Rule2024-04419
Inclusive Competition and Market Integrity Under the Packers and Stockyards Act
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
March 6, 2024
Effective
May 6, 2024
Issuing agencies
Agriculture DepartmentAgricultural Marketing Service
Abstract
The U.S. Department of Agriculture's (USDA or Department) Agricultural Marketing Service (AMS or the Agency) amends its Packers and Stockyards Act, 1921, regulations to prohibit undue prejudice and unjust discrimination against individuals on a prohibited basis unrelated to the quality of the service or product provided. The rule also identifies retaliatory practices that interfere with lawful communications, assertion of rights, and associated participation, among other protected activities, as unjust discrimination prohibited by the law. Finally, the rule identifies deceptive practices that violate the Packers and Stockyards Act with respect to contract formation, contract performance, contract termination, and contract refusal. The purpose of this rule is to promote inclusive competition and market integrity in the livestock, meats, poultry, and live poultry markets.
Full Text
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[Federal Register Volume 89, Number 45 (Wednesday, March 6, 2024)]
[Rules and Regulations]
[Pages 16092-16199]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-04419]
[[Page 16091]]
Vol. 89
Wednesday,
No. 45
March 6, 2024
Part II
Department of Agriculture
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Agricultural Marketing Service
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9 CFR Part 201
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act; Final Rule
Federal Register / Vol. 89 , No. 45 / Wednesday, March 6, 2024 /
Rules and Regulations
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-21-0045]
RIN 0581-AE05
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act
AGENCY: Agricultural Marketing Service, Department of Agriculture
(USDA).
ACTION: Final rule.
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SUMMARY: The U.S. Department of Agriculture's (USDA or Department)
Agricultural Marketing Service (AMS or the Agency) amends its Packers
and Stockyards Act, 1921, regulations to prohibit undue prejudice and
unjust discrimination against individuals on a prohibited basis
unrelated to the quality of the service or product provided. The rule
also identifies retaliatory practices that interfere with lawful
communications, assertion of rights, and associated participation,
among other protected activities, as unjust discrimination prohibited
by the law. Finally, the rule identifies deceptive practices that
violate the Packers and Stockyards Act with respect to contract
formation, contract performance, contract termination, and contract
refusal. The purpose of this rule is to promote inclusive competition
and market integrity in the livestock, meats, poultry, and live poultry
markets.
DATES: This rule is effective May 6, 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;
Telephone: (202) 690-4355; or email: <a href="/cdn-cgi/l/email-protection#bccf92deced9c8c892d3dadac9c8c8fc80dd9cd4ced9da81" http: usda.gov">usda.gov</a>">s.brett.offutt@<a href="http://usda.gov">usda.gov</a></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Background
A. Current Market Structure
B. Risks and Implications for Producers
C. Need for This Rulemaking
III. Authority
IV. Summary of the Proposed Rule
V. Changes From the Proposed Rule
A. Market Vulnerable Individual (MVI) to Prohibited Bases
B. Prohibited Actions Taken on a Prejudicial Basis
C. Exceptions to the Prohibited Bases
D. Retaliation Provisions
E. Technical Changes
VI. Provisions of the Final Rule
A. Definitions (Sec. 201.302)
B. Undue Prejudice and Unjust Discrimination (Sec. 201.304(a))
C. Retaliation (Sec. 201.304(b))
D. Recordkeeping (Sec. 201.304(c))
E. Deceptive Practices (Sec. 201.306)
F. Severability (Sec. 201.390)
VII. Comment Analysis
A. Definitions (Sec. 201.302)
B. Applicability
C. Undue Prejudices and Unjust Discrimination (Sec. 201.304(a))
D. Specific Actions Constituting Prejudice or Disadvantage
(Sec. 201.304(a)(2))
E. Retaliation (Sec. 201.304(b))
F. Recordkeeping (Sec. 201.304(c))
G. Deceptive Practices (Sec. 201.306)
H. Severability (Sec. 201.390)
I. Effective and Compliance Dates
J. Regulatory Notices & Analysis & Executive Order
Determinations
K. Comments on Legal Authority or Other Legal Issues
L. Other Comments Related to the Proposed Rule
VIII. Regulatory Analysis
A. Paperwork Reduction Act
B. Executive Orders 12866, 13563, and 14094; Regulatory Impact
Analysis; and the Regulatory Flexibility Act
C. Executive Order 13175--Consultation and Coordination With
Indian Tribal Governments
D. Civil Rights Impact Statement
E. Executive Order 12988--Civil Justice Reform
F. E-Government Act
G. Unfunded Mandates Reform Act
H. Congressional Review Act
I. Executive Summary
The rise of concentration and changes in contracting practices in
livestock and poultry markets over the last four decades have
facilitated and exposed producers and growers (hereafter, producers
unless otherwise noted) to increasing economic harms from exclusionary,
prejudicial, or otherwise discriminatory conduct, as well as deceptive
conduct, by packers, swine contractors, and live poultry dealers
(hereinafter regulated entities, unless otherwise noted). The
regulatory toolkit embodied in the Packers and Stockyards Act, 1921, as
amended (P&S Act or the Act) (7 U.S.C. 181 et seq.), authorizes USDA to
issue regulations to address these issues. This final rule seeks to
address a discrete but important set of those wrongfully exclusionary
or deceptive practices that undermine inclusive competition and market
integrity: specifically, (1) discriminatory prejudices on certain bases
relating to the producer's characteristics, (2) retaliation for
engaging in certain acts as part of being a livestock or poultry
producer or grower, and (3) false or misleading statements or material
omissions in certain contexts. These practices deny producers
opportunities to compete in the marketplace and earn the full value of
their livestock sales or poultry growout services.
On October 3, 2022, AMS published in the Federal Register (87 FR
60010) a proposal to amend the regulations implementing the Act located
in title 9, part 201, of the Code of Federal Regulations (CFR) by
adding a new subpart O titled ``Competition and Market Integrity.'' AMS
solicited comments on the proposed rule for an initial period of 60
days, and extended the comment period for an additional 45 days on
November 30, 2022 (87 FR 73507). AMS received 446 comments from
industry trade associations, non-profit organizations, individuals,
State attorneys general, farm bureaus, academic/research institutions,
and other groups. After consideration of all comments, AMS is adopting
the proposed rule, with modifications designed to increase specificity
and, therefore, certainty and enforceability.
AMS is issuing these regulations to enhance basic protections that
modern livestock and poultry producers need to promote inclusive
competition and market integrity. Specifically, this final rule will:
<bullet> Prohibit, as undue prejudices or disadvantages, actions
that inhibit market access or actions that are otherwise adverse to
covered producers on the basis of race, color, religion, national
origin (including ethnicity), sex (including sexual orientation and
gender identity, as well as pregnancy), disability, marital status, or
age; or because of the covered producer's status as a cooperative, with
certain narrow exceptions such as the provision of religious meats and
the functions of Tribal governments;
<bullet> Prohibit, as unjust discrimination, retaliatory and
adverse actions that interfere with lawful communications, assertion of
rights, associational participation, and other protected activities;
<bullet> Prohibit, as deceptive practices, regulated entities
employing false or misleading statements or omissions of material
information in contract formation, performance, and termination; and
prohibit regulated entities from providing false or misleading
representations regarding refusal to contract; and
<bullet> Require recordkeeping to support USDA monitoring,
evaluation, and enforcement of compliance with aspects of this rule.
AMS is adopting this final rule to promote inclusive competition
and market integrity, as rational decision-making, so critical to
economic success, can most effectively occur in a market free of the
practices prohibited by this
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rule. This final rule also affirms the importance of a clear and direct
regulatory framework with respect to prohibited conduct, thus
protecting producers in the marketplace. This rule does not address
every possible way in which producers may be wrongfully excluded or
deceived under the Act. Producers who believe their rights under the
Act have been violated--whether specifically under this final rule, or
in other circumstances--can report a violation to AMS.\1\ For some
matters in poultry, USDA further refers the case to the U.S. Department
of Justice (DOJ) for enforcement.\2\ Producers may also enforce the law
and its regulations through private rights of action under the Act.
Penalties under the Act depend upon the nature of the particular
violation, including the particular animal species, and range from
monetary penalties to injunctive relief.
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\1\ Parties may report tips or complaints to <a href="http://farmerfairness.gov">farmerfairness.gov</a>.
Additional information is available at <a href="https://www.ams.usda.gov/services/enforcement/psd/reporting-violations">https://www.ams.usda.gov/services/enforcement/psd/reporting-violations</a>.
\2\ 7 U.S.C. 181, including sections 203-205, 404, and 308 of
the Act.
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This final rule is effective 60 days after publication in the
Federal Register. AMS has chosen this effective date because it
believes that compliance with this final rule will not require
significant administrative or financial obligations for regulated
entities. The low cost, coupled with minimal process changes regulated
entities will be required to make to comply, support an effective date
60 days after publication. Sixty days will provide adequate time for
regulated entities to be informed of the specified conduct this final
rule prohibits as well as make changes to comply with the final rule.
II. Background
A. Current Market Structure and Risks for Producers
Market abuses of discrimination, retaliation, and deception can
occur in livestock and poultry markets. Such conduct is amplified and
exacerbated under increasingly concentrated livestock and poultry
markets. Such markets are dominated by a few large packers and live
poultry dealers. Additionally, changes in contracting practices,
specifically bilateral contracting and vertical contracting that
reaches farther into the production aspects of livestock and poultry,
have given processors greater control over producers. These changes can
exacerbate the impacts of discriminatory, retaliatory, and deceptive
conduct by packers and live poultry dealers, which inhibits producers
from fully participating in livestock and poultry markets or obtaining
the full value of their livestock and poultry products and services.
With few marketing options in concentrated markets, producers are more
likely to suffer long lasting harm from market abuses by packers and
live poultry dealers than would be the case in a marketplace that is
more competitive.
A review of the historical structure of livestock and poultry
markets shows how the risk of worsened competitive conditions or
materially adverse effects to producers at the hands of a few large
processors (livestock packers and live poultry dealers) has grown over
time. In the late 1800s to early 1900s, the ``Big Five'' \3\ large meat
packers dominated the livestock market by working cooperatively to
jointly set prices and divide territories amongst
themselves.<SUP>4 5</SUP> In 1921, Congress enacted the Packers and
Stockyards Act, 7 U.S.C. 181-229, to promote effective competition and
integrity in livestock, meat, and poultry markets because it believed
that the large packers employed anticompetitive or abusive practices
that harmed producers and consumers.\6\ The objective of the P&S Act is
``to assure fair trade practices in the livestock marketing . . .
industry in order to safeguard farmers and ranchers against receiving
less than the true market value of their livestock.'' \7\ After the
enactment of the P&S Act, several decades of relatively more
competitive conditions in the livestock markets prevailed; however,
structural shifts in the industry defined by technological and
productivity advances and mergers and acquisitions by meat processors
led to fewer and larger meat processors--increased market
concentration--in the latter half of the 20th century. This
transformation led to much larger sized packing plants, multi-plant
packers and live poultry dealers; raised barriers to entry; reduced the
number of meat processor competitors; and reduced competition. Today,
greater use of bilateral and vertical contracting in the livestock and
poultry industries also gives regulated entities greater practical
ability to cause these harms in ways that are hard for producers to
avoid.
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\3\ Swift & Company, Armour and Company, The Cudahy Packing
Company, Wilson & Co., Inc., and Morris & Company, Rosales, W.E.,
2005. Dethroning economic kings: The Packers and Stockyards Act of
1921 and its modern awakening. Journal of Agricultural & Food
Industrial Organization, 3(2). Accessed at <a href="https://www.degruyter.com/document/doi/10.2202/1542-0485.1118/html">https://www.degruyter.com/document/doi/10.2202/1542-0485.1118/html</a> on 01-09-
2024. See also, David Gordon, The Beef Trust: Antitrust Policy and
the Meat Packing Industry, 1902-1922, at 230, 290 (1983) (Ph.D.
Dissertation, Claremont Graduate School) (on file with the Wisconsin
Historical Society Library) (referring to the ``Big Five'' and the
``Beef Trust'' interchangeably). <a href="https://www.proquest.com/openview/b8fb565a39cdb1190b7b80e932cb8495/1?cbl=18750&diss=y&pq-origsite=gscholar&parentSessionId=XHRnq%2FulA9IQvIv3F8HNW40SbD8BIeNZTdBAIYAD8bQ%3D">https://www.proquest.com/openview/b8fb565a39cdb1190b7b80e932cb8495/1?cbl=18750&diss=y&pq-origsite=gscholar&parentSessionId=XHRnq%2FulA9IQvIv3F8HNW40SbD8BIeNZTdBAIYAD8bQ%3D</a>.
\4\ Rosales, William E. ``Dethroning Economic Kings: The Packers
and Stockyards Act of 1921 and its Modern Awekening'' Journal of
Agricultural & Food Industrial Organization 3, no. 2, access Feb. 1,
2024, (2005), <a href="https://doi.org/10.2202/1542-0485.1118">https://doi.org/10.2202/1542-0485.1118</a>.
\5\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt,
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May
15, 2006. Available online at: <a href="https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html">https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html</a>.
\6\ The Packers and Stockyards Act: An Overview, National
Agricultural Law Center, access Feb. 1, 2024, <a href="https://nationalaglawcenter.org/overview/packers-and-stockyards/">https://nationalaglawcenter.org/overview/packers-and-stockyards/</a>
\7\ Bruhn's Freezer Meats v. U.S. Dep't of Agric., 438 F.2d
1332, 1337 (8th Cir. 1971), cited in Van Wyk v. Bergland, 570 F.2d
701, 704 (8th Cir. 1978) in AGRICULTURE DECISIONS Volume 72 Book One
Part Two (P & S) Pages 371-434, page 13, access Feb. 1, 2024,
<a href="https://www.usda.gov/sites/default/files/documents/Vol%2072%20Book%201%20Part%202.pdf">https://www.usda.gov/sites/default/files/documents/Vol%2072%20Book%201%20Part%202.pdf</a>.
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The following table shows the level of concentration in the
livestock and poultry slaughtering industries for 1980-2020 using four-
firm Concentration Ratios (CR4).
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[GRAPHIC] [TIFF OMITTED] TR06MR24.000
The data are estimates of four-firm concentration ratios at the
national level, but the relevant economic markets for livestock and
poultry may be regional or local, where concentration may be higher
than at the national level. The following figure shows the relative
access that producers have to slaughter plants within various draw
areas.
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\8\ Meat, Poultry and Egg Product Inspection Directory by
Establishment Name, by Number, and Demographic Data, USDA Food
Safety Inspection Service, available at <a href="https://www.fsis.usda.gov/inspection/establishments/meat-poultry-and-egg-product-inspection-directory">https://www.fsis.usda.gov/inspection/establishments/meat-poultry-and-egg-product-inspection-directory</a>. Big Meat Acquisition Datasets, Yale Thurman Arnold
Project, access Feb. 1, 2024, (2021), <a href="https://som.yale.edu/centers/thurman-arnold-project-at-yale/agriculture-and-antitrust">https://som.yale.edu/centers/thurman-arnold-project-at-yale/agriculture-and-antitrust</a>. Haines,
Michael, Fishback, Price, and Rhode, Paul. United States Agriculture
Data, 1840-2012, Inter-university Consortium for Political and
Social Research [distributor], access Feb. 1, 2024, (2018), <a href="https://doi.org/10.3886/ICPSR35206.v4">https://doi.org/10.3886/ICPSR35206.v4</a> (County-level census data from 1978-
2012). USDA Census of Agriculture Large Datasets, USDA National
Agricultural Statistics Services, access at Feb. 1, 2024, <a href="https://www.nass.usda.gov/datasets/">https://www.nass.usda.gov/datasets/</a> (Livestock data from 1997-2017). Ward,
C.E., Meatpacking plant capacity and utilization: Implications for
competition and pricing, access at Feb. 1, 2024, (1990), <a href="https://doi.org/10.1002/1520-6297">https://doi.org/10.1002/1520-6297</a>(199001)6:1%3C65::AID-
AGR2720060107%3E3.0.CO;2-V (Estimating travel distances for cattle
to be around 100 miles). MacDonald, James M. & Ollinger, Michael &
Nelson, Kenneth E. & Handy, Charles R., 2000, ``Consolidation In
U.S. Meatpacking,'' Agricultural Economic Reports 34021, United
States Department of Agriculture, Economic Research Service, access
at Feb. 1, 2024, (2020), <a href="https://www.ers.usda.gov/webdocs/publications/41108/18011_aer785_1_.pdf?v=0">https://www.ers.usda.gov/webdocs/publications/41108/18011_aer785_1_.pdf?v=0</a>. Smith, Timothy L.,
Andrew L. Goodkind, Tae-Gon Kim, Rylie E. O. Pelton, Kyo Suh, and
Jennifer Schmitt, (2017). ``Subnational mobility and consumption-
based environmental accounting of us corn in animal protein and
ethanol supply chains'', Proceedings of the National Academy of
Sciences (38), 114, access at Feb. 1, 2024, <a href="https://doi.org/10.1073/pnas.1703793114">https://doi.org/10.1073/pnas.1703793114</a> (Estimating travel distances for broilers to be 48
miles on average; and for pigs and cattle, ~115 miles). Beam, A.L. &
Thilmany, Dawn & Pritchard, R.W. & Garber, L.P. & Metre, DC & Olea-
Popelka, F.J.. (2015). Beam, A.L., D.D. Thilmany, R.W. Pritchard,
L.P. Garber, DC Van Metre, and F.J. Olea-Popelka. ``Distance to
Slaughter, Markets and Feed Sources Used by Small-Scale Food Animal
Operations in the United States.'' Renewable Agriculture and Food
Systems 31, no. 1, access at Feb. 1, 2024, (2016): 49-59. <a href="https://doi.org/10.1017/S1742170514000441">https://doi.org/10.1017/S1742170514000441</a>. (Estimating transportation
distances of 90 miles for 95 percent of percent of small-scale
livestock operations). (Analysts filtered for plants that
slaughtered beef, pork, and chicken. Analysts joined firm name
appearing in directory to likely parent firm name by constructing a
name lookup using merger data published by Yale Thurman Arnold
Project; and manual internet search for poultry and livestock firms'
mergers and acquisitions. Analysts obtained geographic coordinates
from establishment address. For each establishment per animal class,
analysts calculated the distance from the centroids of all U.S.
counties to all plant establishments; and filtered for distances
within 50 miles (broiler) and 115 miles (hog, cattle), based on
estimates of travel distances for each animal obtained from
literature search. Analysts calculated number of counties reachable
by the travel distance for each animal species, i.e.: geographic
draw area for each plant. Analysts produced for each county the
number of plants appended with the parent firm name derived from the
historic merger dataset described above. Analysts present as the
summary figure the total number of unique parent firm names located
within 90 (broilers) and 115 (hog, cattle) miles of county centroids
that contain, for the purposes of this county-level analysis, the
total number farm operations of each animal type in the county.
Analysts summarized the number of counties, inventory, and
operations with hog, broiler, and cattle sales, for all counties
from 2017 NASS county-level dataset; and, for farm operations,
filtered only for farm operations above the smallest class size,
e.g.: for hog, above 25 head; for cattle, above 10 head; for
broilers, above 2,000 head. This smallest class size is not likely
to be utilizing the slaughter plants).
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Half of all broiler growers have two or fewer processors for which
they can grow broilers.\9\ The following table is a modification of a
table in MacDonald (2012),\10\ adding the market concentration measure,
the Herfindahl-Hirshman Index (HHI) \11\ indices to MacDonald's
calculations of the integrators, i.e., live poultry dealers who
typically have vertically integrated production, in the broiler
grower's geographic region. The HHIs in the table assume equal market
share for each integrator and, as such, are the minimum HHIs possible
(at least with 2 to 4 growers). They show that 88.4 percent of growers
are facing an integrator HHI of at least 2,500. The data suggest that
most contract broiler growers in the U.S. are thus in markets where the
live poultry dealers have the potential to exercise market power.
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\9\ MacDonald, J.M. and Key, N., 2012, Market power in poultry
production contracting? Evidence from a farm survey, Journal of
Agricultural and Applied Economics, 44(4), pp.477-490, access at
Feb. 1, 2024, (2012), <a href="https://www.proquest.com/scholarly-journals/market-power-poultry-production-contracting/docview/1183766436/se-2">https://www.proquest.com/scholarly-journals/market-power-poultry-production-contracting/docview/1183766436/se-2</a>.
\10\ Ibid.
\11\ The Herfindahl-Hirschman Index, HHI, is a ``commonly
accepted measure of market concentration. The HHI is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers.'' U.S. Department of Justice,
``Herfindahl-Hirschman Index,'' accessed Feb. 1, 2024, (2018),
<a href="https://www.justice.gov/atr/herfindahl-hirschman-index">https://www.justice.gov/atr/herfindahl-hirschman-index</a>.
[GRAPHIC] [TIFF OMITTED] TR06MR24.002
By the late 20th century and early 21st century, contracting
practices were also changing. Bilateral and vertical contracting were
becoming the increasingly dominant means to coordinate live animal
supplies.\12\ Today, most poultry production and about 98 percent of
hog production fall under production contracts, and roughly 70 percent
of cattle procurement falls under marketing contracts.\13\ Bilateral
and vertical contracting have benefits
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and disadvantages for both processors and producers. However, the
exercise of market power through the contracting practices occurring in
concentrated livestock and poultry markets have left producers
susceptible to the conduct this rule aims to prohibit.
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\12\ Lauck, J. K. (1998). Competition in the Grain Belt
Meatpacking Sector After World War. II. The annals of Iowa, 57(2),
<a href="https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/">https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/</a> (Finding
that in 1984, only 7 percent of livestock were marketed through
terminal markets. By this time, many packers made vertical contracts
with farmers or feedlots). ``Structural Change in Livestock: Causes,
Implications, Alternatives,'' Research Institute on Livestock
Pricing 232728, Virginia Polytechnic Institute and State University,
Department of Agricultural and Applied Economics, access at Feb. 1,
2024, (1990), available at <a href="https://ideas.repec.org/p/ags/vtrilp/232728.html">https://ideas.repec.org/p/ags/vtrilp/232728.html</a>. See James M. MacDonald and Christopher Burns,
``Marketing and Production Contracts Are Widely Used in U.S.
Agriculture,'' Economic Research Service, (July 2019), available at
<a href="https://www.ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/">https://www.ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/</a> (For a
producer to successfully bring an animal to processing, they must
secure a source of animals to raise, feed, medicine, and processing
services, among other needs. In contract production, regulated
entities typically control the inputs and processing and
distribution channels, and therefore can largely block market access
for independent producers seeking to bypass these tightly
controlled, vertically contracted supply chains).
\13\ USDA ERS, J. M. MacDonald and C. Burnes, (July 1, 2019),
Marketing and Production Contracts Are Widely Use in U.S.
Agriculture, Amber Waves. (In 2017, 49 percent of the value of
livestock production was raised under contract agreements--usually
between farmers and processors. Most poultry is produced under
contract, and what is not produced under contracts between
processors and growers is raised in facilities operated directly by
processors. See graph for data on hogs.) <a href="https://ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/">https://ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/</a>; See also, USDA Packers and Stockyards Division
(PSD), (2020), Packers and Stockyards Division Annual Report 2020,
access at Feb. 1, 2024, <a href="https://www.ams.usda.gov/sites/default/files/media/PackersandStockyardsAnnualReport2020.pdf">https://www.ams.usda.gov/sites/default/files/media/PackersandStockyardsAnnualReport2020.pdf</a>.
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One of the notable structural changes over the course of the 20th
century was the improvement in refrigeration technology. Refrigeration
enabled meat packers to move away from the from Great Lakes and the
Upper Midwest, where they could source large quantities of ice and
build facilities closer to the centers of livestock production.\14\
Slaughterhouse and fabrication plants, therefore, could and did move
away from urban areas to remote rural locations. As technology and the
ability to scale operations also grew in the latter half of the 20th
century, plants also grew in size.\15\
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\14\ David I. Smith, (Spring 2019), 19th Century Development of
Refrigeration in The American Meat Packing Industry, access at Feb.
1, 2024, <a href="https://scholarworks.harding.edu/cgi/viewcontent.cgi?article=1118&context=tenor">https://scholarworks.harding.edu/cgi/viewcontent.cgi?article=1118&context=tenor</a>. (``Development of
refrigeration and transportation in Chicago led the city to become
the meat packing center of the world,'' p. 100 from Howard Copeland
Hill, ``The Development of Chicago as a Center of the Meat Packing
Industry,'' Mississippi Valley Historical Review 10, no. 3 (1923):
253). (And, ``Refrigerator cars ``enabled dressed beef to be
slaughtered in Chicago and shipped to the East at a lower cost than
livestock,'' p. 103, from Mary Yeager Kujovich, ``The Refrigerator
Car and the Growth of the American Dressed Beef Industry,'' The
Business History Review 44, no. 4 (1970): 460.); Warren, Wilson,
(2009), Tied to the Great Packing Machine: The Midwest and
Meatpacking, Bibliovault OAI Repository, the University of Chicago
Press, access at Feb. 1, 2024, <a href="https://books.google.com/books?hl=en&lr=&id=f-CAclXhhCYC&oi=fnd&pg=PR7&dq=history+of+meat+packing&ots=oFnnxzABzR&sig=gp3eackbDY2CzAdcz8Q67cg0pvQ#v=onepage&q=history%20of%20meat%20packing&f=false">https://books.google.com/books?hl=en&lr=&id=f-CAclXhhCYC&oi=fnd&pg=PR7&dq=history+of+meat+packing&ots=oFnnxzABzR&sig=gp3eackbDY2CzAdcz8Q67cg0pvQ#v=onepage&q=history%20of%20meat%20packing&f=false</a> (Wilson notes that in the late 19th century plants were
starting to move closer to livestock; and, by the 1950s, the
industry hit the end of its third phase (1920s to 1950s) of packers
buying direct from feedlots/producers and the decline of terminal
markets.).
\15\ MacDonald, J.M., Ollinger, M., Nelson, K.E. and Handy,
C.R., (2000), Consolidation in US meatpacking. Economic Research
Service, U.S. Department of Agriculture. Agricultural Economic
Report No. 785, access at Feb. 1, 2024, https://www.ers.usda.gov/
webdocs/publications/41108/
18011_aer785_1_.pdf?v=0#:~:text=Consolidation%20in%20slaughter%20feat
ures%20three,the%20location%20of%20animal%20feeders.
---------------------------------------------------------------------------
These changes had two implications over time. First, as processing
plants moved from urban to rural areas, producers were more vulnerable
to an exercise of monopsony power because the local and regional
markets became more concentrated.\16\ Second, instead of terminal
(auction) stockyards aggregating livestock for sales to packers,
packers and producers increasingly entered into bilateral contractual
relationships to buy livestock.\17\ When producers utilized stockyards
for their livestock sales, they could rely for protection on the
provisions of title III under the Act, which established robust
nondiscrimination protections for producers (in sec. 312), as well as a
DOJ Consent Decree in 1920 with the major packers, which established
that the stockyards had to be structurally separate from packers.\18\
For example, in 1968 USDA issued a Statement of General Policy under
the Packers and Stockyards Act to clarify that the prohibitions against
unjust discrimination under sec. 312 governing ``just and reasonable
stockyard services'' prohibited discrimination on the basis of race,
religion, color, or national origin. However, as the industry structure
evolved and livestock were increasingly sold through bilateral,
vertical contracts, producers were no longer protected by sec. 312 of
the Act. Instead, the sales were governed by title II of the Act, under
which sec. 202(a) and (b) prohibits unjust discrimination and undue
prejudice.\19\ This final rule seeks to articulate the necessary
protections around unjust discrimination and deception under those
provisions of the Act.
---------------------------------------------------------------------------
\16\ Willard Williams, ``Small Business Problems in the
Marketing of Meat and Other Commodities (Part 4, Changing Structure
of Beef Packing Industry),'' Hearings before the Subcommittee on SBA
and SBIC Authority and General Small Business Problems of the
Committee on Small Business, House, 96th Cong., 1st sess.
(Washington, DC, 1979), 3; ``Structural Change in Livestock: Causes,
Implications, Alternatives,'' Research Institute on Livestock
Pricing 232728, Virginia Polytechnic Institute and State University,
Department of Agricultural and Applied Economics, access at Feb. 1,
2024, (1990), available at <a href="https://ideas.repec.org/p/ags/vtrilp/232728.html">https://ideas.repec.org/p/ags/vtrilp/232728.html</a>; Lauck, J. K., (1998), Competition in the Grain Belt
Meatpacking Sector After World War. II. The annals of Iowa, 57(2),
access at Feb. 1, 2024, available at <a href="https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/">https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/</a>; Marion, Bruce W., ``Restructuring
of Meat Packing Industries: Implications for Farmers and
Consumers,'' Working Papers 204107, University of Wisconsin-Madison,
Department of Agricultural and Applied Economics, Food System
Research Group (1988), available at <a href="https://ideas.repec.org/p/ags/uwfswp/204107.html">https://ideas.repec.org/p/ags/uwfswp/204107.html</a>; Aduddell, Robert M. & Cain, Louis P., ``The
Consent Decree in the Meatpacking Industry, 1920-1956,'' Business
History Review, Cambridge University Press, vol. 55(3) 1981;
Aduddell, Robert M., and Louis P. Cain. ``A Strange Sense of Deja
Vu: The Packers and the Feds, 1915-82.'' Business and Economic
History 11 (1982): 49-60. <a href="http://www.jstor.org/stable/23702755">http://www.jstor.org/stable/23702755</a>
(Documenting the historic shift from terminal auctions, in which
around 90 percent of livestock were marketed in the 1920s; to 75
percent in the 1940s; to just 7 percent by 1984 (Lauck 1998;
Aduddell 1981). In terminal auctions, market participants, including
producers, new independent packers, and retailers enjoyed the
benefits of transparent pricing and many possible marketing
channels. The number of terminal auctions doubled every decade from
1935-1955 (Aduddell 1981). In the latter half of the 20th century, a
new generation of large packers located closer to producers; and
built new facilities to process larger numbers of animals which they
purchased directly from increasingly larger feedlots (Williams
1978). Various researchers during the time period documented how
direct purchases from these packers accounted for a larger share of
the industry's sales; and contributed to decreasing numbers of
market transactions and bids in terminal markets. For example, for
cattle, the number of single bid transactions for cattle increased
by 64 percent from 1982 to 1987; and by 38 percent for hogs (Purcell
1990). In turn, producers facing fewer buyers often reported lower
prices paid (Marion 1988).
\17\ Lauck, J.K., (1998), Competition in the Grain Belt
Meatpacking Sector After World War. II. The annals of Iowa, 57(2),
access Feb. 1, 2024, available at <a href="https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/">https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/</a>; Unknown (W. Purcell, editor), (1990),
``Structural Change in Livestock: Causes, Implications,
Alternatives,'' <a href="https://ideas.repec.org/p/ags/vtrilp/232728.html">https://ideas.repec.org/p/ags/vtrilp/232728.html</a>.
Research Institute on Livestock Pricing Virginia Polytechnic
Institute and State University, Department of Agricultural and
Applied Economics, available at <a href="https://ideas.repec.org/p/ags/vtrilp/232728.html">https://ideas.repec.org/p/ags/vtrilp/232728.html</a>; Dickes, L.A. and Dickes, A.L. (2002),
``Oligopolists then and now: a study of the meatpacking industry,''
In Allied Academies International Conference. Academy for Economics
and Economic Education. Proceedings (Vol. 5, No. 1, p. 15). Jordan
Whitney Enterprises, Inc. <a href="https://www.proquest.com/openview/919b243381c017244c764591d3d50a90/1?pq-origsite=gscholar&cbl=38640">https://www.proquest.com/openview/919b243381c017244c764591d3d50a90/1?pq-origsite=gscholar&cbl=38640</a>.
\18\ Aduddell 1981, supra.
\19\ 7 U.S.C. 192(a) and (b).
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The broiler industry also grew quickly after the Second World War.
Early on it adopted a production model in which live poultry dealers
contracted with poultry growers to grow-out broilers, rather than a
model of independent producers selling broilers on the open market.
With most broiler growing contracts, the live poultry dealer provides
the chicks, the feed, and veterinary services, while the grower
provides labor, facilities, equipment, and energy necessary to turn the
chicks into slaughter-ready birds. At first, live poultry dealers were
often feed suppliers, but now most processors act as live poultry
dealers. Overall, the reality is that live poultry dealers have
extensive control over production through the contracting practices.
Furthermore, it is important to acknowledge the impact of a
consolidating farm production landscape overall. With the livestock and
poultry farming sectors consolidating over the last several decades,
the aggregate number of producers has declined significantly, even as
total production is stable or growing. Many factors driving the loss of
producers in the marketplace are the same factors underlying the market
changes referenced above and include productivity growth wrought by
scientific and technological advances, economies of scale, and
transportation improvements. As shown in Figures 2 and 3 below, over
the last 60 years, changes in animal production have corresponded to
declines on the order of
[[Page 16098]]
hundreds of thousands of producers in nearly every size class except
the largest, which increased by only hundreds of producers.\20\
---------------------------------------------------------------------------
\20\ Haines, Michael, Fishback, Price, and Rhode, Paul. United
States Agriculture Data, 1840-2012, Inter-university Consortium for
Political and Social Research [distributor], (2018), <a href="https://doi.org/10.3886/ICPSR35206.v4">https://doi.org/10.3886/ICPSR35206.v4</a> (County-level census data from 1978-
2012). USDA Census of Agriculture Large Datasets, USDA National
Agricultural Statistics Services, available at <a href="https://www.nass.usda.gov/datasets/">https://www.nass.usda.gov/datasets/</a> (Livestock data from 1997-2017).
\21\ USDA Census of Agriculture Historical Archive, USDA
National Agricultural Statistics Services, available at <a href="https://agcensus.library.cornell.edu/">https://agcensus.library.cornell.edu/</a> (National-level statistics from 1978-
2012); USDA Census of Agriculture 2017, USDA National Agricultural
Statistics Services, available at <a href="https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/">https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/</a>
(National-level statistics for 2017) (Analysts obtained the total
number of operations with sales for each animal size class from
historic national-level statistics from 1978-2017. Analysts summed
the number of operations of every class other than the largest size
class for each animal species, compared to the largest size class;
and excluded the very smallest size class in each summary because
the smallest size is not likely to receive slaughter services by
regulated entities).
[GRAPHIC] [TIFF OMITTED] TR06MR24.003
[[Page 16099]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.004
In the figure above, the intensity of shading indicates the
magnitude of decrease (left) or increase (right), with shading
intensity scaled individually to each map panel. Generally, the number
of cattle and hog operations for every size class except the largest
decreased in many counties across the U.S., while the number of
operations for the largest size class increased in only a few counties.
Owing to the limitations of available county-level data, the above map
for cattle operations include both feedlot and cow-calf operations, of
which only the first sell directly to packers in most instances.
Feedlots and packers tended to locate closer to producers in the latter
half of the 20th century. As feedlots became larger and more
concentrated, the number of farms with fed cattle sales declined. For
example, McBride found that from 1978-1992, as the distribution of
cattle feedlots became geographically tighter, the number of counties
contributing to half of cattle sales decreased from 73 counties in 1978
to just 44 counties in 1992, with a fourth
[[Page 16100]]
of sales coming from 13 counties. The number of feedlots declined from
approximately 175,155 in 23 states in 1970 to 27,000 feedlots in 2020,
with half of all fed cattle from just 132 of them.\22\
---------------------------------------------------------------------------
\22\ MacDonald, J.M., Dong, X., & Fuglie, K. (2023),
Concentration and competition in U.S. agribusiness (Report No. EIB-
256), U.S. Department of Agriculture, Economic Research Service,
available at <a href="https://doi.org/10.32747/2023.8054022.ers">https://doi.org/10.32747/2023.8054022.ers</a>. McBride,
William D. (1997). ``Change in U.S. Livestock Production, 1969-92,''
Agricultural Economic Reports 262047, United States Department of
Agriculture, Economic Research Service, available at <a href="https://www.ers.usda.gov/webdocs/publications/40794/32767_aer754fm.pdf?v=1657.7">https://www.ers.usda.gov/webdocs/publications/40794/32767_aer754fm.pdf?v=1657.7</a>. ``Final Estimates for 1970-1975,'' USDA
(1978), available at <a href="https://downloads.usda.library.cornell.edu/usda-esmis/files/sq87bt648/7w62fc32q/qf85nf445/cattleest_Cattle_-_Final_Estimates__1970-75.pdf">https://downloads.usda.library.cornell.edu/usda-esmis/files/sq87bt648/7w62fc32q/qf85nf445/cattleest_Cattle_-_Final_Estimates__1970-75.pdf</a>.
---------------------------------------------------------------------------
Data from Figure 3 clearly indicate a shift in livestock and
poultry raising to larger farms. This shift has occurred in concert
with an increase in bilateral and vertical contracting. Bilateral and
vertical contracting facilitate the conditions in which discrimination
and retaliation are more likely to restrict market opportunities of
producers and cause them to earn less than the full value of their
animals. It is harder to discriminate in the aggregated market of the
stockyard than through bilateral contracting regimes. When producers
are locked into long-term agreements with a single buyer, it is easier
for buyers to discriminate on prohibited bases or retaliate in response
to protected activities because they exercise considerably more
leverage over producers. Buyer-seller relationships are more fixed,
providing much less flexibility for producers. Furthermore, with the
number of farms declining in number, the economic harms of
discrimination and retaliation are more likely to be permanent as being
denied a long-term contract may lead to permanent exclusion from the
market. Smaller farms in particular may be more likely to be permanent
casualties of discriminatory or retaliatory behavior in a consolidated
farm context as buyers gravitate toward larger suppliers to more easily
satisfy their volume requirements. Discriminatory or retaliatory
behavior is more likely to harm producers economically because it is
much harder to find alternative buyers in a world with fewer, bigger
farms and fewer, bigger packers and live poultry dealers. This rule is
not directly addressing consolidation at the farm level or
concentration at the processor level, but in providing more protections
to producers from discriminatory and retaliatory conduct, it is helping
to prevent market exclusion.
A long-time scholar of these markets stated as early 2004 that the
livestock and poultry markets appear to be by ``invitation only.'' \23\
That statement underscores the power of incumbent entities to control
access to the market and, in many ways, the destiny of what had been
multigenerational successful operations of producers and smaller
competitors.\24\ This final rule addresses some of the ways that
livestock and poultry markets unfairly exclude producers or otherwise
limit their ability to obtain the full value of their animals. This
final rule does not address all the factors contributing to market
exclusion. However, it does address several practices that exclude
producers and, in doing so, violate the Packers and Stockyards Act. AMS
recognizes that creating inclusive and competitive markets with
integrity requires multiple legal, regulatory, and programmatic
strategies to mitigate the potential harmful effects of concentration
and vertical contracting; build up alternatives through investments in
regional meat and poultry processing; \25\ and protect the rights of
producers to develop producer organizations that advance farmer
welfare, rural prosperity, and quality food. Thus, this rulemaking is
one key piece to AMS's strong commitment to mitigating the factors that
restrict market access for livestock and poultry producers.
---------------------------------------------------------------------------
\23\ C. Robert Taylor, ``The Many Faces of Corporate Power in
the Food System.'' Presented at DOJ/FTC Workshop on Merger
Enforcement, February 2004, available at <a href="https://www.justice.gov/sites/default/files/atr/legacy/2007/08/30/202608.pdf">https://www.justice.gov/sites/default/files/atr/legacy/2007/08/30/202608.pdf</a>.
\24\ See, e.g., Jon Lauck, ``Toward an Agrarian Antitrust: A New
Direction for Agricultural Law,'' 75 N. D. L. Rev. 449 (1999); Peter
C. Carstensen, ``Buyer Power and the Horizontal Merger Guidelines,''
14 U. Penn. J. Bus. L. 775 (2012); Peter. C. Carstensen, ``Buyer
Power, competition policy, and antitrust: the competitive effect of
discrimination among suppliers,'' The Antitrust Bulletin: Vol. 53,
No. 2/Summer 2008; Kenneth E. Boulding, ``Towards a Pure Theory of
Threat Systems,'' The American Economic Review, May, 1963, Vol. 53,
No. 2, 424-434.
\25\ <a href="https://www.usda.gov/media/press-releases/2023/04/19/usda-announces-funding-availability-expand-meat-and-poultry">https://www.usda.gov/media/press-releases/2023/04/19/usda-announces-funding-availability-expand-meat-and-poultry</a>.
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B. Discrimination, Retaliation, and Deception
The P&S Act is a remedial statute enacted to address problems faced
by farmers, producers, and other participants in the markets for
livestock, meats, meat food products, livestock products in
unmanufactured form, poultry, and live poultry; to protect the public
from predatory practices; and to protect freedom for farmers and
businesses to engage in the flow of commerce.\26\ Thus, as academics
and courts have noted, the Act has ``tort-like provisions that are
concerned with unfair practices and discrimination'' that fulfill a
``market facilitating function,'' which Congress designed to prevent
``market abuse.'' \27\ AMS interprets and implements the Act to achieve
its core statutory purposes.\28\
---------------------------------------------------------------------------
\26\ Stafford v. Wallace, 258 U.S. 495 (1922). Bruhn's Freezer
Meats of Chicago, Inc. v. U. S. Dep't of Agric., 438 F.2d 1332,
1337-38 (8th Cir. 1971) (quoting H.R. Rep. No. 1048, 85th Cong., 1st
Sess. (1957), U.S. Code Cong. & Admin. News 1958, p. 5213). Public
Law 99-198, 99 Stat. 1535, 7 U.S.C. 1631 (Section 1324 of the Food
Security Act). Fed. Trade Comm'n, Report of the Fed. Trade Comm'n on
the Meat-Packing Industry, Part I (Extent and Growth of Power of the
Five Packers in Meat and Other Industries); Fed. Trade Comm'n,
Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part
II (Evidence of Combination among Packers); Fed. Trade Comm'n,
Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part
III (Methods of the Five Packers in Controlling the Meat-Packing
Industry) (1919) (Finding that the purpose of the combination of Big
Five packers was to ``monopolize and divide among the several
interests the distribution of the food supply not only of the United
States but of all countries which produce a food surplus, and, as a
result of this monopolistic position, to extort excessive profits
from the people not only of the United States but a large part of
the world'').
\27\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a> (``subsections (a) and (b) appear to be tort-like provisions
that are concerned with unfair practices and discrimination, but not
with restraint of trade or monopoly as such''); Peter Carstensen,
The Packers and Stockyards Act: A History of Failure to Date, CPI
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that
the practices of buyers and sellers in livestock (and later poultry)
markets were fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.''); Michael C. Stumo
& Douglas J. O'Brien, ``Antitrust Unfairness vs. Equitable
Unfairness in Farmer/Meat Packer Relationships,'' 8 Drake J. Agric.
L. 91 (2003); Michael Kades, ``Protecting livestock producers and
chicken growers,'' Washington Center for Equitable Growth (May
2022), <a href="https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf">https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf</a> (``Section 202's prohibitions
on unjust discrimination and undue preference are not limited to
conduct that destroys or limits competition or creates a monopoly.
These provisions address conduct that impedes a well-functioning
market and deprives livestock and poultry producers of the true
value of their animals. Taken together, these provisions seek to
prevent market abuses.'').
\28\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th
Cir. 1966).
---------------------------------------------------------------------------
AMS finds that current regulations under the Act do not
sufficiently address the many unduly prejudicial, unjustly
discriminatory, and deceptive practices in the livestock and poultry
industry. As discussed above, the combination of increased
concentration and use of vertical contracts in livestock and poultry
markets enhances regulated entities' ability to unjustly discriminate
against or deceive market participants and effect significant harm upon
[[Page 16101]]
producers. With bilateral contracts where one side has significant
market power, regulated entities can target specific individuals,
whether because of their personal characteristics (prejudice) or
because of they have engaged in certain activities (retaliation). With
market concentration, producers have limited options in the marketplace
with which to avoid the harms. Vertical contracts where regulated
entities have greater control over producers' operations also enable
certain forms of discrimination, such as in the provision of inputs, as
live poultry dealers particularly have heightened control and
involvement in the growers' poultry operations. The provision of
accurate and not misleading information also takes on heightened
importance in these markets. In markets where producers are exiting, it
is especially difficult for producers to reenter after being excluded,
and the harms from exclusion are significant.
i. Discrimination and Prejudice
Discrimination and prejudice harm market participants and overall
market integrity and efficiency. Discrimination is economically
inefficient.\29\ The prejudicing entity that pays a producer below
market value for his or her cattle or hogs because the producer belongs
to a protected class causes that producer to not receive the full
economic value of his or her animals; this discrimination also prevents
the market from reaching an optimal allocation of wages and labor,
contributing to a deadweight loss for the economy at large.\30\
Likewise, a regulated entity's refusal to buy from a producer of a
protected class offering animals of comparable quality to those being
sold by other producers to that same buyer in the same time-frame may
cause that disfavored producer to exit the market.\31\ If an entity
refuses to purchase product from a producer of a particular class who
offers identical product, such as cattle, that disfavored producer may
face a lower price, resulting in a loss to the producer that may
discourage the producer from continuing to operate or would-be
producers of that class from entering the market.\32\ Using non-
economic characteristics of the livestock or poultry producers to
dictate patterns of production thwarts efforts by producers to
accurately assess market conditions and make sound business decisions.
---------------------------------------------------------------------------
\29\ Stiglitz, J. ``Approaches to the Economics of
Discrimination,'' American Economic Review, vol. 63/2, May 1973:
287-295 (Discussing how discrimination in markets produces an
economic inefficiency: ``If all firms are profit maximizers, then
all will demand the services of the low-wage individual, bidding
their wages up until the wage differential is eliminated. Why does
this not occur?'').
\30\ Ibid.
\31\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado,
available at <a href="https://www.justice.gov/media/1244701/dl?inline">https://www.justice.gov/media/1244701/dl?inline</a>;
<a href="https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885">https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885</a> (Producers
described how packers could ``pick . . . large entities'' as part of
marketing agreements to procure supply. In turn, this drove up an
excess supply and drove down prices for producers or suppliers who
did not receive such an agreement in the cash-negotiated market. One
producer said that this discrimination had the effect of
``controlling . . . inventory;'' another said that this conduct had
the effect of ``tens of thousands of independent producers being
purged out of the business or going into bankruptcy . . . exited out
of agriculture'').
\32\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado,
available at <a href="https://www.justice.gov/media/1244701/dl?inline">https://www.justice.gov/media/1244701/dl?inline</a>;
<a href="https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885">https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885</a> (Producers
described how packers could ``pick . . . large entities'' as part of
marketing agreements to procure supply. In turn, this drove up an
excess supply and drove down prices for producers or suppliers who
did not receive such an agreement in the cash-negotiated market. One
producer said that this discrimination had the effect of
``controlling . . . inventory''; another said that this conduct had
the effect of ``tens of thousands of independent producers being
purged out of the business or going into bankruptcy . . . exited out
of agriculture'').
---------------------------------------------------------------------------
In comments to the proposed rule, multiple organizations spoke of
the widespread economic harms resulting from discrimination and
prejudice in livestock and poultry markets.\33\ A producer advocacy
organization reported that ``discrimination, retaliation, and deception
have become common features of livestock and poultry markets, leading
to widespread fear and anxiety among producers.'' \34\ Another
commenter wrote, ``The current ability to exclude marginal competitors
and exploit covered producers, rather than producing meaningful price
discovery and transparency in the production and sales of livestock,
meat and poultry, has greatly injured not only those involved in
production but has restricted consumers from accessing reliable,
affordable sources of protein.'' \35\ We acknowledge that these
comments addressed what commenters viewed as a range of discrimination
that could be covered by the proposed rule, and some that we are not
addressing in this rule. Comments relating to these topics are
discussed further in Section V--Changes from the Proposed Rule, and in
Section VII--Comment Analysis.
---------------------------------------------------------------------------
\33\ Government Accountability Project, Comments on Proposed
Rule: Inclusive Competition and Market Integrity, (AugJan. 20232),
available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427</a> (``Many of these Vietnamese growers were enticed to sell
profitable businesses and family homes and take out huge loans to
enter broiler production contracts. Bearing all the same burdens of
other broiler producers, they were further victimized by language
barriers, cultural differences, and blatant mockery and exploitative
behavior. In some cases, to keep their contracts, Vietnamese growers
were asked to do additional work that was not required of white
counterparts. Many of the Vietnamese farmers we have spoken to have
likened the abusive and threatening behavior of their integrators to
the communist government from which they fled'').
Rural Advancement Foundation International--USA, Comments on
Proposed Rule: Inclusive Competition and Market Integrity, (AugJan.
20232), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0437">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0437</a> (``They don't have to cut you off, they can just bleed
you dry. The barn we're sitting in here hatched flocks with
salmonella issues. They can send those compromised flocks to growers
they want to bleed.'' ``My main concern is that [my integrator]
operates on fear and threatening tactics to make every grower they
have scared they are going to lose their contract every single day.
No human being should have to live every single day in fear that
their livelihood and only source of income can be taken away from
them. I am sick of it, someone needs to do something to help us! I
love to grow chickens and feed the world, but I do not like to live
as if under a dictatorship.'' ``When I filed a complaint with the
Packers and Stockyards Division about a weight issue, in which I was
proven right, I was punished with bad tournament grouping for a
year. Also, I have been told by my integrator, after receiving a
really bad flock of birds, that they would be sure to not let it
happen next time--so they know how to make it happen!'').
\34\ Food & Water Watch, ``Comment on AMS-FTPP-21-0045:
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act,'' (Jan. 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423</a>.
\35\ Rocky Mountain Farmers Union, ``RMFU Comment for the
Proposed Rule Inclusive Competition and Market Integrity Under the
Packers and Stockyards Act'' (Jan. 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441</a>.
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As previously noted, this rule does not address every form of
discrimination or prejudicial exclusion or disadvantage in the
marketplace but focuses on providing clarity regarding certain specific
discriminatory and prejudicial practices that AMS has identified in
this final rule as essentially unjust, which offer no benefits to the
competitive market or producers, and which undermine competition on the
merits of the products and services that producers offer. Additionally,
although the descriptive analyses set forth below do not address the
prevalence or degree or prejudice for each and every prohibited basis,
owing to the limitations of available data, AMS believes that leaving
out any of the bases listed in this rule would be inappropriate. Not
only would that be inconsistent with the Department's approach toward
discrimination in other contexts, as repeatedly endorsed by Congress,
but the resulting uncertainty could also open the door to those forms
of discrimination in livestock, poultry, and related markets under the
Act, which would be contrary to the purposes of this regulation and
[[Page 16102]]
the Act, which prohibits ``undue prejudice . . . in any respect.''
a. Discrimination and Prejudice on Personal Characteristics and Status
AMS (including its predecessor agencies) has received complaints
over the years of discrimination against producers, in particular in
the poultry industry, and especially on the basis of race. The Agency
has not always been able to act on these complaints for a variety of
reasons. The Agency also believes that some complaints may have been
suppressed due to the risks of retaliation, which are discussed below.
As highlighted below, comments to this rulemaking affirmed the
prevalence and remaining challenge of discrimination on prohibited
bases.
Researchers have documented the history of discrimination against
racial and ethnic minorities in agricultural markets. Multiple factors
have contributed to the decline of non-white-owned farms, specifically
to the decline of Black-owned farms, including the Homestead Act of
1862, the Morrill Land Grant Act of 1862, lack of legal protections for
heirs' property, and limited access to capital through discriminatory
lending practices.\36\ For example, in the earlier part of the 20th
century, the Federal government and agricultural landholders restricted
land sales, engaged in predatory and fraudulent lending practices, and
denied farm support programs to Black farmers and ranchers,\37\ which
has resulted in the loss of Black economic security and land
loss.<SUP>38 39 40 41</SUP> A 1959 paper reported ``significant market
discrimination'' against Black American producers in the Southern
United States.\42\ Discrimination by the Federal government and private
sector also caused Hispanic people and American Indian people farming
on reservations to lose farmland and decline in number.<SUP>43 44</SUP>
More recently, some news reports have documented that companies may
present contract terms to non-native English speaking immigrant
communities who may not understand them, and have spotlighted the
treatment of Asian American and Pacific Islander poultry growers in
particular.\45\
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\36\ McKinsey & Company. November 10, 2021. Black Farmers in the
U.S: The Opportunity for Addressing Racial Disparities in Farming.
Accessed at Black farmers in the US: The opportunity for addressing
racial disparities in farming [verbar] McKinsey on 10/04/2023; and
https:/www.archives./gov/milestone-documents/morrill-act <a href="https://www.archives.gov/milestone-documents/morrill-act">https://www.archives.gov/milestone-documents/morrill-act</a> (see, e.g.,
``People of color were often excluded from these educational
opportunities due to their race.'').
\37\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell,
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss:
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42.
American Economic Association, 2022.
\38\ U.S. Department of Agriculture, National Agricultural
Library, ``Heirs' Property,'' <a href="https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property">https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property</a> (last accessed Aug.
2022).
\39\ Mitchell, Thomas W. 2019. Historic Partition Law Reform: A
Game Changer for Heirs' Property Owners. In Heirs' property and land
fractionation: fostering stable ownership to prevent land loss and
abandonment. <a href="https://www.fs.usda.gov/treesearch/pubs/58543">https://www.fs.usda.gov/treesearch/pubs/58543</a> (last
accessed 8/9/2022).
\40\ U.S. Commission on Civil Rights. 1965. Equal Opportunity in
Farm Programs: An Appraisal of Services Rendered by Agencies of the
U.S. Department of Agriculture. <a href="https://files.eric.ed.gov/fulltext/ED068206.pdf">https://files.eric.ed.gov/fulltext/ED068206.pdf</a> US Commission on Civil Rights. 1982. ``The Decline of
Black Farming in America.'' <a href="https://eric.ed.gov/?id=ED222604">https://eric.ed.gov/?id=ED222604</a>.
\41\ Feder, J. and T. Cowan. 2013. ``Garcia v. Vilsack: A Policy
and Legal Analysis of a USDA Discrimination Case,'' Congressional
Research Service report number 7-5700, February 22, 2013.
\42\ Tang, Anthony M. ``Economic development and changing
consequences of race discrimination in Southern agriculture.''
Journal of Farm Economics 41, no. 5 (1959): 1113-1126.
\43\ Casey, Alyssa R. Racial Equity in U.S. Farming: Background
in Brief 2021. Congressional Research Service. <a href="https://crsreports.congress.gov/product/pdf/R/R46969">https://crsreports.congress.gov/product/pdf/R/R46969</a> (Finding that the
percent of American Indian and Hispanic producers increased by 1.3
and 2.4 percent between the early 1900s to 2017, compared to White
producers which increased by 9 percent).
\44\ Horst, M., Marion, A. ``Racial, ethnic and gender
inequities in farmland ownership and farming in the U.S.'' Agric Hum
Values 36, 1-16 (2019), available at <a href="https://doi.org/10.1007/s10460-018-9883-3">https://doi.org/10.1007/s10460-018-9883-3</a>.
\45\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt,
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May
15, 2006. Available online at: <a href="https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html">https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html</a>.
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Researchers have also documented some of the adverse outcomes,
including economic outcomes, caused by discrimination. In the livestock
sector, the results of historical prejudice and the risk of present-day
prejudice are apparent when looking at data from the 2017 Census of
Agriculture, which show that a small fraction of livestock farms with
production contracts are operated by Black, Asian, American Indian, or
Native Hawaiian producers (Figure 1).\46\ In Figure 1, the checkered
bars represent the share of racial and ethnic groups among all
livestock and poultry farms, and the colored bars indicate the share of
production contracts received by each group. As indicated in Figure 1,
American Indian, Black, Native Hawaiian, and Hispanic producers receive
less than a proportional share of livestock and poultry production
contracts relative to their respective populations. For example, Black
producers and growers account for 1.6 percent of U.S. farms by race and
ethnicity and receive a disproportionately lower 0.5 percent of
livestock and poultry contracts. White producers and growers,
meanwhile, represent 91 percent of all farms, but 98 percent of hog
contracts and 97 percent of cattle contracts--a greater than
proportionate share of livestock contracts, and at 90 percent, a lower
than proportionate share of poultry contracts. Non-white racial and
ethnic groups constitute a very small share of contracted livestock and
poultry producers, which can be attributed to limited access to land
and capital,\47\ having on average smaller operations, and
discrimination.
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\46\ Most production contracts are held by poultry growers and
less so by packers. A production contract, according to USDA NASS,
``is an agreement between a producer or grower and a contractor
(integrator) setting terms, conditions, and fees to be paid by the
contractor to the operation for the production of crops, livestock,
or poultry.'' In contrast, many packers hold marketing contracts
which, according to NASS, are ``based strictly on price.'' USDA
NASS, No Date. ``Appendix B. General Explanation and Census of
Agriculture Report Form.'' usappxb.pdf (<a href="http://usda.gov">usda.gov</a>), accessed 8/12/23.
\47\ See, generally, Congressional Research Service, ``Racial
Equity in Farming,'' Nov. 2021, available at <a href="https://crsreports.congress.gov/product/pdf/R/R46969">https://crsreports.congress.gov/product/pdf/R/R46969</a>; Economic Research
Service, USDA, ``Access to Farmland by Beginning and Socially
Disadvantaged Farmers: Issues and Opportunities,'' Dec. 2022,
available at <a href="https://www.ers.usda.gov/publications/pub-details/?pubid=105395">https://www.ers.usda.gov/publications/pub-details/?pubid=105395</a>.
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[[Page 16103]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.005
Disparities are also found in income across racial and ethnic
groups. It is difficult to disentangle historical discrimination--
whether that be prejudicial administration of USDA farm policies,
racial segregation laws, or discriminatory private lending policies,
from current discrimination practiced by livestock and poultry
companies. Figure 5 shows the percentage of livestock and poultry farms
(omitting nonfamily farms) by the reported race or ethnicity, and
categorized by the lowest level of Gross Cash Farm Income (GCFI), which
is annual income before expenses, including cash receipts, farm-related
cash income, and government payments.\48\ These data indicate that
livestock and poultry farms with producers who identify as American
Indian, Black, Native Hawaiian, and Hispanic are more likely to be in
the lowest income category (measured by GCFI <$150,999) than their
white counterparts. Those farms with producers who identify as Asian
are less likely than their White counterparts to fall into the lowest
income group, which might be a factor of being relatively recent
immigrants and not facing past discrimination.\49\ The fact that Black,
Native Hawaiian, Native American, and Hispanic livestock and poultry
farmers are more likely to be in the lower income GFCI category could
be an effect of past discrimination, and it also could make such
producers more vulnerable to current discriminatory behavior by
packers. Markets dominated by one or a few large packers or live
poultry dealers may also be less accessible to these lower income
farms, which have limited financial or other economic resources with
which to engage.
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\48\ USDA ERS, No date. Farming and Farm Income. Available at
<a href="https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income/">https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income/</a> (last accessed 9/8/
23). GCFI income categories incude <$149,900, $150,000-$349,999,
$350,000-$999,999, and >=$1,000,000.
\49\ Pew Research Center. June 19, 2012. The Rise of Asian
Americans. Accessed at <a href="https://www.pewresearch.org/social-trends/2012/06/19/the-rise-of-asian-americans/">https://www.pewresearch.org/social-trends/2012/06/19/the-rise-of-asian-americans/</a> on 10-13-23.
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[[Page 16104]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.006
Recent research conducted by the USDA's Office of the Chief
Economist and presented at the Agricultural & Applied Economics
Association \50\ suggests that certain ethnic or racial groups are
receiving lower prices compared to White producers from regulated
entities in livestock and poultry contracts. In some cases, the
research showed statistically significant differences in prices
received for livestock (cattle and hogs) and broiler products across
ethnic or racial groups after controlling for variables such as farm
size, region, type of marketing contract or channel, organic
certification status, distance to closest packer, and size of closest
packer. Specifically, Black and American Indian cattle producers, Black
contract broiler producers, and Black and American Indian hog producers
all received lower prices for their livestock products relative to
White producers. However, the effect of many animal quality variables,
such as weight per animal, dressing percentage, and yield grade, cannot
be controlled for under this analysis because the data is not in the
Census of Agriculture or other data sets organized by race and
ethnicity. Thus, endowment differences, such as better land and more
capital, that represent the legacy of historical discrimination may
account for a portion of these price differentials.
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\50\ Breneman, V., Cooper, J. Nemec Boeme, R. and Kohl, M.,
``Competition and Discrimination--is there is a relationship between
livestock prices received and whether the grower is in a
historically underserved group?'' 2023 AAEA Annual Meeting,
Washington, DC, July 23-July 25.
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Differences in livestock and broiler prices could also be due, at
least in part, to discrimination. Due to current data deficiencies,
however, it is impossible to tell whether differences in prices
received across ethnic or racial groups are due to current
discriminatory practices, historic discrimination, or some combination
thereof. These omitted variables may be correlated with race or
ethnicity, and thus may account for a substantial portion of the price
differentials. Additional data collection efforts may shed light on the
role of omitted variables, such as animal size, thus helping to
distinguish economic effects arising from current racial discrimination
from disparate economic outcomes due to historical discrimination.
Gender is also a basis of discrimination in livestock and poultry
markets. According to the 2017 Census, livestock and poultry operations
where principal operators are female received significantly lower
market value for the livestock and poultry they sell. Female principal
operators in livestock and poultry earned 53 cents per operation for
every dollar earned by male principal operators per operation. By
comparison, in the broader U.S. population, females earn 77 to 82 cents
for every dollar earned by men in 2022.\51\ Figure 6 shows that the
difference in livestock and poultry sales by gender is about $117,000
less per operation for female principal operators, or 47 percent less,
compared to male principal-operated farms. Disproportionately more
female operators are found in the lower income classes relative to
males, and a disproportionately higher number of male operators are
found in the highest income classes. The value of livestock and poultry
production per total acres owned by males and females is $0.22 per acre
for males and $0.18 per acre for females, or $0.82 per acre for female
operators relative to every $1 per acre earned by male operators.
Together, these data suggest that female
[[Page 16105]]
producers--in livestock and poultry markets--achieve poorer economic
outcomes than male producers.
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\51\ The Pew Research Center. March 1, 2023. ``The Enduring Grip
of the Gender Pay Gap.'' Accessed at <a href="https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/">https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/</a> on
09-25-2023, and World Economic Forum. July 2023. Global Gender Gap
Report 2023 Accessed at WEF_GGGR_2023.pdf (<a href="http://weforum.org">weforum.org</a>) on 09-225-
2023.
[GRAPHIC] [TIFF OMITTED] TR06MR24.007
AMS also utilized a regression analysis showing support for
disparities in income across different protected classes. Table 3
presents the empirical results of multivariate regression analysis of
the 2017 Agricultural Census and other data by the USDA Office of the
Chief Economist. Black and American Indian cattle and broiler
producers, and Black and American Indian hog producers of owned hogs
(hogs not sold under production contracts) all received lower prices
for their livestock products relative to White producers. For example,
Black and American Indian producers received around 5 percent lower
broiler prices but no statistically significant decrease in payments
for hogs delivered under production contracts. However, the effect of
many animal quality variables, such as weight per animal, dressing
percentage, and yield grade, cannot be controlled for under this
analysis because the data is not in the Census of Agriculture or other
data sets organized by race and ethnicity. Thus, endowment differences,
such as better land and more capital, that represent the legacy of
historical discrimination may account for a portion of these price
differentials. Hawaiian contract hog producers received 68 percent
higher prices even though producer location was controlled for in the
analysis, but the analysis cannot control for some unknown factors
associated with this relatively small cohort of producers that may
account for this relatively large price effect.
[[Page 16106]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.008
The results of an analysis presented in Table 3 found there is a
statistically significant and positive relationship between female
operators and price received for the owned-hog market, which includes
producers of both contracted and owned hogs (the regression accounted
for whether the producer was on a production contract or not through an
explanatory variable), but which examines the price impact only on
owned-hogs sold.\52\ However, for the production contract-only hog
market, which makes up about 70 percent of all hogs produced, this
relationship becomes negative, though not at a statistically
significant level (non-statistically significant results are shown as
zero values in the table). From regression results not shown in Table
3, it appears that female contract hog producers who also produce owned
hogs receive a higher price for owned hogs than female farmers who only
produce owned hogs. This finding suggests that females with hog
contracts face preferential prices relative to those females that do
not hold contracts.
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\52\ From the Agricultural Census data, some farmers who produce
under production contracts also report some owned production as
well.
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The regression analysis used above to study the effect of sex on
prices received in livestock and poultry markets also found a
statistically significant negative relationship between age of a farm
operator and price received in poultry and owned-hog markets, as well
as a statistically significant negative relationship between the
experience of a farm operator and price received in the contract hog
market. That is, as producers and growers age in the owned-hog and
poultry markets and gain experience in the contract hog market, average
price received declines. However, the same finding was not evident in
cattle markets, where the relationship between increasing producer age
and price is positive and statistically significant.
Gender is also a basis of discrimination in livestock and poultry
markets. According to the 2017 Census, livestock and poultry operations
where principal operators are female received significantly lower
market value for the livestock and poultry they sell. Female principal
operators in livestock and poultry earned 53 cents per operation for
every dollar earned by male principal operators per operation. By
comparison, in the broader U.S. population, females earn 77 to 82 cents
for every dollar earned by men in
[[Page 16107]]
2022.\53\ Figure 7 shows that the difference in livestock and poultry
sales by gender is about $117,000 less per operation for female
principal operators, or 47 percent less, compared to male principal-
operated farms. Disproportionately more female operators are found in
the lower income classes relative to males, and a disproportionately
higher number of male operators are found in the highest income
classes. The value of livestock and poultry production per total acres
owned by males and females is $0.22 per acre for males and $0.18 per
acre for females, or $0.82 per acre for female operators relative to
every $1 per acre earned by male operators. Together, these data
suggest that female producers in livestock and poultry markets achieve
lesser economic outcomes than male producers.
---------------------------------------------------------------------------
\53\ The Pew Research Center. March 1, 2023. ``The Enduring Grip
of the Gender Pay Gap.'' Accessed at <a href="https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/">https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/</a> on
09-25-2023, and World Economic Forum. July 2023. Global Gender Gap
Report 2023 Accessed at WEF_GGGR_2023.pdf (<a href="http://weforum.org">weforum.org</a>) on 09-225-
2023.
[GRAPHIC] [TIFF OMITTED] TR06MR24.009
Producers have also been targeted by processors that discriminate
or retaliate against them for forming or being members of a cooperative
because of the check on dominant firm bargaining power that
cooperatives provide.\54\ Growers and experts on agricultural
cooperatives have reported numerous instances of live poultry dealers
taking adverse actions against producers for their participation in
agricultural cooperative activities.\55\
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\54\ USDA, Publications for Cooperatives, available at <a href="https://www.rd.usda.gov/resources/publications-for-cooperatives">https://www.rd.usda.gov/resources/publications-for-cooperatives</a> (See
generally USDA's published research reports that document the
history and importance of agricultural cooperatives that allow
farmers to negotiate collectively for prices on product either sold
or bought by input or buyer entities. For example, USDA in Farm
Bargaining Cooperatives: Group Action, Greater Gain (1994) describes
one harrowing instance in which members of a cooperative initially
hesitated in bringing a complaint against a processor that allegedly
punished them by refusing to buy their fruit due to their
association with the cooperative; but eventually successfully
brought the complaint and, after a lengthy legal process, won
punitive damages and the processor's agreement to buy product);
Vaheesan, S. and Schneider, N., 2019. Cooperative Enterprise as an
Antimonopoly Strategy. Penn St. L. Rev., 124, p.1. Accessed at
<a href="https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1000&context=pslr">https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1000&context=pslr</a> (Oct. 2023).
\55\ Baldree v. Cargill, Inc. and United States v. Cargill,
Inc., et al., 758 F.Supp.704 (M.D.Fla. 1990). Arkansas Valley
Industries, Inc., Ralston Purina Company, and Tyson's Foods, Inc.,
27 Ag. Dec. 84 (January 23, 1968), and In Re: Curtis Davis, Leon
Davis, and Moody Davis d/b/a Pelahatchie Poultry Company, 28 Ag.
Dec. 406 (April 3, 1969).
\56\ For the purposes of this preamble, a cooperative is an
incorporated or unincorporated association of producers, with or
without capital stock, formed for mutual benefit of its members.
Farm cooperatives are formed under State, not Federal law, even
though cooperatives have Federal protections. See James B. Dean &
Thomas Earl Geu, The Uniform Limited Cooperative Association Act: An
Introduction, 13 Drake J. Agric. L. 63, 67 (2008) (``There is,
however, no single type of cooperative. Although much of the law
that has developed around cooperatives has developed with respect to
agricultural cooperatives, cooperatives exist in many areas . . .
including housing, insurance, banking, health care, and retail
sales, among others.''). Cooperatives can both be buyers and sellers
of agricultural products. Cooperatives made up of sellers, because
they jointly fix the prices of their goods, are legally permitted to
market the products they produce when the cooperative organization
meets the requirements of the Capper-Volstead Act (see 7 U.S.C.
291)7 U.S.C. 291) or the Clayton Act (see 15 U.S.C. 17).15 U.S.C.
17).
---------------------------------------------------------------------------
Regulated entity resistance to producer cooperatives is not
difficult to understand--and indeed has been the basis for
congressional action in the past. The increased bargaining power that
cooperatives give to their members makes them a target for opposition
or curtailment by regulated entities. In a market characterized by
concentration of larger market intermediaries, cooperatives \56\ can
assist producers in promoting equal access to the market
[[Page 16108]]
and enhance the bargaining power of smaller producers. At the same
time, cooperatives are responsive to the needs of regulated entities
and the market for greater volume, as opposed to negotiating with many
smaller producers.\57\ Yet precisely that presence of enhanced
bargaining power, which cooperatives give to their members, makes them
a target for opposition or curtailment by regulated entities. Congress
has affirmed that cooperatives are necessary to protect the marketing
and bargaining position of individual farmers and that interference
with this right is not only contrary to the public interest but
damaging to the free market.\58\ As stated in the Congressional Record
``. . . wherever waste and uneconomic practices are discovered they
should be eliminated, and whenever improvement can be made by
cooperative effort these improvements should be sanctioned and adopted
by those interested in our marketing system. . . .'' \59\
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\57\ At least some of the drafters of the Act fully expected the
Act to be consonant to the goals of cooperatives: ``My own
conviction is that the cooperative effort of producers and consumers
to get closer together in an effort to reduce the spread between
them is the most favorable tendency of our time, so far as the
question of marketing and distribution is concerned.'' 61 Cong. Rec.
1882 (1921).
\58\ 7 U.S.C. 2301.
\59\ 61 Cong. Rec. 1882 (1921).
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Producers have indicated to AMS that increased use of cooperatives
is necessary because of the rise of abusive conduct aggravated by
concentration in the markets and the decline in marketing options for
smaller producers. For example, small cattle producers have expressed
their concern to AMS about packers' disparate treatment of large and
small producers. Large packers have commonly shown limited interest in
dealing with producers that operate on a smaller capacity. Packers
often prefer to buy large numbers of animals at once to lower
transaction costs,\60\ and if a single producer is unable to meet such
demand, that producer is unable to compete in the industry. Smaller
livestock producers can join together through cooperatives to achieve
scale and meet buyers' volume requirements. Thus, cooperatives can help
smaller producers gain business they would otherwise be unable to
compete for in light of the current market structure. Moreover,
Congress has encouraged the formation of agricultural cooperatives and,
under the AFPA, has provided enhanced protection for them in the
marketplace. Given that policy and statutory judgment, AMS interprets
the Act to reinforce that objective. Accordingly, discriminating
against a cooperative, absent a legitimate basis set forth under this
final rule, is unjust and violative of the Act.
---------------------------------------------------------------------------
\60\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops, Exploring Competition Issues in
Agriculture Livestock Workshop: A Dialogue on Competition Issues
Facing Farmers in Today's Agricultural Marketplaces, Fort Collins,
Colorado August 27, 2010. Available at <a href="https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf">https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf</a>.
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Additionally, cooperatives counterbalance the ability of regulated
entities to exert market power against smaller or more vulnerable
producers. Facing the threat of such a counterbalance, regulated
entities have over time stymied producers' ability to form and utilize
cooperatives. AMS has heard numerous reports of regulated entities
terminating growers' or producers' contracts for their attempts to form
cooperatives, as well as reports of the chilling effect such action has
on any future attempts to do so.\61\ More recently, cooperatives in the
cattle sector have been frustrated in their effort to negotiate
collectively. In recent years, the number of livestock and poultry
cooperatives has declined, as shown in the figure below. While many
reasons for that decline are unconnected to the discrimination
prohibited in this rule, AMS believes cooperatives serve a crucial
function in the marketplace and need protection against unjust
discrimination by regulated entities. This final rule will protect
producers who wish to form cooperatives and will strengthen the
marketing and bargaining position of smaller or more vulnerable
producers by enabling them to pool resources, coordinate, compete more
effectively, and negotiate for fair and appropriate terms in the open
market without fear of prejudice or discrimination from larger market
intermediaries.
---------------------------------------------------------------------------
\61\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops, (2010), available at <a href="https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305">https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305</a>; <a href="https://youtu.be/8CvEGyMQ9v8?si=_tvtJVtlNmWDxedQ&t=3675">https://youtu.be/8CvEGyMQ9v8?si=_tvtJVtlNmWDxedQ&t=3675</a>; <a href="https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305">https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305</a> (In which poultry growers
discussed numerous instances of regulated entities terminating their
contracts, reducing the quality of their feed, or otherwise
intimidating them for participating in cooperative activities).
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[[Page 16109]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.010
Numerous public comments on the proposed rule supported the
prohibition of undue prejudice based on protected bases such as those
described above. In expressing support for the proposed ``market
vulnerable individual (MVI)'' approach to addressing undue prejudices,
several agricultural advocacy groups recommended that AMS explicitly
enumerate protected bases in its definition of MVI. MVI, as defined in
the proposed rule, is a person who is a member, or who a regulated
entity perceives to be a member, of a group whose members have been
subjected to, or are at heightened risk of, adverse treatment because
of their identity as a member or perceived member of the group without
regard to their individual qualities. The organizations said these
protected bases should include, but not be limited to, the protected
classes of race, color, national origin, religion, sex, sexual
orientation, disability, age, income derived from a public assistance
program, and political beliefs.\62\ An agricultural advocacy group
commented in support of a protected-bases approach, saying that ``fair
access to markets for growers, farmers, and ranchers should be based on
their farming and business skills, not on their membership in any of
the above groups.'' \63\ Another advocacy group added that defining
protected bases ``will be an appropriately flexible concept with which
to enforce enhanced protections against discrimination in the
marketplace.'' \64\ The group continued: ``Given the history of
discrimination that farmers of color have faced over the course of
American history, these producers should not be made to relitigate
their status as market vulnerable in any given complaint.'' \65\
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\62\ Government Accountability Project, Comments on Proposed
Rule: Inclusive Competition and Market Integrity, (AugJan. 2022),
<a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-042720232">https://www.regulations.gov/comment/AMS-FTPP-21-0045-042720232</a>),
<a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427</a>
(Describing instances in which some producers described racially
prejudicial treatment received from regulated entities, including
requirements to do additional work, mockery, and exploitative
behavior). Farm Action, Comments on Proposed Rule: Inclusive
Competition and Market Integrity, (AugJan. 20232), <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0435">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0435</a> (Listing Supreme
Court and lower court cases finding these forms of discrimination to
be essentially unjust).
\63\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045:
Inclusive Competitive and Market Integrity Under the Packers and
Stockyards Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434</a>. <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434</a>.
\64\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045:
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act,'' available at <a href="http://Regulations.gov">Regulations.gov</a>.
\65\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045:
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act,'' available at <a href="http://Regulations.gov">Regulations.gov</a>.
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Multiple commenters from the meat and poultry industry who opposed
the MVI approach nevertheless indicated that they would support rules
targeting discrimination on specific prohibited bases.\66\ A livestock
industry association said discrimination on these types of bases is
``reprehensible and should be remediated using the appropriate legal
avenues.'' \67\ Several national and State farm bureaus expressed
support for the rule's action to protect producers facing undue
prejudice and unjust discrimination.\68\
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\66\ See, e.g., Meat Industry Trade Association, ``Comment on
AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act'' (received Jan. 17, 2023), available
at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424</a>;
<a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424</a>; Industry
Trade Association, ``Comment on AMS-FTPP-21-0045: Inclusive
Competitive and Market Integrity Under the Packers and Stockyards
Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249">https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249</a>; <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424</a>; <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424</a> Live Poultry
Dealer;, ``Comment on AMS-FTPP-21-0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards Act'' (received
Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419</a>.
\67\ Industry Trade Association, ``Comment on AMS-FTPP-21-0045:
Inclusive Competitive and Market Integrity Under the Packers and
Stockyards Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418</a>.
\68\ See, e.g., Farm Bureau, ``Comment on AMS-FTPP-21-0045:
Inclusive Competitive and Market Integrity Under the Packers and
Stockyards Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426</a>; Other Association
or Non-Profit, ``Comment on AMS-FTPP-21-0045: Inclusive Competitive
and Market Integrity Under the Packers and Stockyards Act''
(received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416</a>; <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426</a>; Other Association or Non-Profit, ``Comment on
AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act'' (received Jan. 17, 2023), available
at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416</a>;
<a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416</a>; Other
Association or Non-Profit, ``Comment on AMS-FTPP-21-0045: Inclusive
Competitive and Market Integrity Under the Packers and Stockyards
Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441</a>.
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[[Page 16110]]
Discrimination on the bases of race, color, religion, national
origin, sex (including sexual orientation and gender identity),\69\
disability, marital status, or age is recognized throughout economic
markets as impermissible, yet commonly occurring, bases for
discrimination.\70\ AMS recognizes the other Federal laws and
authorities that justify these bases, finds that these bases are
consistent with its understanding drawn from complaints and in the
field, and accordingly adopts these bases as part of this rule.\71\
Removing prejudicial barriers to the market will enhance producers'
economic bargaining power, support investment in rural America, assure
the next generation that taking over the farm can be a wise economic
decision, and otherwise enhance economic opportunity and vitality in
communities facing higher business and labor market concentration and
the conduct addressed by this rule.
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\69\ 140 S. Ct. at 1737, available at <a href="https://www.supremecourt.gov/opinions/19pdf/17-1618_hfci.pdf">https://www.supremecourt.gov/opinions/19pdf/17-1618_hfci.pdf</a> (The Supreme
Court has held that the prohibition on discrimination ``because of .
. . sex'' covers discrimination on the basis of gender identity and
sexual orientation).
\70\ See, e.g., U.S. Department of Justice, ``The Attorney
General's 2021 Annual Report to Congress on Fair Lending
Enforcement,'' available at <a href="https://www.justice.gov/media/1259491/dl?inline">https://www.justice.gov/media/1259491/dl?inline</a>.
\71\ 15 U.S.C. 1691; 7 U.S.C. 2301 et seq. (See below section,
Provisions of the Final Rule--Undue Prejudice and Unjust
Discrimination, that discusses the adoption of other Federally
listed bases as part of this rule).
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AMS finds that discrimination continues to occur through adverse
actions described in the inexhaustive list offered in the final rule.
The list includes offering contract terms that are less favorable than
those generally or ordinarily offered, refusing to deal, performing
under or enforcing a contract differently than with similarly situated
producers, requiring modifications to contracts on terms that are less
favorable than the existing contract with the covered producer or only
offering to renew contracts on terms that are less favorable than those
of the existing contract with the covered producer, and terminating or
not renewing a contract.
As discussed further in Section VII--Comment Analysis, producers
have indicated that regulated entities continue to engage in these
types of discriminatory actions.
ii. Retaliation as Discrimination
Many producers across all animal species have expressed concerns
about being retaliated against for engaging in legitimate business and
advocacy activities inextricably linked to livestock and poultry
markets. Contract poultry growers and hog producers have expressed to
USDA that they have experienced--and consistently fear--retaliation
from live poultry dealers and packers for communicating with each
other, with their dealer's and packer's competitors, and with
governmental officials, as well as for forming associations and
cooperatives, exercising contract or legal rights, or being a witness
in proceedings against the regulated entity.\72\ Cattle producers have
similarly expressed fear that packers will refuse to offer bids on
livestock, or purchase livestock from disfavored producers, and they
have highlighted other, more subtle retaliatory behaviors, like
delaying delivery or shipment, for engaging in similar activities.\73\
Producers believe the ability to communicate with others, to form
associations and cooperatives, to exercise legal rights, and to witness
against regulated entities are critical to free participation in the
livestock and poultry markets. Inhibition of these freedoms jeopardizes
producers' ability to obtain the full value of their livestock and
poultry products and services. Indeed, producers have reported to AMS
over the years that retaliation by regulated entities--or threat
thereof--for producers' exercise of these rights is significant enough
to place a producer's entire farm at risk. This reported conduct is the
type of behavior AMS aims to prohibit through this rulemaking.\74\
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\72\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript (<a href="http://justice.gov">justice.gov</a>)
(<a href="https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656">https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656</a>; <a href="https://youtu.be/8QJ_K06lp5M?si=C1HA0i84opqaoIn8&t=1051">https://youtu.be/8QJ_K06lp5M?si=C1HA0i84opqaoIn8&t=1051</a>).
\73\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Livestock Industry, August 27, 2010, Fort Collins, Colorado,
Available at <a href="https://www.justice.gov/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10">https://www.justice.gov/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10</a> (<a href="https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656https://youtu.be/Ygerhjjp0Is?si=WMS4YGdAjNtIsBgH&t=1833">https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656https://youtu.be/Ygerhjjp0Is?si=WMS4YGdAjNtIsBgH&t=1833</a>; <a href="https://youtu.be/tF4Dr-O-l8s?si=BZJQYN-rkp-qqvjN&t=1158">https://youtu.be/tF4Dr-O-l8s?si=BZJQYN-rkp-qqvjN&t=1158</a>; numerous producers, including the
previous president of the Kansas Cattlemen's Association, discussed
instances in which they experienced retaliation from the largest
packers. For example, one producer described how they decided to
allow other packer buyers first opportunity to buy cattle in
response to the packer not selecting them for a contracting
agreement. The producer said that the packer told ``his buyer to
quit coming into our yard.'' Another producer agreed, describing an
incident in which they perceived that one of the largest packers
possibly retaliating against them for previous litigation: the
producer described how the packer hung a ``No Trespassing'' sign on
the producer's door and began offering a ``five-minute window'' to
buy cattle).
\74\ Lina Khan, ``Obama's Game of Chicken,'' Wash. Monthly
(2012), <a href="https://washingtonmonthly.com/magazine/novdec-2012/obamas-game-of-chicken/">https://washingtonmonthly.com/magazine/novdec-2012/obamas-game-of-chicken/</a> (Recounting testimony by Tom Green, an Alabama
farmer who contested a contract and lost their farm: ``We did not
give up a fundamental right to access the public court . . . which
is guaranteed by our Constitution, regardless of price. I had flown
too many combat missions defending that Constitution to forfeit it.
It was truly ironic that protecting one right, we lost another. We
lost the right to property''). Isaac Arnsdorf, ``How a Top Chicken
Company Cut Off Black Farmers, One by One,'' Propublica (June 26,
2019), <a href="https://www.propublica.org/article/how-a-top-chicken-company-cut-off-black-farmers-one-by-one">https://www.propublica.org/article/how-a-top-chicken-company-cut-off-black-farmers-one-by-one</a> (Describing how one farmer
participated in the 2010 USDA-DOJ workshops and ``. . . never got
another chicken after going to that meeting over there in Alabama. .
. They put me slap out of business'').
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This is a persistent problem. As recently as April 2022, threats
and fear of retaliation interfered with witness testimony at each of
the House and Senate Agriculture Committees' hearings on livestock
competition practices. In his opening remarks, House Agriculture
Committee Chair David Scott noted, ``We were supposed to have a 4th
witness, a rancher, on our panel, but due to intimidation and threats
to this person's livelihood, to this person's reputation, they chose
not to participate out of fear. Witness intimidation is unacceptable. .
. .'' \75\
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\75\ House Chair David Scott D-GA, opening remarks, U.S. House,
Committee on Agriculture, ``An Examination of Price Discrepancies,
Transparency, and Alleged Unfair Practices in Cattle Markets,''
April 27, 2022, (14 min: 24 sec), available at <a href="https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk">https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk</a>.
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The day before, Senator Deborah Fischer had stated, ``I wish we had
a Nebraska producer here, but as is noted in their letter, none of our
producer members we encouraged to testify were willing to put
themselves out front for fear of possible retribution from other market
participants, an unfortunate reality of today's cattle industry.'' \76\
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\76\ U.S. Senate Committee on Agriculture, Nutrition, and
Forestry, ``Legislative hearing to review S. 4030, the Cattle Price
Discovery and Transparency Act of 2022, and S. 3870, the Meat and
Poultry Special Investigator Act of 2022,'' April 26, 2022, (1 hour
39 min), available at <a href="https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022">https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022</a>.
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In response to the proposed rule, commenters expressed support and
opposition for the proposal to establish prohibitions against
retaliatory practices. Several industry associations opposed the
proposed rule, indicating it is duplicative and therefore not
necessary. These commenters contended the conduct addressed in the
[[Page 16111]]
proposed rule is not a widespread problem and is already prohibited
under the Act. Other commenters supported the rule. One organization
cited a recent anonymous survey of contract growers it had conducted.
Multiple respondents had experienced retaliation from integrators and
said integrators regularly terminate contracts with farmers who engage
in whistleblowing activities. These contract terminations leave growers
with substantial debt tied up in specialized, single-use structures
built as a condition of their contractual agreements. Although comments
in response to the proposed rule differ greatly regarding the need for
this rule, commenters generally do not disagree that discriminatory and
retaliatory conduct is harmful to producers and offers no
procompetitive benefits. For these reasons, AMS needs to use its
statutory authority to provide a regulatory framework for prohibiting
retaliatory behavior by regulated entities against covered producers.
Establishing regulatory protections to prohibit regulated entities from
retaliating against producers engaging in lawful activity will help
promote fair trade practices and competitive markets.
In recent years, producers have been increasingly vulnerable to
harms from retaliatory behavior due to the market power afforded
regulated entities under contracts that can reach further down into
livestock and poultry production and/or are bilateral. This is in
contrast to past circumstances where these relationships were
intermediated through an institution such as a stockyard (auction)
subject to heightened regulatory duties around nondiscrimination.
As regulated entities have obtained greater control over the input
industries, particularly in poultry, producers are increasingly
dependent upon regulated entities for success. That dependence, in
combination with high levels of debt, leaves producers vulnerable to
the retaliation that regulated entities can exact through input
distribution and in other ways. Growers have for years reported
punitive delivery of inputs to deter their exercise of a wide range of
legal rights and remedies that would enable them to earn the full value
of their services.<SUP>77 78</SUP>
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\77\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript (<a href="http://justice.gov">justice.gov</a>); see
also Lina Khan, ``Obama's Game of Chicken,'' The Washington Monthly,
Nov. 2012, available at
\78\ Oscar Hanke, ed., American Poultry History, 1823-1973
(Madison, Wisc., 1974), 384-85. Fite, Cotton Fields No More, 201;
Peck, A, (2006), ``State regulation of production contracts.''
University of Arkansas National Center for Law Research and
Information, available at <a href="http://nationalaglawcenter.org/wp-content/uploads/assets/articles/peck_contractregulation.pdf">http://nationalaglawcenter.org/wp-content/uploads/assets/articles/peck_contractregulation.pdf</a>; Stephen F.
Strausberg, From Hills and Hollers: Rise of the Poultry Industry in
Arkansas (Fayetteville, Ark., 1995), 136; Heffernan, W. D., (1984),
Constraints in the U.S. poultry industry. Research in Rural
Sociology and Development, 1, 237-260 (Researchers have documented
the increased incidence of producers' complaints and decreasing
satisfaction in the industry beginning in the 1980s, which coincided
with increasing concentration of the industry. Weinberg writes how,
in 1960, 19 firms processed 30 percent of total US poultry processed
and that producers who entered the business tended to achieve upward
mobility. In the 1970s, only 8 firms processed the same percent of
poultry. This trend accompanied an increased incidence of grower
dissatisfaction. Gordy notes how ``loss of independence and lower
incomes caused some growers to become disenchanted.'' Fite observed
how poultry farmers were ``controlled and sometimes exploited by
their suppliers.'' Peck notes how dissatisfaction by growers
prompted State attorneys general to propose a 3-day right of review
in a model producer protection act in the early 2000s. In 2010, the
USDA and DOJ hosted a series of workshops in which growers raised
concerns about retaliation in the industry. These trends, which
occurred alongside increased productivity gains and use of
technology, coincided with exits in the industry. As Weinberg
documented, in Georgia, in 1950, 1176 Hall County farms sold 6.8
million chickens; in 1992, only 192 sold 44.3 million chickens).
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Based on complaints and industry experience, AMS is aware that
retaliation by regulated entities may take many forms, such as
canceling contracts, selectively enforcing contract terms, refusing to
deal or negotiate, or otherwise impairing an individual's or group of
producers' ability to operate.\79\ In contrast, in more competitive
markets, producers facing retaliation can more easily avoid or mitigate
adverse impacts by simply finding other entities with whom to do
business. Without choices, producers are at the mercy of the types of
abuses the Act was designed to prevent--market abuses that inhibit
producers' ability to get the full value of their products and
services. Ultimately, regulated entities may retaliate for various
reasons, but none have any role in or benefit to the competitive
functioning of the market.\80\
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\79\ See, e.g., U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama, available at <a href="https://youtu.be/8CvEGyMQ9v8?t=3135">https://youtu.be/8CvEGyMQ9v8?t=3135</a> (in which
poultry growers described how companies seemingly arbitrary mandated
expensive upgrades).
\80\ Fehr, Ernst, and Simon G[auml]chter. ``Fairness and
retaliation: The economics of reciprocity.'' Journal of economic
perspectives 14, no. 3 (2000): 159-181.
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As discussed below in Section VII--Comment Analysis, in response to
the proposed rule, commenters expressed extensive agreement with the
need to establish prohibitions against retaliatory practices.
iii. Deceptive Practices
The Packers and Stockyards Act has long recognized that integrity
and honesty are vital to the marketing of livestock and, therefore, to
the efficiency with which these markets supply meat to the American
consumer.\81\ This rulemaking is a response, in part, to the range of
complaints lodged with USDA, Congress, and the media over the years
regarding inaccurate, incomplete, or otherwise false or misleading
statements, or omission of material information that affects decision-
making or access to markets by producers. These complaints reflect, in
part, changed industry contracting norms or a market environment where
the prevalent norms result in more acute harms to producers. For
example, packers and industry representatives have routinely indicated
that producers may choose the form of pricing mechanism for their
transactions. However, as cash-negotiated markets have declined,
producers have increasingly complained to USDA that they are not
provided such a choice, and are commonly given a take-it-or-leave-it
offer to buy their cattle off of a pricing formula provided by the
company.\82\ Producers have complained they have been told that packers
refuse to buy their cattle on the grounds they are not of sufficiently
high quality or that formula market arrangements are necessary to
incentivize such quality, when the cattle being offered were of no less
quality than those the packer procured under other marketing
arrangements.\83\
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\81\ See, e.g., Midwest Farmers v. United States, 64 F. Supp.
91, 95 (D. Minn. 1945); In re: Frosty Morn Meats, Inc., 7 B.R. 988,
1020 (M.D. Tenn. 1980).
\82\ Other Association or Non-Profit, ``Comment on AMS-FTPP-21-
0045: Inclusive Competitive and Market Integrity Under the Packers
and Stockyards Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423</a>.
\83\ C. Robert Taylor, ``Harvested Cattle, Slaughtered
Markets,'' April 27, 2022, 7-9, available at <a href="https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/">https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/</a>.
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Poultry producers have complained to USDA over the years regarding
unfavorable provision of inputs made to certain producers despite
statements by live poultry dealers that there are no differences in
treatment. Producers have also complained to USDA of terminations,
suspensions, or reductions in flocks on pretexts--i.e., on the
provision of false or misleading information such as claims of animal
[[Page 16112]]
welfare contractual violations--when other reasons may exist for the
adverse actions, including the discrimination and retaliation noted
previously, or other unreasonable bases, such as a preference for
family or friends of the local agent of a live poultry dealer or for a
poultry grower connected to a senior executive of a live poultry
dealer.\84\ Contract termination puts the grower at severe risk of
significant economic loss. A production broiler house often has
significant long-term financial obligations. The potential loss
includes not only the loss of production income, but financing for
construction, which often comes from mortgages on the grower's farm or
family home. Pretextual cancellation may make even the sale or transfer
of the broiler production house impossible because purchasers may be
unable to determine whether the broiler houses have value.
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\84\ Wheeler v. Pilgrim's Pride, 536 F.3d 455 (5th Cir. 2008);
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://www.justice.gov/sites/default/files/atr/legacy/2010/11/04/alabama-agworkshop-transcript.pdf">https://www.justice.gov/sites/default/files/atr/legacy/2010/11/04/alabama-agworkshop-transcript.pdf</a>, last accessed 8/14/23.
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As discussed in Section VII--Comment Analysis, comments underscored
the need to address deceptive practices in this rulemaking.
III. Authority
Congress enacted the Act to promote fairness, reasonableness, and
transparency in the marketplace by prohibiting practices that are
contrary to these goals. AMS is issuing these regulations under the
Act's provisions prohibiting undue prejudice, unjust discrimination,
and deception to provide for clearer, more effective standards to
govern the modern marketplace and to better protect, through compliance
and enforcement, individually harmed producers.
Enacted in 1921 ``to comprehensively regulate packers, stockyards,
marketing agents and dealers,'' \85\ the Act, among other things,
prohibits actions that hinder integrity and competition in the
livestock and poultry markets. Section 202(a) of the Act states that it
is unlawful for any packer, swine contractor, or live poultry dealer to
engage in or use any unfair, unjustly discriminatory, or deceptive
practice or device.\86\ Section 202(b) of the Act states that it is
unlawful for any packer, swine contractor, or live poultry dealer to
make or give any undue or unreasonable preference or advantage to any
particular person or locality, or subject any particular person or
locality to any undue or unreasonable prejudice or disadvantage in any
respect.
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\85\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498
F.2d 925, 927 (10th Cir. 1974).
\86\ 7 U.S.C. 192(a).
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Section 407 of the Act provides that the Secretary ``may make such
rules, regulations, and orders as may be necessary to carry out the
provisions of this [Act].'' (7 U.S.C. 228(a)) The Secretary has
delegated the responsibility for administering the Act to AMS. Within
AMS, the Packers and Stockyards Division (PSD) of the Fair-Trade
Practices Program has responsibility for the day-to-day administration
of the Act. The current regulations implementing the Act are found in
title 9, part 201, of the CFR. Therefore, based on the authority
delegated to USDA by Congress to administer the Act, AMS is
promulgating this rulemaking to amend part 201 to specifically clarify
that discriminatory, deceptive, and retaliatory conduct, as defined in
this rule, are violations of the Act.
Executive Order (E.O.) 14036, ``Promoting Competition in the
American Economy'' (86 FR 36987, July 9, 2021), directs the Secretary
to further the vigorous implementation of the Act. Accordingly, this
final rule addresses the unfair treatment of farmers and improves
competitive conditions in markets. This rule adds clarity to USDA's
regulations concerning unjustly discriminatory practices, deceptive
practices, and undue or unreasonable prejudices or disadvantages. E.O.
14036 underscored that ``it is unnecessary under the... Act to
demonstrate industry-wide harm to establish a violation of the Act and
that the `unfair, unjustly discriminatory, or deceptive' treatment of
one farmer'' violates the Act. Among other policy goals in the E.O.,
this final rule is specifically intended to address the unfair
treatment of farmers and make it easier for them to garner the full
value of their animals. The Act is a remedial statute enacted to
address problems faced by farmers, producers, and other participants in
the markets for livestock, meats, meat food products, livestock
products in unmanufactured form, poultry, and live poultry; to protect
the public from predatory practices; and to help ensure a stable food
supply. Thus, as academics and courts have noted, the Act has ``tort-
like provisions that are concerned with unfair practices and
discrimination'' that fulfill a ``market facilitating function,'' which
Congress designed to prevent ``market abuse.'' \87\ AMS interprets and
implements the Act to achieve its core statutory purposes.\88\
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\87\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a> (``subsections (a) and (b) appear to be tort-like provisions
that are concerned with unfair practices and discrimination, but not
with restraint of trade or monopoly as such''); Peter Carstensen,
The Packers and Stockyards Act: A History of Failure to Date, CPI
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that
the practices of buyers and sellers in livestock (and later poultry)
markets were fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.''); Michael C. Stumo
& Douglas J. O'Brien, Antitrust Unfairness vs. Equitable Unfairness
in Farmer/Meat Packer Relationships, 8 Drake J. Agric. L. 91 (2003);
Michael Kades, ``Protecting livestock producers and chicken
growers,'' Washington Center for Equitable Growth (May 2022),
<a href="https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf">https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf</a> (``Section 202's prohibitions on
unjust discrimination and undue preference are not limited to
conduct that destroys or limits competition or creates a monopoly.
These provisions address conduct that impedes a well-functioning
market and deprives livestock and poultry producers of the true
value of their animals. Taken together, these provisions seek to
prevent market abuses.'').
\88\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th
Cir. 1966).
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IV. Summary of the Proposed Rule
In the October 2022 proposal, AMS proposed amending 9 CFR 201 by
adding a new subpart O, titled ``Competition and Market Integrity,''
and containing Sec. Sec. 201.300 through 201.390. AMS proposed adding
a Definitions section, Sec. 201.302, containing the terms covered
producer, livestock producer, market vulnerable individual, and
regulated entity.
AMS also proposed adding Sec. 201.304, titled ``Undue prejudices
or disadvantages and unjust discriminatory practices,'' to prohibit
regulated entities from discriminating against a market vulnerable
individual or a cooperative, detailing in proposed paragraph (a) types
of prohibited actions. Paragraph (b) of the proposed regulation would
prohibit regulated entities from retaliating against a covered producer
because of the covered producer's participation in a producer
association, protected activities, including assertion of rights under
the Act, and lawful communication. Proposed paragraph (b) also provided
examples of prohibited retaliatory actions. Proposed paragraph (c)
included a requirement that regulated entities retain records of
compliance with paragraphs (a) and (b) for no less than five years from
the date of record creation.
AMS also proposed adding Sec. 201.306, titled ``Deceptive
practices,'' prohibiting a regulated entity from employing a false or
misleading statement or omission of material information necessary to
make a statement not false or misleading during contract formation,
[[Page 16113]]
performance, and termination. Section 201.306 also proposed to prohibit
a regulated entity from providing false or misleading information
concerning a refusal to contract. The proposal was designed to prohibit
regulated entities from specified deceptive practices in contracting,
which are of particular concern because of the power of the regulated
entities over their vertical contracting relationships. As stated in
the proposal, AMS intended this proposed regulation to address broad
areas of specific concern, not exhaustively identify all deceptive
practices that would violate sec. 202(a) of the Act.
Finally, AMS proposed adding Sec. 201.390, titled
``Severability.'' This provision was intended to inform reviewing
courts that if any provision of subpart O was declared invalid, or if
the applicability of any of its provisions, or any components of any
provisions, to any person or circumstances was held invalid, the
validity of the remaining provisions of subpart O or their
applicability to other persons or circumstances would not be affected.
Severability provisions are typical in modern AMS regulations. AMS
regulations often cover several different topics in a subpart. This
provision was added because the regulations in subpart O are designed
to address several different types of violations under the Act. Because
these violations address similar underlying developments in the
livestock and poultry markets--namely, abusive practices facilitated by
increased vertical integration and horizontal concentration--these
violations were suitable for joining in a single rulemaking. However,
each could be viewed as its own stand-alone rulemaking and therefore
should be severable.
Upon consideration of public comments on the proposed rule, AMS
modified some of its proposed provisions to derive this final rule.
These changes are outlined below.
V. Changes From the Proposed Rule
AMS is making the following changes to the proposed rule based on
the agency's analysis of the issues raised by commenters.
A. Market Vulnerable Individual (MVI) to Prohibited Bases
With respect to the proposed regulations regarding undue prejudice
and unjust discrimination, Sec. 201.304, several commenters expressed
concern that the definition of ``market vulnerable individual (MVI)''
as the basis for prohibiting undue prejudice and discrimination was too
broad and ambiguous and could lead to an avalanche of litigation. To
simplify this section, the final rule uses a delineated set of
protected bases against undue prejudice and discrimination that were
discussed in the proposed rule: race, color, national origin, religion,
sex, sexual orientation, gender identity, age, disability, and marital
status. These delineated bases reflect the Statement of General Policy
Under the Packers and Stockyards Act published by USDA in 1968 (9 CFR
203.12(f)) and USDA's Conducted Programs Statement, and reflect a
general congressional policy as indicated in other statutory sources
(discussed below).\89\ The final rule retains status as a cooperative
as a protected basis against undue prejudice and discrimination, which
reflects the principles set forth in the Agricultural Fair Practices
Act of 1967.\90\ (For the avoidance of doubt, AMS notes that
discrimination against a member of a cooperative is prohibited under
the provisions of paragraph (b)(2)(iii).) Accordingly, AMS has removed
the term market vulnerable individual from the list of terms defined
for subpart O in Sec. 201.302.
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\89\ 7 CFR 15d.3; U.S. Department of Agriculture,
``Nondiscrimination in Programs or Activities Conducted by the
United States Department of Agriculture,'' 79 FR 41406, July 16,
2014.
\90\ Public Law 90-288.
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AMS is adopting the aforementioned specific bases, as opposed to
MVI, because the specific prohibited bases offer clearer, more workable
standards to achieve the same goal set forth and specifically
articulated in the proposed rule, but in a manner that will facilitate
compliance by regulated entities and better enable producers to
exercise their rights under the Act. As AMS explained in the proposed
rule, the principal purpose of the MVI approach was to address
prejudices in the marketplace against producers that are more
vulnerable to such treatment and to stop unjust discrimination. AMS
views vulnerability to adverse marketplace treatment to include, but
not be limited to, exclusion or disadvantage on the basis of race,
color, religion, national origin, sex (including sexual orientation and
gender identity), disability, marital status, or age, or on the basis
of the covered producer's status as a cooperative. AMS initially
adopted the MVI approach because it believed that the proposed rule's
flexible approach to resolving marketplace vulnerabilities offered
producers protection in an ever-evolving market. The proposed approach
had the advantage of being responsive to the particular facts of given
cases and particular markets over time.
As part of the rulemaking process, however, AMS sought comment on
whether this was the best approach. AMS requested comment on whether it
should ``delineate specific categories of vulnerable producers on the
basis of membership in groups that have historically been subject to
adverse treatment owing to racial, ethnic, gender, or religious
prejudices.'' (87 FR 60010, Oct. 3, 2022) AMS also sought comment on
``whether this regulation should ban discrimination against specific
classes, such as on the basis of race, color, national origin,
religion, sex, sexual orientation, gender identity, age, disability,
marital status, or family status. Such an approach would differ from
the market vulnerable individual approach and would instead more
closely follow the civil rights laws that prohibit prejudicial
discrimination against certain protected classes.''
After considering the comments on both the MVI approach and on
specific delineated bases, AMS determined that MVI is not sufficiently
clear enough to meet the objectives of this regulation. The enumeration
of specific prohibited bases provides more clarity and certainty by
limiting the scope of the rule to prohibited adverse actions against
all producers on the basis of their membership of a protected class, in
line with existing civil rights requirements. Commenters, such as a
meat industry trade association, a poultry industry trade association,
and a live poultry dealer, criticized the proposed rule's MVI
definition for being vague and ambiguous and potentially exposing their
businesses to an unworkable standard that could potentially encompass a
wide range of covered producers far beyond what the Agency appeared to
be contemplating in the proposed rule. In contrast, these commenters
indicated that an approach based on specific classes, such as race,
sex, sexual orientation, or religion, would be clearer and would follow
the precedent of civil rights laws already in place while protecting
all producers.\91\
[[Page 16114]]
Several meat and poultry industry commenters who opposed use of the MVI
approach stressed that they do not engage in discrimination on the
specific bases set forth in this final rule and oppose such
discrimination.\92\
---------------------------------------------------------------------------
\91\ See, e.g., ``Comment on AMS-FTPP-21-0045: Inclusive
Competitive and Market Integrity Under the Packers and Stockyards
Act'' (received Jan. 17, 2023), available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424</a>; ``Comment on AMS-
FTPP-21-0045: Inclusive Competitive and Market Integrity Under the
Packers and Stockyards Act'' (received Jan. 17, 2023), available at
<a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249">https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249</a>; <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424</a>; ``Comment on AMS-
FTPP-21-0045: Inclusive Competitive and Market Integrity Under the
Packers and Stockyards Act'' (received Jan. 17, 2023), available at
<a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419</a>.
\92\ See, e.g., National Cattlemen's Beef Association, ``Comment
on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity
Under the Packers and Stockyards Act'' (received Jan. 17, 2023),
available at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418</a> (Deception, discrimination, or retaliation on the basis of
race, ethnicity, sexual orientation, gender identity, ability,
religion/spirituality, nationality and/or socioeconomic status is
reprehensible and should be remediated using the appropriate legal
avenues, including legislative changes where necessary).)
---------------------------------------------------------------------------
Multiple agricultural advocacy organizations also expressed
approval of these protected classes as the prohibited bases for
discrimination when responding to the proposed rule's solicitation of
responses on this issue, saying discrimination against individuals in
these groups should be clearly recognized so those individuals do not
have to continually prove discrimination and prejudice against them
based on the characteristic that makes them vulnerable in the market.
AMS agrees that the bases adopted in the final rule reflect genuine
vulnerability to market exclusion and have no competitive benefit.
AMS also notes that some commenters interpreted the MVI approach as
potentially providing protection to small producers on the basis that
small producers were vulnerable to discrimination in the form of the
same kinds of adverse treatment proposed to be prohibited in this rule.
While AMS is sympathetic to the plight of small producers' challenges
in accessing fair markets, AMS did not intend this rule to address
those concerns (as also discussed below in Section VII--Comment
Analysis). Basing the rule on a term that gave rise to such disparate
interpretations underlined the necessity of utilizing the more specific
bases set forth in the proposed rule's alternative formulation.
Additionally, AMS notes that these prohibited bases are now widely
accepted standards of non-discrimination at USDA and in the U.S.
economy more broadly. AMS adopted many of these as part of its 1968
Statement of General Policy.\93\ Together with the Agricultural Fair
Practices Act of 1967, these bases also apply to AMS enforcement of the
Equal Credit Opportunity Act (ECOA) under the Act, to USDA programs
through its Conducted Programs Statement, and, more recently, to the
terms of USDA's debt relief under section 22007 of the Inflation
Reduction Act.\94\ The terms are also widely accepted bases in other
laws that prohibit discrimination, such as in housing and
employment.\95\ The prohibited bases defined in the final rule have
become so widely accepted as prohibited bases of discrimination that it
would be notable and arbitrary for the Agency to pick some of the terms
and not others. Quite simply, ``unjust discrimination'' and ``undue
prejudices'' cannot be read but to include these widely accepted non-
discrimination terms.
---------------------------------------------------------------------------
\93\ 9 CFR 203.12(f).
\94\ USDA, Discrimination Financial Assistance Program,
``Eligibility,'' <a href="https://22007apply.gov/eligibility.html">https://22007apply.gov/eligibility.html</a> (last
accessed Oct. 2023) (``This program covers discrimination based on
different treatment you experienced because of: Race, color, or
national origin/ethnicity (including status as a member of an Indian
Tribe); Sex, sexual orientation, or gender identity; Religion; Age;
Marital status; Disability; Reprisal/retaliation for prior civil
rights activity'').'')
\95\ See, generally, DOJ, Civil Rights Division. The Attorney
General's Annual Report to Congress on Fair Lending Enforcement
(2021), available at <a href="https://www.justice.gov/d9/pages/attachments/2022/11/14/ecoa_report_2021_final_0.pdf">https://www.justice.gov/d9/pages/attachments/2022/11/14/ecoa_report_2021_final_0.pdf</a> (In 2001 to 2021, there were
496 fair lending referrals to DOJ, of which 163 were on the basis of
race and national origin. Other noted referrals, and then cases, in
2019 and 2020 were discrimination based on age and gender.)
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Accordingly, to achieve the same goal that the Agency set forth in
the proposed rule through both MVI and the alternative formulation, AMS
is now adopting the alternative formulation: race, color, religion,
national origin, sex (including sexual orientation and gender
identity), disability, marital status, or age of the covered producer;
or because of the covered producer's status as a cooperative.
B. Prohibited Actions Taken on a Prejudicial Basis
In Sec. 201.304(a)(2), AMS made three changes to the provisions
regarding prohibited actions taken on a prejudicial basis. First, in
paragraphs (a)(2)(i) through (iii), AMS proposed to prohibit offering
contracts that are less favorable than those generally or ordinarily
offered, refusing to deal, and differential contract performance or
enforcement, when each occurred on a prohibited basis. AMS is revising
each of these provisions to provide clarity and uniformity across this
final rule with respect to a comparison to similarly situated producers
and also to ensure parallel language with the retaliation adverse
actions under Sec. 201.304(b)(3). Paragraph (a)(2)(i) is revised to
read ``Offering contract terms that are less favorable than those
generally or ordinarily offered to similarly situated producers;
paragraph (a)(2)(ii) is revised to read ``Refusing to deal with a
covered producer on terms generally or ordinarily offered to similarly
situated covered producers''; and paragraph (a)(2)(iii) in the final
rule is revised to read ``performing under or enforcing a contract
differently than with similarly situated covered producers'' [emphasis
added]. ``Similarly situated,'' is a phrase commonly used by commenters
and by AMS in the proposed rule when discussing producer groups.\96\
Including this concept in the final regulation provides more context
for a comparison of what differential performance or enforcement would
look like, and therefore provides more specificity to the regulation.
This revision also mirrors a revision made to language in a similar
provision in the retaliation section (Sec. 201.304(b)(3)(ii) and
(iv)). The addition of ``with a covered producer'' in paragraph
(a)(2)(ii)--Refusal to deal, is similarly designed to align with the
parallel provision for paragraph (b)(3)(iv) as was set out in the
proposed rule and retained in the final rule. The final rule adds ``on
terms generally or ordinarily offered to similarly situated producers''
as well, in response to comments (as discussed below) to provide
similar clarity of application that refusal to deal is not simply an
absolute boycott or making a sham or nominal offer, but includes
failure to bid, negotiate, and otherwise make a reasonable attempt to
contract on terms generally or ordinarily offered to similarly situated
producers when done on the prohibited basis.
---------------------------------------------------------------------------
\96\ See also Central Railroad Co. of New Jersey v. United
States, 257 U.S. 247 (1921) (``They can be held jointly and
severally responsible for unjust discrimination only if each carrier
has participated in some way in that which causes the unjust
discrimination, as where a lower joint rate is given to one locality
than to another similarly situated'').
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Second, AMS is adding a new paragraph (a)(2)(iv), which prohibits--
when it occurs on a prohibited basis--``requiring a contract
modification or renewal on terms less favorable than similarly situated
covered producers.'' \97\ The new provision expands on the concept
encompassed in paragraph (a)(2)(i), which prohibits ``offering contract
terms that are less favorable than those generally or ordinarily
offered to similarly situated covered producers.'' The new provision
prohibits regulated entities from making contract terms less favorable
for producers once they are under contract and have incurred financial
obligations because of that contract. The new provision mirrors a new
provision
[[Page 16115]]
added to the retaliation section (Sec. 201.304(b)(3)(iii)) in response
to public comment on the proposed retaliation regulations. AMS also
uses a similar approach in the retaliation section on refusing to deal
(Sec. 201.304(b)(3)(iv)), as requested by public commenters, by adding
``with a covered producer on terms generally or ordinarily offered to
similarly situated covered producers'' after ``deal,'' for the same
reasons--this language helps prevent evasion. Commenters requested that
AMS provide more protection so that regulated entities cannot formulate
new ways of harming producers in contracting--a crucial component of a
producer's financial well-being. Commenters suggested an additional
provision regarding specific contract terms, including contract
modification, be added to the regulations. While AMS did not adopt the
suggested provision in whole, AMS recognizes the importance of
specifically prohibiting unfavorable contract modifications or renewals
that occur on a prohibited basis, considering the detrimental financial
impact this can have on producers already under contract. In making
these changes, the final rule provides a greater degree of specificity
regarding the type of conduct the rule prohibits. AMS will review the
facts and circumstances of each case and the regulated entity's
justifications for any modification or renewal to determine whether the
regulated entity has violated this rule.
---------------------------------------------------------------------------
\97\ Proposed paragraph (a)(2)(iv), which prohibited termination
or non-renewal of a contract on a prohibited basis, is renumbered in
the final rule as paragraph (a)(2)(v).
---------------------------------------------------------------------------
Third, AMS is adding a new paragraph (a)(2)(vi), which prohibits
regulated entities from taking ``any other action that a reasonable
covered producer would find materially adverse.'' This provision
represents a logical outgrowth from the proposed rule, which had
indicated that the ``prejudice or disadvantage with respect to
paragraph (a)(1) of this section includes the following actions.'' As
AMS explained in the proposed rule, AMS believes that the type of harm
to a producer will not be difficult to identify when it occurs based
upon the facts and circumstances, and thus provided an exemplary list
to aid in identification and enforcement under the rule. Such a list
was not intended to be all encompassing. However, in response to
comments, AMS has recognized that such an open-ended approach may
create too much uncertainty and undermine compliance and enforcement.
AMS is replacing the use of ``includes'' with an additional, more
flexible provision that provides a broader yet not unlimited range of
possible harms. AMS's approach is in response to comments that adverse
treatment of producers by regulated entities can occur outside the
confines of the contractual relationship. Such conduct could include,
for example, interference by a regulated entity into regulatory matters
of significant material importance to producers. Several public
commenters wanted more producer protections incorporated into Sec.
201.304(a)(2). This provision provides a broad and flexible approach to
these prohibitions and allows for ``material'' to be determined by the
facts and circumstances of each case while staying within the scope of
the proposed rule's intent around harms to producers under unjust
discrimination and undue prejudice deriving from adverse actions.
C. Exceptions to the Prohibited Bases
Commenters suggested that AMS include exceptions to the prohibition
on undue prejudice and unjust discrimination. In response to these
comments and the shift from MVI to identifying specific prohibited
bases, AMS decided to provide specific exceptions from the prohibition
in two circumstances. New Sec. 201.304(a)(3) states that the following
actions by a regulated entity do not prejudice, disadvantage, inhibit
market access, or constitute adverse action under Sec. 201.304(a)(1):
(i) fulfilling a religious commitment relating to livestock, meats,
meat food products, livestock products in unmanufactured form, or live
poultry; (ii) a Federally-recognized Tribe, including its wholly or
majority-owned entities, corporations, or Tribal organizations,
performing its Tribal governmental functions.
In shifting from MVI toward specific prohibited bases, AMS
identified the need to provide certain exceptions from the prohibition.
The proposed MVI was a flexible standard that permitted the Agency to
evaluate the facts and circumstances of a particular case and whether
the exclusion or disadvantageous contracting arrangement was based on
the characteristics of the producer. Specifying delineated prohibited
bases provides greater clarity, yet in doing so, it eliminates a degree
of flexibility that could be valuable in a small set of circumstances.
Accordingly, the Agency is adopting two specific exceptions to
recognize circumstances that do not give rise to unjust discrimination.
AMS asked questions about both areas in the proposed rule, highlighting
to commenters that the Agency recognized the potential for additional
adjustments to be made in those areas.
First, AMS is providing a specific exception to recognize the
important role ritual slaughter plays in certain religious traditions
and ensure that religiously significant meats--such as kosher, halal,
and Amish meats--are not impacted by the rule's prohibition on
discrimination on the basis of the producer's religion. According to
AMS subject matter experts, halal slaughterers, for example, express a
legitimate, religiously grounded preference for livestock and poultry
raised by operators of faith, e.g., the Muslim or the Amish Christian
group, that maintain particular animal husbandry practices. In adopting
its prohibition on prejudice on the basis of religion, AMS is
principally focused on access to the broad livestock markets for
persons where religion has no legitimate business purpose. In contrast,
where religion is relevant to the livestock and meat itself, AMS is not
seeking to disturb the religiously based determinations in what is a
relatively discrete market segment. Therefore, when administering the
Act, AMS must allow discriminatory conduct directed toward fulfilling
religious commitments surrounding livestock care and meat production.
To ensure clarity in its application, this rule respects
longstanding jurisprudence surrounding Tribal sovereignty and the
political relationship that a Tribe has with its members that secures
the right for Tribal entities to preference Tribal members. To ensure
that it is not read in contradiction with existing jurisprudence, the
rule explicitly specifies that Tribal governments can engage in
practices related to livestock, poultry, and meats with respect to non-
Tribal entities or non-Tribal descendants. The prohibition on
discrimination on the basis of race or color would be read to protect a
person from discrimination for being of Native American descent, but
not on preferential treatment given to Tribal members based on their
political classification. This matter was specifically raised by, and
is responsive to, Tribal governments during the Tribal consultation
that AMS conducted and is described below under ``VII.C.--Executive
Order 13175--Consultation and Coordination with Indian Tribal
Governments.''
AMS recognizes that this rulemaking cannot foresee the range of
unique or extenuating circumstances that may present in agricultural
markets. Commenters stated that rapidly changing livestock and poultry
markets may require an exception to the prohibition against undue
prejudice or disadvantage on a protected basis. However, AMS did not
identify, from the comments or based on its
[[Page 16116]]
experience, any other specific circumstances in the livestock and
poultry industries where a prejudice against a producer on a prohibited
basis was justified under the Act. To the extent that unforeseen
circumstances could arise that would justify creating the need to allow
for additional exceptions to this rule, AMS believes that those
circumstances are likely to be rare and tailored to narrow
circumstances. Accordingly, AMS believes that prosecutorial discretion
will provide it with adequate flexibility to offer relief on a case-by-
case basis. Of course, if following implementation of this rule it
becomes evident that additional exceptions should exist in regulation,
AMS may amend this regulation through the ordinary rulemaking process.
D. Retaliation Provisions
AMS proposed in Sec. 201.304(b)(1) to prohibit retaliation against
a covered producer that occurs because of the covered producer's
participation in protected activities ``to the extent that these
activities are not otherwise prohibited by Federal or state law,
including antitrust laws.'' In the final rule, AMS modified the
language of this provision to move the exception for Federal or State
law, including antitrust laws, to paragraph (b)(2) and to add Tribal
law to the types of law identified in this exception. AMS is adding
this language to make explicit the applicability of Tribal law in this
circumstance. Additionally, AMS changed ``because of'' to ``based
upon'' both in response to comments and to align with its approach in
Sec. 201.304(a) and embodied in Sec. 201.304(c). AMS proposed ``based
upon'' in Sec. 201.304(a) and ``by employing'' in Sec. 201.304(c) to
capture actions where the prohibited bases form a material part of the
action--discrimination or prejudice, or as part of the deceptive
practice. Section 201.304(b) is designed to achieve the same goal. AMS
also received comments recommending broad protections for covered
producers from retaliatory actions, including where the retaliation was
a part of the decision to take an adverse action. AMS further
underscores that ``based upon the covered producer's participation in
an activity . . .'' covers threats that would reasonably dissuade or
chill a covered producer from participating in the activities.
Under proposed Sec. 201.304(b)(2)(i), AMS proposed to establish as
a protected activity a producer's communication with a government
agency on matters related to livestock, meats, or live poultry or
petitions for redress of grievances before a court, legislature, or
government agency. Commenters requested that AMS clarify that this
protection covers communication with any sector or level of government,
including State governments. AMS intends for this regulation to include
protections for communications with any level of government, including
any government committee or official. In this final rule, AMS is
aligning the use of the terms ``court, legislature, or government
agency'' and simplifying the language to say, ``government entity or
official.'' This change ensures that protected communications may occur
with any of the three branches of government, any level of government,
and with individual government officials, including committees and
members of a legislature.
AMS requested public comment on whether the final rule should
protect producers who choose not to participate in protected
activities. In response to public comment supporting this proposal, AMS
has revised Sec. 201.304(b)(2)(ii) to protect a producer's right to
refuse a regulated entity's request to engage in communication with a
government entity or official that is not required by law, and Sec.
201.304(b)(2)(iii) to protect a producer's right to form or join, or to
refuse to form or join, a producer or grower association or
organization. Proposed Sec. 201.304(b)(2)(ii), which protected a
producer's assertion of any of the rights granted under the Act or this
part, or assertion of contract rights, is renumbered as paragraph
(b)(2)(vii) in the final rule.
AMS proposed in Sec. 201.304(b)(2)(v) to protect producer
communication or negotiation with a regulated entity for the purpose of
exploring a business relationship. In response to public comment, AMS
added in the final rule protection for communicating; negotiating; or
contracting with a regulated entity, another covered producer, or with
a commercial entity or consultant; for the purposes of exploring or
entering into a business relationship. Commenters asserted that, as
proposed, the protected activity was ``unreasonably narrow'' and that
expanding this protection would ``help ensure that covered producers
may explore all their business opportunities.'' \98\ The Act is
intended to ensure an inclusive market to protect and promote the
ability for covered producers to compete.\99\ Such competition may also
take the form of exploring or entering into opportunities for enhanced
price discovery through market intermediaries, such as listing cattle
for competitive bidding on a publicly transparent exchange or selling
at an auction barn or through a cooperative or other commercial entity
that facilitates the marketing of livestock by the covered producer.
The provision covers both the ability to negotiate or contract with the
commercial entity or consultant serving as an intermediary or other
facilitating the marketing or platform for marketing, such as the
exchange or auction barn; and also the ability to negotiate or contract
with other packers during the exchange or auction process. This is
protected because both elements may be necessary parts of securing
those opportunities to engage in price discovery and enhance the choice
and competitive opportunities for covered producers to earn the full
market value of their goods and services. The provision also covers
consideration of alternative uses for farm property. As with all
protected activities under this final rule, the regulated entity may
not present an obstacle to engaging in these activities, whether
written in a contract, verbally asserted, or otherwise, as those are
impermissible under the Act.
---------------------------------------------------------------------------
\98\ ``Comment on AMS-FTPP-21-0045: Inclusive Competition and
Market Integrity Under the Packers and Stockyards Act,'' available
at <a href="https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423">https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423</a>.
\99\ See, e.g., U.S. Department of Justice, ``Justice Department
Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods
from Imposing Unfair and Anticompetitive Termination Penalties in
Contracts with Chicken Growers,'' Nov. 9, 2023, available at <a href="https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing">https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing</a>.
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Under proposed Sec. 201.304(b)(3), AMS identified types of
prohibited retaliatory conduct. Commenters expressed concern regarding
the lack of clarity of these proposed prohibitions, with some saying
the prohibitions were too broad, some arguing that the rule should
provide even more flexibility, and some supporting the introduction of
a ``catch-all clause'' to provide additional protection against
retaliatory behavior. The final rule adds language to paragraph
(b)(3)(ii) to prohibit performing under or enforcing a contract
differently than with similarly situated producers [emphasis added].
This language, ``similarly situated,'' was commonly used by commenters
and AMS in the proposed rule when discussing producer groups. The
addition of ``similarly situated'' language provides greater
specificity regarding the scope of the regulation by providing more
context for a comparison of what differential
[[Page 16117]]
performance or enforcement would look like.
The final rule also revises the provision prohibiting a regulated
entity from refusing to deal with a covered producer by adding the
language, ``on terms generally or ordinarily offered to similarly
situated covered producers'' (paragraph (b)(3)(iv) in the final rule).
In response to comments, AMS agrees that the rule as proposed provided
too great a latitude for a regulated entity to engage in retaliation
because a regulated entity could, for example, satisfy the proposed
rule by simply offering highly unfavorable terms to the covered
producer. AMS believes that this revision provides broader coverage
regarding the most common circumstances that producers may encounter in
their business dealings in which regulated entities may attempt to
exact retaliation. It would also cover circumstances where the
``similarly situated producer'' was the covered producer's own prior
status quo circumstance with the regulated entity before the covered
producer engaged in the protected activity. AMS is also aligning
refusal to deal under paragraph (a)(2)(ii) to address the similar risk
of evasion.
Similarly, commenters requested that AMS add a regulation regarding
contract modification, or contract renewal. AMS has amended proposed
Sec. 201.304(b)(3) to add a new paragraph (b)(3)(iii) to clarify that
requiring a contract modification or a renewal on terms less favorable
than for similarly situated producers is covered.\100\ This provision
covers any adverse change to the covered producer's contract terms if
they are done in retaliation to a producer's engaging in protected
activities. Additionally, in response to comments requesting AMS
clarify that prohibited adverse actions ``includes but is not limited
to'' the list in proposed Sec. 201.304(b)(3), AMS has added a new
paragraph (b)(3)(vi) to prohibit ``any other action that a reasonable
covered producer would find materially adverse.'' AMS designed this
rule to protect producers broadly from adverse actions based upon the
rule's prohibitions. The regulatory text of the proposed rule set forth
an exemplary list, specifically denoting that ``retaliation includes
the following actions'' (paragraph (b)(2). Several public commenters
wanted more producer protections, such as discriminatory conduct
against producers by regulated entities through means outside of
contractual devices. AMS agrees that adverse, retaliatory treatment of
producers by regulated entities can occur through a wide range of
means, including outside the confines of contractual devices, or
through contractual means that are not easily delineated in a specific
list. Such conduct could, for example, include interference by a
regulated entity into regulatory matters of significant material
importance to producers. Based on AMS's regulatory experience,
regulated entities may interfere in covered producers' water rights,
which are exemplary of harms that would be considered retaliation even
if they occur outside the confines of contractual relationships. Or,
conduct could include retaliation during the contracting process for
protected activities that occurred prior to the covered producer's
attempt to form a business relationship with the regulated entity. Such
examples might not be clearly covered under Sec. Sec. 201.304(b)(3)(i)
through (v) of the proposed rule's protections relating to contracts
but were covered within the scope of the proposed rule's intent around
broad-ranging adverse actions that harm producers. AMS also intends the
list of retaliatory activities to be broad enough to capture the
fullest range of materially adverse harms encompassed under unjust
discrimination and undue prejudice--including in comparison to either
their prior circumstances or to similarly situated producers--and
threats of such harms that are designed to deter or punish producers
from participating in the activities protected by this final rule.
Therefore, Sec. 201.304 (b)(3)(vi) has been added to the final rule to
cover other types of adverse treatment. This provision provides a broad
and flexible approach to these prohibitions and allows for ``material''
to be determined by the facts and circumstances of each case.
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\100\ Proposed paragraphs (b)(3)(iii) and (iv) are accordingly
renumbered as paragraphs (b)(3)(iv) and (v) in the final rule.
---------------------------------------------------------------------------
In making these changes, the final rule provides a greater degree
of specificity regarding the type of conduct the rule prohibits. AMS is
not, however, providing the degree of specificity requested by
commenters regarding unfavorable contract terms because it is
impractical to name every action a malicious actor could use to
retaliate against a producer, and providing this level of detail is not
necessary to enforce the rule.
E. Technical Changes
AMS made editorial changes to the text of several proposed
regulations to improve clarity and readability. For instance, in the
definition of livestock producer, AMS revised the proposed definition
by removing multiple prepositions, so that the definition in the final
rule reads more simply: from ``Livestock producer means any person
engaged in the raising and caring for livestock by the producer or
another person, whether the livestock is owned by the producer or by
another person, but not an employee of the owner of the livestock'' to
``Livestock producer means any person, except an employee of the
livestock owner, engaged in the raising of and caring for livestock.''
Additionally, AMS revised the syntax of several proposed regulations.
For example, in Sec. 201.304(b)(3)(i), which lists prohibited
retaliatory actions, AMS revised the phrasing of the prohibition from
``Termination of contracts or non-renewal of contracts'' to
``Terminating or not renewing a contract'' to place emphasis on the
action being prohibited rather than the subject of that action.
AMS also made several non-substantive clarifying changes to the
wording of prohibited contractual deceptive practices in paragraphs (b)
and (c) of Sec. 201.306--Deceptive practices. These changes are
identical under contract formation, performance, and termination and
include the removal of the phrase ``pretext'' and ``fact'' and the
inclusion of the term ``information'' in place of ``fact.'' The term
``pretext'' was removed because it is not needed to accomplish the
objectives of Sec. 201.306. The conduct this rule aims to prohibit is
more directly defined through use of the following language: ``false or
misleading statement or representation, or omission of material
information.'' By changing the term ``fact'' to ``information'' certain
conduct that may not be considered or defined as ``factual'' under the
Act, yet is still deceptive, will be covered.
Lastly, AMS made a technical change to the table of contents for
subpart O. To avoid confusion, AMS is including Sec. Sec. 201.303 and
201.305 in the table of contents as reserved sections to indicate the
gaps between Sec. Sec. 201.302, 304, and 306 are deliberate and that
sections have not been inadvertently omitted.
VI. Provisions of the Final Rule
Under the authority of the Act, this rule adds a new subpart O to
AMS's regulations in 9 CFR 201, titled ``Competition and Market
Integrity,'' and consisting of Sec. Sec. 201.300 through 201.390. This
section summarizes the substantive provisions of the new subpart.
A. Definitions (Sec. 201.302)
Section 201.302 defines three terms for subpart O: covered
producer, livestock producer, and regulated entity.
[[Page 16118]]
A covered producer is defined as a livestock producer (as defined in
Sec. 201.302) or swine production contract grower or poultry grower as
defined in section 2(a) of the P&S Act (7 U.S.C. 182(8), (14)). Under
section 2(a) of the Act, swine production contract grower means any
person engaged in the business of raising and caring for swine in
accordance with the instructions of another person. A live poultry
grower is defined under section 2(a) of the Act as any person engaged
in the business of raising and caring for live poultry for slaughter by
another, whether the poultry is owned by such person or by another, but
not an employee of the owner of such poultry. AMS is adopting this
definition to facilitate a focus in this rule on protecting livestock
producers (and other parties included in the definition of covered
producer) because the harms of discrimination, retaliation, and
deception that are addressed in this rule are directed toward and
experienced by those persons. Therefore, even though the Act does not
contain a definition for livestock producers, AMS has included
livestock producers under the definition of covered producer; and
provided a definition for the term livestock producer in this section.
Livestock producer is defined for the purposes of subpart O as
being any person, except an employee of the livestock owner, engaged in
the raising of and caring for livestock. AMS aligned its definition of
the term livestock producer with phrasing used in the Act for the terms
poultry grower and swine production contract grower. In response to
comment to the proposed rule, AMS revised its definition by removing
unnecessary and potentially confusing phrasing. Employees are
specifically excluded as they typically lack direct financial interest
in the livestock themselves.
AMS defines regulated entity as a swine contractor or live poultry
dealer as defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a
packer as defined in section 201 of the Act (7 U.S.C. 191). A swine
contractor is defined in the Act as any person engaged in the business
of obtaining swine under a swine production contract for the purpose of
slaughtering the swine or selling the swine for slaughter, if (a) the
swine is obtained by the person in commerce or (b) the swine (including
products from the swine) obtained by the person is sold or shipped in
commerce. Live poultry dealers, the vast majority of whom are organized
in a vertical structure with common ownership interest in inputs, often
referred to as poultry integrators, are defined in the Act as any
person engaged in the business of obtaining live poultry by purchase or
under a poultry growing arrangement for the purpose of either
slaughtering it or selling it for slaughter by another, if poultry is
obtained by such person in commerce, or if poultry obtained by such
person is sold or shipped in commerce, or if poultry products from
poultry obtained by such person are sold or shipped in commerce. A
packer is defined in the Act as any person engaged in the business (a)
of buying livestock in commerce for purposes of slaughter; or (b) of
manufacturing or preparing meats or meat food products for sale or
shipment in commerce; or (c) of marketing meats, meat food products, or
livestock products in an unmanufactured form acting as a wholesale
broker, dealer, or distributor in commerce.
B. Undue Prejudice and Unjust Discrimination (Sec. 201.304(a))
Section 201.304(a) addresses the unique and often difficult to
prove discriminatory conduct that has long existed in the agricultural
sector by prohibiting specific bases of prejudicial action. Paragraph
(a) also lists prohibited actions taken on a prejudicial basis and
provides clarification on the types of actions that do not constitute
prohibited action taken on a prejudicial basis. In doing so, AMS is
clarifying the application of the Act, better empowering producers to
protect themselves, and encouraging companies to adopt more robust
compliance practices to snuff out conduct prohibited by the Act in its
incipiency, before it can distort markets in the aggregate. In
particular, this rule addresses the longstanding and often difficult to
counter forms of exclusion that have plagued the agricultural sector
for decades. AMS intends for this rule to support positive trends
toward inclusivity in the marketplace. Prejudices and disadvantages
based upon the producer's protected characteristics or status as a
producers' cooperative have no place in today's modern agricultural
markets.
The Act, through section 202(a) and (b), broadly prohibits certain
practices or devices, including undue or unreasonable prejudices and
disadvantages and unjust discrimination. Section 202(a) and (b) of the
Act identifies several prohibited actions with respect to livestock,
meats, meat food products, or livestock products in unmanufactured
form, or for any live poultry dealer with respect to live poultry. In
this rule, AMS is prohibiting specific undue and unreasonable
prejudices and disadvantages, and unjust discrimination against any
covered producer on the basis of certain categories of characteristics
or attributes broadly and firmly established as unjust in a modern
economy. This regulatory action implements Congress's intent, expressed
through the Act, to stop unjust discrimination and undue prejudice by
packers and live poultry dealers against livestock producers and
poultry growers.
In enacting the Act, Congress cast a wide net to capture all acts
of unjust discrimination and undue or unreasonable prejudice against
any particular person. There is no indication that Congress intended to
exempt any discriminatory conduct taken by regulated entities against
producers covered under the Act.\101\ The Act's prohibition of unjustly
discriminatory or unreasonably prejudicial actions against a particular
person was not a new statutory concept, as the Interstate Commerce Act
of 1887 (or ICA) also banned unreasonable prejudices and unjust
discriminatory practices well before the enactment of the Act. While
the ICA does not define the scope of the Act, the comparison is
nevertheless useful, especially with respect to the structure and
design of provisions governing undue prejudices. A comparison is
provided in Table 4 below.
---------------------------------------------------------------------------
\101\ See 7 U.S.C. 193. C.f. Mitchell v. United States, 313 U.S.
80, 94 (1941).
---------------------------------------------------------------------------
In Mitchell v. United States,\102\ the Supreme Court of the United
States held that the ICA prohibited discrimination based on race; such
discrimination was ``essentially unjust.'' The Court held that ``it is
apparent from the legislative history of the ICA that not only was the
evil of discrimination the principal thing aimed at, but that there is
no basis for the contention that Congress intended to exempt any
discriminatory action or practice of interstate carriers affecting
interstate commerce which it had authority to reach.'' \103\ Further,
the Court isolated a section of the ICA and noted that, ``Paragraph 1
of Section 3 of the Act says explicitly that it shall be unlawful for
any common carrier subject to the Act `to subject any particular person
to any undue or unreasonable prejudice or disadvantage in any respect
whatsoever.' '' \104\ The Court found that unreasonable prejudice
against an individual based on race was a violation and concluded that,
``the Interstate Commerce Act expressly
[[Page 16119]]
extends its prohibitions to the subjecting of `any particular person'
to unreasonable discriminations.'' \105\
---------------------------------------------------------------------------
\102\ 313 U.S. at 94.
\103\ Id. at 94.
\104\ Id. at 95 (emphasis added).
\105\ Id. at 97.
---------------------------------------------------------------------------
The Act contains similar, but broader, language than sec. 3 of the
ICA. Section 202 of the Act reads, ``It shall be unlawful for any
packer or swine contractor with respect to livestock, meats, meat food
products, or livestock products in unmanufactured form, or for any live
poultry dealer with respect to live poultry, to: (a) Engage in or use
any unfair, unjustly discriminatory, or deceptive practice or device;
or (b) Make or give any undue or unreasonable preference or advantage
to any particular person or locality in any respect, or subject any
particular person or locality to any undue or unreasonable prejudice or
disadvantage in any respect . . .'' [emphasis added]. Table 4
illustrates where the text between the two acts is similar, and also
how the Act is broader.\106\
---------------------------------------------------------------------------
\106\ For more on the relationship between the Interstate
Commerce Act and the Act in this area, see Michael Kades,
``Protecting Livestock Producers and Chicken Growers,'' Washington
Center for Equitable Growth, at 66 (May 2022) discussing Wheeler v.
Pilgrim's Pride Corp., 591 F.3d 355, 368-369 (5th Cir 2009) (en
banc) (J. Jones concurring): ``In all the cases discussed by the
concurrence dealing with both terms [under the ICA], the defendant
faced charges that it treated customers differently. According to
the court, `railway companies are only bound to give the same terms
to all persons alike under the same conditions.' If the conditions
are different, then different treatment is merited. Further,
`competition between rival routes is one of the matters which may
lawfully be considered in making rates.' Differential treatment
driven by competitive forces is not a violation. Acknowledging that
competition can justify differential treatment of customers is
different than requiring the plaintiff to prove anticompetitive harm
to establish a violation.''
\107\ Bolded text highlights where the ICC and Act use similar
language. Italicized text identifies areas where the language of
both statutes is the same.
[GRAPHIC] [TIFF OMITTED] TR06MR24.011
As shown in Table 4, unlike the ICA, the Act in secs. 202(a) and
(b) prohibits undue or unreasonable prejudices or disadvantages as well
as deception or unjust discrimination (without limitation to
discrimination in rates and charges in particular). In this rulemaking,
AMS applies the language from sec. 202 to prohibit acts of unreasonable
prejudice and to prevent unjust discrimination including, but not
limited to, the race discrimination that the Court found to be
violative of the ICA in Mitchell.
This rule sets forth specific prohibitions on prejudicial or
discriminatory acts or practices against individuals that are
sufficient to demonstrate violation of the Act without the need to
further establish broad-based, market-wide prejudicial or
discriminatory outcomes or harms. The prohibitions in this rule on
regulated entities adversely treating individual producers address the
types of harms the Act is intended to prevent. AMS finds that adverse
acts on these bases are essentially unjust and unduly prejudicial, and
actionable at the individual level. Moreover, AMS
[[Page 16120]]
believes that preventing broad-based exclusion, and therefore promoting
competitive markets, is most effectively enforced at the individual
producer level when the conduct is in its incipiency.\108\ To further
allow for effective enforcement of the statute, AMS is also including a
recordkeeping requirement to support evaluation of regulated entity
compliance.
---------------------------------------------------------------------------
\108\ ``[T]he purpose of the Act is to halt unfair trade
practices in their incipiency, before harm has been suffered.'' See
Farrow v. U.S. Dep't of Agr., 760 F.2d 211, 215 (8th Cir. 1985)
(citing De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329,
1336-37 (9th Cir. 1980); Swift & Co. v. United States, 393 F.2d 247,
252 (7th Cir. 1968); Armour and Company v. United States, 402 F.2d
712, 723 n. 12 (7th Cir.1968).
---------------------------------------------------------------------------
In determining the bases for protection against discrimination
under the Act, AMS drew insight initially from the Statement of General
Policy Under the Packers and Stockyards Act published by the Secretary
in 1968 (Statement of General Policy) (9 CFR 203.12(a)), which states
that the Act provides that all stockyard services furnished at a
stockyard ``shall be reasonable and nondiscriminatory and stockyard
services which are furnished shall not be refused on any basis that is
unreasonable or unjustly discriminatory.'' \109\ Additionally, AMS
interprets the Act consistently with the regulations governing USDA-
conducted programs; ECOA, which is enforced in part by AMS under the
Act; a series of statutes identifying producers that Congress has
determined face special disadvantages, are underserved, or are
otherwise more vulnerable to prejudices; and the Agricultural Fair
Practices Act (AFPA) of 1967.
---------------------------------------------------------------------------
\109\ Statement of General Policy Under the Packers and
Stockyards Act. U.S. Department of Agriculture: Washington, DC,
1968.
---------------------------------------------------------------------------
The Statement of General Policy reflects the current USDA policy on
the enforcement of the Act. The Statement of General Policy provides in
part that it is a violation of secs. 304, 307, and 312(a) of the Act
for a stockyard owner or market agency to discriminate, in the
furnishing of stockyard services or facilities or in establishing rules
or regulations at the stockyard, because of race, religion, color, or
national origin of those persons using the stockyard services or
facilities. Such services and facilities include, but are not limited
to, the restaurant, restrooms, drinking fountains, lounge
accommodations, those furnished for the selling, weighing, or other
handling of the livestock, and facilities for observing such services.
While this part of the Statement of General Policy applies to
violations of secs. 304, 307, and 312(a) of the Act (related to the
provision of services and facilities at stockyards on an unreasonable
and discriminatory basis), almost identical prohibitive language is
used in sec. 202 of the Act. Section 202 pertains to packers, swine
contractors, and live poultry dealers. Section 202(a) of the Act
prohibits any unjustly discriminatory practice or device with respect
to livestock, meats, meat food products or livestock products in
manufactured form, or live poultry.
AMS also considered USDA's general regulatory prohibition against
discrimination in USDA programs, which governs how USDA provides
services to producers. In 1964, USDA prohibited discrimination on the
basis of race, color, and national origin in its Federally conducted
activities by adopting Title VI principles.\110\ USDA then expanded the
protected bases for its conducted programs to include religion, sex,
age, marital status, familial status, sexual orientation, disability,
and whether any portion of a person's income is derived from public
assistance programs.\111\ Most recently updated in 2014, the general
regulatory prohibition offers a more current interpretation of
antidiscrimination standards.\112\ The 2014 rule aimed to ``strengthen
USDA's ability to ensure that all USDA customers receive fair and
consistent treatment, and align the regulations with USDA's civil
rights goals.'' \113\ The relevant provision provides that no agency,
officer, or employee of the USDA shall, on the grounds of race, color,
national origin, religion, sex, sexual orientation, disability, age,
marital status, family/parental status, income derived from a public
assistance program, political beliefs, or gender identity, exclude from
participation in, deny the benefits of, or subject to discrimination
any person in the United States under any program or activity conducted
by the USDA. In that rulemaking, USDA identified areas where
discrimination against a producer is an unacceptable denial of access
to USDA's services. This prior rulemaking provides a helpful reference
to what constitutes unjust discrimination under the Packers and
Stockyards Act.
---------------------------------------------------------------------------
\110\ <a href="https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture">https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture</a> (See 29 FR 16966, creating 7
CFR part 15, subpart b, referring to nondiscrimination in direct
USDA programs and activities, now found at 7 CFR part 15d).
(assessed 01-30-2024)
\111\ <a href="https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture">https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture</a> (assessed 01/30/2024)
\112\ 7 CFR 15d.3; U.S. Department of Agriculture,
``Nondiscrimination in Programs or Activities Conducted by the
United States Department of Agriculture,'' 79 FR 41406, July 16,
2014, available at <a href="https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture">https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture</a> (last
accessed 8/9/2022).
\113\ USDA. 2014. 7 CFR part 15d RIN 0503-AA52 Nondiscrimination
in Programs or Activities Conducted by the United States Department
of Agriculture, p. 41407. 2014-16325.pdf (<a href="http://govinfo.gov">govinfo.gov</a>) (assessed 02/
01/2024).
---------------------------------------------------------------------------
AMS interprets the Act in light of legislative mandates that
emerged over the last 30 years directing USDA to make extra efforts to
ensure that members of the aforementioned groups have equal access to
USDA's services and agricultural markets generally.\114\ Congress
adopted numerous statutes seeking to remedy market exclusion on the
basis of prejudices across a wide range of areas, including: 7 U.S.C.
8711 (base acres); 7 U.S.C. 2003 (target participation rates); 7 U.S.C.
7333 (Administration and operation of noninsured crop assistance
program); 7 U.S.C. 1932 (Assistance for rural entities); 16 U.S.C.
2202a, 3801, 3835, 3839aa-2, 3841, and 3844 (conservation); 7 U.S.C.
8111 (Biomass Crop Assistance Program); 7 U.S.C. 1508 (Federal crop
insurance, covering underserved producers defined as new, beginning,
and socially disadvantaged farmers or ranchers and including members of
an Indian Tribe); and 16 U.S.C. 3871e(d) (conservation, covering
historically underserved producers defined as being veteran, socially
disadvantaged, and limited-resource farmers and ranchers). In 25 U.S.C.
4301(a) and elsewhere, Congress has clearly expressed its intent for
the United States Government to encourage and foster Tribal commerce
and economic development.\115\
---------------------------------------------------------------------------
\114\ For background, see Congressional Research Service,
Defining a Socially Disadvantaged Farmer or Rancher (SDFR): In Brief
(March 19, 2021), available at <a href="https://crsreports.congress.gov/product/pdf/R/R46727/6">https://crsreports.congress.gov/product/pdf/R/R46727/6</a>.
\115\ See, e.g., Native American Business Development Act, 25
U.S.C. 4301(a).
---------------------------------------------------------------------------
The definitions and coverage in these statutes vary to some extent.
Some focus principally on members of groups that have experienced
racial or ethnic prejudices, while others address gender prejudices.
Overall, these statutes and Congressional deliberations provide useful
reference for USDA to most effectively carry out the Act, which outlaws
undue prejudice against any person in any respect. For example, in the
congressional hearings preceding the Act's passage, opposing members
argued against the Act because producers were already protected by the
ICA, which guaranteed ``equal rights on the railroads to every man,
woman and
[[Page 16121]]
child,'' and the ``enforcement of the antitrust act . . . give[s] every
man a fair show.'' \116\ Most recently, Congress provided partial
compensation for producers who suffered discrimination in USDA's
programs, which USDA implemented on a set of protected bases similar to
that in this final regulation.\117\
---------------------------------------------------------------------------
\116\ See e.g., 61 Cong. Rec. H1872 (1921).
\117\ Section 22007 of the Inflation Reduction Act (Pub. L. 117-
169). USDA implementation available at <a href="https://22007apply.gov/">https://22007apply.gov/</a>. This
program covers discrimination based on different treatment an
individual experienced because of race, color, or national origin/
ethnicity (including status as a member of an Indian Tribe); sex,
sexual orientation, or gender identity; religion; age; marital
status; disability; reprisal/retaliation for prior civil rights
activity.
---------------------------------------------------------------------------
Additionally, in crafting the final rule, AMS was informed by the
provisions of two additional laws that fall under the enforcement of
USDA with respect to livestock and poultry. The first is ECOA. ECOA
prohibits a creditor from discriminating in the provision of credit on
the basis of race, color, religion, national origin, sex (which
includes sexual orientation and gender identity), marital status, or
age, because the applicant's income derives all or in part from a
public assistance program, or because the applicant has in good faith
exercised any right under ECOA.\118\ The Secretary enforces ECOA under
the Act, with respect to activities under the jurisdiction of the
Act.\119\
---------------------------------------------------------------------------
\118\ 15 U.S.C. 1691(a).
\119\ 15 U.S.C. 1691c.
---------------------------------------------------------------------------
Secondly, AFPA protects producers from retaliation by certain
market intermediaries, defined as handlers, for being members of a
cooperative or seeking to form a cooperative.\120\ The Secretary has
delegated enforcement of the AFPA to AMS, which implements the law
through the Packers and Stockyards Division. Congress has long
protected the rights of agricultural cooperatives, acknowledging their
important role in helping farmers meet the economic demands of the
market. One year after the passage of the Act, Congress passed the
Capper-Volstead Act (Pub. L. 67-146), which permits producer
cooperatives to collectively process, prepare for market, handle, and
market their products. In a decision related to an antitrust action
against a nonprofit cooperative association whose members were involved
in production and marketing of broiler chickens, the Supreme Court
noted that farmers faced special challenges in the agricultural market
and, therefore, cooperatives are afforded legal protections in helping
them address those challenges.\121\
---------------------------------------------------------------------------
\120\ 7 U.S.C. 2301 et seq.
\121\ Nat'l Broiler Mktg. Ass'n v. United States, 436 U.S. 816,
825-26 (1978) (``Farmers were perceived to be in a particularly
harsh economic position. They were subject to the vagaries of market
conditions that plague agriculture generally, and they had no means
individually of responding to those conditions. Often the farmer had
little choice about who his buyer would be and when he would sell. A
large portion of an entire year's labor devoted to the production of
a crop could be lost if the farmer were forced to bring his harvest
to market at an unfavorable time. Few farmers, however, so long as
they could act only individually, had sufficient economic power to
wait out an unfavorable situation. Farmers were seen as being caught
in the hands of processors and distributors who, because of their
position in the market and their relative economic strength, were
able to take from the farmer a good share of whatever profits might
be available from agricultural production. By allowing farmers to
join together in cooperatives, Congress hoped to bolster their
market strength and to improve their ability to weather adverse
economic periods and to deal with processors and distributors.'').
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AFPA provides enhanced protections to those seeking to form a
cooperative. In particular, that statute prevents handlers from
performing certain types of pricing and contract discrimination,
coercion, and other practices that undermine cooperatives. As noted
previously, the Act intended to improve the agricultural market and
includes associations in the definition of ``person'' when referred to
in the Act. The Act affords cooperative associations the same
protections against discrimination as are afforded to all other covered
producers.\122\ Thus, protections for cooperatives against
discrimination were contemplated at the time of the Act's passage.\123\
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\122\ 7 U.S.C. 182(1).
\123\ H.Rep. No. 85-1048, 1957.
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In interpreting the Act in light of the aforementioned policy
direction, AMS has sought to stamp out market exclusion on prohibited
bases. This final rule establishes a prohibition of undue prejudice or
unjust discrimination against covered producers on the bases of race,
color, religion, national origin, sex (including sexual orientation and
gender identity), disability, marital status, or age; or because of the
covered producer's status as a cooperative. Transitioning from the
proposed rule's use of the more flexible ``market vulnerable
individual'' to the more specific list of delineated terms, the final
rule interprets the Act consistent with the antidiscrimination mandates
in other related statutes, including the ECOA, which is already
enforced by AMS for markets subject to the Act,\124\ and the AFPA. AMS
also references the Equal Employment Opportunity Commission (EEOC)
definitions (described below) for clarification regarding which
characteristics a producer must possess to be considered a member of
one or more protected classes. It is appropriate for the Secretary to
consider these other authorities in effectuating the purposes of the
Act as they effect a similar purpose to this final rule.\125\
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\124\ 15 U.S.C. 1691c(a)(5) (``(a) Enforcing Agencies. Subject
to subtitle B of the Consumer Protection Financial Protection Act of
2010withthe requirements imposed under this subchapter shall be
enforced under:. . . (5) The Packers and Stockyards Act, 1921 [7
U.S.C. 181 et seq.] (except as provided in section 406 of that Act
[7 U.S.C. 226, 227]), by the Secretary of Agriculture with respect
to any activities subject to that Act.'')
\125\ Michael Kades, ``Protecting Livestock Producers and
Chicken Growers,'' Washington Center for Equitable Growth (May 5,
2022), available at <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
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The EEOC has described racial discrimination as discrimination
based on an ``immutable characteristic associated with race, such as
skin color, hair texture, or certain facial features.'' Although race
and color may appear indistinguishable, they are not. According to the
EEOC, ``color discrimination occurs when a person is discriminated
against based on the lightness, darkness, or other color characteristic
of the person.'' \126\ Race discrimination involves treating an
individual differently because of his or her race. National origin as a
protected class is defined as disparate treatment because an individual
is ``from a particular country or part of the world, because of
ethnicity or accent, or because they appear to be of a certain ethnic
background (even if they are not).'' \127\ Ethnicity is covered under
national origin.\128\ Religion as a protected basis is defined as
discrimination based upon a person's religious belie
[…truncated; see source link]Indexed from Federal Register on March 6, 2024.
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.