On Dec. 20, 2016, the Grain Inspection, Packers and Stockyards Administration (GIPSA) published a three-part rulemaking package, the “Farmer Fair Practices Rules,” in the Federal Register. The controversial rules consist of an interim final rule, slated to go into effect Feb. 21, 2017, and two proposed rules. GIPSA will accept public comment on all three until Feb. 21.
Interim Final Rule: scope of sections 202(a) and (b) of the Packers and Stockyards Act
The Interim Final Rule finalizes a 2010 proposal to amend the regulations under the Packers and Stockyards Act to clarify that “certain conduct or action can be found to violate sections 202(a) and (b) of the Act without a finding of harm or likely harm to competition.”
Section 202(a) of the act prohibits packers, swine contractors and live poultry dealers from engaging in unfair, unjustly discriminatory or deceptive practices, and Section 202(b) prohibits such entities from giving a particular person an undue or unreasonable advantage, or subjecting a person to any undue or unreasonable prejudice or disadvantage. Although several federal Circuit Courts of Appeal have held that GIPSA and private plaintiffs must demonstrate competitive harm or likelihood of competitive harm to prove violations of these sections, the Interim Final Rule is intended overturn this judicial precedent.
GIPSA acknowledges the Interim Final Rule may “initially encourage litigation, temporarily driving up overall costs to stakeholders.” However, the agency states that the proposed rules set forth below, once published as final rules, will mitigate the costs by clarifying what conduct would violate Sections 202(a) or (b), presumably without a showing of competitive harm.
Proposed rule: unfair practices and undue preferences
This proposed rule would amend the agency’s regulations to clarify the type of conduct that would violate Sections 202(a) and (b) of the act. With respect to Section 202(a), the proposed rule would clarify that any “conduct or action explicitly deemed to be an “unfair,” “unjustly discriminatory” or “deceptive” practice or device by the act is a violation. It identifies a number of practices that would be violations of Section 202(a) absent a demonstration of a legitimate business justification. Some of these include:
- Retaliation in response to lawful communication, association or assertion of rights by producers or growers;
- Limiting (or attempting to limit) the legal rights and remedies afforded by law to a producer or grower;
- Failure to meet some enumerated GIPSA regulations intended to protect livestock and poultry growers (e.g., failing to ensure accurate scales, failing to provide a reasonable time to remedy a breach of contract); and
- Any conduct or action that harms or is likely to harm competition.
With respect to 202(b), GIPSA proposes a few criteria to determine whether a regulated entity has engaged in conduct or action that constitutes an undue or unreasonable preference or advantage. The criteria would include, but not be limited to:
- Whether a regulated entity discriminates against growers that engage in lawful communication, association or assertion of their rights or who the regulated entity contends engaged in unlawful conduct without a reasonable basis;
- Whether a regulated entity treats similarly situated producers or growers differently for arbitrary reasons unrelated to livestock or poultry operations (e.g., racial or sexual discrimination);
- Whether the conduct of a regulated entity would harm or likely harm competition; and
- Whether a regulated entity has demonstrated a legitimate business justification for its conduct or action.
Tournament Proposal: poultry grower ranking systems
The Tournament Proposal would amend GIPSA’s regulations to identify the criteria that would be considered when determining whether a live poultry dealer’s use of a tournament system for settlement purposes is “unfair, unjustly discriminatory, or deceptive or gives an undue or unreasonable preference, advantage, prejudice, or disadvantage.” The criteria include, but are not limited to:
- Whether the live poultry dealer provides sufficient information to enable the grower to make informed business decisions (e.g., flocks per year, average gross income);
- Whether the live poultry dealer consistently supplies inputs of comparable quality and quantity to all poultry growers in the ranking group;
- Whether a live poultry dealer includes poultry growers provided with dissimilar production variables in the ranking group in a manner that affects a grower’s compensation; and
- Whether a live poultry dealer has demonstrated a legitimate business justification for use of a tournament system that is otherwise unfair or provides undue preferences.
The future is uncertain for this rulemaking package. Although the Interim Final Rule is slated to go into effect in February, the Trump administration could delay the effective date indefinitely. Also, the Trump administration may decide to withdraw the two proposed rules based on public comments; GIPSA is not obligated to finalize the proposed rules. Additionally, it is likely that stakeholders in the meat and poultry industry may file suit to prevent the Interim Final Rule from going into effect. NP