Proposed Rule2024-12415
Poultry Grower Payment Systems and Capital Improvement Systems
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Published
June 10, 2024
Issuing agencies
Agriculture DepartmentAgricultural Marketing Service
Abstract
The U.S. Department of Agriculture's (USDA) Agricultural Marketing Service (AMS or the Agency) is soliciting comments on proposed revisions to its regulations under the Packers and Stockyards Act, 1921 (P&S Act or Act). The proposal would prohibit certain payment practices under poultry grower ranking systems (commonly known as tournaments) in contract poultry production for broiler chickens, require live poultry dealers (LPDs) to adopt policies and procedures for operating a fair ranking system for broiler growers, and require LPDs to provide certain information to broiler growers when the LPD requests or requires the grower to make additional capital investments (ACIs). AMS proposes these changes in response to numerous complaints from growers about the use of tournament systems. AMS intends for the proposed regulations to increase transparency and address deception and unfairness in broiler grower payments, tournament operations, and capital improvement systems.
Full Text
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[Federal Register Volume 89, Number 112 (Monday, June 10, 2024)]
[Proposed Rules]
[Pages 49002-49054]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-12415]
[[Page 49001]]
Vol. 89
Monday,
No. 112
June 10, 2024
Part III
Department of Agriculture
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Agricultural Marketing Service
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9 CFR Part 201
Poultry Grower Payment Systems and Capital Improvement Systems;
Proposed Rule
Federal Register / Vol. 89, No. 112 / Monday, June 10, 2024 /
Proposed Rules
[[Page 49002]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-22-0046]
RIN 0581-AE18
Poultry Grower Payment Systems and Capital Improvement Systems
AGENCY: Agricultural Marketing Service, U.S. Department of Agriculture.
ACTION: Proposed rule.
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SUMMARY: The U.S. Department of Agriculture's (USDA) Agricultural
Marketing Service (AMS or the Agency) is soliciting comments on
proposed revisions to its regulations under the Packers and Stockyards
Act, 1921 (P&S Act or Act). The proposal would prohibit certain payment
practices under poultry grower ranking systems (commonly known as
tournaments) in contract poultry production for broiler chickens,
require live poultry dealers (LPDs) to adopt policies and procedures
for operating a fair ranking system for broiler growers, and require
LPDs to provide certain information to broiler growers when the LPD
requests or requires the grower to make additional capital investments
(ACIs). AMS proposes these changes in response to numerous complaints
from growers about the use of tournament systems. AMS intends for the
proposed regulations to increase transparency and address deception and
unfairness in broiler grower payments, tournament operations, and
capital improvement systems.
DATES: Comments must be received by August 9, 2024. Comments on the
information collection aspects of this proposed rule must be received
by August 9, 2024.
ADDRESSES: Comments must be submitted through the Federal e-rulemaking
portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> and should reference the document
number and the date and page number of this issue of the Federal
Register. All comments submitted in response to this proposed rule will
be included in the record and will be made available to the public.
Please be advised that the identity of individuals or entities
submitting comments will be made public on the internet at the address
provided above. A plain-language summary of this proposed rule is
available at <a href="https://www.regulations.gov">https://www.regulations.gov</a> in the docket for this
rulemaking.
FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250;
Phone: (202) 690-4355; or email: <a href="/cdn-cgi/l/email-protection#c2b1eca0b0a7b6b6ecada4a4b7b6b682b7b1a6a3eca5adb4"><span class="__cf_email__" data-cfemail="661548041403121248090000131212261315020748010910">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Industry Background and Need for the Rulemaking
III. Broiler Grower Compensation Design (Proposed Sec. 201.106)
IV. Operation of Broiler Grower Ranking Systems (Proposed Sec.
201.110)
V. Broiler Grower Capital Improvement Disclosure Document (Proposed
Sec. 201.112)
VI. Severability (Proposed Sec. 201.290)
VII. Regulatory Notices and Analyses
VIII. Request for Comments
I. Executive Summary
On June 8, 2022, AMS published an advanced notice of proposed
rulemaking (ANPR) in the Federal Register titled, ``Poultry Growing
Tournament Systems: Fairness and Related Concerns'' (87 FR 34814), to
inform policy development and rulemaking under the P&S Act regarding
improved fairness in poultry grower ranking systems in contract poultry
production.\1\ In the ANPR, AMS solicited comment from the public on
how to address potential unfairness arising from the use of poultry
grower ranking systems under contracts to grow broiler chickens. As
with past opportunities for input, commenters identified a lack of
transparency regarding payments under tournament pay systems, fairness
in tournament operations, and additional capital improvement
requirements as ongoing concerns. These comments and AMS's Packers and
Stockyards Division's (PSD) expertise provide the basis for this
proposed rulemaking.
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\1\ The comment period ended September 6, 2022. In response to
industry organizations' request for additional time to submit
comments, AMS reopened the comment period on September 9, 2022 (87
FR 55319). That comment period closed September 26, 2022.
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Section 407(a) of the P&S Act (7 U.S.C. 228(a)) authorizes the
Secretary of Agriculture to make rules and regulations as necessary to
carry out the provisions of the Act (7 U.S.C. 181 et seq.). The
Secretary has delegated the responsibility for administering the Act to
AMS. Under this authority, AMS is issuing this proposed rule to carry
out the provisions of section 407 of the Act, as well as sections
202(a) (which prohibits ``any unfair, unjustly discriminatory, or
deceptive practice or device''), 401 (which requires an LPD to ``keep
such accounts, records, and memoranda as fully and correctly disclose
all transactions involved in his business''), and 410 (which bans the
failure to pay ``the full amount due [to the] poultry grower on account
of such poultry''). The Federal Trade Commission (FTC)'s extensive
experience enforcing prohibitions against unfair practices, unfair
methods of competition, and deceptive practices arising under the FTC
Act has also informed aspects of this proposed rule.\2\
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\2\ Letter from FTC Chair Lina Khan to AMS, ``Poultry Grower
Tournament Systems: Fairness and Related Concerns,'' Docket No. AMS-
FTPP-22-046, at <a href="https://www.regulations.gov/comment/AMS-FTPP-22-0046-0143">https://www.regulations.gov/comment/AMS-FTPP-22-0046-0143</a>; Michael Kades, ``Protecting livestock producers and
chicken growers,'' Washington Center for Equitable Growth (May
2022).
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AMS is proposing to amend 9 CFR part 201, subpart N, by adding new
Sec. 201.106 regarding LPD responsibilities for the design of broiler
grower compensation arrangements; new Sec. 201.110 regarding the fair
operation of broiler grower ranking systems; new Sec. 201.112
regarding disclosure requirements for LPDs when requesting additional
capital investments from broiler growers; and new Sec. 201.290
regarding severability. In particular, the Agency is proposing to:
<bullet> Prohibit LPDs from discounting or reducing a grower's rate
of compensation as disclosed in the broiler growing arrangement based
on the grower's grouping, ranking, or comparison to others.
<bullet> Establish a duty of fair comparison that requires LPDs to
design and operate their broiler grower ranking system to provide a
fair comparison among growers, with particular attention to certain
factors including the distribution of inputs and flock production
practices, the time period of the comparison, the conditions and
circumstances for the comparison, and the reasonableness of efforts to
resolve disputes.
<bullet> Require LPDs to establish and maintain written
documentation of their processes for the design and operation of a
broiler grower ranking system that is consistent with the duty of fair
comparison, review their compliance with these processes not less than
once every two years, and retain all relevant written records for five
years.
<bullet> Require LPDs to provide a grower with a Capital
Improvement Disclosure Document when an LPD requests that the grower
make an additional capital investment.
<bullet> Introduce a severability clause that would permit for
certain parts of the
[[Page 49003]]
regulations to remain in effect even if others are deemed
unenforceable.
If the proposed rule is adopted, USDA would enforce the regulations
through referral to the Department of Justice (DOJ) for appropriate
action or, where failure to pay is implicated, through administrative
action. Injured individuals would also have a right to proceed in
Federal court. AMS would also conduct compliance reviews of adherence
to the proposed regulatory requirements and would investigate suspected
violations. Additionally, growers can always file a complaint or tip at
<a href="http://farmerfairness.gov">farmerfairness.gov</a> or by calling 1-833-DIAL-PSD (1-833-342-5773) if
they suspect a violation of the Act or any other Federal law or
regulation governing fair and competitive marketing, including contract
growing, of livestock and poultry.
II. Industry Background and Need for the Rulemaking
A. Overview
The current broiler chicken industry is susceptible to both
unfairness and deception. To build or upgrade chicken barns, growers
both initially and periodically incur substantial debt in loans that
typically last 15 years. To meet those obligations and earn a
reasonable return, the grower is then dependent on the LPD that
provides the chickens (both the number and frequency), the feed, and
other inputs. Grower contracts with the LPD are commonly much shorter
than the length of the loans. Growers often have little, if any,
ability to negotiate their contracts with LPDs or opportunity to switch
to alternative LPDs. LPDs' bargaining and market power, premised on
lack of competitive alternative LPDs locally, creates significant risk
to growers.
Most large LPDs today include a tournament component as part of the
compensation arrangement with growers under contract. If a grower's
feed conversion performance is above the average, the grower receives a
bonus; if the grower is below average, the LPD reduces the grower's
compensation. In theory, the tournament system insulates growers from
variation in the cost of feed and other inputs, encourages growers to
perform to the best of their ability, and rewards better-performing
growers. In practice, however, the tournament system has many problems.
For example, if an LPD treats individual growers in a tournament
differently (e.g., by providing different quality inputs) the grower's
skill would not determine their compensation, which makes for an unfair
tournament.
The difference between the length of grower's loan and the length
of the grower's contract with an LPD creates another problem. Because
LPDs have substantial bargaining power after the initial grower
investment, an LPD can require a grower to make ACIs that will increase
the grower's debt; if the grower refuses, the LPD can terminate the
grower, either actually or constructively (for example, by reducing the
number of flocks or chicks delivered). Depending on the facts and
circumstances, such actions would be unfair and deceptive practices in
violation of section 202(a) of the Act.
B. Industry Background
Until the late 1950s or 1960s, farmers owned their chickens, and
the primary value was in the eggs those chickens laid. After a brief
period of chicken auctions in the 1950s, farming chicken meat for
distribution led to ``grower'' contract arrangements with feed
distributors and later with processors. As these arrangements gained
popularity, processors experimented with various compensation methods
to capture costs and incentivize grower performance. One commonly used
compensation method was a fixed performance standard payment system.
Under a fixed performance standard payment system, individual grower
performance is compared to a fixed standard of feed cost or efficiency
set by the LPD rather than to an average of other growers in a
contemporaneous settlement group. Other methods included square footage
contracts, which remain common with pullet farmers (i.e., farmers who
raise chicks from hatching until they are ready to produce eggs, or
about 20-22 weeks). Pullet farmers typically are paid weekly or
biweekly based on the square footage of chicken housing, or breeder
farmers, who are typically paid a flat rate per dozen eggs.\3\ Since
the 1990s, the broiler industry overwhelmingly uses the tournament
system, described below in section II.C., to compensate growers.
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\3\ See, e.g., New Farmer's Guide to the Commercial Broiler
Industry: Farm Types & Estimated Business Returns--Alabama
Cooperative Extension System (<a href="http://aces.edu">aces.edu</a>).
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Today, the broiler chicken industry is highly vertically
integrated. That is, a single entity owns or controls nearly all the
steps of production and distribution, with the only partial exception
being the growout stage. The USDA National Agricultural Statistics
Service's (NASS) Census of Agriculture (Agricultural Census) reported
that 96.2 percent of broilers were raised and delivered under
production contracts between LPDs and independent farmers, or broiler
growers.\4\ Under a production contract, the LPD provides the inputs,
like chicks, feed, and veterinary treatment services, that the contract
broiler grower uses in growing the flock and the LPD maintains
ownership of the chickens throughout the production process. The grower
provides the poultry growing facility, flock management, labor, and
utilities required during flock growout.\5\ At the end of growout, the
LPD collects and weighs the mature poultry and pays the broiler grower
for their services.
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\4\ USDA, NASS. 2022 Census of Agriculture: United States
Summary and State Data. Volume1, Part 51. Issued February 2024 p. 51
and p.411. <a href="https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf">https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf</a>.
\5\ Growout period is defined as the period of time between
placement of poultry at a grower's facility and the harvest or
delivery of such animals for slaughter, during which the feeding and
care of such poultry are under the control of the grower.
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To grow broiler chickens on a commercial scale, a grower must make
an initial substantial investment in housing. Most farms have multiple
houses, and the total investment required can easily exceed $1
million.\6\ The housing, which growers build and equip specifically for
the purpose of growing poultry, has an expected life of 20 years or
more. The costs of adapting the housing for any other purpose can be
prohibitive.\7\ Over time, LPDs have requested or required that growers
make ACIs to upgrade housing and equipment for improved efficiency
during the contracting relationship. An ACI is defined under 9 CFR
201.2, in relevant part, as an investment or combination of investments
of $12,500 or more per structure paid by a poultry grower or swine
production contract grower over the life of the poultry growing
arrangement or swine production contract beyond the initial investment
for facilities used to grow, raise, and care for poultry or swine.
Growers generally finance these long-term assets against much shorter-
term production contracts, which generally range from between less than
a year (or ``flock to flock'') to less than five years.\8\ This can
[[Page 49004]]
expose growers to financial risk and uncertainty around debt repayment
and the recoupment of their investments. Growers thus are dependent on
LPDs--who control most aspects of a grower's production--to recoup
their substantial initial and subsequent investments.\9\
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\6\ See, for example, Cunningham and Fairchild (November 2011)
Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown, Economic
Impact of a New Broiler House in Alabama, Alabama A&M & Auburn
Universities Extension, March 1, 2019 (estimating a $479,160
construction cost for a 39,600 square foot broiler house).
\7\ For a discussion of the difficulty in adapting of broiler
grow houses for other purposes, see Vukina and Leegomonchai 2006,
Op. Cit.
\8\ MacDonald, James M. ``Financial Risks and Incomes in
Contract Broiler Production.'' Amber Waves August 4, 2014. <a href="https://www.ers.usda.gov/amber-waves/2014/august/financial-risks-and-incomes-in-contract-broiler-production/">https://www.ers.usda.gov/amber-waves/2014/august/financial-risks-and-incomes-in-contract-broiler-production/</a> (last accessed 12/13/2023).
\9\ For a discussion the difficulty in adapting of broiler grow
houses for other purposes see Tom Vukina and Porametr Leegomonchai.
``Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from
the Broiler Industry.'' American Journal of Agricultural Economics
88 (2006).
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Currently, many LPDs operate with the benefit of substantial market
power in local markets to purchase grower services. Broiler grower
operations must be located in close proximity (usually less than 50
miles) to an LPD's feedmills, hatcheries, and processing plants due to
the costs of transporting feed to the grower's farm and the costs
(including death loss) associated with transporting finished chickens
from the grower's farm to the processing plant. This can result in
poultry production that is often highly localized and concentrated at a
regional level. Most growers have few LPDs in their area with whom they
can contract. The table below shows the number of LPDs (referred to as
integrators in the table) that broiler growers have in their local
areas by percent of total farms (number of growers), total birds
produced (number of birds), and total production (pounds of birds
produced).
Table 1--LPDs (Integrators) in Broiler Grower's Area \10\ \11\
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Can change to
Integrators in grower's area * Farms Birds Production another
integrator
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Number Percent of total Percent of farms
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1................................... 21.7 23.4 24.5 7
2................................... 30.2 31.9 31.7 52
3................................... 20.4 20.4 19.7 62
4................................... 16.1 14.9 14.8 71
>4.................................. 7.8 6.7 6.6 77
No Response......................... 3.8 2.7 2.7 Not available.
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* MacDonald. (June 2014) Op. Cit. (Percentages were determined from the USDA Agricultural Resource Management
Survey (ARMS), 2011. ``Respondents were asked the number of LPDs in their area, which was subjectively defined
by each grower. They were also asked if they could change to another LPD if they stopped raising broilers for
their current LPD.'' The 7 percent of those facing a single LPD assert that they could change, presumably
through longer distance transportation to an LPD outside the area. Ibid. p. 29 and 30.).
The data in the table shows that roughly 22 percent of growers
operate in a pure monopsonistic local market, and that 52 percent of
broiler growers (farms), accounting for 55 percent of broilers produced
and 56 percent of total production, report having only one or two LPDs
in their local areas. This limited competition among LPDs accentuates
the contract risks to growers. Even where multiple LPDs are present,
there can be significant costs to switching, including adjustments for
differences in technical specifications that LPDs may require. To
switch LPDs, a grower may need to invest in new equipment and learn to
apply different operational techniques for different breeds, target
weights, and growout cycles. By requiring ACIs specific to that LPD, an
LPD may inhibit the ability of growers to switch to a competing LPD due
to the costs associated with those differing housing specifications.
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\10\ MacDonald, James M. 2014. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, USDA
Economic Research Service.
\11\ The term ``integrator'' used in MacDonald (June 2014)
refers to a vertically integrated poultry company that contracts
with farmers who serve as growers. LPDs referenced elsewhere in this
document are also ``integrators.''
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In another study of broiler concentration, MacDonald and Key (2012)
found that the level of market concentration in an area tends to
correlate with measurable payment impacts on growers.\12\ MacDonald and
Key reported that grower payments (per pound, controlling for bird
size) were lower in markets with fewer dealers. While the study could
not identify the causal impact of LPD numbers on payments, the results
conform to general economic theory about the impact that reduced
competition would have on prices. For example, going from four LPDs to
two LPDs lowered grower payments by four percent, and going from four
LPDs to one LPD lowered grower payments by eight percent, controlling
for compensation rates and features of the grower operation and
contract.
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\12\ James M. MacDonald and Nigel Key. ``Market Power in Poultry
Production Contracting? Evidence from a Farm Survey.'' Journal of
Agricultural and Applied Economics 44 (November 2012): 477-490.
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Table 1 however, also shows that more than 23 percent of broiler
growers (farms) have four or more integrators in the grower's area, and
more than 71 percent report that they can change integrator (although
at what cost is not reflected). Although growers in these areas may
have relatively more bargaining power than those in more concentrated
markets, they remain at significant bargaining disadvantages relative
to integrators and commonly subject to industry-wide practices. The
potential for the abuse of market power may vary based on concentration
and practices employed by specific LPDs in local markets or nationally.
In this proposed rule, AMS uses the term ``inputs'' to mean
resources supplied by LPDs, such as chicks or feed. There is often
variation in the quality of these inputs, which can impact the
performance of a grower's flock. If an LPD distributes inputs of
substantially different quality to growers within a settlement pool,
these inputs contribute to differences in relative grower performance,
with the growers receiving the lowest quality inputs receiving lower
pay as a result. Several commenters in the 2022 ANPR, for example,
noted that the quality of inputs can vary, unfairly shifting risk to
the growers.
Likewise, LPDs determine production practices on growers' farms,
which also affect growers' pay. In this proposed rule, AMS uses the
term ``production practices'' to refer to features of the on-farm
production process that are determined by the LPD, such as density of
bird placement (number of chicks delivered or placed with a grower per
square foot of broiler housing), age at harvest, and weight at harvest.
These practices greatly impact grower compensation. If these factors
are not applied evenly across grower participants in tournaments, that
unevenness also unfairly skews relative performance measures. If an LPD
uses a
[[Page 49005]]
settlement pool to compare growers to whom the LPD has assigned
substantially different production practices, perhaps, for example, to
test the consequences of different feed or veterinary practices, the
growers receiving the less advantageous production practices will
receive relatively lower pay. These production decisions may result in
variation in the amount of feed required per pound of meat that is
unrelated to grower effort or acumen. Including both types of growers
for comparison in a single settlement pool is analogous to matching
wrestlers across different weight classes.
As described above, the organization and structure of broiler
production is characterized by a high degree of vertical integration,
market power in many regional markets, substantial investment in
production capital that is specific to a single LPD, nearly universal
use of production contracts, and use of complex grower compensation
systems based on relative performance. Asymmetric information,
incomplete contracts, and hold-up are also issues of concern in poultry
contracting that motivate the specific interventions proposed in this
proposed rule.
Information asymmetry in poultry contracting arrangements can
contribute to market inefficiencies and unfair and deceptive practices.
Asymmetric information occurs when one party to a contract has more
critical information than the other party. LPDs have information
related to (as well as control over) many areas of strategic decision
making that impact growers. For example, LPDs use systems of grower
compensation and methods for calculating grower payment designed to
limit total grower compensation, while maximizing production
efficiency. LPDs also have exclusive information about many factors
under their control that influence the performance elements of poultry
production and thereby affect grower payments. Even where some of
information is disclosed to growers, LPDs continue to have much more
information about the quality and distribution of grower inputs,
specific production practices the LPD assigns to individual growers,
the likely effect on grower performance of different input qualities
and production practices, and the manner in which the LPD chooses to
compare growers in a ranking system.\13\ In addition, LPDs determine
the types of ACIs they request or require of growers, which growers may
not anticipate and can place significant drains on available cash and
substantially degrade expected investment returns. Neither growers, nor
AMS, have ready access to the information that informs these specific
requests unless LPDs provide it to them. Information asymmetry can lead
to market failure in the broiler production industry because growers
must make important production decisions without access to important
information. This also facilitates abusive practices where the
information would help growers, and AMS, identify and halt those
practices sooner.
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\13\ LPDs exercise discretion in fulfilling the contract terms
when operating a tournament by, for example, choosing which growers
to be included in a settlement group or whether appropriate
comparable growers are available for comparison purposes.
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Contracts used in broiler production are also often incomplete.
Under the typical poultry production contract, LPDs compensate the
grower for raising live poultry from the time of chick delivery through
retrieval by the LPD for slaughter. Such a contract may be viewed as
complete, with no material gaps, if the contract terms include the
substantive legal, practical, and economic promises, obligations, and
contingencies needed to operate in a poultry growing arrangement. These
terms should be verifiable and legally enforceable. Incomplete
contracts arise when terms key to basic functioning of the contract do
not meet these conditions and magnify risks with respect to the
performance of the other contractual party, leading to other potential
inefficiencies. In this instance, incomplete contracts may give LPDs
discretionary latitude to deviate from expectations.
LPDs often offer highly complex pay systems in broiler contracts
based on the interplay of several separate components, including base
pay rate, incentive pay for ACIs or certain production practices, and
performance adjustments under the tournament. The complexity of such
pay systems makes it difficult for growers to fully understand the
potential range of payments they are likely to receive or the ways in
which LPD performance or nonperformance may affect that pay, preventing
them from properly evaluating the fairness of the contract before
signing. For example, several ANPR commenters noted the difficulty
growers face without having full understanding of--or confidence in--
how inputs are distributed or how the quality may affect performance.
Their inability to evaluate how this distribution occurs inhibits their
ability to effectively contract and to effectively enforce those
contracts to the extent that is possible given the overall power
imbalance and concentration in many local markets.
Contracts that require investments in contract-specific assets can
give rise to the hold-up problem. The economic concept of a hold-up
problem refers to a situation in which one or both parties to a
transaction must make investments in such contract specific assets, and
the two parties may be unable to cooperate efficiently due to
incomplete or asymmetric information and the inability to write,
enforce, or commit to contracts. Once a party becomes locked into a
transaction as a result of making a transaction-specific investment,
they lose bargaining leverage and become vulnerable to exploitation by
the other party. This may involve one party to a contract
opportunistically deviating from expectations of the other party or
failing to live up to previously agreed upon terms. Hold-up occurs in
broiler production due to market failures associated with incomplete
grower information, contract-specific investments, and market power, as
well as insufficient enforcement around aspects necessary to maintain
market integrity and prevent market abuses including unfair breaches of
contract. Broiler growers lack sufficient information about the nature
of inputs they will receive from the LPD over time, the performance of
other growers in the tournament pool, and the nature of complex
tournament operations under grower contracts.
The production of broilers requires investment in specialized
equipment and facilities, which can be specific to the enterprise of
broiler production and have little alternative value outside of a
contractual relationship with a limited pool of nearby LPDs (or, in
some cases, a single LPD).\14\ As a result, the realistic options for
growers to reallocate their labor and invested capital are reduced, and
growers are committed to growing chickens to pay off the financing of
the initial capital investment, plus ACIs. When growers are committed
to broiler production to pay off lenders and have few, if any,
alternative LPDs with whom they can contract, they are under more
pressure to accept less favorable contract terms. LPDs can behave
opportunistically by failing to perform under contracts in ways that
growers reasonably expect and by requiring ACIs with little or no
economic value to the producer. Economic research has shown that hold-
up can lead to reduced
[[Page 49006]]
compensation when a grower has only one LPD available with which to
contract in the local area.\15\
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\14\ For a discussion of hold-up in the broiler industry, see
Vukina and Leegomonchai (2006), Op. Cit.
\15\ Ibid.
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C. The Tournament System
LPDs typically pay broiler growers for the services they provide
using a unique system in which growers' pay is based in part on a
comparison of their feed conversion relative to other growers. A 2014
survey found that over 93 percent of these broiler production contracts
make use of a relative performance payment system, often called a
tournament system.\16\ Under a tournament system, the contract between
the broiler grower and the LPD provides for payment to the grower based
on a grouping, ranking, or comparison of broiler growers delivering
broilers to the same company during a specified period (usually one
week). This grouping is informally referred to as a settlement group.
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\16\ James M. MacDonald, ``Technology, Organization, and
Financial Performance in U.S. Broiler Production.'' U.S. Department
of Agriculture Economic Research Service, Economic Information
Bulletin No. 126 (June 2014).
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Under a typical tournament system, the broiler grower receives a
fixed payment per pound of broilers produced, called a base pay rate,
plus a calculation adjustment based on how efficiently the grower used
the resources provided by the LPD to produce each pound of broilers
(informally referred to as a performance adjustment).\17\ LPDs
typically calculate the performance adjustment primarily by comparing
the feed conversion ratio (i.e., the quantity of feed consumed by the
flock divided by the weight of the flock delivered) to the average
ratio of all growers in the tournament settlement group. (As a
technical matter, grower contracts sometimes use fixed weights
expressed in dollar terms for this calculation.) Broiler growers whose
costs are less than the average cost for that tournament settlement
group receive a bonus above the base pay rate, while those whose costs
are above the average incur a discount from the base pay rate. Broiler
contracts also typically specify a minimum rate of pay that the grower
can receive after all performance discounts have been applied. The
broiler grower may receive additional incentives as components of total
payment from the LPD to employ particular housing, equipment,
management practices, fuel usage, or other contributions the LPD
requests. Some of these incentive payments may be based on the
delivered weight of each flock and others may be a fixed per flock
amount.
---------------------------------------------------------------------------
\17\ There is some inconsistency in the use of payment terms
across broiler contracts at different companies or complexes. Most
grower contracts define the term base pay rate as it is described in
this paragraph. However, some contracts instead use the term base
pay when referring to a fixed amount plus the performance
adjustment.
---------------------------------------------------------------------------
In a simplified example of how tournament systems operate, the LPD
places flocks with 10 growers under contract to deliver the same-sized
broiler chickens to the dealer's processing plant at the end of a
specified growout period. Upon harvest, the LPD determines each
grower's performance by measuring the quantity of feed and other inputs
in the LPD's tournament formula (such as chicks supplied by the LPD or
medicines) per pound of broilers produced by the grower. The LPD then
compares individual grower ratios against average ratios for all
growers in the settlement group and ranks individual growers according
to their relative performance within the group of 10 growers. Each
grower's pay is determined by adding a bonus to, or subtracting a
discount from, the contract's stipulated base pay rate, calculated as
the difference between the grower's ratio and the average ratio within
the tournament grouping for that specific growout period. This is also
known as a performance adjustment. For instance, if the grower's
contract stated a base pay rate of $0.0550 per pound, an above-average
grower (i.e., a more efficient grower with a lower cost per pound
produced) in this hypothetical example could receive $0.0615 after the
performance adjustment, while a below-average grower could receive
$0.0530.
LPDs benefit from the tournament system in several ways. The
tournament system provides LPDs control and certainty over total
compensation to the growers as a group. For each tournament, the LPD
knows the total compensation that will be paid per pound of broilers
produced by the group; that total amount is allocated among the growers
through performance adjustments (amounts above, or deductions from, the
base pay rate). LPDs also benefit from the tournament system to the
extent it may incentivize additional grower effort and expenditure of
resources beyond that required for the grower to remain in the LPD's
rotation of growers.
The tournament system is intended to, and LPDs in fact purport that
it does, reward growers financially for their experience, skill,
effort, and investments in up-to-date and efficient housing and
equipment.\18\ Additionally, assuming that all growers in a tournament
grouping are treated similarly and the variables within the tournament
grouping are within the control of the growers, the tournament may
insulate growers to some degree against external shocks that affect all
growers in the grouping.\19\ Examples of external shocks might include
unfavorable weather, the introduction of new genetics, or changes in
the LPD feed formulation. This protection can be incomplete, however,
because these external shocks--some of which are within the control of
the LPD--can adversely affect the overall weight of the broilers in a
tournament affected by such shocks, thereby reducing the base weight
compensation for all participating growers.
---------------------------------------------------------------------------
\18\ See, e.g., ``How the Tournament System Works'', National
Chicken Council (informing farmers that: ``1 All farmers are
provided the same quality of chicks, the same feed, and access to
veterinary care. 2 Farmers who invest in more advanced facilities,
as well as use the best management practices will likely produce
higher quality chickens more efficiently. 3 Farmers receive a base
pay (per their contract) and potentially a bonus, based on the
health and quantity of the flock (tournament system).''); available
at <a href="https://www.chickencheck.in/faq/tournament-system/">https://www.chickencheck.in/faq/tournament-system/</a> (last accessed
May 22, 2024).
\19\ Knoeber and Thurman show that tournaments shift most of the
risks of broiler production from broiler growers to LPDs relative to
a fixed payment system. See Knoeber, C.R. and W.N. Thurman. ``
`Don't Count Your Chickens . . .': Risk and Risk Shifting in the
Broiler Industry,'' American Journal of Agricultural Economics 77
(August 1995) p. 486-496.
---------------------------------------------------------------------------
The tournament system can operate unfairly and deceptively. Without
a guaranteed base pay rate, the complexity of the tournament makes it
difficult for growers to clearly understand what the minimum amount is
they could actually receive in payment. Base pay can be, but is not
commonly, a guaranteed minimum pay.\20\ (This is discussed in greater
detail below in section III.A.) Furthermore, if the comparison-
compensation factor (i.e., the bonus or deduction) is a large
percentage of total compensation, that variance in total grower
compensation could turn a reliable business proposition into a high-
risk venture without a demonstrable countervailing benefit. Therefore,
sufficiently large variance in total grower compensation can, by
itself, be deceptive and unfair. Moreover, because many broiler growers
operate in regions with just one to two LPDs, the local market dynamics
may force
[[Page 49007]]
growers to enter into riskier contracts, in particular, contracts that
do not guarantee them an adequate minimum base pay rate, flock
placements and stocking densities, or length of contract in relation to
the loan obligations commonly necessary to engage in broiler growing.
---------------------------------------------------------------------------
\20\ See ``A Bird's Eye View of How Chicken Farmers Are Paid'',
National Chicken Council (informing farmers that: ``All farmers are
guaranteed a base pay from the chicken company per their
contract.''; ``No matter what, farmers get paid.''; and ``Bonuses
are given to farmers who raise healthy flocks and invest in their
farm. This is referred to as the tournament system.''); available at
<a href="https://www.chickencheck.in/faq/tournament-system/">https://www.chickencheck.in/faq/tournament-system/</a> (last accessed
May 22, 2024).
---------------------------------------------------------------------------
Compensation based on relative performance when LPDs control the
distribution of inputs and assignment of production practices creates
the potential for unfairness and deception. Nor are tournament pay
systems an effective incentive system when factors outside of the
grower's control largely determine performance. Unfortunately, growers
have no choice but to rely on the good faith of LPDs for the fair
administration of tournaments. They must trust that LPDs will use their
extensive information and control to prevent or remedy situations where
a particular grower within the tournament receives dissimilar inputs or
the assignment of production practices that result in a substantial
disadvantage to that grower within the settlement pool. They also must
trust that LPDs will not use their control to advantage favored growers
or to punish or otherwise impermissibly disadvantage growers.
The tournament system also introduces considerable complexity and
uncertainty for growers in the calculation of the compensation for
their services and in evaluating the returns on growers' investments,
which can sometimes make it more difficult for growers to discover
unscrupulous conduct by LPDs, to compare offers from competing LPDs,
and to plan and manage their businesses.
D. Need for the Rulemaking
USDA has received concerns about the impact of unfair or non-
transparent LPD practices from growers in listening sessions and during
comment periods for more than a decade. In 2010, USDA held a series of
workshops in conjunction with DOJ to hear from farmers about
concentration and trade practice issues in agriculture. Normal,
Alabama, hosted one such session with an emphasis on the poultry
industry.\21\ Many growers complained that their success or failure
depended on factors controlled by LPDs and that LPDs required them to
undertake additional capital investments. Further, growers expressed
concern about the lack of choice among LPDs in many relevant regional
markets, which further enhanced LPD's bargaining position and control
over growers.
---------------------------------------------------------------------------
\21\ See Transcript, United States Department of Justice, United
States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop May 21, 2010, Normal,
Alabama.
---------------------------------------------------------------------------
Grower public comments at the 2010 workshop led USDA to propose
rules in 2010 and 2016.\22\ Growers have continued to communicate to
USDA specific areas of concern regarding the poultry industry. Since
2021, AMS renewed its efforts to address these concerns through
different approaches, one of these being the June 8, 2022, ANPR which
informed this proposed rule.
---------------------------------------------------------------------------
\22\ Grain Inspection, Packers and Stockyards Administration
(GIPSA), USDA, ``Implementation of Regulations Required Under Title
XI of the Food, Conservation and Energy Act of 2008; Conduct in
Violation of the Act,'' 75 FR 35338 (June 22, 2010) and ``Poultry
Grower Ranking Systems,'' 81 FR 92723 (Dec. 20, 2016).
---------------------------------------------------------------------------
In the ANPR, AMS sought comments and information to inform policy
development and future rulemaking regarding the use of poultry grower
ranking systems. The comment period for the original notice was June 8,
2022, to September 6, 2022. AMS provided additional time for the public
to submit comments and extended the comment period to September 26,
2022. AMS received a total 168 comments, 153 during the first comment
period and 15 during the second. Organizational commenters included
farm bureaus, live poultry dealers, poultry industry trade
associations, meat industry trade associations, and other associations
or non-profit organization. Commenters expressed both support and
concern about the use of tournaments in poultry production.
Many commenters supported the current poultry grower contracting
system and opposed rulemaking. Commenters supporting the current
poultry grower contracting system stated they believe it is well
designed; efficient; and beneficial to growers, dealers, and consumers.
Commenters were concerned that changes to or the elimination of the
tournament system could have an adverse financial impact on LPDs.
Commenters stated that they believe that the current system encourages
efficient poultry production by providing greater payments to the most
efficient poultry growers. Supporters contended the tournament system
has fueled improvements and innovations, incentivized growers to raise
birds ethically, and allowed for efficient risk management. They also
stated that the Agency has failed to establish credible evidence of the
existence of exploitation; that the proposed measures would address
exploitation, if it existed; or, that the Agency has the statutory
authority to engage in this exercise.
Other commenters opposed the current tournament payment system,
stating that tournament systems do not meet their intended purpose and
that the payment systems exemplify the manipulative and unjust abuses
or practices that the Act was designed to prevent. They cited
arbitrary, unjust, or punitive distribution of inputs and production
variables, all of which are controlled by integrators; potential
manipulation of the group composition for similar purposes; and
penalties for even small deviations below average. Some commenters
noted that LPDs often supply insufficient information with respect to
requested or required upgrades and deceptively induce growers to make
costly ACIs. Commenters also asserted that LPDs demand costly upgrades
that are arbitrary and apparently untethered to any reasonable
assurance of increased compensation. Some asserted that the tournament
system operates instead as a cost-shifting mechanism that controls
growers like employees while keeping them from collaborating in
furtherance of their best interest. Commenters stated that proposed
rulemaking would help address bargaining power imbalances for growers,
provided proper enforcement. Commenters also requested that AMS
establish a guaranteed base payment floor that would ensure the
producer does not suffer a loss of income and can earn enough to exceed
incurred debts. Trade organizations commented on how input variability
affects pay and that LPDs are known to take action to reduce
unpredictability in grower outcomes. Monitoring and intervention to
remedy unfairness requires an LPD to expend effort and incur cost, and
the LPD does not directly benefit from the increased fairness to
growers. Therefore, the LPD has an incentive to shirk this
responsibility.
Commenters echoed many of the same concerns that were voiced in the
2010 workshops and that animated previous unfinished rulemaking
efforts. A survey conducted by the Rural Advanced Foundation
International USA (RAFI) in preparation for its comments to the ANPR
was particularly striking. The survey covered 105 growers from 17
States, with 90% active growers and 10% retired growers. At the
broadest level, 94% of its growers expressed significant
dissatisfaction with the design and operation of the tournament system,
indicating that, ``1. Tournament systems are generally unfair and pit
growers against each other (75%). 2. Tournament systems are too often
used to retaliate or discriminate against
[[Page 49008]]
growers (70%). 3. Tournament systems often negatively impact grower
income (68%).''
Surveyed growers reported an astoundingly high percentage of
problems, including: flock health problems (92%); suboptimal layer
flock (92%); 6-hour feed disruption (90%); suboptimal flock pickup time
(88%); 12-hour feed disruption (83%); incorrect feed mix (75%);
extended layout times (73%); reduced stocking density (72%);
arbitrarily disadvantageous tournament group placement (63%); low
revenue generating breed (59%); feed delivery discrepancy (59%);
reduced annual flock placement (54%); non-randomized flock gender
(40%); retaliation via any of the above (25%); and more.\23\ That
comment also included multiple direct quotations from growers
describing these types of experiences. The challenges that RAFI's
growers report in their comments highlight the range of concerns with
current practices in the broiler grower industry that remain
unaddressed. ``They don't have to cut you off, they can just bleed you
dry,'' said one grower in the RAFI letter, which encapsulates the
challenge with both the arbitrariness and the control inherent in the
design and operation of tournaments that benefits LPDs at the expense
of growers. Commenters, including RAFI, highlighted expensive
additional capital upgrades that unexpectedly burden growers, as well
as inhibit the ability to switch integrators. Growers also reported
informal ``no poach'' agreements and conscious parallelism among LPDs.
According to the most recent large USDA survey on the topic, growers
with the choice of only one integrator are paid six percent less than
those with four or more integrators.\24\
---------------------------------------------------------------------------
\23\ Rural Advancement International Foundation--USA, ``Letter
to S. Brett Offutt, Packers and Stockyards Division, USDA-AMS, Fair
Trade Practices Program,'' Filed as a comment to ``Poultry Grower
Tournament Systems: Fairness and Related Concerns,'' Sept. 2022, pp.
15-18, available at <a href="https://www.rafiusa.org/blog/comments-on-poultry-tournament-system/">https://www.rafiusa.org/blog/comments-on-poultry-tournament-system/</a>; <a href="https://www.rafiusa.org/wp-content/uploads/2022/09/RAFI-USA-Comment-on-Poultry-Growing-Tournament-System-Fairness.pdf">https://www.rafiusa.org/wp-content/uploads/2022/09/RAFI-USA-Comment-on-Poultry-Growing-Tournament-System-Fairness.pdf</a>.
\24\ James MacDonald and Nigel Key, Economic Research Services,
USDA, ``Market Power in Poultry Production Contracting? Evidence
from a Farm Survey,'' Journal of Agricultural and Applied Economics,
November 2012, 44(04):477-490, available at <a href="https://www.researchgate.net/publication/305948391_Market_Power_in_Poultry_Production_Contracting_Evidence_from_a_Farm_Survey">https://www.researchgate.net/publication/305948391_Market_Power_in_Poultry_Production_Contracting_Evidence_from_a_Farm_Survey</a>.
---------------------------------------------------------------------------
Some of the largest LPDs have begun adopting contracts that
ameliorate certain aspects of these persistent complaints. For example,
some LPDs offer contracts where the base pay rate is the minimum pay
and there are no negative performance adjustments. In response to an
enforcement matter, one of the largest LPDs has also already limited
the magnitude of comparison-based pay, in part to address related
concerns.\25\ This proposed rule takes note of and builds on that
progress to align important farmer protections across the industry.
---------------------------------------------------------------------------
\25\ See United States v Cargill Meat Solutions Corp. et al.
Civil Action No.: 1:22-cv-1821, District of Maryland, Final
Judgement entered June 5, 2023.
---------------------------------------------------------------------------
III. Broiler Grower Compensation Design (Proposed Sec. 201.106)
Current tournament contracts are unfair and deceptive when they
mislead growers about expected revenue and the potential range of
payment outcomes on a settlement-by-settlement basis--particularly when
they are unclear about growers' practical ability to control the range
of the payment outcomes. Both the lack of grower control over payment
outcomes and the variability of the outcomes can be unfair. The
complexity and opacity of current tournament contracts impair growers'
ability to compare contract offers between LPDs. This section describes
this problem in depth, discusses AMS's proposed regulation, and
provides questions for commenters to consider, including around an
additional proposal to limit excessive variability in pay.
A. Degradation of Contract Pay Rates in Tournament Payments
As explained in section II, ``Industry Background and Need for the
Rulemaking,'' tournament contracts contain one or more pay rates that
LPDs use as a basis to allocate compensation among growers in a flock
settlement group. These pay rates are generally expressed in cents per
pound. In most tournament contracts, positive relative performance
(bonuses) will add to these rates while poor relative performance
(discounts) will deduct from these rates, to reflect the grower's
performance within a settlement group. Applying these adjustments,
whether positive or negative, significantly affects growers' effective
rates of compensation and net income.
In a 1999 survey conducted by Schrader and Wilson, 43 percent of
growers reported earning income below their expectations.\26\ In
response to the ANPR for this proposed rule, some commenters contended
that any ranking system is fundamentally unfair if it lacks a firm base
pay rate. Some commenters stated that premiums should be determined by
objective and transparent criteria, and a few suggested a capped or
limited premium such as 25% of base pay or a percentage based on
performance. An agricultural advocacy organization further acknowledged
that a system in which performance-based incentives include only
additive bonuses and not negative discounts could still be effective in
fostering competition among growers. Another commenter noted that LPDs
entice growers by representing that they can expect to earn the average
pay provided to all growers, obscuring the fact that every settlement
has winners and losers regardless of an individual grower's absolute
performance. The Chair of the FTC, in response to the 2022 ANPR,
commented that ``poultry companies often function as local monopsonists
or oligopsonists with the power to control prices, prescribe contract
terms, and retaliate against growers who object to these tactics,'' and
that disclosure was valuable but insufficient to address the problem. A
consumer advocacy group said tournament systems that dock pay based on
relative performance can lead to capricious pay differences that do not
accurately reflect differences in performance, such as cases where a
grower who ranks last in a tournament at 10 percent below the average
feed-to-weight conversion receives a 50 percent pay cut. Many of these
and other commenters further recommended that AMS should set a price
floor for grower pay rates to ensure growers can, among other things,
earn reasonable profits and cover costs.
---------------------------------------------------------------------------
\26\ The 1999 survey was conducted by Lee Schrader of Purdue
University and John Wilson of Duke University and included responses
from over a thousand broiler growers in ten of the largest broiler-
growing States (Alabama, Arkansas, Delaware, Georgia, Maryland,
Mississippi, North Carolina, South Carolina, Texas, and Virginia).
This survey is cited frequently in this document because it included
questions meant to assess the impact of broiler company practices on
growers in contract poultry production. Although the survey is
older, it was conducted by respected academic experts and provides
information on the experiences of a broad sample of growers and
covers specific questions of concern in this rulemaking. Based on
AMS's experience, the survey is still relevant and useful as a
reasonable reflection of the views of growers today. Lee Schrader
and John Wilson, ``Broiler Grower Survey Report,'' in Farmers' Legal
Action Group, Assessing the Impact of LPD Practices on Contract
Poultry Growers, ed. Farmers' Legal Action Group (FLAG Survey)
(September 2001). <a href="http://www.flaginc.org/publication/assessing-the-impact-of-LPD-practices-on-contract-poultry-growers/">http://www.flaginc.org/publication/assessing-the-impact-of-LPD-practices-on-contract-poultry-growers/</a>, last accessed
07/28/2023.
---------------------------------------------------------------------------
An organization representing LPDs countered that most poultry
contracts already have a minimum ``base'' payment floor that
performance-based adjustments to growers' ``standard'' or ``average''
pay cannot go below, and that AMS should not regulate this issue.
[[Page 49009]]
According to the commenter, if LPDs wanted to avoid passing on costs to
consumers, they would be forced to lower their new base pay rate to
keep the overall pool of money allocated to grower pay at a similar
level, which means they would calculate all performance-based
compensation bonuses based on this lower rate rather than on a rate
equivalent to the current average pay. This commenter asserted this
outcome would lead to an income redistribution from high-performing
growers to low-performing growers, encouraging less efficient, and
therefore costlier and less profitable, poultry production.
In carefully considering this issue, AMS analyzed a sampling of
current contracts from a cross-section of ten LPDs, including at least
one contract from each of the top five broiler companies identified in
the WATT 2021 rankings \27\ to evaluate their contract terminology and
the significance of the gap between ``base'' and ``minimum'' pay rates.
Seven out of ten, including the top five companies ranked, use the term
``base'' with reference to a pay rate that the LPD adjusts by
tournament ranking. Two use the term ``average'', and one uses the term
``middle.'' The differences between the ``base'' or ``average'' rate
and the ``minimum'' rate were as high as 42 percent and as low as 13
percent, with an average of approximately 27 percent with ``minimum''
pay always lower than ``base'' pay. This serves as a rough proxy for
the range of variation that may exist under different contracts, and
thus demonstrates that the stated base pay rate is not representative
of actual, ultimate pay to growers. In general, there is no limit
(maximum) on bonus payments in most contracts. No contract in our
sample used the term ``base'' to identify the actual minimum payment
possible. This analysis also demonstrates that the disparity between
``base'' and ``minimum'' rates is often significant.
---------------------------------------------------------------------------
\27\ WATT PoultryUSA Top Companies Survey, 2021;
<a href="http://www.WATTPoultry.com">www.WATTPoultry.com</a>; accessed 12/13/2023.
---------------------------------------------------------------------------
After considering public comments and the results of its contract
and settlement analyses, AMS has determined that the practice of
discounting or reducing contract pay rates creates significant risk of
deception or unfairness for growers. This practice conceals the true
payment baseline, which makes it difficult for growers to compare
broiler production contracts from LPDs competing for their services.
This can reduce competition among LPDs for grower services and result
in market inefficiencies. It can also inhibit growers' ability to plan
and manage their businesses. A grower evaluating the expected value of
these contracts can estimate potential earnings by reviewing a
contract's stated ``base'' or ``average'' pay rates; however, growers
are not able to precisely evaluate the ``downside risk'' (used here to
refer to the financial risk associated with performing in the bottom
half of the settlement pool). It is very difficult for a grower to
estimate how much their pay rate might be discounted (i.e., reduced
below the stated base pay rate) based on their relative performance in
the settlement pool. This is especially problematic because the design
of the tournament system means that roughly half of growers will rank
below average. Significant factors that affect tournament rankings--
such as settlement groupings, inputs, and flock ages, the timing of
collection for delivery, and weights--are outside growers' control.
Moreover, empirical research has shown that franchisees (whose
relationships with franchisors in some respects look similar to the
relationships growers have with LPDs) are overly optimistic in their
expectations of their performance under the franchise agreement. In
their review of the empirical literature, Benoliel and Buchan report
that ``although franchisees are often perceived as sophisticated
business people, they systematically suffer from a common psychological
bias: over-optimism about the future.'' \28\ Benoliel and Buchan's
findings are consistent with previously cited comments from grower
organizations suggesting that growers underestimate the possibility of
below average outcomes, reflecting the same type of optimism bias
reported for franchisees.
---------------------------------------------------------------------------
\28\ Benoliel, U. and J. Buchan. ``Franchisees' Optimism Bias
and the Inefficiency of the FTC Franchise Rule.'' DePaul Business
and Commercial Law Journal 2015 13(3): p. 414.
---------------------------------------------------------------------------
Under section 202 of the P&S Act, the practice of discounting
disclosed ``base'' pay rates in broiler contracts is an unfair and
deceptive practice. The use by LPDs of contracts that fail to clearly
state an accurate rate of compensation obscures substantial and
unavoidable downside risk. Under this system, growers must estimate
future earnings using contractually stated ``base'' pay rates, rates
that, by the design of the system, LPDs know will not be realized by
roughly half of the settlement group. Additionally, this lack of
clarity in contracting terms impedes growers' ability to meaningfully
compare competing offers from other LPDs in markets where growers are
fortunate enough to have more than one or two LPDs to contract with.
AMS's analysis of unfair and deceptive trade practices in poultry
contracts is informed by prior P&S Act case law and States' unfair
practice laws. Additionally, the FTC's extensive experience enforcing
prohibitions against unfair practices and unfair methods of competition
arising under the FTC Act has, in part, informed this proposal.\29\
---------------------------------------------------------------------------
\29\ See e.g. Michael Kades, ``Protecting livestock producers
and chicken growers,'' Washington Center for Equitable Growth (May
2022), discussing FTC Policy Statement on Unfairness, 1980,
available at <a href="https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness">https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness</a> (last accessed Jan. 2024); Federal Trade
Commission: Policy Statement on the Scope of Unfair Methods of
Competition Under Section 5 of the Federal Trade Commission Act,
Nov. 2022, available at <a href="https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission">https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission</a>.
---------------------------------------------------------------------------
In conclusion, deductions from the contractually stated base pay
rate create variance in pay that harms growers and their ability to
accurately assess the risk they are taking, which is particularly
problematic given the risk they bear. Further, these growers cannot
reasonably avoid this harm if they wish to become or continue to be
growers. Finally, AMS has not found any evidence that poultry
tournament systems that include deductions from the base pay rate
provide a benefit to growers or competition in the market for grower
services that outweighs the harm to growers. Deductions in other
livestock contracts commonly reflect performance within the control of
the producer. This deceptive poultry discounting practice creates an
unfair competitive advantage for LPDs who use it relative to LPDs who
do not discount the base pay rate. The widespread adoption of these
types of contracts has frustrated fair competition, instead of
enhancing it. Such discounting also is a reflection of the market power
of the LPDs.
B. Summary of Proposed Sec. 201.106
AMS is proposing to add a new Sec. 201.106 titled, ``Broiler
grower compensation design.'' This proposed provision would prohibit
the reduction, or discounting, of any compensation rate under the
broiler growing arrangement on account of a comparison to other
growers. That is, when a broiler growing arrangement between an LPD and
the grower provides for the grower's compensation (which is commonly
determined by a weight-based rate), the broiler growing arrangement
would
[[Page 49010]]
clearly state that rate and not provide for further mechanisms or
calculations that would reduce that rate based on the grower's
performance relative to other growers. The broiler growing arrangement
could provide for the rate to be increased based on the broiler
grower's performance relative to others, but in no event could the rate
be decreased or discounted by that comparison. As used in this proposed
rule, ``rate of compensation'' refers to any payment amount that the
LPD utilizes to compensate the grower under a broiler growing
arrangement, which could include ``base pay,'' ``minimum pay,'' or any
other rate defined in the contract. That rate would have to be
prominently and clearly defined as the guaranteed level of pay a grower
will receive if they perform to the minimum specifications of the
relevant provisions of the contract. To the extent that a broiler
growing arrangement had more than one rate of compensation, none of the
rates could be reduced or discounted by a comparison. Under existing
AMS regulations, a broiler growing arrangement must include all payment
terms in the contract (9 CFR 201.100(c)(2).
Prohibiting the discounting or reduction of rates of compensation
would provide growers greater clarity regarding the minimum payments
they could earn under compensation rates stated in the broiler growing
arrangement, thus better enabling them to properly evaluate their base
pay rate under the arrangement prior to entering the contract. The
proposed rule's prohibition against discounting or reducing the rate of
compensation disclosed in the contract would provide growers with an
assured minimum payment when they satisfy their responsibilities under
the agreement. Increased clarity regarding the rate of compensation may
also enable new growers to better determine how they will perform under
the tournament system before they undertake costly investments.
Experienced growers may benefit as well, especially in advance of any
potential capital investments.
This proposed rule would prohibit LPDs from misleading growers with
the presentation of a compensation design whereby the grower receives
an income lower than expected under a rate of compensation in the
broiler growing arrangement. As noted above, minimum pay is a payment
term that would be required be disclosed under the terms of broiler
growing arrangement. (9 CFR 201.100(c)(2).) This proposed rule would
also protect growers against the risk of unavoidable discounts. While a
grower may miss out on additional income, the LPD would not be
permitted to discount the grower's pay below the expected rate of
compensation that was disclosed to the grower and relied upon by the
grower when making the decision to participate in the broiler growing
arrangement. AMS emphasizes that it may also be a deceptive practice
were an LPD to make representations during the contracting process that
implied most growers will get bonuses or are otherwise likely to earn
more than the minimum where such representations were false,
misleading, or contained material omissions or were otherwise not in
compliance with other relevant rules and regulations under the Act. (9
CFR 201.102.)
AMS expects that LPDs will still be able to pay a grower to elicit
a competitive level of performance using a design that conforms to the
requirements of this proposed rule. The LPD could reward performance
for feed efficiency relative to the growers in the settlement with a
minimum base pay rate per pound and an upward adjustment to the payment
formula. A compensation structure without a penalty or reduction from a
true guaranteed minimum pay rate, however, may still be unfair and/or
deceptive if facts and circumstances demonstrate an unlawful exercise
of market power or other legally unjustified means. For example, if the
variable income (from the range of bonuses) is large relative to the
grower's potential total compensation, the grower may still be unable
to reasonably estimate actual payments. The variability of payments
alone may create unjustifiable risk for the grower. As a result, the
compensation system could still be unfair and/or deceptive. We are
seeking comment, as noted below, on the best way to assess such
unfairness and/or deception.
Based on AMS experience (including investigations and reviews of
contracts), many LPDs already separately identify bonuses to
incentivize capital investments as additions to a base pay rate. Under
most current LPD grower contracts, growers receive these additions to
the base pay rate before the performance adjustment. Under the proposed
rule, LPDs would be prohibited from making any adjustments to discount
or reduce the rate of compensation disclosed in the contract. LPDs can
adhere to this requirement without changing the total expenditure per
pound of broilers or performance incentive structure used in most
contracts, despite the new base pay rate being the true guaranteed
minimum pay rate. Clearly rewarding performance above the base would
give growers clarity regarding which elements of their pay are based
solely on the weight of the delivered flock and which elements reflect
their performance relative to other growers. Virtually all growout
contracts currently have a minimum pay, but it is often not clear how
that minimum relates to performance pay. As noted earlier, some of the
largest LPDs have already adopted contracts at some complexes where the
base pay rate is the minimum pay and there are no negative performance
adjustments.
AMS emphasizes that the proposed rule would not absolve the LPDs of
liability under section 202 of the Act arising in other ways from any
particular tournament system or tournament systems overall, including
from any rate, distribution, or variability of compensation. Excessive
variability in total pay can make it difficult for growers to estimate
likely earnings and can unfairly transfer costs or risk from the LPDs
to growers. Such a system also means a substantial number of growers
may not be able earn a reasonable return. For example, if an LPD set
the base pay rate at $0.01, AMS would almost certainly find that this
violates section 202. If the base pay rate does not reasonably
guarantee that the grower can make loan payments, which are known to
the LPD, the compensation system is likely unfair. Likewise, if the
base pay rate is suppressed below competitive levels (due to an
unlawful exercise of market power or other legally unjustifiable means)
and does not provide a reasonable return considering the operating
costs and the costs of investments over the long term, the compensation
system may still be unfair.
Neither this proposed Sec. 201.106, nor proposed Sec. Sec.
201.110 or 201.112, purport to alleviate all potential unfair aspects
of the tournament system or of the integrated model of broiler
production. At this time, AMS proposes enforcement on a case-by-case
basis to remedy other particular aspects of tournament system
unfairness, including issues arising from excessive variability in
payments. For example, the Department of Justice, upon referral by
USDA, entered into a settlement with LPDs for P&S Act violations.\30\
That settlement barred processors from discounting base pay rate
compensation and capped total relative (comparison-based) compensation
at 25 percent of the total of base pay rate plus
[[Page 49011]]
performance compensation. AMS believes that this approach alleviates
extreme variability as an aspect of existing tournament system
unfairness and believes that compensation variability beyond 25 percent
is presumptively unfair, whether as a function of the tournament system
or as a result of other payment practices utilized by LPDs in the
integrated model of broiler production.\31\
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\30\ See United States v Cargill Meat Solutions Corp. et al.
Civil Action No.: 1:22-cv-1821, District of Maryland, Final
Judgement entered June 5, 2023.
\31\ Ibid.
---------------------------------------------------------------------------
In support of that goal, AMS believes that the clarity and
simplicity provided by the proposed rule's prohibition on deductions
will assist AMS and growers in identifying the presence of such
concerns, and thus will assist AMS in any further review regarding
unfairness overall. As noted, we are also seeking comment on whether
other options would work more effectively. In particular, AMS asks
below (in section III.C.) whether it should be more prescriptive in the
proposed rule, including whether it should adopt requirements to
document or disclose processes related to the proportion of relative
pay to the base pay rate, whether this proportion should be limited in
all circumstances, and whether and how to establish a methodology for
evaluating unfairness where the minimum base pay rate for growers was
not reasonably likely to deliver a fair return. It also seeks feedback
on whether these requirements should apply to payment systems that are
not a tournament but may be otherwise unfair or deceptive due to
asymmetrical power and other dynamics in the integrated model of
broiler production. We also seek comment on the economic outcomes from
these possibilities, including whether they would change the
performance incentive structure, in particular whether it would raise
total grower compensation by increasing total expenditure or whether it
would adjust performance payments within the existing total
expenditure.
Under proposed Sec. 201.106, LPDs may not reduce any rate of
compensation under a broiler growing arrangement based upon the
grower's grouping, ranking, or comparison to other growers in the
grower ranking system. Further, because optimism bias may dilute the
effect of disclosure--and because disclosure is not always a sufficient
remedy for an unfair act or device--this proposed rule is intended to
complement existing regimes aimed at improving transparency and
fairness in the poultry industry.\32\ Improved clarity in the
presentation of payment systems would enhance the effectiveness of
disclosure requirements and is intended to bring to light unfairness in
other aspects of payment systems.
---------------------------------------------------------------------------
\32\ See, e.g., generally 9 CFR 201.100, 9 CFR 201.215-218.
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AMS expects that LPDs would comply with this proposed rule by
desisting from discounting any rate of pay under the broiler growing
arrangement and instead utilizing a minimum rate of pay with
comparison-based performance bonuses paid in addition to the new
minimum base pay rate. AMS is attentive to the risk that LPDs would
lower the base pay rate beyond what the grower expects to be the
minimum based on the broiler growing arrangement or LPD promises and
grower expectations. Those concerns may be particularly acute where the
bonus is large relative to the base compensation. AMS is also attentive
to concerns that growers may not have entered into their current
contracts had a clear base pay rate been disclosed.
Accordingly, AMS also asks questions below regarding whether to
establish limitations on the lowering of the base pay rate, such as by
establishing a backstop or criteria based on existing obligations under
the present contract with the grower; by using a relationship between
pay per pound (pool payments) at the complex and the minimum pay; by
setting a hard limitation on the proportion of comparison-based pay to
total pay (such as 25 percent of the sum of base plus comparison-based
performance pay \33\); or by requiring a base pay rate that makes a
reasonable return likely if the grower delivers under the contract. In
addition, AMS inquires on the advisability of AMS reviewing contracts
for compliance with the transition limitations, as well as for how long
those limitations should be in place.
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\33\ Wayne-Sanderson, DOJ Consent Decree, June 25, 2022,
available at <a href="https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy">https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy</a>.
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Enforcement of Sec. 201.106 could occur in several ways. Growers
would contact AMS to submit a complaint regarding an alleged violation
of Sec. 201.106. AMS would investigate, which could lead to referral
to DOJ for appropriate action or, where failure to pay is implicated,
USDA enforcement through administrative action.\34\ AMS also would
review LPD contracts, along with other required records from the LPD
(including with respect to actual payments made), in connection with
routine compliance reviews and investigations. Injured individuals
would also have a right to proceed directly in Federal court.
---------------------------------------------------------------------------
\34\ Additional information on reporting violations of the P&S
Act can be found here: <a href="https://www.ams.usda.gov/services/enforcement/psd/reporting-violations">https://www.ams.usda.gov/services/enforcement/psd/reporting-violations</a> (last accessed 11/13/2023).
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C. Questions
AMS specifically invites comments on various aspects of the
proposal as described above. Please fully explain all views and
alternative solutions or suggestions, supplying examples and data or
other information to support those views where possible. Parties who
wish to comment anonymously may do so by entering ``N/A'' in the fields
that would identify the commenter. While comments on any aspect of the
proposed rule are welcome, AMS specifically solicits comments on the
following:
1. Does proposed Sec. 201.106 effectively and appropriately
address concerns that growers have expressed in increasing
transparency, understandability, fairness, or certainty as to
compensation under a comparison system or otherwise benefit growers in
reducing deception and/or unfairness? How might this rulemaking more
effectively and appropriately ensure that what growers can reasonably
expect regarding their compensation (based on disclosures in the
contract or otherwise) matches what growers actually receive? If the
proposal will be effective, why? If not effective, in what ways can it
better do so?
2. AMS has indicated that if the base pay rate is suppressed below
the competitive levels, such as due to the LPD's unlawful exercise of
market power or other legally unjustified means, and does not provide a
reasonable return considering the operating costs and the costs of
investments over the long term, the compensation system may be unfair.
Should AMS adopt a rule that more prescriptively requires that the base
pay rate must be expected to provide a reasonable opportunity for a
grower that delivers under the contract to earn a reasonable return if
they comply generally with the specified production practices? If so,
please describe the rationale and methodology to be applied (including
whether and how it should account for local market power dynamics);
and, if not, would another approach be more effective?
3. Is it presumptively unfair for comparison-based compensation to
equal or exceed 25 percent of total (base pay rate plus comparison-
based) compensation for any grower? If so, is the 25 percent threshold
the appropriate portion to presume unfairness, and is it most effective
if calculated at the complex level or at the individual grower level?
[[Page 49012]]
4. Is case-by-case enforcement on the fairness of the total
comparison-based bonus effective? Should AMS include a paragraph (b) to
proposed Sec. 201.106 stating that, ``Although unfairness will be
determined on a case by case basis, the LPD shall be deemed
presumptively in violation of this paragraph (b) if: on an annual basis
at any complex [for any grower] of the LPD, the amount of Performance
Payments exceeds 25% of the sum of Performance Payments and Base
Payments, where `Performance Payments' are the compensation paid to
broiler grower that is subject to adjustment based upon the relative
performance in a grouping, ranking, or other comparison of broiler
growers; and `Base Payments' are all compensation that is guaranteed to
be paid to broiler growers.''?
5. Please comment on the expected response to the inclusion of the
provision described in question 4. In particular, how likely is the
provision to be a binding constraint at either the grower or complex
level? When the constraint is binding, would LPDs be likely to raise
base pay and/or limit performance payments--thus reducing the
difference between top and bottom performing growers--without
increasing total grower compensation expenditures? Would LPDs also
change the types of growers they contract with, for example in terms of
size or performance?
6. If AMS were to include the provision described in question 4,
would LPDs be likely to provide non-comparison-based incentives (such
as per pound or per square foot compensation for housing known to
provide efficiencies to the LPD), or deploy other incentives (such as
fixed performance bonuses)? Would total grower compensation
expenditures by LPDs be expected to increase under these other
incentives? How would this vary with or depend upon grower
characteristics (e.g., size, individual management ability, or
investment) or market conditions?
7. How would the inclusion of the provision described in question 4
affect the relationship between tournament compensation systems and
additional capital investments? Would it help to ensure that growers
receive adequate compensation for ACIs?
8. What additional requirements would help ensure compliance with
this proposed rule such that grower comparison-based unfair and
deceptive reductions or discounts to compensation are eliminated, while
continuing to permit payment designed to incentivize performance?
Please provide as much detail as possible regarding the relationship
between payment and performance, any injuries to growers and whether
they can be avoided, the effects on other growers and competition, and
what data sources AMS should examine to evaluate these concerns more
effectively.
9. Should AMS require LPDs to document or disclose the process they
use to establish the proportion of total grower pay that is determined
by comparing a grower's performance to other growers' performance?
Should regulations require documentation of comparisons designed to
prevent unfair or unreasonable levels of relative performance-based
pay? Should regulations require companies to report how the proportion
of comparison-based performance pay to total pay incentivizes effort,
grower investment, and other outcomes? If AMS creates these
documentation responsibilities, should this be done based on an
individual grower or complex-wide basis?
10. What specific burdens might LPDs face in complying with this
proposed rule? Would this require LPDs to substantially modify their
business model? If so, what specific modifications would be required
and why?
11. What risks might growers and/or LPDs face during any transition
to the proposed Sec. 201.106? How might AMS mitigate transition risks?
How might AMS more fully account for unfairness and deception that may
have occurred in the course of contracting for the current broiler
growing arrangement? Should AMS establish a backstop for this
regulation or set out criteria based on existing obligations under the
present contract with the grower (e.g., requiring that the current base
pay rate be the new minimum rate, or requiring current payments overall
remain comparable), on a relationship between compensation per pound
(pool payments) at the complex and the minimum pay, or on the
proportion of comparison-based compensation for a grower (such as a
limit to 25 percent of total compensation). If so, how long should any
transition limitations extend?
12. To minimize transition risks to growers, should AMS include a
requirement that LPDs submit to AMS for review any contracts modified
or revised to comply with new Sec. 201.106? Should compensation data
be required to be submitted for review? Should AMS review of modified
or revised contracts during any transition assess the changes made to
ensure LPDs have not reduced total aggregated and individual grower
payments in such a way that is inconsistent with payment expectations
under the original contracts?
13. Should AMS make the effective date for the provisions of this
proposed rule 180 days following publication of the final rule in the
Federal Register? If you recommend shorter or longer for some or all of
the provisions, please explain why.
IV. Operation of Broiler Grower Ranking Systems (Proposed Sec.
201.110)
Under the tournament system, LPDs control the inputs and production
practices assigned to growers. Therefore, LPDs unfairly affect grower
payments when they compare growers without taking action to manage and
mitigate unequal inputs or unfavorable production practices over one or
more tournament settlements. This section describes this issue in
depth, discusses AMS's proposed regulation, and provides questions for
commenters to consider.
A. The Act Prohibits Certain Aspects of Current Tournament Practices
As described above in section II, ``Industry Background and Need
for the Rulemaking,'' LPDs control the inputs and production practices
growers use to compete under the tournament system. LPDs generally
promise that tournaments provide growers with the same inputs,
production practices, and contract-related services.\35\ Yet LPDs do
not have sufficient incentive to ensure the design or operation of a
fair ranking system for growers. LPDs commonly do not adequately
specify in their contracts their obligations regarding the operation of
the tournament. LPDs benefit from information asymmetries relative to
their growers. LPDs also commonly do not adequately perform under their
contracts with growers, failing to meet growers' reasonable
expectations relating to contractual performance or behaving in a
punitive or inequitable manner to growers.
---------------------------------------------------------------------------
\35\ See, e.g., ``How the Tournament System Works'', National
Chicken Council (informing farmers that: ``1 All farmers are
provided the same quality of chicks, the same feed, and access to
veterinary care.''; available at <a href="https://www.chickencheck.in/faq/tournament-system/">https://www.chickencheck.in/faq/tournament-system/</a> (last accessed May 22, 2024).
---------------------------------------------------------------------------
The harms of an unfair tournament system fall disproportionately on
growers. The benefits of increasing fairness in the tournament to the
LPD may not justify the costs in providing greater fairness. Many
growers and grower representatives responding to the ANPR for this
proposed rule expressed concern regarding the extent to which
variability in inputs can affect
[[Page 49013]]
grower performance and thus pay. Commenters stressed the problematic
nature of LPD control over inputs and the resulting potential for poor-
quality inputs to affect broiler grower compensation. These commenters
said LPDs' discretion over the distribution of inputs and flock
production practices gives them control over almost all factors
affecting a grower's final performance, such as health, breed, and
gender composition of flocks; age of breeder flocks; number of birds
placed; amount, quality, and timing of food; medical care provided; and
flock pick-up. Although some industry trade associations commented in
response to the ANPR that the tournament system worked effectively to
manage these risks, other industry commenters noted that without
adequate safeguards to manage and mitigate input and production
practice differences, the tournament system is coercive, predatory, and
deceptive because it denies growers the ability to earn based on their
skills, efforts, and investments.
Several of these commenters emphasized that LPDs are unlikely to
acknowledge variability in their distribution of these inputs to
growers or engage in timely communication and cooperation to address
what growers believe is the inappropriate provision of input or
production practices. Commenters also asserted that LPDs sometimes
intentionally deliver inappropriate inputs and assign inappropriate
production practices to growers (e.g., by providing high percentages of
sick chicks, delivering feed designed for older birds to new birds, or
delaying pickup) to penalize growers or force contract termination.
According to commenters, even unintentional input variability can lead
to unfair comparisons within a tournament group. These commenters
indicated poultry growers who receive lower quality inputs (including
inputs inappropriate for the type or age of the bird) are likely to
rank lower compared to those who receive better inputs, and
consequently, receive lower pay than the rate disclosed in the growing
contract. Some commenters asserted that issues with the availability
and quality (including appropriateness) of feed are especially common.
In response to the ANPR, a North Carolina non-profit organization
conducted an anonymous contract grower survey in 2022.\36\ Ninety-six
percent of poultry growers surveyed reported a negative impact on their
income due to feed disruption, receipt of incorrect feed mixes for a
flock's growth stage, or receipt of less feed than stated on their feed
load receipt.
---------------------------------------------------------------------------
\36\ Rural Advancement Foundation International-USA, ``Comment
on AMS-FTPP-22-0046: Poultry Growing Tournament Systems: Fairness
and Related Concerns'' (received Sept. 26, 2022), available at
<a href="https://www.regulations.gov/comment/AMS-FTPP-22-0046-0166">https://www.regulations.gov/comment/AMS-FTPP-22-0046-0166</a>.
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Studies demonstrate that differences in production practices and
inputs, such as stocking density, slaughter weight, bird gender, and
breeder flock age, can impact the performance metrics used in
determining the performance adjustments in tournament payment
systems.\37\ Some breeds, for example, may exhibit faster growth rates,
which may result in heavier farm weights and better feed conversion
rates than other breeds.\38\ A major genetics company, Cobb-Vantress,
reports substantially different feed conversion rates and finishing
weights for three of the most commonly used commercial broiler breeds.
AMS investigations and analyses have likewise found situations where
growers' performance increased with some inputs compared to others and
that growers performed better when assigned certain production
practices rather than others.\39\
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\37\ Dozier III, W.A., et al. ``Stocking Density Effects on
Growth Performance and Processing Yields of Heavy Broilers,''
Poultry Science 84 (2005): 1332- 1338; Puron, Diego et al. ``Broiler
performance at different stocking densities.'' Journal of Applied
Poultry Research 4.1:55-60 (1995). Burke, William and Peter J.
Sharp. ``Sex Differences in Body Weight of Chicken Embryos.''
Poultry Science 68.6 (1989): 805-810; Beg, Mah, et al. Effects of
Separate Sex Growing on Performance and Metabolic Disorders of
Broilers. Diss. Faculty of Animal Science and Veterinary Medicine,
Sher-e-Bangla Agricultural University, Dhaka, Bangladesh, 2016;
Wilson, H.R. ``Interrelationships of Egg Size, Chick Size,
Posthatching Growth and Hatchability.'' World's Poultry Science
Journal 47.1 (1991): 5-20; Washburn, K.W., and R.A. Guill.
``Relationship of Embryo Weight as a Percent of Egg Weight to
Efficiency of Feed Utilization in the Hatched Chick.'' Poultry
Science 53.2 (1974): 766-769; Weatherup, S.T.C., and W.H. Foster.
``A Description of the Curve Relating Egg Weight and Age of Hen.''
British Poultry Science 21.6 (1980): 511-519; University of
Kentucky/Kentucky Poultry Federation, Poultry Production Manual,
<a href="https://afs.ca.uky.edu/poultry/production-manual">https://afs.ca.uky.edu/poultry/production-manual</a> (<a href="http://uky.edu">uky.edu</a>), last
accessed 08/21/2023.
\38\ Cobb500TM Broiler Performance & Nutrition Supplement
(2022), Cobb-Vantress; Cobb700TM Broiler Supplement, Cobb-Vantress,
2022; Ross 308/Ross 308FF Broiler Performance Objectives 2019,
Aviagen Ross, <a href="http://eu.aviagen.com/tech-center/download/1339/Ross308-308FF-BroilerPO2019-EN.pdf">http://eu.aviagen.com/tech-center/download/1339/Ross308-308FF-BroilerPO2019-EN.pdf</a>, accessed March 25, 2022.
\39\ See, e.g., Dkt. No. 12-0123 (USDA March 8, 2013).
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In response to the ANPR, LPDs and trade associations representing
them noted the challenges in trying to determine standards to regulate
distribution of inputs and production practices among growers. A meat
industry trade association indicated that LPDs are known to take action
to reduce unpredictability in grower outcomes, such as contracts that
evaluate performance over multiple flocks and contract pay adjustments
for factors outside growers' control. For example, some LPDs adjust
payments for different densities of birds placed or provide credits for
excess seven-day death loss. AMS investigations have also found that
some LPDs will attempt to ensure that broiler growers do not receive
chicks from young laying hens too often because this can negatively
affect growers' tournament performance. Some LPDs will communicate and
correct ordinary problems on a timely basis, which helps growers avoid
unintentionally punitive outcomes than would otherwise be the case. Yet
these claimed practices are not universal and depend extensively on the
goodwill of the LPD, commonly via the manager of the local complex.
This dynamic leaves considerable room for local complexes to make
discretionary decisions that may harm growers. While LPDs regularly
maintain extensive grower manuals, there is currently no requirement
that manuals address the range of situations that can undermine a fair
comparison or monitor whether the local complexes comply with that
manual in practice.
LPDs would incur the costs associated with ensuring the fair
operation of their tournaments, while the benefits of a fairly operated
tournament would accrue primarily to broiler growers. However, LPDs'
substantial bargaining power, growers' risk, and growers' inability to
reasonably avoid the tournament system (or other payment systems that
effect similar dynamics arising from unfair distribution of inputs and
assignment of production practices) require that LPDs provide a basic
level of fairness for growers.
AMS acknowledges that some variability in input quality is
unavoidable: not all chicks or inputs controlled by the LPD could ever
be identical. Moreover, the ability of an LPD to adapt regarding input
decisions and production practices is necessary to respond to external
conditions. While these changes can dramatically, and sometimes
disastrously, affect overall compensation for growers, these changes
may not significantly affect the distribution of the relative
performance component of compensation among rival growers. That is, if
LPDs provide all growers in a tournament group similar-quality inputs
and compare growers using similar flock production practices, or if
they take steps to balance these differences over time or otherwise
adjust pay to account for the relevant differences, these components
under LPD control may not unfairly affect growers. In situations where
LPDs rank
[[Page 49014]]
growers against growers who have received higher-quality inputs-or who
operated under more favorable production practices-without taking
effective steps to make appropriate adjustments, the tournament
operation itself is unfair because the growers who received lower-
quality inputs or less favorable production practices will likely
receive lower pay compared to the rest of the tournament group through
no fault of their own. The ranking in the tournament will not reflect
the grower's actual performance.
Because different inputs and flock production practices affect
performance under the tournament, and therefore a component of grower
payments, an LPD has committed an unfair and deceptive practice under
the Act when it operates a tournament that uses arbitrary or
inequitable delivery of inputs and production practices--that is,
without establishing systems to manage and mitigate material
differences in inputs and production practices among growers in a
comparison group. This duty of a fair comparison also arises out of the
Act's prohibitions on unjust discrimination, the manipulation of
prices, and failure to pay. Violations of the Act include an LPD
failing to maintain policies and procedures necessary to document the
company's compliance with those fair comparison duties, owing to the
Act's recordkeeping authorities (7 U.S.C. 221).
Current tournament practices are persistent and prevalent across
the industry, giving rise to industry-wide harm because even small pay
differences cause significant harms in the aggregate. As supported by
the response to the ANPR, growers have complained to AMS over the years
of arbitrary, inequitable, and sometimes punitive delivery of adverse
inputs or unfavorable production practices in successive tournaments.
Growers cannot avoid the impact of adverse inputs and unfavorable
production practices on their performance. For example, LPDs determine
the type, quality, and number of chicks delivered to a grower per
square foot of housing, handle the delivery of feed, and determine the
age at which they collect the chickens.
As discussed in section II, the tournament system can sometimes
reduce harm to growers from external shocks (such as adverse weather
conditions) and may enhance competition among growers in ways that, at
least in theory, can improve grower productivity. Yet arbitrary or
inequitable differences in inputs and production practices are not an
essential feature of delivering those benefits; in fact, they undermine
them. Arbitrary or otherwise inequitable differences run contrary to
the theoretical design of the tournament system and the description of
the tournament system that the industry itself provides.
In theory, LPDs would provide the optimal mix of inputs to all
growers to yield an overall better final product and in turn yield a
larger profit. However, differences in inputs will exist, and LPDs want
to obtain full value out of all usable inputs--even if those inputs
perform differently. LPDs also have limited financial incentive to
engage in the effort to evenly distribute inputs and production
practices across growers in a settlement pool. Indeed, growers have
commonly asserted that the ``noisy'' grower who complains more to local
agents is commonly believed to more readily be tendered ``bad'' or
otherwise inappropriate, untimely, etc., inputs or flock production
practices. The question is thus how to manage those differences to
ensure a fair comparison between growers. For example, breeders have a
lifecycle of 50 weeks. They produce optimal chicks between weeks 20-34,
but they also produce chicks that have value outside the optimal
window. The LPD has a financial incentive to grow all these chicks to
maturity, and therefore will distribute higher- and lower-quality
chicks in any one settlement period. Growers who receive a higher
proportion of suboptimal chicks are disadvantaged in a relative
comparison to growers who received a higher proportion of optimal
chicks. The LPD's general incentive is to use all the chicks,
regardless of how they are distributed among growers.
Because the tournament system functions to allocate a component of
grower pay, LPD practices that impair the fairness of the comparison
result in a misallocation of performance compensation, thereby unfairly
reducing the compensation that may otherwise be due to some growers in
violation of section 410 of the Act. Section 410 requires full payment
if LPDs fail to compensate or supplement the compensation of affected
growers though alternative means. Further, AMS's analysis of unfair and
deceptive trade practices in the operation of these comparisons has
been informed by prior P&S Act case law, States' unfair practice laws,
as well as the FTC approach to unfair practices and unfair methods of
competition.
For this part of the proposed rule, AMS seeks to build on the
series of poultry practices regulations that it has adopted over the
years, including 9 CFR 201.100 (which requires various settlement and
other disclosures), 9 CFR 201.215 through 218 (which provide various
protections against unfair and deceptive practices relating to the
suspension of delivery of birds, additional capital investments,
reasonable time to remedy a breach of contract, and arbitration), and
other provisions, as well as enforcement actions in response to grower
complaints about the tournament system and its operation. This proposed
rule would require that broiler grower ranking systems contain adequate
safeguards necessary to ensure that they function fairly and as
described to growers in their contracts.
When an LPD describes the tournament system under the broiler
growing arrangement as delivering certain outcomes for growers, yet the
LPD does not implement sufficient processes to ensure a fair comparison
in the tournament system, the LPD is exploiting the asymmetric
information gap, as well as the gap in bargaining power and hold up,
between the LPD and growers. From the perspective of a reasonable
grower, this is misleading and harmful. It also gives rise to harms
that growers cannot avoid. Such harm includes the loss of earnings. In
some cases, it includes targeted coercion, retribution, or manipulation
of prices from the strategic deployment of inappropriate inputs or
flock production practices, as well as LPD failure to communicate or
address concerns. These unfair and deceptive practices are
impermissible under the Act.
In addition, under those circumstances, LPDs compete in a market in
which the incentive is to avoid their obligations and at times deploy
tournament operational differences to obtain coercive or punitive ends.
Pervasive deception in contractual relationships, breach of contract,
or the use of coercion or retribution in markets are not beneficial to
competition. The grower may not have entered into the contract knowing
that the tournament would be deceptively or unfairly manipulated to the
grower's disadvantage, and the grower has an expectation that the LPD
will make a good faith effort to distribute inputs and production
practices evenly. Boilerplate disclosure that seeks to limit an LPD's
commitment to good faith implementation of tournament practices does
not cure the deception either, because the LPD maintains full control
over the inputs and flock production practices, which are at the very
heart of the LPD's offer to growers under a contract. Disclosure is not
a remedy for unfair practices by LPDs.
LPDs' existing recordkeeping regarding the design and ongoing
[[Page 49015]]
operation of their tournaments is insufficient for AMS to monitor the
ongoing transactions between LPDs and growers as it relates to
allocation of payment for grower services. LPDs do not currently
maintain clearly written processes describing how and when the LPD
distributes inputs and deploys flock production practices, makes
adjustments to comparisons or deploys non-comparison compensation
methods, and responds to complaints. Existing LPD records have tended
to lack sufficient documentation that would allow for systematic
examination of the reasoning for changes in the inputs, flock
production practices, or communication practices assigned to particular
growers, either as designed or during operation of the tournament.
Therefore, even when LPDs provide the details of those input or flock
production practices to AMS investigators, the insufficiency of the
documentation impedes AMS's ability to reconstruct an LPD's reasoning
for its decisions. LPD communications and complaint monitoring
documentation has also been lacking. Further, AMS has encountered
challenges within LPD organizations regarding corporate management's
ability to record and monitor practices occurring at local complexes.
AMS's enforcement of the Act is hampered when corporate management
lacks documented processes and records to explain why coercive and
retributive practices appear to have been deployed at local complexes
despite corporate management's assurance that coercion and retribution
are not a factor in the assignment of inputs and flock production
practices; enforcement is also hampered when LPD corporate management
lacks documented processes and records to explain an LPD's purported
failure to address complaints.
B. Summary of Proposed Sec. 201.110
AMS is proposing to add a new Sec. 201.110, ``Operation of broiler
grower ranking systems,'' to regulate LPDs' operation of ranking
systems (i.e., tournaments) for broiler growers. Paragraph (a)
establishes an LPD duty of fair comparison in tournaments. This duty of
fair comparison would require LPDs to structure their tournament system
in a manner that will provide a fair comparison among growers. AMS
acknowledges that there may be instances in which a fair comparison is
not possible. AMS recognizes unforeseen differences in inputs or other
circumstances occasionally prevent fair comparison in a tournament. In
those instances, an LPD must compensate growers through a non-
comparison method specified in the contract that reflects a reasonable
compensation to the grower for its services.
Thus, under Sec. 201.110(a) the Secretary would evaluate specific
factors to determine if a poultry grower ranking system (i.e.,
tournament) is reasonably designed to deliver a fair comparison among
growers. Paragraph (a)(1) would require that LPDs providing
compensation to broiler growers based upon a grouping, ranking, or
comparison of growers delivering poultry design and operate their
poultry grower ranking system in a manner that would provide a fair
comparison among growers. Paragraph (a)(2) would establish the factors
the Secretary will consider in determining whether an LPD reasonably
designed its poultry grower ranking system to deliver a fair comparison
among growers or whether the LPD must utilize a non-comparison
compensation method. Paragraph (a)(3) would require that when an LPD
uses a poultry grower ranking system and cannot conduct a fair
comparison for one or more growers, the LPD must compensate those
growers through a non-comparison method specified in the contract that
reflects reasonable compensation to the grower for its services. The
non-comparison method is intended to fairly compensate the grower and
therefore, absent special circumstances where a rationale and an
agreement to do otherwise are reasonable and appropriate (and
documented as such), would need to be equal to or more than what the
comparison-based compensation rate would have delivered. The provisions
of paragraph (a) are described in more detail below.
Paragraph (b) would establish documentation requirements regarding
the processes (policies and procedures) the LPD maintains for the
design and operation of poultry grower ranking systems for broiler
growers. AMS is proposing this provision to ensure that the LPD would
maintain a full and complete record of every aspect of the tournament
system structure. This recordkeeping system would provide AMS with the
information needed to determine whether the tournament is, in fact,
following principles of fairness laid out in proposed paragraph (a).
Paragraph (b)(1) would require that LPDs establish and maintain written
documentation of their processes for the design and operation of a
poultry grower ranking system that is consistent with the duty of fair
comparison; paragraph (b)(1) also delineates the items the written
documentation must include. Paragraph (b)(2) would require that LPDs
review their compliance with those processes not less than once every
two years and delineates the requirements of that review. Paragraph
(b)(3) would require that LPDs retain all written records relevant to
their compliance with paragraph (b) for no less than five years from
the date of record creation. These provisions, their anticipated
effect, and compliance requirements are discussed in more detail below.
Section 201.110(a)(1) would require LPDs to design and operate
their poultry grower ranking system to provide a fair comparison among
growers. The proposed rule would focus on how LPDs address inputs and
flock production practices, as well as flexibility and communications
practices controlled by the LPD that impact grower payment. LPDs have a
multitude of means to maintain fair comparisons, including correcting
inputs or production practices inappropriately delivered, extending the
time period over which the comparison is made, adjusting payment for
certain inputs or production practice differences, removing growers
from tournaments where a fair comparison is not possible, etc. LPDs are
in violation of the Act when they do not design and deploy, based on
the particular circumstances of their businesses, those tools to
deliver a fair comparison.
Section 201.110(a)(2) describes the factors that AMS would consider
when determining whether an LPD reasonably designed or operated its
poultry grower ranking system to deliver a fair comparison among
growers or whether the LPD must utilize a non-comparison compensation
method. The factors are listed in subparagraphs (i) through (vi).
Paragraphs (a)(2)(i) and (ii) address whether an LPD's distribution
of inputs and assignment of flock production practices would cause
material differences in performance that growers cannot avoid, and
whether the LPD will make appropriate adjustments to compensation. Fair
comparison of growers requires that growers do not receive a
distribution of inputs or assignment of production practices that cause
material differences in performance from other growers to whom they are
being compared and are caused by factors outside of a grower's control.
Material differences in performance are differences that meaningfully
(from the perspective of the grower) impact grower payments.
To comply with these requirements, LPDs would need to identify
inputs and flock production practices under their control that impact
grower payment.
[[Page 49016]]
LPDs would also be required to improve systems to monitor and, as
appropriate, adjust the allocation of inputs and flock production
practices to reduce the unequal distribution among growers settled
together. LPDs would be required to adjust grower pay to compensate
growers if a fair comparison is impractical due to unavoidable
inequitable allocations. For example, the LPD may determine that a
grower payment adjustment, such as a five-flock average, may be
appropriate when the LPD provided chicks that are later discovered to
be diseased, and no fair comparison is possible. Such a grower payment
adjustment would need to employ a non-comparison method specified in
the contract that reflects reasonable compensation to the grower for
its services. Ensuring that the payment adjustments agreed to are fair
will be part of regular AMS poultry compliance reviews.
Paragraph (a)(2)(iii) would address whether the designated time
period used in the LPD's comparison is appropriate, including whether
the LPD uses one or more groupings, rankings, or comparisons of growers
to mitigate the effects of any differences in inputs over the
designated time period. Fair comparison of growers does not necessarily
require that LPDs provide all growers precisely equal inputs and
identical production practices for each flock. This proposed rule would
permit LPDs to minimize production inefficiencies that would arise from
a literal equality standard while avoiding an unfair comparison of
grower performance by ensuring that LPDs compare growers fairly over a
flexible but reasonable period of time. AMS considers a period of one
year or less to be a reasonable timeframe across which to compare
growers' performance because it provides sufficient time to limit
variation from one event while ensuring that LPDs treat growers fairly
over a reasonable timeline. The one-year period coincides with commonly
used five-flock averages and with one-year comparisons used in some
live poultry growing arrangements.
Paragraph (a)(2)(iv) would address whether conditions and
circumstances outside the control of the LPD render comparison
impractical or inappropriate. A settlement group may have differences
among LPD-provided inputs, LPD-assigned production practices, or other
factors beyond the control of LPDs and growers that render a reliable
comparison impossible. The Secretary will consider the facts and
circumstances applicable to each case. One example might be the
previously described situation where an LPD unknowingly delivered
chicks to a grower that are later discovered to be diseased so that no
fair comparison is possible. Pursuant to paragraph (a)(3) of this
section, under these circumstances the LPD is required to compensate
growers using an alternative to the tournament system through a non-
comparison method specified in the contract. One approach is to pay the
grower for pounds delivered at a rate that is the sum of the grower's
base pay rate and the average per pound performance compensation rate
for the tournament from which the grower was excluded, or for the last
several tournaments in which the grower participated. An average of the
grower's own per-pound total compensation rate over the previous 12
months--commonly, a 5-flock average, variable depending on the size of
the birds--might be a useful non-comparison alternative if the prior
tournaments were not also affected by unfair conditions and
circumstances that would reduce their utility as reference points. AMS
may review documentation maintained by the LPD to ensure that such
conditions and circumstances were not present.
Paragraph (a)(2)(v) would address whether an LPD has made
reasonable efforts to resolve concerns in a timely manner that a grower
may raise regarding the LPD's exercise of discretion over the
implementation of its fair comparison processes. In determining
compliance with this requirement, through audit or in response to a
complaint, AMS would consider whether an LPD has demonstrated
responsiveness and commitment to resolving legitimate concerns in an
appropriate manner that would avoid potential secondary harm to the
grower. ``Reasonable efforts'' and ``timely'' resolution of a grower's
concerns will depend on the facts and circumstances of each case, with
particular attention placed on whether the situation adversely impacts
the fairness of the comparison(s) for the grower. For example, if a
grower raises immediate and urgent concerns about feed quality, such as
the delivery of feed meant for older chicks than the grower has, the
LPD's resolution of this concern should be as immediate as possible to
limit any additional undue damage to the grower's flock due to lack of
adequate nutrition. If a grower raises concerns about feed persistently
being delivered late or in an insufficient quantity, the Agency would
examine the LPD's ``reasonable efforts'' taken to adjust the method of
delivery. Additionally, an LPD would be prohibited from retaliating
against a grower in any manner for raising concerns as to whether a
fair comparison method was used.
Lastly, paragraph (a)(2)(vi) would state that the Secretary would
consider any other factor relevant to a fair comparison. This provision
would give AMS the authority to address any other facts or
circumstances that adversely affected the fairness of the design or
operation of the poultry grower ranking system. AMS would determine
compliance with this requirement by examining the facts and
circumstances, and in particular, whether the LPD took specific actions
to undermine the comparison process. For example, were the LPD to
intentionally group together certain growers for a comparison as a
means of manipulating or adversely affecting their comparison-based
outcomes, this prong would enable AMS to consider those facts and
circumstances.
AMS underscores that it would, when determining whether an LPD has
designed and operated their broiler grower ranking system to provide a
fair comparison among growers, consider the fair comparison factors set
forth in Sec. 201.110(a)(2) against the backdrop of the magnitude and
design of the relative performance pay. Where relative performance
compensation forms a very small portion of grower compensation net of
long-term debt and other fixed costs, AMS would expect that differences
in inputs and flock production practices would cause fewer material
differences in pay. AMS would expect this to operate on a sliding
scale. AMS would also consider the design of the formula to determine
its impact on the magnitude or distribution of compensation, if any.
In some situations, differences among LPD-provided inputs, LPD-
assigned flock production practices, or factors beyond the control of
both LPDs and growers can make a reliable comparison impossible. In
such cases, the proposed rule under Sec. 201.110(a)(3) would require
that an LPD must fairly compensate growers through a non-comparison
method. The non-comparison method must be specified in the contract and
would have to reflect a reasonable effort to fairly compensate the
grower. For example, if an LPD is unable to pick up a flock in a timely
manner because of processing disruptions (as occurred during the COVID-
19 pandemic), the LPD may remove the grower from the settlement rather
than compare that grower's flock performance against growers delivering
flocks of a significantly different age. In such cases, the LPD must
compensate the grower
[[Page 49017]]
using a reasonable non-comparison alternative. Multiple approaches
could be considered reasonable depending on the particular
circumstances. For example, AMS is aware that LPDs often pay the grower
an amount equal to the average rate they received over their previous
five flocks.
Compliance with Sec. 201.110(a) would require that LPDs establish
a standard for fairness in the operation of tournament compensation
systems. The proposed regulation creates a framework for holding an LPD
to account under the Act for using an unfair comparison between growers
because of the LPD's unequal distribution of inputs and assignment of
flock production practices. The proposed rule would require LPDs to
assess input allocations and flock production practices to meet the
standard of fairness delineated in Sec. 201.110(a)(2). LPDs could meet
the standard through a range of approaches deployed over time, allowing
the LPD to take into account the natural variability in living systems
while protecting growers from substantial injuries they cannot avoid
owing to the distribution of those inputs. For example, typically,
flocks are settled with chickens ready for slaughter in a particular
week. Sometimes, if there are not enough similar birds (e.g., similar
weight) ready in one week, LPDs may use all birds slaughtered over two
or three weeks. Alternatively, some contracts settle a grower's last
five flocks (approximately one year) against all other growers' last
five flocks to help choose a comparable settlement pool. AMS considers
a period of up to one year to be reasonable because that provides
sufficient time to limit variation from one event, while assuring that
LPDs treat growers fairly over a reasonable timeline. Relying on the
documentation of written processes set out in proposed Sec.
201.110(b), AMS would evaluate compliance based on the extent to which
the LPD carefully evaluated the factors and took reasonable measures to
protect growers from substantial injuries that they could not avoid.
Inputs like breed of chick, feed, and medication can vary
independently of production practices like density, target weight and
slaughter age, and vice versa. The proposed rule would provide LPDs
flexibility in managing these elements within the framework of their
duty to provide a fair comparison, as documented by the written
processes required under proposed Sec. 201.110(b). Based on their
evaluation of these elements as set forth in their written processes,
LPDs would use allocation and grouping strategies that promote a fair
comparison among tournament participants, provide remedial action to
offset unavoidable circumstances in which fair comparison is not
possible, and resolve grower concerns. With respect to both the
distribution of inputs and the assignment of flock production
practices, an LPD's duty is to design and operate a tournament to
enable a fair comparison between growers. While AMS acknowledges the
possibility of variability in inputs and production practices, the LPD
should not design and operate their contract with the grower in manner
that would impose on the grower injuries that the grower cannot
reasonably avoid which the LPD could reasonably prevent.
Section 201.110(b) would set forth documentation requirements
regarding LPDs' duty to ensure the fair design and operation of broiler
grower ranking systems. Under section 401 of the Act, AMS is authorized
to prescribe ``the manner and form in which such accounts, records, and
memoranda shall be kept'' whenever the Secretary finds that the records
of an LPD do not fully and correctly disclose the LPD's business
transactions (7 U.S.C. 221). Paragraph (b)(1) would require that LPDs
establish and maintain written documentation of their processes for the
design and operation of a poultry grower ranking system that is
consistent with the duty of fair comparison. This proposed rule would
require documentation to include written processes, informally called
policies and procedures, regarding the process for (i) inputs under LPD
control, (ii) flock production practices under LPD control, (iii)
comparison flexibility, and (iv) communication and cooperation with
growers. The written processes would provide a general description of
the items that the proposed rule requires be set forth, yet must
contain sufficient detail to provide a reasonable user of the
processes--such as the local manager that directs the operation of a
tournament at a complex--with an understanding of the processes,
including any policies that the LPD adopts governing the relevant parts
of its operation and any discretion it or its agents may exercise under
those policies, as well as the procedures it or its agents may deploy.
Under paragraph (b)(1)(i), LPDs would be required to create written
processes for selecting and distributing inputs to growers, including
how and when the LPD delivers inputs, how and when the LPD manages
similarities and differences of quality and quantity in the delivery of
inputs, how and when the LPD identifies differences in inputs and the
potential effects of those differences on grower performance, how and
when the LPD adjusts the inputs the grower receives, and any steps the
LPD takes to adjust compensation calculations based on inputs growers
receive. LPDs unfairly harm growers when they distribute inputs in a
manner that disadvantages a grower relative to other growers in a
tournament. Growers cannot control inputs such as quality of chicks or
high- or low-quality feed, yet receipt of low-quality inputs has an
unfair impact on their performance in a tournament. LPD processes would
require ongoing accounting and monitoring of inputs supplied to each
producer using objective measures of quality that are generally
accepted in the industry. Processes developed by LPDs would be required
to address key areas of concern, including management of chicks that
differ in quality and performance and variation in quality or quantity
of feed or medication provided to growers, as well as conscious
selection and delivery of inputs to specific growers for specific
purpose to facilitate fair comparisons. To the extent possible, LPDs
should include policies and procedures for balancing disparity of
inputs either within a single flock or over multiple flocks as
appropriate and feasible.
Under paragraph (b)(1)(ii), LPDs would be required to create
written processes for production of live poultry, including how and
when the LPD assigns density at delivery; how and when the LPD manages
pickup of birds with respect to slaughter weight and bird age,
including documenting any variation by pounds and number of growout
days; how and when the LPD adjusts how a grower is compared to other
growers with different assigned flock production practices or otherwise
adjusts the flock production practices the grower receives; any steps
the LPD takes to adjust compensation calculations based on the flock
production practices the grower receives; and how and when the LPD
minimizes, adjusts, or otherwise accounts for differences in production
practices. LPDs can unfairly manipulate grower payments when they
compare growers within a single tournament settlement group for which
LPDs have required different types of production practices. Under the
proposed rule, LPDs must develop policies and procedures that describe
the processes for ongoing accounting and monitoring of LPD-determined
flock production practices allocated to each producer. The LPD's
processes must provide a consistent approach to minimize differences in
production practice assignments and describe methods to
[[Page 49018]]
compensate growers for differences that result in harms, for example,
if differences do not equitably balance out over time as set forth in
the LPD's written processes.
Under paragraph (b)(1)(iii), LPDs would be required to create
written processes for the LPD's grower comparison flexibility methods.
If an LPD evaluates growers over one or more groupings or rankings
(rather than within each grouping or ranking), these policies and
procedures would need to describe how the LPD sets a reasonable time
period over which the LPD fulfills its duty of fair comparison.
Additionally, if the LPD might remove a grower from a ranking group,
the LPD would be required to describe the circumstances under which the
LPD would remove a grower and how the LPD would compensate the grower
to satisfy the non-comparison compensation method required under
proposed Sec. 201.110(a)(3). For example, LPDs may not have enough
comparable growers with which to make a reliable comparison in the
current grouping and may use growers settling in previous periods to
make a reliable comparison. Likewise, a specific grower may have
received undesirable inputs or production practices that materially
impacted the grower's performance, necessitating removal of the grower
from the grouping and compensation under a non-comparison compensation
method. Lastly, if the LPD groups growers based on criteria other than
in the manner grouped in previous settlements, the LPD would need to
set out written processes for how and when that is to be done.
Settlement groupings, also called league composition, are most commonly
based on their chronological availability for slaughter within the
complex but could be by housing type or on other ways. Generally, the
settlement is determined by flock placement timing, which commonly
varies based on chronological needs by the LPD and grower. For example,
one or the other may need additional layout time between flocks for
cleaning, maintenance, vacation, or other similar reasons. This
proposed rule would not seek to disturb that ordinary decision-making
but would rather serve to identify practices or circumstances that
would diverge from those ordinary reasons. While there are legitimate
reasons to deviate from a strict chronological availability-based
grouping, this provision is principally meant to ensure that LPDs do
not inappropriately use comparison flexibility to interfere with fair
comparison by intentionally grouping specific growers together to lower
their pay, or to otherwise manipulate pay to deliberately benefit
certain growers over others.
Under paragraph (b)(1)(iv), LPDs would be required to create
written processes for how the LPD will resolve a grower's concerns with
the LPD's exercise of discretion over the implementation of the
policies required by this section, including the timeliness of the
resolution. A tournament system cannot be fair if it fails to permit
growers to contest negligent or malicious actions taken by the LPD that
may impact grower performance without fear of retribution. The proposed
rule would provide flexibility on how LPDs can satisfy this
requirement. A range of procedures are available, such as timely
communication with complex management, communication with LPD
headquarters, and grower councils, wherein disputes are resolved with
input from other growers. The implementation of processes to manage and
resolve grower disputes can serve to alert LPDs to potential unfairness
in their comparison of growers and enable them to resolve issues in a
timely manner.
Section 201.110(b)(2) would require LPDs to review their compliance
with the processes set forth in paragraph (b)(1) not less than once
every two years. Under this requirement, (i) the reviewer must be
independent of the management chain of a particular complex and
qualified to conduct the review; (ii) the review must include
examination of compliance practices of the complex management,
production supervision, and all agents that have discretion in contract
implementation, including an analysis of how often growers must be paid
outside of the tournament system in order to meet the duty of fair
comparison and whether the payments given were in fact greater than or
equal to what the growers would otherwise have received; and (iii) the
LPD must prepare a written report with the conclusions of the review,
which must be based on work papers of the review and other
documentation relevant to the review.
Under this proposed rule, LPDs would have a duty to monitor
compliance with the processes established under paragraph (b)(1). LPDs
would be required to formalize tournament operation standards and
assemble either internal or external teams of reviewers to perform
compliance reviews. An LPD's failure to run a tournament that provides
a fair comparison between growers may result from decisions made at the
complex level rather than at corporate headquarters. The requirement
for periodic compliance reviews will ensure regular supervision of
local complex employees' adherence to the LPD's processes. AMS
anticipates that complex management will adopt practices to comply with
LPD standards with respect to tournament operation. A qualified
reviewer would be a person familiar with broiler growout operations who
has experience analyzing the management, operations, settlement
procedures, and documentation commonly used by poultry complexes of the
scale and complexity being reviewed and who is familiar with and able
to apply relevant principles of internal accounting controls or a
comparable internal control methodology appropriate to the industry.
Under this proposal, AMS would require that LPDs create a written
report providing the conclusions of the compliance review to aid AMS in
enforcing the requirements of this section. Section 201.110(b)(2)'s
requirement that LPDs establish documented, ongoing review of
compliance processes would contribute to the operation of fair
tournaments by preventing harms such as LPD manipulation of prices or
delivery of subpar inputs and assignment of undesirable production
practices by local complex managers.
Section 201.110(b)(3) would require LPDs to retain all written
records relevant to their compliance with paragraph (b) for no less
than five years from the date of record creation. Relevant records
would include, for example, copies of existing processes (policies and
procedures); written documentation of LPD processes used within the
last five years, including documentation of inputs and flock production
practices provided to growers; compliance review reports covering the
last five years; board minutes discussing compliance with this section
for five years from the date of the board meeting; current and expired
grower contracts for five years for the date of last effectiveness of
the contract; disclosures provided to growers for five years from the
date of the disclosure is provided to the grower; information on
payments to growers or other forms of adjustment made to ensure a fair
tournament, etc. Under this proposal, AMS would require that LPDs
retain these records for five years to enable the Agency to monitor the
evolution of compliance practices over time in this area and to ensure
that records are available for what may be complex evidentiary cases.
As noted
[[Page 49019]]
earlier in this section, section 401 of the P&S Act authorizes AMS to
prescribe the manner and form in which LPDs keep business records. This
recordkeeping requirement would enhance LPD management's ability to
establish and monitor compliance, as well as AMS's ability to supervise
and enforce the proposed rule.
Compliance with proposed Sec. 201.110(b) would require LPDs to
document processes for the design and operation of broiler grower
ranking systems that are consistent with the duty of fair comparison.
These policies and procedures are necessary to document compliance
precisely because the options for delivering a fair comparison are so
diverse. Policies and procedures developed pursuant to the proposed
rule should describe the LPD's framework for assigning inputs and LPD-
determined flock production practices, comparing grower performance,
and resolving growers' concerns regarding the LPDs' implementation of
its policies and procedures. Recordkeeping should enable periodic
review by the LPD to examine and report on the LPD's compliance with
its established written processes and, as such, with its compliance
with the duty of fair comparison.
Enforcement of Sec. 201.110 could occur in several ways. Growers
could contact AMS-PSD to submit a complaint regarding an alleged
violation of Sec. 201.110. PSD would then investigate, which could
lead to referral to DOJ for appropriate action or, where failure to pay
is implicated, to USDA enforcement through administrative action.\40\
AMS would also review LPD contracts, along with other required records
from the LPD, in connection with routine compliance reviews and
investigations to ensure LPD compliance. Injured individuals would also
have a right to proceed directly in Federal court.
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\40\ Additional information on reporting violations of the P&S
Act can be found here: <a href="https://www.ams.usda.gov/services/enforcement/psd/reporting-violations">https://www.ams.usda.gov/services/enforcement/psd/reporting-violations</a> (last accessed 11/13/2023).
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C. Questions
AMS specifically invites comments on various aspects of the
proposal as described above. Please fully explain all views and
alternative solutions or suggestions, supplying examples and data or
other information to support those views where possible. Parties who
wish to comment anonymously may do so by entering ``N/A'' in the fields
that would identify the commenter. While comments on any aspect of the
proposed rule are welcome, AMS specifically solicits comments on the
following:
1. Does proposed Sec. 201.110 effectively and appropriately
benefit growers in reducing unfairness and deception? If so, why? If
not, in what ways can it better do so?
2. Are the duty of fair comparison and the factors for evaluating
whether the LPD reasonably designed its ranking system to deliver fair
comparison appropriately designed? If not, how should they be changed?
3. Are the policies and procedures and the compliance review
requirement effective and appropriate tools for documenting and
enhancing compliance with the fair comparison duty? Why or why not? If
not, what additional tools are needed? Is additional documentation on
the inputs provided, timing of input delivery, and requirements for
growing methods needed? Why or why not?
4. What means exist for LPDs, growers, and AMS to evaluate
performance differences stemming from inputs and production practices?
To the extent that information asymmetries continue to exist, please
offer any views or suggestions on ways to address them.
5. How should the non-comparison methods of compensation be set to
ensure that growers are fairly compensated outside of the tournament
system, if needed? Should the proposed rule permit other non-comparison
methods of compensation that are not specified in the broiler grower
contract to be used as long as they are mutually agreed upon by both
parties (i.e., both the affected grower and the LPD)?
6. Should AMS be more specific regarding what constitutes
``reasonable efforts'' made by the LPD to resolve disputes, and if so,
for which circumstances and how?
7. What specific burdens might LPDs face in complying with this
proposed rule? Would this require LPDs to substantially modify their
business model? What specific modifications would be required and why?
8. Is this proposal's standard for determining if a difference in
inputs was material to grower performance--i.e., whether it
meaningfully impacts pay from the perspective of the grower--
appropriately designed? Should the Agency set a threshold for change in
pay (e.g., a percentage) that is always material? If so, what
threshold?
9. Are there simpler means to achieve the ends proposed in Sec.
201.110? For example, would a limitation on the proportion of
comparison-based compensation to total compensation--like comparison-
based compensation limited to 10 percent of total compensation--be
sufficient to provide flexibility to LPDs and protect growers from
variability in inputs and flock production practices?
10. Should AMS's final rule expressly clarify that a pattern or
practice (including, but not limited to, intentional, arbitrary, or
punitive distribution) of unequal, dissimilar, or inappropriate inputs
or flock production practices would be an unfair practice under the Act
under any payment system that relies upon grower performance relative
to inputs or production practices provided by the LPD (such as feed
efficiency) irrespective of whether the payment system was a
tournament? In particular:
a. Please explain why or why not or suggest alternative approaches
to address particular concerns with non-tournament pay systems that
rely on grower performance.
b. Would some or all of the criteria with respect to the duty and
the requirement for written processes set forth in Sec. 201.110 be
useful to address concerns with these non-tournament performance pay
systems? If so, please explain under what circumstances and how.
c. Are there specific circumstances where AMS should articulate
additional protection for growers against punitive actions by LPDs
through the differential provision of inputs or other processes?
11. Should AMS make the effective date for the provisions of this
proposed rule 180 days following publication of the final rule in the
Federal Register? If you recommend shorter or longer for some or all of
the provisions, please explain why.
V. Broiler Grower Capital Improvement Disclosure Document (Proposed
Sec. 201.112)
LPDs often request or require that growers make costly additional
capital investments. These ACIs may benefit LPDs by enabling them to
profit from growers' investment in more efficient technology or by
otherwise enabling LPDs to meet changing consumer demand for different
products (for example, because growers have invested in producing
antibiotic-free chickens). ACIs may also benefit growers by enabling
them to earn more in some cases.
At the same time, ACIs can be problematic. The LPD requesting an
ACI may be exploiting its bargaining leverage and forcing the grower to
bear unreasonable risk. The terms of the ACI may also be complicated or
difficult to evaluate. Because of the tournament system, the grower's
benefits may dissipate over time as other growers
[[Page 49020]]
adopt similar ACIs. In such cases, the grower may face increased debt
with only a small increase in revenue. Growers, however, are often not
in a financial position to avoid making an ACI. Generally, growers have
already incurred debt to enter into a broiler growing arrangement. They
need to repay their existing broiler-production related debts. If their
LPD threatens them with termination or reduced compensation, growers
may have no choice but to make the investment. Further, growers have
limited options to switch to alternative LPDs, and the cost of
switching LPDs can be high. Undertaking an ACI increases growers' debt,
which can further increase growers' dependence on their relationship
with their LPD. These problems were identified in a USDA rule published
in 2011 (which added Sec. 201.216 governing USDA's evaluation of
unfairness in ACIs (76 FR 76874; December 9, 2011)) and were among the
concerns raised by growers in the ANPR for this proposed rule.
Even when a grower has sufficient bargaining leverage, the LPD may
not provide sufficient information for the grower to assess the risk
and reward of undertaking the ACI. Many growers undertake ACIs without
the opportunity to fully understand the ACI's purpose, design, risks,
and impacts on their financial well-being. Information asymmetry
impairs growers' ability to negotiate, effectively exercise independent
decision-making to reject an ACI, and, more broadly, manage their
farming operation. When information asymmetries prevent growers from
evaluating whether they are able to recoup their investment or whether
they can engage in other farming practices that could achieve the goals
of the ACI, growers cannot effectively protect their financial
interests or freely exercise decision-making with respect to their
farming operation. Growers and AMS may also be unable to identify
circumstances where LPDs are seeking to compete through ACI practices
that shift or hide costs to growers, which subverts the competitive
process.
AMS has identified as deceptive those LPD contracting practices
that fail to disclose key information about ACIs. AMS emphasizes that
disclosure under proposed Sec. 201.112 is not, and is not intended to
be, a remedy to unfairness in and of itself; rather, disclosure
provides AMS and growers with information necessary to enforce their
rights under existing Sec. 201.216, and the P&S Act more broadly, when
terms are unfair.
This section describes the problem in depth and further discusses
AMS's proposed regulation to require disclosures to facilitate AMS's
and growers' ability to better identify and enforce growers' rights
against unfair ACIs under the existing ACI criteria in Sec. 201.216.
Lastly, this section provides questions for commenters to consider
regarding the proposed regulation, including whether additional
substantive limits on additional capital investments are needed in
addition to the proposed disclosure.
A. Problems Related to ACIs in Broiler Contracts
ACIs in poultry growing facilities can improve growout
productivity, satisfy customer demands related to broiler production
(e.g., animal welfare), qualify an operation for USDA's Process
Verified Program,\41\ and help growers conform to other product or
process attributes demanded by LPDs. ACI programs, however, impose
costs and risks borne largely, and often solely, by growers. Due to
asset specificity and hold-up problems (discussed in section II,
``Industry Background and Need for the Rulemaking'') many growers are
uncomfortable taking on additional financial risk--especially absent
appropriate compensation--but for all practical purposes are compelled
to when LPDs unilaterally impose ACI costs and risks.
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\41\ See <a href="https://www.ams.usda.gov/services/auditing/process-verified-programs">https://www.ams.usda.gov/services/auditing/process-verified-programs</a>.
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These costs and risks are particularly problematic when growers
lack relevant information about the purpose, risks, and returns of the
ACI. As a result, growers may be unable to protect themselves against
insufficient compensation or other unfair practices including by, for
example, attempting to switch LPDs. The ability to make such a switch
is extremely limited because of LPD-specific housing specifications.
Even when the ACI is presented as voluntary, it can be as coercive as a
mandatory ACI if the grower cannot evaluate risks and rewards or if the
grower has few or no options to switch to an alternative LPD. Indeed,
the LPD often has substantial bargaining power: switching may be
difficult or costly, alternative LPDs may not need additional growers,
differing requirements may increase the cost of switching, and
preexisting debt that has not been fully recouped (owing to mismatches
between the duration of growers' contracts and the duration of their
borrowing terms) can aggravate costs and risks to growers. Given these
challenges, growers are commonly unable to negotiate with LPDs over
ACIs or decline to make a particular investment and thus limit their
risk.
Assuming a well-designed ACI that results in improved efficiency,
failing to implement an ACI when other growers do will likely result in
inherently weaker performance under the tournament. An LPD may offer an
incentive payment (commonly added to base pay rates) to a grower to
make a desired ACI, but growers have limited, if any, ability to
negotiate those incentive payments. LPDs continually benefit from ACIs
to the extent they improve production efficiency for growers or enable
growers to match consumer preferences by switching to specific
production processes, such as limited antibiotic usage. But any
relative performance advantage gained by early adopters of an ACI will
fade as other growers make the investment and gain the same
productivity advantages. The incentive payments thus may not
sufficiently compensate for the additional risk and cost of the debt or
enable growers to fully share in the cost-savings or improvements to
the product.
Further, when LPDs do not provide important information about the
nature of the ACI growers cannot determine the extent to which
incentive payments could be expected to compensate them for the costs
of these investments. Nor can they evaluate the risks relating to the
structure of those incentives--including whether the opportunity for
recoupment is undermined by other growers adopting the same technology.
Without sufficient, simple, and clear disclosures, growers cannot
assess the benefits or risks of making the investment. Growers cannot
determine whether a program presented as voluntary is, for all
practical purposes, mandatory. AMS notes that LPDs may not retaliate
against a grower's refusal to engage in ACI programs--for example by
the intentional delivery of subpar or inappropriate inputs or
production practices--under the P&S Act.
Past grower concerns and comments in response to the ANPR add
further context from both sides of this issue. The 1999 FLAG survey
found that 33 percent of broiler growers believed that making
improvements to housing as recommended by their LPD did not make them
better off financially. As the cost of poultry growing infrastructure
has increased over the past two decades, the financial risk of ACIs
appears to be increasing. Multiple ANPR commenters indicated that
contracts are not long enough to ensure return on costly infrastructure
investments. One State farm bureau, for example, commented that
upgrades of equipment and housing typically benefit the LPD at the cost
of
[[Page 49021]]
the grower. Another State farm bureau commented that LPDs should
provide documentation citing relevant research to justify mandatory
modification of buildings and equipment and that LPDs should offer
contracts for a sufficient length of time to recoup the cost of poultry
growers' investment. Grower advocate organizations stated that some
LPDs require poultry growers to make unnecessary upgrades and further
urged AMS to consider the practice of demanding large capital
investments without commensurate assurance of income from those capital
investments to be an unfair and deceptive practice.
Organizations representing LPDs countered that existing protections
and regulations sufficiently address this issue. A commenter on the
ANPR cited the list of criteria in 9 CFR 201.216, ``Additional capital
investments criteria,'' that the Agency may use in considering whether
capital investment requirements violate the Act. This commenter also
underscored the prevalence of existing industry practices that address
this issue, such as the practice of LPDs offering compensation through
contract amendments to growers when they make equipment changes during
the term of that contract. The commenter also stated that existing
causes of action for breach of contract protect growers in cases where
an LPD refuses to honor a signed contract by cancelling or modifying
it.
The Agency agrees with the commenter's perspective that the
existing regulation in Sec. 201.216 may allow the Agency to partially
mitigate the effects of these problems. The regulation sets forth
criteria for whether ACIs would be an unfair practice or other
violation of the Act. These criteria include whether the grower can
decide against the ACIs; whether the ACIs were a result of coercion,
retaliation, or threats by the LPD; and whether the ACIs can result in
reasonable recoupment, or adequate compensation for the ACIs, among
other non-exhaustive criteria. However, AMS has found that the presence
of the criteria alone is insufficient to effectively address problems
stemming from ACIs. AMS and growers lack the data necessary to analyze
whether an ACI violates the criteria. Moreover, once an investment is
made and a grower incurs debt, it can be nearly impossible to unwind.
Technical specifications can make switching costly (where even
possible), and alternative uses at similar compensation rates are
nearly nonexistent.
A key component of the criteria, expectation of recoupment (Sec.
201.216(f)), is impossible to assess in the absence of reliable and
accurate projections of revenue and earnings and is best evidenced by
data possessed by the LPD who is asking the grower to make the ACI.
Insufficient information about ACIs also, for example, impacts the
criteria seeking to preserve the grower's discretion to decide against
an ACI (Sec. 201.216(a)), in that a grower is unable to effectively
analyze the extent to which without the ACI they would still be able to
compete against other growers. AMS has encountered these issues in
investigations regarding ACI programs.
As the practice of LPDs requiring or seeking ACIs in tournament
system growing arrangements has become standard practice, Congress
enacted section 208 of the Act to inform unsuspecting growers that such
potential investments may be required.\42\ The need for such a
disclosure emphasizes the prevalence of the practice and its perceived
unavoidability owing to growers' lack of reasonable alternatives and
the pervasiveness of ACIs across the industry. A grower may not have
meaningful opportunity to choose whether to make an ACI if a grower
only has one or two LPDs to choose between, faces obstacles switching
LPDs, is denied the key information needed to understand the risks and
returns of the ACI, and/or fears retaliation from an LPD if it refuses
an ACI.
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\42\ Section 208 requires all poultry production contracts to
include a ``required disclosure'' that ``additional large capital
investments may be required of the poultry grower or swine
production contract grower during the term of the poultry growing
arrangement or swine production contract.'' 7 U.S.C. 197a(b)(1).
---------------------------------------------------------------------------
In carefully considering this issue, AMS is concerned that some
growers are unable to negotiate or refuse contracts to prevent the
imposition of ACIs and that the imposition of some particular ACIs are
unfair under a Sec. 201.216 analysis. When LPDs can impose ACIs on
unfair terms, they expose growers to financial risk that growers cannot
mitigate during the contracting process. While the statutory ACI
disclosure tells growers there is a potential risk of ACIs, the
majority of contracts contain no information relating to when ACIs may
be required, nor the costs of any such ACI, nor what, if any, limits
there are on an LPD's ability to unilaterally impose ACIs that do not
materially improve production efficiency or meet consumer demands.
AMS is also concerned that if growers are precluded from
negotiating on ACIs, they also lack the ability to demand increased
transparency related to ACI programs. Transparency will not cure
unfairness, but it may help growers and AMS assess the risks and
benefits of an ACI. For example, growers have asserted that some ACIs
have been experimental in nature, which may implicate unfairness
concerns in Sec. 201.216. Compliance with these disclosures would also
create the records necessary to analyze the Sec. 201.216 criteria.
To better enable AMS and growers to protect against unfairness and
deception, LPDs must disclose and record more information regarding the
ACIs they request from broiler growers. The disclosures must occur
before growers take on the financial burden and risks of the ACI. The
provision of such information is not, in and of itself, the cure for
unfairness, but rather a key tool for AMS and growers to halt abusive
practices by arming them with the ability to identify those challenges
sooner.
Growers bear all, or nearly all, of the costs and risks of ACIs.
LPDs do not own the production capital and therefore do not share in
these risks, although they frequently dictate grower investments. The
system of ownership of poultry production capital provides no direct
incentive for LPDs to carefully consider the extent to which the ACI
will improve individual grower production efficiency, whether the ACI
will result in financial benefit to growers, and whether the cost of
the ACI is proportionate to any such benefits. Even when LPDs share in
some of the costs by providing ACI incentive payments, the payments may
not cover all the costs or risks that the grower bears. These are
problems this proposed rule alone cannot and does not purport to solve;
however, the disclosure required in this proposed rule will provide
data points for analysis under Sec. 201.216 that have been lacking
based on AMS's experience.
When considering new investment, growers seek to maximize net
productivity benefits subject to cost. However, when LPDs do not bear
investment cost, they have incentives only to maximize their benefits
and encourage growers to over-invest in poultry-specific production
capital to the point of negative returns for the grower. LPDs' use of
incentive payments to compensate growers for ACIs can help to align
investment incentives. For these arrangements to work properly,
however, growers must clearly understand the parameters of the
investment and its future revenue potential to evaluate potentially
unfair ACIs under Sec. 201.216.
LPDs possess material information that is critical for growers and
for the recordkeeping of ACI transactions.
[[Page 49022]]
When LPDs withhold important information about ACI programs, they
prevent growers from making fully informed decisions, understanding the
extent of over-investment, and assessing the fairness of the
transaction. LPDs can exploit this information asymmetry to impede
growers' ability to evaluate contracts and manage farms effectively; in
more competitive markets, LPDs can impede growers' ability to compare
contracts among LPDs, bargain efficiently with competing LPDs, and
enforce their rights under the Act. This type of deceptive conduct
results in misallocation of grower resources, enhanced LPD bargaining
power, exacerbation of hold-up problems, significant financial risk to
growers, and reduced competition among LPDs for grower services. An
increase in grower investment also leads to increased grower dependency
on LPDs to generate returns on that investment through poultry
contracting. Additionally, in some cases the presence of few or no
other poultry contracting options in a grower region further focuses
dependence on a single LPD. The misalignment of incentives coupled with
growers' inability to bargain creates deceptive and unfair conditions.
These practices may amount to unfair and deceptive trade practices
under an analysis informed by Packers and Stockyards Act case law and
States' unfair practice laws, as well as the FTC approach to unfair
practices and unfair methods of competition.
Clear disclosure of ACI parameters will enhance growers' ability to
enforce their rights relating to unfair practices under Sec. 201.216
(such as recoupment and discretion to refuse to make an ACI), as well
as other provisions of the P&S Act and regulations. Disclosure alone is
not a remedy for an ACI that is unfair if, for example, an LPD with the
advantage of hold-up power (e.g., there are no alternative LPDs for
growers to contract with) requires an ACI that is likely to have
unreasonably low or negative financial returns for growers who in good
faith have invested in a long-term relationship with that LPD.
Nevertheless, the disclosures required by proposed Sec. 201.112 will
create a record that will facilitate the Agency's ability to enforce
the Act under Sec. 201.216.
In section V.C. below, AMS asks commenters questions regarding
proposed Sec. 201.112 to determine whether the proposed disclosure
requirement will help growers effectuate their rights under Sec.
201.216. In that section, we are also seeking comment on whether to
strengthen the substantive protections for reasonable capital
investments and adopt a requirement preventing an LPD from mandating an
ACI unless the cost of the required ACI can reasonably be expected to
be recouped by the grower or another similar requirement to ensure that
ACIs are reasonable for growers.
B. Summary of Proposed Sec. 201.112
AMS is proposing to add new Sec. 201.112, ``Broiler grower Capital
Improvement Disclosure Document,'' which would require that LPDs use a
Capital Improvement Disclosure Document (Disclosure Document).
Paragraph (a) of the new section states that when an LPD requests that
a grower make an ACI, the LPD must provide the grower with a Disclosure
Document. Paragraph (b) describes the disclosures that the LPD would be
required to include in the Disclosure Document. These disclosures
include the purpose of the ACI and a summary of relevant research or
other supporting material that the LPD has relied upon in justifying
the ACI (paragraph (b)(1)). LPDs must also disclose all relevant
financial incentives and compensation for the grower associated with
the ACI (paragraph (b)(2)), along with all relevant construction
schedules related to the request for the ACI (paragraph (b)(3). LPDs
must also identify the housing specifications associated with the ACI
(paragraph (b)(4)) and any required or approved manufacturers or
vendors (paragraph (b)(5)). The proposed rule would also require LPDs
to provide an analysis--including any assumptions, risks, or
uncertainties--of projected returns the grower can expect related to
the ACI sufficient to allow the grower to make their own projections
(paragraph (b)(6)). Lastly, the proposed rule (in paragraph (b)(7))
would require LPDs to provide a specific statement in the Disclosure
Document. The statement indicates that USDA has not verified the
information contained in the Disclosure Document and that if the
Disclosure Document contains any false or misleading statement or a
material omission, a violation of Federal and/or State law may have
occurred which may de determined to be unlawful under the P&S Act. The
statement also includes contact information for use in filing a
complaint with PSD and a web address to find additional information on
rights and responsibilities under the Act. The specific provisions of
the proposed rule are discussed in more detail below.
Proposed Sec. 201.112(a) would require that LPDs assemble a
Disclosure Document and provide the document to growers before
requesting an ACI. This disclosure provision would require LPDs to make
explicit representations about the nature of required ACIs. Growers
would review the disclosure information provided by LPDs when making
the further investment decisions contemplated by the ACI. This
disclosure would not cure any unfairness in the ACI itself, but the
requirement would alleviate some asymmetric information problems and
better enable growers and agencies to identify problematic practices
relating to ACIs including to assess and apply the criteria in Sec.
201.216.
Information provided in the Disclosure Document would then help
growers protect themselves at an earlier stage--before the investment--
from unfair practices, by enabling them to report to AMS potentially
unfair ACI practices or bring their own action. Improved documentation
will also enable AMS to take earlier and more effective action against
problematic ACI practices, owing to past insufficiency in obtaining a
timely and clear understanding of the full range of costs, risks, and/
or benefits relating to the ACI. Transparency will also enable some
growers, where sufficient choice exists, to make better additional
investment decisions. The Disclosure Document would be required to
clearly state the intended and expected outcome of LPD ACI
requirements. As such, LPDs would demonstrate the extent and likelihood
that growers would benefit from or be put at risk by the ACI.
The requirement to provide the disclosure would be triggered when
the LPD requests the grower make an ACI. At a minimum, this would occur
when the LPD provides any new or modified housing specifications to the
grower. AMS has chosen to utilize this timing as the trigger because
capital investments generally take months, not days, to plan, finance,
and operationalize, affording the grower sufficient time during the
steps that advance that process forward (such as engaging in planning
and borrowing) to be able to act on the information provided in the
Disclosure Document, including contacting AMS to report concerns.
Accordingly, providing the grower with the Disclosure Document no later
than when the LPD provides any new or modified housing specifications
to the grower, will provide the grower with ample opportunity and
flexibility for review to effectuate their rights. Additionally, an LPD
may not restrict growers from sharing the Disclosure Documents with
legal counsel, accountants, family, business associates, and financial
advisors or lenders.
Proposed Sec. 201.112(b) lists the items the Disclosure Document
is required to disclose. These disclosures must be
[[Page 49023]]
prominently presented in a clear, concise, and understandable manner.
Paragraph (b)(1) would require that the Disclosure Document provide the
purpose of the ACI for both the LPD and the grower and a summary of any
relevant research or other supporting material linking the specific
infrastructure modification/housing specification with that purpose.
Growers, and AMS, face significant obstacles in assessing the potential
costs, benefits, and risks relating to any ACI, and therefore are
hamstrung in their ability to take action against problematic ACI
practices. LPDs almost always have superior information regarding the
outcomes of and risks around the contemplated ACI. LPDs commonly
research and design ACIs and usually have a plan or intended outcomes
with respect to their request for the adoption of an ACI. Growers have
limited to no access to that information, yet they are asked to expend
hundreds of thousands or even millions of dollars to implement ACIs.
As part of any assessment of risks or benefits relating to an ACI,
growers need to understand the intended purpose of the ACI and have
access to any relevant research or other supporting material regarding
that ACI. Over the years and in response to the ANPR, growers have
raised concerns that ACIs are often experimental, that it is difficult
to determine whether ACIs are necessary, and whether ACIs would be
profitable. Providing the information proposed in this paragraph would
assist growers, and in turn AMS, in evaluating whether a requested or
required ACI raises those concerns or other potentially unfair
practices. An ACI for which the LPD does not clearly provide this
information is more likely to be deceptive because growers are unable
to evaluate the real purposes and material risks relating to the ACI.
For example, without disclosures indicating that an ACI was designed to
improve growout productivity, growers would be unable to evaluate the
real implication of the structures and the incentives offered.
Similarly, without disclosures indicating that an ACI was designed for
animal welfare, compliance with a USDA Process Verified Program, or
other similar reasons, growers would be unable to assess the risks and
incentives for them to implement the ACI.
Under this proposal, LPD failure to adequately disclose this
information would be deceptive and harmful to growers by imposing undue
financial risk and increasing the likelihood of a poor financial
outcome on the investment. Omissions of this information would prevent
growers from making an informed business decision. This proposal would
also help AMS and growers identify unfair practices because it would
require LPDs to provide increased transparency regarding ACIs. The
provision of transparency under this proposed rule is not itself a cure
for the unfair practices, relief for which would be sought through
separate enforcement action under Sec. 201.216 and otherwise under the
P&S Act. AMS believes that the provision of this information will
assist AMS and growers in their efforts to halt unfair practices in
their incipiency and potentially deter some violations.
Under proposed Sec. 201.112(b)(2) through (5), LPDs would be
required to provide clear ACI schedules and specifications to growers
and state any compensation promised to growers for the ACI. Growers
must plan loan repayment schedules based on expected LPD payments.
Incentive payments often constitute an important component of grower
repayment capacity. Paragraph (b)(2) requires the disclosure of such
payments prior to the investment. LPD construction schedules, housing
specifications, and approved manufacturers or vendors are critical
components to any ACI. The provision of these basic details regarding
the ACI would enable a grower to understand the workings, process, and
design characteristics of the ACI. They thus would enable a grower to
identify certain risks relating to the ACI and potentially unfair or
otherwise impermissible ACI practices under Sec. 201.116, for example,
if favoritism (e.g., to relatives of LPD employees or to certain
growers) were present in the vendors chosen. Additionally, failure to
provide such information is likely to be deceptive. The information is
material to any contracting and investment decision, and the absence of
such information is likely to mislead the grower. Therefore, AMS would
require those disclosures under proposed Sec. 201.112(b)(3) through
(b)(5). LPDs harm growers when they refuse to pay promised additional
compensation, discontinue a contract, or require further investment by
growers to align with LPD expectations that growers fail to meet
because of LPDs' initial nondisclosure.
Under Sec. 201.112(b)(2) and (3), LPDs would be required to
disclose all relevant financial incentives and compensation associated
with an ACI and establish a schedule of expected grower construction
for new ACIs. Financial incentives would include all incentives
relating to the ACI, including explicit incentive payment additions to
base pay rates or performance compensation amounts, as well as what
assumptions and risks undergird or may put at risk those incentives.
Clearly disclosing financial incentives would assist the grower in
assessing the relative risks of non-recoupment, as the reliability of
those incentives may vary based on the duration of the contract and
whether other growers are likely to incorporate the ACI technology in a
way that would make recoupment through performance pay less reliable.
Clearly disclosing expected grower construction schedules and other
repayment schedules also would assist the grower in assessing
incentives and risks relating to borrowing, construction, and payment
timing. Similarly, the requirement under Sec. 201.112(b)(4) and (5)
for LPDs to clearly disclose their expectations regarding housing
specifications and required or approved manufacturers or vendors will
position growers to better analyze the business risk in undertaking an
ACI.
By enabling growers to clearly understand each component of the ACI
being requested by the LPD, the disclosures proposed in Sec.
201.112(b)(2) through (5) would address key information asymmetries
that exist between the LPD and the grower with respect to LPD's
purposes, bases, and expectations for an ACI. Growers will be better
positioned to evaluate the true costs and risks from the ACI, as well
as the operational implications for their farming enterprise.
The provision of this information is essential for AMS and for
growers to identify and take action against unfair practices as
contemplated under Sec. 201.216 and otherwise. Failure to provide this
information is deception because growers are asked to make investment
and contracting decisions without information that is material to those
decisions; the lack of this information is likely to mislead growers.
Section 201.112(b)(6) would require that LPDs provide a financial
analysis--including any assumptions, risks, uncertainties--that can be
relied upon by growers facing ACI decisions. This provision is designed
to enable the grower to evaluate the reliability of the financial
returns that the grower could receive over the duration of the
contract. Such information would include, where relevant, assumptions
regarding the expected likelihood of whether other growers will adopt
the ACI and the impacts on the reliability of returns in relation to
the incentives. The financial analysis would also be expected to
clearly describe the risks relating to the duration of the contract.
For example, the LPD may need to take into account whether and how the
LPD terminated
[[Page 49024]]
any growers without cause during the last 5 years as potentially
informing those risks. That analysis may also describe the extent of
any compensation provided to terminated growers (e.g., if the remaining
X number of years a contract was paid off or if any assistance was
provided to reduce or pay off the remaining X number of years of a
loan), and whether the LPD provided any risk-sharing mechanisms to
assist it and the grower in managing changing consumer demand and
preferences for poultry.
LPDs possess information about the expected returns on ACIs that
producers do not have and cannot obtain independently. Therefore, LPDs
exert substantial control over growers' ability to evaluate the
economic and financial feasibility of an ACI while possessing the power
to impose all ACI costs on growers. Growers lack the bargaining power
to demand the information they need to make decisions for their
financial benefit. In addition to being deceptive, inability to access
this information frustrates growers' and AMS's ability to identify and
therefore halt unfair practices in a timely manner. AMS has found
transaction records around the financial incentives and the financial
analysis insufficient to evaluate the compliance of ACIs under the Act
generally.
The proposed rule would require LPDs to prepare analyses of
expected grower returns for ACIs using information at their disposal
about investment purpose, expected benefit, and grower performance.
LPDs would provide this information and analysis to assist growers in
evaluating the ACI request or requirement and to assist growers and AMS
in evaluating whether LPDs have complied with the requirements of Sec.
201.216. Growers can then review and consider this information when
deciding whether to make proposed new investments and whether to pursue
their rights under Sec. 201.216 or other legal protections.
As noted above, the disclosures in proposed Sec. 201.112 would
significantly assist AMS in analyzing and applying the criteria under
Sec. 201.216. For example, an ACI with a speculative purpose or one
not grounded in research and reasonable estimates--a concern that
growers have reported to AMS regarding ACIs--would be more apparent if
AMS and growers were able to review an LPD's representations about the
purpose of an ACI, the research associated with it, and an LPD's
expectation of costs, construction schedules, and approved vendors for
the ACI. Such information would benefit growers in engaging in their
own analysis of potential unfairness and would not otherwise be
accessible to growers since the purpose and bases of an ACI are
entirely under the control of the LPD. It has also proven difficult for
AMS to collect this information in investigations, thus necessitating
the proposed disclosures to create records of these transactions.
Additionally, these disclosures, in particular the disclosures
regarding financial incentives and projected returns, would be highly
valuable to AMS and growers in identifying ACI instances or programs
that raise concerns relating to whether the grower, as a practical
matter, could refuse to participate in an ACI; whether the ACI was a
result of coercion, retaliation, or threats by the LPD; and whether the
grower can reasonably recoup the investment. For example, and as
discussed above, whether a grower has a reasonable opportunity to
recoup the cost of the investment depends on the financial incentives,
the projected returns, and the contract duration of the proposed ACI.
Similarly, the grower should understand whether, and to what degree,
relative performance in the tournament system determines whether the
grower will recoup the investment required by the ACI. If the fixed
portion of compensation is too low to cover the costs of the ACI,
recoupment would be unlikely as other growers adopted similar
improvements making the first grower's initially above-average
performance simply average over time. Under these circumstances, the
LPD (and not the growers) would obtain most or all of the benefit of
efficiency gains from grower investments.
This dynamic is an additional reason why a limitation on
comparison-based performance bonuses may be necessary. As discussed
above under proposed Sec. 201.106, after a referral from AMS to DOJ on
a potential P&S Act violation, DOJ in cooperation with USDA reached a
settlement in 2022 which limited the proportion of comparison-based
performance compensation to 25% of base-plus-comparison total
compensation (i.e., compensation from the guaranteed base pay rate plus
compensation from comparison-based bonuses). Other forms of performance
pay were not affected, such as non-comparison-based bonuses that
rewarded or incentivized performance, including to invest in more
efficient technology.\43\ As noted above, based on the facts and
circumstances AMS is engaged in a case-by-case enforcement strategy
with respect to whether performance bonuses in the tournament system
can be unfair, and the existence of an ACI may affect AMS's
assessment--though we have requested information under the questions to
proposed Sec. 201.106 to assess whether alternative strategies are
more apt. In sum, conducting the analysis necessary to determine
compliance under the Act is challenging today--especially for the
grower, but also for AMS. AMS has noted limitations in the records
available to conduct those analyses, especially on the timely basis
necessary to protect growers being asked to enter into potentially
illegal ACIs or otherwise difficult contracting decisions.
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\43\ Wayne-Sanderson DOJ Consent Decree, June 25, 2022,
available at <a href="https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy">https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decrees-end-long-running-conspiracy</a>.
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Section 201.112(b)(7) would require that LPDs include in the
Disclosure Document a statement, the text of which is provided in
paragraph (b)(7). The statement includes the disclosure that the
Disclosure Document has not been reviewed by USDA, and that false and
misleading statements or material omissions may be violations of State
and/or Federal laws. The statement also indicates that violations of
Federal and State laws may be determined to be unfair, unjustly
discriminatory, or deceptive and unlawful under the P&S Act, as
amended. AMS does not intend for the proposed Disclosure Document to be
a means by which LPDs may waive any unfairness provisions in law or
regulation. AMS maintains that a determination of unfairness is
dependent on a facts and circumstances analysis of each case. The
required statement also includes Packers and Stockyard Division contact
information that growers can use to report violations and other
concerns. Lastly, the statement provides website contact information
for those seeking additional information on rights and responsibilities
under the P&S Act.
Compliance with Sec. 201.112 would require LPDs to include the
information and topics described in Sec. 201.112(b)(1) through (7) in
the Disclosure Document and provide that document to growers when
requesting an ACI.
Enforcement could occur in several ways. Growers could contact AMS-
PSD to submit a complaint regarding an alleged violation of Sec.
201.112. PSD would investigate, which could lead to referral to DOJ for
appropriate action or, where failure to pay is implicated, USDA
enforcement through administrative action.\44\ As necessary
[[Page 49025]]
for compliance enforcement or during investigations, AMS would review
Disclosure Documents to ensure completeness. Injured individuals would
also have a right to proceed in Federal court.
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\44\ Additional information on reporting violations of the P&S
Act can be found here: <a href="https://www.ams.usda.gov/services/enforcement/psd/reporting-violations">https://www.ams.usda.gov/services/enforcement/psd/reporting-violations</a> (last accessed 11/13/2023).
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C. Questions
AMS specifically invites comments on various aspects of the
proposal as described above. Please fully explain all views and
alternative solutions or suggestions, supplying examples and data or
other information to support those views where possible. Parties who
wish to comment anonymously may do so by entering ``N/A'' in the fields
that would identify the commenter. While comments on any aspect of the
proposed rule are welcome, AMS specifically solicits comments on the
following:
1. Do the Capital Improvement Disclosure Document provisions of the
proposed rule assist growers in identifying and appropriately
addressing concerns that growers have expressed relating to ACIs? If
so, why? If not, what ways can it better do so?
2. Are there specific ACI-related programs or other related conduct
that LPDs engage in that are not solved by the proposed disclosures? If
so, identify the conduct and whether additional disclosures,
presumptions, or prohibitions would effectively address the harms from
the conduct. Please explain both the problematic programs/conduct and
any harms in detail.
3. What considerations, if any, should AMS take into account with
respect to the timing, delivery, or readability with respect to the
Disclosure Document? For example, should AMS include a provision
requiring that LPDs, at the time they deliver the Disclosure Document
to the grower, make reasonable efforts to assist the grower in
translating the Disclosure Document and to ensure that growers are
aware of their right to request such translation assistance?
4. Should proposed Sec. 201.112(b)(5), which requires LPDs to
disclose required or approved manufacturers or vendors, also require
the disclosure of any material financial benefits that the LPD, or any
officer, director, employee or family member of any such person,
receives from the use of the required or approved vendor? If so, please
explain why for each party recommended to be covered, including
examples and explanation where available.
5. Proposed Sec. 201.112(b)(6) does not include a specific format
for reporting projected returns. Should LPDs be required to follow a
specific format for the analysis required in Sec. 201.112(b)(6)? If
so, what individual components would be most usual to growers
contemplating ACIs?
6. What other disclosures should be required of LPDs when they
request or require broiler growers to make ACIs, and why? In
particular, are there other disclosures that could enhance the
Secretary's consideration of criteria in current regulations in Sec.
201.216?
7. What specific burdens or obstacles might LPDs face in complying
with this proposed rule? Would this require LPDs to substantially
modify their business model? What specific modifications would be
required and why?
8. Should disclosures or prohibitions be scaled based on the size
of the investment? If so, how and based on what scaling? If so, please
explain the reasons and implications for LPDs and growers?
9. What disclosures, forms, presumptions, or prohibitions could AMS
require or incentivize of an LPD to align the length of any contract
following an ACI with any debt that the grower undertook as part of the
ACI? In particular:
a. Should AMS establish a categorical presumption of unfairness
when the duration of the contract is shorter than the duration of the
loan or other similar requirement?
b. What other requirements or presumptions might be needed or
useful to design or enforce such a presumption? Should these relate,
for example, to a grower's assignment of payments from the LPD,
monitoring practices by the LPD of the grower's farm financial
circumstances, the timing of ACI programs with respect to the existing
loans that grower holds, or the 5-year turnover rate of growers for the
LPD?
c. To what extent might such a presumption give rise to disparate
treatment between growers based on the particular financial
circumstances of the farm, and if presented, how much those
circumstances be addressed?
d. Please provide as much specificity as possible in your responses
regarding why or why not to the above items, including examples and
data if possible.
10. Should AMS amend Sec. 201.216 to revise or include additional
criteria that may be considered as categorial presumptions of
unfairness or otherwise as violations of the Act? Please provide as
much specificity as possible in your responses regarding why or why
not, including examples and data if possible. In particular:
a. Should AMS revise or include as an additional requirement that
``A live poultry dealer shall not mandate an additional capital
investment unless the cost of the required additional capital
investment can reasonably be expected to be recouped by the poultry
grower''?
b. With respect to recoupment, how should AMS evaluate factors that
go into an analysis of ``reasonably be expected,'' such as: the costs
of investments at a local complex; any variation between growers; the
duration of likely borrowing by growers: the contractual terms
including guaranteed and not guaranteed compensation rates and flock
placements, etc.; and other factors including the extent to which they
are known to the LPD?
c. Should AMS set a standard or presumption for contracts in ACI
circumstances such that no less than 85, 90, or 100 percent of the
projected recoupment must come from compensation methods that are not
based on performance? If so, at which level and why?
11. Should AMS make the effective date for the provisions of this
proposed rule 180 days following publication of the final rule in the
Federal Register? If you recommend shorter or longer for some or all of
the provisions, please explain why.
VI. Severability (Proposed Sec. 201.290)
AMS is proposing to add new Sec. 201.290, ``Severability,'' to
subpart N of part 201 to ensure that if any provision of subpart N or
any component of any provision is declared invalid, or the
applicability thereof to any person or circumstances is held invalid,
it is AMS's intention that the validity of the remainder of this
subpart or the applicability thereof to other persons or circumstances
shall not be affected thereby with the remaining provision, or
component of any provision, to continue in effect. Such a provision is
typical in AMS regulations that cover several different topics and is
included here as a matter of housekeeping.
This rulemaking proposes to add three new sections to subpart N to
address different harms common in the broiler production industry: lack
of payment transparency in boiler growing arrangements, unfairness in
tournament operations, and lack of disclosure from LPDs regarding ACIs.
Each of these provisions can operate independently in the absence of
the others. Conduct that violates one provision is not dependent on
protections put in place by other sections. For example, if an LPD
discounts the rate of compensation provided in a broiler grower
arrangement in violation of proposed Sec. 201.106, the Agency would
remain able to enforce this provision even if the provision requiring
the fair operation of
[[Page 49026]]
broiler growing ranking systems (Sec. 201.110) were struck down. These
are not inextricably connected regulations: Sec. 201.110 focuses on
establishing a fair comparison among growers in a tournament, while the
focus of Sec. 201.106 is prohibiting an LPD from reducing a grower's
rate of pay from that disclosed in the contract. As another example,
were the proposed provision regarding ACIs (proposed Sec. 201.112)
struck, AMS would still retain criteria under Sec. 201.216 to evaluate
whether required an ACI constitutes a violation of the P&S Act.
AMS intends for the proposed severability provision to operate to
the fullest extent possible. For example, under Sec. 201.110(b)(1),
``Policies and procedures,'' if the comparison flexibility requirement
in paragraph (b)(1)(iii) is severed, this does not necessarily negate
the benefits or make unenforceable the other processes requirements
contained in paragraphs (b)(1)(i) (inputs under LPD control), (ii)
(flock production practices under LPD control), and (iv) (communication
and cooperation). In other words, if the benefits of a section in
subpart N remain intact without the unenforceable provision, AMS's
intent is to retain the enforceable provisions of the section. AMS
notes that this discussion is illustrative and not exhaustive.
VII. Regulatory Notices and Analyses
A. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
chapter 35), AMS has requested OMB approval of new information
collection and recordkeeping requirements related to this proposed
rule. AMS invites comments on this new information collection. All
comments received on this information collection will be summarized and
included in the final request for OMB approval. Below is summary
information on the burdens of these new information collection and
recordkeeping requirements. Additional detail can be found in the
Regulatory Impact Analysis (RIA). Comments on this section or the
details in the RIA will be considered in the final rule analysis.
Title: Poultry Growing Tournament Systems: Fairness and Related
Concerns.
OMB Number: 0581-NEW.
Expiration Date of Approval: This is a NEW collection.
Type of Request: Approval of a New Information Collection.
Abstract: The information collection requirements in this request
are essential to improve transparency and forestall deception and
unfairness in the use of broiler growing arrangements, in accordance
with the purposes of the Packers and Stockyards Act, 1921. Proposed
revisions to the Packers and Stockyards regulations would require that
live poultry dealers (LPDs) establish, maintain, and review written
documentation regarding their processes for the design and operation of
a poultry grower ranking system that is consistent with the LPD duty of
fair comparison, and provide information disclosures to growers when
requesting that growers make additional capital investments. Under the
proposal, LPDs would develop and document policies and procedures to
meet a duty of fair grower comparison in tournaments and prepare
written reports based on internal reviews of compliance conducted not
less than once every two years. All LPD documentation will be provided
to USDA on request, maintained for no less than five years, and used
for ongoing internal compliance activities. The proposed rulemaking
would also require that LPDs provide a Capital Improvement Disclosure
Document to growers at times when LPDs request that growers make
additional capital investments.
The estimates provided below apply only to LPDs that would be
required to provide the information to growers or create documentation
for internal use and review. Poultry growers would not be required to
provide information but would be able to use the information provided
by LPDs to analyze additional capital investment decisions.
Operation of Broiler Grower Ranking Systems Under Sec.
201.110(b)(1)(i) Through (iii) and (b)(2)
Estimate of Burden: Public burden for this collection of
information is estimated to average 301.89 hours per response (first
year), 220.66 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 188.
Estimated Number of Responses per Respondent: 4.
Estimated Total Annual Burden on Respondents: 56,756 hours in the
first year, and 41,484 hours per year thereafter.
Communication and Cooperation Under Sec. 201.110(b)(1)(iv)
Estimate of Burden: Public burden for this collection of
information is estimated to average 45.24 hours per response (first
year), 16.00 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 42.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 1,900 hours in the
first year, and 672 hours per year thereafter.
Broiler Grower Capital Improvement Disclosure Document Under Sec.
201.112
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 0.53 hours per response (first
year), 0.53 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 990.
Estimated Number of Responses per Respondent: 24.
Estimated Total Annual Burden on Respondents: 526 hours in the
first year, and 526 hours per year thereafter.
Comments: Comments are invited on: (1) Whether the proposed
collection of the information is necessary for the proper performance
of the functions of the Agency, including whether the information will
have practical utility; (2) the accuracy of the Agency's estimate of
the burden of the proposed collection of information; (3) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) ways to minimize the burden of the collection of
information on those who are to respond; including through the use of
appropriate automated, electronic, mechanical, or other technological
collection techniques or other forms of information technology.
AMS estimates that 42 LPDs would each establish, maintain, and
review documentation of written processes designed to operate a poultry
grower ranking system that is consistent with a duty of fair comparison
as required under proposed Sec. 201.110.\45\ AMS arrived at its
estimate that four (4) responses would be produced per LPD in complying
with new requirements for broiler tournament fairness policies and
procedures by dividing the 188 broiler plants (or complexes) indicated
in the fiscal year 2021 Annual Report filed by 42 LPDs wi
[…truncated; see source link]Indexed from Federal Register on June 10, 2024.
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