The Packers and Stockyards Act: An Overview

The Packers and Stockyards Act of 1921, as amended (“PSA” or “Act”), 7 U.S.C. §§ 181-229, is designed to insure effective competition and integrity in livestock, meat, and poultry markets. It was enacted in response to concerns that the “Big Five” large meat packers- Swift & Company, Armour & Company, Cudahy Packing Company, Wilson & Company, and Morris & Company- had engaged in anticompetitive practices that had a deleterious effect on producers and consumers. See 10 Neil E. Harl, Agricultural Law § 71.02 (1993) (providing an extensive discussion of the historical development of the PSA).

On September 7, 2017, Agriculture Secretary Sonny Perdue announced the realignment of several offices with the United States Department of Agriculture (USDA).  The Grain Inspection, Packers, and Stockyards Administration (GIPSA) joined the Agricultural Marketing Service (AMS) under the new Fair Trade Practices Program (FTPP).  The Packers and Stockyards Division (PSD), through their oversight activities under the Packers and Stockyards Act (PSA), fosters fair competition, provides payment protection, guards against deceptive and fraudulent trade practices that affect the movement and price of meat animals and their products, and seeks to protect consumers and members of the livestock, meat, and poultry industries.

The regulations implementing the Act are found at 9 C.F.R. Part 201-206. In its administration of the PSA and Section 1324 of the Food Security Act of 1985, PSD, through its mission, seeks to ensure fair business practices and competitive markets for livestock, meat, and poultry.  The major enforcement areas are payment protection, unfair, deceptive, and fraudulent practices, and competition.  PSD conducts two broad areas of activities-regulatory and investigative-in its administration and enforcement of the Act.  Compliance with the PSA and regulations is confirmed by monitoring industry activities and conducting regulatory compliance reviews and investigations.

The Act has gotten particular attention during the Obama administration when the United States Department of Agriculture and Department of Justice held five joint workshops around the country focusing on competition concerns in agriculture. These workshops also corresponded with the promulgation of the proposed PSA regulations that to ban packer-to-packer sales, removal of the competitive injury element from individual actions under the Act, as well as other regulations aiming at competition. The proposed rules became popularly known as the “GIPSA rule” amongst the industry and government, and received over 61,000 comments in 2010-2011; thereby making it the most actively commented on proposed regulations at the time.


Applicability

The PSA applies to persons engaged in the business of marketing livestock, meat, and poultry in interstate or foreign commerce- packers, swine contractors, stockyard owners, market agencies, dealers, and live poultry dealers. See Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, tit. X, § 10502, 116 Stat. 134, 509-10 (codified at 7 U.S.C. §§ 182(a), 192-195, 209(a), 221, 223) (amending the PSA to include swine contractors as persons regulated by the PSA). The PSA does not apply to persons marketing their own livestock or buying livestock for their own stocking or feeding purposes.

A “packer” is

any person engaged in the business (a) of buying livestock in commerce for purposes of slaughter, or (b) of manufacturing or preparing meats or meat food products for sale or shipment in commerce, or (c) of marketing meats, meat food products, or livestock products in an unmanufactured form acting as a wholesale broker, dealer, or distributor in commerce.  7 U.S.C. § 191.

A “person” can be an individual, partnership, corporation, or association. See id. at § 182(1).

“Livestock” includes “cattle, sheep, swine, horses, mules, or goats- whether live or dead.” Id. at § 182(4). “Livestock products” are “all products and byproducts (other than meats and meat food products) of the slaughtering and meat-packing industry derived in whole or in part from livestock.” Id. at § 182(5).

A “swine contractor” is

any person engaged in the business of obtaining swine under a swine production contract for the purpose of slaughtering the swine or selling swine for slaughter, if- (A) the swine is obtained by the person in commerce; or (B) the swine (including products from the swine) obtained by the person is sold or shipped in commerce.  Id. at § 182(12).

A “stockyard owner” is “any person engaged in the business of conducting or operating a stockyard.” Id. at § 201(a). A “stockyard” is

any place, establishment, or facility commonly known as stockyards, conducted, or operated or managed for profit or nonprofit as a public market for livestock producers, feeders, market agencies, and buyers, consisting of pens, or other enclosures, and their appurtenances, in which live cattle, sheep, swine, horses, mules, or goats are received, held, or kept for sale or shipment in commerce. Id. at § 202(a).

A “market agency” is “any person engaged in the business of (1) buying or selling in commerce livestock on a commission basis or (2) furnishing stockyard services.” Id. at § 201(c). “Stockyard services” are “services or facilities furnished at a stockyard in connection with the receiving, buying, or selling on a commission basis or otherwise, marketing, feeding, watering, holding, delivery, shipment, weighing, or handling in commerce, of livestock.” Id. at § 201(b).

A “dealer” is “any person, not a market agency, engaged in the business of buying or selling in commerce livestock, either on his own account or as the employee or agent of the vendor or purchaser.” Id. at § 201(d).

A “live poultry dealer” is “any person engaged in the business of obtaining live poultry by purchase or under a poultry growing arrangement for the purpose of either slaughtering it or selling it for slaughter by another . . . .” Id. at § 182(10). “Poultry” includes “chickens, turkeys, ducks, geese, and other domestic fowl.” Id. at § 182(6). A “poultry grower” is “any person engaged in the business of raising and caring for live poultry for slaughter by another, whether the poultry is owned by such person or by another, but not an employee of the owner of such poultry.” Id. at § 182(8). A “poultry growing arrangement” is “any growout contract, marketing agreement, or other arrangement under which a poultry grower raises and cares for live poultry for delivery, in accord with another’s instructions, for slaughter.” Id. at § 182(9).


Unlawful Practices; Registration

The PSA prohibits certain unlawful conduct on the part of packers and live poultry dealers. See id. at § 192. Title II of the Act focuses on competition issues that arises from Packers and Live Poultry Dealers. Practices enumerated as unlawful include engaging in or using “any unfair, unjustly discriminatory, or deceptive practice or device”; making or giving “any undue or unreasonable preference or advantage to any particular person or locality in any respect, or subject[ing] any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect”; and engaging “in any course of business or do[ing] any act 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.” Id.

Under Title III of the Act, similar provisions as shown above apply to Stockyard Owners, Stockyards Services, Market Agencies, and Dealers. See Id, §§ 301, 312. Stockyards, Market Agencies, and Dealers must register with the Packers and Stockyards Program in addition to the bond having to be posted as discussed below. The duty to register does not apply to Packers, which from a practical matter also means that a preliminary Notice of Violation with included recommended corrective actions does not have to be sent to Packers, but will be sent Stockyards, Market Agencies and Dealers.

As of note, there are very few registered Stockyards in existence within the country anymore, as the industry has evolved into use of feedlots more that are typically further from cities and closer to the packing houses. Feedlots are exempted from the Act, pursuant to Tenth Circuit decision in 1977 that has not been challenged See Solomon Valley Feedlot, Inc. v. Butz, 557 F.2d 717 (10th Cir. 1977).


Bonds

Market agencies, packers whose average annual purchases of livestock exceed $500,000, and “every other person operating as a dealer” must maintain a bond as a means of protecting livestock sellers. Id. at § 204. The amount of the bond is typically based on the volume of business done in two business days and is usually at least $10,000. The bonds are determined from an annual livestock report that is done through self-reporting required by the regulations and submitted to the Central Reporting Unit of the PSD.

The Secretary may, after notice and hearing, suspend a packer, market agency, or any dealer for a “reasonable specified period” if it is determined that the packer, market agency, or dealer is insolvent. 7 U.S.C. § 204. If the Secretary determines that a packer is insolvent, “he may after notice and hearing issue an order … requiring such packer to cease and desist from purchasing livestock while insolvent” or requiring the insolvent packer to purchase livestock only in accordance with conditions established by the Secretary. Id.

 

Scales and Weighing

Another major responsibility of the PSD is to monitor scales and weighing procedures that are used in calculating payments for livestock and poultry. The regulations under the Act require two testing of in-use scales by each regulated entity per year, one to occur within the first half of the year, and the other to be conducted in the second half of the year with the tests being no closer than 120 days apart. See 9 C.F.R. 201.72(a).


Prompt Payment

Packers, market agencies, and dealers purchasing livestock must provide prompt payment to the seller for the full amount of the purchase price, usually by the close of the business day after transfer of possession. See id. at § 228b. Packers must pay the full purchase to a livestock seller “before the close of the next business day following the purchase . . . .” Id. at § 228b(a). If, however, the livestock is purchased for slaughter, “before close of the next business day following purchase of livestock and transfer of possession thereof,” the packer must “actually deliver at the point of transfer of possession to the seller or his . . . representative a check or shall wire transfer funds to the seller’s account for the full amount of the purchase price.” Id. Also, if the seller or his representative “is not present to receive payment at the point of transfer of possession . . ., the packer . . . shall wire transfer funds or place a check in the United States mail for the full amount of the purchase price, properly addressed to the seller, within the time period specified in this subsection . . . .” Id. Prompt payment rules do not apply in credit transactions, which as described later also abdicates the right in a statutory trust for Livestock, as defined in the Act.

Live poultry dealers are required to provide prompt payment prior to the close of the next business day for transactions involving live poultry obtained in a cash sale. See id. at § 228b-1(a). Live poultry dealers who purchase live poultry must make prompt payment to the cash seller or poultry grower from whom the live poultry was obtained “before the close of the fifteenth day following the week in which the poultry is slaughtered.” Id.


Statutory Trust

Packers and live poultry dealers are required to maintain a statutory trust for the benefit of unpaid sellers or poultry growers. Trust assets do not become part of the bankruptcy estate if a packer or live poultry dealer files a bankruptcy petition. Thus, unpaid sellers and poultry growers have priority over secured creditors for the assets of the statutory trust. See Randy Rogers & Lawrence P. King, Collier Farm Bankruptcy Guide § 105[1] (1997) (discussing the PSA statutory trust).

Packers whose average annual purchases exceed $500,000 must establish a statutory trust. See id. at § 196. Specifically, all livestock that a packer purchases in cash sales, “and all inventories of, or receivables or proceeds from meat, meat food products, or livestock products derived therefrom, shall be held by such packer in trust for the benefit of all unpaid cash sellers of such livestock until full payment has been received by such unpaid sellers.” Id. at § 196(b). See also id. at § 196(c) (defining “cash sale”). The unpaid cash seller must give notice to the Secretary within thirty days from the last day in which the packer was to make prompt payment or “within fifteen business days after the seller has received notice that the payment instrument promptly presented for payment has been dishonored.” 7 U.S.C. § 196(b).

Similarly, all poultry obtained by a live poultry dealer through either cash sales or poultry growing arrangements, “and all inventories of, or receivables and proceeds from such poultry or poultry products derived therefrom, shall be held by such live poultry dealer” in trust for the unpaid seller or poultry grower. Id. at § 197(b). The live poultry dealer is not required to maintain a statutory trust, however, if it “does not have average annual sales of live poultry, or average annual value of live poultry obtained by purchase or by poultry growing arrangement, in excess of $100,000.” Id. at § 197(b).

To preserve its rights in the assets of the statutory trust, the unpaid seller must give notice to the Secretary within thirty days of the final date for making prompt payment in accordance with § 228b or within fifteen days of receiving notice that the packer’s or live poultry dealer’s payment instrument has been dishonored.  The unpaid seller loses its rights to the statutory trust if it extends credit to the buyer. The PSA does not permit an extension of credit for transactions involving poultry that was produced under a growing arrangement.


Swine Contractors

Subject to certain exceptions, swine contractors are subject to the same restrictions and requirements to which packers are subject, including the prohibitions on unlawful practices. See id. at § 192 (identifying unlawful packer practices). The PSA, however, does not include prompt payment, statutory trust, or bond requirements applicable to swine packers. In addition, the Act requires the creation of a Swine Contract Library that allows producers to have a more transparent market, as they will see the various standard contracts offered by Swine Contractors. See Id, § 201.

 

Protections for Growers

In recent years, through the Food, Conservation and Energy Act of 2008 (“2008 Farm Bill”) Congress has taken a more active role in passing laws enabling regulations that provide more protections for growers due to unbalanced bargaining positions with Live Poultry Dealers and Swine Contractors. These protections include three-day cancellations by the grower, disclosure of additional capital investments that would be needed on the grower’s farm and/or land, choice of law and venue, and arbitration provisions. See id. §§ 208-210.


Enforcement

Generally, the PSD utilizes the following enforcement tools: Notice of Violations that include corrective action; Stipulation Agreements; administrative actions through the USDA Office of General Counsel; and instituting court actions through the Department of Justice. There are a few layers of decision-making in deciding the choice of enforcement tool that will include the regional office, the Policy and Litigation Division at the Headquarters’ office, the Office of General Counsel, and potentially Department of Justice.

More specifically, if any person subject to the PSA violates any of its provisions or any order of the Secretary “relating to the purchase, sale, or handling of livestock, the purchase or sale of poultry, or relating to any poultry growing arrangement or swine production contract,” such person shall be liable to the injured person(s) “for the full amount of damages sustained in consequence of such violation.” Id. at § 209. The injured person(s) may enforce this liability in federal district court or by bringing a reparations proceeding before the Secretary. See id. at § 210 (setting forth requirements applicable to reparations proceedings). A reparations proceeding must be initiated within ninety days after the cause of action accrues. See id. at § 210(a). See also 9 C.F.R. §§ 202.101-.123 (setting forth requirements governing reparations proceedings); Donald A. Campbell, The Packers and Stockyards Regulatory Program, in 1 Agricultural Law § 3.83 (discussing reparations proceedings). Reparations proceedings cannot be filed against packers, swine contractors, or live poultry dealers.

Further, if there is “reason to believe” that a packer has violated the PSA, the Secretary must issue a written complaint to the packer and conduct a hearing on the matter. Id. at § 193(a). If the Secretary determines after the hearing that the packer has violated the PSA, the Secretary “shall issue and cause to be served on the packer an order requiring such packer to cease and desist from continuing such violation.” Id. The Secretary may assess a civil penalty of no more than $10,000 for each violation. See id. See also id. at § 193(b)-(c) (setting forth process for packer who fails to obey order of Secretary and process for amending the Secretary’s order). A packer who fails to obey a cease and desist order may be assessed a fine and imprisonment. See id. at § 195(3). See also id. at § 195 (stating rights of private parties to seek damages for packer’s violation of the PSA and/or failure to obey Secretary’s order)