Regulations & Legislation: GIPSA proposal - the law of unintended consequences
November 1, 2010
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The Grain Inspection, Packers and Stockyards Administration (GIPSA) regulates the sale and purchase of livestock and poultry. Over the summer, GIPSA issued a controversial proposed rule that would dramatically change how livestock and poultry are marketed, and the change would not be for the better.
As the end of the comment period draws closer, it has become increasingly evident that packers and producers are not the only ones that have high stakes in this matter. Everyone from the farm-to-table continuum, including meat processors, retailers, restaurants and consumers, is weighing in on how the proposed rule could negatively impact them.
There are many different ways that the proposed rule could harm downstream users of livestock products. One way is that the proposed rule would make it more difficult for packers and downstream processors to produce value-added products that consumers prefer, such as “natural.”
For example, the proposed rule contains several provisions (e.g., a rule requiring packers to justify price and contract terms, a rule making it an unfair practice to offer premiums without substantiating the revenue and cost justifications) that would make it easier for producers to sue packers that offer premiums and value-added contract terms in order to procure a consistent and stable supply of livestock needed for the production of quality branded products that meet consumer demand.
Faced with the threat of litigation arising from these provisions, many packers will be forced to start paying the same price for all livestock, and value-added marketing programs such as “natural,” “grass fed” and ‘lean” will go by the wayside.
Another way the proposed rule could harm downstream customers is by raising meat prices. For example, under the proposed rule, packers and their affiliates would no longer be able sell cattle that they own to other packers. If a packer does not have the capacity or need to kill all the livestock it owns, it would be forced to sell the livestock to a middleman, who would in turn sell the livestock, at likely a marked-up price, to other packers. The added costs associated with this transaction would likely be passed on to downstream users of the product and consumers.
The proposed rules could even have an impact on food safety. For example, many packers currently utilize marketing agreements and other contract terms to ensure that their producer suppliers implement pre-harvest controls necessary for their integrated food-safety systems. These agreements typically allow packers to audit the producer’s pre-harvest practices and to immediately terminate the agreements if certain controls are not followed.
If packers must discontinue using these marketing agreements due to fear of litigation created by the proposed rule, packers will no longer have the means to ensure procured livestock meet their food-safety programs or to take immediate corrective actions if they do not.
These are just a few examples of how downstream users of livestock products could be adversely impacted by GIPSA’s proposed rule. All establishments are encouraged to read the proposed regulations carefully and consider how the proposed rule could affect your particular operations and marketing programs.
Comments on the proposed rule are due November 22, 2010.
As the end of the comment period draws closer, it has become increasingly evident that packers and producers are not the only ones that have high stakes in this matter. Everyone from the farm-to-table continuum, including meat processors, retailers, restaurants and consumers, is weighing in on how the proposed rule could negatively impact them.
There are many different ways that the proposed rule could harm downstream users of livestock products. One way is that the proposed rule would make it more difficult for packers and downstream processors to produce value-added products that consumers prefer, such as “natural.”
For example, the proposed rule contains several provisions (e.g., a rule requiring packers to justify price and contract terms, a rule making it an unfair practice to offer premiums without substantiating the revenue and cost justifications) that would make it easier for producers to sue packers that offer premiums and value-added contract terms in order to procure a consistent and stable supply of livestock needed for the production of quality branded products that meet consumer demand.
Faced with the threat of litigation arising from these provisions, many packers will be forced to start paying the same price for all livestock, and value-added marketing programs such as “natural,” “grass fed” and ‘lean” will go by the wayside.
Another way the proposed rule could harm downstream customers is by raising meat prices. For example, under the proposed rule, packers and their affiliates would no longer be able sell cattle that they own to other packers. If a packer does not have the capacity or need to kill all the livestock it owns, it would be forced to sell the livestock to a middleman, who would in turn sell the livestock, at likely a marked-up price, to other packers. The added costs associated with this transaction would likely be passed on to downstream users of the product and consumers.
The proposed rules could even have an impact on food safety. For example, many packers currently utilize marketing agreements and other contract terms to ensure that their producer suppliers implement pre-harvest controls necessary for their integrated food-safety systems. These agreements typically allow packers to audit the producer’s pre-harvest practices and to immediately terminate the agreements if certain controls are not followed.
If packers must discontinue using these marketing agreements due to fear of litigation created by the proposed rule, packers will no longer have the means to ensure procured livestock meet their food-safety programs or to take immediate corrective actions if they do not.
These are just a few examples of how downstream users of livestock products could be adversely impacted by GIPSA’s proposed rule. All establishments are encouraged to read the proposed regulations carefully and consider how the proposed rule could affect your particular operations and marketing programs.
Comments on the proposed rule are due November 22, 2010.
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