Proposed Rule2024-14042
Fair and Competitive Livestock and Poultry Markets
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Published
June 28, 2024
Issuing agencies
Agriculture DepartmentAgricultural Marketing Service
Abstract
The United States Department of Agriculture's (USDA or Department) Agricultural Marketing Service (AMS) proposes to amend the regulations under the Packers and Stockyards Act of 1921 (the P&S Act or the Act) to clarify the unfair practices that the P&S Act prohibits. The proposed rule would define unfair practices as conduct that harms market participants and conduct that harms the market. Combined, these comprehensively define the contours of "unfair practices" under the P&S Act. The purpose of this proposed rule is to promote fair and competitive markets in the livestock, meats, poultry, and live poultry markets.
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[Federal Register Volume 89, Number 125 (Friday, June 28, 2024)]
[Proposed Rules]
[Pages 53886-53911]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14042]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 /
Proposed Rules
[[Page 53886]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-21-0046]
RIN 0581-AE04
Fair and Competitive Livestock and Poultry Markets
AGENCY: Agricultural Marketing Service, Department of Agriculture.
ACTION: Proposed rule.
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SUMMARY: The United States Department of Agriculture's (USDA or
Department) Agricultural Marketing Service (AMS) proposes to amend the
regulations under the Packers and Stockyards Act of 1921 (the P&S Act
or the Act) to clarify the unfair practices that the P&S Act prohibits.
The proposed rule would define unfair practices as conduct that harms
market participants and conduct that harms the market. Combined, these
comprehensively define the contours of ``unfair practices'' under the
P&S Act. The purpose of this proposed rule is to promote fair and
competitive markets in the livestock, meats, poultry, and live poultry
markets.
DATES: Comments must be received by August 27, 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. AMS strongly prefers comments be submitted electronically.
However, written comments may be submitted (i.e., postmarked) via mail
to Docket No. AMS-FTPP-21-0046, S. Brett Offutt, Chief Legal Officer,
Packers and Stockyards Division, USDA, AMS, FTPP; Room 2097-S, Mail
Stop 3601, 1400 Independence Ave. SW, Washington, DC 20250-3601. All
comments submitted in response to this proposed rule will be included
in the record and will be made available to the public. Please be
advised that the identity of individuals or entities submitting
comments will be made public on the internet at the address provided
above. Parties who wish to comment anonymously may do so by entering
``N/A'' in the fields that would identify the commenter. Pursuant to 5
U.S.C. 553(b)(4), a plain language summary of this proposed rule is
available on <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#20730e62524554540e6f464655545460555344410e474f56"><span class="__cf_email__" data-cfemail="efbcc1ad9d8a9b9bc1a089899a9b9baf9a9c8b8ec1888099">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Authority
II. Purpose of This Rulemaking
A. Unfair Practices and Prior Rulemakings
B. Statutory Language of the Act
C. Legislative History of the Act
D. Court Decisions
III. The Proposed Rule
A. Proposed Sec. 201.308(a) and (b)
B. Evaluation of Potential Injury to Market Participants
C. Proposed Sec. 201.308(c) and (d)
D. Evaluation of Potential Injury to the Market
E. Contracts
F. Protected Parties
IV. Severability
V. Request for Comments
VI. Regulatory Analysis
A. Paperwork Reduction Act
B. Executive Orders 12866, 13563, and 14094
C. Regulatory Impact Analysis
D. Regulatory Flexibility Analysis
E. Executive Order 13175--Consultation and Coordination With
Indian Tribal Governments
F. Executive Order 12988--Civil Justice Reform
G. Civil Rights Impact Analysis
H. E-Government Act
I. Unfunded Mandates Reform Act
I. Authority
Section 407 of the Act (7 U.S.C. 228) provides that the Secretary
``may make such rules, regulations, and orders as may be necessary to
carry out the provisions of this Act.'' The Secretary has delegated the
responsibility for administering the P&S Act to AMS. Within AMS, the
Packers and Stockyards Division (PSD) of the Fair-Trade Practices
Program has responsibility for the day-to-day administration of the
Act. The current regulations implementing the Act are found in title 9,
part 201, of the Code of Federal Regulations (CFR). Based on the
authority Congress delegated to the Secretary to administer the P&S
Act, AMS is proposing this rule to amend 9 CFR part 201 to specify the
practices that are unfair and in violation of the P&S Act.
Prior to this rulemaking, the decisions of USDA's Judicial
Officer,\1\ acting for the Secretary, have comprised the bulk of USDA's
interpretation of the meaning of ``unfair'' under the P&S Act, and the
Judicial Officer's final decisions have the same force as
regulation.\2\ Those decisions make clear that ``harm to competition
can be proven by showing harm to competitors; . . . the Packers and
Stockyards Act does not require that the person harmed be a direct
competitor of the person causing the harm, viz., it would be a
violation of the Packers and Stockyards Act if it were shown that a
packer caused harm, which the Packers and Stockyards Act is designed to
prevent . . . .'' \3\ Although, the Federal courts have not expressly
rejected the Judicial Officer's overall interpretation of the Packers
and Stockyards Act, courts have inconsistently applied the Judicial
Officer's decisions. As a result, AMS proposes this regulation to
provide a clear interpretation and promote consistency and
predictability in its application of the law.
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\1\ The position of Judicial Officer was established pursuant to
the Act of April 4, 1940 (7 U.S.C. 450c-450g); Reorganization Plan
No. 2 of 1953, 18 FR 3219 (1953), reprinted in 5 U.S.C. app. at 1490
(1994); and sec. 212(a)(1) of the Department of Agriculture
Reorganization Act of 1994 (7 U.S.C. 6912(a)(1)).
\2\ See, e.g., City of Arlington, Tex. v. F.C.C., 668 F.3d 229,
240 (5th Cir. 2012), aff'd, 569 U.S. 290 (2013) (``It is well-
established that agencies can choose to announce new rules through
adjudication rather than rulemaking.'' (citing NLRB v. Bell
Aerospace Co., 416 U.S. 267, 294 (1974))); Mobil Exploration &
Producing N. Am., Inc. v. FERC, 881 F.2d 193, 198 (5th Cir.1989);
see also Sec. & Exch. Comm'n v. Chenery Corp., 332 U.S. 194, 207
(1947) (``The scope of our review of an administrative order wherein
a new principle is announced and applied is no different from that
which pertains to ordinary administrative action.'').
\3\ In re: IBP, Inc., 57 Agric. Dec. 1353 (U.S.D.A. July 31,
1998).
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[[Page 53887]]
II. Purpose of This Rulemaking
Congress enacted the P&S Act, 7 U.S.C. 181 et seq., to promote
fairness, reasonableness, and transparency in the livestock, meat, and
poultry marketplace by prohibiting practices contrary to these goals.
Enacted in 1921 ``to comprehensively regulate packers, stockyards,
marketing agents and dealers,'' \4\ the Act, among other things,
prohibits actions that hinder integrity and competition in the
livestock, meat, and poultry markets. Section 202(a) of the Act states
that it is unlawful for any packer, swine contractor, or live poultry
dealer to ``[e]ngage in or use any unfair, unjustly discriminatory, or
deceptive practice or device.'' \5\
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\4\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498
F.2d 925, 927 (10th Cir. 1974).
\5\ 7 U.S.C. 192(a).
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Congress granted rulemaking and enforcement authority to USDA to
ensure that appropriate competitive and fair trade and market
protections are afforded to those participating in agricultural
activities pertaining to livestock, meat, and poultry.\6\ To date, USDA
has largely left these determinations to a case-by-case analysis. Court
decisions interpreting this statute, however, have not been consistent
with respect to the evidence needed to establish, and the legal
standard that applies to, unlawful unfair practices under section
202(a) of the Act, particularly as to whether competitive injury is a
requirement and what the term ``unfair practice or device'' means. This
proposed rule, therefore, seeks to clarify what falls under the scope
of unfair practice or device.
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\6\ See section 407 (7 U.S.C. 228(a)): ``The Secretary may make
such rules, regulations, and orders as may be necessary to carry out
the provisions of this chapter. . .''. Congress understood it was
giving the Secretary ``the power to prevent packers, stockyards,
companies, and all persons in the stockyards from engaging in
unfair, unjustly discriminatory or deceptive practices or devices.''
Report of the House Committee on Agriculture, H.R. Rep. No. 77 67th
Congress, 1st session at pg. 2 (May 18, 1921). When amending the
statute in 1987, this authority with respect to live poultry dealers
was explained: ``the Packers and Stockyards Administration will
retain jurisdiction as the act currently provides. These
transactions include things like weighing practices and contract
compliance.'' 133 Cong. Rec. H9000-02, 133 Cong. Rec. H9000-02,
H9002, 1987 WL 850252.
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From the plain language of the text, section 202 of the Act is
broader than the antitrust laws and does not necessarily require harm
to competition as that term is understood under the antitrust laws. The
term ``unfair'' applies to conduct that harms the market
(anticompetitive harm) and conduct that harms market participants
(market abuse), similar to section 5 of the Federal Trade Commission
Act, which prohibits both unfair methods of competition and unfair and
deceptive acts or practices. Based on the text of section 202,
legislative history, and both agency and judicial decisions, this
proposed rule defines the term unfair. Those definitions draw on
longstanding understandings of the term unfair both under the Act as
well as the related Federal Trade Commission Act. The proposed rule
also clarifies that the statute addresses conduct in its incipiency,
does not require proof of actual harm, nor does it require proof of
predatory intent.
USDA recognizes that some courts have recently required proof of
competitive injury before finding that conduct is unfair. Those courts
were not offered an alternative definition for unfair, which this
rulemaking would propose. A competitive injury requirement cannot be
imposed in a way that abrogates part of a statute. To the degree
requiring a ``competitive injury'' precludes finding conduct is unfair
when it satisfies criteria in the proposed rule, such a requirement
would unduly limit the reach of section 202(a) and is improper.
Moreover, the statute and P&S Act case law make plain that competitive
injury under the P&S Act is broader than harm to competition under the
antitrust laws. To the extent that ``competitive injury'' is shorthand
for the scope of harm section 202 reaches, competitive injury as
understood under the P&S Act should include both harms to the market
and harms to market participants as defined in the proposed rule.
A. Unfair Practices and Prior Rulemakings
Section 202(a) of the Act prohibits any unfair practice or device.
The Act does not, however, specify what those practices and devices
are, and in section 228(a), Congress has granted to the Secretary the
authority to interpret and apply the Act to effectuate its purposes.
Under the Act, this authority includes complete supervisory and
regulatory power, which includes, inter alia, ``the power to prevent
packers . . . from engaging in unfair, unjustly discriminatory or
deceptive practices or devices.'' \7\ USDA has consistently viewed the
Act as prohibiting both market abuses (unfair trade practices) and
competitively unfair conduct or unreasonable acts and practices
(including anticompetitive conduct) owing to the adverse impact both
have on the fair functioning of the marketplace and the importance of
ensuring that producers can obtain the full value of their livestock
and poultry despite economic power imbalances.\8\
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\7\ H.R. Rep. no. 67-77 at 2 (1921).
\8\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' chapter 3, Washington Center for Equitable Growth, May 5,
2022, <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>. (The report provides the
following acknowledgement: ``A U.S. Department of Agriculture-
Washington Center for Equitable Growth cooperative agreement
supported the research and writing of this report. The findings and
conclusions in this report are those of the author and should not be
construed to represent any official U.S. Department of Agriculture
or U.S. government determination or policy.'').
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The Department has consistently interpreted unfair practices--and
thus applied the Act--to protect producer welfare and advance fair-
trade practices in the livestock, meat, and poultry industries. The
Department's policy on unfair practices has not changed throughout the
course of its enforcement of the Act.
In 2010, the Department issued a proposed rule that was never
finalized (``2010 proposed rule''). The 2010 proposed rule was broader
in scope than this proposed rule. It addressed undue or unreasonable
preference or advantage; undue or unreasonable prejudice or
disadvantage; criteria related to reasonable notice of a suspension of
the delivery of birds under a poultry growing arrangement; when a
requirement of additional capital investments over the life of a
poultry growing arrangement or swine production contract constitutes a
violation of the P&S Act; and whether a packer, swine contractor or
live poultry dealer has provided a reasonable period of time for a
grower or a swine producer to remedy a breach of contract that could
lead to termination of the growing arrangement or production contract
(75 FR 35338; June 22, 2010). As it relates to the scope of this
proposed rulemaking, the preamble to the 2010 proposed rule stated that
``Section 202(a) of the P&S Act prohibits `any unfair, unjustly
discriminatory, or deceptive practice.' '' The preamble also stated
that ``USDA has consistently taken the position that, in some cases, a
violation of section 202(a) or (b) can be proven without proof of
predatory intent, competitive injury, or likelihood of injury.'' \9\
But the USDA ``always understood that an act or practice's effect on
competition can be relevant and, in certain circumstances, even
dispositive[.]'' The proposed regulation attempted to define
competition, and proposed a series of specific violations of the Act
including: ``Any act that causes competitive injury
[[Page 53888]]
or creates a likelihood of competitive injury.''
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\9\ 75 FR 35338, 35340 (June 22, 2010).
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The 2010 proposed rule was never finalized due to a series of
appropriations riders from fiscal years 2012 through 2015 that
prevented the Department from working on rules related to the subjects
covered in the 2010 proposed rule.
In 2016, the Department issued an interim final rule that, in
relevant part, addressed the scope of section 202(a) and (b) of the P&S
Act (``2016 IFR''). The 2016 IFR published what had been issued as the
2010 proposed rule with slight modifications. However, the 2016 IFR
reiterated ``USDA has consistently taken the position that, in some
cases, a violation of section 202(a) or (b) can be proven without proof
of predatory intent, competitive injury, or likelihood of competitive
injury.'' (81 FR 92556, 92567; December 20, 2016). The 2016 IFR
preamble also stated that ``USDA has always understood that an act or
practice's effect on competition can be relevant and, in certain
circumstances, even dispositive with respect to whether an act or
practice violates sections 202(a) and/or (b).'' The 2016 IFR did not
define competition or describe when harm to competition would not be
required.
In 2017, following a change in administration, finalization of the
2016 IFR was delayed, and ultimately withdrawn (82 FR 48594; October
18, 2017). The 2016 IFR was withdrawn on the grounds that USDA believed
that specific rule would not have effectively addressed court decisions
in several U.S. Courts of Appeals, that the courts would not have
deferred to it, and that the ``good cause'' justification for
dispensing with notice and comment was inadequate. At that time, the
Department further determined that ``[p]rotracted litigation to both
interpret this regulation and defend it serves neither the interests of
the livestock and poultry industries nor GIPSA.'' \10\ The 2017
withdrawal did not alter the longstanding position of USDA articulated
in the 2010 proposed rule and again in the 2016 IFR.\11\ Nor did the
withdrawal announce a policy against regulation in general.
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\10\ Scope of section 202(a) and (b) of the Packers and
Stockyards Act, 82 FR 48594, 48597 (Oct. 18, 2017).
\11\ 82 FR 48594, 48596 (Oct. 18, 2017) (``The purpose of the
IFR was to clarify that conduct or actions may violate 7 U.S.C.
192(a) and (b) without adversely affecting, or having a likelihood
of adversely affecting, competition. This reiterated USDA's
longstanding interpretation that not all violations of the P&S Act
require a showing of harm or likely harm to competition. Contrary to
comments that GIPSA failed to show that USDA's interpretation was
longstanding, USDA has adhered to this interpretation of the P&S Act
for decades. DOJ has filed amicus briefs with several Federal
appellate courts arguing against the need to show the likelihood of
competitive harm for all violations of 7 U.S.C. 192(a) and (b).''
(footnotes omitted)).
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The current proposed rule is less about a judicial debate over
competitive injury and instead would establish a more workable standard
for USDA to consistently apply in its own administrative hearings and
investigations, which in turn would provide a standard that the public
can more easily understand. And the current rule is being issued
through notice and comment. Thus, AMS does not believe that the same
concerns that prompted withdrawal of the 2016 IFR apply to this
proposal.
In sum, it has always been USDA's position that it is not necessary
in every case to demonstrate competitive injury in order to show a
violation of section 202(a). But USDA has also consistently recognized
that any act or practice that harms or is likely to harm competition
also violates the statute.\12\ This proposed rule provides a basis for
the public to understand precisely how USDA would apply the statute to
both categories of harms.
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\12\ See id. at 92568.
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B. Statutory Language of the Act
The P&S Act's language and structure support USDA's longstanding
position on section 202(a) and (b), as well as USDA's position on the
Act's legislative history and purposes. Congress drafted section 202(a)
to reach a range of unfair practices and devices, such as
anticompetitive practices, market abuses, or other distortions of the
competitive process.\13\ Congress proscribed ``unfair'' practices
without limitation, using terms like section 202's proscription of
``deceptive'' and ``unjust'' conduct commonly understood then and now
to encompass more than conduct causing competitive injury.\14\ Congress
confirmed this plain meaning by amending the P&S Act to add specific
instances of conduct prohibited as unfair that do not involve any
inherent likelihood of competitive injury.\15\
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\13\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' chapter 3, Washington Center for Equitable Growth, May 5,
2022, <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>. quoting, inter alia,
Herbert Hovenkamp, ``Does the Packers and Stockyards Act Require
Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn Law,
2011), available at <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a>.
\14\ When the P&S Act was enacted, Webster's New International
Dictionary defined ``unfair'' as ``[n]ot fair in act or character;
disingenuous; using or involving trick or artifice; dishonest;
unjust; inequitable'' (2d. definition); ``unjust'' as
``[c]haracterized by injustice; contrary to justice and right;
wrongful''; ``undue'' as ``[n]ot right; not lawful or legal;
violating legal or equitable rights; improper'' (2d. definition);
and ``unreasonable'' as ``[n]ot conformable to reason; irrational''
or ``immoderate; exorbitant.'' Webster's New International
Dictionary 578, 2237, 2238, 2245, 2248 (1st ed. 1917). This is the
same understanding of the terms today.
\15\ See sections 409, 410.
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Unlike with other provisions of section 202, Congress chose not to
limit section 202(a) and (b) to specific types of competitive injuries
identified in other sections of the Act.\16\ While section 202(c)
through (f) include provisions that address particular competitive
injuries--such as where a practice has the tendency, effect, or purpose
of ``creating a monopoly'' or ``restraining commerce''--those
limitations are absent from section 202(a) and (b).\17\ This difference
confirms that section 202(a) and (b) do not require a showing of
competitive injury for such conduct.\18\
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\16\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' chapter 3, Washington Center for Equitable Growth, May 5,
2022, <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>, quoting, inter alia,
Herbert Hovenkamp, ``Does the Packers and Stockyards Act Require
Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn Law,
2011), available at <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a>.
\17\ More specifically, subsection (c) reaches certain sales
that apportion supply ``if such apportionment has the tendency or
effect of restraining commerce or of creating a monopoly.''
Subsection (d) reaches sales and other transfers wherein parties
``receive from or for any other person, any article for the purpose
or with the effect of manipulating or controlling prices, or of
creating a monopoly in the acquisition of, buying, selling, or
dealing in, any article, or of restraining commerce. Subsection (e)
reaches a course of business or any act with ``the purpose or with
the effect of manipulating. or controlling prices, or of creating a
monopoly in the acquisition of, buying, selling, or dealing in, any
article, or of restraining commerce.''
\18\ Department of Homeland Sec. v. MacLean, 135 S. Ct. 913, 919
(2015), citing Russello v. United States, 464 U.S. 16, 23 (1983):
``Congress generally acts intentionally when it uses particular
language in one section of a statute but omits it in another.''
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Moreover, Congress has amended the P&S Act to confirm the
Department's longstanding view that there are specific instances of
conduct that are prohibited as ``unfair'' that do not involve any
inherent likelihood of competitive injury.\19\ In 1976, Congress
confirmed that failing to pay, when due, for livestock and meats was an
``unfair practice'' under the P&S Act, and it did not require any harm
to competition to be a violation of section 202(a).
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\19\ See, e.g., secs. 409 and 410 of the P&S Act.
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The prevailing interpretation of section 312 of the P&S Act, which
uses similar language, further confirms USDA's interpretation of
section 202(a).
[[Page 53889]]
Courts have recognized that the proper analysis under this provision
depends on ``the facts of each case,'' \20\ and that these sections may
apply in the absence of competitive injury.\21\
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\20\ Capitol Packing Company v. United States, 350 F.2d 67, 76
(10th Cir. 1965); see also Spencer Livestock Comm'n Co. v. USDA,
1988.
\21\ Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 1454
(9th Cir. 1988): section 312 covers ``a deceptive practice, whether
or not it harmed consumers or competitors.''
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Furthermore, even with respect to subsections of the Act that do
focus on competitive harm, the text of those subsections indicates that
competitive harm under the P&S Act goes beyond the types of competitive
injuries cognizable under Federal antitrust laws.\22\ For example,
section 202(d) through (f) unambiguously apply to market injuries that
the antitrust laws often do not reach--such as price manipulation,
where a single-firm practice ``manipulat[es] or control[s] price'' or
otherwise restrains trade, irrespective of conspiracy. These
prohibitions in the relevant subsections are each embedded within
``or'' clauses that otherwise cover prohibitions that are squarely
about anticompetitive conduct cognizable under Federal antitrust laws.
Further, section 202(a) and (b) must cover conduct not covered by
section 202(d) through (f) or section 202(a) and (b) would be
superfluous. The presence of all of these provisions in the P&S Act
shows, at a minimum, the regulatory scheme for fair competition under
the P&S Act is broader than competitive injury under the Federal
antitrust laws and at least as broad as section 5 of the Federal Trade
Commission Act.\23\ And, when compared to antitrust statutes, the P&S
Act, like section 5 of the Federal Trade Commission Act (FTC Act),
covers incipient threats to competition and potential injuries to
market participants. In addition, the P&S Act's remedial purposes
prohibit incipient violations of the P&S Act even if the practice has
no potential anti-competitive or impact on markets at all.\24\
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\22\ In particular see the FTC Act (15 U.S.C. 41 et seq.),
Sherman Antitrust Act (15 U.S.C. 1 et seq.), and the Clayton
Antitrust Act (15 U.S.C. 12 et seq.).
\23\ See Fed. Trade Comm'n, Policy Statement Regarding the Scope
of Unfair Methods of Competition Under Section 5 of the FTC Act, 9
(Nov. 10, 2022) (discussing competitive injuries cognizable under
section 5 of the FTC Act that are not cognizable under the Sherman
or Clayton Act); Been v. O.K. Indus., Inc., 495 F.3d 1217, 1241
(10th Cir. 2007) (Hartz, J. concurring) (``[I]t would be somewhat
surprising if `unfair practices' under the PSA had a narrower
meaning than `unfair methods of competition' in the FTCA.'').
\24\ See, e.g., Bowman v. United States Dep't of Agric., 363
F.2d 81, 85 (5th Cir. 1966) (finding the Department's insolvency
standard was not an abuse of discretion because it helps to prevent
the unfair practice of late payment).
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In short, section 202(a) covers unfair conduct beyond harm to
competition, and where harm to competition is relevant, the P&S Act is
broader than the antitrust laws.
C. Legislative History of the Act
The legislative history and purposes of the P&S Act also support
USDA's interpretation of section 202(a) with regard to the role of
competitive injury. As the Supreme Court has stated, when interpreting
a statute, a provision ``must take meaning from its historical
setting.'' \25\
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\25\ United States v. Henning, 344 U.S. 66, 72 (1952).
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The genesis of the P&S Act predates its enactment by several
decades.\26\ On May 16, 1888, the U.S. Senate authorized an
investigation ``to determine whether there exists or has existed any
combination . . . on the part of those engaged in buying and shipping
meat products, by reason of which the prices of beef and beef cattle
have been so controlled or affected as to diminish the price paid the
producer without lessening the cost of meat to the consumer.'' \27\ In
1902, a bill of equity was filed by the United States to enjoin the
alleged conspiracy as a violation of the antitrust laws. In 1903, an
injunction was issued, which was sustained by the U.S. Supreme
Court.\28\ The dominance and unfair or unreasonable anticompetitive
conduct of the packers continued; on February 7, 1917, President Wilson
directed the Federal Trade Commission (FTC) to investigate and report
the facts with respect to the packing industry.\29\
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\26\ 10 N. Harl, Agricultural Law sec. 71.4. (1987), 71-4.
\27\ 61 Cong. Rec. 2614.
\28\ Swift & Co. v. United States, 196 U.S. 375 (1905).
\29\ Stafford v. Wallace, 258 U.S. 495 (1922).
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The FTC meat industry investigation found that, in 1916, the Big
Five \30\ (the five largest meatpackers) controlled the processing of
82 percent of cattle, 79 percent of calves, 87 percent of sheep, and 63
percent of swine in the U.S.\31\ The Big Five also controlled an
interlocking network of feed mills, stockyards, and transportation
infrastructure that supported the industry. As extensively documented
in an FTC report, those five packers used their market power to engage
in a range of practices to further entrench their dominance of the meat
industry.\32\ The FTC report documented a number of complaints by
producers that the U.S. Supreme Court summarized in the synopsis of the
case upholding the constitutionality of the P&S Act, including
excessive charges by stockyards for hay and other facilities, the
duplication of commissions by commission men and dealers, and
fraudulent reporting of livestock being crippled in transit, in
addition to suppression of competition through collusion.\33\
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\30\ The highly concentrated meatpacking industry of the early
20th century was controlled by the industry's ``Big Five'' operators
of Armour, Cudahy, Morris, Swift, and Wilson.
\31\ ``Annual Report for 1918,'' FTC, p. 23, <a href="https://www.ftc.gov/sites/default/files/documents/reports_annual/annual-report-1918/ar1918_0.pdf">https://www.ftc.gov/sites/default/files/documents/reports_annual/annual-report-1918/ar1918_0.pdf</a>.
\32\ Id.
\33\ Stafford at 501-502.
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Following the FTC's report, and before the passage of the signed a
consent decree in 1920.\34\ The decree enjoined the packers from
pursuing combinations to monopolize the purchase and control the price
of livestock and the sale and distribution of meat products, and from
being involved in other food sectors.\35\ In this way, the decree
sought to break the industry up vertically, underscoring the broad
approach of the P&S Act.
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\34\ United States v. Swift & Co., Equity No. 37623 (Sup. Ct. of
D.C. 1920); United States v. Swift & Co., 286 U.S. 106 (1932).
\35\ Id. at 399; see, generally, Michael C. Stumo & Douglas J.
O'Brien, ``Antitrust Unfairness vs. Equitable Unfairness in Farmer/
meat Packer Relationships,'' 8 Drake J. Agric. L. 91 (2003).
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After the consent decree, the Senate and House of Representatives
held extensive hearings on several bills to address problems related to
concentration and market domination in the meat industry, one of which,
H.R. 6320, eventually became the P&S Act of 1921.\36\
---------------------------------------------------------------------------
\36\ See 10 N. Harl, Agricultural Law sec. 71.2. (1987).
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The House of Representatives' report on the P&S Act stated, ``A
careful study of the bill, will . . . convince one that it and existing
laws, give the Secretary of Agriculture complete inquisitorial,
visitorial, supervisory, and regulatory power over the packers,
stockyards and all activities connected therewith; that it is the most
comprehensive measure and extends farther than any previous law in the
regulation of private business, in time of peace, except possibly the
Interstate Commerce Act.'' \37\ The Conference Report on the P&S Act
stated that: ``Congress intends to exercise, in the bill, the fullest
control of the packers and stockyards which the Constitution permits .
. .''.\38\
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\37\ House Report No. 67-77, at 2 (1921).
\38\ House Report No. 67-324, at 3 (1921).
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It was emphasized by Representative Samuel T. Rayburn (later
Speaker of the House of Representatives) that although Congress ``gave
the Federal Trade
[[Page 53890]]
Commission wide powers'' to prohibit unfair methods of competition, the
authority of the Commission at that time was not as broad as that given
to ``the Secretary of Agriculture under this bill,'' which became the
P&S Act.\39\
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\39\ 61 Cong. Rec. 1806. When the P&S Act was passed, the FTC
was authorized to prohibit only unfair methods of competition.
Congress later gave the FTC additional authority to police unfair
and deceptive acts or practices. See infra notes 53-57.
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Congress subsequently made clear, through further legislative
developments, that its goals for the statute extended beyond the
prohibition of anticompetitive conduct in the manner of the antitrust
laws. For instance, in a 1935 amendment adding live poultry dealers to
the coverage of section 202(a) and (b), Congress amended the text to
specify that ``[t]he handling of the great volume of live poultry . . .
is attendant with various unfair, deceptive, and fraudulent practices
and devices, resulting in the producers sustaining sundry losses and
receiving prices far below the reasonable value of their live poultry .
. . '' \40\ Similarly, the House Committee Report regarding 1958
amendments identified ``[t]he primary purpose'' of the P&S Act as
``assur[ing] fair competition and fair trade practices'' and
``safeguard[ing] farmers . . . against receiving less than the true
market value of their livestock.'' \41\ In accordance with this
legislative history, courts and commentators have, over a span
exceeding 70 years, recognized that although the purposes of the P&S
Act include proscribing anticompetitive conduct, they are not limited
solely to conduct that injures competition as understood in the
antitrust laws.\42\ Indeed, for these seven decades, USDA has regularly
maintained and enforced a wide range of fair trade rules and principles
including prompt payment, standardized weights and measures, sufficient
bonding and solvency, prohibitions on commercial bribery, and more.
These rules and enforcement mandates play important roles in protecting
market participants from abuse, and to that end, they proscribe conduct
that USDA has also viewed as distorting the competitive process within
the livestock, meat, and poultry markets.\43\ To that end, proscribing
abuses of market participants is integral to any effort to understand
``harm to competition'' under the P&S Act itself.\44\
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\40\ Public Law 74-272, 49 Stat. 648, 648 (1935).
\41\ H.R. Rep. No. 85-1048 (1957), reprinted in 1958
U.S.C.C.A.N. 5212, 5213 (emphasis added); see also, e.g., id. at
5213 (further observing that protection extends to ``unfair,
deceptive, unjustly discriminatory'' practices by ``small''
companies in addition to ``monopolistic practices.'').
\42\ See, e.g., Stafford, 258 U.S. at 513-14; Spencer Livestock,
841 F.2d 1451, 1455 (9th Cir. 1988); United States v. Perdue Farms,
Inc., 680 F.2d 277, 280 (2d Cir. 1982); Bruhn's Freezer Meats of
Chi., Inc. v. United States Dep't of Agric., 438 F.2d 1332, 1336-37
(8th Cir. 1971); Bowman v. USDA, 363 F.2d 81, 85 (5th Cir. 1966);
United States v. Donahue Bros., 59 F.2d 1019, 1023 (8th Cir. 1932).
\43\ See, e.g., In re: Central California Livestock, Inc. d/b/a
Machlin Meat Packing Company, 15 Agric. Dec. 97, 110 (1956).
\44\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth, May 5, 2022,
<a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
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Nor is the statutory history of the P&S Act monolithic: it was used
as a pattern for other laws as well, notably changes to the FTC Act.
When Congress passed the FTC Act in 1914, the statute prohibited only
unfair methods of competition, which was a then-new term of art with a
broad scope.\45\ In 1937, the Supreme Court in FTC v. Raladam Co. gave
a narrowing interpretation, holding that the FTC's unfairness authority
was limited to conduct causing competitive injury.\46\ Congress
disapproved of this interpretation, and in 1938 it passed the Wheeler-
Lea Act,\47\ which clarified the expansiveness of the FTC's unfairness
authority by specifying that it covers acts or practices that injure
consumers, regardless of whether the acts or practices may also injure
competition.
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\45\ American Airlines, Inc. v. North American Airlines, Inc.,
351 U.S. 79, 85 (1956); Fed. Trade Comm'n v. Motion Picture
Advertising Service Co., 344 U.S. 392, 394-95 (1953); Fed. Trade
Comm'n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 (1934).
\46\ FTC v. Raladam Co., 283 U.S. 643, 649 (1931). The Supreme
Court later relaxed this holding. FTC v. Raladam Co., 316 U.S. 149
(1942). See Luke Herrine, ``The Folklore of Unfairness,'' 96 N.Y.U.
L. Rev. 431, 465-66, 470-71 (2021).
\47\ The Wheeler-Lea Act, ch. 49 sec. 2, 52 Stat. 111 (1938);
Stephanie W. Kanwit, 1 Fed. Trade Comm'n. sec. 3:5 (2023-2024).
---------------------------------------------------------------------------
Notably, the Wheeler-Lea Act was modeled on the P&S Act,
specifically section 202(a)'s prohibition on unfair practices that
injure producers. When the FTC proposed the Wheeler-Lea Act, the FTC
pointed to the P&S Act as the precedent for its text.\48\ If it were
not enough that the FTC succeeded--that it persuaded Congress to pass
the Wheeler-Lea Act by relying on the P&S Act as precedent for
prohibiting unfair practices without a competitive injury requirement--
the 17 years of P&S enforcement prior to the Wheeler-Lea Act are
especially telling. During the period from 1921 to 1938, the Secretary
frequently found unfairness violations under section 202 that would not
have been ``unfair methods of competition'' under the narrowing gloss
the Supreme Court applied in Raladam--and that Congress subsequently
rejected by passing the Wheeler-Lea Act.
---------------------------------------------------------------------------
\48\ Charles Wesley Dunn, Wheeler-Lea Act: A Statement of its
Legislative Record 411, 418 (1938) (testimony of Ewin Davis, Chair,
FTC). The FTC did, however, propose an expansion of its authority to
include ``unfair acts in commerce'' in 1919, before the P&S Act was
proposed. High Cost of Living as Affected by Trust and Monopolies,
Hearings Before the H. Comm. on the Judiciary, 66th Cong., 1st Sess.
25-26 (1919).
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The design of the P&S Act's text, and the legislative history, thus
clearly reflect Congressional intent that the Act's unfairness
authority extend beyond unfair methods of competition.\49\ The Act
``was framed in language designed to permit the fullest control of
packers and stockyards which the Constitution permits, and its coverage
was to encompass the complete chain of commerce and give the Secretary
of Agriculture complete regulatory power over packers and all
activities connected therewith.'' \50\ It was hailed as a ``far-
reaching measure and extend[ing] further than any previous law into the
regulation of private business.'' \51\ If the existing antitrust laws
and the consent decree signed by the Big Five packers had been
sufficient to protect market participants from unfair practices,
Congress would not have passed the P&S Act.
---------------------------------------------------------------------------
\49\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth, May 5, 2022,
<a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
\50\ Bruhn's Freezer Meats of Chicago, Inc. v. USDA, 438 F.2d
1332, 1339 (8th Cir. 1971), citing H.R. Rep. No. 67-324 (1921); H.R.
Rep. No. 67-77 (1921).
\51\ 61 Cong. Rec. 1801 (1921), statement of Rep. Haugen; see
also Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 1961):
``The legislative history shows Congress understood the sections of
the [Act] under consideration were broader in scope than the
antecedent legislation,''' citing 61 Cong. Rec. 1805 (1921).
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The P&S Act's legislative history demonstrates Congress intended
the Act to cover a broader range of conduct than is covered by the
Sherman Act and Clayton Act. Congress intended to regulate practices
that would violate those two antitrust laws and practices that would be
unfair under the FTC Act, as well as the ``special mischiefs and
injuries inherent in livestock and poultry traffic.'' \52\
Particularities in the market structure and operation of the livestock,
meat, and poultry industries compelled Congress to create a statute
specific to them; to regulate fair trade practices among livestock and
poultry producers, stockyards, meat packers, swine contractors, and
live poultry dealers; and to ensure equal access to
[[Page 53891]]
markets.\53\ In these industries, a handful of firms owning a small
number of capital-intensive slaughter and meat processing plants
exercised substantial market power over thousands of producers spread
across rural communities.\54\ These conditions continue today and are
even more important in light of increased industry concentration. For
example, in 2019 the four-firm concentration ratio (the combined market
share of the four largest firms in the industry) was as follows: 53%
for broiler chickens, 55% for turkeys, 67% for hogs, and 85% for fed
cattle.\55\ These concentrated industries procure their poultry and
livestock for processing from a large number of unconcentrated farms
engaged in livestock and poultry production, including 14,144 farms
raising broilers under contract, 47,510 farms that sold hogs and pigs,
and 25,783 farms with cattle on feed in 2022.\56\
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\52\ See Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451,
1455 (9th Cir. 1988); Armour & Co. v. United States, 402 F.2d 712
(7th Cir. 1968).
\53\ Live Poultry Dealers were added to the Packers and
Stockyards Act in 1935 by 49 Stat. 648 (August 14, 1935), and most
recently modified in 1987 by 101 Stat. 917, Public Law 100-173
(November 23, 1987). Swine Contractors were added by amendment in
2002, 116 Stat. 134, Public Law 107-171 (May 13, 2002).
\54\ The imbalance of market power and size between producers,
growers, and concentrated processors is discussed in MacDonald, J.
M., Dong, X., & Fuglie, K. (2023). Concentration and competition in
U.S. agribusiness (Report No. EIB-256). U.S. Department of
Agriculture, Economic Research Service. <a href="https://doi.org/10.32747/2023.8054022.ers">https://doi.org/10.32747/2023.8054022.ers</a>.
\55\ Industry concentration is discussed in more detail below in
the Regulatory Impact Analysis section; additional four-firm
concentration data is provided in table 1 of that section.
\56\ USDA, National Agricultural Statistics Service, ``2022
Census of Agriculture: United States Summary and State Data,''
issued February 2024, tables 38, 24, and 71.
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Further, as held by the U.S. Court of Appeals for the Ninth
Circuit, the Act was intended to ``assure fair competition and fair
trade practices in livestock marketing.'' \57\ ``Fair competition'' is
consistent with the view of the P&S Act as a device for protecting
against not only Sherman and Clayton Act violations but also other
unfair methods of competition that tend to negatively affect market
conditions, embodied for example in the prohibitions in 202(d) and (e)
of the Act.\58\ However, ``fair trade practices'' has a different
connotation, going beyond practices that cause (or tend to cause)
competitive injury to include practices that harm market participants,
specifically producers, as well as other regulated entities and
consumers. This term invokes a standard of equitable unfairness, which
does not implicate market conditions, competition, efficiency, or
consumer welfare.\59\ USDA has long viewed keeping a marketplace free
from abusive conduct for participants as part and parcel of maintaining
a fair competitive landscape even if the unfair practice is directed at
only a few individuals or firms. To the extent that violations of P&S
Act section 202(a) require a showing of ``harm to competition'' under
the P&S Act, that would necessarily have to cover both competitively
unfair conduct and market abuses.
---------------------------------------------------------------------------
\57\ Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 1455
(9th Cir. 1988), citing H.R. Rep. No. 1048, 85th Cong., 2d Sess.,
reprinted in 1958 U.S. Code Cong. & Admin. News 5212, 5213.
\58\ 7 U.S.C. 192.
\59\ See Michael C. Stumo & Douglas J. O'Brien, ``Antitrust
Unfairness vs. Equitable Unfairness in Farmer/meat Packer
Relationships,'' 8 Drake J. Agric. L. 91 (2003); see, also Swift &
Co. v. United States, 308 F.2d 849, 853 (7th Cir. 1962) (noting that
the petitioner claimed that the P&S Act would be violated if its
practice was ``contrary to good morals because characterized by
deception, fraud, had faith or oppression[.]''). See also
interpretations of unfair practices in various Federal and State
contexts, such as the recent guidance by the U.S. Department of
Transportation 85 FR 78707 (2020). Other commentary concurs. See
Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth, May 5, 2022,
<a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>; Peter C. Carstensen, ``The Packers
and Stockyards Act: A History of Failure to Date,'' The CPI
Antitrust Journal (2) (2010), available at <a href="https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf">https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf</a>; Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn
Law, 2011), available at <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a>.
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D. Court Decisions
Courts for decades have made it clear that section 202 of the P&S
Act reaches beyond the antitrust laws.\60\ That is consistent with
USDA's approach to enforcement since the earliest days of the Act. As
discussed extensively in section III.A. below, USDA has enforced the
Act to prohibit a wide range of unfair practices that harm individual
market participants.\61\
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\60\ See, e.g., In re Pilgrim's Pride, 728 F.3d 457, 460 (5th
Cir. 2013): ``violations of the PSA are not strictly limited to the
traditional antitrust realms of price-fixing conspiracies and
monopolization''; Swift & Co. v. US, 393 F.3d 247, 253 (7th Cir.
1968): section 202's prohibitions ``are broader and more far-
reaching than the Sherman Act or even section 5 of the Federal Trade
Commission Act''; Swift & Co. v. US, 308 F.3d 849, 853 (7th Cir.
1962): section 202 is ``broader in scope than antecedent legislation
such as [the Sherman Act, section 2 of the Clayton Act, section 5 of
the FTC Act, and section 3 of the Interstate Commerce Act]''.
\61\ See, e.g., Michael Kades, ``Protecting Livestock Producers
and Chicken Growers,'' Washington Center for Equitable Growth, May
5, 2022; <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>; Peter C. Carstensen, ``The
Packers and Stockyards Act: A History of Failure to Date,'' The CPI
Antitrust Journal (2) (2010), available at <a href="https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf">https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf</a>; see also Herbert Hovenkamp, ``Does the Packers and Stockyards
Act Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at
Penn Law, 2011), available at <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a>.
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AMS has observed that rising market concentration and the growth of
vertical contracting in the late 1990s and early 2000s--including
insufficient USDA enforcement of the Act--led to increased private
actions under the P&S Act.\62\ Starting in the 1970s, Congress expanded
the Act to authorize private rights of action in Federal court, which
could be filed with respect to livestock starting in 1976, and with
respect to poultry starting in 1987.\63\ By the late 1990s and early
2000s, the Federal courts faced private cases making claims based on
alleged unfair practices. In the majority of these cases the Federal
courts did not rely upon the opinions of USDA's Judicial Officer, and
have come to conflicting conclusions about how to interpret section
202(a) and (b) of the Act.\64\ And indeed, notably commencing in 2005
with the Eleventh Circuit's decision in Pickett v. Tyson Fresh Meats,
Inc., a handful of Circuits have held that private litigants could
establish conduct is ``unfair'' in violation of section 202(a) only
with evidence that the behavior caused competitive injury as a
marketwide harm.\65\ The courts incorporating a competitive injury
requirement point to the P&S Act's ``antitrust origins,'' although
those courts also readily acknowledge that the P&S Act is broader than
the antitrust laws.
---------------------------------------------------------------------------
\62\ Peter C. Carstensen, ``The Packers & Stockyards Act: A
History of Failure to Date,'' The CPI Antitrust Journal (April
2010), available at <a href="https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf">https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf</a>; see also, generally, Leonard,
Christopher, ``The Meat Racket'' (2014); see also, e.g., C. Robert
Taylor, ``Legal and Economic Issues with the Courts' Rulings in
Pickett v. Tyson Fresh Meats, Inc., a Buyer Power Case,'' American
Antitrust Institute Working Paper No. 07-08, Feb. 2007, available at
<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103635">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103635</a> (last
accessed April 2024). See, e.g., IBP, Inc. v. Glickman, 187 F.3d
974, 978 (8th Cir. 1999).
\63\ Sec. 308, 7 U.S.C. 209; Sept. 13, 1976, 90 Stat. 1250,
Public Law 94-410; Nov. 23, 1987, 101 Stat. 918, Public Law 100-173.
\64\ See, generally, John Shively, ``Competition Under the
Packers and Stockyards Act: What Now?'' 15 Drake J. Agric. L. 419
(Fall 2010).
\65\ Wheeler v. Pilgrim's Pride Corp., 591 F.3d 355 (5th Cir.
2009) (en banc); Been v. O.K. Industries, Inc., 495 F.3d 1217 (10th
Cir. 2007); London v. Fieldale Farms Corp., 410 F.3d 1295 (11th Cir.
2005); Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272 (11th Cir.
2005).
---------------------------------------------------------------------------
Courts that apply a standard with a competitive-injury component,
however, are far from unanimous in their interpretation of the P&S
Act's prohibitions, generally, and of competitive injury, specifically.
The
[[Page 53892]]
Tenth Circuit has required competitive injury for unfairness but not
deception claims, while the Fifth and Sixth Circuit appear to require
``competitive injury'' even for deception claims. Similarly, although
the Tenth Circuit in Been v. O.K. Industries, Inc. adopted the
competitive injury requirement, it had previously found violations of
section 202 for failure to pay (Hays Livestock), market agent's loan to
packer, which was a conflict of interest, (Capitol Livestock), and
failing to disclose a change in grading system (Excel).\66\
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\66\ Even some decisions that have required competitive injury
define it more broadly than what might be required to establish
antitrust injury. See e.g., Wheeler, 591 F.3d at 370 n.5 (Jones, J.,
concurring) (regulation needed ``to curb practices that resulted in
producers receiving far below the reasonable value of their live
poultry''); id. at 370 (``the PSA was intended to prevent the abuse
of monopoly''); Been, 495 F.3d at 1234 (manipulation of prices
constitutes competitive injury).
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Some decisions seemingly apply a higher standard than what the
antitrust laws require. In Pickett, after a jury found that Tyson's
vertical supply restrictions adversely affected competition by
artificially reducing Tyson's purchase price for cattle, the court
required the plaintiff to further rebut Tyson's claimed countervailing
justifications in order to establish harm to competition. In London v.
Fieldale Farms Corp., the court invoked a Sherman Act standard in
holding that a plaintiff must show that the defendant's unfair,
discriminatory, or deceptive practice adversely affects or is likely to
adversely affect competition,\67\ but the case also quoted with
approval Armour& Co. v. United States,\68\ which held that a violation
of section 5 of the FTC Act--which is broader than the Sherman Act--
would be sufficient. As discussed below, section 5 reaches conduct that
does not violate the Sherman Act, and liability under section 5 does
not depend on demonstrable anticompetitive effects or proof of the
defendant's market power. The Act reaches practices ``not merely in
their fruition, but also in their incipiency'' if they ``could lead to
trade restraints and practices deemed undesirable'' and also ``conduct
which, although not a violation of the letter of the antitrust laws, is
close to a violation or is contrary to their spirit.'' \69\ In Been,
the court similarly required that the plaintiffs show that the
``specific practices have the effect of injuring competition or are
likely to do so,'' but then it went further, requiring more than courts
ordinarily require to prove even a Sherman Act violation. In Been,
plaintiffs had to show the practices resulted in both lower prices for
producers and higher prices for retail consumers.\70\ Finally, Wheeler
v. Pilgrim's Pride Corp. held that ``an anti-competitive effect is
necessary'' to prove a violation of section 202(a) of the P&S Act,
despite citing with approval Farrow v. U.S. Dep't of Agr.,\71\ where
the court held that harm to competition merely ``can be found''
sufficient to demonstrate violation of the P&S Act. Moreover, the
courts' varying interpretations of section 202(a)--including those that
have required competitive injury--apply inconsistent legal standards to
the evidence. Or, as it has been observed: ``courts' application of the
harm-to-competition test is inconsistent with their own antitrust rules
that they claim to be applying.'' \72\ Simply, ``harm to competition''
fails even its basic function as the judicial stand-in for well-
articulated contours of a prohibition on unfair practices.
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\67\ London v. Fieldale Farms Corp., 410 F.3d 1295, 1303 (11th
Cir. 2005).
\68\ Armour & Co. v. United States, 402 F.2d 712 (7th Cir.
1968).
\69\ E.I. du Pont de Nemours v. Fed. Trade Comm'n (Ethyl), 729
F.2d 128, 136-37 (2d Cir. 1984).
\70\ Been v. O.K. Industries, Inc., 495 F.3d 1217, 1232 (10th
Cir. 2007). Also, there seems to be no consideration of the fact
that price manipulation is an express violation of section 202(d)
and 202(e) of the P&S Act.
\71\ 760 F.2d 211, 214 (8th Cir. 1985).
\72\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth, May 5, 2022,
<a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
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At the same time, other courts have either explicitly rejected a
competitive injury requirement or have found violations without
addressing the impact on competition.\73\ Disagreement among the courts
over the need for competitive injury and what the term means makes
enforcement difficult and has created a legal patchwork in which
different rules apply depending on the presiding circuit. The lack of
consistent legal standards has adversely affected the Department's
ability to maintain fair and competitive livestock and poultry markets
and ensure producers can obtain the full value of their products and
services. Livestock and poultry industries are inherently interstate
activities, with activities, services, and trading regularly occurring
across multiple states and in regional and national markets. Much like
the FTC's policy statements have defined its national approaches to
unfair practices and unfair methods of competition, a workable rule
governing how the prohibitions on unfair practices will operate and be
enforced is important for providing clarity to market participants and
for AMS to effectuate its nationwide statutory obligation to ensure
fair and competitive livestock, meat, and poultry markets, and ensure
livestock producers and poultry growers can secure the full value for
their products and services.\74\
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\73\ See, e.g., M & M Poultry v. Pilgrim's Pride Corp., No.
2:15-CV-32, 2015 WL 13841400, at *8 (N.D.W. Va. Oct. 26, 2015);
Triple R Ranch, LLC v. Pilgrim's Pride Corp., 456 F. Supp. 3d 775,
778 (N.D.W. Va. 2019); Hedrick v. S. Bonaccurso & Sons, Inc., 466 F.
Supp. 1025, 1031 (E.D. Pa. 1978).
\74\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth, May 5, 2022;
<a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
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The cases mentioned above all applied different standards despite
all claiming to have derived their standards from the Act and the
caselaw. These opinions gave little or no guidance on the practices
that would satisfy their standards. Moreover, in the cases adopting a
competitive injury requirement, the litigants did not offer an
affirmative definition of ``unfair'' like the criteria in the proposed
rule. Those courts never addressed whether ``unfair'' applies to harms
typically treated as unfair practices under the FTC Act.
This ambiguity and inconsistency across judicial interpretations of
the statute impedes enforcement of the Act under section 202(a) because
to date neither the Department nor the public have had appropriate
clarity on the meaning of ``unfair'' under the P&S Act. Further, to the
extent courts have limited application of the P&S Act's protections
against unfair practices to anticompetitive or unfair conduct that
causes competitive injury, those courts' decisions are contrary to both
the legislative text and Congressional intent.
For over a decade, USDA has received repeated calls from the public
to address these court decisions which frustrate the purposes of the
Act,\75\ although USDA
[[Page 53893]]
also notes that some industry groups have generally opposed changes to
the existing regulatory landscape.\76\
---------------------------------------------------------------------------
\75\ See, e.g., Farm Action et al., ``Letter to Bruce Summers,''
April 5, 2022, available at <a href="https://farmaction.us/wp-content/uploads/2022/04/Letter-re-Unfair-Practices-in-Violation-of-the-Packers-and-Stockyards-Act.pdf">https://farmaction.us/wp-content/uploads/2022/04/Letter-re-Unfair-Practices-in-Violation-of-the-Packers-and-Stockyards-Act.pdf</a> and <a href="https://farmaction.us/2022/04/07/dear-usda-issue-the-packers-and-stockyards-rules-now/">https://farmaction.us/2022/04/07/dear-usda-issue-the-packers-and-stockyards-rules-now/</a> (last accessed
April 2024); Sarah Carden, ``The Fall of Antitrust, the Rise of
Corporate Power: Impacts of Market Concentration on Farmers and
Ranchers,'' Farm Action, March 2022, available at <a href="https://farmaction.us/wp-content/uploads/2022/04/P-S-Act-Report-for-ABA-Farm-Action.pdf">https://farmaction.us/wp-content/uploads/2022/04/P-S-Act-Report-for-ABA-Farm-Action.pdf</a>; Hon. Keith Ellison, et al., ``Letter to Hon. Tom
Vilsack,'' December 21, 2021, on file at USDA, referenced in Hon.
Thomas Vilsack, ``Letter to State Attorneys General Ellison, Hill,
and Colleagues,'' Sept. 26, 2022, available at <a href="https://www.usda.gov/media/press-releases/2023/07/19/usda-launches-historic-partnership-bipartisan-state-attorneys">https://www.usda.gov/media/press-releases/2023/07/19/usda-launches-historic-partnership-bipartisan-state-attorneys</a> and <a href="https://www.usda.gov/media/press-releases/2023/07/19/usda-launches-historic-partnership-bipartisan-state-attorneys">https://www.usda.gov/media/press-releases/2023/07/19/usda-launches-historic-partnership-bipartisan-state-attorneys</a> (last accessed April 2024); Claire Kelloway and
Sarah Miller, ``Food and Power: Addressing Monopolization in
America's Food System,'' Open Markets Institute, Sept. 21, 2021
updated version, at 12, available at <a href="https://www.openmarketsinstitute.org/publications/food-power-addressing-monopolization-americas-food-system">https://www.openmarketsinstitute.org/publications/food-power-addressing-monopolization-americas-food-system</a> (last accessed April 2024); see
also John Shively, ``Competition Under the Packers and Stockyards
Act: What Now?'' 15 Drake J. Agric. L. 419 (Fall 2010); C. Robert
Taylor, ``Legal and Economic Issues with the Courts' Rulings in
Pickett v. Tyson Fresh Meats, Inc., a Buyer Power Case,'' American
Antitrust Institute Working Paper No. 07-08, Feb. 2007, available at
<a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103635">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103635</a> (last
accessed April 2024); United States Department of Justice, United
States Department of Agriculture, (May 2010), Public Workshops
Exploring Competition in Agriculture, <a href="https://www.justice.gov/archives/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10">https://www.justice.gov/archives/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10</a> (``As a state
regulator, when I enforce my state's unfair or deceptive practices
act on behalf of consumers, I don't have to demonstrate that that
deceptive act injured every consumer in the state. I only have to
demonstrate that one consumer. I think what we do owe our--we owe
our producers at least as much as we owe the individual consumers of
our respective states and a fair reading of 202(a) shouldn't require
the rancher to demonstrate harm to everyone.'' ``The only way to
protect the cash market is to halt the growth of captive supplies
and possibly even roll back practice. As it should be, the language
of Section 2(a) and (b) of the Packers & Stockyards Act does not
require the finding of harm to the industry. . . How is it that if I
strong-arm someone out in the hall I could be put in jail, but if
a--but to receive just and due compensation for my hard work and
efforts, I have to prove that there is an injury to the industry and
not just to myself? That's a pretty ridiculous test to overcome.''
``Now, I understand the Packers and Stockers Act is being undermined
by this proof to harm to competition. When they're cheating all of
these farmers out here, they're getting a monetary advantage in the
market. . . And that's the excuse that the Federal judges say that
we--you know, that we can't have this law enforced'').
\76\ See, e.g., North American Meat Institute Issue Statement on
President Biden's Executive Order & USDA's Proposed Changes to
Packers & Stockyards Rules, July 9, 2021, available at <a href="https://www.meatinstitute.org/press/north-american-meat-institute-issues-statement-president-bidens-executive-order-usdas">https://www.meatinstitute.org/press/north-american-meat-institute-issues-statement-president-bidens-executive-order-usdas</a> (last accessed
April 2024).
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Consistent with Executive Order 14036, this proposed rule would,
however, make those changes.\77\ Specifically, it would provide
regulatory clarity in the face of these conflicting interpretations so
as to more fully and effectively enforce section 202(a)'s prohibition
on unfair practices. To do so, it proposes to establish clearer tests
and frameworks with which to apply section 202(a)'s prohibition on
unfair practices, provide guidance to those hearing enforcement cases
as to what unfairness means, and, in circumstances when competition is
relevant, provide a framework for assessing the impact of a practice on
the competitive environment. USDA intends with this proposed rule to
provide clearer standards for the Department, courts, and private
parties to use in understanding what conduct the P&S Act prohibits.
---------------------------------------------------------------------------
\77\ Executive Order No. 14036 ``Promoting Competition in the
American Economy,'' July 2021, available at <a href="https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/">https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/</a>.
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III. The Proposed Rule
In this proposed rulemaking, AMS proposes separate comprehensive
rules intended to protect both market participants and the market from
harm.\78\ In the very first docket under the P&S Act in 1922, the
Secretary stated: ``It is not the purpose of the Act to destroy
business, but to require the observance of the public's interests in
the conduct of business by conforming to standards laid down in the
law.'' \79\ In other words, the Act is broader than an antitrust law;
it is a comprehensive regulation of the poultry and livestock industry
that enforces norms of fair behavior for the public benefit. Thus,
since passage of the Act, the Department has taken the position that
section 202(a) could be violated if a challenged practice injures the
market to the detriment of the public interest, or if it injures market
participants without any specific harm to the market. Often, in the
Department's view, a challenged practice could cause both kinds of
injuries in unison.
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\78\ Although using different terms, this understanding is
consistent with the consensus academic literature. See, e.g.,
Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' Washington Center for Equitable Growth, May 5, 2022,
<a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>; Peter C. Carstensen, ``The Packers
and Stockyards Act: A History of Failure to Date,'' The CPI
Antitrust Journal (2) (2010), available at <a href="https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf">https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf</a>; Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn
Law, 2011), available at <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a>.
\79\ Kansas City Live Stock Exchange v. Armour and Company and
Fowler Packing Company, Docket No. 1 (August 30, 1922).
---------------------------------------------------------------------------
For example, a supply broker was found to have engaged in both an
unfair and deceptive practice in agreeing to provide a hidden
``kickback'' that affords unduly preferential treatment to a powerful
retailer at the expense of rival retailers. Indeed, the practice was
unfair both in the sense that it specifically injured the rival
retailers, who were forced to pay discriminatorily higher broker fees,
and in the sense that it harmed competition because the hidden
competitive advantage bestowed upon the powerful retailer tampered with
the competitive process for procuring supply.\80\ This comprehensive
analytical approach, which the Secretary applied in cases as diverse as
failure to pay in full \81\ and price cutting,\82\ never required the
Secretary to draw distinctions between unfair conduct that injures
producers, unfair conduct that injures competition, or unfair conduct
that caused both kinds of injury. But in analyzing these cases the
Judicial Officer determined harm to an individual or harm to
competition in each separate administrative case rather than a specific
``test'' or ``rule.''
---------------------------------------------------------------------------
\80\ Trunz Pork Stores v. Wallace, 70 F.2d 688 (2d Cir. 1934).
\81\ De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329,
1337 (9th Cir. 1980): agreeing that failing to pay for condemned
cattle within one business day following sale was an ``unfair
practice''. The violations in this case occurred in 1972 and 1974.
Id. at 1333.
\82\ See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir.
1961).
---------------------------------------------------------------------------
In building the analytical framework for this proposed rule, USDA
considered, in addition to the forgoing, the contemporaneous statutory
history of section 5 of the FTC Act, which bans both unfair methods of
competition and unfair or deceptive acts or practices. While Congress
never limited the scope of the P&S Act's ``unfair practices'' to
``unfair methods of competition,'' the first FTC Act was purportedly so
limited. The amendments to the FTC Act in 1938 reflected Congress's
intent to make the scope of the FTC Act more aligned with the P&S Act's
broader scope.
A standard should be consistent and consistently applied, so this
proposed rule would explain the P&S Act in terms more widely
understood. USDA has found the framework of the FTC Act and the FTC's
policy statements useful in understanding the past century of USDA's
administrative and Federal caselaw.
Thus, for this proposed rule, USDA employs an analytical structure
similar to that presently used by the FTC and proposes two analyses.
First, proposed Sec. 201.308(a) and (b) would protect against injuries
to market participants from unfair practices. Second, proposed Sec.
201.308(c) and (d) would protect the market from unfair practices. When
the Secretary considers whether an injurious practice rises to the
level of an unfair practice, either or both approaches may be relied
on.
Although the proposed tests are distinct, in the context of the P&S
Act, they are not mutually exclusive. Just as it has always been true
that an unfair practice can be simultaneously injurious to individual
market participants and to market conditions more generally, an unfair
practice under this proposed rule may be unfair to an individual market
participant (under proposed
[[Page 53894]]
Sec. 201.308(a)), to markets (under proposed Sec. 201.308(c)), or
unfair under each proposed test.
Thus, based on the statutory language, administrative case law, and
Federal case law, this proposed regulation clarifies that unfair acts
under the P&S Act apply to harms to market participants and harms to
the market. The scope of section 202(a) is similar to section 5 of the
FTC Act, which prohibits both unfair and deceptive acts or practices
and unfair methods of competition. Further, the operative definition of
harm to market participants (substantial harm, not reasonably
unavoidable, and not outweighed by benefits) is analogous to the
codified definition of unfairness under the FTC Act. The operative
definition for harm to the market is analogous to the principles the
FTC has adopted in that context (collusive, coercive, predatory,
restrictive, deceitful or exclusionary method of competition that may
negatively affect competitive conditions).
A. Proposed Sec. 201.308(a) and (b)
USDA proposes the addition of Sec. 201.308(a) and (b) as a
comprehensive rule for unfair practices with respect to market
participants.
The proposed test under Sec. 201.308(a) for whether a practice
unfairly injures market participants is similar to the FTC's test for
consumer protection injuries. Under the FTC Act, an unfair practice is
an act or practice that ``causes or is likely to cause substantial
injury to consumers that is not reasonably avoidable by consumers
themselves and not outweighed by countervailing benefits to consumers
or to competition.'' \83\ Harm to competition is not part of the test.
Although section 202(a) of the P&S Act's authority precedes the FTC's
1980 policy statement and subsequent Congressional amendments to the
FTC Act, the FTC's current approach offers useful pillars around which
to anchor P&S case law that has developed over the years.\84\
---------------------------------------------------------------------------
\83\ 15 U.S.C. 45(n).
\84\ See Michael Kades, then of Washington Center for Equitable
Growth, reaching a similar conclusion in ``Protecting Livestock
Producers and Chicken Growers,'' chapter 3, Washington Center for
Equitable Growth, May 5, 2022, <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>; see also,
Peter C. Carstensen, ``The Packers and Stockyards Act: A History of
Failure to Date,'' The CPI Antitrust Journal (2) (2010), available
at <a href="https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf">https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf</a>; see also Herbert Hovenkamp, ``Does the Packers
and Stockyards Act Require Antitrust Harm?'' (Philadelphia: Faculty
Scholarship at Penn Law, 2011), available at <a href="https://scholarship.law.upenn.edu/faculty_scholarship/1862">https://scholarship.law.upenn.edu/faculty_scholarship/1862</a>.
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USDA thus proposes under Sec. 201.308(a) that a practice is unfair
if the practice (1) causes or is likely to cause substantial injury to
one or more market participants, which (2) the participant or
participants cannot reasonably avoid, and which (3) the regulated
entity that has engaged in the act cannot justify by establishing
countervailing benefits to the market participant or participants or to
competition in the market that outweighs the substantial injury or
likelihood of substantial injury. Application of these three elements,
when combined, explain the outcome of a great many of the cases brought
under the P&S Act, and provide a clear and workable standard for
adjudicating many kinds of unfairness claims.
The simplest example that illustrates the principles underlying
these proposed provisions is the failure to pay for meat,\85\ live
poultry,\86\ or livestock.\87\ First, it causes a substantial injury to
the seller or grower. When a seller or grower delivers product to a
regulated entity and the entity arbitrarily refuses to pay, the seller
or grower loses the value of the product, and they lose the opportunity
to use the capital from selling their product to grow more food, invest
in their farm, or process more products. Second, they cannot avoid this
breach of contract. Instead, they must either engage in costly
litigation or settle for less than they are owed. Finally, there is no
benefit to the market for the purchaser to fail to pay for the product
they received. If this practice is adopted by all purchasers, the
sellers become increasingly less efficient as trust fails and less
livestock, meat, and poultry is produced. Thus, even if the seller or
grower is eventually paid, and suffers no loss of business, the
regulated entity's failure to pay when due can still cause substantial,
unavoidable market injury. That is, in the aggregate, even a small
delay suffered by many producers produces a substantial harm.
---------------------------------------------------------------------------
\85\ In Re: Rotches Pork Packers, Inc. & David A. Rotches., 46
Agric. Dec. 573, 579 (1987).
\86\ In Re: Empire Kosher Poultry, Inc., No. P & S Docket No. D-
10-0109, 2010 WL 7088565, at *6 (U.S.D.A. July 20, 2010), aff'd
Empire Kosher Poultry, Inc. v. U.S. Dep't of Agric., 475 F. App'x
438, 444 (3d Cir. 2012).
\87\ Courts that examine the history of the P&S Act often
overlook that failure to pay in full was an ``unfair practice''
under the Act for many decades before Congress clarified that delay
of a single payment for livestock was an unfair ``practice'' under
the P&S Act in 1976. For example, in In re: Eastern Meats, Inc., 21
Agric. Dec. 134, 141, (1962), the Judicial Officer found ``without a
doubt'' failing to timely pay the full amount agreed for a single
shipment of meat was ``an unfair and deceptive practice and device''
and cited administrative cases. And, in In Re: Mid-W. Veal
Distributors, d/b/a Nagle Packing Co., & Milton Nagle, 43 Agric.
Dec. 1124, 1138 (U.S.D.A. July 13, 1984) USDA's Judicial Officer
noted it had been held consistently in cases arising under both
title II and title III of the P&S Act that failure to pay, when due,
for livestock constitutes a violation of sections 202(a) and 312(a)
of the P&S Act., citing In re Rosenthal, 36 Agric. Dec. 210 (1976);
In re San Jose Valley Veal, Inc., 34 Agric. Dec. 966 (1975); In re
Sebastopal Meat Company, Inc., 28 Agric. Dec. 435, (1969), aff'd,
440 F.2d 983 (9th Cir. 1971); In re Nolan E. Poovey, Jr., 27 Agric.
Dec. 1512 (1968); In re Joe Doctorman & Son, Inc., 28 Agric. Dec.
840 (1969); In re S.M. Jamison, 28 Agric. Dec. 581 (1969); In re
Neil Harlan, 25 Agric. Dec. 5 (1966); In re Royce Lehman Moore, 26
Agric. Dec. 230 (1967); In re Augustin Brothers Co, 27 Agric. Dec.
350 (1968); In re R.J. & C.W. Fletcher, Inc., 23 Agric. Dec. 1400
(1964); In re Rosenthal Packing Co., 19 Agric. Dec. 971 (1960); In
re Harry Thomas, 35 Agric. Dec. 490 (1976).
---------------------------------------------------------------------------
Similar principles have guided the Secretary's interpretation for
the entire history of the Act. In the 1956 decision in In re: Central
California Livestock, Inc. d/b/a Machlin Meat Packing Company, the
Judicial Officer held that accord and satisfaction could not be a
defense to the failure to pay for livestock because a refusal to abide
by contract terms that occurs after the livestock is slaughtered leaves
the seller or grower with no other remedy than to sue. If a refusal to
pay is not based upon a bona fide dispute, but rather is a deliberate
policy of contract noncompliance, then it is ``obvious that by the
activities in issue the respondent engaged in or used an unfair
practice'' in violation of section 202(a) of the Act.\88\ And ``[n]ot
only was it unfair to the sellers but it was unfair competitively with
respect to other packers.'' \89\
---------------------------------------------------------------------------
\88\ In re: Central California Livestock, Inc. d/b/a Machlin
Meat Packing Company, 15 Agric. Dec. 97, 110 (1956).
\89\ Id.
---------------------------------------------------------------------------
Even in 1956 those principles were not a new application of section
202(a). In 1937, USDA Secretary Wallace found that discounting the
agreed upon price for a defect (so-called oily hogs) undiscoverable
until after slaughter rather than as a condition of the contract was an
``unfair, unjustly discriminatory, and deceptive practice'' in
violation of section 202(a) of the Act.\90\
---------------------------------------------------------------------------
\90\ Secretary of Agriculture v. Scala Packing Company, Inc.,
Bureau of Animal Industry Docket No. 581 (January 7, 1937).
---------------------------------------------------------------------------
Congress drafted the Act to provide every participant in the
industry due consideration, and honest, transparent, and equitable
treatment. Accordingly, dishonest, hidden, and inequitable practices
that injure market participants, like mis-weighing, are unfair because
the producer or grower suffers a substantial injury that they cannot
avoid. For example, a producer delivers their product for the regulated
entity to establish the grade, weight, and payment. The producer's loss
of physical control of the animal is
[[Page 53895]]
inherent in a failure-to-pay or a mis-weighing case, illustrating the
unavoidability of the injury.
Some elements of the dangers of unavoidable injuries have informed
prior rulemaking. For example, when USDA required packers to pay on
actual hot weights--the weight before the carcass is cooled to storage
temperatures--in 1968, USDA noted that allowing packers to set
shrinkage amounts for a projected weight after refrigeration (a cold
weight) was an unfair and deceptive practice: ``In these instances, the
packer decides what shrinkage factor he will use. . . The farmer is not
in a position to bargain freely on the basis of a full understanding of
the contract terms which are within the control of the packer and can
only accept or reject the bid offered by the packer.'' \91\ Market
participants are often at the mercy of regulated entities, who often
pay based on factors that the livestock seller or poultry grower is
unable to personally witness or negotiate, thus making their injury
from the use of variable cold weights or shrinkage unavoidable.
---------------------------------------------------------------------------
\91\ Purchase of Livestock by Packers on a Carcass Grade,
Carcass Weight, or Carcass Grade and Weight Basis, 33 FR 2760, 2761
(Feb. 9, 1968).
---------------------------------------------------------------------------
Even absent an express rule, the principles maintaining that
unjustified practices that produce unavoidable injury violate section
202(a) of the Act have been, and still are, applied in ``unfair
practices'' cases.\92\
---------------------------------------------------------------------------
\92\ E.g. In Re: Excel Corp., No. P. & S. Docket No. 99-0010,
2003 WL 205562, at *31 (U.S.D.A. Jan. 30, 2003) (finding that
producers were likely injured by Respondent's failure to notify hog
producers of its undetectable change in lean formula, and
regardless, the practice impeded competition); In Re: Stull Meats,
Inc., 49 Agric. Dec. 309, 329 (U.S.D.A. Feb. 15, 1990) (finding in a
commercial bribery case that ``the type of violations alleged and
proven in this case are not only unfair to the firm being
overcharged for its purchases . . . but also to the competitors . .
. who are not in a position to gain entry . . . unless they are
willing to make the same illegal inducements to its agent''); c.f.
In Re: Cedar Vale Sale Barn, Inc., Doyle Hawkins & Jerry Mullins.,
52 Agric. Dec. 546, 554 (1993) (check kiting poses a great risk to
the sellers of livestock); In Re: Great Am. Veal, Inc. A Corp., &
Thomas Burke, an Individual, 48 Agric. Dec. 183, 198 (U.S.D.A. Jan.
19, 1989) (holding that dissipating the statutory trust ``enacted to
protect livestock sellers'' was unfair).
---------------------------------------------------------------------------
The final factor in the proposed regulation at Sec. 201.308(a) is
that the conduct does not violate section 202(a) of the Act if
regulated entities prove that countervailing benefits to producers,
growers, or to competition outweigh the harm. In practice, the question
is whether the regulated entity can show benefits of the alleged unfair
conduct outweigh the injury or likely injury.
The proposed rule allows the consideration of not only harm to the
market, but also likely harm to Congressional policy goals concerning
the structure of agricultural markets over and against possible
countervailing benefits to other producers or the market.\93\
Congressional policy goals have included, for example, supporting new,
beginning, and military veteran producers.\94\
---------------------------------------------------------------------------
\93\ Michael Kades, ``Protecting Livestock Producers and Chicken
Growers,'' chapter 4, Washington Center for Equitable Growth, May 5,
2022, <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
\94\ See, e.g., ``How to Start a Farm: Beginning Farmers and
Ranchers,'' available at <a href="https://www.farmers.gov/your-business/beginning-farmers">https://www.farmers.gov/your-business/beginning-farmers</a> (last accessed April 2024); Congressional Research
Service, ``Farm Bill Primer: Beginning and Underserved Producers,''
May 2022, available at <a href="https://crsreports.congress.gov/product/pdf/IF/IF12096/2">https://crsreports.congress.gov/product/pdf/IF/IF12096/2</a>.
---------------------------------------------------------------------------
Balancing allegedly unfair conduct against countervailing benefits
is not a new consideration for the Secretary. For example, when
examining the allegedly unfair and discriminatory preferences given to
one group of sellers over others in In re: IBP, Inc. (57 Agric. Dec.
1353 (U.S.D.A. July 31, 1998)), the Department considered whether right
of first refusal of the contract terms was ``worth extra payment'' and
whether the contract was profitable for both the buyers and the sellers
of livestock. Preferences for lengthening extra delivery times
justified higher payments (even if higher payment was not proven), and
so concluded that the practice was not unduly discriminatory.\95\
---------------------------------------------------------------------------
\95\ The Judicial Officer also considered the specific right of
first refusal a practice that was likely to harm competition in
violation of section 202 of the P&S Act. While the 8th Circuit
agreed with the legal statements of the Judicial Officer--
specifically that the Act prevents likely harm to competition--the
court disagreed with the factual conclusions and reversed. IBP, Inc.
v. Glickman, 187 F.3d 974, 978 (8th Cir. 1999).
---------------------------------------------------------------------------
Accordingly, when examining the practice, ``actual competition
carried on in good faith by normally fair methods not `heretofore
regarded as opposed to good morals because characterized by deception,
bad faith, fraud, or oppression['] . . . is a fact which must be given
substantial weight . . . .'' \96\ Unfair practices under section 202 is
not only a matter of unfair market conditions; the intention and
results of the unfair acts and practices are relevant.\97\ For example,
if a company intends to act to monopolize, even if the intended
mechanism would not achieve it, the practice would be unfair. Moreover,
some practices have no benefit, even if unintentional: mis-weighing,
failing to pay when due for livestock or meats, failure to maintain a
bond, and insolvency.
---------------------------------------------------------------------------
\96\ Swift & Co. v. Wallace, 105 F.2d 848, 856 (7th Cir. 1939).
\97\ See Armour & Co. v. United States, 402 F.2d 712, 717 (7th
Cir. 1968).
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B. Evaluation of Potential Injury to Market Participants
To date, no court has disagreed with the principle that the P&S Act
not only reaches practices that directly injure, such as failures to
pay and changes to the terms of payment without notice, but also acts
that are likely to cause injury. Congress designed the Act to prevent
actual monetary loss \98\ and those practices are ``unfair'' even
though they require no evidentiary showing of completed injury. Even
courts that have adopted the competitive injury standard have affirmed
that the Act does not require actual harm. The Fifth Circuit stated,
the ``Act is designed to `. . . prevent potential injury by stopping
unlawful practices in their incipiency. Proof of a particular injury is
not required.' '' \99\ Those potential injuries may be any injury the
Act was designed to prevent, including financial loss to sellers.\100\
---------------------------------------------------------------------------
\98\ See In re: Arizona Livestock Auction, Inc., 55 Agric. Dec.
1121 (U.S.D.A. Nov. 21, 1996) (finding that the purpose of title III
of the Act was ``to protect the producer or seller from monetary
loss'').
\99\ Bowman v. United States Dep't of Agric., 363 F.2d 81, 85
(5th Cir. 1966) (finding the Department's insolvency standard was
not an abuse of discretion).
\100\ Id.
---------------------------------------------------------------------------
Therefore, the Department has taken the view that some practices
must be stopped before they harm market participants.\101\ For example,
a packer operating while insolvent or without a bond can present a
great risk of potential harm to the livestock sellers who may find that
their livestock is being used to finance a packer's operations.\102\ If
the undercapitalized packer fails, even with the rights of a floating
trust, livestock sellers are vulnerable to protracted litigation and
non-payment. The livestock seller's ability to participate in the
market would be imperiled, the magnitude of potential injury would be
great, and without prior knowledge of the insolvency, the seller's
ability to freely
[[Page 53896]]
exercise decision-making would be undermined.
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\101\ See In Re: Corn State Meat Co., Inc.; Terrance P. (Terry)
Prince, Jr. & James L. Wiggs., 45 Agric. Dec. 995, 1023 (U.S.D.A.
May 8, 1986); c.f. In Re: Danny Cobb & Crockett Livestock Sales Co.,
Inc., 48 Agric. Dec. 234, 234 (U.S.D.A. Feb. 13, 1989) (finding
bonds protect against incipient violations); In Re: Paul Rodman &
David Rodman, 47 Agric. Dec. 885, 903-04 (U.S.D.A. May 27, 1988)
(finding there is a duty to prevent all unlawful acts under the P&S
Act, including the potential losses from failing to maintain a
custodial account).
\102\ For an example of how under-capitalization can force
producers to finance the operation of a livestock buyer, see Van Wyk
v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978).
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As another example, an exclusive agreement between packers and
livestock dealers not to bid against one another might severely
restrict the ability of other livestock sellers to participate in the
market, because packers would not accept offers from other livestock
dealers or from sellers directly.\103\ The agreement is an unfair
practice, among other reasons, because it injures sellers by
restricting them from making offers and thus tends to subvert market
forces. Proposed Sec. 201.308(a) recognizes that although a specific
injury has not occurred, the potential for injury is so great that the
Secretary must stop the practice in advance.\104\
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\103\ See 9 CFR 201.70; Swift & Co. v. United States, 393 F.2d
247 (7th Cir. 1968).
\104\ A similar analysis would be if a group of packers conspire
to force stockyards to sell on the basis of a ``subject'' sales
terms--that is, granting the packer the right to refuse to honor the
purchase after a delivery inspection at the packing plant rather
than on the basis of an ``as is'' sales term--then that behavior is
likely to interfere with the free exercise of decision making by
market participants. See De Jong Packing Co. v. U.S. Dep't of
Agric., 618 F.2d 1329, 1337 (9th Cir. 1980).
---------------------------------------------------------------------------
Proposed Sec. 201.308(b) is intended to explain those instances
where likely or potential harms to producers rise to violations of the
P&S Act, and so this rulemaking sets out factors or criteria that
attempt to cover that broad scope. Thus, the Secretary retains the
statutory authority to identify and regulate unfair practices or
devices in a manner not predicted by this proposed rule, either through
subsequent rulemaking or in particular enforcement matters.
First, proposed Sec. 201.308(b)(1) includes consideration of the
extent to which the practice may impede or restrict the ability to
participate in a market, interfere with the free exercise of decision-
making by market participants, tend to subvert the operation of
competitive market forces, deny a covered producer the full value of
their products or services, or violate traditional doctrines of law or
equity.
This is not entirely dissimilar from comment (g) in the Restatement
(Third) of Unfair Competition, which noted that unfair practices are
not merely a matter of antitrust harms:
Courts continue to evaluate competitive practices against
generalized standards of fairness and social utility . . . . An act
or practice is likely to be judged unfair only if it substantially
interferes with the ability of others to compete on the merits of
their products or otherwise conflicts with accepted principles of
public policy recognized by statute or common law. \105\
\105\ Restatement (Third) of Unfair Competition section 1
(1995).
Thus, proposed Sec. 201.308(b)(1) provides standards to evaluate
when a practice under Sec. 201.308(a) is likely to cause a substantial
injury.
Second, proposed Sec. 201.308(b)(2) provides a clarification of
``substantial injury'' by considering the magnitude of a likely injury
that the Secretary must halt: an injury may be substantial if it causes
significant harm to one market participant or if it imposes a small
harm to many market participants. AMS does not propose to eliminate
from regulatory oversight those injuries that the Department has deemed
in past cases as substantial. A single failure to pay, for even a
relatively small amount of money, is sufficiently substantial for USDA
to bring administrative action against a regulated entity, and to be a
basis for an order of the Secretary to cease and desist. Notably, an
injury that does not harm a market participant is not a violation of
the Act.\106\
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\106\ See In Re: Arizona Livestock Auction, Inc., 55 Agric. Dec.
1121 (1996) (finding that injury to a cow did not result in any
injury the Act was designed to prevent).
---------------------------------------------------------------------------
Third, in proposed Sec. 201.308(b)(3) AMS proposes considering the
extent to which the producer would have to take unreasonable steps to
avoid injury. An injury is not reasonably avoidable solely because the
practice has been disclosed. A market participant is also not required
to take unreasonable steps, such as exiting the market or making
unreasonable additional investments or efforts, to avoid the harm. The
harder it is for market participants to escape the injury, the more
likely the harm would be to occur and the more likely that it would not
be reasonably avoidable.
Again, returning to failure to pay, it would be unreasonable for a
livestock seller to cease selling livestock on the open market to
prevent themselves from being victims of a breach of contract or to ask
them to accept revised contract terms after delivery of the livestock.
To determine otherwise would undermine the regulatory purpose, which is
to give the producers of livestock, and the growers of poultry, the
opportunity to receive the fair value of their participation in the
market. Nor would it benefit consumers to encourage producers to leave
the market or accept substandard payment terms that would discourage
appropriate market participation.
C. Proposed Sec. 201.308(c) and (d)
AMS proposes Sec. 201.308(c) and (d) as a comprehensive rule with
respect to markets.
Unfair practices are not only those that injure producers, but also
those that may negatively impact competition because they injure or
tend to injure competition or competitive market conditions. AMS takes
the position in this proposed rulemaking that harmful methods of
competition under the P&S Act are similar to the practices that the FTC
and the courts have long recognized as either anticompetitive or
unfair: collusive, coercive, predatory, restrictive, deceitful or
exclusionary methods of competition that may negatively affect
competitive conditions.
Congress intended the prohibitions in section 202(a) (and, also,
section 312(a)) of the P&S Act to go further than the prohibition in
section 5 of the FTC Act against ``unfair methods of competition.''
\107\ Not only did the P&S Act address deceptive practices before the
FTC Act did so, but it also includes many prohibitions that the FTC Act
does not. In that breadth, there has been no real dispute that the P&S
Act should prohibit at least as much as the FTC Act itself.\108\ Thus,
as the Ninth Circuit explained, ``section 202(a) should be read
liberally enough to encompass the types of anti-competitive practices
properly deemed `unfair' by the Federal Trade Commission.'' \109\ The
FTC has long prosecuted collusive, coercive, predatory, restrictive,
deceitful or exclusionary actions that tend to negatively affect
competitive conditions as unfair methods of competition.\110\ Moreover,
USDA has regularly cited FTC precedent in interpreting the P&S
Act.\111\ As the Ninth Circuit has noted, ``While sec. 202 of the
Packers and Stockyards Act may have been made broader than antecedent
antitrust legislation in order to achieve its
[[Page 53897]]
remedial purpose, it nonetheless incorporates the basic antitrust
blueprint of the Sherman Act and other pre-existing antitrust
legislation such as the Clayton Act and the [Federal] Trade Commission
Act.'' \112\
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\107\ 61 Cong. Rec. 1805-06.
\108\ Been v. O.K. Indus., Inc., 495 F.3d 1217, 1241 (10th Cir.
2007) (Hartz, J. concurring) (``[I]t would be somewhat surprising if
`unfair practices' under the PSA had a narrower meaning than `unfair
methods of competition' in the FTCA.'').
\109\ Armour and Company v. United States, 402 F.2d 712 (7th
Cir. 1968).
\110\ E.I. du Pont de Nemours & Co. v. F.T.C., 729 F.2d 128, 137
(2d Cir. 1984) (citing examples: FTC v. Texaco, Inc., 393 U.S. 223,
89 S.Ct. 429, 21 L.Ed.2d 394 (1968); Atlantic Refining Co. v. FTC,
381 U.S. 357, 85 S.Ct. 1498, 14 L.Ed.2d 443 (1965); FTC v. Brown
Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966); FTC v.
Beech-Nut Packing Co., 257 U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307
(1922), FTC v. National Lead Co., 352 U.S. 419, 77 S.Ct. 502, 1
L.Ed.2d 438 (1957), FTC v. Cement Institute, 333 U.S. 683, 68 S.Ct.
793, 92 L.Ed. 1010 (1948), Sugar Institute, Inc. v. United States,
297 U.S. 553, 56 S.Ct. 1629, 80 L.Ed. 859 (1935), FTC v. R.F. Keppel
& Bro., Inc., 291 U.S. 304, 54 S.Ct. 423, 78 L.Ed. 814 (1934), FTC
v. Motion Picture Advertising Service Co., 344 U.S. 392, 73 S.Ct.
361, 97 L.Ed. 426 (1953)).
\111\ Armour & Co. v. United States, 402 F.2d 712, 722 (7th Cir.
1968); see also In Re: Ozark Cnty. Cattle Co., Inc., et. al., 49
Agric. Dec. 336 (1990); In Re: Corn State Meat Co., Inc.; et. al.,
45 Agric. Dec. 995, 1012 (1986).
\112\ De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d
1329, 1335 (9th Cir. 1980).
---------------------------------------------------------------------------
Thus, AMS proposes Sec. 201.308(c) to capture at least conduct
that would violate the antitrust laws, conduct that would constitute an
unfair method of competition under the FTC Act, and conduct that courts
or administrative officers have held violates the P&S Act's unfairness
prohibition. Practices that do violate the antitrust laws therefore are
within the umbra of this rulemaking. So too is ``conduct which,
although not a violation of the letter of the antitrust laws, is close
to a violation or is contrary to their spirit,'' \113\ and practices
that ``not merely in their fruition, but also in their incipiency . . .
could lead to . . . trade restraints and practices deemed
undesirable.''
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\113\ Ethyl, 729 F.2d at 136-37.
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Conduct falls within proposed Sec. 201.308(c) if it harms
competition or has the tendency to negatively affect competitive
conditions, impairs market participants' ability to compete, or reduces
the likelihood of potential or nascent competition, notwithstanding
that it may or may not yet have done so. If the practice is analyzed
similarly to an antitrust violation, the Secretary will, where
appropriate, consider any buyer- or seller-side anticompetitive effect
on price (including the price paid to producers), output, quality,
choice, innovation, bargaining power in the market for services or
products, the imposition or presence of entry barriers, the imposition
or presence of information asymmetries, the entrenching or extending of
a dominant position, or the distortion of the competitive process,
among other anticompetitive or competitively unfair effects.\114\ In
some cases, it is not necessary to measure the effect on competitive
conditions expressly because the conduct, is a per se violation, or
otherwise on its face tends to distort, impair, or frustrate the
competitive process, including of price discovery. Moreover, section
202 of the P&S Act prohibits unfair competition in its incipiency,
consistent with the FTC Act and the Clayton Act.
---------------------------------------------------------------------------
\114\ See, generally, Merger Guidelines, (2023), U.S. Department
of Justice and Federal Trade Commission, <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf</a>; FTC,
Policy Statement Regarding the Scope of Unfair Methods of
Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022).
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D. Evaluation of Potential Injury to the Market
Because the courts have been clear that behavior that is likely to
harm competition violates the P&S Act, AMS proposes standards with
respect to injuries that are likely to harm the market. Like other
statutes, such as the FTC Act and the Clayton Act, the P&S Act
prohibits competition harms in their incipiency.\115\ The antitrust
laws recognize a wide range of harms, which this proposed rule would
fully encompass.\116\ Because the Act is intended to protect the market
from harm and protect producers and consumers from unfair practices,
there does not need to be any proof that any harm to the market has yet
occurred: only that the threat the Act is designed to prevent is
likely.
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\115\ Daniels v. United States, 242 F.2d 39, 42 (7th Cir. 1957)
(``It is the duty of a regulatory agency to prevent potential injury
by stopping unlawful practices in their incipiency. Proof of a
particular injury is not required.'').
\116\ See, generally, Merger Guidelines, (2023), U.S. Department
of Justice and Federal Trade Commission, <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf</a>; FTC,
Policy Statement Regarding the Scope of Unfair Methods of
Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022).
---------------------------------------------------------------------------
Accordingly, AMS proposes standards in Sec. 201.308(d) for the
Secretary to consider when examining practices that likely pose a
threat to the competitiveness of markets. These standards include (1)
the extent to which the practice impedes or restricts the ability to
participate in a market; tends to subvert the operation of competitive
market forces; interferes with the free exercise of decision-making by
market participants; violates traditional doctrines of law or equity;
or has indicia of oppressiveness, such as evidence of anticompetitive
intent or purpose or absence of an independent legitimate business
reason for the conduct; and (2) the extent to which the practice tends
to foreclose or impair the opportunities of market participants,
reduces competition between rivals, limits choice, distorts or impedes
the process of competition, or denies a market participant the full
value of their products or services.
Thus, proposed Sec. 201.308(d) addresses harms that are likely to
threaten markets, including ``acts and practices which, when full blown
would violate the Sherman Act and the Clayton Act.'' \117\ These
include several practices that have been directly found to constitute
incipiency violations by the Federal courts or in FTC administrative
proceedings, which the FTC details in full in its policy statement
regarding the scope of unfair methods of competition under section 5 of
the FTC Act.\118\ The Secretary may also consider violations of other
laws and equity. Thus, when considering harm to markets, the proposed
rule allows the consideration of harm that is cognizable under laws
that further policy goals concerning the structure of agricultural
markets.\119\ The proposed rule recognizes that regulatory enforcement
may take into account policies such as increasing market diversity
through new, beginning, and military veteran producers,\120\ and
increasing supply chain resiliency including through investing in new
and expanded meat and poultry processing.\121\ Moreover, USDA's
[[Page 53898]]
Judicial Officer has explained that section 202(a) of the P&S Act
includes within its scope every trade practice which is an ``unfair
method of competition'' under section 5 of the FTC Act or is otherwise
prohibited by the Clayton Act or the Robinson-Patman Act.\122\
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\117\ Fed. Trade Comm'n v. Motion Picture Advertising Service
Co., 344 U.S. 392, 394-95 (1953) (noting that ``Congress advisedly
left the concept [of unfair methods of competition] flexible . . .
[and] designed it to supplement and bolster the Sherman Act and the
Clayton Act[,] [so as] to stop . . . acts and practices [in their
incipiency] which, when full blown, would violate those Acts[,] . .
. as well as to condemn as ` ``unfair methods of competition'' '
existing violations of them''); Fed. Trade Comm'n v. Cement
Institute, 333 U.S. 683, 708 (1948) (holding that conduct that falls
short of violating the Sherman Act may violate section 5); Fed.
Trade Comm'n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 (1934)
(finding that unfair methods of competition not limited to those
``which are forbidden at common law or which are likely to grow into
violations of the Sherman Act''); c.f. Brown Shoe Co. v. United
States, 370 U.S. 294, 346 (1962) (finding section 7 of the Clayton
Act also reflects the ``mandate of Congress that tendencies toward
concentration in industry are to be curbed in their incipiency'').
\118\ FTC, Policy Statement Regarding the Scope of Unfair
Methods of Competition Under sec. 5 of the FTC Act, 9 (Nov. 10,
2022). See, e.g., Yamaha Motor Co. v. Fed. Trade Comm'n, 657 F.2d
971 (8th Cir. 1981), cert. denied, 456 U.S. 915 (1982) (side
agreements collateral to an anticompetitive joint-venture
agreement); In re Delta/AirTran Baggage Fee Antitrust Litig., 245
F.Supp. 2d 1343, 1369-70 (N.D. Ga. 2017), aff'd sub nom., Siegel v.
Delta Air Lines, Inc., 714 F. App'x 986 (11th Cir. 2018), and cert.
denied, 139 S. Ct. 827 (2019) (invitations to collude); The Vons
Co., FTC Complaints and Order, 1987-1993 Transfer Binder, Trade Reg.
Rep. (CCH) ] 23,200 (Aug. 7, 1992) (series of small acquisitions,
none of which were illegal individually).
\119\ Michael Kades, ``Protecting Livestock Producers and
Chicken Growers,'' chapter 4, Washington Center for Equitable
Growth, May 5, 2022, <a href="https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/">https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/</a>.
\120\ See, e.g., ``How to Start a Farm: Beginning Farmers and
Ranchers,'' available at <a href="https://www.farmers.gov/your-business/beginning-farmers">https://www.farmers.gov/your-business/beginning-farmers</a> (last accessed April 2024); Congressional Research
Service, ``Farm Bill Primer: Beginning and Underserved Producers,''
May 2022, available at <a href="https://crsreports.congress.gov/product/pdf/IF/IF12096/2">https://crsreports.congress.gov/product/pdf/IF/IF12096/2</a>.
\121\ See, e.g., ``Agricultural Competition: A Plan in Support
of Fair and Competitive Markets,'' USDA's Report to the White House
Competition Council, May 2022 (last accessed June 2022), available
at <a href="https://www.ams.usda.gov/sites/default/files/media/USDAPlan_EO_COMPETITION.pdf">https://www.ams.usda.gov/sites/default/files/media/USDAPlan_EO_COMPETITION.pdf</a>; ``USDA Agri-Food Supply Chain
Assessment: Program and Policy Options for Strengthening
Resilience,'' available at <a href="https://www.ams.usda.gov/supply-chain">https://www.ams.usda.gov/supply-chain</a>
(last accessed June 2024); ``Competition and Meat Supply Chain
Investments: Highlighted Comments from the Request for Information
(RFI),'' available at <a href="https://www.usda.gov/sites/default/files/documents/Competition-RFI-Anecdotes-010322.pdf">https://www.usda.gov/sites/default/files/documents/Competition-RFI-Anecdotes-010322.pdf</a> (last accessed June
2024); FACT SHEET: The Biden-Harris Action Plan for a Fairer, More
Competitive, and More Resilient Meat and Poultry Supply Chain,
available at <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2022/01/03/fact-sheet-the-biden-harris-action-plan-for-a-fairer-more-competitive-and-more-resilient-meat-and-poultry-supply-chain/">https://www.whitehouse.gov/briefing-room/statements-releases/2022/01/03/fact-sheet-the-biden-harris-action-plan-for-a-fairer-more-competitive-and-more-resilient-meat-and-poultry-supply-chain/</a> (last accessed June 2024).
\122\ In Re: ITT Cont'l Baking Co., 44 Agric. Dec. 748, 772
(1985); see also Stumo & O'Brien, Antitrust Unfairness, 8 Drake J.
Agric. L. at 111.
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Among the factors the Secretary may consider when halting a
practice prior to harm occurring are whether the practice offends
public policy because it has indicia of oppressiveness, such as
evidence of anticompetitive intent or purpose, or absence of an
independent legitimate business reason for the conduct.
This factor addresses a particular danger that Congress recognized
when it wrote the P&S Act: abuse of the imbalance of power, and the
creation of vertical relationships that would stifle competition.
Congress expected the Secretary to address the power that the dominant,
vertically-integrated packers and stockyards could exert in preventing
a distant and less capitalized farmer or rancher from asserting their
rights. This is the heart of oppressive conduct and is part of the
market structure Congress expected the Secretary to regulate.
Moreover, this proposal extends to horizontal, vertical, and other
market relationships because, historically, the Department has found
that practices like certain vertical and horizontal information sharing
are likely to harm competition, and therefore unfair practices
prohibited by the P&S Act.\123\ USDA regulations under the P&S Act (in
part to address concerns relating to market agencies as regulated under
title III of the Act) have also prohibited certain forms of vertical
integration, common or interlocking ownership, financing, or management
relationships owing to conflict of interest and impacts on market
integrity and market access.\124\
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\123\ See 9 CFR 201.69 and 201.70.
\124\ See 9 CFR 201.67.
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To be clear, under section 202(a) of the P&S Act, if a practice is
taken in good faith by normally fair methods, and not characterized by
deception, bad faith, fraud, or oppression, then the practice is less
likely to be unfair.\125\ Accordingly, proposed Sec. 201.308(d)
provides that the Secretary may assess the extent to which the practice
is collusive, coercive, predatory, restrictive, deceitful, or
exclusionary and presents incipient threats to competition in
determining whether the conduct tends to negatively impact competition
by adversely affecting competitive market conditions.
---------------------------------------------------------------------------
\125\ C.f. Swift & Co. v. Wallace, 105 F.2d 848, 856 (7th Cir.
1939).
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E. Contracts
This rulemaking has no particular prohibition with respect to
contracts. A breach of contract, however, is unfair under section 202
if it meets the criteria of proposed Sec. 201.308(a) or (c). For
decades the Department found, without controversy, that breaches of
contract could result in harm to nonbreaching parties to the agreement
or to the market or to both under the Act.\126\
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\126\ See In re: Central California Livestock, at 110. As
explained above, cases like Central California Livestock are typical
of the Department's findings with respect to harms to competition.
---------------------------------------------------------------------------
To account for this, under proposed Sec. 201.308(b) and (d) the
Secretary may consider traditional doctrines of law and equity in
determining whether there is any harm the Act was designed to prevent.
Traditional common-law doctrines are fundamentally designed to ensure
fairness in the functioning of the marketplace and support the normal
and fair operation of market forces. In short, fair enforcement of
contract, bans against unconscionable conduct, and prohibitions against
deception, make a fair market work. Academics have rightly pointed out
that violations of the P&S Act include practices that offend public
policy as established ``by statutes, the common law, or otherwise--
whether, in other words, it is within at least the penumbra of some
common-law, statutory, or other established concept of unfairness.''
\127\
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\127\ Stumo & O'Brien, Antitrust Unfairness at 111.
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The Department's position is that included in this set of practices
are breaches of contract that are of regulatory concern. Recently,
there are some courts that have claimed that Congress could not have
intended breaches of contract to be violations of the P&S Act.\128\
Read to an unlimited extent, that conclusion would be contrary to the
plain language of the statute. Congress intended unfair practices to
include breaches of contract, not only with the passage of the Act in
1921, but also with the passage of section 409 in 1976 and section 410
in 1987. By specifically prohibiting failures to make prompt payment
under contract, Congress included among unfair practices the simplest
form of a contractual breach.
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\128\ See, e.g., Been v. O.K. Indus., Inc., 495 F.3d 1217, 1229
(10th Cir. 2007).
---------------------------------------------------------------------------
As a matter of statutory construction, under section 312(a) of the
Act it is unlawful for livestock dealers and market agencies to engage
in any ``unjust, unjustly discriminatory, or deceptive practice or
device''; section 309 of the Act gives any injured person the right to
proceed in an administrative reparation hearing before the Secretary
against a market agency or livestock dealer. Breach of contract is the
basis for the overwhelming majority of reparations cases, as Congress
intended.
USDA concluded that some breaches of contract violated the Act many
decades prior to the Congressional passage of section 409;
administrative findings that failure to pay was a violation of the Act
were some of the earliest administrative decisions. The Department
issued its first regulatory prohibition against late payment for
livestock in 1964.\129\ As the Department has held with respect to
allegations of the breach of the duty of good faith in the operation of
contract which led to underpayment:
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\129\ 29 FR 1796, Feb. 6, 1964.
[A] violation of the payment requirements in 7 U.S.C. 228b-1(a)
is also a prohibited ``unfair practice'' under 7 U.S.C. 192 . . . .
The Packers and Stockyards Act contains no requirement that injury
to competition or likelihood of injury to competition must be shown
in order to prove a violation of 7 U.S.C. 228b-1(a); however, 7
U.S.C. 228b-1(b) specifically provides that a violation of 7 U.S.C.
228b-1(a) shall be considered an ``unfair practice'' under the
Packers and Stockyards Act. Thus, a violation of 7 U.S.C. 228b-1(a)
is a prohibited ``unfair practice'' under 7 U.S.C. 192 without
regard to whether injury to competition or likelihood of injury to
competition is shown.\130\
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\130\ In Re: Tyson Farms, Inc., 71 Agric. Dec. 1160, 1164
(2012).
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This rulemaking is not intended to change the Department's position
on the Act's remedial purposes to protect market participants from
unfair and deceptive practices. In general, refusal to honor contracts
drives honest businesses from competition because competitors cannot
compete in a market where the buyer with greater capital can capture
the supply without paying for it, modify contract terms after delivery,
or delay payment indefinitely to extract concessions from sellers.
These proposed regulations, therefore, match USDA's ability to order
packers and
[[Page 53899]]
swine contractors to cease these breaches of contract and penalize
packers and swine contractors to deter these behaviors and to protect
the public from these harms.\131\
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\131\ See section 203 of the P&S Act, which grants the Secretary
the authority to order respondents to cease and desist and pay civil
penalties (7 U.S.C. 193).
---------------------------------------------------------------------------
To be clear, this proposal would not make every commercial dispute
into a P&S Act matter. Rather, this regulation proposes a specific
framework under which claims--including ones involving a breach of
contract--of unfair practices under the P&S Act would be analyzed.
F. Protected Parties
This proposed rule does not limit its protection against unfair
conduct by regulated entities to enumerated individuals, like producers
or consumers, because the Act protects anyone that suffers a violation
of the P&S Act. Section 202(a) of the Act bans unfair practices in the
entire market for livestock, meats, meat food products, livestock
products in unmanufactured form, and live poultry. Further, P&S Act
section 308(a) holds all regulated entities liable for any
consequential damages to the persons injured: ``[i]f any person subject
to this chapter violates any of the provisions of this chapter . . . he
shall be liable to the person or persons injured thereby for the full
amount of damages sustained in consequence of such violation.'' \132\
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\132\ 7 U.S.C. 209.
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The Secretary has brought administrative cases under section 202(a)
based on the full spectrum of market behaviors that have injured its
participants. This has included practices that injured livestock
sellers, livestock dealers, market agencies, stockyards, live poultry
dealers, packers, retailers, and consumers.\133\
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\133\ In re: Larry W. Peterman, d/b/a Meat Masters., 42 Agric.
Dec. 1848, 1868 (1983) (injury to individual consumers); In re: ITT
Cont'l Baking Co., 44 Agric. Dec. 748, 772 (1985) (injury to
competitors, packers and the retailer); In re: Excel Corp., No. P. &
S. Docket No. 99-0010., 2003 WL 205562 U.S.D.A. Jan. 30, 2003)
(injury to producers); In Re: Empire Kosher Poultry, Inc., No. P & S
Docket No. D-10-0109, 2010 WL 7088565 (U.S.D.A. July 20, 2010),
aff'd Empire Kosher Poultry, Inc. v. United States Dep't of Agric.,
475 F. App'x 438, 444 (3d Cir. 2012) (injury to consumers).
---------------------------------------------------------------------------
Thus, this proposed rule is intended to capture everyone that
Congress intended to protect, which includes any person injured by a
violation of section 202(a).
IV. Severability
This proposed regulation contains four provisions; the inclusion of
each is intended to clarify the P&S Act, and thus strengthen the Act's
protections against unfair treatment in agricultural markets. The
proposed regulation provides guidance to market participants, regulated
entities, presiding courts and USDA when determining whether specific
conduct is unfair under section 202(a) of the P&S Act. Although each
proposed provision serves to further these effects, the benefits this
proposed rule seeks to provide would not be negated by the exclusion of
one or more of its provisions as finalized.
For example, proposed Sec. 201.308(a), ``Unfair practices with
respect to market participants,'' would still function without proposed
Sec. 201.308(c), ``Unfair practices with respect to markets,'' and
vice versa. The clarifying provisions of proposed Sec. 201.308(b) and
(d) are also severable. While AMS included all the provisions to
clarify the term ``unfair'' under the Act, the purpose of the
regulation is not lost if a court severs a provision of the rule as
finalized. The remaining provisions would still function sensibly and
inform the interpretation of the Act.
V. Request for Comments
AMS invites comments on this proposed rule. Comments submitted on
or before August 27, 2024 will be considered. Comments should reference
Docket No. AMS-FTPP-21-0046 and the date and page number of this issue
of the Federal Register. AMS seeks comment on the following subjects:
1. Do the two tests described in this proposed rule appropriately
guide enforcement of ``unfair practices'' under section 202(a) of the
P&S Act?
2. What modifications to the proposed rule would be appropriate to
meet the goals of the P&S Act?
3. Are the factors described in the proposed rule to contextualize
the two tests appropriate? If not, are certain factors more appropriate
to one or the other test?
4. What other relevant factors may be considered in addition to or
instead of the current factors?
5. Should the Department add regulatory text to define legitimate
business justifications? If so, who should bear the burden of proof and
what constitutes a cognizable justification?
6. Should the rulemaking consider: (a) whether the method of
competition is so facially unfair that business justifications should
not be entertained; (b) whether the party claiming a business
justification must show that the asserted justification for the method
of competition is legally cognizable, non-pretextual, and narrowly
tailored to bring about a benefit while limiting the harm to the
competitive process and to market participants; or (c) whether the
party claiming a justification must show that the claimed benefit
occurs in the same market where harm is alleged?
7. Does the proposed rule appropriately define what behavior is
``reasonably avoidable''? Should this language be delineated more
precisely or more broadly or in other ways, and if so, how?
8. Should AMS provide additional guidance around incipient harms to
the market, and if so, should AMS draw from Clayton Act standards,\134\
such as whether the effect ``may be substantially to lessen
competition, or to tend to create a monopoly.'' \135\
---------------------------------------------------------------------------
\134\ 15 U.S.C. 18.
\135\ See, e.g., Phila. Nat'l Bank, 374 U.S. at 363 (1963)
(Stating that a merger resulting in a market share of 30% still
``presents a threat'' and causes ``undue concentration''). United
States v. First Nat'l Bank of Lexington, 376 U.S. 665 (1964)
(Stating that ``the elimination of significant competition between
[merging parties]'' violates Section 1 of the Sherman Act: ``It [can
be] enough that the two . . . compete[ ]. That their competition
[is] not insubstantial and that the combination [would] put an end
to it''). Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509
U.S. 209, 229-30 (1993) (Stating that ``excessive concentration[ ]
and the oligopolistic price coordination it portends may be the
injury to competition the Act prohibits''). Marine Bancorporation,
418 U.S. at 623-624 (Suggesting that acquisition of ``perceived
potential competition may substantially lessen competition or tend
to create a monopoly'').
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9. What benefits would this proposed rule provide for producers or
other persons?
10. What burdens would this proposed rule create for regulated
entities?
11. What is your preferred way to measure countervailing benefits?
12. Should some things be categorically excluded from consideration
as countervailing benefits, such as cross-market balancing?
13. How would you describe conduct that is oppressive?
14. How would this proposed rule affect competitive conditions in
the livestock and poultry industries?
15. Should the proposed rule treat private causes of action
differently from violations of section 202(a) of the Act when enforced
by the Federal Government, and if so, how?
16. Would this proposed rule have any other effects on the market
or market participants? If so, in what ways should they be addressed?
Comments can be submitted by either of the following methods:
Federal eRulemaking Portal: Go to <a href="https://www.regulations.gov">https://www.regulations.gov</a>.
Enter AMS-FTPP-21-0046 in the Search field. Select the Documents tab,
then
[[Page 53900]]
select the Comment button in the list of documents.
Postal Mail/Commercial Delivery: Send your comment to Docket No.
AMS-FTPP-21-0046, S. Brett Offutt, Chief Legal Officer, Packers and
Stockyards Division, USDA, AMS, FTPP; Room 2097-S, Mail Stop 3601, 1400
Independence Ave. SW, Washington, DC 20250-3601.
VI. Regulatory Analysis
A. Paperwork Reduction Act
Proposed Sec. 201.308 defines how AMS evaluates unfair acts or
practices and unfair methods of competition under section 202(a) the
P&S Act. Proposed Sec. 201.308 does not impose any information
collection or recordkeeping requirements on any regulated entity or
member of the public. Accordingly, approval by the Office of Management
and Budget (OMB) is not required by the Paperwork Reduction Act of
1995, 44 U.S.C. 3501-3520.
B. Executive Orders 12866, 13563, and 14094
AMS is issuing this proposed rule in conformance with Executive
Orders 12866, 13563, and 14094. Executive Orders 12866 and 13563 direct
agencies to assess all costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). Executive Order 13563 emphasizes the importance of
quantifying both costs and benefits, reducing costs, harmonizing rules,
and promoting flexibility. Executive Order 14094 reaffirms,
supplements, and updates Executive Order 12866 and further directs
agencies to solicit and consider input from a wide range of affected
and interested parties through a variety of means.
This rulemaking has been determined to be significant for the
purposes of Executive Order 12866 and, therefore, has been accordingly
reviewed by the OMB. As a required part of the regulatory process, AMS
prepared an economic analysis of the costs and benefits of proposed
Sec. 201.308.
C. Regulatory Impact Analysis
AMS proposes to establish Sec. 201.308 to define how AMS evaluates
unfair acts or practices and unfair methods of competition under
section 202(a) the P&S Act. The term ``unfair'' has caused confusion
and contention in the industry and in courts, and this rulemaking is
intended mitigate both.
Paragraph (a) of proposed Sec. 201.308 defines an unfair act or
practice as one that causes or will likely cause substantial injury to
a market participant, which the market participant could not reasonably
avoid but is not justified by countervailing benefits to market
participants or competition. Paragraph (b) includes factors the
Secretary of Agriculture may consider in evaluating whether an unfair
act or practice is likely to cause substantial injury. Factors include
the extent to which an act or practice impedes or restricts the ability
to participate in the market, the extent to which an act or practice
subverts competitive market forces, the size of any potential injury,
and the extent to which the act or practice interferes with free
decision making.
Paragraph (c) of proposed Sec. 201.308 defines an unfair practice
with respect to markets as a practice that is collusive, coercive,
predatory, restrictive, deceitful, or exclusionary method of
competition that may negatively affect competitive conditions.
AMS intends for proposed Sec. 201.308 to be consistent with the
way USDA has interpreted section 202(a) of the Act for decades. The
preamble for this rulemaking explains how USDA has defined ``unfair''
in past actions and how those actions are consistent with the
interpretation of ``unfair'' in proposed Sec. 201.308. Concerning
USDA's interpretation and enforcement of ``unfair'' in section 202(a)
of the Act, AMS does not expect proposed Sec. 201.308 to change USDA's
position on enforcement of section 202(a).
Proposed Sec. 201.308 is made of two parts. Paragraphs (a) and (b)
of proposed Sec. 201.308 concern unfair practices with respect to
market participants. Paragraphs (c) and (d) concern unfair practices
with respect to markets. The two parts have some similarities, and some
overlapping protections. Neither part requires that proof of completed
or market wide harm to competition to find a violation of the Act. This
is consistent with USDA's longstanding interpretation and enforcement
of the Act, but it is not consistent with all Federal court decisions.
Proposed Sec. 201.308 addresses unfairness. Unfairness is not an
economic term, and it is not among the market failures that OMB has
defined in Circular A-4. Some of the factors in proposed Sec. 201.308
are intended to limit the exercise market power. But proposed Sec.
201.308 also regulates practices unrelated to market power.
Exercise of market power has long been a problem in the meat
packing industry. From the 1880s to 1920, a series of investigations
found the largest meat packers controlling prices through a variety of
methods. Those findings were much of the reason that Congress passed
the Act in 1921.\136\
---------------------------------------------------------------------------
\136\ Azzam, Azzadine and Anderson, Dale. May 1996. ``Assessing
Competition in Meatpacking, Economic History, Theory, and
Evidence.'' USDA, GIPSA. <a href="https://www.gipsa.usda.gov/psp/publication/con_tech%20report/rr96-6.pdf">https://www.gipsa.usda.gov/psp/publication/con_tech%20report/rr96-6.pdf</a>.
---------------------------------------------------------------------------
Market power in livestock, meat, and poultry markets has not gone
away. Academic and government sponsored research has consistently found
that meat packers have some measure of market power, especially as
livestock buyers. Livestock and poultry markets are characterized by
atomistic livestock producers and poultry growers numbering in the tens
of thousands that deal with a much smaller number of downstream packers
and poultry processors that may possess some oligopsonistic
characteristics. Table 1 below lists four-firm concentration ratios for
fed cattle, hogs, chickens, and turkeys for 2010 through 2019. The
concentration ratios were relatively stable over this period. The fed
cattle industry has been the most concentrated with four firms
controlling between 83 and 85 percent for the entire period.
Table 1--Four-Firm Concentration Ratio in Livestock and Poultry Slaughter *
----------------------------------------------------------------------------------------------------------------
Year Fed cattle (%) Hogs (%) Chickens (%) Turkeys (%)
----------------------------------------------------------------------------------------------------------------
2010............................................ 85 65 51 56
2011............................................ 85 64 52 55
2012............................................ 85 64 51 53
2013............................................ 85 64 54 53
2014............................................ 83 62 51 58
2015............................................ 85 66 51 57
[[Page 53901]]
2016............................................ 84 66 50 57
2017............................................ 83 66 51 53
2018............................................ 84 70 54 55
2019............................................ 85 67 53 55
----------------------------------------------------------------------------------------------------------------
* U.S. Department of Agriculture, AMS Packers and Stockyards annual reports. Available at <a href="https://www.ams.usda.gov/reports/psd-annual-reports">https://www.ams.usda.gov/reports/psd-annual-reports</a> (last accessed 8/9/2022).
The nature of livestock production compounds the market power
problems. When livestock, are ready for slaughter, whether they are
cattle, hogs, or lambs, they must go to the packer within a few weeks,
or the quality starts to decrease. As the quality of the livestock
fades, producers pay the costs of continuing to feed livestock while
the value decreases. As a result, livestock producers are relatively
determined sellers who have a limited capacity to wait for market
conditions to change.
Market power in livestock, meat, and poultry markets is a
continuing problem that USDA has regulated through the Act since the
1920s. USDA has consistently established the rules and regulations
necessary to maintain fair and competitive markets, including
protecting producers from marketplace abuses and injuries they could
not avoid. One example is Sec. 201.70, which requires packers to
conduct their livestock buying operations independently and in
competition with other packers.\137\ Proposed Sec. 201.308 is another
step in the ongoing regulation of competition in the livestock, meat,
and poultry markets. Proposed Sec. 201.308 is designed to mitigate
market power and the implications of market power especially on
producers. It would also address fair trade practices in the
marketplace generally. Unlike many of the regulations under the Act,
proposed Sec. 201.308 does not place any specific requirements on
packers, live poultry dealers, or swine contractors.
---------------------------------------------------------------------------
\137\ Source: 24 FR 3183, Apr. 24, 1959.
---------------------------------------------------------------------------
Instead, it is a method of evaluating acts, practices, and methods
of competition to determine if they are violations of the Act. Proposed
Sec. 201.308 would be a new regulation, and USDA has not articulated
the factors in proposed Sec. 201.308 in enforcing violations of the
Act in the past.
USDA has asserted that a violation of the Federal antitrust laws
may also violate the Packers and Stockyards Act but that the Packers
and Stockyards Act's prohibition on unfair practices incorporates trade
practices beyond those covered by the Federal antitrust laws. AMS
expects that proposed Sec. 201.308 will improve its enforcement of the
Act and make livestock, meat, and poultry markets more competitive.
Regulatory Alternatives Considered
Executive Order 12866 requires an assessment of costs and benefits
of potentially effective and reasonably feasible regulatory
alternatives and an explanation of why the planned regulatory action is
preferable to the potential alternatives. Including proposed Sec.
201.308, AMS considered four regulatory alternatives. The first
alternative that AMS considered is to maintain the status quo and not
propose the new rule. The second alternative that AMS considered is to
propose Sec. 201.308 as presented in this rulemaking. This second
alternative is AMS's preferred alternative as will be explained below.
The third alternative that AMS considered is limiting the scope of
proposed Sec. 201.308 to contain only paragraphs (a) and (b) that
concern unfair acts and practices of the currently proposed Sec.
201.308. In other words, this limited scope alternative would limit the
scope of the proposed regulation by eliminating paragraphs (c) and (d)
which prohibit unfair practices with respect to markets.
AMS considered a fourth alternative of issuing a statement of
general policy rather than a new regulation, but AMS chose to propose a
regulation because it expects that a regulation will be more effective.
Proceeding by regulation also affords all market participants an
opportunity to give input on the proposed regulation. AMS did not
estimate costs and benefits for a statement of general policy, but AMS
estimated costs and benefits for proposed Sec. 201.308 and for the
limited scope alternative.
The proposed rule and the limited scope alternative have some
similarities but proposed Sec. 201.308 is more comprehensive. It would
restrict unfair practices with respect to markets and individual market
participants while the limited scope alternative would only restrict
unfair practices with respect to market participants.
For either proposed Sec. 201.308 or the limited scope alternative,
AMS was not able to estimate indirect costs or indirect benefits that
might accrue from the proposed rule. AMS was able to estimate direct
costs associated with proposed Sec. 201.308 and the limited scope
alternative. Those costs are largely comprised of regulated entities
reviewing their own practices for compliance with the new regulation.
The cost of reviewing practices is expected to be similar whether
regulated entities review for compliance with proposed Sec. 201.308 or
the limited scope alternative. AMS does not expect that regulated
packers, live poultry dealers, or swine contracts will need to make
costly immediate changes in their current practices as a result of the
proposed rule's implementation because the proposed rule serves as a
framework for agency analysis and enforcement to address problematic
practices as they may arise, rather than as a mandate to ameliorate
specifically identified practices at present.
With similar direct costs and uncertain indirect costs, AMS prefers
the more comprehensive proposed Sec. 201.308 over the limited scope
alternative. It is more consistent with the administration's policy
goals and more consistent with policies of other Federal agencies, such
as the Federal Trade Commission.
Proposed Rule: Benefits
AMS expects that proposed Sec. 201.308 will improve its regulation
of livestock, meat, and poultry markets, making the markets more
competitive and fairer. Applying a quantified dollar value to the
improvement would be a difficult task. Because proposed Sec. 201.308
is a method of evaluating acts, practices, and methods of competition,
the value of any improvements would depend on many unknown factors.
AMS expects that benefits of proposed Sec. 201.308 would accrue to
livestock producers, poultry growers, and consumers. To the extent that
predatory practices are prevented,
[[Page 53902]]
smaller packers, live poultry dealers, or swine contractors may
benefit. Economic models of market power involve a deadweight loss to
society as well transfers from producers, consumers, or both to the
firms exerting market power. To the extent that proposed Sec. 201.308
reduces acts, practices, and unfair methods that limit competition,
society will benefit from the reduction in the deadweight loss, which
is a loss to society due to a misallocation of resources. Livestock
producers, poultry growers, consumers, competing packers, or all four
might benefit from a reduction in the deadweight loss. Competition
models also have a transfer component, in which income is transferred
to firms exerting market power.
As an example of potential benefits from improving competition, AMS
estimated economic gains in losses for a range of hypothetical changes
in market power in cattle and beef markets. Estimated gains are not
available for the other livestock, meat, and poultry markets. These
values are not estimates of benefits of proposed Sec. 201.308. They
are only examples that indicate possible benefits of improving
competitive conditions.
Table 2 presents the economic changes in packer market power for
cattle associated with changing level of market competition, where
baseline price and quantity information are for 2023 and are from
USDA's November 2023 edition of World Agricultural Supply and Demand
Estimates.\138\ The economic model to estimate the economic impacts is
from Hadechek, Ma, and Sexton as are all the model parameters except
for the WASDE data.\139\ The model assumes buyer and seller market
power parameters falling in the range of 0 to 1. While these are not
tied to a particular form of competition, a value of 0.15 would be what
the Department of Justice and FTC regard as moderate firm concentration
under their joint their 2023 Merger Guidelines and 0.30 would be well
into the range that it considers as highly concentrated.\140\ The value
of 0.15 corresponds to a Hirschman-Herfindahl index (HHI) of
approximately 1,500, and 0.3 corresponds to HHI value of approximately
2,500 to 3,300, which is well above the value of 1,800 that is
considered highly concentrated market in the 2023 Merger
Guidelines.\141\ While the intent of this proposed rule is to lower
incidence of practices that are harmful to competition, one cannot
discount the possibility that litigation spurred by the proposed rule
could deter entry or cause firms to leave the market and hinder
innovative or even practices that make the market more competitive or
more efficient.
---------------------------------------------------------------------------
\138\ Source: USDA, ``World Agricultural Supply and Demand
Estimates,'' WASDE-642, November 9, 2023.
\139\ Hadachek, Jeffrey, Meilin Ma, and Richard J. Sexton. 2023.
``Market Structure and Resilience of Food Supply Chains under
Extreme Events.'' American Journal of Agricultural Economics 1-24.
<a href="https://doi.org/10.1111/ajae.12393">https://doi.org/10.1111/ajae.12393</a>.
\140\ Ibid.
\141\ Ibid.
---------------------------------------------------------------------------
The analysis in the table below holds seller market power fixed at
0.15 and has output under packer market power parameters of 0.15 in
section A and 0.30 in section B. In both sections, results are provided
for 1 and 3 percent decreases in the market power parameter for the
beef packer. A 3 percent change in market power is likely on the high
side given that USDA does not expect that packers, live poultry dealers
or swine contractors will make large changes as a result of proposed
Sec. 201.308. With the assumed decreases and base levels of market
power, production increases, retail prices decrease, and the producers'
price of cattle increases with a decrease in market power. With a
decrease in market power, gross returns to cattle producers increase
and processor variable profits (i.e., not including fixed costs)
decrease. Total market benefits (the producer plus consumer surplus
line) increase with a decrease in market power. When the packer market
power parameter decreases by 3 percent, deadweight loss decreases $26
million and $54 million when the buyer market power parameter is 0.15
and 0.30, respectively.
To put some perspective of the size of the deadweight loss changes
relative to the market value of cattle sold for slaughter, even their
largest changes in table 2 are 0.18 percent the size of the forecasted
value of cattle production for 2023 from USDA's November 2023 World
Agricultural Supply and Demand Estimate.\142\ Note that while the
percent change in market power are in the same in parts A and B of the
table, the economic impacts are larger in part B as the baseline level
of market power is higher in there.
---------------------------------------------------------------------------
\142\ USDA, ``World Agricultural Supply and Demand Estimates,''
WASDE-642, November 9, 2023.
[[Page 53903]]
Table 2--Example of Economic Impacts of Changing Market Power in Cattle
and Beef Markets
------------------------------------------------------------------------
Three percent One percent
Market response decrease in decrease in
market power market power
------------------------------------------------------------------------
A. Base buyer power parameter = 0.15 Base seller power parameter = 0.15
------------------------------------------------------------------------
Change in seller market power......... 0.00% 0.00%
Change in production.................. 0.09% 0.03%
Change in retail price................ -0.09% -0.03%
Change in farm price.................. 0.09% 0.03%
Change in producer plus consumer 0.17% 0.06%
surplus..............................
Change in deadweight loss (million $). -$26 -$9
Change in producer gross revenue $55 $18
(million $)..........................
Change in producer gross revenue...... 0.18% 0.06%
Change in packer variable profits -$66 -$22
(million $)..........................
Change in packer variable profits..... -0.13% -0.04%
------------------------------------------------------------------------
B. Base buyer power parameter = 0.30 Base seller power parameter = 0.15
------------------------------------------------------------------------
Change in seller market power......... 0.00% 0.00%
Change in production.................. 0.18% 0.06%
Change in retail price................ -0.16% -0.05%
Change in farm price.................. 0.18% 0.06%
Change in producer plus consumer 0.32% 0.11%
surplus..............................
Change in deadweight loss (million $). -$54 -$18
Change in producer gross revenue $106 $35
(million $)..........................
Change in producer gross revenue...... 0.4% 0.1%
Change in packer variable profits -$120 -$40
(million $)..........................
Change in packer variable profits..... -0.24% -0.08%
------------------------------------------------------------------------
Proposed Sec. 201.208 would apply to all livestock, meat, and
poultry industries, including hogs and pork, sheep and lamb, and
poultry. Although AMS is only providing an example for cattle and beef
markets, AMS would also expect benefits from a more competitive market
in each of the livestock, meat, and poultry industries. Sizes of the
changes would be different due to differences in size and structure of
other livestock, meat, and poultry markets, but potentially much larger
than the expected direct costs associated to Sec. 201.308.
Proposed Rule: Costs
Direct Administrative Costs of the Proposed Rule
AMS is not able to make quantified estimates of indirect costs or
benefits associated with proposed Sec. 201.308. However, AMS is able
to estimate direct costs associated with proposed Sec. 201.308. AMS
expects that packers, swine contractors, and live poultry dealers will
incur direct administrative costs of reviewing and learning the
proposed rule, assessing any impacts on their business operations, and
then reviewing marketing and production contracts to ensure compliance
with proposed Sec. 201.308. Direct administrative costs are estimated
below for (1) firm level costs to learn and review the proposed rule
and assess any impacts on their business operations; and (2) in
contract level costs to review production and marketing contracts to
ensure compliance with the proposed rule. AMS expects that the firm
level and contract level costs are one-time costs to be incurred the
first year the rule would be effective and that these costs will not be
recurring costs. These estimates do not include any costs or benefits
associated with changes in practices resulting from either firm level
or contract level reviews.
Direct Firm Level Administrative Costs of the Proposed Rule
AMS expects that proposed Sec. 201.308 will prompt packers, live
poultry dealers, and swine contractors to incur one-time costs to first
review and learn the rule and then assess any impacts on their business
operations. Firm level costs are estimated as the total value of the
time required to review and learn the proposed rule and to assess any
impacts on their business operations.
AMS expects the direct administrative costs of complying with
proposed Sec. 201.308 will be relatively small. Proposed Sec. 201.308
is consistent with long held USDA policy, although the position has not
yet been established in regulations. Consequently, AMS expects packers,
live poultry dealers, and swine contractors to make relatively few
changes to their business operations and production and marketing
contracts.
AMS estimated firm level administrative costs by identifying the
regulated entity staff that will be involved in reviewing and learning
the proposed rule, assessing any impacts on their business operations,
estimating the respective time requirement for each regulated entity
profession, and obtaining estimates of hourly costs for each
profession. AMS expects most of the time at the firm level will come
from meetings with company executives, their assistants, and legal
staff to review the proposed rule and assess any impacts on their
business operations. At the contract level, most firms maintain their
production and marketing contracts in an electronic format and IT staff
will be needed to provide access to all contracts in the contract
review process. Managers, assistants, and legal staff will then review
the contracts to ensure compliance with the proposed rule. Multiplying
estimated hours required by estimated hourly costs will yield total
costs by profession, which is then summed across professions to obtain
total firm level administrative costs.
Firm level and contract level estimates of the amount of time
required to review and learn the proposed rule, assess impacts on
business operation, and to review contracts were provided by AMS
subject matter experts. These experts were auditors and supervisors
with many years of experience in AMS's PSD conducting investigations
and compliance reviews of regulated entities. AMS used data from the
Bureau of Labor Statistics (BLS) Occupational
[[Page 53904]]
Employment and Wage Statistics, released in May 2022, for the time
values in this analysis.\143\ BLS estimated an average hourly wage for
an administrative assistant salary in animal slaughtering and
processing at $20.64 per hour. The average hourly wage for managers in
animal slaughtering and processing is $61.24 per hour. The average
hourly wage for IT system managers in animal slaughtering and
processing is $66.07 per hour. The average hourly wage for lawyers in
food manufacturing is $103.81 per hour. In applying the cost estimates,
AMS marked-up the wages by 41.79 percent \144\ to account for fringe
benefits.
---------------------------------------------------------------------------
\143\ Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage Statistics, available
<a href="https://www.bls.gov/oes/special-requests/oesm22all.zip">https://www.bls.gov/oes/special-requests/oesm22all.zip</a> (accessed 7/
14/2023).
\144\ U.S. Bureau of Labor Statistics, Employer Costs for
Employee Compensation--March 2023, released June 16, 2023, USDL-23-
1305, table 1, p. 4. <a href="https://www.bls.gov/news.release/pdf/ecec.pdf">https://www.bls.gov/news.release/pdf/ecec.pdf</a>
(accessed 7/14/2023).
---------------------------------------------------------------------------
For firm level costs, AMS expects that on average, each poultry
dealer, beef packer, pork packer, and swine contractor will spend 20
hours of administrative assistant time, 40 hours of management time, 5
hours of IT systems manager time, and 40 hours of legal time to learn
the proposed rule and assess any impacts on their business operations.
For firm level costs, AMS estimated the number of regulated
entities impacted, that is, the number of live poultry dealers,
livestock packers, and swine contractors, from information PSD receives
in its required forms. Live poultry dealers are currently required to
file form PSD 3002, ``Annual Report of Live Poultry Dealers,'' OMB
control number 0581-0308, with AMS. Ninety live poultry dealers filed
annual reports with AMS for their 2021 fiscal year. Livestock packers
are currently required to file form PSD 3004, ``Annual Report of
Packers'' OMB control number 0581-0308, with AMS. Among other things,
each packer reports the number of head of cattle or calves, hogs, and
lamb, sheep, or goats that it processed. Three hundred sixty-five
packers that processed cattle or calves, hogs, or lamb, sheep or goats
filed reports or were due to file a report with AMS for their fiscal
year 2021. Two hundred sixty-one were beef or veal packers, 196 were
pork packers, and 139 were lamb, sheep, or goat packers.\145\ The
number of beef, pork, and lamb packers do not sum to 365 because many
firms slaughtered more than one species of livestock. For instance, 345
packers slaughtered both beef and pork.
---------------------------------------------------------------------------
\145\ For brevity, all beef and veal packers will be
collectively referred to as beef packers and all lamb, sheep, and
goat packers will be collectively referred to as lamb packers.
---------------------------------------------------------------------------
AMS estimated that on average, live poultry dealers that are
regulated under the proposed rule will require 20 hours of
administrative time at $29.27 per hour costing the industry $53,000
\146\; 40 hours of management time at $86.83 per hour costing the
industry $313,000 \147\; 5 hours of IT systems managers' time at $93.68
per hour costing the industry $42,000 \148\; and 40 hours of an
attorney's time at $147.19 per hour costing the industry $530,000 \149\
for learning and reviewing the proposed rule and assessing any impacts
on their business operations. The total cost for poultry dealers to
learn and review the proposed rule is estimated to be $937,000.\150\
---------------------------------------------------------------------------
\146\ 90 live poultry dealers x $29.27 per hour x 20 hours =
$52,686.
\147\ 90 live poultry dealers x $86.83 per hour x 40 hours =
$312,588.
\148\ 90 live poultry dealers x $93.68 per hour x 5 hours =
$42,156.
\149\ 90 live poultry dealers x $147.19 per hour x 40 hours =
$529,884.
\150\ Firm level cost for live poultry dealers is the sum of
costs across professions: $52,686 (administrative assistants) +
$312,588 (managers) + $42,156 (IT system managers) + $529,884
(attorneys).
---------------------------------------------------------------------------
AMS utilized similar calculations to estimate the costs to packers
and swine contractors, as shown in the table below. The estimated total
costs will be $2.72 million \151\ for beef packers, $8.93 million \152\
for pork packers and swine contractors, and $1.45 million \153\ for
lamb packers. The cost to pork packers is an expected $2.04 million and
$6.88 million to swine contractors. Total firm level costs across all
entities totals $13.13 million.
---------------------------------------------------------------------------
\151\ Firm level cost for beef packers: (261 beef packers x
$29.27 per hour for administrative assistants x 20 hours) + (261
beef packers x $86.83 per hour for managers x 40 hours) + (261 beef
packers x $93.68 per hour for IT specialists x 5 hours) + (261 beef
packers $147.19 per hour attorney time x 40 hours).
\152\ Total firm level cost to pork markets: $2,041,262 (pork
packers) + $6,884,051 (swine contractors) = $8,925,312. Firm level
cost for pork packers: (196 pork packers x $29.27 per hour for
administrative assistants x 20 hours) + (196 pork packers x $86.83
per hour for managers x 40 hours) + (196 pork packers x $93.68 per
hour for IT specialists x 5 hours) + (196 pork packers $147.19 per
hour attorney time x 40 hours). Firm level cost for swine
contractors: (661 swine contractors x $29.27 per hour for
administrative assistants x 20 hours) + (661 swine contractors x
$86.83 per hour for managers x 40 hours) + (661 swine contractors x
$93.68 per hour for IT specialists x 5 hours) + (661 swine
contractors x $147.19 per hour attorney time x 40 hours).
\153\ Firm level cost for lamb packers: (139 lamb packers x
$29.27 per hour for administrative assistants x 20 hours) + (139
lamb packers x $86.83 per hour for managers x 40 hours) + (139 lamb
packers x $93.68 per hour for IT specialists x 5 hours) + (139 lamb
packers $147.19 per hour attorney time x 40 hours).
Table 3--Firm Level, Contract Level and Total Administrative Costs in the Proposed Sec. 201.308 ($ Millions)--
Preferred Alternative
----------------------------------------------------------------------------------------------------------------
Pork packers
Cost Live poultry Beef and swine Lamb Total cost **
dealers packers contractors packers *
----------------------------------------------------------------------------------------------------------------
Firm Level Administrative Costs...... $0.94 $2.72 $8.93 $1.45 $14.03
Contract Level Administrative Costs.. 4.11 0.20 1.79 0.00 6.11
Total Administrative Costs in 2025... 5.05 2.92 10.72 1.45 20.14
10-year PV at 3 percent.............. 4.90 2.83 10.41 1.41 19.55
10-year PV at 7 percent.............. 4.72 2.73 10.02 1.35 18.82
Annualized costs at 3 percent........ 0.57 0.33 1.22 0.16 2.29
Annualized costs at 7 percent........ 0.67 0.39 1.43 0.19 2.68
----------------------------------------------------------------------------------------------------------------
* Lamb contracts are structured differently and not counted here.
** Column and rows may not sum to total due to rounding.
[[Page 53905]]
Direct Contract Level Administrative Costs of the Proposed Rule
Preferred Alternative
This section estimates the costs associated with reviewing
production and marketing contracts to ensure compliance with proposed
Sec. 201.308, after learning and reviewing the proposed rule and
assessing any business impacts. The total cost to review contracts is
estimated by multiplying the number of contracts in each industry by
the estimated hours for regulated entity professionals to review the
contracts and by the hourly cost of each profession.
AMS estimated that there are 23,047 broiler grower agreements,
8,094 swine production agreements,\154\ 1,960 hog marketing
agreements,\155\ and 1,116 feedlot agreements.\156\ AMS does not
estimate sheep production or marketing agreements because they are
structured differently than contracts for other species and would not
need to be reviewed under this proposed rule.
---------------------------------------------------------------------------
\154\ USDA, National Agricultural Statistics Service, ``2022
Census of Agriculture: United States Summary and State Data,''
issued February 2024, table 24.
\155\ An estimated 10 marketing agreements per pork packing
plant x 196 pork packers.
\156\ 1,829 feedlots over 1,000 head (2022 Census of
Agriculture, table 13) x an estimated 61% (the number of feedlots
utilizing formula pricing).
---------------------------------------------------------------------------
The time requirement by each regulated entity professional to
review production and marketing contracts would be less than the time
requirement in learning and reviewing the proposed rule assessing any
business impacts. AMS estimates that it will take 0.5 hours each for
administrative assistants, managers, IT system managers, and attorneys
to review the production and marketing contracts in the respective
livestock and poultry industries.
The table above shows that the contract level administrative costs
of reviewing the contracts are $4.11 million for poultry dealers,\157\
$199,000 for beef packers,\158\ $350,000 for pork packers,\159\ and
$1.44 million for swine contractors.\160\ Lamb contracts are structured
differently from other species' contracts, are mainly fixed-price
contracts, and are not expected to be reviewed under this proposed
rule. The total administrative cost of reviewing contracts is $6.11
million.\161\
---------------------------------------------------------------------------
\157\ Total contract level costs for poultry dealers, $4,113,544
= (23,047 poultry dealer contracts x $29.27 per hour for
administrative assistants x 0.50 hours) + (23,047 poultry dealer
contracts x $86.83 per hour for managers x 0.50 hours) + (23,047
poultry dealer contracts x $93.68 per hour for IT specialists x 0.50
hours) + (23,047 poultry dealer contracts x $147.19 per hour
attorney time x 0.50 hours).
\158\ Total contract level costs for beef packers, $199,134 =
(1,116 beef packer contracts x $29.27 per hour for administrative
assistants x 0.50 hours) + (1,116 beef packer contracts x $86.83 per
hour for managers x 0.50 hours) + (1,116 beef packer contracts x
$93.68 per hour for IT specialists x 0.50 hours) + (1,099 beef
packer contracts x $147.19 per hour attorney time x 0.50 hours).
\159\ Total contract level costs for pork packers, $349,833 =
(1,960 pork packer contracts x $29.27 per hour for administrative
assistants x 0.50 hours) + (1,960 pork packer contracts x $86.83 per
hour for managers x 0.50 hours) + (1,960 pork packer contracts x
$93.68 per hour for IT specialists x 0.50 hours) + (1,960 pork
packer contracts x $147.19 per hour attorney time x 0.50 hours).
\160\ Total contract level costs for swine contractor,
$1,440,660 = (8,094 swine contractors contracts x $29.27 per hour
for administrative assistants x 0.50 hours) + (8,094 swine
contractors contracts x $86.83 per hour for managers x 0.50 hours) +
(8,094 swine contractors contracts x $93.68 per hour for IT
specialists x 0.50 hours) + (8,094 swine contractors contracts x
$147.19 per hour attorney time x 0.50 hours).
\161\ Total contract level costs, $6,107,170 = $4,113,544
million for poultry dealers + $199,134 for beef packers + $349,833
for pork packers + $1,440,660 for swine contractors.
---------------------------------------------------------------------------
Direct Firm Level and Contract Level Administrative Costs of the
Proposed Rule Preferred Alternative
Total administrative industry costs are presented in the table
above. The description of estimated firm level and contract level
administrative costs were presented above. AMS expects that producers
will not face any costs from the proposed rule. Firm level costs to
learn the proposed rule and assess any impacts on business operations
are estimated to be $14.03 million and the contract level costs to
review production and marketing contracts are estimated to be $6.11
million, for a total estimated administrative cost of $20.14 million in
the proposed rule. AMS expects that the firm level and contract level
costs which comprise the total administrative industry costs are one-
time costs to be incurred the first year the proposed rule would be
effective and that these costs will not be recurring costs.
Litigation Costs--Preferred Alternative
AMS believes that proposed Sec. 201.308 may possibly reduce
litigation due to the clarity provided by the proposed rule as to the
unfair practices with respect to market participants and markets that
violate the Act. However, the proposed rule possibly increases
litigation to the extent that AMS or producers are better able to
identify unfair practices and thus may be more likely to seek relief in
courts. AMS is uncertain as to which of these offsetting effects will
dominate and to what extent. Therefore, AMS does not estimate
litigation costs in this analysis.
Indirect Costs
AMS is unable to quantify any costs or benefits that would arise
from changing business practices due to proposed Sec. 201.308. If
AMS's enforcement of proposed Sec. 201.308 has the effect of improving
competitive conditions in the markets, then the changing market
conditions would likely result in a reduction in welfare for packers
and live poultry dealers and an increase for producers and consumers.
These would be costs to packers and live poultry dealers, and would be
offset by gains for consumers, growers, and producers.
Changing competitive conditions could have production efficiency
effects, which may or may not be larger than market power effects,\162\
e.g., decreasing market power could result in more smaller packers with
higher production costs per unit. Hence, a full accounting of net
benefits would involve analysis of demand and supply changes.
---------------------------------------------------------------------------
\162\ U.S. General Accountability Office, ``U.S. Agriculture:
Retail Food Prices Grew Faster Than the Prices Farmers Received for
Agricultural Commodities, but Economic Research Has Not Established
That Concentration Has Affected These Trends,'' GAO-09-746R, June
2009.
---------------------------------------------------------------------------
Costs and Benefits of the Limited Scope Alternative
The alternative is the same as the preferred alternative, with the
exception that the alternative would limit the scope of the proposed
rule to Sec. 201.308(a) and (b). Section 201.308(c) and (d) from the
preferred alternative would not be part of the limited scope
alternative.
Proposed Sec. 201.308(a) protects market participants from the
type of unjustified acts or practices that produce unavoidable injury
that cannot be justified by countervailing benefits to producers or to
competition. Proposed Sec. 201.308(b) provides criteria under which
likely injuries must be halted before actual injury occurs.
Proposed Sec. 201.308(a) defines unfair practices as those that
injure market participants, while Sec. 201.308(c) defines unfair
practices as those that result in harms to the market. Both sections of
the preferred alternative define ``unfair'' from slightly different
vantage points. Combining these provisions results in a more
comprehensive definition of the term ``unfair.''
While AMS believes the inclusion of both provisions fully define
the meaning and applicability of the term ``unfair'' under the Act, AMS
considered a regulatory alternative of severing Sec. 201.308(a) and
(b) from
[[Page 53906]]
Sec. 201.308(c) and (d) and eliminating Sec. 201.308(c) and (d) as a
viable regulatory alternative. A rule of that kind meets many of the
policy goals for this rulemaking. What this regulatory alternative does
not do is to define unfair practices as those that result in harm to
the market. Thus, this regulatory alternative provides is less
comprehensive compared to the preferred alternative.
In terms of the costs of complying with the limited scope
alternative, the costs are similar, but slightly smaller than the
preferred alternative. AMS expects that regulated entities will still
need to spend time understanding the limited scope alternative, its
impacts on its business operations, and will still need to review all
contracts to ensure compliance with the proposed rule. Given the amount
of overlap in defining the term ``unfair'' in the preferred
alternative, AMS expects that regulated entities will need to spend 90
percent of the time to review the limited scope alternative, assess the
impact of its businesses, and review contracts for compliance with the
alternative rule.
AMS expects that under the limited scope alternative live poultry
dealers, packers and swine contractors expend 90 percent of the time in
firm level administrative costs in learning and reviewing the
alternative rule and assessing any impacts on their business
operations, and 90 percent of the time in reviewing contracts. The time
requirement for administrative assistants is expected to be 18 hours,
36 hours for managers, 4.5 hours for IT systems support and 36 hours
for attorneys. The time requirement of reviewing production and
marketing contracts is expected to be 0.45 hours for each profession.
It is expected that the respective regulated entities reviewing the
rule and assessing business impacts will be the same as in the
preferred alternative, and their respective hourly compensation will
remain the same as in the preferred alternative. The number of live
poultry dealers, packers and swine contractors will also remain the
same as in the preferred alternative.
The estimated firm level costs will be $0.84 million for poultry
dealers,\163\ $2.45 million for beef packers,\164\ and $8.03 million
for pork packers and swine contractors,\165\ and $1.30 million for lamb
packers.\166\ The firm level cost for pork packers is $1.84 million and
$6.20 million for swine contractors. Total firm level costs across all
entities total $12.63 million.\167\
---------------------------------------------------------------------------
\163\ Poultry dealer firm level costs: $47,417 (administrative
assistants) + $281,329 (managers) + $37,940 (IT support) + $476,896
(legal).
\164\ Beef packer firm level costs: $137,510 (administrative
assistants) + $815,855 (managers) + $110,027 (IT support) +
$1,382,997 (legal).
\165\ Pork packer firm level costs: $103,265 (administrative
assistants) + $612,672 (managers) + $82,626 (IT support) +
$1,038,573 (legal). Swine contractor firm level costs: $348,254
(administrative assistants) + $2,066,207 (managers) + $278,651 (IT
support) + $3,502,533 (legal).
\166\ Lamb packer firm level costs: $73,234 (administrative
assistants) + $434,497 (managers) + $58,597 (IT support) + $736,539
(legal).
\167\ Total firm level costs: $0.84 million (poultry dealers) +
$2.45 million (beef packers) + $8.03 million (pork packers and swine
contractors) + $1.30 (lamb packers) = $11.82 million (total).
Table 4--Firm Level, Contract Level and Total Direct Costs for Proposed Sec. 201.308 ($ Millions)--Limited
Scope Alternative
----------------------------------------------------------------------------------------------------------------
Pork packers
Costs Live poultry Beef and swine Lamb Total costs **
dealers packers contractors packers *
----------------------------------------------------------------------------------------------------------------
Firm level administrative costs...... $0.84 $2.45 $8.03 $1.30 $12.63
Contract level administrative costs.. 3.70 0.18 1.62 0.00 5.50
Total administrative costs in 2025... 4.55 2.63 9.65 1.30 18.12
10-year PV at 3 percent.............. 4.41 2.55 9.37 1.26 17.59
10-year PV at 7 percent.............. 4.25 2.45 9.02 1.22 16.94
Annualized costs at 3 percent........ 0.52 0.30 1.10 0.15 2.06
Annualized costs at 7 percent........ 0.60 0.35 1.28 0.17 2.41
----------------------------------------------------------------------------------------------------------------
* Lamb contracts are structured differently and thus not included here.
** Rows may not sum to Total Costs due to rounding.
The contract level administrative costs are also presented in the
table above. AMS estimated that it will cost poultry dealers $3.70
million,\168\ $0.18 million for beef packers,\169\ $1.62 million for
pork packers and swine contractors,\170\ and no cost to lamb packers.
It is expected that lamb packers will not incur a contract level
administrative cost because production and marketing contracts are
structured differently, and it is not expected that the contracts will
be reviewed. The contract level cost for pork packers is $315,000 and
$1.30 million for swine contractors. The total contract level
administrative cost is expected to be $5.50 million.\171\
---------------------------------------------------------------------------
\168\ Poultry dealer contract level costs: $303,564
(administrative assistants) + $900,527 (managers) + $971,569 (IT
support) + $1,526,530 (legal).
\169\ Beef packer contract level costs: $14,695 (administrative
assistants) + $43,594 (managers) + $47,033 (IT support) + $73,898
(legal).
\170\ Pork packer firm level costs: $25,816 (administrative
assistants) + $76,584 (managers) + $82,626 (IT support) + $129,822
(legal). Swine contractor firm level costs: $106,610 (administrative
assistants) + $316,261 (managers) + $341,211 (IT support) + $536,110
(legal).
\171\ Total contract level costs: $3.70 million (poultry
dealers) + $0.18 million (beef packers) + $1.62 million (pork
packers and swine contractors) = $5.50 million (total).
---------------------------------------------------------------------------
As shown in the table above, the 10-year PV costs at three percent
for the proposed limited scope alternative is expected to be $17.59
million. The total cost to the poultry industry is expected to be $4.55
million, $2.62 million for beef packers, $9.65 million for pork packers
and swine contractors, and $1.3 million for the lamb packers. The 10-
year PV costs at seven percent for the proposed limited scope
alternative is expected to be $16.94 million.
The benefits of the limited scope alternative are similar to the
benefits of the preferred alternative, since both alternatives provide
a definition of ``unfair'' acts and practices and may lead to more
competitive livestock, meat, and poultry markets. AMS prefers to
propose the alternative of Sec. 201.308(a) through (d) because it
offers a more comprehensive guide to market participants than the
limited scope alternative.
D. Regulatory Flexibility Analysis
AMS proposes to establish Sec. 201.308 to define how AMS evaluates
unfair acts or practices and unfair methods of competition under
section 202(a) the
[[Page 53907]]
P&S Act. The term ``unfair'' has caused confusion and contention in the
industry and in courts, and this rulemaking is intended mitigate both.
Proposed Sec. 201.308 is made of four parts. Paragraphs (a) and
(b) of proposed Sec. 201.308 concern unfair acts or practices with
respect to market participants. Paragraphs (c) and (d) concern unfair
practices with respect to markets. Parts of both of these provisions
relate to the likely harms the Act was designed to prevent; paragraph
(b) helps define paragraph (a), and paragraph (d) helps define
paragraph (c). No part, however, requires that proof of harm to
competition to find a violation of the Act. This is consistent with
USDA's interpretation and enforcement of the Act, but it is not
consistent with all Federal court decisions.
Paragraph (a) of proposed Sec. 201.308 defines an unfair act or
practice as one that causes or will likely cause substantial injury to
a market participant, which the market participant could not reasonably
avoid and which the regulated entity that has engaged in the act cannot
justify by establishing countervailing benefits to market participants
or competition. Paragraph (b) includes factors the Secretary of
Agriculture may consider when evaluating whether an unfair act or
practice is likely to cause substantial injury. Factors include the
extent to which an act or practice impedes or restricts the ability to
participate in the market, the extent to which an act or practice
subverts competitive market forces, the size any potential injury, and
the extent to which the act or practice interferes with free decision
making.
Paragraph (c) of proposed Sec. 201.308 defines an unfair practice
with respect to markets as a practice that is collusive, coercive,
predatory, restrictive, deceitful, or exclusionary and that may
negatively affect competitive conditions.
AMS intends for proposed Sec. 201.308 to be consistent with the
way USDA has interpreted section 202(a) of the Act for decades. The
preamble for this rulemaking explains how USDA has defined ``unfair''
in past actions and how those actions are consistent with the
interpretation of ``unfair'' in proposed Sec. 201.308. Concerning
USDA's interpretation and enforcement of ``unfair'' in section 202(a)
of the Act, AMS does not expect proposed Sec. 201.308 to change USDA's
position on enforcement of section 202(a).
Addressing the exercise of market power is one purpose of proposed
Sec. 201.308, although it potentially addresses other issues
concerning ``unfairness'' under the Act as well. Market power has been
a problem in the meat packing industry since the invention of
refrigerated rail cars enabled Chicago packers to process western
livestock and ship the carcasses east at costs lower than eastern
packers could achieve. From the 1880s to 1920, a series of
investigations found the largest meat packers controlling prices
through a variety of methods. Those findings were much of the reason
that Congress passed the Act in 1921.\172\
---------------------------------------------------------------------------
\172\ Azzam, Azzadine and Anderson, Dale, May 1996, ``Assessing
Competition in Meatpacking, Economic History, Theory, and
Evidence,'' USDA, GIPSA, <a href="https://www.gipsa.usda.gov/psp/publication/con_tech%20report/rr96-6.pdf">https://www.gipsa.usda.gov/psp/publication/con_tech%20report/rr96-6.pdf</a>.
---------------------------------------------------------------------------
Market power in livestock, meat, and poultry markets is a
continuing problem that USDA has regulated through the Act since the
1920s. USDA has consistently established the rules and regulations
necessary to maintain fair and competitive markets, including
protecting producers from marketplace abuses and harms they could not
avoid. One example is Sec. 201.70, which requires packers to conduct
their livestock buying operations independently and in competition with
other packers.\173\ Proposed Sec. 201.308 is another step in the
ongoing regulation of competition in the livestock, meat, and poultry
markets. Proposed Sec. 201.308 is designed to mitigate market power
and the implications of market power especially on producers. It would
also address fair trade practices in the marketplace generally. Unlike
many of the regulations under the Act, proposed Sec. 201.308 does not
place any specific requirements on packers, live poultry dealers, or
swine contractors.
---------------------------------------------------------------------------
\173\ Source: 24 FR 3183, Apr. 24, 1959.
---------------------------------------------------------------------------
Instead, it provides a framework for evaluating acts, practices,
and methods of competition to determine if they are violations of the
Act. Proposed Sec. 201.308 would be a new regulation, and USDA has not
articulated the factors in proposed Sec. 201.308 as such in enforcing
violations of the Act in the past. However, the preamble to the
rulemaking explains that past enforcement actions under the Act have
been consistent with the factors in proposed Sec. 201.308.
While proposed Sec. 201.308 is consistent with actions that USDA
has taken in the past, it is less clear what different acts or
practices may violate proposed Sec. 201.308 that USDA would not have
been considered violations without the proposed rule. USDA has asserted
that a violation of the Federal antitrust laws may also violate the
Packers and Stockyards Act, but that the Packers and Stockyards Act's
prohibition on unfair practices incorporates trade practices beyond
those covered by the Federal antitrust laws. AMS expects that proposed
Sec. 201.308 will improve its enforcement of the Act and make
livestock, meat, and poultry markets fairer and more competitive. AMS
estimated administrative costs of proposed Sec. 201.308 in two parts,
firm level and contract level. In firm level costs, AMS expects that
each small packer, swine contractor, and live poultry dealer would need
to review and learn the proposed rule and to assess any impacts on
their business operations. In contract level costs, AMS expects that
small entities would review production and marketing contracts to
ensure compliance with the proposed rule.
Defining Small Businesses
The SBA defines small businesses by their North American Industry
Classification System Codes (NAICS).\174\ Live poultry dealers, NAICS
311615, are considered small businesses if they have fewer than 1,250
employees. Meat packers, including, beef, veal, pork, lamb, and goat
packers, NAICS 311611, are small businesses if they have fewer than
1,000 employees. Swine contractors, NAICS 112210, are considered small
if their sales are less than $1 million annually.
---------------------------------------------------------------------------
\174\ U.S. Small Business Administration. Table of Small
Business Size Standards Matched to North American Industry
Classification System Codes. Effective August 19, 2019. ``The SBA
Issues a Final Rule to Adopt NAICS 2017 for Small Business Size
(last accessed 8/9/2022).'' Available at <a href="https://www.sba.gov/article/2018/feb/27/sba-issues-final-rule-adopt-naics-2017-small-business-size-standards">https://www.sba.gov/article/2018/feb/27/sba-issues-final-rule-adopt-naics-2017-small-business-size-standards</a>.
---------------------------------------------------------------------------
AMS maintains data on live poultry dealers from the annual reports
these firms file with AMS. Currently, 90 live poultry dealers would be
subject to the regulation. Fifty-five of the live poultry dealers will
be small businesses according to the SBA standard.
Most packers will be small businesses, although large packers are
responsible for most meat production. According to the SBA standard,
there are 255 small beef packers, 185 small pork packers, and 139 small
lamb packers. All lamb packers are considered small.
AMS does not have similar records for swine contractors because
they are not required to register with AMS or provide annual reports.
Table 24 of the 2022 United States Department of Agriculture (USDA)
Census of Agriculture \175\ indicated that there were
[[Page 53908]]
661 swine contractors in 2022. The Census of Agriculture table has
categories for the number of head that swine contractors sold, but not
the value of the head sold. AMS expects that the 461 swine contractors
that sold 5,000 head of hogs or more were large businesses, and the 194
contractors that sold less than 5,000 head were small businesses.
---------------------------------------------------------------------------
\175\ USDA, National Agricultural Statistics Service, ``2022
Census of Agriculture: United States Summary and State Data,''
issued February 2024, table 24.
---------------------------------------------------------------------------
Direct Firm Administrative Costs of the Proposed Rule to Small
Businesses
As shown in the table below, the firm level cost for small poultry
dealers is $573,000,\176\ $2.66 million for small beef packers,\177\
$1.93 million for small pork packers,\178\ $1.12 million for small
swine contractors,\179\ and $1.45 million for small lamb packers. The
total firm level cost for small firms from the proposed rule is $7.73
million.\180\
---------------------------------------------------------------------------
\176\ Firm level cost for poultry growing arrangements with
small firms = 3.2 percent x $937,314.
\177\ Firm level cost for small beef packers = 17.4 percent x
$2,718,211.
\178\ Firm level cost for small pork packers = 11.3 percent x
$2,041,262.
\179\ Firm level cost for small swine contractors = 8.9 percent
x $5,988,395.
\180\ Total firm level costs across small firms in livestock and
poultry industries, $7,738,048 = $572,803 (live poultry dealer) +
$2,655,723 (beef packer) + $1,926,701 (pork packer) + $1,135,191
(swine contractors) + $1,447,629 (lamb packer).
Table 5--Total Administrative Costs in the Proposed Sec. 201.308 to Small Businesses
----------------------------------------------------------------------------------------------------------------
Pork packer
Cost Live poultry Beef packer and swine Lamb packer Total cost **
dealer contractor *
----------------------------------------------------------------------------------------------------------------
Firm Level Administrative Costs...... 573,000 2,656,000 3,062,003 1,448,000 7,738,000
Contract Level Administrative Costs.. 131,000 35,000 168,000 0 334,000
Total Administrative Costs in 2025... 704,000 2,690,000 3,230,000 1,448,000 8,072,000
10-year PV at 3 percent.............. 683,000 2,612,000 3,136,000 1,405,000 7,837,000
10-year PV at 7 percent.............. 658,000 2,514,000 3,019,000 1,353,000 7,544,000
Annualized costs at 3 percent........ 80,000 306,000 368,000 165,000 919,000
Annualized costs at 7 percent........ 94,000 358,000 430,000 193,000 1,074,000
----------------------------------------------------------------------------------------------------------------
* Lamb contracts are structured differently and not counted here.
** Rows may not sum to Total Costs due to rounding.
AMS estimated the small business contract level costs by estimating
small businesses' share (the market share) of all businesses contract
level costs. The percent of poultry growing arrangements held by small
businesses is 3.2 percent, the percent of production contracts held by
small swine contractors is 8.9 percent, the portion of hog marketing
agreements with small firms is 11.3 percent, and the percent of cattle
feedlot agreements with small businesses is 17.4 percent. Contract
level administrative costs are not estimated for lamb packers because
these contracts are structured differently than for other species, and
lamb packers are not expected to revise contracts under the proposed
rule.
Contract level costs for small poultry dealers are $131,000,\181\
$35,000 for small beef packers,\182\ $40,000 for small pork
packers,\183\ and $127,000 for small swine contractors.\184\ The total
contract level costs for small firms from the proposed rule are
$334,000.\185\
---------------------------------------------------------------------------
\181\ Contract level cost for poultry growing arrangements with
small firms = 3.2 percent x $4,113,544.
\182\ Contract level cost for small beef packers = 17.4 percent
x $196,098.
\183\ Contract level cost for small pork packers = 11.3 percent
x $349,833.
\184\ Contract level cost for small swine contractors = 8.9
percent x $1,527,298.
\185\ Total contract level costs across small firms in livestock
and poultry industries, $334,001 = $131,186 (poultry dealers) +
$34,180 (beef packer) + $39,531 (pork packers) + $135,929 (swine
contractors).
---------------------------------------------------------------------------
The following table compares the average per entity first-year
costs of proposed Sec. 201.308 to the average revenue per
establishment for all regulated small businesses. First-year costs are
appropriate for a threshold analysis because all expected costs occur
in the first year.
Table 6--Comparison of Average Costs per Entity to Average Revenues per Entity for Small Businesses
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Poultry Beef Pork Swine
Cost dealers packers packers contractors Lamb packers
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[…truncated; see source link]Indexed from Federal Register on June 28, 2024.
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