universities Extension, March 1, 2019 (estimating a $479,160
construction cost for a 39,600 square foot broiler house).
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Poultry growers can incur considerable debt to make the investments
necessary for poultry production. Most new broiler housing is debt-
financed. According to MacDonald, U.S. contract poultry growers' total
debt amounted to $5.2 billion, or 22 percent of the total value of
their assets, in 2011.\38\ The research cited here found that debt
loads--and exposure to liquidity risks, should flock placements and
revenues fall--are closely related to the age of the operation, with
newer farmers carrying greater debt relative to the value of farm
assets. Farmers with fewer than six years of experience in broiler
production carried debt equal to 51 percent of assets, on average, and
one quarter of those farmers carried debt equal to at least 77 percent
of assets.
---------------------------------------------------------------------------
\38\ MacDonald (June 2014) Op. Cit.
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The weight of poultry grower debt load can be exacerbated by three
additional factors: (1) the length, in terms of time, of a poultry
growing arrangement is rarely long enough to cover the grower's debt
repayment period, and can be as short as one flock; (2) growers may be
encouraged or required by live poultry dealers to invest in facility
upgrades, which may lead to additional debt; and (3) poultry housing is
a specific-use asset with little salvage or repurpose value.\39\ In
other words, the grower is unlikely to be able to use or sell the
facilities for a different purpose should the poultry growing contract
be terminated. These ``term,'' ``upgrade,'' and ``specific use''
problems are rooted in asymmetrical information problems at the
contracting stage, where live poultry dealers have knowledge and
control of production and technical/equipment needs over the useful
life of the poultry farm and growers do not. Combined, these factors
create classic hold-up risk, where live poultry dealers make contract
renewal dependent on further grower investments not disclosed at the
time of the original agreements.\40\
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\39\ Poultry growing facilities are often characterized by
certain expensive attributes, such as temperature and other habitat
control systems. A fully equipped poultry growing facility
repurposed, for example, as a hay barn or other storage is unlikely
to generate the revenue necessary to meet a grower's $400,000
mortgage obligation. Nor is repurposing it for an alternative
livestock usage, such as hogs or dairy cows, possible, at least
without retrofitting that would essentially demolish the growout
facility. The grower's return on investment is tied to using the
facility as intended.
\40\ 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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Grower debt problems are exacerbated by the limited number of live
poultry dealers in most localities and by complex dealer-specific
requirements that inhibit grower movement between dealers, particularly
for growers with older poultry houses. For example, a grower who
currently produces smaller birds for one live poultry dealer may desire
to move to a different dealer that wants larger birds. The grower could
be required to upgrade their poultry growing facility to include more
cooling capacity in order to accommodate larger birds. However, such
upgrades may not be economically feasible for the grower, so the grower
stays with their current live poultry dealer. Growers also may
encounter problems trying to sell their farm to exit the industry.
Banks commonly require that a prospective buyer secures a contract with
a live poultry dealer to be approved for financing the farm, making the
availability of the poultry growing contract a critical element to the
farm's sale. Growers have often expressed frustration with live poultry
dealer refusals to offer contracts to interested buyers, thwarting farm
sales. Growers need to understand how live poultry dealer policies and
procedures affect their ability to sell their poultry operation.
Grower debt and dependance on live poultry dealers contribute to
additional risks that are enhanced by other informational disparities.
For example, dealers are not required to provide growers information
related to the financial condition of the dealer or complex. Complexes
that are underperforming financially may be subject to closure or
reduced production levels, resulting in negative effects on grower
revenue and potential contract termination. Growers also lack insight
into other growers' satisfaction with a dealer and how often growers
and dealers are involved in disputes, legal or otherwise. Dissension
between a grower and their dealer can often result in contract
termination and/or litigation between the parties. Dealers have readily
available access to information concerning their financial health,
grower churn,\41\ and frequency of litigation with growers. Disclosure
of these items is critically useful information for growers to
understand and evaluate risk and compare contracts among competing live
poultry dealers. A live poultry dealer's failure to disclose this
information to growers is deceptive.
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\41\ Grower churn refers to changes in grower make up at a given
complex. This metric reflects growers who have been terminated or
left on their own accord.
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2. Returns to Equity
The substantial debt accumulation, hold-up risk, and lack of
competition for grower services, in an environment of opacity and
asymmetrical information, is reflected in low grower returns to equity.
In 2011, data drawn from a nationally representative sample of growers
showed that the median payment received by contract growers was 5.55
cents per pound of farm weight. However, 10 percent of growers earned
at least 7.02 cents per pound, while 10 percent earned less than 4.32
cents per pound.\42\ The sample data ranged across all growers and all
contract types, but research has also shown that payments can range
widely within specific contract types and within individual grower
pools, creating revenue uncertainty for growers.\43\
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\42\ MacDonald (June 2014) Op. Cit.
\43\ Knoeber, Charles R. and Walter N. Thurman. ``Testing the
Theory of Tournaments: An Empirical Analysis of Broiler
Production.'' Journal of Labor Economics 12 (April 1994). Levy,
Armando and Tomislav Vukina. ``The League Composition Effect in
Tournaments with Heterogeneous Players: An Empirical Analysis of
Broiler Contracts.'' Journal of Labor Economics 22 (2004).
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Perhaps even more concerning than the range of grower contract
payments are the low returns on equity for poultry operations.
According to USDA's Economic Research Service (ERS),\44\ a
[[Page 83216]]
special survey conducted in 2011 showed mean returns on equity were
negative for operations with one to two poultry houses, and increased
with the size of the operation to positive 2.7 percent among operations
with six or more houses. These figures were below mean rates of return
on equity for large and midsize U.S. farms.\45\ In AMS's experience,
growers are experiencing the ongoing harm of contracting practices that
omit critical information, such as certain dealer policies and
procedures, input differences, information needed to evaluate returns
across quintiles, and more.
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\44\ MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the
Agricultural Resource Management Survey--Version 4, Financial and
Crop Production Practices, 2011, and U.S. Census Bureau, 2011
Quarterly Financial Report (QFR): Manufacturing, Mining, Trade, and
Selected Service Industries. <a href="https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf">https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf</a>; accessed 1/19/2022.
\45\ MacDonald (June 2014) Op. Cit. p. 40.
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D. Tournaments
The majority of growers producing poultry under production
contracts are paid under a poultry grower ranking or ``tournament'' pay
system.\46\ Under poultry grower ranking systems, the contract between
the live poultry dealer and the poultry grower provides for payment to
the grower based on a grouping, ranking, or comparison of poultry
growers delivering poultry to the dealer during a specified period
based on metrics \47\ created by the integrator. Per flock performance
payments under tournament contracts generally depend on three
variables: pay rate, farm weight, and feed consumed. In a simplified
example, the live poultry dealer places flocks with ten growers under
contract to deliver the same size of finished poultry to the dealer's
processing plant at the end of a specified growout period. Upon
harvest, each grower's performance (e.g., farm weight and feed
conversion) is determined by an integrator-determined formula. The
integrator then compares individual grower results against average
results for all growers in the group, and ranks individual growers
according to their relative performance within the group of ten
growers. Grower contract payrate is adjusted up or down in relation to
the grower's deviation from the average within the tournament grouping
for that specific growout period.
---------------------------------------------------------------------------
\46\ MacDonald (June 2014) Op. Cit. See footnote 20 on page 27
citing ARMS data from 2011 that reported 97% of broilers are grown
under contract, with 93% of contracts tied to relative performance.
\47\ Metrics are typically associated with ``costs''. Formulas
to calculate the metric vary among integrators. A high ``cost''
grower would be a poor performance, as a low ``cost'' grower would
have performed well.
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Grower experience and skill, the technical specifications and
relative sophistication of the housing, and other factors, such as the
makeup of tournament groupings or inconsistent grower effort, may all
affect performance. However, integrator decisions about inputs provided
to tournament growers can also impact growers' relative performance.
Under the tournament system, integrators control the source of
inputs and the distribution of those inputs to growers. Key inputs
provided by the integrator are not always uniform with respect to
quality characteristics across complexes or across time, and variation
in these quality characteristics may impact grower performance. Based
on AMS's experience, live poultry dealers will select strategies around
broad types of inputs to grow at certain complexes, in general, to
target customer preferences or to meet product requirements relating to
growout or slaughter efficiency. For example, certain genetically
tailored birds will be used to grow out more meat in certain areas or
with uniformity in larger or smaller sizes to help live poultry dealers
tailor their production. Similarly, feed inputs may be tailored based
on the availability of grains or to achieve other animal health goals.
However, within these broader strategies, there are a wide range of
differences to the inputs that growers state are material to the
growout process--such as the sex and age of the chicks, age and health
of breeder flocks, the feed mix overall based on different grain
availability, and more. Timely performance by live poultry dealers and
dispute resolution are also relevant to the growout process. For
example, improper delivery of feed mix designed for different stages of
growout or delayed delivery or pickup of inputs are all potentially
relevant.
In comments, dealers have denied or downplayed the significance of
input variability and its effect on bird performance. Grower commenters
are concerned about input differences and prefer some level of parity
in input allocations, or at least mitigation of any disparities.
Growers, however, unlike integrators, do not have direct access to the
specific input differences, which makes it difficult if not impossible
for them to evaluate whether their compensation is related to
management and skill or correlated with ``favorable'' inputs. The lack
of information further enables an opaque market environment where
integrators may provide different inputs with little check on those
actions.
The omission of this known information by integrators--impedes
growers' ability to understand, evaluate, and adjust their performance,
management, and skill as growers. In the absence of this information,
growers are deprived of known information necessary to understand their
performance and payment in operation under contract.
E. Addressing the Omission of Information
As described above, live poultry dealers have engaged in a series
of omissions in the contracting process and operation of those
contracts that deprives growers of the ability to make contracting and
investment decisions and manage the operation and risks of their farms.
This rule addresses that deceptive practice with regulatory
transparency mandates enforceable under the Act. Eliminating deception
will increase the intensity of competition amongst live poultry dealers
to the benefit of growers. Growers need this information to understand
the market for grower services, to understand and evaluate their
performance under the terms of the contract, and to make decisions
about their investments and operations of their farms that may improve
performance or mitigate risks under those contracts. The additional
information will intensify competition in the market for grower
services. As a result of more complete and transparent information for
all market participants, live poultry dealers will have to compete more
vigorously for grower services, allowing growers to benefit from the
competition in the market.
The lack of this information further contributes to an opaque
market environment that exposes growers to greater risks from actions
by live poultry dealers. The deprivation of this information is a
deceptive practice under the Act. The final rule addresses that ongoing
deception with specific transparency requirements in the contracting
process and during the ongoing operation of those contracts, consistent
with the FTC's approach to similar problems in franchising. These
transparency requirements, together with a governance framework
designed to enhance the reliability of the disclosures, are enforceable
under the Act by AMS and by growers under section 202(a)'s prohibition
on live poultry dealers engaging in deceptive practices.
III. Authority
Congress enacted the Act to promote fairness, reasonableness, and
transparency in the marketplace by prohibiting practices that are
contrary to
[[Page 83217]]
these goals. In 1921, the Act's stated purpose was to ``regulate
interstate and foreign commerce in livestock, live-stock products,
dairy products, poultry, poultry products, and eggs.'' At that time,
poultry was included in the definition of a ``packer.'' Amendments to
the law in 1935 added a new type of entity under its jurisdiction, the
``live poultry dealer.'' The poultry industry of that time involved
marketing of live animals in large population centers, accompanied by
various unfair, deceptive, and fraudulent practices. The 1935
amendments required that live poultry handlers be licensed, and
subjected them to criminal penalties for violations. Congress also made
sec. 202 (7 U.S.C. 192) applicable to live poultry dealers.\48\ The
Poultry Producers Financial Protection Act of 1987 (Pub. L. 100-173),
modified and replaced parts of the 1935 amendments. The new provisions
further protected growers of live poultry by adding payment provisions
(sec. 410), trust provisions (sec. 207), and adding and modifying the
liability provisions (secs. 411, 412, and 308), including creating a
private cause of action for violations of sec. 202 of the Act.
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\48\ An Act to Amend the Packers and Stockyards Act, S. 12, 74th
Cong. (1935).
---------------------------------------------------------------------------
AMS authority to regulate deception and deceptive practices is
well-established.\49\ Sec. 202(a) of the Act (7 U.S.C. 192(a))
prohibits live poultry dealers, with respect to live poultry, from
engaging in or using deceptive practices or devices. Further, sec.
410(a) of the Act (7 U.S.C. 228b-1(a)) requires live poultry dealers
obtaining live poultry under a poultry growing arrangement to make full
payment for such poultry to the poultry grower from whom the dealer
obtains the poultry on a timely basis. Sec. 407(a) of the Act (7 U.S.C.
228(a)) authorizes the Secretary to make rules and regulations as
necessary to carry out the provisions of the Act. Such regulations are
found, in part, at 9 CFR part 201.
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\49\ See, e.g. . . . Philson v. Cold Creek Farms, Inc., 947 F.
Supp. 197, 201 (E.D.N.C. 1996) (``[T]he violation of a regulation
such as 9 CFR 201.82 is indisputably prohibited by the PSA . . .
.''); see also Stafford v. Wallace, 258 U.S. 495, 515, 42 S. Ct.
397, 401, 66 L. Ed. 735 (1922) (finding the Act Constitutional); O V
Handy Bros Co v. Wallace, 16 F. Supp. 662, 666 (E.D. Pa. 1936)
(finding the regulation of live poultry dealers Constitutional).
---------------------------------------------------------------------------
Disclosure is a key component of the current regulations in place
pursuant to the Act. The current regulations require disclosure of
weights in the settlement of sales of livestock and live poultry,\50\
disclosure of certain potential conflicts of interest in the
consignment of livestock at auction,\51\ and disclosures for poultry
growers at contracting and on settlement, including the payment
formula, performance plans, grading certificates, and more.\52\
---------------------------------------------------------------------------
\50\ 9 CFR 201.55 and 9 CFR 201.99.
\51\ 9 CFR 201.56(d)
\52\ 9 CFR 201.100(a).
---------------------------------------------------------------------------
Like sec. 202(a) of the Act, sec. 5 of the Federal Trade Commission
(FTC) Act also prohibits deceptive practices.\53\ The FTC has long
implemented disclosure requirements under sec. 5 of the FTC Act for the
purpose of providing adequate information necessary for parties in
imbalanced business relationships to inhibit deceptive practices. In
1981, the FTC adopted a policy statement summarizing its longstanding
approach to deception cases, which AMS takes notice of.\54\ For
example, FTC's Franchise Rule requires the franchising industry to
provide prospective purchasers of franchises information necessary to
weigh the risks and benefits of an investment by providing required
disclosures in a uniform format.\55\ This rule is designed to similarly
provide current and prospective poultry growers with sufficient
information prior to entering into an agreement.
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\53\ For a discussion of the Act in relation to the FTC Act,
see, e.g., Kades, Michael. ``Protecting Livestock Producers and
Chicken Growers,'' Washington Center for Equitable Growth, May 2022,
<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>.
\54\ Federal Trade Commission, Policy Statement on Deception,
1983, available at <a href="https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf">https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf</a>.
\55\ 16 CFR part 436; 84 FR 9051 (May 2019).
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Additionally, disclosure requirements are commonly utilized in the
regulation of financial markets, housing consumer protection, and other
complex markets with significant information imbalances, to prevent
deception and other abuses.\56\ In those markets, disclosure commonly
yields multiple benefits, starting with correcting the specific
information asymmetries that give rise to deception.\57\ For example,
disclosure can also function to create reputational disincentives to
counter potentially problematic behavior. This rule is designed in part
with that in mind. Given the longstanding set of grower complaints
about input differences, costly capital investments, and other
problematic practices arising from live poultry dealers' high degree of
control over growers under a poultry growing arrangement, transparency
can reasonably be expected to contribute, at least in part, to
improvements in fair dealing by market participants. Overall,
disclosure is recognized as a cost-effective tool to prevent deception
and improve market integrity.
---------------------------------------------------------------------------
\56\ D.W. Carlton and J.M. Perloff, Modern Industrial
Organization (1994): 624.
\57\ Paula J. Dalley, ``The Use and Misuse of Disclosure as a
Regulatory System,'' 34 Fla. St. U. L. Rev. 1089 (2007). <a href="https://ir.law.fsu.edu/lr/vol34/iss4/2">https://ir.law.fsu.edu/lr/vol34/iss4/2</a>.
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IV. Summary of the Proposed Rule
In the June 2022 proposal, AMS proposed to revise current
regulations in 9 CFR 201.100 regarding the timing and contents of
poultry growing contracts. Currently, that section sets forth the
disclosures a live poultry dealer must make to poultry growers and
prospective poultry growers in connection with poultry growing
arrangements. The proposal would have revised Sec. 201.100 by
requiring dealers to disclose additional information to poultry growers
and prospective poultry growers in connection with poultry growing
arrangements. In the proposal, the regulations also would have required
live poultry dealers to specify additional terms in poultry growing
contracts to improve transparency and forestall deception in the use of
poultry growing arrangements.
AMS also proposed to add a new Sec. 201.214 to the regulations to
require live poultry dealers to provide certain information to poultry
growers in tournament pay systems about integrator-controlled inputs
related to the poultry flocks growers receive for growout. Proposed new
Sec. 201.214 also would have added a new level of transparency to
grower ranking sheets. The proposal was intended to enable poultry
growers to evaluate the distribution of inputs among all tournament
participants in order for poultry growers to assess the effect on
grower payment.
Finally, AMS proposed to add to the list of definitions in Sec.
201.2 to define terms used in the proposed revisions to Sec. 201.100
and proposed new Sec. 201.214.
Upon consideration of public comments on the proposed rule, AMS
modified some of its proposed provisions in this final rule. An
overview of the new or revised rule provisions follows in Section V, a
discussion of changes from the proposed rulemaking is in Section VI,
and a discussion of the public comments on the proposed rulemaking is
in Section VII.
V. New or Revised Provisions
AMS addresses concerns related to market power imbalance and
asymmetric information in poultry grower contracting by adding two new
sections to 9 CFR part 201 that implements the Act. The first section
addresses the lack of transparency and
[[Page 83218]]
associated deceptive practices in broiler grower contracting. The
second section addresses the lack of transparency and associated
deceptive practices in the use of poultry grower ranking systems to
determine tournament grower payment settlements for broiler growers. In
both cases, live poultry dealers are required to make disclosures that
provide broiler growers more information with which to evaluate poultry
growing arrangements.
This rule will better balance the quantity, quality, and type of
critical information broiler growers, prospective broiler growers, and
live poultry dealers engaged in the production of broilers have as they
enter and operate under broiler growing arrangements. Through this
rulemaking, the agency requires dealers to provide growers with
critical information during the contracting process. This rule gives
growers the ability to understand and evaluate contracts from dealers.
The rule enhances the integrity of the marketplace overall, helps
reduce the risk of other forms of problematical market practices, such
as the inappropriate provision of different inputs to different
growers, and prevents certain deceptive practices by dealers.
AMS also made conforming changes and changes for clarity in Sec.
201.2, Sec. 201.100(a), and Sec. 201.100(b). This section provides an
overview of the new and revised provisions.
A. Definitions
This rule amends Sec. 201.2 by removing the paragraph designations
within the section, reorganizing the definitions alphabetically, and
adding definitions for new terms. The new terms are: breeder facility
identifier, breeder flock age, broiler, broiler grower, broiler growing
arrangement, complex, gross payments, grower variable costs, housing
specifications, inputs, letter of intent, Live Poultry Dealer
Disclosure Document, minimum number of placements, minimum stocking
density, number of placements, original capital investment, placement,
poultry grower ranking system, poultry growout, poultry growout period,
prospective broiler grower, prospective poultry grower, and stocking
density. Additionally, this rule incorporates into Sec. 201.2 the
statutory definitions of: commerce, live poultry dealer, poultry
grower, and poultry growing arrangement.
B. Disclosure
To address concerns related to deception and deceptive practices by
dealers in contracting for broiler growing arrangements and in the
operation of such contracts, this final rule adds new, enforceable
transparency requirements on live poultry dealers for the benefit of
growers. Specifically, it adds a new section at Sec. 201.102,--
disclosures for broiler production, and makes conforming changes to
Sec. 201.100(a) and (b). Currently, 9 CFR 201.100 describes the
documents that live poultry dealers must provide to poultry growers
within certain timeframes. Paragraph (a) of Sec. 201.100 requires a
dealer to provide the grower with a true written copy of the offered
poultry growing arrangement on the date the dealer provides poultry
housing specifications to the grower. The final rule retains the
requirement for all live poultry dealers but revises the language in
paragraph (a) for clarity by replacing ``house specifications'' with
``housing specifications,'' replacing the personal pronoun ``you'' with
``the dealer,'' and by removing the word ``as'' from the beginning of
the paragraph. Paragraph (b) of Sec. 201.100 requires live poultry
dealers to allow growers to discuss the terms of poultry growing
arrangement offers with a Federal or State agency, the growers' legal
and financial advisors and lenders, other growers for the same dealer,
and family members or other business associates with whom growers have
valid business reasons for consulting about the offered poultry growing
arrangements. This final rule retains the requirement but revises the
language to clarify that the right to discuss the terms of the poultry
growing arrangement offer also applies to prospective poultry growers
and, if applicable, to the accompanying Disclosure Document described
in Sec. 201.102. This rule also revises the language to remove the
personal pronoun ``you'' and replace ``must allow poultry growers to
discuss the terms of a poultry growing arrangement offer'' with ``may
not prohibit a poultry grower or prospective poultry grower from
discussing the terms of a poultry growing arrangement offer'' for
clarity. The rest of Sec. 201.100 remains unchanged.
This final rule adds new Sec. 201.102--Disclosures for broiler
production--establishing new disclosure requirements in addition to
those required by Sec. 201.100 for live poultry dealers engaged in the
production of broilers. This rule adds new definitions to Sec. 201.2
for: broiler, meaning any chicken raised for meat production; broiler
grower, meaning a poultry grower engaged in the production of broilers;
broiler growing arrangement, meaning a poultry growing arrangement
pertaining to the production of broilers; and prospective broiler
grower, meaning a person or entity with whom the live poultry dealer is
considering entering into a broiler growing arrangement.
New paragraph 201.102(a)--Obligation to furnish information and
documents--requires the live poultry dealer engaged in the production
of broilers (``dealer'') to provide the prospective or current broiler
grower with the Disclosure Document, as described in paragraph (b) of
the section, in addition to the true written copy of the broiler
growing arrangement, under three different scenarios.
First, under Sec. 201.102(a)(1), a live poultry dealer engaged in
the production of broilers seeking to renew, revise, or replace an
existing broiler growing arrangement or to establish a new broiler
growing arrangement that does not contemplate modifications to existing
housing specifications will be required to provide both the broiler
growing arrangement and the Disclosure Document to the grower at least
14 calendar days before the dealer executes the broiler growing
arrangement, provided that the grower may waive up to 7 calendar days
of that time period. Housing specifications is defined as a description
of--or a document relating to--a list of equipment, products, systems,
and other technical poultry housing components required by a live
poultry dealer for the production of live poultry. A live poultry
dealer will likely have multiple housing specifications that operate in
concert to create housing tiers at a given complex. The housing
specifications document or list should accurately reflect the minimum
requirements for qualification under a specific housing tier. Growers
agree to provide housing that meets the minimum requirements of a live
poultry dealer.
Second, under Sec. 201.102(a)(2), a live poultry dealer that
requires the grower to make an original capital investment to comply
with the dealer's housing specifications will be required to provide
the grower simultaneously with four relevant documents. These documents
are a true written copy of the broiler growing arrangement, the housing
specifications, the Disclosure Document, and a letter of intent that
can be relied upon to obtain financing for the original capital
investment.
Finally, under Sec. 201.102(a)(3), a live poultry dealer engaged
in the production of broilers seeking to offer or impose modifications
to existing housing specifications that could reasonably require the
grower to make an additional capital investment will be required to
provide the grower
[[Page 83219]]
simultaneously with four relevant documents. These documents are a true
written copy of the broiler growing arrangement, modified housing
specifications, the Disclosure Document, and a letter of intent that
can be relied upon to obtain financing for the additional capital
investment. AMS expects most growers will seek financing for additional
capital investments. The simultaneous production of the three other
documents will: (1) provide growers with improved information with
which to assess the new capital investment and (2) allow growers to
establish appropriate timelines for contemplating the investment.
The required contents and format of the Disclosure Document cover
pages are provided in Sec. 201.102(b)--Prominent disclosures.
Paragraph 201.102(b) specifies the required elements for the cover
pages of the Disclosure Document, including basic information about the
live poultry dealer, key points in the broiler growing arrangement, and
precise language for certain notices the dealer must make to the
grower. AMS has developed downloadable instructions that contain the
language required by Sec. 201.102(b) for live poultry dealers. The
instructions (Form PSD 6100 (Live Poultry Dealer Disclosure Document
Form Instructions, OMB Control No. 0581-0308)) are intended to simplify
compliance with these notification requirements and provide guidance
for complying with Sec. 201.102(c) and (d). Under Sec. 201.102(b)(1),
the required Disclosure Document cover page must include the title
``LIVE POULTRY DEALER DISCLOSURE DOCUMENT'' in capital letters and bold
type. Section 201.102(b)(2) requires live poultry dealers engaged in
the production of broilers to list their name, type of business
organization, principal business address, telephone number, email
address, and if applicable, primary internet website address.
Paragraph 201.102(b)(3) requires the dealer to specify the length
of the term of the broiler growing arrangement. Including this
information at the front of the Disclosure Document clearly identifies
for growers the live poultry dealer and the associated broiler growing
arrangement under consideration.
Under Sec. 201.102(b)(4), the live poultry dealer engaged in the
production of broilers must include a notice to the grower that
highlights that grower income may be significantly affected by
decisions made by live poultry dealers, and encourages growers to
carefully review the information in the Disclosure Document. Then,
under Sec. 201.102(b)(5), the dealer must state the minimum number of
poultry placements on the broiler grower's farm annually and the
minimum stocking density for each flock to be placed under the broiler
growing arrangement. The minimum stocking density is the ratio that
reflects the minimum weight of poultry per facility square foot the
live poultry dealer intends to harvest from the grower following each
growout.
New broiler growers may not understand how the discretionary
actions of live poultry dealers affect grower payments. Many broiler
growers are paid based on farm weight multiplied by a feed conversion
variable. A live poultry dealer exercising discretion in placements,
stocking density, and target weight is directly affecting that farm
weight basis. Cautioning growers about the potential impact of dealer-
controlled inputs and providing growers with the minimum number of
flocks and minimum stocking density of flocks to be placed with the
grower annually under the broiler growing arrangement will help growers
assess the projected baseline value of their broiler growing
arrangement.
Under Sec. 201.102(b)(6), the live poultry dealer engaged in the
production of broilers must include one of two alternative statements
depending on whether the offered broiler growing arrangement includes
housing specifications that require or could reasonably require an
original or additional capital investment. If the new, renewed,
revised, or replacement broiler growing arrangement does not
contemplate modifications to existing housing specifications, the
dealer must include the statement in Sec. 201.102(b)(6)(i) in the
Disclosure Document cover pages. The dealer's statement explains the
grower's right to read the Disclosure Document and all accompanying
documents carefully, and notes that the live poultry dealer is required
to provide the current or prospective broiler grower with the
Disclosure Document and a copy of the broiler growing arrangement at
least 14 calendar days before the dealer executes the broiler growing
arrangement, provided that the grower may waive up to 7 calendar days
of that time period. This timing has been amended to match the revised
timing in the final rule, as explained above. Alternatively, if the
dealer offers a new broiler growing arrangement that requires the
current or prospective broiler grower to make an original capital
investment, as in Sec. 201.102(a)(2), or offers or imposes
modifications to existing housing specifications that could reasonably
require the current broiler grower to make an additional capital
investment, as in Sec. 201.102(a)(3), the dealer must include the
statement in Sec. 201.102(b)(6)(ii).
The statement in Sec. 201.102(b)(6)(ii) explains the grower's
right to read the Disclosure Document and all accompanying documents
carefully, and notes that the live poultry dealer engaged in the
production of broilers is required to simultaneously provide the
broiler grower with the Disclosure Document, a copy of the broiler
growing arrangement, the new or modified housing specifications, and
the letter of intent. These required statements in the Disclosure
Document cover pages will notify broiler growers of their rights under
the regulations and indicate what documents they must receive from the
live poultry dealer within the described timeframes.
Under Sec. 201.102(b)(7), the live poultry dealer engaged in the
production of broilers must include a statement notifying the broiler
grower that the terms of the broiler growing arrangement will govern
the grower's relationship with the live poultry dealer's company. The
statement further notifies broiler growers of their right,
notwithstanding any confidentiality provision in the broiler growing
arrangement, to discuss the terms of the broiler growing arrangement
and the Disclosure Document with a Federal or State agency; the
grower's financial advisor, lender, legal advisor, or accounting
services representative; other growers for the same live poultry
dealer; and a member of the grower's immediate family or a business
associate. The statement explains that a business associate is a person
not employed by the broiler grower, but with whom the current or
prospective grower has a valid business reason for consulting when
entering into or operating under a broiler growing arrangement.
Finally, Sec. 201.102(b)(8) requires the live poultry dealer
engaged in the production of broilers to include the following
statement in bold type in the Disclosure Document cover pages: ``Note
that USDA has not verified the information contained in this document.
If this disclosure by the live poultry dealer contains any false or
misleading statement or a material omission, a violation of Federal
and/or State law may have occurred.'' With this language, this rule
clarifies that the Disclosure Document is not subject to agency review
prior to submission to broiler growers, and that legal recourse may be
available for some present and future controversies related to the
[[Page 83220]]
Disclosure Document and the broiler growing arrangement.
Paragraph 201.102(c)--Required disclosures following the cover
page--specifies the information the live poultry dealer engaged in the
production of broilers must provide in the Disclosure Document
following the cover pages. Under Sec. 201.102(c)(1), the dealer must
provide a summary of litigation over the previous 5 years between the
live poultry dealer and any broiler grower, including the nature of the
litigation, its location, the initiating party, a brief description of
the controversy, and any resolution. Information about a live poultry
dealer's litigation with poultry growers within the relevant period,
particularly the basis of the litigation and the volume of litigation
relative to the number of growers with whom the dealer contracts, will
help growers identify conflict origins and better assess potential risk
of conflict.
Paragraph 201.102(c)(2) requires the live poultry dealer engaged in
the production of broilers to provide a summary of all bankruptcy
filings in the previous 5 years by the dealer and any parent,
subsidiary, or related entity of the live poultry dealer. Bankruptcy of
the live poultry dealer poses a very real financial risk to grower
financial returns. Recent or current bankruptcy filing is an indicator
of the financial health of the live poultry dealer, which a broiler
grower may need to consider when deciding whether to enter or continue
a contractual relationship with the dealer.
Paragraph 201.102(c)(3) requires the live poultry dealer engaged in
the production of broilers to provide a statement that describes the
dealer's policies and procedures regarding the potential sale of the
broiler grower's farm or assignment of the broiler growing arrangement
to another party. This information is important for broiler growers to
have when considering a broiler growing arrangement because growers may
choose or be forced to exit poultry farming for various reasons, such
as the death or disability of the grower or the prospect of other
occupational opportunities. However, in some situations, farm sales and
assignments might be contingent on approval from the live poultry
dealer. Growers informed of these policies and procedures can develop a
coherent strategy, should they desire to exit poultry farming.
Paragraph 201.102(c)(4) contains new requirements for the live
poultry dealer engaged in the production of broilers to disclose their
policies and procedures, as well as any appeal rights, arising from
increased lay-out time; sick, diseased, and high early mortality
flocks; natural disasters, weather events, or other events adversely
affecting the physical infrastructure of the local complex or the
grower facility; other events potentially resulting in massive
depopulation of flocks affecting grower payments; feed outages
including outage times; and grower complaints relating to feed quality,
formulation, or suitability. If no policy or procedure exists, the live
poultry dealer must acknowledge ``no policy exists'' for each item
listed in Sec. 201.102(c)(4)(i)-(vi). The rule is not intended to
require live poultry dealers to have polices for every listed
occurrence, nor is the rule intended to have a legal consequence for
simply not having a policy. Disclosing, however, that no policy exists
is important to the poultry grower for risk assessment during the
contracting process, and for protection against arbitrary undisclosed
policies or procedures when the listed situations arise during the
operation of the contract. The live poultry dealer will also be
required to describe any policies on grower appeal rights associated
with these events should a grower disagree with the live poultry
dealer's actions or determinations.
Paragraph 201.102(c)(5) adds a new requirement for live poultry
dealers engaged in the production of broilers to disclose broiler
grower turnover data. Specifically, the live poultry dealer will be
required to provide a table showing the average annual broiler grower
turnover rates for the previous calendar year and the average broiler
grower turnover rates of the 5 previous calendar years at both a
company level and a local complex level. The broiler grower turnover
rate is the number of grower separations during the time period divided
by the average number of growers during the same period. The broiler
grower turnover rate relates to the general risk of contracting with a
live poultry dealer. Growers may compare the turnover rates of multiple
live poultry dealers as a consideration in assessing relative risk when
making contracting decisions. Instructions for calculating and
normalizing table values are provided on Form PSD 6100 (OMB Control No.
0581-0308).
Under Sec. 201.102(d)--Financial disclosures--live poultry dealers
engaged in the production of broilers must provide certain additional
information in the Disclosure Document. Under Sec. 201.102(d)(1), live
poultry dealers will be required to provide in the Disclosure Document
tables showing quintiles of average annual gross payments to broiler
growers at the local complex for each of the previous 5 years.\58\ If
there are nine or fewer growers at a local complex, live poultry
dealers will not be required to report quintiles of average annual
gross payments as this would result in the disclosure of the unique
payment information of one or more growers. Unique payment information
is considered confidential business information. For local complexes
with nine or fewer growers, live poultry dealers will be required to
report only the mean and one standard deviation from the mean of the
average annual gross payment to growers at the local complex. Average
payments must be shown in U.S. dollars per farm facility square foot.
Further, the required tables must be organized by year, housing
specification tier, and quintile or mean and standard deviation.\59\
Instructions for calculating and normalizing table values are provided
in Form PSD 6100. This rule adds to Sec. 201.2 a definition for
complex, meaning a group of local facilities under the common
management of a live poultry dealer. The definition states that a
complex may include, but not be limited to, one or more hatcheries,
feed mills, slaughtering facilities, or poultry processing facilities.
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\58\ The word ``local'' in this discussion is used to
differentiate between the complex with which the grower may be
considering a contract and all the other complexes a dealer may own.
\59\ Most dealers do not own or operate growout and breeder
facilities, but they do own everything else around which the growout
facilities are organized--i.e., the complex. The complex commonly
includes the processing plant and feed mill and may include other
production facilities. Growers produce for a particular local
complex, even though the dealer may own more than one local complex
and other complexes around the country. Depending on the technical
needs for optimizing poultry growth for each product type, the
dealer may have multiple different housing specifications for
growers who produce different products for the complex. Therefore,
the required table will show average payments to growers in each of
the different housing specifications at the complex.
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The required disclosure of historical revenue information relating
to growers in the same local complex will give the current or
prospective broiler grower considering entering into a broiler growing
arrangement a clear and accurate picture of potential earnings under
the arrangement and help the grower evaluate whether those earnings are
sufficient. Providing insights into the variability of cash flow within
any given year will enable growers to make informed business decisions,
manage risk, and improve farm management.
Paragraph 201.102(d)(2) provides that, if the housing
specifications for poultry growers under contract with the live poultry
dealer in the local complex are modified so that an additional capital
[[Page 83221]]
investment may be required, or if for some other reason annual gross
payment averages for the previous 5 years do not accurately represent
expected future grower payment averages, the Disclosure Document must
provide additional information. The additional information includes
annual payment projections by quintile or mean and standard deviation
(depending on the number of growers at the local complex). The
projections must reflect anticipated payments to growers under contract
with the complex with the same housing specifications for the term of
the applicable broiler growing arrangement. The dealer also must
explain why the historical data does not provide an accurate
representation of future earnings. Live poultry dealers engaged in the
production of broilers considering or undertaking actions related to
discretionary functions, such as changes in pay rates, pay systems,
housing specifications, growout models, stocking densities, or number
of annual placements, must provide grower payment projections to allow
growers to determine the financial feasibility of the upgrades and make
better-informed business decisions. Standardized grower payment
projections will include realistic expectations about future earnings.
Paragraph 201.102(d)(3) requires the live poultry dealer engaged in
the production of broilers to provide a summary of any information the
dealer collects or maintains pertaining to grower variable costs
inherent to broiler production. A conforming change, for clarity and
emphasis purposes, to Sec. 201.2 adds a definition for grower variable
costs to mean those costs related to poultry production that may be
borne by the poultry grower, which may include, but are not limited to,
utilities, fuel, water, labor, repairs and maintenance, and liability
insurance. The modified language is intended to help improve
readability; the listed costs are not required to be treated as grower
variable costs under a poultry growing arrangement if the parties
choose to contract for them in some other manner. Receiving information
on grower variable costs will allow broiler growers to make informed
decisions about their participation in the broiler production business.
Finally, under Sec. 201.102(d)(4), the live poultry dealer engaged
in the production of broilers must supply the contact information for
the State university extension service office or the county farm
advisor's office that can provide relevant information to the current
or prospective broiler grower about grower costs and broiler farm
financial management in the grower's geographic area.
Paragraph 201.102(e)--Small live poultry dealer financial
disclosures--exempts from the requirement to provide the Disclosure
Document required under Sec. 201.102(a)(1) live poultry dealers
engaged in the production of broilers that, together with all companies
controlled by or under common control with the dealer, slaughter fewer
than 2 million live pounds of broilers weekly (104 million pounds
annually). The exemption applies to these small operators as long as
their housing specifications are static. If their housing
specifications are modified, requiring an additional capital investment
from growers, these smaller operators will be required to provide the
complete Disclosure Documents, as specified in Sec. 201.102(a)(2) or
(a)(3), to balance any financial risk of the new investment. AMS
proposed--and retains this exemption in the final rule--because, in
general, smaller operators are in discrete market segments and not
engaged in the same market practices that are as likely to deceive as
larger live poultry dealers' practices, which reduces the risks to
growers and the need for the disclosures mandated in this rule.
Examples of such market practices include allowing growers to be
responsible for providing some inputs (e.g., feed), allowing growers to
use older growout facilities, or granting growers more discretion in
production decisions. Additionally, AMS will continue to monitor the
impact of this rule on small businesses to ensure that its analysis is
correct and to determine whether enforcement discretion may be
appropriate.
This final rule adds new Sec. 201.102(f)--Governance and
certification, which requires the live poultry dealer engaged in the
production of broilers to establish, maintain, and enforce a governance
framework designed to review and ensure the accuracy and completeness
of the Disclosure Document, and ensure the live poultry dealer's
compliance with all its obligations under the Act and its regulations.
The governance framework and anti-fraud protections require oversight
by corporate officers and ensure legal accountability. Under Sec.
201.102(f), the framework must be reasonably designed to audit the
accuracy and completeness of disclosures under the Disclosure Document
and ensure compliance with the Act and associated regulations. The
principal executive officer of the live poultry dealer's company, or a
person performing similar functions, must certify that the company
complies with the governance framework requirement and that the
Disclosure Document is accurate and complete. The certification
requirement is tailored to ensure the soundness and accuracy of the
procedures used to produce the Disclosure Document and the information
contained therein.\60\
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\60\ Certification of regulatory compliance requirements is
found in several regulatory regimes involving important market
compliance protocols. These include section 302 of the Sarbanes-
Oxley Act (Pub. L. 107-204; 116 Stat. 745) and Title XIII of the
Bank Holding Company Act (12 U.S.C. 1851 et seq.) and regulations
thereunder, commonly known as the Volcker Rule, including revisions
designed to simplify the rule. See ``Subpart D--Compliance Program
Requirements'' (12 CFR 248.20 and discussion in 79 FR 5535);
``Revisions to Prohibitions and Restrictions on Proprietary Trading
and Certain Interests in, and Relationships With, Hedge Funds and
Private Equity Funds'' (84 FR 61974).
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The framework requirement helps ensure that the company has in
place specific steps that it will take to comply with this rule. It
seeks to balance effectiveness at providing the internal controls
necessary for reliable disclosure with some degree of flexibility to
enable dealers to design a framework appropriate to manage the risks
relating to the preparation of complete and accurate disclosures given
their own particular operations.
As explained earlier, to simplify compliance with this requirement,
AMS has developed instructions for compiling the Disclosure Document,
Form PSD 6100, with standardized language that live poultry dealers can
use. The language includes a certification statement the principal
executive officer of the live poultry dealer's company, or a person
performing similar functions, must sign.
Section 201.102(g)--Receipt by growers--requires a live poultry
dealer engaged in the production of broilers to include in the
Disclosure Document a signature page. The signature page includes a
statement highlighting the requirements for timely delivery of the
disclosure document, potential liability for a false or misleading
statement or a material omission, and how to contact USDA to file a
complaint at its website or by telephone.
The live poultry dealer must also obtain the current or prospective
grower's dated signature on the signature page, or obtain alternative
documentation to evidence delivery and that the dealer used best
efforts to obtain grower receipt according to the specified timeframes.
The dealer must provide a copy of the dated signature page or
alternative documentation to the grower and retain a copy of the dated
signature page or alternative documentation in the dealer's records
[[Page 83222]]
for 3 years following expiration, termination, or non-renewal of the
broiler growing arrangement. Including the required statement informs
growers that false or misleading statements or material omissions
contained in the Disclosure Document may form a basis for legal action.
Requiring live poultry dealers to collect and retain proof of
compliance will ensure compliance with the regulation.
Paragraph 201.102(g) also contains new clear language and
translation requirements for the document. Under Sec. 201.102(g)(3),
the Disclosure Document must be presented in a clear, concise, and
understandable manner for growers, and it references Form PSD 6100 for
guidance on the presentation of the information and required
calculations. Under Sec. 201.102(g)(4), the live poultry dealer must
make reasonable efforts to ensure that growers are aware of their right
to request translation assistance, and to assist the grower in
translating the Disclosure Document at least 14 calendar days before
the live poultry dealer executes the broiler growing arrangement that
does not contemplate modifications to the existing housing
specifications (provided that the grower may waive up to 7 calendar
days of that time period). For a broiler growing arrangement that does
contemplate modifications to the existing housing specifications, the
translation assistance must be provided when the live poultry dealer
provides the Disclosure Document to the grower.
Reasonable efforts include but are not limited to providing current
contact information for professional translation service providers,
trade associations with translator resources, relevant community
groups, or any other person or organization that provides translation
services in the broiler grower's geographic area. Reasonable efforts
may also include allowing additional time to review the translated
Disclosure Document. A live poultry dealer may not restrict a broiler
grower or prospective broiler grower from discussing or sharing the
Disclosure Document for purposes of translation with a person or
organization that provides language translation services.
AMS also added a provision to Sec. 201.100 preventing live poultry
dealers from restricting growers from sharing the Disclosure Documents
with legal counsel, accountants, family, business associates, and
financial advisors or lenders.
Nothing in the rule prevents companies from providing a
translation, provided it is complete, accurate, and not misleading. As
indicated previously, this rule is intended to improve transparency in
poultry production contracting by providing poultry growers with
relevant information to make more informed business decisions. These
new requirements will enable the prospective or current poultry grower
to better understand the information provided in the disclosures.
C. Contract Terms
Currently, Sec. 201.100(c)--Contracts; contents--specifies certain
information that must be included in a poultry growing arrangement. The
live poultry dealer is required to specify the duration of the contract
and conditions for termination of the contract by each of the parties,
all terms relating to the poultry grower's payment, and information
about a performance improvement plan for the grower, if one exists. In
the final rule, AMS did not reduce the requirements in Sec. 201.100(c)
for all live poultry dealers. AMS adds new Sec. 201.102(h)--Contract
terms--introducing additional requirements that apply exclusively to
live poultry dealers engaged in the production of broilers. Paragraph
201.102(h) requires live poultry dealers engaged in the production of
broilers to specify the minimum number of placements to be delivered to
the broiler grower's farm annually in each year of the contract, as
well as the minimum stocking density of each of those placements. The
minimum number of placements and the minimum stocking density of each
placement under the broiler growing arrangement directly impact broiler
grower revenues. Both figures are crucial to a current or prospective
grower's ability to evaluate potential earnings under the contract and
their ability to meet financial obligations. Requiring live poultry
dealers engaged in the production of broilers to include this
information in broiler growing contracts will improve growers' ability
to understand and evaluate contracts offered by dealers, and prevent
deceptive practices in the contracting process. Providing such
information may also allow lenders and guarantors to better evaluate
the desirability of broiler loans they are asked to consider.
D. Poultry Grower Ranking Systems
AMS adds a new Sec. 201.104--Disclosures for broiler grower
ranking system payments. This new section applies exclusively to live
poultry dealers engaged in the production of broilers who use a poultry
grower ranking system to calculate broiler grower payments. New Sec.
201.104 specifies the recordkeeping and disclosure requirements for
such dealers. AMS amends Sec. 201.2 to add definitions for terms used
in new Sec. 201.104. In addition, Sec. 201.100(f) of the current
regulations, which contains requirements for grouping or ranking sheets
and which AMS proposed to remove in the proposed rule, is retained in
the final rule to reflect that the existing grouping or ranking sheet
requirements continue to apply to all live poultry dealers, while the
additional grouping or ranking sheet requirements at Sec. 201.104(c)
apply exclusively to live poultry dealers engaged in the production of
broilers.
Currently, live poultry dealers are required under the regulations
at Sec. 201.100(d) to furnish poultry growers in poultry grower
ranking systems with settlement sheets that show the grower's precise
position in the ranking for that tournament. AMS adds a requirement in
new Sec. 201.104(a)--Poultry grower ranking system records--that
requires a live poultry dealer engaged in the production of broilers
who calculates payment under a poultry grower ranking system to produce
and maintain records showing how certain inputs were distributed among
participants. Further, the dealer must maintain those records for 5
years. Maintaining records allows USDA or any other party with the
proper legal authority to collect the records and access to records
during an investigation or legal action. AMS adds to Sec. 201.2 the
term poultry grower ranking system, meaning a system where the contract
between the live poultry dealer and the poultry grower provides for
payment to the poultry grower based upon a grouping, ranking, or
comparison of poultry growers delivering poultry during a specified
period. AMS also adds the term inputs to Sec. 201.2. Inputs is defined
as the various contributions to be made by the live poultry dealer and
the poultry grower as agreed upon by both under a poultry growing
arrangement. The definition also states that such inputs may include,
but are not limited to, animals, feed, veterinary services, medicines,
labor, utilities, and fuel.
Paragraph 201.104(b)--Placement disclosure--requires a live poultry
dealer engaged in the production of broilers who uses a poultry grower
ranking system to calculate broiler grower payments to provide certain
information about the flock placed with the broiler grower within 24
hours of the placement on the grower's farm. Specifically, the dealer
must provide the flock's stocking density, expressed as the number of
poultry per facility square foot; the names and ratios of breeds of the
flock delivered; the ratios of male and female birds in the flock if
the sex had been determined; the breeder
[[Page 83223]]
facility identifier; the age of the egg-laying breeder flock from which
each broiler grower's placement is produced; information regarding any
known health impairments of the breeder flock and of the poultry
delivered to the broiler grower; and what, if any, adjustments will be
made to grower pay to reflect any of these inputs. As explained earlier
in this document, each of these inputs may influence farm weight and
feed conversion. In some cases, a broiler grower may adjust management
practices in response to potential impacts of inputs on flock
performance. This requirement provides the broiler grower with basic,
accurate information about the placement at the outset of each growout
period that may inform the grower's management decisions during
growout. Armed with this information, growers may be better able to
efficiently allocate resources during flock growout and maximize their
individual profitability.
This rule adds definitions to Sec. 201.2. Breeder facility
identifier is defined as the identification a live poultry dealer
permanently assigns to distinguish among breeder facilities supplying
eggs for the poultry placed at the poultry grower's facility. As
permanent identifiers, these identifiers must be consistent flock to
flock. Identifiers that remain the same from one growout period to the
next allow growers to observe patterns, if any, related to the
performance of flocks originating with different breeders. Live poultry
dealers may assign alphabetic, numeric, or other identifiers to each
farm to keep the identity of individual breeder facilities private.
Breeder flock age means the age in weeks of the egg-laying flock
that is the source of poultry placed at the poultry grower's facility.
Depending on the type and breed of poultry being raised, the age of the
breeder flock producing the eggs from which poultry for growout are
produced may influence the grower's production decisions, for example,
whether additional monitoring is necessary, or determining the
appropriate height of waterers and feeders.
Under Sec. 201.104(c)--Poultry grower ranking system settlement
documents--a live poultry dealer engaged in the production of broilers
employing a poultry grower ranking system to calculate settlement
payments for broiler growers must provide every grower within the
tournament ranking system with settlement documents that show certain
information about each grower's ranking within the system, as well as
the inputs each broiler grower received, for each growout period.
Paragraph 201.104(c)(1) requires live poultry dealers engaged in the
production of broilers to show the housing specifications for each
grower grouped or ranked in the system during the specified growout
period.
Paragraph 201.104(c)(2) requires live poultry dealers engaged in
the production of broilers to make visible to all grower participants
in the poultry grower ranking system the distribution of dealer-
controlled inputs provided to all participants. Specifically, dealers
must disclose the stocking density at each grower's placement,
expressed as the number of poultry per facility square foot. The dealer
must: disclose the names and ratios of the breeds of poultry and the
ratios of male and female poultry, if the sex of the poultry has been
identified (i.e., ``sexed''), placed at each broiler grower's farm;
indicate with the use of breeder facility identifiers the source of
poultry placed at each broiler grower's farm; disclose the age of the
egg-laying breeder flock from which each broiler grower's placement is
produced; and, report the number of feed disruptions of 12 hours or
more each grower experienced during the growout period.
As mentioned above, live poultry dealers are currently required to
provide settlement sheets showing each grower's ranking within the
poultry grower ranking system and to show the actual figures used to
rank poultry growers for settlement purposes. However, poultry growers,
in particular broiler chicken growers, have complained to USDA that the
limited information they receive does not allow them to effectively
evaluate their performance compared to others because they do not know
how the inputs they receive compare to the inputs other growers
receive. Nor do they know how their performance relates to housing
specifications. Further, some growers believe other growers within the
same poultry grower ranking system receive superior inputs to their
own.
The placement and settlement information required under Sec.
201.104 will enable broiler growers to make factual comparisons about
their performance relative to other growers' performance within the
poultry grower ranking system.
E. Severability
AMS considers some but not all of the provisions of this final rule
to be severable. Specifically, changes to Sec. 201.100--Records to be
furnished poultry growers and sellers, and the provisions of new
Sec. Sec. 201.102--Disclosures for broiler production, and 201.104--
Disclosures for broiler grower ranking system payments, are generally
severable within themselves and from each other. Thus, if a court were
to find any of, some combination of, or some portion of those
provisions to be unlawful or unenforceable, AMS intends that all other
provisions as set forth in this rule would remain in effect to the
maximum possible extent.
For example, if a court were to find one of the required disclosure
items in Sec. 201.102(c) or (d) unlawful, AMS would nevertheless
intend the remaining disclosure requirements in Sec. 201.102 to stand.
However, provision of those disclosures to broiler growers is dependent
upon the requirement to do so in Sec. 201.102(a), so AMS would intend
that paragraph (a) in Sec. 201.102 is not severable from paragraphs
(c) or (d). In another example, AMS intends that the reference to Form
PSD 6100 instructions in Sec. 201.102 (g)(3) is severable from the
requirement in the same paragraph to present Disclosure Document
information in a clear, concise, and understandable manner. Thus, if
the reference to Form PSD 6100 were to be invalidated, live poultry
dealers would nevertheless be required to include all the elements of
the Disclosure Document as described Sec. 201.102 in a clear, concise,
and understandable manner.
AMS considers the provisions of Sec. 201.104 to be severable,
except that the requirement to maintain records related to broiler
grower production for 5 years in Sec. 201.104(a) is not intended to be
severable from either paragraph (b) or (c) of that section. Records
pertaining to the disclosures required in Sec. 201.104(b) and (c) must
be maintained and available to PSD for compliance and enforcement
purposes.
AMS considers the changes to Sec. 201.1--Terms defined, to be
inseverable, inasmuch as the newly defined terms in that section are
necessary for the clear application of the provisions of new Sec. Sec.
201.102 and 201.104. The new definitions clarify the fundamental
application of the rule to live poultry dealers, and cannot be severed
from the policy effect of the rule.
VI. Changes From the Proposed Rule
After consideration of public comments, AMS determined to adopt the
proposed changes with modification. This section provides an overview
of how the final rule differs from the proposed rule. Additional
discussion about AMS's consideration of public comments is presented in
Section VII.
Two significant changes between the proposed rule and the final
rule pertain
[[Page 83224]]
to the application of the new disclosure requirements and the placement
of the new requirements within 9 CFR part 201. Under the proposed rule,
AMS proposed additional disclosures that all live poultry dealers would
be required to furnish to poultry growers with whom dealers make
poultry growing arrangements. AMS also proposed to establish additional
disclosure requirements for live poultry dealers who use a poultry
ranking system to calculate grower payments. However, comments received
noted that the proposed rule was largely based on research into the
broiler industry and would be extremely difficult for turkey companies
to implement due to differences between turkey and chicken production.
AMS subject matter experts analyzed turkey production contracts from
across the country and found more variability among them than in
broiler contracts.\61\ The variability reflects the biological
differences found in turkeys and longer placement times with growers,
which can impact outcomes for producers.\62\ The variability in
contracts results in less uniformity of grower compensation models in
the turkey industry. Often, turkey grower compensation models are
predicated on static square footage payments, and/or two-stage
production, which reduce payment volatility and mitigate input
variability. Much of the disclosed information would not be applicable
or of significant value to turkey growers. While other turkey
compensation models tend to rely on a relative ranking component
similar to that for broilers, the benefit of disclosure is diluted, as
discretionary dealer actions currently may have less impact on grower
payments. As well, grower ranking systems account for a smaller
percentage of grower payments.
---------------------------------------------------------------------------
\61\ This corresponds with Hyaena, et. al., who state ``There is
. . . more variation among production contracts with respect to
division of risks and profits from growing turkeys than in the
broiler industry.'' See M. Hayenga, T. Schroeder, J. Lawrence, D.
Hayes, T. Vukina, C. Ward, and W. Purcell, ``Meat Packer Vertical
Integration And Contract Linkages in the Beef and Pork Industries:
An Economic Perspective'' (2003), available at <a href="http://econ2.econ.iastate.edu/faculty/hayenga/AMIfullreport.pdf">http://econ2.econ.iastate.edu/faculty/hayenga/AMIfullreport.pdf</a> (last
accessed April 2023).
\62\ Turkey growers may only produce two flocks per year while
broiler growers may produce five or more. See Poultry Industry
Manual (2013) available at <a href="https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/emergency-management/CT_fadprep_Industry_Manuals">https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/emergency-management/CT_fadprep_Industry_Manuals</a>.
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Other commenters stated the new disclosure requirements are largely
meant for the broiler industry where most complaints arise. AMS has
received few turkey grower complaints. Other (non-broiler chicken)
poultry growers have similarly not expressed concerns regarding
practices in their industry. AMS will continue to evaluate the
presentation and operation of contracts and pay systems in the turkey
industry, and other forms of poultry production to ensure growers can
understand, evaluate, and compare contracts. However, AMS has
determined that additional proposed disclosure requirements are not
warranted for all live poultry dealers at this time.\63\ Thus, this
final rule's new disclosure requirements cover only live poultry
dealers engaged in the production of broiler chickens.
---------------------------------------------------------------------------
\63\ AMS underscores that the principles of full and fair
disclosure by live poultry dealers to avoid deceptive practices
apply throughout the industry, including with respect to turkey
growers. Although the specific disclosure mandates of this rule
will, at this time, apply only to the broiler chicken segment, AMS
intends to continue to monitor the entire industry.
---------------------------------------------------------------------------
In the final rule, AMS did not revise Sec. 201.100 to require all
live poultry dealers to provide certain additional disclosures to
prospective or current growers. Instead, disclosure requirements for
dealers engaged in broiler production are provided in new Sec.
201.102--Disclosures for broiler production--which applies exclusively
to live poultry dealers engaged in the production of broilers. The
final rule adds language in Sec. 201.102(a) clarifying that in
addition to complying with the existing requirements in Sec. 201.100,
live poultry dealers engaged in the production of broilers must comply
with additional disclosure requirements in new Sec. 201.102.
The proposed rule in Sec. 201.100(a) would have required a live
poultry dealer engaged in the production of broilers seeking to renew,
revise, or replace an existing broiler growing arrangement or to
establish a new broiler growing arrangement that does not contemplate
modifications to existing housing specifications to provide both the
broiler growing arrangement and the Disclosure Document to the grower
at least 7 calendar days before the dealer executes the broiler growing
arrangement. Several commenters from the grower and advocacy sectors
said that this time period was inadequate, and urged AMS to require
that the documents be provided 14 days or 30 days in advance of the
broiler growing arrangement's execution, to enable adequate time for
growers to review and act upon the information provided in the
documents. AMS also identified ambiguity in whether 7 days was business
days or calendar days.
This final rule revises the timing in Sec. 201.102(a)(1) to
require that live poultry dealers provide growers with the required
documents at least 14 calendar days before the live poultry dealer
executes the broiler growing arrangement, provided that the grower may
waive up to 7 calendar days of that time period. AMS is making this
change in response to some grower comments stating that growers need
additional time to adequately review the documents. A central purpose
of the Disclosure Document is to improve the understanding of
production agreements to thwart deception, and adequate time to review
the document is essential to the rule fulfilling its purpose. The 7-day
waiver addresses other grower commenter concerns related to continuity
of production. AMS does not wish to inadvertently insert unnecessary
time delays into the grower's planning process during contracting, in
particular as this provision exclusively addresses the circumstance
where the grower is not contemplating modifications to the farm housing
specifications. The final rule seeks to maximize the grower's ability
to determine the length of time necessary to review the documents,
whether that be a full 14 calendar days or a shorter time period if the
grower determines that is more appropriate. The rule revises the review
period to 14 calendar days, but provides growers the option to waive 7
of those days if they prefer. Seven calendar days remains the minimum
review time to provide growers with a guaranteed time to review the
documents and thus protects growers from coercion by live poultry
dealers--a risk also identified by commenters. Absent the provision,
live poultry dealers could press growers to waive their entire review
period rights. In AMS's estimation, a 14-calendar-day period is useful
to some growers to review and have the time to act on the documents in
the circumstance of no contemplated housing modification, and that a 7-
calendar-day period is minimally sufficient to enable growers to review
the Disclosure Documents, and reduce the potential for coercive
behavior where growers so choose that shorter time period.
Where a live poultry dealer contemplates modifications to the
housing specifications--such as in the circumstance of a new or
additional capital investment or a modification to the housing
specification--this rule provides the grower with significantly more
time to review the contract and the Disclosure Document than current
practice. Currently, growers commonly do not receive their contract
until after a capital investment has occurred. In this rule, by
requiring notice to the
[[Page 83225]]
grower at the same time as the new housing specification, growers
receive the critical information embedded in the contract and
Disclosure Document before the grower decides to engage in any
construction or borrowing to make the necessary housing modifications.
Capital investments generally take months, not days, and the grower is
well positioned to control his or her review of the documents in the
course of making any decisions regarding whether to engage in
borrowing, construction, or contracting in relation to the potential
broiler growing arrangement.
Under proposed Sec. 201.214, AMS proposed to establish
recordkeeping and disclosure requirements for all live poultry dealers
who use a poultry grower ranking system to calculate grower payments.
Again, AMS determined the disclosure requirements proposed in Sec.
201.214 are not warranted for all live poultry dealers who use a
poultry grower ranking system to calculate grower payments based on its
analysis of poultry contracts and grower complaints, as previously
discussed. Therefore, in the final rule, AMS modified the proposed
requirements to apply exclusively to live poultry dealers engaged in
the production of broilers who use a poultry grower ranking system to
calculate grower payments, moved the requirements from proposed new
Sec. 201.214 to new Sec. 201.104, and renamed the section
``Disclosures for broiler grower ranking system payments.'' AMS also
retained the requirements in Sec. 201.100(f) of the current
regulations, which it had proposed to move to new Sec. 201.214 and
modify in the proposed rule. AMS added language to Sec. 201.104(c) to
indicate that in addition to complying with the requirements of Sec.
201.100, live poultry dealers engaged in the production of broilers who
use a poultry grower ranking system to calculate grower payments must
provide additional information in accordance with new Sec. 201.104.
To limit Sec. Sec. 201.102 and 201.104 in the final rule to
broiler contracts, AMS added to Sec. 201.2 the definitions of broiler
to mean any chicken raised for meat production, broiler grower to mean
a poultry grower engaged in the production of broilers, broiler growing
arrangement to mean a poultry growing arrangement pertaining to the
production of broilers, and prospective broiler grower to mean a person
or entity with whom the live poultry dealer is considering entering
into a broiler growing arrangement.
AMS proposed in Sec. 201.100(b)(5) to require live poultry dealers
to include in the Disclosure Document the minimum number of placements
on the grower's farm annually and the minimum stocking density of each
flock. In the final rule, AMS moved this requirement to Sec.
201.102(b)(5), which only applies to live poultry dealers engaged in
the production of broilers. AMS also revised the introductory statement
in Sec. 201.102(b)(5) of the final rule to add clarifying language.
AMS proposed to require live poultry dealers to disclose a summary
of all litigation with any poultry grower over the prior 6 years, as
well as of all bankruptcy filings over the prior 6 years for the dealer
and any parent, subsidiary, or related entity. However, commenters
representing the poultry industry noted that the 6-year disclosure
period associated with these requirements was inconsistent with other
disclosure requirements covering the prior 5 years. Therefore, to
ensure the uniformity of recordkeeping obligations and to reduce the
burden on regulated entities, AMS revised Sec. Sec. 201.102(c)(1) and
(2) to require live poultry dealers engaged in the production of
broilers to disclose litigation with any broiler grower over the prior
5 years, as well as bankruptcy filings in the prior 5 years by the
dealer and any parent, subsidiary, or related entity.
The proposed rule would have required live poultry dealers to make
various financial disclosures to poultry growers, including a table
showing ``average annual gross payments'' made to growers at all
complexes owned or operated by the live poultry dealer for the previous
calendar year, as well as to growers at the local complex. Poultry and
meat trade associations suggested AMS require dealers to disclose
average annual gross payments only for the grower's local complex.
These commenters noted that complexes in different geographic areas
face different economic conditions, arguing that information about
payments at other complexes would not be useful and would potentially
confuse growers. This final rule does not include the proposed
requirement to disclose payment information for all complexes owned or
operated by the dealer. This final rule does maintain the proposed
requirement for live poultry dealers engaged in the production of
broilers to disclose payment information only relating to the broiler
grower's local complex at Sec. 201.102(d)(1).
Both growers and live poultry dealers also requested that AMS
provide more specificity on how to calculate average annual gross
payments. While the proposed rule provided detail on calculations, the
commenters felt the instructions lacked sufficient specificity to
assure that live poultry dealers could comply and that poultry growers
received adequate data on which to base business decisions. Therefore,
AMS developed more in-depth instructions on how to calculate average
annual gross payments, which are included in Form PSD 6100. This final
rule provides that, if there are nine or fewer growers at a local
complex, live poultry dealers will be required to report only the mean
and one standard deviation from the mean of the average annual gross
payment to growers at the local complex rather than average annual
gross payments distributed by quintile. This modification from the
proposed rule is necessary because disclosing average annual gross
payments distributed by quintile in these circumstances would result in
disclosure of the unique payment information of one or more growers,
which AMS considers to be confidential business information.
AMS added to Sec. 201.2 the definition of gross payments to mean
the total compensation a poultry grower receives from the live poultry
dealer, including but not limited to base payments, new housing
allowances, energy allowances, square footage payments, extended lay-
out time payments, equipment allowances, bonus payments, additional
capital investment payments, poultry litter payments, etc., before
deductions or assignments are made.
In the proposed rule, AMS requested comment on proposed disclosures
regarding the financial health and integrity of the live poultry
dealer, and whether those were adequate to enable growers to make sound
business decisions. Commenters suggested that growers could utilize
other information in addition to information specified in the proposed
rule in making their business decisions. Specifically, commenters
recommended that AMS also require disclosure of grower turnover data.
Grower turnover rates are among the data growers may find valuable when
making business decisions, as they relate to the risk of termination or
non-renewal when contracting with a live poultry dealer. Just as
growers will be able to rely on other required disclosures to
contemplate their production and financial risks, this information
would allow growers to compare the turnover rates of multiple live
poultry dealers as a risk factor when making contracting decisions.
Because grower turnover rates can be used in a manner similar to other
required disclosures, AMS added a provision at Sec. 201.102(c)(5) of
the final rule requiring live poultry dealers engaged in the production
of broilers to
[[Page 83226]]
disclose average annual broiler grower turnover rates for the previous
calendar year and the average of the 5 previous calendar years at both
the company level and the local complex level. Instructions for how to
calculate average annual broiler grower turnover rates are included in
Form PSD 6100.
AMS proposed requirements for several disclosures of specific data
and information advising growers of their rights. AMS did not
specifically propose to require live poultry dealers to disclose their
policies on grower payment with respect to increased lay-out time,
diseased flocks, natural disasters and other depopulation events, feed
issues or outages, or policies on grower appeal rights and processes,
although in the proposed rule, AMS asked whether the final rule should
require disclosures on these types of topics. Multiple commenters
suggested AMS include these disclosures. The commenters stated that
these disclosures would aid growers in decision making and reduce
confusion during times of disease or other disaster. Therefore, this
final rule requires live poultry dealers engaged in the production of
broilers to disclose policies and procedures on increased lay-out time;
sick, diseased, or high early-mortality flocks; natural disasters,
weather events, or other events adversely affecting the physical
infrastructure of the local complex or the grower facility; other
events potentially resulting in massive depopulation of flocks,
affecting grower payments; feed outages including outage times; and
grower complaints relating to feed quality, formulation, or
suitability, as well as any appeal rights arising out of these events.
The proposed rule proposed to exempt live poultry dealers,
including all parent and subsidiary companies, slaughtering fewer than
2 million live pounds of poultry weekly (104 million pounds annually)
from the Disclosure Document requirements if the new, renewed, or
replacement contract offered by one of these dealers does not include
revisions to existing housing specifications that would require the
grower to make new or additional capital investments. This final rule
limits the proposed exemption to clarify that the exemption applies if
the live poultry dealer engaged in the production of broilers that
together with all companies controlled by or under common control with
the dealer slaughter fewer than 2 million live pounds of poultry weekly
(104 million pounds annually).
The proposed rule would have required dealers to establish,
maintain, and enforce a governance framework reasonably designed to
audit the accuracy and completeness of the disclosures in the
Disclosure Document, which must include audits and testing, as well as
reviews of an appropriate sampling of Disclosure Documents by the
principal executive officer or officers. AMS determined that the
requirement in Sec. 201.102(f)(2) for the principal executive officer
or officers to certify the governance framework and the accuracy of the
Disclosure Document adequately covers the intended requirement for
officers of this level to be focused on the effectiveness of the
governance framework. AMS concluded that this level of detail about the
audit process for the Disclosure Document was not necessary, because
AMS finds the certification requirement regarding the governance
framework to be sufficient to ensure a reasonable level of accuracy of
these statements. The company will still need to maintain a governance
framework for ensuring the reliability of the statements, which the
certification attests to. The principal executive officer will need to
tailor the framework to the particular levels of complexity of the
company and its poultry business, its approach to internal controls,
and other factors such as its track record of regulatory compliance, to
ensuring the accuracy of statements.
In some circumstances, audit, testing, and reviews by senior
officers may be necessary to ensure compliance, but that may not be the
case in all circumstances. The requirements of this final rule place
the opportunity--and the responsibility--on the principal executive
officer to tailor the needs of the compliance program to the
particulars of the business and its own compliance culture, as
reflected in the governance framework. A ``reasonably designed''
framework depends on the particular facts and circumstances of the
poultry company and its growers, with larger, more complex processors
adopting more comprehensive systems appropriate to the scope of their
operations. AMS will evaluate the effectiveness of the governance
framework in part through examining the reliability of producing
accurate disclosures but may also examine a dealer's internal controls
and other factors relevant to the facts and circumstances of the
dealer, such as its recent track record of compliance with relevant
laws and regulations.
AMS will investigate questions of statement inaccuracy and may take
enforcement actions against companies that do not maintain sufficient
governance frameworks. Violations may result in issuance of a Notice of
Violation or referral to the Attorney General of the United States for
prosecution pursuant to Section 404 of the P&S Act, 7 U.S.C. 224.
Growers may also bring private cases in response to inaccurate or
misleading disclosures under the Act or under other laws. Therefore,
AMS removed the requirement proposed in Sec. 201.100(f)(1)(i) for
audit, testing, and reviews of an appropriate sampling of Disclosure
Documents by the principal executive officer or officers.
The proposed rule would have required dealers to include a
statement on the Disclosure Document's grower signature page advising
growers that a dealer's failure to deliver the document within the
required timeframe, as well as false or misleading statements or
material omissions within the Disclosure Document, may violate Federal
and State laws, and that such violations could be determined to be
unfair, unjustly discriminatory, or deceptive and unlawful under the
Act. The proposed statement further informed growers that allegations
of such violations could be reported to AMS's PSD. The final rule
retains the required advisory statements; however, they have been
modified to inform growers they may submit complaints to USDA's Farmer
Fairness portal at <a href="https://www.usda.gov/farmerfairness">https://www.usda.gov/farmerfairness</a> or by telephone
at 1-833-DIAL-PSD (1-833-342-3773) if they suspect a violation of the
Act or any other Federal law governing fair and competitive markets,
including contract growing, of livestock and poultry.
The proposed rule would have required live poultry dealers to
obtain a poultry grower's signature to verify delivery of the
Disclosure Document. Live poultry dealers noted that there may be
instances in which obtaining a grower signature is not possible, such
as grower unavailability or refusal to sign. AMS recognizes there is no
mechanism to require growers to sign for receipt of the Disclosure
Document. Commenters said it is appropriate in these instances to have
other means available for the live poultry dealer to verify delivery of
the Disclosure Document to the grower. AMS agrees it is necessary to
have alternative methods of compliance. Therefore, this final rule
allows flexibility for live poultry dealers engaged in the production
of broilers to have alternative means to prove delivery and to
demonstrate that best efforts were used to obtain grower receipt. In
those circumstances, this final rule does not require a specific method
of delivery but requires dealers to obtain and maintain evidence that
the live poultry dealer
[[Page 83227]]
delivered the Disclosure Document to the grower or prospective grower
in the required timeframe and that best efforts were used to obtain
grower receipt.
Based on its experience, AMS expects live poultry dealers to engage
in personal communications with the growers in the course of the
contracting process, and so expects that best efforts include personal
communication with growers in the course of delivering the Disclosure
Document and seeking grower receipt. Where a grower refuses to sign or
has made him or herself unavailable to the live poultry dealer,
alternative documentation includes proof of delivery and statements or
affidavits to support the communication and grower's refusal to sign
receipt, or the circumstances of the grower's unavailability. AMS
expects unavailability to be a rare circumstance requiring exceptional
justification, given the nature of the contracting process between live
poultry dealers and growers. The proof of delivery and best-efforts
requirement, as an alternative, provide the best assurance possible in
those circumstances that the grower receives and is able to evaluate in
a timely manner the Disclosure Document. The grower receipt
requirement, and this alternative, is important to AMS achieving the
purposes of the rule because it minimizes the risk that live poultry
dealer may deliver the Disclosure Document through means that may, in
practice, not be read or noticed by the grower under the time frames
provided, and so obstruct the purposes of ensuring the grower can
evaluate the information before the grower makes significant decisions.
AMS notes that grower and advocacy commenters supported the retention
of the grower receipt requirement principally for those purposes.
The proposed rule would have required live poultry dealers to make
several disclosures to poultry growers but did not include the exact
language and wording they should use. Numerous commenters from the
grower and live poultry dealer sectors said that these provisions
should be in plain and unambiguous language to avoid discrepancies in
interpretation among the various parties, regulators, and courts. One
purpose of the Disclosure Document is to improve the understanding of
production agreements to thwart deception; thus clear, concise, and
understandable language is necessary. Therefore, this final rule adds a
new Sec. 201.102(g)(3) to the final rule to require live poultry
dealers engaged in the production of broilers to present the
information in the Disclosure Document in a clear, concise, and
understandable manner for growers. Paragraph Sec. 201.102(g)(3) also
notes that dealers may refer to Form PSD 6100 for further instructions
on the presentation of information and certain calculations.
Some commenters also indicated a need to ensure growers who are not
native speakers of English can understand the disclosures. As noted by
multiple commenters, non-native speakers of English are engaged in
poultry growing. For example, in the early 2000s, large numbers of
first-generation immigrant Hmong people, many of whom had been farmers
in their native Laos, moved from urban areas in California, Minnesota,
and North Carolina to the Ozark region in and around southwest Missouri
and started growing poultry. Pew Research Center studies show that the
English proficiency of the Hmong population in the U.S. in 2019 was
only 68% and, among foreign-born Hmong, English proficiency is just
43%.\64\ Data supports the concerns expressed by commenters regarding
providing poultry growers information in a manner growers are able to
understand. AMS agrees that providing documents in the language growers
best understand ensures fairness and reduces the risk of deception.
Therefore, AMS added new Sec. 201.102(g)(4) to the final rule to
require that live poultry dealers must make reasonable efforts to
ensure that growers are aware of their right to request translation
assistance and to assist the grower in translating the Disclosure
Document. This must be provided at least 14 calendar days before the
live poultry dealer executes the broiler growing arrangement that does
not contemplate modifications to the existing housing specifications
(provided that the grower may waive up to 7 calendar days of that time
period). Where modifications to the existing housing specifications are
contemplated, it must be provided when the live poultry dealer provides
the grower with the Disclosure Document. The timing requirement aligns
with the provision of the Disclosure Document by the live poultry
dealer as set forth in Sec. 201.102(a) as discussed above. Although
they are not required to do so, nothing in the rule prevents companies
from providing a translation, provided it is complete, accurate, and
not misleading.
---------------------------------------------------------------------------
\64\ Abby Budimen, ``Hmong in the U.S. Fact Sheet,'' Pew
Research Center's Social & Demographic Trends Project (May 24,
2022), available at <a href="https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/">https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/</a> (last accessed April 2023).
---------------------------------------------------------------------------
The final rule makes several other changes to the definitions
proposed in Sec. 201.2 of the proposed rule. It revises the
definitions of grower variable costs, growout, and growout period and
changes the latter two terms to poultry growout and poultry growout
period.
The proposed rule would have defined grower variable costs as
``those costs related to poultry production that may be borne by the
poultry grower, including, but not limited to, utilities, fuel, water,
labor, repairs and maintenance, and liability insurance.'' Commenters
representing the grower sector shared concern that the definition would
mandate that the costs listed were the only ones to potentially be
borne by the grower. Commenters stressed that these costs are often the
subject of negotiation between grower and live poultry dealer, with
some costs being paid by the live poultry dealer. Therefore, AMS
modified the definition in Sec. 201.2 of the final rule to replace the
words ``including, but not limited to'' with the words ``which may
include, but are not limited to.'' While this does not substantively
change the legal standard, this modification emphasizes that these are
examples of costs, yet still retains a definition that allows the
listed costs to be treated as grower variable costs under a poultry
growing arrangement if the parties choose to contract for them in some
other manner.
AMS also proposed to define growout as ``the process of raising and
caring for livestock or poultry in anticipation of slaughter'' and
growout period as ``the period of time between placement of livestock
or poultry at a grower's facility and the harvest or delivery of such
animals for slaughter, during which the feeding and care of such
livestock or poultry are under the control of the grower.'' However, a
commenter said the references to ``livestock or poultry'' in the
proposed definition of growout period may have unintended consequences
across other segments of the protein industry that do not use
tournament pay systems, as the definition of livestock in the Act
includes ``cattle, sheep, swine, horses, mules, or goats.'' Therefore,
in the final rule, AMS modified the definitions of these two terms to
remove references to livestock. In addition, AMS revised these terms to
refer to poultry growout and poultry growout period to clarify that it
intends these definitions to apply only in the poultry context for the
purposes of this rule.
AMS also made a few minor changes for clarification purposes. One
change is found in Sec. 201.104(a), substituting the word ``these''
for ``such'' in reference to poultry growing ranking system records.
[[Page 83228]]
The change was made to add specificity for the records that are
required to be maintained by live poultry dealers. Another change was
made in Sec. 201.102(b)(8), substituting the word ``statement'' for
``sentence''. This is a clarifying change to both maintain uniformity
in the language used throughout the regulatory text and to ensure
dealers understand the entire statement provided by 201.102(b)(8) must
be disclosed to growers.
Table 1 summarizes key differences between the proposed rule and
the final rule.
Table 1--Key Differences Between the Proposed Rule and Final Rule
----------------------------------------------------------------------------------------------------------------
Provision Proposed rule Changes to final rule
----------------------------------------------------------------------------------------------------------------
Applicability...................... All proposed requirements related to Creates new section Sec. 201.102--
disclosures and contract terms are Disclosures for broiler production
in Sec. 201.100--Disclosures and covering requirements for live
records to be furnished poultry poultry dealers engaged in the
growers and sellers (existing production of broilers, while
section with proposed revision of retaining requirements in current
heading). Sec. 201.100 for all live poultry
dealers.
Sec. 201.100(a) All live poultry Sec. 201.102(a) Changes
dealers must provide Live Poultry requirements to apply only to live
Dealer Disclosure Document and poultry dealers engaged in the
related documents to prospective or production of broilers.
current poultry growers. Adds wording to emphasize that these
requirements apply in addition to
the existing requirements in Sec.
201.100(a) for live poultry dealers
engaged in the production of
broilers.
Removes Sec. 201.100(f)--Grouping Retains Sec. 201.100(f).
or ranking sheets of existing rule.
Sec. 201.100(a)(1) When no Sec. 201.102(a)(1) Changes the
modifications to housing timing to 14 calendar days,
specifications are contemplated, a provided that the grower may waive
live poultry dealer must provide the up to 7 calendar days of that time
poultry growing arrangement and the period.
Disclosure Document at least 7 days Conforming changes made to the
before the live poultry dealer prominent disclosures to be
executes the poultry growing provided the grower and to receipt
arrangement. by growers. Sec.
201.102(b)(6)(i), Sec.
201.102(g)(4).
Sec. 201.100(h) Clarifies that the Sec. 201.100(b) Revises wording to
right to discuss the terms of the emphasize that the right for
poultry growing arrangement offer poultry growers or prospective
also applies to prospective poultry poultry growers to discuss the
growers and to the accompanying terms of the poultry growing
Disclosure Document. arrangement offer applies to the
Disclosure Document if that
document is applicable.
Sec. 201.100(i)(2) All live poultry Sec. 201.102(h) Moves requirements
dealers must include minimum annual to Sec. 201.102 and revises them
flock placements and minimum to apply only to live poultry
stocking density in contract. dealers engaged in the production
of broilers.
All provisions related to disclosures Renumbers section and revises
upon flock placement or settlement heading to Sec. 201.104--
are in proposed new Sec. 201.214-- Disclosures for broiler grower
Transparency in poultry grower ranking system payments.
ranking pay systems.
Sec. 201.214(b) All live poultry Sec. 201.104(b) Changes
dealers who use a poultry grower requirements to apply only to live
ranking system to calculate grower poultry dealers engaged in the
payments must provide certain production of broilers.
disclosures upon flock placement.
Sec. 201.214(c) All live poultry Sec. 201.104(c) Changes
dealers who use a poultry grower requirements to apply only to live
ranking system to calculate grower poultry dealers engaged in the
payments must provide certain production of broilers.
disclosures upon settlement. Clarifies that these dealers also
must comply with the existing
grouping or ranking sheet
requirements in retained Sec.
201.100 and that disclosures need
not show the names of other
growers.
Sec. 201.214(c)(1) Live poultry Sec. 201.104(c)(1) Removes
dealers who use a poultry grower requirements duplicated in retained
ranking system to calculate grower Sec. 201.100(f), leaving only the
payments must provide the grower a requirement for grouping or ranking
copy of a grouping or ranking sheet sheets to show each grower's
showing the grower's precise housing specification as applicable
position for that period. This sheet exclusively to live poultry dealers
does not need to show the names of engaged in the production of
other growers, but must show their broilers.
housing specification and the actual
figures the grouping or ranking for
each grower in the group during the
period is based on.
Terminology throughout rule refers to Updates terminology to specifically
poultry, poultry growers, poultry refer to broilers, broiler growers,
growing arrangements, prospective broiler growing arrangements,
poultry growers, and live poultry prospective broiler growers, and
dealers. live poultry dealers engaged in the
production of broilers where
necessary to describe which
entities must comply with new
requirements.
Required Disclosures Following the Sec. 201.100(c)(1) Live poultry Sec. 201.102(c)(1) Live poultry
Cover Page (Sec. 201.102(c)). dealers must disclose summary of dealers engaged in the production
litigation with any poultry grower of broilers must disclose summary
over the prior 6 years. of litigation with any broiler
Sec. 201.100(c)(2) Live poultry grower over the prior 5 years.
dealers must disclose summary of Sec. 201.102(c)(2) Live poultry
bankruptcy filings by dealer and any dealers engaged in the production
parent, subsidiary, or related of broilers must disclose summary
entity over the prior 6 years. of bankruptcy filings by dealer and
any parent, subsidiary, or related
entity over the prior 5 years.
Not in proposed rule................. Sec. 201.102(c)(4) Adds
requirement that live poultry
dealers engaged in the production
of broilers must include
description of policies,
procedures, and appeal rights in
Disclosure Document.
[[Page 83229]]
Not in proposed rule................. Sec. 201.102(c)(5) Adds
requirement that live poultry
dealers engaged in the production
of broilers must include grower
turnover rate data in Disclosure
Document.
Financial Disclosures (Sec. Sec. 201.100(d)(1) As part of Removed from final rule.
201.102(d)). required financial disclosures, live
poultry dealers must provide 1 year
of average annual gross payments to
growers for all complexes the dealer
owns or operates.
Sec. 201.102(d)(1) Revises
paragraph to specify that live
poultry dealers engaged in the
production of broilers must only
calculate average annual gross
payments for growers at the local
complex distributed by quintiles
for complexes with 10 or more
growers, and for complexes with
nine or fewer growers, must
calculate the mean payment and one
standard deviation from the mean.
Small Live Poultry Dealer Financial Sec. 201.100(e) A live poultry Sec. 201.102(e) Revises provision
Disclosures (Sec. 201.102(e)). dealer, including all parent and to provide that exemption applies
subsidiary companies, slaughtering for live poultry dealers engaged in
fewer than 2 million live pounds of the production of broilers if the
poultry weekly (104 million pounds dealer together with all companies
annually) is exempt from Disclosure controlled by or under common
Document requirements if contract control with the dealer slaughters
does not contemplate revisions to fewer than 2 million live pounds of
existing housing specifications that broilers weekly (104 million pounds
would require poultry grower to make annually).
capital investments.
Governance and Certification (Sec. Sec. 201.100(f)(1)(i) Live poultry Removed from final rule.
201.102(f)). dealer governance framework must
include audits, testing, and review
of sample of Disclosure Documents.
Receipt by Growers (Sec. Sec. 201.100(g)(1) Disclosure Sec. 201.100(g)(1) Adds language
201.102(g)). Document must include grower to statement regarding grower
signature page containing specific rights to state that growers may
statement regarding grower rights report potential violations to USDA
related to document. and DOJ portal at <a href="https://www.farmerfairness.gov">https://www.farmerfairness.gov</a>. or by phone
at 1-833-DIAL-PSD (1-833-342-3773)
and obtain further information on
rights and responsibilities under
the Act at <a href="http://www.ams.usda.gov">www.ams.usda.gov</a>.
Sec. 201.100(g)(2) Live poultry Sec. 201.102(g)(2) Adds provision
dealers must verify grower receipt allowing live poultry dealers
by obtaining grower's dated engaged in the production of
signature on signature page of broilers to obtain alternative
Disclosure Document. documentation to evidence delivery
and that best efforts were used to
obtain grower receipt.
Not in proposed rule................. Sec. 201.102(g)(3) Adds
requirements for live poultry
dealers engaged in the production
of broilers to ensure that the
Disclosure Document is written in
clear, concise, and understandable
manner for growers.
Not in proposed rule................. Sec. 201.102(g)(4) Adds
requirement that the dealer must
make reasonable efforts to ensure
that growers are aware of their
right to request translation
assistance, and to assist the
grower in obtaining a translation
or understanding the Disclosure
Document at least 14 calendar days
before executing a growing
arrangement that does not
contemplate modifications to the
existing housing specifications
(provided that the grower may waive
up to 7 calendar days of that time
period). Where modifications to the
existing housing specifications are
contemplated, it must be provided
when the live poultry dealer
provides the grower with the
Disclosure Document.
Not in proposed rule................. Adds definitions for broiler,
broiler grower, broiler growing
arrangement, and prospective
broiler grower.
Not in proposed rule................. Adds definition for gross payments.
Grower variable costs is defined as Revises definition to refer to costs
those costs related to poultry ``which may include, but are not
production that may be borne by the limited to'' the listed costs
poultry grower, including, but not rather than ``including, but not
limited to, utilities, fuel, water, limited to,'' these costs.
labor, repairs and maintenance, and
liability insurance.
Terms Defined (Sec. 201.2)....... Growout is defined as the process of Revises definition to refer to term
raising and caring for livestock or as poultry growout and exclude
poultry in anticipation of slaughter. livestock.
Growout period is defined as the Revises definition to refer to term
period of time between placement of as poultry growout period and
livestock or poultry at a grower's exclude livestock.
facility and the harvest or delivery
of such animals for slaughter,
during which the feeding and care of
such livestock or poultry are under
the control of the grower.
----------------------------------------------------------------------------------------------------------------
[[Page 83230]]
VII. Comment Analysis
AMS received 504 comments on the proposed rule, some with multiple
signatories. Comments received were generally more supportive of the
proposed rule than opposed. Many commenters generally agreed with the
proposed rule's justification and implementation. These commenters
stated that the proposed rule would be helpful because it would provide
for fairer treatment of growers and enable growers to better
understand, evaluate, and compare contracts among dealers, enhancing
growers' ability to bargain efficiently. Commenters stated further that
the proposed rule would reduce the power of large corporations in the
industry, improve public trust in agriculture, and increase
transparency regarding food products.
Other commenters were generally critical of the proposed rule.
These commenters expressed general disagreement with AMS proposing a
rule at all, arguing the current system is fair and efficient and that
the tournament system rewards growers for efficiency, innovation, and
raising the best birds possible. Several commenters stated the proposed
rule is not fair and would result in a less efficient industry because
it would reward less productive growers, disincentivize hard work, and
add more paperwork.
The public comments are summarized by topic below and include AMS's
responses.
A. Proposed Definitions
AMS proposed to revise Sec. 201.2 containing relevant definitions
by removing the paragraph designations within the section, reorganizing
the definitions alphabetically, and adding definitions for new terms
used in the proposed rule. In addition, to ensure a common
understanding of the use and meaning of certain terms already used in
the regulations and included in the revisions, AMS proposed to
incorporate the statutory definitions for those terms.
Grower Variable Costs
AMS proposed defining grower variable costs as ``those costs
related to poultry production that may be borne by the poultry grower,
including, but not limited to, utilities, fuel, water, labor, repairs
and maintenance, and liability insurance.'' \65\
---------------------------------------------------------------------------
\65\ Liability insurance may be a fixed cost for many growers,
but we include it here because that may not be so in all
circumstances, while the purpose of this rule is to provide enhanced
information to all growers.
---------------------------------------------------------------------------
Comment: Some commenters shared concern that the definition of
grower variable costs creates the impression that it is a regulatory
requirement or expectation that the costs listed therein are to be
borne by the grower, thereby harming growers' ability to negotiate
those terms. Commenters stressed that these costs are sometimes the
subject of negotiation between grower and live poultry dealer, with
some costs being paid by the live poultry dealer.
AMS response: AMS modified the definition of grower variable costs
to replace the words ``including, but not limited to'' with the words
``which may include, but are not limited to.'' The modification in the
definition, in particular the use of the term ``may,'' underscores that
the requirement to provide transparency for any grower costs, including
those listed in the definition, do not create a mandate upon the live
poultry dealer or grower with respect to who bears any of the specific
listed costs. In many, if not most contracts today, based on AMS's
experience, the listed examples would be considered grower variable
costs.\66\ But the rule does not prevent the parties from negotiating
other arrangements, such as the live poultry dealer accepting
responsibility for the payment of those cost items. This approach is
consistent with the rule's general approach of enhancing transparency.
---------------------------------------------------------------------------
\66\ See Jennifer Rhodes, Extension Educator, et al, University
of Maryland, ``Broiler Product Management for Potential and Existing
Grower,'' Tables 1 and 2, available at Poultry Budgets, Enterprise
Budgets, Agricultural and Resource Economics, North Carolina State
University Extension, <a href="https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/poultry-budgets/">https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/poultry-budgets/</a> (last
accessed April 2023). Also see Dan L. Cunningham and Brian D.
Fairchild, University of Georgia Cooperative Extension, ``Broiler
Production Systems in Georgia Costs and Returns Analysis 2011-
2012,'' Bulletin 1240, and Tomislav Vukina, ``Vertical Integration
and Contracting in the Poultry Sector,'' Journal of Food
Distribution Research (July 2001).
---------------------------------------------------------------------------
AMS considered whether to remove the list of potential variable
costs, as requested by the commenter. AMS rejected that approach
because it poses a risk of complexity or confusion in compliance, as
live poultry dealers may not know which types of grower variable costs
are generally required to be disclosed under most contracts today. AMS
notes that the listing of any particular grower variable cost does not
prevent the parties from contracting for other arrangements regarding
who bears the burden of any particular grower variable costs.
Growout and Growout Period
AMS proposed to define growout as the process of raising and caring
for livestock or poultry in anticipation of slaughter and growout
period as the period of time between placement of livestock or poultry
at a grower's facility and the harvest or delivery of such animals for
slaughter, during which the feeding and care of such livestock or
poultry are under the control of the grower.
Comment: A meat and poultry industry trade association made up of
processors commented that the references to ``livestock or poultry'' in
the proposed definition of growout period may have unintended
consequences across other segments of the protein industry that do not
use tournament pay systems, as the definition of livestock in the Act
includes ``cattle, sheep, swine, horses, mules, or goats.'' The
commenter stated that it is not aware of uses of the tournament system
in the production of these species and AMS has not provided any facts
to suggest that those species have a growout period as the term would
be employed in the poultry industry. The commenter recommended AMS
revise this definition to eliminate ``livestock'' and review all
definitions to avoid unintended consequences for other protein
segments.
AMS response: This final rule modifies the proposed definitions for
growout period and growout to apply only to poultry. The references to
livestock in the proposed definitions were offered to provide a more
generally applicable definition but are not needed at this time and are
therefore removed. To improve clarity, we also changed the proposed
terms growout and growout period in Sec. 201.2 to instead refer to
poultry growout and poultry growout period, respectively.
Housing Specifications
AMS proposed to define housing specifications as a description of--
or a document relating to--a list of equipment, products, systems, and
other technical poultry housing components required by a live poultry
dealer for the production of live poultry.
Comment: A poultry industry trade association commented that the
proposed definition of housing specifications is unnecessarily vague
and lends itself to multiple interpretations. The commenter said there
are endless combinations of equipment, products, systems, and other
technical poultry housing components that could result in dealers
having to organize dozens of housing specifications, adding significant
complexity for the dealer, and creating confusion for the grower. The
commenter stated that because farms are built with the technology in
use at the time, the housing types and technology
[[Page 83231]]
in use generally correlate with the age of the facility.
To simplify the categorization of housing specifications in
Disclosure Documents and settlement sheets, the commenter recommended
that AMS revise the definition to clarify that live poultry dealers are
permitted to devise their own categories of housing specification for
the purposes of the Disclosure Documents and settlement sheets, which
will allow dealers to prepare and present data based on the types of
housing that their growers use to raise birds for them. The commenter
noted, at the least, AMS should revise the definition to narrow the
housing specification to key elements of housing, namely, the type of
ventilation (for example, curtain or tunnel ventilation) and whether
the house is a brood and growout house or only accommodates the growout
stage.
AMS response: AMS does not agree and will not revise the proposed
definition of housing specifications in response to this comment. The
definition does not limit dealers' ability to categorize poultry
housing. Dealers are free to list the minimum or required equipment or
technical specifications that would qualify under a given housing
specification category.
Poultry Grower Ranking System
AMS proposed to define poultry grower ranking system as a system
where the contract between the live poultry dealer and the poultry
grower provides for payment to the poultry grower based upon a
grouping, ranking, or comparison of poultry growers delivering poultry
during a specified period.
Comment: Several commenters argued that the proposed definition of
poultry grower ranking system lacks sufficient flexibility. These
commenters stated that the regulations appear to contemplate only two
contract types--flat payment or a tournament system--and do not
encompass the many forms of contracting in use in today's market, let
alone innovative contracting arrangements.
Comments recommended that AMS revise the definition to exclude from
the scope of the proposed rule poultry grower compensation systems
where there is a fixed base pay, regardless of how any incentive-based
bonus may be calculated. They recommended revising the definition of
poultry grower ranking system to mean ``a system where the contract
between the live poultry dealer and the poultry grower provides for
base payment to the poultry grower based upon a grouping, ranking, or
comparison of poultry growers delivering poultry during a specified
period.''
AMS response: AMS has fully considered the applicability of
``poultry grower ranking system'' to a wide range of possible
compensation systems and intends for the relevant provisions of this
rule governing comparisons to be applied broadly. AMS recognizes that
certain designs of grower comparisons may provide more desirable
outcomes for contracting participants in different circumstances, and
in issuing this final rule, AMS is creating transparency in payment
systems. However, commenters' recommendation would limit the
disclosures of this rule only to those instances of variable base pay,
even when comparison rankings affect performance pay in a manner that,
under current conditions, is opaque and misleading to the grower.
Addressing this widespread deceptive practice is squarely the purpose
of this final rule.
The definition was developed to be consistent with the approach set
forth in current Sec. 201.100(f)--Growing or ranking sheets, that has
been in place since 1989,\67\ and provides transparency to growers who
are paid based on the live poultry dealer's grouping or ranking of
poultry growers delivering poultry during a specified period.
---------------------------------------------------------------------------
\67\ 54 FR 16356, April 24, 1989.
---------------------------------------------------------------------------
AMS does not agree that it is necessary or appropriate to
distinguish between types of ranking systems for the purposes of this
rule. Commentors asserted that fix-based pay systems that included
bonuses for better rankings are distinguishable from systems that have
a variable base pay established by the grower's ranking. Their proposal
would limit the disclosures of this rule to those instances of variable
base pay, even when there are other comparison rankings. In AMS's view,
any comparison of growers is a ranking system because when growers are
compared to each other, the basis for grower payment is changed. No
longer is payment based only upon the intrinsic work of one particular
grower. Instead, payment is based upon a relative outcome between
growers, where similarities or differences between them become
especially important. For example, under any system of grower ranking,
comparative information about inputs may illuminate and magnify
differences where those differences can impact performance and payment.
In particular, AMS rejects the suggested limitation of grower
ranking systems either to the calculation of base-pay-plus-incentive
payment or entirely to base pay. In either circumstance, growers are
exposed to comparisons in the context of performance payments, which
could make up a sizable, if not an overwhelming, portion of their
compensation and be subject to significant variability for reasons
outside of their control or awareness. Regardless of what type of
ranking system is used, growers are entitled to know the reasons behind
payment differences that may relate to inputs or other important
differences affecting the outcome because that information is necessary
to avoid deception for the reasons described throughout this final
rule.
AMS recognizes that payment systems may evolve and that parties may
wish to innovate in payment systems to the extent those systems are
transparent and free of potential deception. Transparency is fully
compatible with such innovation because it encourages a responsible,
accountable form of that innovation. The rule's required disclosures
regarding input differences provide growers with the information they
need to be able to adjust to any input differences that may exist,
including in advance of input delivery and over time when comparing
outcomes of a series of growouts. Accordingly, AMS is not changing the
definition of poultry grower ranking system as proposed based on these
comments. Poultry companies and growers should contact AMS to discuss
questions about compensation systems.
AMS provides an estimate of the value of improved transparency in
the regulatory analysis section.
Other Comments on Definitions
Comment: Several non-profit organizations suggested AMS add several
new definitions to Sec. 201.2. First, the commenters noted that the
proposed rule, as well as current regulations under the Act, appear to
use the term ``facility'' to refer to a poultry grower's poultry houses
collectively, rather than individually. Therefore, they recommended
that AMS add a definition for poultry house to allow for clarity in
circumstances where it needs to refer to individual poultry houses.
Second, the commenters noted that the proposed rule uses the term
``tournament system'' in a manner that appears to be synonymous with
``poultry grower ranking system.'' Therefore, they recommended that AMS
define tournament system to be synonymous with poultry grower ranking
system.
AMS response: This rule applies at the farm level and therefore
does not require specification of a separate term to refer to an
individual poultry house
[[Page 83232]]
beyond that already provided by housing specification. In addition, the
term ``tournament system'' does not appear in the rule text itself.
Therefore, AMS made no changes to the definition of poultry grower
ranking system in the final rule.
B. Applicability
AMS proposed to revise Sec. 201.100(a) to require a live poultry
dealer to provide certain documents to a prospective poultry grower
when the live poultry dealer seeks to establish a poultry growing
arrangement, or to a current poultry grower when a live poultry dealer
seeks to modify an existing poultry growing arrangement. AMS proposed
to apply this Disclosure Document requirement to live poultry dealers
in all segments of the poultry production industry. Poultry is defined
in section 182(6) of the Act to include chickens, turkeys, ducks,
geese, and other domestic fowl. AMS requested comments on whether the
disclosure requirements should apply to all segments of the poultry
production industry, or if the requirements should be limited to
broiler and turkey production.
Comment: Comments received stated that the disclosure requirements
should only apply to contractual agreements within the tournament
system of growing poultry and noted the disclosures are largely meant
for the broiler industry, where many of the complaints arise.
An association representing the turkey industry noted the
provisions of the proposed rule were not based on substantial research
into the turkey industry and asserted many of the provisions would be
difficult or impossible for turkey companies to implement, citing
differences in turkey growing cycles, flock densities, bird gender
distributions, and other factors dissimilar to those involved in
broiler production.
AMS response: As discussed previously, AMS subject matter experts
analyzed turkey production contracts from across the country and found
more variability than in broiler contracts. The variability reflects
the biological differences found among turkey breeds and longer
placement times of turkeys with growers that can impact payments to
producers. AMS has not received many complaints from turkey growers.
Similarly, other (non-broiler chicken) poultry growers have not
expressed concerns regarding practices in their industry. AMS
determined it is appropriate at this time to limit the scope of the
disclosure requirements in this rule to apply only to broiler
production under a poultry growing arrangement.
This final rule contains a new section Sec. 201.102 containing
these disclosure provisions and specifying that they apply exclusively
to live poultry dealers engaged in the production of broilers, while
maintaining the current requirements at Sec. 201.100, which continue
to apply to all live poultry dealers. This rule also makes conforming
changes to Sec. 201.2 to define broiler as ``any chicken raised for
meat production,'' broiler grower as ``a poultry grower engaged in the
production of broilers,'' broiler growing arrangement as ``a poultry
growing arrangement pertaining to the production of broilers,'' and
prospective poultry grower as ``a person or entity with whom the live
poultry dealer is considering entering into a broiler growing
arrangement.'' This final rule further clarifies that the right of
current or prospective poultry growers to discuss the terms of a
poultry growing arrangement offer applies to the Disclosure Document in
circumstances that require dealers to provide this document. All
poultry growers are protected by the Act's prohibitions on deceptive
practices, and AMS has the authority to address instances or
circumstances where poultry growers are not provided sufficient
information to make informed decisions on poultry growing arrangements
or changes thereto, including additional capital investments.
Because this final rule limits all the new disclosure requirements
to broiler production, this rule modifies the proposed requirement for
live poultry dealers to include in their contracts the minimum number
of flock placements to be delivered to growers annually and the minimum
stocking density of those placements, applying it exclusively to live
poultry dealers engaged in the production of broilers. This final rule
also changes the proposed requirement in Sec. 201.214 to apply
exclusively to live poultry dealers engaged in the production of
broilers who use a poultry grower ranking system to calculate grower
payments. AMS retains the current grouping or ranking sheet
requirements for all live poultry dealers in Sec. 201.100(f) of the
current rule.
Comment: Several commenters said the rule should apply to pullet
and breeder hen growers as well as broiler growers because pullet and
breeder hen production is also controlled by live poultry dealers.
AMS response: Although live poultry dealers may control pullet and
breeder hen production, those birds are typically raised for egg and
chick production and not for slaughter purposes. The Act's poultry
provisions cover only poultry raised for slaughter. Because there is no
provision for doing so under the Act, AMS is not making this rule
applicable to pullet and breeder hen production.
C. Disclosure Document and Letter of Intent
AMS proposed to amend Sec. 201.100 to revise the list of
disclosures and information live poultry dealers must provide to
poultry growers and sellers with whom dealers make poultry growing
arrangements. Currently, when a live poultry dealer offers an
arrangement with a poultry grower, the dealer must furnish a true
written copy of the growing arrangement. In the proposed rule, AMS
proposed to require a live poultry dealer who seeks to establish a new
growing arrangement; renew, revise, or replace an existing arrangement;
or enter an arrangement with a poultry grower or prospective poultry
grower that will require original capital investment to also provide a
Disclosure Document that contains specific information. When the
arrangement requires an original capital investment or modifications to
existing housing specifications that could require the poultry grower
to make an additional capital investment, AMS proposed to require the
dealer to provide a letter of intent that can be relied upon by the
grower to obtain additional capital investment.
Utility of Information Provided
Comment: AMS asked whether the information in the proposed rule's
required disclosures would help poultry growers make informed business
decisions and better understand poultry growing arrangements, or
otherwise better address deceptive practices faced by poultry growers.
Most commenters supported requiring the Disclosure Document information
as proposed, saying the information will help poultry growers make more
informed business decisions and reduce risks of deception. However,
some commenters said the rule will be costly and will confuse poultry
growers. These commenters stated that relevant information is already
provided to growers and the additional proposed disclosures would not
be helpful.
AMS response: AMS does not agree with the comments received in
opposition to the proposed information disclosures. Requirements for
disclosing information to broilers are not new to live poultry dealers.
The current regulations at Sec. 201.100 already require disclosures
from live poultry dealers.
[[Page 83233]]
This final rule expands the information that live poultry dealers are
required to provide to boiler growers. AMS's experience in reviewing
live poultry dealers' records suggest that live poultry dealers already
keep records of most of the information that the final rule would
require them to disclose. Although the final rule does impose
additional costs on live poultry dealers, the additional costs
associated with the disclosures consist primarily of assembling the
information and distributing it to growers. AMS expects that the
additional costs that live poultry dealers would face will amount to
$2.43 million in the first year and $6.04 million over ten years.
AMS expects that the benefits or utility of the information
disclosed to broiler growers will outweigh the costs of producing and
distributing the information. AMS estimated the benefits to broiler
growers from reduced revenue uncertainty to be $2.7 million in the
first year and $26.9 million over ten years. Comments received from
growers indicated that with additional information, they might have
made different business decisions with regard to poultry growing
arrangements.\68\ Further, the information provided in the disclosures
should not confuse those currently in the business of growing broilers,
provided it is explained in clear language. Prospective broiler growers
are expected to benefit from the disclosed information as they more
fully appreciate and consider aspects of the business that need their
careful attention. Accordingly, AMS made no changes to the rule as
proposed based on these comments.
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\68\ Comments on Proposed Rule: Transparency in Poultry Grower
Contracting and Tournaments, (Aug. 2022), <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0044-0479">https://www.regulations.gov/comment/AMS-FTPP-21-0044-0479</a> (See, for
instance, Background section in this rulemaking, which cites
comments from numerous growers about how they lacked important
information to make informed growing decisions and about how.
required disclosure of such information would greatly benefit them.
Moreover, integrators typically already collect such information for
their own use without disclosing it to growers.).
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Partial Exemption for Small Dealers
In proposed Sec. 201.100(e)--Small live poultry dealer financial
disclosures--AMS proposed to exempt live poultry dealers who, in
conjunction with any parent and subsidiary companies, slaughter fewer
than 2 million live pounds of poultry weekly (104 million pounds
annually) from the requirement to provide the Disclosure Document under
proposed Sec. 201.100(a)(1). As proposed, the exemption would apply
only if the new, renewed, or replacement contract offered by one of
these dealers does not include revisions to existing housing
specifications that would require the grower to make new or additional
capital investments. AMS requested comments on the proposed partial
exemption, including whether AMS should consider other approaches, such
as different thresholds, for applying the small live poultry dealer
partial exemption.
Comment: Some commenters said they opposed the proposed rule's
partial exemption from the disclosure requirements for live poultry
dealers that slaughter fewer than 2 million live pounds of poultry
weekly because it would exempt almost half of the live poultry dealer
industry from these requirements, arguing that growers and flocks
involved with small dealers could suffer the same disadvantages as
others in the industry without receiving the benefits of the rule.
These commenters noted that, according to AMS's analysis, the exemption
would apply to 47 out of 89 live poultry dealers.
AMS response: The total production volume exempted, rather
[…truncated; see source link]Indexed from Federal Register on November 28, 2023.
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.