The Packers and Stockyards Act (“PSA”) is a law passed by Congress in 1921 to prevent “unfair, deceptive, and unjust discriminatory practices by market agencies, dealers, stockyards, packers, swine contractors, and live poultry dealers in the livestock, meat‐packing, and poultry industries.” It gave the Secretary of Agriculture the authority to regulate those businesses to protect consumers, producers and growers. As the years progressed, Congress saw some areas of the law that needed further refinement. As a result, in the 2008 Farm Bill it required USDA to develop additional rules to enforce the PSA in regards to contracting. Specifically, Congress required that USDA establish 1) a definition of an “undue or unreasonable preference or advantage”; 2) the definition of “reasonable notice” for poultry growers whose delivery of birds has been suspended; 3) guidelines for requiring additional capital investments to facilities during a contract; and 4) the definition of a “reasonable period of time” to remedy a breach of a growing contract.
In the twelve years and two presidential administrations since the 2008 Farm Bill, there has been a significant amount of procedural history to this mandate; everything from proposed rules to withdrawn proposals, from Congressional prohibitions to interim final rules and a lawsuit against USDA. This history is outlined in a NALC issue brief here. Three of the four requirements have been finalized. The definition of reasonable notice when delivery of birds has been suspended is available at 9 C.F.R. § 201.215, while the factors defining a reasonable period of time to remedy a contract breach are available at 9 C.F.R. § 201.217. The guidelines for when additional capital investments are required is available at 9 C.F.R. § 201.216.
Finalizing a definition of an “undue or unreasonable preference or advantage” in contracting has been both contentious and delayed. While the Obama administration proposed a version before leaving office, it was withdrawn by the Trump administration after the transition. Until recently, it had not been replaced with a different draft.
However, in January 2020, USDA Agricultural Marketing Service (formerly GIPSA) released a proposed rule identifying four criteria answering the last question. After a comment period in which 2,351 comments were received, the final rule was released on December 11, 2020. It reads as follows:
The Secretary will consider the following criteria, and may consider additional criteria, when determining whether a packer, swine contractor, or live poultry dealer has made or given any undue or unreasonable preference or advantage to any particular person or locality in any respect in violation of section 202(b) of the Act. The criteria include whether the preference or advantage under consideration:
(a) Cannot be justified on the basis of a cost savings related to dealing with different producers, sellers, or growers;
(b) Cannot be justified on the basis of meeting a competitor’s prices;
(c) Cannot be justified on the basis of meeting other terms offered by a competitor; and
(d) Cannot be justified as a reasonable business decision.
The rule cited examples such as transportation costs and delivery times to be factors that might not serve as a foundation for an undue preference determination. On the other hand, USDA hypothesized a live poultry dealer offering a higher base price to a favored grower but not to other growers in the same complex with the same housing types as a potential violation.
While this rule is final, it does not mean that it will survive a change in administrations. Groups such as RAFI-USA and National Farmers Union are already encouraging the incoming Biden administration to withdraw and re-write the regulation. Another proponent of changing the rule is Sen. Chuck Grassley. According to Agri-Pulse Daybreak this morning, Grassley told reporters “‘I’m going to assume there is maybe a little better environment to take on corporations not just in agriculture but across the board, in a democratic administration than republican administration’ … Grassley says the rule fails to address abusive industry practices and the specific criteria in the rule insulates packers and poultry companies from proper scrutiny from the government.”