Inclusive Competition and Market Integrity Under the Packers and Stockyards Act, 16092-16199 [2024-04419]
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS–FTPP–21–0045]
RIN 0581–AE05
Inclusive Competition and Market
Integrity Under the Packers and
Stockyards Act
Agricultural Marketing Service,
Department of Agriculture (USDA).
ACTION: Final rule.
AGENCY:
The U.S. Department of
Agriculture’s (USDA or Department)
Agricultural Marketing Service (AMS or
the Agency) amends its Packers and
Stockyards Act, 1921, regulations to
prohibit undue prejudice and unjust
discrimination against individuals on a
prohibited basis unrelated to the quality
of the service or product provided. The
rule also identifies retaliatory practices
that interfere with lawful
communications, assertion of rights, and
associated participation, among other
protected activities, as unjust
discrimination prohibited by the law.
Finally, the rule identifies deceptive
practices that violate the Packers and
Stockyards Act with respect to contract
formation, contract performance,
contract termination, and contract
refusal. The purpose of this rule is to
promote inclusive competition and
market integrity in the livestock, meats,
poultry, and live poultry markets.
DATES: This rule is effective May 6,
2024.
SUMMARY:
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;
Telephone: (202) 690–4355; or email:
s.brett.offutt@usda.gov.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
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Table of Contents
I. Executive Summary
II. Background
A. Current Market Structure
B. Risks and Implications for Producers
C. Need for This Rulemaking
III. Authority
IV. Summary of the Proposed Rule
V. Changes From the Proposed Rule
A. Market Vulnerable Individual (MVI) to
Prohibited Bases
B. Prohibited Actions Taken on a
Prejudicial Basis
C. Exceptions to the Prohibited Bases
D. Retaliation Provisions
E. Technical Changes
VI. Provisions of the Final Rule
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A. Definitions (§ 201.302)
B. Undue Prejudice and Unjust
Discrimination (§ 201.304(a))
C. Retaliation (§ 201.304(b))
D. Recordkeeping (§ 201.304(c))
E. Deceptive Practices (§ 201.306)
F. Severability (§ 201.390)
VII. Comment Analysis
A. Definitions (§ 201.302)
B. Applicability
C. Undue Prejudices and Unjust
Discrimination (§ 201.304(a))
D. Specific Actions Constituting Prejudice
or Disadvantage (§ 201.304(a)(2))
E. Retaliation (§ 201.304(b))
F. Recordkeeping (§ 201.304(c))
G. Deceptive Practices (§ 201.306)
H. Severability (§ 201.390)
I. Effective and Compliance Dates
J. Regulatory Notices & Analysis &
Executive Order Determinations
K. Comments on Legal Authority or Other
Legal Issues
L. Other Comments Related to the
Proposed Rule
VIII. Regulatory Analysis
A. Paperwork Reduction Act
B. Executive Orders 12866, 13563, and
14094; Regulatory Impact Analysis; and
the Regulatory Flexibility Act
C. Executive Order 13175—Consultation
and Coordination With Indian Tribal
Governments
D. Civil Rights Impact Statement
E. Executive Order 12988—Civil Justice
Reform
F. E-Government Act
G. Unfunded Mandates Reform Act
H. Congressional Review Act
I. Executive Summary
The rise of concentration and changes
in contracting practices in livestock and
poultry markets over the last four
decades have facilitated and exposed
producers and growers (hereafter,
producers unless otherwise noted) to
increasing economic harms from
exclusionary, prejudicial, or otherwise
discriminatory conduct, as well as
deceptive conduct, by packers, swine
contractors, and live poultry dealers
(hereinafter regulated entities, unless
otherwise noted). The regulatory toolkit
embodied in the Packers and Stockyards
Act, 1921, as amended (P&S Act or the
Act) (7 U.S.C. 181 et seq.), authorizes
USDA to issue regulations to address
these issues. This final rule seeks to
address a discrete but important set of
those wrongfully exclusionary or
deceptive practices that undermine
inclusive competition and market
integrity: specifically, (1) discriminatory
prejudices on certain bases relating to
the producer’s characteristics, (2)
retaliation for engaging in certain acts as
part of being a livestock or poultry
producer or grower, and (3) false or
misleading statements or material
omissions in certain contexts. These
practices deny producers opportunities
to compete in the marketplace and earn
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the full value of their livestock sales or
poultry growout services.
On October 3, 2022, AMS published
in the Federal Register (87 FR 60010) a
proposal to amend the regulations
implementing the Act located in title 9,
part 201, of the Code of Federal
Regulations (CFR) by adding a new
subpart O titled ‘‘Competition and
Market Integrity.’’ AMS solicited
comments on the proposed rule for an
initial period of 60 days, and extended
the comment period for an additional 45
days on November 30, 2022 (87 FR
73507). AMS received 446 comments
from industry trade associations, nonprofit organizations, individuals, State
attorneys general, farm bureaus,
academic/research institutions, and
other groups. After consideration of all
comments, AMS is adopting the
proposed rule, with modifications
designed to increase specificity and,
therefore, certainty and enforceability.
AMS is issuing these regulations to
enhance basic protections that modern
livestock and poultry producers need to
promote inclusive competition and
market integrity. Specifically, this final
rule will:
• Prohibit, as undue prejudices or
disadvantages, actions that inhibit
market access or actions that are
otherwise adverse to covered producers
on the basis of race, color, religion,
national origin (including ethnicity), sex
(including sexual orientation and
gender identity, as well as pregnancy),
disability, marital status, or age; or
because of the covered producer’s status
as a cooperative, with certain narrow
exceptions such as the provision of
religious meats and the functions of
Tribal governments;
• Prohibit, as unjust discrimination,
retaliatory and adverse actions that
interfere with lawful communications,
assertion of rights, associational
participation, and other protected
activities;
• Prohibit, as deceptive practices,
regulated entities employing false or
misleading statements or omissions of
material information in contract
formation, performance, and
termination; and prohibit regulated
entities from providing false or
misleading representations regarding
refusal to contract; and
• Require recordkeeping to support
USDA monitoring, evaluation, and
enforcement of compliance with aspects
of this rule.
AMS is adopting this final rule to
promote inclusive competition and
market integrity, as rational decisionmaking, so critical to economic success,
can most effectively occur in a market
free of the practices prohibited by this
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
rule. This final rule also affirms the
importance of a clear and direct
regulatory framework with respect to
prohibited conduct, thus protecting
producers in the marketplace. This rule
does not address every possible way in
which producers may be wrongfully
excluded or deceived under the Act.
Producers who believe their rights
under the Act have been violated—
whether specifically under this final
rule, or in other circumstances—can
report a violation to AMS.1 For some
matters in poultry, USDA further refers
the case to the U.S. Department of
Justice (DOJ) for enforcement.2
Producers may also enforce the law and
its regulations through private rights of
action under the Act. Penalties under
the Act depend upon the nature of the
particular violation, including the
particular animal species, and range
from monetary penalties to injunctive
relief.
This final rule is effective 60 days
after publication in the Federal
Register. AMS has chosen this effective
date because it believes that compliance
with this final rule will not require
significant administrative or financial
obligations for regulated entities. The
low cost, coupled with minimal process
changes regulated entities will be
required to make to comply, support an
effective date 60 days after publication.
Sixty days will provide adequate time
for regulated entities to be informed of
the specified conduct this final rule
prohibits as well as make changes to
comply with the final rule.
II. Background
A. Current Market Structure and Risks
for Producers
Market abuses of discrimination,
retaliation, and deception can occur in
livestock and poultry markets. Such
conduct is amplified and exacerbated
under increasingly concentrated
livestock and poultry markets. Such
markets are dominated by a few large
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1 Parties may report tips or complaints to
farmerfairness.gov. Additional information is
available at https://www.ams.usda.gov/services/
enforcement/psd/reporting-violations.
2 7 U.S.C. 181, including sections 203–205, 404,
and 308 of the Act.
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packers and live poultry dealers.
Additionally, changes in contracting
practices, specifically bilateral
contracting and vertical contracting that
reaches farther into the production
aspects of livestock and poultry, have
given processors greater control over
producers. These changes can
exacerbate the impacts of
discriminatory, retaliatory, and
deceptive conduct by packers and live
poultry dealers, which inhibits
producers from fully participating in
livestock and poultry markets or
obtaining the full value of their
livestock and poultry products and
services. With few marketing options in
concentrated markets, producers are
more likely to suffer long lasting harm
from market abuses by packers and live
poultry dealers than would be the case
in a marketplace that is more
competitive.
A review of the historical structure of
livestock and poultry markets shows
how the risk of worsened competitive
conditions or materially adverse effects
to producers at the hands of a few large
processors (livestock packers and live
poultry dealers) has grown over time. In
the late 1800s to early 1900s, the ‘‘Big
Five’’ 3 large meat packers dominated
the livestock market by working
cooperatively to jointly set prices and
divide territories amongst themselves.4 5
3 Swift & Company, Armour and Company, The
Cudahy Packing Company, Wilson & Co., Inc., and
Morris & Company, Rosales, W.E., 2005. Dethroning
economic kings: The Packers and Stockyards Act of
1921 and its modern awakening. Journal of
Agricultural & Food Industrial Organization, 3(2).
Accessed at https://www.degruyter.com/document/
doi/10.2202/1542-0485.1118/html on 01–09–2024.
See also, David Gordon, The Beef Trust: Antitrust
Policy and the Meat Packing Industry, 1902–1922,
at 230, 290 (1983) (Ph.D. Dissertation, Claremont
Graduate School) (on file with the Wisconsin
Historical Society Library) (referring to the ‘‘Big
Five’’ and the ‘‘Beef Trust’’ interchangeably).
https://www.proquest.com/openview/
b8fb565a39cdb1190b7b80e932cb8495/
1?cbl=18750&diss=y&pq-origsite=
gscholar&parentSessionId=XHRnq%2FulA9IQvIv3
F8HNW40SbD8BIeNZTdBAIYAD8bQ%3D.
4 Rosales, William E. ‘‘Dethroning Economic
Kings: The Packers and Stockyards Act of 1921 and
its Modern Awekening’’ Journal of Agricultural &
Food Industrial Organization 3, no. 2, access Feb.
1, 2024, (2005), https://doi.org/10.2202/15420485.1118.
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In 1921, Congress enacted the Packers
and Stockyards Act, 7 U.S.C. 181–229,
to promote effective competition and
integrity in livestock, meat, and poultry
markets because it believed that the
large packers employed anticompetitive
or abusive practices that harmed
producers and consumers.6 The
objective of the P&S Act is ‘‘to assure
fair trade practices in the livestock
marketing . . . industry in order to
safeguard farmers and ranchers against
receiving less than the true market value
of their livestock.’’ 7 After the enactment
of the P&S Act, several decades of
relatively more competitive conditions
in the livestock markets prevailed;
however, structural shifts in the
industry defined by technological and
productivity advances and mergers and
acquisitions by meat processors led to
fewer and larger meat processors—
increased market concentration—in the
latter half of the 20th century. This
transformation led to much larger sized
packing plants, multi-plant packers and
live poultry dealers; raised barriers to
entry; reduced the number of meat
processor competitors; and reduced
competition. Today, greater use of
bilateral and vertical contracting in the
livestock and poultry industries also
gives regulated entities greater practical
ability to cause these harms in ways that
are hard for producers to avoid.
The following table shows the level of
concentration in the livestock and
poultry slaughtering industries for
1980–2020 using four-firm
Concentration Ratios (CR4).
5 Christopher Leonard, ‘‘The Meat Racket,’’ (2015)
and Witt, Howard. ‘‘Hmong poultry farmers cry
foul, sue’’ Chicago Tribune. May 15, 2006.
Available online at: https://
www.chicagotribune.com/news/ct-xpm-2006-05-150605150155-story.html.
6 The Packers and Stockyards Act: An Overview,
National Agricultural Law Center, access Feb. 1,
2024, https://nationalaglawcenter.org/overview/
packers-and-stockyards/
7 Bruhn’s Freezer Meats v. U.S. Dep’t of Agric.,
438 F.2d 1332, 1337 (8th Cir. 1971), cited in Van
Wyk v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978)
in AGRICULTURE DECISIONS Volume 72 Book
One Part Two (P & S) Pages 371–434, page 13,
access Feb. 1, 2024, https://www.usda.gov/sites/
default/files/documents/Vol%2072%20Book
%201%20Part%202.pdf.
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Table 1: Four-Firm Concentration Ratio in Livestock and Poultry Slaughter
Year
Steers &
Heifers
Hogs
Broilers
Turkeys
(%)
(%)
(%)
(%)
36
50
72
79
82
79
85
85
81
34
32
40
46
57
64
65
66
64
32
42
41
46
49
53
51
51
53
40
38
45
45
41
54
56
57
55
1980
1985
1990
1995
2000
2005
2010
2015
2020
Note: U.S. Department of Agriculture, AMS Packers and Stockyards annual reports. Available at
https://www.ams.usda.gov/reports/psd-annual-reports.
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for livestock and poultry may be
regional or local, where concentration
may be higher than at the national level.
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The following figure shows the relative
access that producers have to slaughter
plants within various draw areas.
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The data are estimates of four-firm
concentration ratios at the national
level, but the relevant economic markets
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
16095
Figure 1. Relative Producer Access to Slaughtering Plants, 2017
BroUers: 2 or Fewer Plants - 50 ml.
2,063 counties, Bk farms (46% head)
Farms(#)
I
50
I
Broilers: 3 or More Plants - 50 mi.
188 counties, 8k farms (54% head)
100
Farms (#)
Hogs: 2 or Fewer Plants -- 115 mi.
2,013 counties, 8k farms (13% head)
Farms(#)
I
10
I
20
I
30
I
200
I
300
I
400
Hogs: 3 or More Plants - 115 mi.
736 counties, 15k farms (87% head)
40
Farms (#)
Steer and Helfer: 2 or Fewer Plants - 115 mi.
2,821 counties, 410k farms (79% head)
Farms (#)
I 1oo I
I
100
I
200
I
300
I
400
Steer and Helfer: 3 or More Plants - 115 mi.
227 counties, 38k farms (21 % head)
I 300 I 600 I 900
Farms(#)
I 500 I 1k I 2k
8 Meat,
Poultry and Egg Product Inspection
Directory by Establishment Name, by Number, and
Demographic Data, USDA Food Safety Inspection
Service, available at https://www.fsis.usda.gov/
inspection/establishments/meat-poultry-and-eggproduct-inspection-directory. Big Meat Acquisition
Datasets, Yale Thurman Arnold Project, access Feb.
1, 2024, (2021), https://som.yale.edu/centers/
thurman-arnold-project-at-yale/agriculture-andantitrust. Haines, Michael, Fishback, Price, and
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Rhode, Paul. United States Agriculture Data, 1840–
2012, Inter-university Consortium for Political and
Social Research [distributor], access Feb. 1, 2024,
(2018), https://doi.org/10.3886/ICPSR35206.v4
(County-level census data from 1978–2012). USDA
Census of Agriculture Large Datasets, USDA
National Agricultural Statistics Services, access at
Feb. 1, 2024, https://www.nass.usda.gov/datasets/
(Livestock data from 1997–2017). Ward, C.E.,
Meatpacking plant capacity and utilization:
Implications for competition and pricing, access at
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Feb. 1, 2024, (1990), https://doi.org/10.1002/15206297(199001)6:1%3C65::AID-AGR27
20060107%3E3.0.CO;2-V (Estimating travel
distances for cattle to be around 100 miles).
MacDonald, James M. & Ollinger, Michael & Nelson,
Kenneth E. & Handy, Charles R., 2000,
‘‘Consolidation In U.S. Meatpacking,’’ Agricultural
Economic Reports 34021, United States Department
of Agriculture, Economic Research Service, access
at Feb. 1, 2024, (2020), https://www.ers.usda.gov/
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Note: The figure shows the number of slaughter plants (2017): 2 or fewer (left) or 3 or more (right) within
50 miles (broiler - top) and 115 miles (hog-middle, steer and heifer- bottom) for broiler, hog, and cattle
farms. 8
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Half of all broiler growers have two or
fewer processors for which they can
grow broilers.9 The following table is a
modification of a table in MacDonald
(2012),10 adding the market
concentration measure, the HerfindahlHirshman Index (HHI) 11 indices to
MacDonald’s calculations of the
integrators, i.e., live poultry dealers who
typically have vertically integrated
production, in the broiler grower’s
geographic region. The HHIs in the table
assume equal market share for each
integrator and, as such, are the
minimum HHIs possible (at least with 2
to 4 growers). They show that 88.4
percent of growers are facing an
integrator HHI of at least 2,500. The data
suggest that most contract broiler
growers in the U.S. are thus in markets
where the live poultry dealers have the
potential to exercise market power.
Integrators in
grower's area
Minimum
HHiof
integrators in
grower's area
Number
HHI
1
2
3
4
>4
10,000
5,000
3,333
2,500
Farms (broiler
operations)
Production
(lbs. of
broilers
removed)
Can change to
another
integrator
Percent of
farms
7
52
62
71
77
Percent of total
21.7
30.2
20.4
16.1
7.8
24.5
31.7
19.7
14.8
6.6
By the late 20th century and early
21st century, contracting practices were
also changing. Bilateral and vertical
contracting were becoming the
increasingly dominant means to
coordinate live animal supplies.12
Today, most poultry production and
about 98 percent of hog production fall
under production contracts, and roughly
70 percent of cattle procurement falls
under marketing contracts.13 Bilateral
and vertical contracting have benefits
webdocs/publications/41108/18011_aer785_1_
.pdf?v=0. Smith, Timothy L., Andrew L. Goodkind,
Tae-Gon Kim, Rylie E. O. Pelton, Kyo Suh, and
Jennifer Schmitt, (2017). ‘‘Subnational mobility and
consumption-based environmental accounting of us
corn in animal protein and ethanol supply chains’’,
Proceedings of the National Academy of Sciences
(38), 114, access at Feb. 1, 2024, https://doi.org/
10.1073/pnas.1703793114 (Estimating travel
distances for broilers to be 48 miles on average; and
for pigs and cattle, ∼115 miles). Beam, A.L. &
Thilmany, Dawn & Pritchard, R.W. & Garber, L.P.
& Metre, DC & Olea-Popelka, F.J.. (2015). Beam,
A.L., D.D. Thilmany, R.W. Pritchard, L.P. Garber,
DC Van Metre, and F.J. Olea-Popelka. ‘‘Distance to
Slaughter, Markets and Feed Sources Used by
Small-Scale Food Animal Operations in the United
States.’’ Renewable Agriculture and Food Systems
31, no. 1, access at Feb. 1, 2024, (2016): 49–59.
https://doi.org/10.1017/S1742170514000441.
(Estimating transportation distances of 90 miles for
95 percent of percent of small-scale livestock
operations). (Analysts filtered for plants that
slaughtered beef, pork, and chicken. Analysts
joined firm name appearing in directory to likely
parent firm name by constructing a name lookup
using merger data published by Yale Thurman
Arnold Project; and manual internet search for
poultry and livestock firms’ mergers and
acquisitions. Analysts obtained geographic
coordinates from establishment address. For each
establishment per animal class, analysts calculated
the distance from the centroids of all U.S. counties
to all plant establishments; and filtered for
distances within 50 miles (broiler) and 115 miles
(hog, cattle), based on estimates of travel distances
for each animal obtained from literature search.
Analysts calculated number of counties reachable
by the travel distance for each animal species, i.e.:
geographic draw area for each plant. Analysts
produced for each county the number of plants
appended with the parent firm name derived from
the historic merger dataset described above.
Analysts present as the summary figure the total
number of unique parent firm names located within
90 (broilers) and 115 (hog, cattle) miles of county
centroids that contain, for the purposes of this
county-level analysis, the total number farm
operations of each animal type in the county.
Analysts summarized the number of counties,
inventory, and operations with hog, broiler, and
cattle sales, for all counties from 2017 NASS
county-level dataset; and, for farm operations,
filtered only for farm operations above the smallest
class size, e.g.: for hog, above 25 head; for cattle,
above 10 head; for broilers, above 2,000 head. This
smallest class size is not likely to be utilizing the
slaughter plants).
9 MacDonald, J.M. and Key, N., 2012, Market
power in poultry production contracting? Evidence
from a farm survey, Journal of Agricultural and
Applied Economics, 44(4), pp.477–490, access at
Feb. 1, 2024, (2012), https://www.proquest.com/
scholarly-journals/market-power-poultryproduction-contracting/docview/1183766436/se-2.
10 Ibid.
11 The Herfindahl-Hirschman Index, HHI, is a
‘‘commonly accepted measure of market
concentration. The HHI is calculated by squaring
the market share of each firm competing in the
market and then summing the resulting numbers.’’
U.S. Department of Justice, ‘‘Herfindahl-Hirschman
Index,’’ accessed Feb. 1, 2024, (2018), https://
www.justice.gov/atr/herfindahl-hirschman-index.
12 Lauck, J. K. (1998). Competition in the Grain
Belt Meatpacking Sector After World War. II. The
annals of Iowa, 57(2), https://pubs.lib.uiowa.edu/
annals-of-iowa/article/id/10311/ (Finding that in
1984, only 7 percent of livestock were marketed
through terminal markets. By this time, many
packers made vertical contracts with farmers or
feedlots). ‘‘Structural Change in Livestock: Causes,
Implications, Alternatives,’’ Research Institute on
Livestock Pricing 232728, Virginia Polytechnic
Institute and State University, Department of
Agricultural and Applied Economics, access at Feb.
1, 2024, (1990), available at https://ideas.repec.org/
p/ags/vtrilp/232728.html. See James M. MacDonald
and Christopher Burns, ‘‘Marketing and Production
Contracts Are Widely Used in U.S. Agriculture,’’
Economic Research Service, (July 2019), available at
https://www.ers.usda.gov/amber-waves/2019/july/
marketing-and-production-contracts-are-widelyused-in-us-agriculture/ (For a producer to
successfully bring an animal to processing, they
must secure a source of animals to raise, feed,
medicine, and processing services, among other
needs. In contract production, regulated entities
typically control the inputs and processing and
distribution channels, and therefore can largely
block market access for independent producers
seeking to bypass these tightly controlled, vertically
contracted supply chains).
13 USDA ERS, J. M. MacDonald and C. Burnes,
(July 1, 2019), Marketing and Production Contracts
Are Widely Use in U.S. Agriculture, Amber Waves.
(In 2017, 49 percent of the value of livestock
production was raised under contract agreements—
usually between farmers and processors. Most
poultry is produced under contract, and what is not
produced under contracts between processors and
growers is raised in facilities operated directly by
processors. See graph for data on hogs.) https://
ers.usda.gov/amber-waves/2019/july/marketingand-production-contracts-are-widely-used-in-usagriculture/; See also, USDA Packers and
Stockyards Division (PSD), (2020), Packers and
Stockyards Division Annual Report 2020, access at
Feb. 1, 2024, https://www.ams.usda.gov/sites/
default/files/media/PackersandStockyards
AnnualReport2020.pdf.
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Table 2: Integrators in the Broiler Growers' Region and Associated Market Power Indices
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and disadvantages for both processors
and producers. However, the exercise of
market power through the contracting
practices occurring in concentrated
livestock and poultry markets have left
producers susceptible to the conduct
this rule aims to prohibit.
One of the notable structural changes
over the course of the 20th century was
the improvement in refrigeration
technology. Refrigeration enabled meat
packers to move away from the from
Great Lakes and the Upper Midwest,
where they could source large quantities
of ice and build facilities closer to the
centers of livestock production.14
Slaughterhouse and fabrication plants,
therefore, could and did move away
from urban areas to remote rural
locations. As technology and the ability
to scale operations also grew in the
latter half of the 20th century, plants
also grew in size.15
These changes had two implications
over time. First, as processing plants
moved from urban to rural areas,
producers were more vulnerable to an
exercise of monopsony power because
the local and regional markets became
more concentrated.16 Second, instead of
14 David I. Smith, (Spring 2019), 19th Century
Development of Refrigeration in The American
Meat Packing Industry, access at Feb. 1, 2024,
https://scholarworks.harding.edu/cgi/viewcontent.
cgi?article=1118&context=tenor. (‘‘Development of
refrigeration and transportation in Chicago led the
city to become the meat packing center of the
world,’’ p. 100 from Howard Copeland Hill, ‘‘The
Development of Chicago as a Center of the Meat
Packing Industry,’’ Mississippi Valley Historical
Review 10, no. 3 (1923): 253). (And, ‘‘Refrigerator
cars ‘‘enabled dressed beef to be slaughtered in
Chicago and shipped to the East at a lower cost than
livestock,’’ p. 103, from Mary Yeager Kujovich,
‘‘The Refrigerator Car and the Growth of the
American Dressed Beef Industry,’’ The Business
History Review 44, no. 4 (1970): 460.); Warren,
Wilson, (2009), Tied to the Great Packing Machine:
The Midwest and Meatpacking, Bibliovault OAI
Repository, the University of Chicago Press, access
at Feb. 1, 2024, https://books.google.com/books?
hl=en&lr=&id=f-CAclXhhCYC&oi=fnd&pg=PR7&
dq=history+of+meat+packing&ots=oFnnxzABzR&
sig=gp3eackbDY2CzAdcz8Q67cg0pvQ#v=one
page&q=history%20of%20meat%20packing&
f=false (Wilson notes that in the late 19th century
plants were starting to move closer to livestock;
and, by the 1950s, the industry hit the end of its
third phase (1920s to 1950s) of packers buying
direct from feedlots/producers and the decline of
terminal markets.).
15 MacDonald, J.M., Ollinger, M., Nelson, K.E.
and Handy, C.R., (2000), Consolidation in US
meatpacking. Economic Research Service, U.S.
Department of Agriculture. Agricultural Economic
Report No. 785, access at Feb. 1, 2024, https://
www.ers.usda.gov/webdocs/publications/41108/
18011_aer785_1_.pdf?v=0#:∼:text=Consolidation%
20in%20slaughter%20features%20three,the
%20location%20of%20animal%20feeders.
16 Willard Williams, ‘‘Small Business Problems in
the Marketing of Meat and Other Commodities (Part
4, Changing Structure of Beef Packing Industry),’’
Hearings before the Subcommittee on SBA and
SBIC Authority and General Small Business
Problems of the Committee on Small Business,
House, 96th Cong., 1st sess. (Washington, DC,
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terminal (auction) stockyards
aggregating livestock for sales to
packers, packers and producers
increasingly entered into bilateral
contractual relationships to buy
livestock.17 When producers utilized
stockyards for their livestock sales, they
could rely for protection on the
provisions of title III under the Act,
which established robust
nondiscrimination protections for
1979), 3; ‘‘Structural Change in Livestock: Causes,
Implications, Alternatives,’’ Research Institute on
Livestock Pricing 232728, Virginia Polytechnic
Institute and State University, Department of
Agricultural and Applied Economics, access at Feb.
1, 2024, (1990), available at https://ideas.repec.org/
p/ags/vtrilp/232728.html; Lauck, J. K., (1998),
Competition in the Grain Belt Meatpacking Sector
After World War. II. The annals of Iowa, 57(2),
access at Feb. 1, 2024, available at https://
pubs.lib.uiowa.edu/annals-of-iowa/article/id/
10311/; Marion, Bruce W., ‘‘Restructuring of Meat
Packing Industries: Implications for Farmers and
Consumers,’’ Working Papers 204107, University of
Wisconsin-Madison, Department of Agricultural
and Applied Economics, Food System Research
Group (1988), available at https://ideas.repec.org/p/
ags/uwfswp/204107.html; Aduddell, Robert M. &
Cain, Louis P., ‘‘The Consent Decree in the
Meatpacking Industry, 1920–1956,’’ Business
History Review, Cambridge University Press, vol.
55(3) 1981; Aduddell, Robert M., and Louis P. Cain.
‘‘A Strange Sense of Deja Vu: The Packers and the
Feds, 1915–82.’’ Business and Economic History 11
(1982): 49–60. https://www.jstor.org/stable/23702755
(Documenting the historic shift from terminal
auctions, in which around 90 percent of livestock
were marketed in the 1920s; to 75 percent in the
1940s; to just 7 percent by 1984 (Lauck 1998;
Aduddell 1981). In terminal auctions, market
participants, including producers, new independent
packers, and retailers enjoyed the benefits of
transparent pricing and many possible marketing
channels. The number of terminal auctions doubled
every decade from 1935–1955 (Aduddell 1981). In
the latter half of the 20th century, a new generation
of large packers located closer to producers; and
built new facilities to process larger numbers of
animals which they purchased directly from
increasingly larger feedlots (Williams 1978).
Various researchers during the time period
documented how direct purchases from these
packers accounted for a larger share of the
industry’s sales; and contributed to decreasing
numbers of market transactions and bids in
terminal markets. For example, for cattle, the
number of single bid transactions for cattle
increased by 64 percent from 1982 to 1987; and by
38 percent for hogs (Purcell 1990). In turn,
producers facing fewer buyers often reported lower
prices paid (Marion 1988).
17 Lauck, J.K., (1998), Competition in the Grain
Belt Meatpacking Sector After World War. II. The
annals of Iowa, 57(2), access Feb. 1, 2024, available
at https://pubs.lib.uiowa.edu/annals-of-iowa/
article/id/10311/; Unknown (W. Purcell, editor),
(1990), ‘‘Structural Change in Livestock: Causes,
Implications, Alternatives,’’ https://ideas.repec.org/
p/ags/vtrilp/232728.html. Research Institute on
Livestock Pricing Virginia Polytechnic Institute and
State University, Department of Agricultural and
Applied Economics, available at https://ideas.repec.
org/p/ags/vtrilp/232728.html; Dickes, L.A. and
Dickes, A.L. (2002), ‘‘Oligopolists then and now: a
study of the meatpacking industry,’’ In Allied
Academies International Conference. Academy for
Economics and Economic Education. Proceedings
(Vol. 5, No. 1, p. 15). Jordan Whitney Enterprises,
Inc. https://www.proquest.com/openview/
919b243381c017244c764591d3d50a90/1?pqorigsite=gscholar&cbl=38640.
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16097
producers (in sec. 312), as well as a DOJ
Consent Decree in 1920 with the major
packers, which established that the
stockyards had to be structurally
separate from packers.18 For example, in
1968 USDA issued a Statement of
General Policy under the Packers and
Stockyards Act to clarify that the
prohibitions against unjust
discrimination under sec. 312 governing
‘‘just and reasonable stockyard services’’
prohibited discrimination on the basis
of race, religion, color, or national
origin. However, as the industry
structure evolved and livestock were
increasingly sold through bilateral,
vertical contracts, producers were no
longer protected by sec. 312 of the Act.
Instead, the sales were governed by title
II of the Act, under which sec. 202(a)
and (b) prohibits unjust discrimination
and undue prejudice.19 This final rule
seeks to articulate the necessary
protections around unjust
discrimination and deception under
those provisions of the Act.
The broiler industry also grew quickly
after the Second World War. Early on it
adopted a production model in which
live poultry dealers contracted with
poultry growers to grow-out broilers,
rather than a model of independent
producers selling broilers on the open
market. With most broiler growing
contracts, the live poultry dealer
provides the chicks, the feed, and
veterinary services, while the grower
provides labor, facilities, equipment,
and energy necessary to turn the chicks
into slaughter-ready birds. At first, live
poultry dealers were often feed
suppliers, but now most processors act
as live poultry dealers. Overall, the
reality is that live poultry dealers have
extensive control over production
through the contracting practices.
Furthermore, it is important to
acknowledge the impact of a
consolidating farm production
landscape overall. With the livestock
and poultry farming sectors
consolidating over the last several
decades, the aggregate number of
producers has declined significantly,
even as total production is stable or
growing. Many factors driving the loss
of producers in the marketplace are the
same factors underlying the market
changes referenced above and include
productivity growth wrought by
scientific and technological advances,
economies of scale, and transportation
improvements. As shown in Figures 2
and 3 below, over the last 60 years,
changes in animal production have
corresponded to declines on the order of
18 Aduddell
19 7
1981, supra.
U.S.C. 192(a) and (b).
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hundreds of thousands of producers in
nearly every size class except the
largest, which increased by only
hundreds of producers.20
Figure 2: Declines in Number of Small to Large Poultry and Livestock Operations
While Numbers of the Largest Size Increased
20 Haines, Michael, Fishback, Price, and Rhode,
Paul. United States Agriculture Data, 1840–2012,
Inter-university Consortium for Political and Social
Research [distributor], (2018), https://doi.org/
10.3886/ICPSR35206.v4 (County-level census data
from 1978–2012). USDA Census of Agriculture
Large Datasets, USDA National Agricultural
Statistics Services, available at https://www.nass.
usda.gov/datasets/ (Livestock data from 1997–
2017).
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21 USDA Census of Agriculture Historical
Archive, USDA National Agricultural Statistics
Services, available at https://agcensus.library.
cornell.edu/ (National-level statistics from 1978–
2012); USDA Census of Agriculture 2017, USDA
National Agricultural Statistics Services, available
at https://www.nass.usda.gov/Publications/
AgCensus/2017/Full_Report/Volume_1,_Chapter_1_
US/ (National-level statistics for 2017) (Analysts
obtained the total number of operations with sales
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for each animal size class from historic nationallevel statistics from 1978–2017. Analysts summed
the number of operations of every class other than
the largest size class for each animal species,
compared to the largest size class; and excluded the
very smallest size class in each summary because
the smallest size is not likely to receive slaughter
services by regulated entities).
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ddrumheller on DSK120RN23PROD with RULES2
Note: The number of producers annually producing 2,000 to 499,999 boilers (top), 10 to 2,499 head of
cattle (second row), 25 to 4,999 head of hogs (third row), and 2,000 to 99,999 head of turkeys (bottom row)
in the U.S. decreased by thousands to hundreds of thousands ofoperations from 1978 to 2017 (left); while
the number of operations of the largest size class (right) increased on a smaller order or remained
stagnant. 21
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
16099
Figure 3: Change in Number of Farm Operations: 1978-2017
Decrease in Number of Broiler Farms (2000 to 500k head) Increase in Number of Broiler Farms (500k or more head
I
-600
I
-400
I
I
-200
Decrease in Number of Cattle Farms (10 to 499 head)
25
150
Decrease in Number of Hog Farms (25 to 999 head)
-900
I -600 I
75
I
100
I
125
Increase in Number of Cattle Farms (500 or more head)
I -1000 I -500
I
I 50 I
I
100
I 150
Increase in Number of Hog Farms (1k or more head)
I
-300
50 1100
I 150 I
200
In the figure above, the intensity of
shading indicates the magnitude of
decrease (left) or increase (right), with
shading intensity scaled individually to
each map panel. Generally, the number
of cattle and hog operations for every
size class except the largest decreased in
many counties across the U.S., while the
number of operations for the largest size
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class increased in only a few counties.
Owing to the limitations of available
county-level data, the above map for
cattle operations include both feedlot
and cow-calf operations, of which only
the first sell directly to packers in most
instances. Feedlots and packers tended
to locate closer to producers in the latter
half of the 20th century. As feedlots
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became larger and more concentrated,
the number of farms with fed cattle sales
declined. For example, McBride found
that from 1978–1992, as the distribution
of cattle feedlots became geographically
tighter, the number of counties
contributing to half of cattle sales
decreased from 73 counties in 1978 to
just 44 counties in 1992, with a fourth
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ddrumheller on DSK120RN23PROD with RULES2
Note: Decreases (left) in the number offarm operations from 2,000 to 500,000 broiler head produced
annually (top), 10 to 499 cattle head (middle), and 25 to 999 hog head (bottom) coincided with increases in
the number of the largest size class (right) for each animal operation from 1978 - 2017.
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
ddrumheller on DSK120RN23PROD with RULES2
of sales coming from 13 counties. The
number of feedlots declined from
approximately 175,155 in 23 states in
1970 to 27,000 feedlots in 2020, with
half of all fed cattle from just 132 of
them.22
Data from Figure 3 clearly indicate a
shift in livestock and poultry raising to
larger farms. This shift has occurred in
concert with an increase in bilateral and
vertical contracting. Bilateral and
vertical contracting facilitate the
conditions in which discrimination and
retaliation are more likely to restrict
market opportunities of producers and
cause them to earn less than the full
value of their animals. It is harder to
discriminate in the aggregated market of
the stockyard than through bilateral
contracting regimes. When producers
are locked into long-term agreements
with a single buyer, it is easier for
buyers to discriminate on prohibited
bases or retaliate in response to
protected activities because they
exercise considerably more leverage
over producers. Buyer-seller
relationships are more fixed, providing
much less flexibility for producers.
Furthermore, with the number of farms
declining in number, the economic
harms of discrimination and retaliation
are more likely to be permanent as being
denied a long-term contract may lead to
permanent exclusion from the market.
Smaller farms in particular may be more
likely to be permanent casualties of
discriminatory or retaliatory behavior in
a consolidated farm context as buyers
gravitate toward larger suppliers to more
easily satisfy their volume requirements.
Discriminatory or retaliatory behavior is
more likely to harm producers
economically because it is much harder
to find alternative buyers in a world
with fewer, bigger farms and fewer,
bigger packers and live poultry dealers.
This rule is not directly addressing
consolidation at the farm level or
concentration at the processor level, but
in providing more protections to
producers from discriminatory and
retaliatory conduct, it is helping to
prevent market exclusion.
22 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, available
at https://doi.org/10.32747/2023.8054022.ers.
McBride, William D. (1997). ‘‘Change in U.S.
Livestock Production, 1969–92,’’ Agricultural
Economic Reports 262047, United States
Department of Agriculture, Economic Research
Service, available at https://www.ers.usda.gov/
webdocs/publications/40794/32767_aer754fm.
pdf?v=1657.7. ‘‘Final Estimates for 1970–1975,’’
USDA (1978), available at https://downloads.
usda.library.cornell.edu/usda-esmis/files/
sq87bt648/7w62fc32q/qf85nf445/cattleest_Cattle_-_
Final_Estimates__1970-75.pdf.
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A long-time scholar of these markets
stated as early 2004 that the livestock
and poultry markets appear to be by
‘‘invitation only.’’ 23 That statement
underscores the power of incumbent
entities to control access to the market
and, in many ways, the destiny of what
had been multigenerational successful
operations of producers and smaller
competitors.24 This final rule addresses
some of the ways that livestock and
poultry markets unfairly exclude
producers or otherwise limit their
ability to obtain the full value of their
animals. This final rule does not address
all the factors contributing to market
exclusion. However, it does address
several practices that exclude producers
and, in doing so, violate the Packers and
Stockyards Act. AMS recognizes that
creating inclusive and competitive
markets with integrity requires multiple
legal, regulatory, and programmatic
strategies to mitigate the potential
harmful effects of concentration and
vertical contracting; build up
alternatives through investments in
regional meat and poultry processing; 25
and protect the rights of producers to
develop producer organizations that
advance farmer welfare, rural
prosperity, and quality food. Thus, this
rulemaking is one key piece to AMS’s
strong commitment to mitigating the
factors that restrict market access for
livestock and poultry producers.
B. Discrimination, Retaliation, and
Deception
The P&S Act is a remedial statute
enacted to address problems faced by
farmers, producers, and other
participants in the markets for livestock,
meats, meat food products, livestock
products in unmanufactured form,
poultry, and live poultry; to protect the
public from predatory practices; and to
protect freedom for farmers and
businesses to engage in the flow of
23 C. Robert Taylor, ‘‘The Many Faces of
Corporate Power in the Food System.’’ Presented at
DOJ/FTC Workshop on Merger Enforcement,
February 2004, available at https://www.justice.gov/
sites/default/files/atr/legacy/2007/08/30/
202608.pdf.
24 See, e.g., Jon Lauck, ‘‘Toward an Agrarian
Antitrust: A New Direction for Agricultural Law,’’
75 N. D. L. Rev. 449 (1999); Peter C. Carstensen,
‘‘Buyer Power and the Horizontal Merger
Guidelines,’’ 14 U. Penn. J. Bus. L. 775 (2012);
Peter. C. Carstensen, ‘‘Buyer Power, competition
policy, and antitrust: the competitive effect of
discrimination among suppliers,’’ The Antitrust
Bulletin: Vol. 53, No. 2/Summer 2008; Kenneth E.
Boulding, ‘‘Towards a Pure Theory of Threat
Systems,’’ The American Economic Review, May,
1963, Vol. 53, No. 2, 424–434.
25 https://www.usda.gov/media/press-releases/
2023/04/19/usda-announces-funding-availabilityexpand-meat-and-poultry.
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commerce.26 Thus, as academics and
courts have noted, the Act has ‘‘tort-like
provisions that are concerned with
unfair practices and discrimination’’
that fulfill a ‘‘market facilitating
function,’’ which Congress designed to
prevent ‘‘market abuse.’’ 27 AMS
interprets and implements the Act to
achieve its core statutory purposes.28
AMS finds that current regulations
under the Act do not sufficiently
address the many unduly prejudicial,
unjustly discriminatory, and deceptive
practices in the livestock and poultry
industry. As discussed above, the
combination of increased concentration
and use of vertical contracts in livestock
and poultry markets enhances regulated
entities’ ability to unjustly discriminate
against or deceive market participants
and effect significant harm upon
26 Stafford v. Wallace, 258 U.S. 495 (1922).
Bruhn’s Freezer Meats of Chicago, Inc. v. U. S. Dep’t
of Agric., 438 F.2d 1332, 1337–38 (8th Cir. 1971)
(quoting H.R. Rep. No. 1048, 85th Cong., 1st Sess.
(1957), U.S. Code Cong. & Admin. News 1958, p.
5213). Public Law 99–198, 99 Stat. 1535, 7 U.S.C.
1631 (Section 1324 of the Food Security Act). Fed.
Trade Comm’n, Report of the Fed. Trade Comm’n
on the Meat-Packing Industry, Part I (Extent and
Growth of Power of the Five Packers in Meat and
Other Industries); Fed. Trade Comm’n, Report of the
Fed. Trade Comm’n on the Meat-Packing Industry,
Part II (Evidence of Combination among Packers);
Fed. Trade Comm’n, Report of the Fed. Trade
Comm’n on the Meat-Packing Industry, Part III
(Methods of the Five Packers in Controlling the
Meat-Packing Industry) (1919) (Finding that the
purpose of the combination of Big Five packers was
to ‘‘monopolize and divide among the several
interests the distribution of the food supply not
only of the United States but of all countries which
produce a food surplus, and, as a result of this
monopolistic position, to extort excessive profits
from the people not only of the United States but
a large part of the world’’).
27 Herbert Hovenkamp, ‘‘Does the Packers and
Stockyards Act Require Antitrust Harm?’’ (2011).
Faculty Scholarship at Penn Carey Law. 1862.
https://scholarship.law.upenn.edu/faculty_
scholarship/1862 (‘‘subsections (a) and (b) appear to
be tort-like provisions that are concerned with
unfair practices and discrimination, but not with
restraint of trade or monopoly as such’’); Peter
Carstensen, The Packers and Stockyards Act: A
History of Failure to Date, CPI Antitrust Journal 2–
7 (April 2010) (‘‘Congress sought to ensure that the
practices of buyers and sellers in livestock (and
later poultry) markets were fair, reasonable, and
transparent. This goal can best be described as
market facilitating regulation.’’); Michael C. Stumo
& Douglas J. O’Brien, ‘‘Antitrust Unfairness vs.
Equitable Unfairness in Farmer/Meat Packer
Relationships,’’ 8 Drake J. Agric. L. 91 (2003);
Michael Kades, ‘‘Protecting livestock producers and
chicken growers,’’ Washington Center for Equitable
Growth (May 2022), https://equitablegrowth.org/
wp-content/uploads/2022/05/050522-packersstockyards-report.pdf (‘‘Section 202’s prohibitions
on unjust discrimination and undue preference are
not limited to conduct that destroys or limits
competition or creates a monopoly. These
provisions address conduct that impedes a wellfunctioning market and deprives livestock and
poultry producers of the true value of their animals.
Taken together, these provisions seek to prevent
market abuses.’’).
28 See Bowman v. U.S. Dep’t of Agric., 363 F.2d
81 at 85 (5th Cir. 1966).
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producers. With bilateral contracts
where one side has significant market
power, regulated entities can target
specific individuals, whether because of
their personal characteristics (prejudice)
or because of they have engaged in
certain activities (retaliation). With
market concentration, producers have
limited options in the marketplace with
which to avoid the harms. Vertical
contracts where regulated entities have
greater control over producers’
operations also enable certain forms of
discrimination, such as in the provision
of inputs, as live poultry dealers
particularly have heightened control
and involvement in the growers’ poultry
operations. The provision of accurate
and not misleading information also
takes on heightened importance in these
markets. In markets where producers are
exiting, it is especially difficult for
producers to reenter after being
excluded, and the harms from exclusion
are significant.
ddrumheller on DSK120RN23PROD with RULES2
i. Discrimination and Prejudice
Discrimination and prejudice harm
market participants and overall market
integrity and efficiency. Discrimination
is economically inefficient.29 The
prejudicing entity that pays a producer
below market value for his or her cattle
or hogs because the producer belongs to
a protected class causes that producer to
not receive the full economic value of
his or her animals; this discrimination
also prevents the market from reaching
an optimal allocation of wages and
labor, contributing to a deadweight loss
for the economy at large.30 Likewise, a
regulated entity’s refusal to buy from a
producer of a protected class offering
animals of comparable quality to those
being sold by other producers to that
same buyer in the same time-frame may
cause that disfavored producer to exit
the market.31 If an entity refuses to
29 Stiglitz, J. ‘‘Approaches to the Economics of
Discrimination,’’ American Economic Review, vol.
63/2, May 1973: 287–295 (Discussing how
discrimination in markets produces an economic
inefficiency: ‘‘If all firms are profit maximizers,
then all will demand the services of the low-wage
individual, bidding their wages up until the wage
differential is eliminated. Why does this not
occur?’’).
30 Ibid.
31 U.S. Department of Justice & U.S. Department
of Agriculture, Public Workshops Exploring
Competition in Agriculture, Livestock Industry
Agenda, August 27, 2010, Fort Collins, Colorado,
available at https://www.justice.gov/media/
1244701/dl?inline; https://youtu.be/Ygerhjjp0Is?
si=2L7OQh0I87fc1n1I&t=1885 (Producers described
how packers could ‘‘pick . . . large entities’’ as part
of marketing agreements to procure supply. In turn,
this drove up an excess supply and drove down
prices for producers or suppliers who did not
receive such an agreement in the cash-negotiated
market. One producer said that this discrimination
had the effect of ‘‘controlling . . . inventory;’’
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18:38 Mar 05, 2024
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purchase product from a producer of a
particular class who offers identical
product, such as cattle, that disfavored
producer may face a lower price,
resulting in a loss to the producer that
may discourage the producer from
continuing to operate or would-be
producers of that class from entering the
market.32 Using non-economic
characteristics of the livestock or
poultry producers to dictate patterns of
production thwarts efforts by producers
to accurately assess market conditions
and make sound business decisions.
In comments to the proposed rule,
multiple organizations spoke of the
widespread economic harms resulting
from discrimination and prejudice in
livestock and poultry markets.33 A
another said that this conduct had the effect of
‘‘tens of thousands of independent producers being
purged out of the business or going into bankruptcy
. . . exited out of agriculture’’).
32 U.S. Department of Justice & U.S. Department
of Agriculture, Public Workshops Exploring
Competition in Agriculture, Livestock Industry
Agenda, August 27, 2010, Fort Collins, Colorado,
available at https://www.justice.gov/media/
1244701/dl?inline; https://youtu.be/Ygerhjjp0Is?
si=2L7OQh0I87fc1n1I&t=1885 (Producers described
how packers could ‘‘pick . . . large entities’’ as part
of marketing agreements to procure supply. In turn,
this drove up an excess supply and drove down
prices for producers or suppliers who did not
receive such an agreement in the cash-negotiated
market. One producer said that this discrimination
had the effect of ‘‘controlling . . . inventory’’;
another said that this conduct had the effect of
‘‘tens of thousands of independent producers being
purged out of the business or going into bankruptcy
. . . exited out of agriculture’’).
33 Government Accountability Project, Comments
on Proposed Rule: Inclusive Competition and
Market Integrity, (AugJan. 20232), available at
https://www.regulations.gov/comment/AMS-FTPP21-0045-0427 (‘‘Many of these Vietnamese growers
were enticed to sell profitable businesses and
family homes and take out huge loans to enter
broiler production contracts. Bearing all the same
burdens of other broiler producers, they were
further victimized by language barriers, cultural
differences, and blatant mockery and exploitative
behavior. In some cases, to keep their contracts,
Vietnamese growers were asked to do additional
work that was not required of white counterparts.
Many of the Vietnamese farmers we have spoken to
have likened the abusive and threatening behavior
of their integrators to the communist government
from which they fled’’).
Rural Advancement Foundation International—
USA, Comments on Proposed Rule: Inclusive
Competition and Market Integrity, (AugJan. 20232),
available at https://www.regulations.gov/comment/
AMS-FTPP-21-0045-0437 (‘‘They don’t have to cut
you off, they can just bleed you dry. The barn we’re
sitting in here hatched flocks with salmonella
issues. They can send those compromised flocks to
growers they want to bleed.’’ ‘‘My main concern is
that [my integrator] operates on fear and threatening
tactics to make every grower they have scared they
are going to lose their contract every single day. No
human being should have to live every single day
in fear that their livelihood and only source of
income can be taken away from them. I am sick of
it, someone needs to do something to help us! I love
to grow chickens and feed the world, but I do not
like to live as if under a dictatorship.’’ ‘‘When I
filed a complaint with the Packers and Stockyards
Division about a weight issue, in which I was
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16101
producer advocacy organization
reported that ‘‘discrimination,
retaliation, and deception have become
common features of livestock and
poultry markets, leading to widespread
fear and anxiety among producers.’’ 34
Another commenter wrote, ‘‘The current
ability to exclude marginal competitors
and exploit covered producers, rather
than producing meaningful price
discovery and transparency in the
production and sales of livestock, meat
and poultry, has greatly injured not only
those involved in production but has
restricted consumers from accessing
reliable, affordable sources of
protein.’’ 35 We acknowledge that these
comments addressed what commenters
viewed as a range of discrimination that
could be covered by the proposed rule,
and some that we are not addressing in
this rule. Comments relating to these
topics are discussed further in Section
V—Changes from the Proposed Rule,
and in Section VII—Comment Analysis.
As previously noted, this rule does
not address every form of
discrimination or prejudicial exclusion
or disadvantage in the marketplace but
focuses on providing clarity regarding
certain specific discriminatory and
prejudicial practices that AMS has
identified in this final rule as essentially
unjust, which offer no benefits to the
competitive market or producers, and
which undermine competition on the
merits of the products and services that
producers offer. Additionally, although
the descriptive analyses set forth below
do not address the prevalence or degree
or prejudice for each and every
prohibited basis, owing to the
limitations of available data, AMS
believes that leaving out any of the
bases listed in this rule would be
inappropriate. Not only would that be
inconsistent with the Department’s
approach toward discrimination in
other contexts, as repeatedly endorsed
by Congress, but the resulting
uncertainty could also open the door to
those forms of discrimination in
livestock, poultry, and related markets
under the Act, which would be contrary
to the purposes of this regulation and
proven right, I was punished with bad tournament
grouping for a year. Also, I have been told by my
integrator, after receiving a really bad flock of birds,
that they would be sure to not let it happen next
time—so they know how to make it happen!’’).
34 Food & Water Watch, ‘‘Comment on AMS–
FTPP–21–0045: Inclusive Competition and Market
Integrity Under the Packers and Stockyards Act,’’
(Jan. 2023), available at https://www.regulations.
gov/comment/AMS-FTPP-21-0045-0423.
35 Rocky Mountain Farmers Union, ‘‘RMFU
Comment for the Proposed Rule Inclusive
Competition and Market Integrity Under the
Packers and Stockyards Act’’ (Jan. 2023), available
at https://www.regulations.gov/comment/AMSFTPP-21-0045-0441.
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
the Act, which prohibits ‘‘undue
prejudice . . . in any respect.’’
a. Discrimination and Prejudice on
Personal Characteristics and Status
AMS (including its predecessor
agencies) has received complaints over
the years of discrimination against
producers, in particular in the poultry
industry, and especially on the basis of
race. The Agency has not always been
able to act on these complaints for a
variety of reasons. The Agency also
believes that some complaints may have
been suppressed due to the risks of
retaliation, which are discussed below.
As highlighted below, comments to this
rulemaking affirmed the prevalence and
remaining challenge of discrimination
on prohibited bases.
Researchers have documented the
history of discrimination against racial
and ethnic minorities in agricultural
markets. Multiple factors have
contributed to the decline of non-whiteowned farms, specifically to the decline
of Black-owned farms, including the
Homestead Act of 1862, the Morrill
Land Grant Act of 1862, lack of legal
protections for heirs’ property, and
limited access to capital through
discriminatory lending practices.36 For
example, in the earlier part of the 20th
century, the Federal government and
agricultural landholders restricted land
sales, engaged in predatory and
fraudulent lending practices, and
denied farm support programs to Black
farmers and ranchers,37 which has
resulted in the loss of Black economic
security and land loss.38 39 40 41 A 1959
ddrumheller on DSK120RN23PROD with RULES2
36 McKinsey & Company. November 10, 2021.
Black Farmers in the U.S: The Opportunity for
Addressing Racial Disparities in Farming. Accessed
at Black farmers in the US: The opportunity for
addressing racial disparities in farming | McKinsey
on 10/04/2023; and https:/www.archives./gov/
milestone-documents/morrill-act https://
www.archives.gov/milestone-documents/morrill-act
(see, e.g., ‘‘People of color were often excluded from
these educational opportunities due to their race.’’).
37 Francis, Dania V., Darrick Hamilton, Thomas
W. Mitchell, Nathan A. Rosenberg, and Bryce
Wilson Stucki. ‘‘Black Land Loss: 1920–1997.’’ In
AEA Papers and Proceedings, vol. 112, pp. 38–42.
American Economic Association, 2022.
38 U.S. Department of Agriculture, National
Agricultural Library, ‘‘Heirs’ Property,’’ https://
www.nal.usda.gov/farms-and-agricultural-
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paper reported ‘‘significant market
discrimination’’ against Black American
producers in the Southern United
States.42 Discrimination by the Federal
government and private sector also
caused Hispanic people and American
Indian people farming on reservations to
lose farmland and decline in
number.43 44 More recently, some news
reports have documented that
companies may present contract terms
to non-native English speaking
immigrant communities who may not
understand them, and have spotlighted
the treatment of Asian American and
Pacific Islander poultry growers in
particular.45
Researchers have also documented
some of the adverse outcomes,
including economic outcomes, caused
by discrimination. In the livestock
sector, the results of historical prejudice
production-systems/heirs-property (last accessed
Aug. 2022).
39 Mitchell, Thomas W. 2019. Historic Partition
Law Reform: A Game Changer for Heirs’ Property
Owners. In Heirs’ property and land fractionation:
fostering stable ownership to prevent land loss and
abandonment. https://www.fs.usda.gov/treesearch/
pubs/58543 (last accessed 8/9/2022).
40 U.S. Commission on Civil Rights. 1965. Equal
Opportunity in Farm Programs: An Appraisal of
Services Rendered by Agencies of the U.S.
Department of Agriculture. https://files.eric.ed.gov/
fulltext/ED068206.pdf US Commission on Civil
Rights. 1982. ‘‘The Decline of Black Farming in
America.’’ https://eric.ed.gov/?id=ED222604.
41 Feder, J. and T. Cowan. 2013. ‘‘Garcia v.
Vilsack: A Policy and Legal Analysis of a USDA
Discrimination Case,’’ Congressional Research
Service report number 7–5700, February 22, 2013.
42 Tang, Anthony M. ‘‘Economic development
and changing consequences of race discrimination
in Southern agriculture.’’ Journal of Farm
Economics 41, no. 5 (1959): 1113–1126.
43 Casey, Alyssa R. Racial Equity in U.S. Farming:
Background in Brief 2021. Congressional Research
Service. https://crsreports.congress.gov/product/
pdf/R/R46969 (Finding that the percent of
American Indian and Hispanic producers increased
by 1.3 and 2.4 percent between the early 1900s to
2017, compared to White producers which
increased by 9 percent).
44 Horst, M., Marion, A. ‘‘Racial, ethnic and
gender inequities in farmland ownership and
farming in the U.S.’’ Agric Hum Values 36, 1–16
(2019), available at https://doi.org/10.1007/s10460018-9883-3.
45 Christopher Leonard, ‘‘The Meat Racket,’’
(2015) and Witt, Howard. ‘‘Hmong poultry farmers
cry foul, sue’’ Chicago Tribune. May 15, 2006.
Available online at: https://www.chicagotribune.
com/news/ct-xpm-2006-05-15-0605150155story.html.
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and the risk of present-day prejudice are
apparent when looking at data from the
2017 Census of Agriculture, which show
that a small fraction of livestock farms
with production contracts are operated
by Black, Asian, American Indian, or
Native Hawaiian producers (Figure 1).46
In Figure 1, the checkered bars represent
the share of racial and ethnic groups
among all livestock and poultry farms,
and the colored bars indicate the share
of production contracts received by each
group. As indicated in Figure 1,
American Indian, Black, Native
Hawaiian, and Hispanic producers
receive less than a proportional share of
livestock and poultry production
contracts relative to their respective
populations. For example, Black
producers and growers account for 1.6
percent of U.S. farms by race and
ethnicity and receive a
disproportionately lower 0.5 percent of
livestock and poultry contracts. White
producers and growers, meanwhile,
represent 91 percent of all farms, but 98
percent of hog contracts and 97 percent
of cattle contracts—a greater than
proportionate share of livestock
contracts, and at 90 percent, a lower
than proportionate share of poultry
contracts. Non-white racial and ethnic
groups constitute a very small share of
contracted livestock and poultry
producers, which can be attributed to
limited access to land and capital,47
having on average smaller operations,
and discrimination.
46 Most production contracts are held by poultry
growers and less so by packers. A production
contract, according to USDA NASS, ‘‘is an
agreement between a producer or grower and a
contractor (integrator) setting terms, conditions, and
fees to be paid by the contractor to the operation
for the production of crops, livestock, or poultry.’’
In contrast, many packers hold marketing contracts
which, according to NASS, are ‘‘based strictly on
price.’’ USDA NASS, No Date. ‘‘Appendix B.
General Explanation and Census of Agriculture
Report Form.’’ usappxb.pdf (usda.gov), accessed 8/
12/23.
47 See, generally, Congressional Research Service,
‘‘Racial Equity in Farming,’’ Nov. 2021, available at
https://crsreports.congress.gov/product/pdf/R/
R46969; Economic Research Service, USDA,
‘‘Access to Farmland by Beginning and Socially
Disadvantaged Farmers: Issues and Opportunities,’’
Dec. 2022, available at https://www.ers.usda.gov/
publications/pub-details/?pubid=105395.
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
16103
Figure 4. Percent of Farms Owned by Race and Ethnicity Compared to
Percent of Farms that Received Livestock and Poultry Contracts
White
Hispanic
Native
-~
HaWailan )
Asian r '
American
Indian
40'Ki
205
7~
■" of farms with Fed Cattle Contract
■" of Farms with Hog Contract
ll!I "of Farms with Broiler or Meat Chicken Contract
a" of Total Farms
Data source: 2017 Agricultural Census, National Agricultural Statistical Service, USDA.
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18:38 Mar 05, 2024
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payments.48 These data indicate that
livestock and poultry farms with
producers who identify as American
Indian, Black, Native Hawaiian, and
Hispanic are more likely to be in the
lowest income category (measured by
GCFI <$150,999) than their white
counterparts. Those farms with
producers who identify as Asian are less
likely than their White counterparts to
fall into the lowest income group, which
might be a factor of being relatively
48 USDA ERS, No date. Farming and Farm
Income. Available at https://www.ers.usda.gov/
data-products/ag-and-food-statistics-charting-theessentials/farming-and-farm-income/ (last accessed
9/8/23). GCFI income categories incude <$149,900,
$150,000–$349,999, $350,000–$999,999, and
≥$1,000,000.
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recent immigrants and not facing past
discrimination.49 The fact that Black,
Native Hawaiian, Native American, and
Hispanic livestock and poultry farmers
are more likely to be in the lower
income GFCI category could be an effect
of past discrimination, and it also could
make such producers more vulnerable
to current discriminatory behavior by
packers. Markets dominated by one or a
few large packers or live poultry dealers
may also be less accessible to these
lower income farms, which have limited
financial or other economic resources
with which to engage.
49 Pew Research Center. June 19, 2012. The Rise
of Asian Americans. Accessed at https://www.pew
research.org/social-trends/2012/06/19/the-rise-ofasian-americans/ on 10–13–23.
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Disparities are also found in income
across racial and ethnic groups. It is
difficult to disentangle historical
discrimination—whether that be
prejudicial administration of USDA
farm policies, racial segregation laws, or
discriminatory private lending policies,
from current discrimination practiced
by livestock and poultry companies.
Figure 5 shows the percentage of
livestock and poultry farms (omitting
nonfamily farms) by the reported race or
ethnicity, and categorized by the lowest
level of Gross Cash Farm Income (GCFI),
which is annual income before
expenses, including cash receipts, farmrelated cash income, and government
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Figure 5. Percentage of Livestock and Poultry Family Farms by the Lowest
GCFI Category(< $150,000), Race, and Ethnicity
White
Hispanic
89"
Native Hawaian
Black
9%
Asian
American Indian
91%
0'6
20%
100'6
Recent research conducted by the
USDA’s Office of the Chief Economist
and presented at the Agricultural &
Applied Economics Association 50
suggests that certain ethnic or racial
groups are receiving lower prices
compared to White producers from
regulated entities in livestock and
poultry contracts. In some cases, the
research showed statistically significant
differences in prices received for
livestock (cattle and hogs) and broiler
products across ethnic or racial groups
after controlling for variables such as
farm size, region, type of marketing
contract or channel, organic certification
status, distance to closest packer, and
size of closest packer. Specifically,
Black and American Indian cattle
producers, Black contract broiler
producers, and Black and American
Indian hog producers all received lower
prices for their livestock products
relative to White producers. However,
the effect of many animal quality
variables, such as weight per animal,
dressing percentage, and yield grade,
cannot be controlled for under this
50 Breneman, V., Cooper, J. Nemec Boeme, R. and
Kohl, M., ‘‘Competition and Discrimination—is
there is a relationship between livestock prices
received and whether the grower is in a historically
underserved group?’’ 2023 AAEA Annual Meeting,
Washington, DC, July 23–July 25.
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analysis because the data is not in the
Census of Agriculture or other data sets
organized by race and ethnicity. Thus,
endowment differences, such as better
land and more capital, that represent the
legacy of historical discrimination may
account for a portion of these price
differentials.
Differences in livestock and broiler
prices could also be due, at least in part,
to discrimination. Due to current data
deficiencies, however, it is impossible
to tell whether differences in prices
received across ethnic or racial groups
are due to current discriminatory
practices, historic discrimination, or
some combination thereof. These
omitted variables may be correlated
with race or ethnicity, and thus may
account for a substantial portion of the
price differentials. Additional data
collection efforts may shed light on the
role of omitted variables, such as animal
size, thus helping to distinguish
economic effects arising from current
racial discrimination from disparate
economic outcomes due to historical
discrimination.
Gender is also a basis of
discrimination in livestock and poultry
markets. According to the 2017 Census,
livestock and poultry operations where
principal operators are female received
significantly lower market value for the
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livestock and poultry they sell. Female
principal operators in livestock and
poultry earned 53 cents per operation
for every dollar earned by male
principal operators per operation. By
comparison, in the broader U.S.
population, females earn 77 to 82 cents
for every dollar earned by men in
2022.51 Figure 6 shows that the
difference in livestock and poultry sales
by gender is about $117,000 less per
operation for female principal operators,
or 47 percent less, compared to male
principal-operated farms.
Disproportionately more female
operators are found in the lower income
classes relative to males, and a
disproportionately higher number of
male operators are found in the highest
income classes. The value of livestock
and poultry production per total acres
owned by males and females is $0.22
per acre for males and $0.18 per acre for
females, or $0.82 per acre for female
operators relative to every $1 per acre
earned by male operators. Together,
these data suggest that female
51 The Pew Research Center. March 1, 2023. ‘‘The
Enduring Grip of the Gender Pay Gap.’’ Accessed
at https://www.pewresearch.org/social-trends/2023/
03/01/the-enduring-grip-of-the-gender-pay-gap/ on
09–25–2023, and World Economic Forum. July
2023. Global Gender Gap Report 2023 Accessed at
WEF_GGGR_2023.pdf (weforum.org) on 09–225–
2023.
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Data source: 2017 Agricultural Census, National Agricultural Statistical Service, USDA.
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
16105
markets—achieve poorer economic
outcomes than male producers.
producers—in livestock and poultry
markets—achieve poorer economic
outcomes than male producers.
Figure 6. Market Value of Livestock, Poultry, and Their Products Per Farm by
Gender
$248.86
$0
$50
$100
$150
$200
$300
$250
Market value ($1,000) per farm
11 Any principal producer is female
■ Any producer is female
=Any principal producer is male
■ Any producer is male
Data source: 2017 Agricultural Census, National Agricultural Statistical Service, USDA.
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White producers. For example, Black
and American Indian producers
received around 5 percent lower broiler
prices but no statistically significant
decrease in payments for hogs delivered
under production contracts. However,
the effect of many animal quality
variables, such as weight per animal,
dressing percentage, and yield grade,
cannot be controlled for under this
analysis because the data is not in the
Census of Agriculture or other data sets
organized by race and ethnicity. Thus,
endowment differences, such as better
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Sfmt 4700
land and more capital, that represent the
legacy of historical discrimination may
account for a portion of these price
differentials. Hawaiian contract hog
producers received 68 percent higher
prices even though producer location
was controlled for in the analysis, but
the analysis cannot control for some
unknown factors associated with this
relatively small cohort of producers that
may account for this relatively large
price effect.
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AMS also utilized a regression
analysis showing support for disparities
in income across different protected
classes. Table 3 presents the empirical
results of multivariate regression
analysis of the 2017 Agricultural Census
and other data by the USDA Office of
the Chief Economist. Black and
American Indian cattle and broiler
producers, and Black and American
Indian hog producers of owned hogs
(hogs not sold under production
contracts) all received lower prices for
their livestock products relative to
16106
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Table 3: Impact of Personal Characteristics on the Price Received per
Animal Delivered
Race, ethnicity, or
gender of operators
Impact of race, ethnicity, or gender on price received
per animal delivered
Broilers
All Hogs
Contract Hogs Only
Cattle
-4.73%
-7.21 %
0.00%
-2.53%
-5.49%
-8.63%
0.00%
-4.08%
0.00%*
0.00%
67.68%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
2.83%
0.00%
0.00%
0.00%
0.00%
0.00%
-2.55%
Impact on price received with respect to age or
experience
-0.12%
-0.05%
NIA***
0.01%
-0.24%
NIA
NIA
NIA
Black
American Indian
Hawaiian
Asian
Female
Spanish Origin
Age**
Experience****
The results of an analysis presented in
Table 3 found there is a statistically
significant and positive relationship
between female operators and price
received for the owned-hog market,
which includes producers of both
contracted and owned hogs (the
regression accounted for whether the
producer was on a production contract
or not through an explanatory variable),
but which examines the price impact
only on owned-hogs sold.52 However,
for the production contract-only hog
market, which makes up about 70
percent of all hogs produced, this
relationship becomes negative, though
not at a statistically significant level
(non-statistically significant results are
shown as zero values in the table). From
52 From the Agricultural Census data, some
farmers who produce under production contracts
also report some owned production as well.
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18:38 Mar 05, 2024
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regression results not shown in Table 3,
it appears that female contract hog
producers who also produce owned
hogs receive a higher price for owned
hogs than female farmers who only
produce owned hogs. This finding
suggests that females with hog contracts
face preferential prices relative to those
females that do not hold contracts.
The regression analysis used above to
study the effect of sex on prices received
in livestock and poultry markets also
found a statistically significant negative
relationship between age of a farm
operator and price received in poultry
and owned-hog markets, as well as a
statistically significant negative
relationship between the experience of
a farm operator and price received in
the contract hog market. That is, as
producers and growers age in the
owned-hog and poultry markets and
gain experience in the contract hog
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Sfmt 4700
market, average price received declines.
However, the same finding was not
evident in cattle markets, where the
relationship between increasing
producer age and price is positive and
statistically significant.
Gender is also a basis of
discrimination in livestock and poultry
markets. According to the 2017 Census,
livestock and poultry operations where
principal operators are female received
significantly lower market value for the
livestock and poultry they sell. Female
principal operators in livestock and
poultry earned 53 cents per operation
for every dollar earned by male
principal operators per operation. By
comparison, in the broader U.S.
population, females earn 77 to 82 cents
for every dollar earned by men in
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Source: 2017 Agricultural Census, National Agricultural Statistics Service, USDA
Notes: These results drawn from multivariate regression analysis assume all respondents (up to four) to the
2017 Agricultural Census survey have the personal characteristic in the row of the table. The Agricultural
Census does not include information the size of the animals delivered or other quality characteristics.
Hence, if these omitted variables are correlated with the personal characteristics of the producers, they can
account for the impact ofrace/ethnicity/gender on prices. As such, it is impossible to separately identify
price impacts of current ongoing racism from impacts associated with historic racism (e.g., price
differences due smaller animals on account oflower fmancial endowments).
*If the underlying coefficient estimate used to make this estimate is ofless than 10 percent statistical
significance, the result in the table is set equal to zero.
**Average age of the individuals who were involved in the decisions of the farm operations and who
responded to the Agricultural Census Survey.
***Average years of experience of the individuals who were involved in the decisions of the farm
operations and who responded to the Agricultural Census Survey.
****NIA means the data is not available.
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
2022.53 Figure 7 shows that the
difference in livestock and poultry sales
by gender is about $117,000 less per
operation for female principal operators,
or 47 percent less, compared to male
principal-operated farms.
Disproportionately more female
operators are found in the lower income
16107
operators relative to every $1 per acre
earned by male operators. Together,
these data suggest that female producers
in livestock and poultry markets achieve
lesser economic outcomes than male
producers.
classes relative to males, and a
disproportionately higher number of
male operators are found in the highest
income classes. The value of livestock
and poultry production per total acres
owned by males and females is $0.22
per acre for males and $0.18 per acre for
females, or $0.82 per acre for female
Figure 7. Market Value of Livestock, Poultry, and Their Products Per Farm by
Gender
$248.86
$0
$100
$50
$150
$200
$250
$300
Market value ($1,000) per farm
u Any principal producer is female
■
=Any principal producer is male
■
Any producer is female
Any producer is male
Producers have also been targeted by
processors that discriminate or retaliate
against them for forming or being
members of a cooperative because of the
check on dominant firm bargaining
power that cooperatives provide.54
Growers and experts on agricultural
cooperatives have reported numerous
instances of live poultry dealers taking
adverse actions against producers for
their participation in agricultural
cooperative activities.55
Regulated entity resistance to
producer cooperatives is not difficult to
understand—and indeed has been the
basis for congressional action in the
past. The increased bargaining power
that cooperatives give to their members
makes them a target for opposition or
curtailment by regulated entities. In a
market characterized by concentration
of larger market intermediaries,
cooperatives 56 can assist producers in
promoting equal access to the market
53 The Pew Research Center. March 1, 2023. ‘‘The
Enduring Grip of the Gender Pay Gap.’’ Accessed
at https://www.pewresearch.org/social-trends/2023/
03/01/the-enduring-grip-of-the-gender-pay-gap/ on
09–25–2023, and World Economic Forum. July
2023. Global Gender Gap Report 2023 Accessed at
WEF_GGGR_2023.pdf (weforum.org) on 09–225–
2023.
54 USDA, Publications for Cooperatives, available
at https://www.rd.usda.gov/resources/publicationsfor-cooperatives (See generally USDA’s published
research reports that document the history and
importance of agricultural cooperatives that allow
farmers to negotiate collectively for prices on
product either sold or bought by input or buyer
entities. For example, USDA in Farm Bargaining
Cooperatives: Group Action, Greater Gain (1994)
describes one harrowing instance in which
members of a cooperative initially hesitated in
bringing a complaint against a processor that
allegedly punished them by refusing to buy their
fruit due to their association with the cooperative;
but eventually successfully brought the complaint
and, after a lengthy legal process, won punitive
damages and the processor’s agreement to buy
product); Vaheesan, S. and Schneider, N., 2019.
Cooperative Enterprise as an Antimonopoly
Strategy. Penn St. L. Rev., 124, p.1. Accessed at
https://elibrary.law.psu.edu/cgi/
viewcontent.cgi?article=1000&context=pslr (Oct.
2023).
55 Baldree v. Cargill, Inc. and United States v.
Cargill, Inc., et al., 758 F.Supp.704 (M.D.Fla. 1990).
Arkansas Valley Industries, Inc., Ralston Purina
Company, and Tyson’s Foods, Inc., 27 Ag. Dec. 84
(January 23, 1968), and In Re: Curtis Davis, Leon
Davis, and Moody Davis d/b/a Pelahatchie Poultry
Company, 28 Ag. Dec. 406 (April 3, 1969).
56 For the purposes of this preamble, a
cooperative is an incorporated or unincorporated
association of producers, with or without capital
stock, formed for mutual benefit of its members.
Farm cooperatives are formed under State, not
Federal law, even though cooperatives have Federal
protections. See James B. Dean & Thomas Earl Geu,
The Uniform Limited Cooperative Association Act:
An Introduction, 13 Drake J. Agric. L. 63, 67 (2008)
(‘‘There is, however, no single type of cooperative.
Although much of the law that has developed
around cooperatives has developed with respect to
agricultural cooperatives, cooperatives exist in
many areas . . . including housing, insurance,
banking, health care, and retail sales, among
others.’’). Cooperatives can both be buyers and
sellers of agricultural products. Cooperatives made
up of sellers, because they jointly fix the prices of
their goods, are legally permitted to market the
products they produce when the cooperative
organization meets the requirements of the CapperVolstead Act (see 7 U.S.C. 291)7 U.S.C. 291) or the
Clayton Act (see 15 U.S.C. 17).15 U.S.C. 17).
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Data source: 2017 Agricultural Census, National Agricultural Statistical Service, USDA.
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
and enhance the bargaining power of
smaller producers. At the same time,
cooperatives are responsive to the needs
of regulated entities and the market for
greater volume, as opposed to
negotiating with many smaller
producers.57 Yet precisely that presence
of enhanced bargaining power, which
cooperatives give to their members,
makes them a target for opposition or
curtailment by regulated entities.
Congress has affirmed that cooperatives
are necessary to protect the marketing
and bargaining position of individual
farmers and that interference with this
right is not only contrary to the public
interest but damaging to the free
market.58 As stated in the Congressional
Record ‘‘. . . wherever waste and
uneconomic practices are discovered
they should be eliminated, and
whenever improvement can be made by
cooperative effort these improvements
should be sanctioned and adopted by
those interested in our marketing
system. . . .’’ 59
Producers have indicated to AMS that
increased use of cooperatives is
necessary because of the rise of abusive
conduct aggravated by concentration in
the markets and the decline in
marketing options for smaller
producers. For example, small cattle
producers have expressed their concern
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57 At least some of the drafters of the Act fully
expected the Act to be consonant to the goals of
cooperatives: ‘‘My own conviction is that the
cooperative effort of producers and consumers to
get closer together in an effort to reduce the spread
between them is the most favorable tendency of our
time, so far as the question of marketing and
distribution is concerned.’’ 61 Cong. Rec. 1882
(1921).
58 7 U.S.C. 2301.
59 61 Cong. Rec. 1882 (1921).
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to AMS about packers’ disparate
treatment of large and small producers.
Large packers have commonly shown
limited interest in dealing with
producers that operate on a smaller
capacity. Packers often prefer to buy
large numbers of animals at once to
lower transaction costs,60 and if a single
producer is unable to meet such
demand, that producer is unable to
compete in the industry. Smaller
livestock producers can join together
through cooperatives to achieve scale
and meet buyers’ volume requirements.
Thus, cooperatives can help smaller
producers gain business they would
otherwise be unable to compete for in
light of the current market structure.
Moreover, Congress has encouraged the
formation of agricultural cooperatives
and, under the AFPA, has provided
enhanced protection for them in the
marketplace. Given that policy and
statutory judgment, AMS interprets the
Act to reinforce that objective.
Accordingly, discriminating against a
cooperative, absent a legitimate basis set
forth under this final rule, is unjust and
violative of the Act.
Additionally, cooperatives
counterbalance the ability of regulated
entities to exert market power against
smaller or more vulnerable producers.
Facing the threat of such a
counterbalance, regulated entities have
60 U.S. Department of Justice & U.S. Department
of Agriculture, Public Workshops, Exploring
Competition Issues in Agriculture Livestock
Workshop: A Dialogue on Competition Issues
Facing Farmers in Today’s Agricultural
Marketplaces, Fort Collins, Colorado August 27,
2010. Available at https://www.justice.gov/sites/
default/files/atr/legacy/2012/08/20/coloradoagworkshop-transcript.pdf.
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over time stymied producers’ ability to
form and utilize cooperatives. AMS has
heard numerous reports of regulated
entities terminating growers’ or
producers’ contracts for their attempts
to form cooperatives, as well as reports
of the chilling effect such action has on
any future attempts to do so.61 More
recently, cooperatives in the cattle
sector have been frustrated in their
effort to negotiate collectively. In recent
years, the number of livestock and
poultry cooperatives has declined, as
shown in the figure below. While many
reasons for that decline are unconnected
to the discrimination prohibited in this
rule, AMS believes cooperatives serve a
crucial function in the marketplace and
need protection against unjust
discrimination by regulated entities.
This final rule will protect producers
who wish to form cooperatives and will
strengthen the marketing and bargaining
position of smaller or more vulnerable
producers by enabling them to pool
resources, coordinate, compete more
effectively, and negotiate for fair and
appropriate terms in the open market
without fear of prejudice or
discrimination from larger market
intermediaries.
61 United States Department of Justice, United
States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshops, (2010), available at https://
youtu.be/8QJ_
K06lp5M?si=VGhP8lzw3f6tdM4B&t=305; https://
youtu.be/8CvEGyMQ9v8?si=_
tvtJVtlNmWDxedQ&t=3675; https://youtu.be/8QJ_
K06lp5M?si=VGhP8lzw3f6tdM4B&t=305 (In which
poultry growers discussed numerous instances of
regulated entities terminating their contracts,
reducing the quality of their feed, or otherwise
intimidating them for participating in cooperative
activities).
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16109
Figure 8: Decline in the number of livestock and poultry cooperatives in 2000-2022
90
2005
2010
2015
2020
Year
Data source: "Publications for Cooperatives," USDA Rural Development, available at
https://www.rd.usda.gov/resources/publications-for-cooperatives (Number of livestock and poultry
cooperatives, produced from compiling internal USDA records, including from directories and public
documents from 2000 - 2022. Number summarized shows the number of active cooperatives in the 5-year
interval, e.g.: for 1992, from 1990 to 1995; for 1997, from 1993 - 2000).
62 Government Accountability Project, Comments
on Proposed Rule: Inclusive Competition and
Market Integrity, (AugJan. 2022), https://
www.regulations.gov/comment/AMS-FTPP-21-0045042720232), https://www.regulations.gov/comment/
AMS-FTPP-21-0045-0427 (Describing instances in
which some producers described racially
prejudicial treatment received from regulated
entities, including requirements to do additional
work, mockery, and exploitative behavior). Farm
Action, Comments on Proposed Rule: Inclusive
Competition and Market Integrity, (AugJan. 20232),
https://www.regulations.gov/comment/AMS-FTPP21-0045-0435 (Listing Supreme Court and lower
court cases finding these forms of discrimination to
be essentially unjust).
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in support of a protected-bases
approach, saying that ‘‘fair access to
markets for growers, farmers, and
ranchers should be based on their
farming and business skills, not on their
membership in any of the above
groups.’’ 63 Another advocacy group
added that defining protected bases
‘‘will be an appropriately flexible
concept with which to enforce
enhanced protections against
discrimination in the marketplace.’’ 64
The group continued: ‘‘Given the
history of discrimination that farmers of
color have faced over the course of
American history, these producers
should not be made to relitigate their
status as market vulnerable in any given
complaint.’’ 65
Multiple commenters from the meat
and poultry industry who opposed the
MVI approach nevertheless indicated
that they would support rules targeting
discrimination on specific prohibited
bases.66 A livestock industry association
63 Agricultural Advocacy Group. ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450434. https://www.regulations.gov/comment/AMSFTPP-21-0045-0434.
64 Agricultural Advocacy Group. ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competition and
Market Integrity Under the Packers and Stockyards
Act,’’ available at Regulations.gov.
65 Agricultural Advocacy Group. ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competition and
Market Integrity Under the Packers and Stockyards
Act,’’ available at Regulations.gov.
66 See, e.g., Meat Industry Trade Association,
‘‘Comment on AMS–FTPP–21–0045: Inclusive
Competitive and Market Integrity Under the Packers
and Stockyards Act’’ (received Jan. 17, 2023),
available at https://www.regulations.gov/comment/
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said discrimination on these types of
bases is ‘‘reprehensible and should be
remediated using the appropriate legal
avenues.’’ 67 Several national and State
farm bureaus expressed support for the
rule’s action to protect producers facing
undue prejudice and unjust
discrimination.68
AMS-FTPP-21-0045-0424; https://
www.regulations.gov/comment/AMS-FTPP-21-00450424; Industry Trade Association, ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-004504249; https://www.regulations.gov/comment/AMSFTPP-21-0045-0424; https://www.regulations.gov/
comment/AMS-FTPP-21-0045-0424 Live Poultry
Dealer;, ‘‘Comment on AMS–FTPP–21–0045:
Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act’’ (received Jan. 17,
2023), available at https://www.regulations.gov/
comment/AMS-FTPP-21-0045-0419.
67 Industry Trade Association, ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450418.
68 See, e.g., Farm Bureau, ‘‘Comment on AMS–
FTPP–21–0045: Inclusive Competitive and Market
Integrity Under the Packers and Stockyards Act’’
(received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450426; Other Association or Non-Profit, ‘‘Comment
on AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450416; https://www.regulations.gov/comment/AMSFTPP-21-0045-0426; Other Association or NonProfit, ‘‘Comment on AMS–FTPP–21–0045:
Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act’’ (received Jan. 17,
2023), available at https://www.regulations.gov/
comment/AMS-FTPP-21-0045-0416; https://
www.regulations.gov/comment/AMS-FTPP-21-00450416; Other Association or Non-Profit, ‘‘Comment
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Numerous public comments on the
proposed rule supported the prohibition
of undue prejudice based on protected
bases such as those described above. In
expressing support for the proposed
‘‘market vulnerable individual (MVI)’’
approach to addressing undue
prejudices, several agricultural
advocacy groups recommended that
AMS explicitly enumerate protected
bases in its definition of MVI. MVI, as
defined in the proposed rule, is a person
who is a member, or who a regulated
entity perceives to be a member, of a
group whose members have been
subjected to, or are at heightened risk of,
adverse treatment because of their
identity as a member or perceived
member of the group without regard to
their individual qualities. The
organizations said these protected bases
should include, but not be limited to,
the protected classes of race, color,
national origin, religion, sex, sexual
orientation, disability, age, income
derived from a public assistance
program, and political beliefs.62 An
agricultural advocacy group commented
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Discrimination on the bases of race,
color, religion, national origin, sex
(including sexual orientation and
gender identity),69 disability, marital
status, or age is recognized throughout
economic markets as impermissible, yet
commonly occurring, bases for
discrimination.70 AMS recognizes the
other Federal laws and authorities that
justify these bases, finds that these bases
are consistent with its understanding
drawn from complaints and in the field,
and accordingly adopts these bases as
part of this rule.71 Removing prejudicial
barriers to the market will enhance
producers’ economic bargaining power,
support investment in rural America,
assure the next generation that taking
over the farm can be a wise economic
decision, and otherwise enhance
economic opportunity and vitality in
communities facing higher business and
labor market concentration and the
conduct addressed by this rule.
AMS finds that discrimination
continues to occur through adverse
actions described in the inexhaustive
list offered in the final rule. The list
includes offering contract terms that are
less favorable than those generally or
ordinarily offered, refusing to deal,
performing under or enforcing a
contract differently than with similarly
situated producers, requiring
modifications to contracts on terms that
are less favorable than the existing
contract with the covered producer or
only offering to renew contracts on
terms that are less favorable than those
of the existing contract with the covered
producer, and terminating or not
renewing a contract.
As discussed further in Section VII—
Comment Analysis, producers have
indicated that regulated entities
continue to engage in these types of
discriminatory actions.
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ii. Retaliation as Discrimination
Many producers across all animal
species have expressed concerns about
on AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450441.
69 140 S. Ct. at 1737, available at https://
www.supremecourt.gov/opinions/19pdf/17-1618_
hfci.pdf (The Supreme Court has held that the
prohibition on discrimination ‘‘because of . . . sex’’
covers discrimination on the basis of gender
identity and sexual orientation).
70 See, e.g., U.S. Department of Justice, ‘‘The
Attorney General’s 2021 Annual Report to Congress
on Fair Lending Enforcement,’’ available at https://
www.justice.gov/media/1259491/dl?inline.
71 15 U.S.C. 1691; 7 U.S.C. 2301 et seq. (See below
section, Provisions of the Final Rule—Undue
Prejudice and Unjust Discrimination, that discusses
the adoption of other Federally listed bases as part
of this rule).
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being retaliated against for engaging in
legitimate business and advocacy
activities inextricably linked to
livestock and poultry markets. Contract
poultry growers and hog producers have
expressed to USDA that they have
experienced—and consistently fear—
retaliation from live poultry dealers and
packers for communicating with each
other, with their dealer’s and packer’s
competitors, and with governmental
officials, as well as for forming
associations and cooperatives,
exercising contract or legal rights, or
being a witness in proceedings against
the regulated entity.72 Cattle producers
have similarly expressed fear that
packers will refuse to offer bids on
livestock, or purchase livestock from
disfavored producers, and they have
highlighted other, more subtle
retaliatory behaviors, like delaying
delivery or shipment, for engaging in
similar activities.73 Producers believe
the ability to communicate with others,
to form associations and cooperatives, to
exercise legal rights, and to witness
against regulated entities are critical to
free participation in the livestock and
poultry markets. Inhibition of these
freedoms jeopardizes producers’ ability
to obtain the full value of their livestock
and poultry products and services.
Indeed, producers have reported to
AMS over the years that retaliation by
regulated entities—or threat thereof—for
producers’ exercise of these rights is
significant enough to place a producer’s
entire farm at risk. This reported
72 U.S. Department of Justice & U.S. Department
of Agriculture, Public Workshops Exploring
Competition in Agriculture, Poultry Workshop, May
21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript
(justice.gov) (https://youtu.be/j11GXzvA7u0?si=
6YNtz2SJH5T81FJZ&t=2656; https://youtu.be/8QJ_
K06lp5M?si=C1HA0i84opqaoIn8&t=1051).
73 U.S. Department of Justice & U.S. Department
of Agriculture, Public Workshops Exploring
Competition in Agriculture, Livestock Industry,
August 27, 2010, Fort Collins, Colorado, Available
at https://www.justice.gov/atr/events/publicworkshops-agriculture-and-antitrust-enforcementissues-our-21st-century-economy-10 (https://
youtu.be/j11GXzvA7u0?si=6YNtz2SJH5
T81FJZ&t=2656https://youtu.be/Ygerhjjp0Is?si=
WMS4YGdAjNtIsBgH&t=1833; https://youtu.be/
tF4Dr-O-l8s?si=BZJQYN-rkp-qqvjN&t=1158;
numerous producers, including the previous
president of the Kansas Cattlemen’s Association,
discussed instances in which they experienced
retaliation from the largest packers. For example,
one producer described how they decided to allow
other packer buyers first opportunity to buy cattle
in response to the packer not selecting them for a
contracting agreement. The producer said that the
packer told ‘‘his buyer to quit coming into our
yard.’’ Another producer agreed, describing an
incident in which they perceived that one of the
largest packers possibly retaliating against them for
previous litigation: the producer described how the
packer hung a ‘‘No Trespassing’’ sign on the
producer’s door and began offering a ‘‘five-minute
window’’ to buy cattle).
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conduct is the type of behavior AMS
aims to prohibit through this
rulemaking.74
This is a persistent problem. As
recently as April 2022, threats and fear
of retaliation interfered with witness
testimony at each of the House and
Senate Agriculture Committees’
hearings on livestock competition
practices. In his opening remarks, House
Agriculture Committee Chair David
Scott noted, ‘‘We were supposed to have
a 4th witness, a rancher, on our panel,
but due to intimidation and threats to
this person’s livelihood, to this person’s
reputation, they chose not to participate
out of fear. Witness intimidation is
unacceptable. . . .’’ 75
The day before, Senator Deborah
Fischer had stated, ‘‘I wish we had a
Nebraska producer here, but as is noted
in their letter, none of our producer
members we encouraged to testify were
willing to put themselves out front for
fear of possible retribution from other
market participants, an unfortunate
reality of today’s cattle industry.’’ 76
In response to the proposed rule,
commenters expressed support and
opposition for the proposal to establish
prohibitions against retaliatory
practices. Several industry associations
opposed the proposed rule, indicating it
is duplicative and therefore not
necessary. These commenters
contended the conduct addressed in the
74 Lina Khan, ‘‘Obama’s Game of Chicken,’’ Wash.
Monthly (2012), https://washingtonmonthly.com/
magazine/novdec-2012/obamas-game-of-chicken/
(Recounting testimony by Tom Green, an Alabama
farmer who contested a contract and lost their farm:
‘‘We did not give up a fundamental right to access
the public court . . . which is guaranteed by our
Constitution, regardless of price. I had flown too
many combat missions defending that Constitution
to forfeit it. It was truly ironic that protecting one
right, we lost another. We lost the right to
property’’). Isaac Arnsdorf, ‘‘How a Top Chicken
Company Cut Off Black Farmers, One by One,’’
Propublica (June 26, 2019), https://
www.propublica.org/article/how-a-top-chickencompany-cut-off-black-farmers-one-by-one
(Describing how one farmer participated in the 2010
USDA–DOJ workshops and ‘‘. . . never got another
chicken after going to that meeting over there in
Alabama. . . They put me slap out of business’’).
75 House Chair David Scott D–GA, opening
remarks, U.S. House, Committee on Agriculture,
‘‘An Examination of Price Discrepancies,
Transparency, and Alleged Unfair Practices in
Cattle Markets,’’ April 27, 2022, (14 min: 24 sec),
available at https://anchor.fm/houseagdems/
episodes/An-Examination-of-Price-Discrepancies-Transparency--and-Alleged-Unfair-Practices-inCattle-Markets-e1hpvo8/a-a7r40dk.
76 U.S. Senate Committee on Agriculture,
Nutrition, and Forestry, ‘‘Legislative hearing to
review S. 4030, the Cattle Price Discovery and
Transparency Act of 2022, and S. 3870, the Meat
and Poultry Special Investigator Act of 2022,’’ April
26, 2022, (1 hour 39 min), available at https://
www.agriculture.senate.gov/hearings/legislativehearing-to-review-s-4030-the-cattle-price-discoveryand-transparency-act-of-2022-and-s3870-the-meatand-poultry-special-investigator-act-of-2022.
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proposed rule is not a widespread
problem and is already prohibited under
the Act. Other commenters supported
the rule. One organization cited a recent
anonymous survey of contract growers it
had conducted. Multiple respondents
had experienced retaliation from
integrators and said integrators regularly
terminate contracts with farmers who
engage in whistleblowing activities.
These contract terminations leave
growers with substantial debt tied up in
specialized, single-use structures built
as a condition of their contractual
agreements. Although comments in
response to the proposed rule differ
greatly regarding the need for this rule,
commenters generally do not disagree
that discriminatory and retaliatory
conduct is harmful to producers and
offers no procompetitive benefits. For
these reasons, AMS needs to use its
statutory authority to provide a
regulatory framework for prohibiting
retaliatory behavior by regulated entities
against covered producers. Establishing
regulatory protections to prohibit
regulated entities from retaliating
against producers engaging in lawful
activity will help promote fair trade
practices and competitive markets.
In recent years, producers have been
increasingly vulnerable to harms from
retaliatory behavior due to the market
power afforded regulated entities under
contracts that can reach further down
into livestock and poultry production
and/or are bilateral. This is in contrast
to past circumstances where these
relationships were intermediated
through an institution such as a
stockyard (auction) subject to
heightened regulatory duties around
nondiscrimination.
As regulated entities have obtained
greater control over the input industries,
particularly in poultry, producers are
increasingly dependent upon regulated
entities for success. That dependence, in
combination with high levels of debt,
leaves producers vulnerable to the
retaliation that regulated entities can
exact through input distribution and in
other ways. Growers have for years
reported punitive delivery of inputs to
deter their exercise of a wide range of
legal rights and remedies that would
enable them to earn the full value of
their services.77 78
77 U.S. Department of Justice & U.S. Department
of Agriculture, Public Workshops Exploring
Competition in Agriculture, Poultry Workshop, May
21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript
(justice.gov); see also Lina Khan, ‘‘Obama’s Game of
Chicken,’’ The Washington Monthly, Nov. 2012,
available at
78 Oscar Hanke, ed., American Poultry History,
1823–1973 (Madison, Wisc., 1974), 384–85. Fite,
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Based on complaints and industry
experience, AMS is aware that
retaliation by regulated entities may
take many forms, such as canceling
contracts, selectively enforcing contract
terms, refusing to deal or negotiate, or
otherwise impairing an individual’s or
group of producers’ ability to operate.79
In contrast, in more competitive
markets, producers facing retaliation
can more easily avoid or mitigate
adverse impacts by simply finding other
entities with whom to do business.
Without choices, producers are at the
mercy of the types of abuses the Act was
designed to prevent—market abuses that
inhibit producers’ ability to get the full
value of their products and services.
Ultimately, regulated entities may
retaliate for various reasons, but none
have any role in or benefit to the
competitive functioning of the market.80
As discussed below in Section VII—
Comment Analysis, in response to the
proposed rule, commenters expressed
extensive agreement with the need to
establish prohibitions against retaliatory
practices.
Cotton Fields No More, 201; Peck, A, (2006), ‘‘State
regulation of production contracts.’’ University of
Arkansas National Center for Law Research and
Information, available at https://nationalaglaw
center.org/wp-content/uploads/assets/articles/
peck_contractregulation.pdf; Stephen F. Strausberg,
From Hills and Hollers: Rise of the Poultry Industry
in Arkansas (Fayetteville, Ark., 1995), 136;
Heffernan, W. D., (1984), Constraints in the U.S.
poultry industry. Research in Rural Sociology and
Development, 1, 237–260 (Researchers have
documented the increased incidence of producers’
complaints and decreasing satisfaction in the
industry beginning in the 1980s, which coincided
with increasing concentration of the industry.
Weinberg writes how, in 1960, 19 firms processed
30 percent of total US poultry processed and that
producers who entered the business tended to
achieve upward mobility. In the 1970s, only 8 firms
processed the same percent of poultry. This trend
accompanied an increased incidence of grower
dissatisfaction. Gordy notes how ‘‘loss of
independence and lower incomes caused some
growers to become disenchanted.’’ Fite observed
how poultry farmers were ‘‘controlled and
sometimes exploited by their suppliers.’’ Peck notes
how dissatisfaction by growers prompted State
attorneys general to propose a 3-day right of review
in a model producer protection act in the early
2000s. In 2010, the USDA and DOJ hosted a series
of workshops in which growers raised concerns
about retaliation in the industry. These trends,
which occurred alongside increased productivity
gains and use of technology, coincided with exits
in the industry. As Weinberg documented, in
Georgia, in 1950, 1176 Hall County farms sold 6.8
million chickens; in 1992, only 192 sold 44.3
million chickens).
79 See, e.g., U.S. Department of Justice & U.S.
Department of Agriculture, Public Workshops
Exploring Competition in Agriculture, Poultry
Workshop, May 21, 2010, Alabama A&M University
Normal, Alabama, available at https://youtu.be/
8CvEGyMQ9v8?t=3135 (in which poultry growers
described how companies seemingly arbitrary
mandated expensive upgrades).
80 Fehr, Ernst, and Simon Ga
¨ chter. ‘‘Fairness and
retaliation: The economics of reciprocity.’’ Journal
of economic perspectives 14, no. 3 (2000): 159–181.
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iii. Deceptive Practices
The Packers and Stockyards Act has
long recognized that integrity and
honesty are vital to the marketing of
livestock and, therefore, to the
efficiency with which these markets
supply meat to the American
consumer.81 This rulemaking is a
response, in part, to the range of
complaints lodged with USDA,
Congress, and the media over the years
regarding inaccurate, incomplete, or
otherwise false or misleading
statements, or omission of material
information that affects decision-making
or access to markets by producers.
These complaints reflect, in part,
changed industry contracting norms or
a market environment where the
prevalent norms result in more acute
harms to producers. For example,
packers and industry representatives
have routinely indicated that producers
may choose the form of pricing
mechanism for their transactions.
However, as cash-negotiated markets
have declined, producers have
increasingly complained to USDA that
they are not provided such a choice, and
are commonly given a take-it-or-leave-it
offer to buy their cattle off of a pricing
formula provided by the company.82
Producers have complained they have
been told that packers refuse to buy
their cattle on the grounds they are not
of sufficiently high quality or that
formula market arrangements are
necessary to incentivize such quality,
when the cattle being offered were of no
less quality than those the packer
procured under other marketing
arrangements.83
Poultry producers have complained to
USDA over the years regarding
unfavorable provision of inputs made to
certain producers despite statements by
live poultry dealers that there are no
differences in treatment. Producers have
also complained to USDA of
terminations, suspensions, or reductions
in flocks on pretexts—i.e., on the
provision of false or misleading
information such as claims of animal
81 See, e.g., Midwest Farmers v. United States, 64
F. Supp. 91, 95 (D. Minn. 1945); In re: Frosty Morn
Meats, Inc., 7 B.R. 988, 1020 (M.D. Tenn. 1980).
82 Other Association or Non-Profit, ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450423.
83 C. Robert Taylor, ‘‘Harvested Cattle,
Slaughtered Markets,’’ April 27, 2022, 7–9,
available at https://www.antitrustinstitute.org/workproduct/aai-advisor-robert-taylor-issues-newanalysis-on-the-market-power-problem-in-beef-laysout-new-policy-framework-for-ensuringcompetition-and-fairness-in-cattle-and-beefmarkets/.
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welfare contractual violations—when
other reasons may exist for the adverse
actions, including the discrimination
and retaliation noted previously, or
other unreasonable bases, such as a
preference for family or friends of the
local agent of a live poultry dealer or for
a poultry grower connected to a senior
executive of a live poultry dealer.84
Contract termination puts the grower at
severe risk of significant economic loss.
A production broiler house often has
significant long-term financial
obligations. The potential loss includes
not only the loss of production income,
but financing for construction, which
often comes from mortgages on the
grower’s farm or family home.
Pretextual cancellation may make even
the sale or transfer of the broiler
production house impossible because
purchasers may be unable to determine
whether the broiler houses have value.
As discussed in Section VII—
Comment Analysis, comments
underscored the need to address
deceptive practices in this rulemaking.
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III. Authority
Congress enacted the Act to promote
fairness, reasonableness, and
transparency in the marketplace by
prohibiting practices that are contrary to
these goals. AMS is issuing these
regulations under the Act’s provisions
prohibiting undue prejudice, unjust
discrimination, and deception to
provide for clearer, more effective
standards to govern the modern
marketplace and to better protect,
through compliance and enforcement,
individually harmed producers.
Enacted in 1921 ‘‘to comprehensively
regulate packers, stockyards, marketing
agents and dealers,’’ 85 the Act, among
other things, prohibits actions that
hinder integrity and competition in the
livestock and poultry markets. Section
202(a) of the Act states that it is
unlawful for any packer, swine
contractor, or live poultry dealer to
engage in or use any unfair, unjustly
discriminatory, or deceptive practice or
device.86 Section 202(b) of the Act states
that it is unlawful for any packer, swine
contractor, or live poultry dealer to
make or give any undue or unreasonable
preference or advantage to any
particular person or locality, or subject
84 Wheeler v. Pilgrim’s Pride, 536 F.3d 455 (5th
Cir. 2008); United States Department of Justice,
United States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture:
Poultry Workshop May 21, 2010; Normal, Alabama,
https://www.justice.gov/sites/default/files/atr/
legacy/2010/11/04/alabama-agworkshoptranscript.pdf, last accessed 8/14/23.
85 Hays Livestock Comm’n Co. v. Maly Livestock
Comm’n Co., 498 F.2d 925, 927 (10th Cir. 1974).
86 7 U.S.C. 192(a).
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any particular person or locality to any
undue or unreasonable prejudice or
disadvantage in any respect.
Section 407 of the Act provides that
the Secretary ‘‘may make such rules,
regulations, and orders as may be
necessary to carry out the provisions of
this [Act].’’ (7 U.S.C. 228(a)) The
Secretary has delegated the
responsibility for administering the Act
to AMS. Within AMS, the Packers and
Stockyards Division (PSD) of the FairTrade 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 CFR.
Therefore, based on the authority
delegated to USDA by Congress to
administer the Act, AMS is
promulgating this rulemaking to amend
part 201 to specifically clarify that
discriminatory, deceptive, and
retaliatory conduct, as defined in this
rule, are violations of the Act.
Executive Order (E.O.) 14036,
‘‘Promoting Competition in the
American Economy’’ (86 FR 36987, July
9, 2021), directs the Secretary to further
the vigorous implementation of the Act.
Accordingly, this final rule addresses
the unfair treatment of farmers and
improves competitive conditions in
markets. This rule adds clarity to
USDA’s regulations concerning unjustly
discriminatory practices, deceptive
practices, and undue or unreasonable
prejudices or disadvantages. E.O. 14036
underscored that ‘‘it is unnecessary
under the... Act to demonstrate
industry-wide harm to establish a
violation of the Act and that the ‘unfair,
unjustly discriminatory, or deceptive’
treatment of one farmer’’ violates the
Act. Among other policy goals in the
E.O., this final rule is specifically
intended to address the unfair treatment
of farmers and make it easier for them
to garner the full value of their animals.
The Act is a remedial statute enacted to
address problems faced by farmers,
producers, and other participants in the
markets for livestock, meats, meat food
products, livestock products in
unmanufactured form, poultry, and live
poultry; to protect the public from
predatory practices; and to help ensure
a stable food supply. Thus, as academics
and courts have noted, the Act has ‘‘tortlike provisions that are concerned with
unfair practices and discrimination’’
that fulfill a ‘‘market facilitating
function,’’ which Congress designed to
prevent ‘‘market abuse.’’ 87 AMS
87 Herbert Hovenkamp, ‘‘Does the Packers and
Stockyards Act Require Antitrust Harm?’’ (2011).
Faculty Scholarship at Penn Carey Law. 1862.
https://scholarship.law.upenn.edu/faculty_
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interprets and implements the Act to
achieve its core statutory purposes.88
IV. Summary of the Proposed Rule
In the October 2022 proposal, AMS
proposed amending 9 CFR 201 by
adding a new subpart O, titled
‘‘Competition and Market Integrity,’’
and containing §§ 201.300 through
201.390. AMS proposed adding a
Definitions section, § 201.302,
containing the terms covered producer,
livestock producer, market vulnerable
individual, and regulated entity.
AMS also proposed adding § 201.304,
titled ‘‘Undue prejudices or
disadvantages and unjust discriminatory
practices,’’ to prohibit regulated entities
from discriminating against a market
vulnerable individual or a cooperative,
detailing in proposed paragraph (a)
types of prohibited actions. Paragraph
(b) of the proposed regulation would
prohibit regulated entities from
retaliating against a covered producer
because of the covered producer’s
participation in a producer association,
protected activities, including assertion
of rights under the Act, and lawful
communication. Proposed paragraph (b)
also provided examples of prohibited
retaliatory actions. Proposed paragraph
(c) included a requirement that
regulated entities retain records of
compliance with paragraphs (a) and (b)
for no less than five years from the date
of record creation.
AMS also proposed adding § 201.306,
titled ‘‘Deceptive practices,’’ prohibiting
a regulated entity from employing a
false or misleading statement or
omission of material information
necessary to make a statement not false
or misleading during contract formation,
scholarship/1862 (‘‘subsections (a) and (b) appear to
be tort-like provisions that are concerned with
unfair practices and discrimination, but not with
restraint of trade or monopoly as such’’); Peter
Carstensen, The Packers and Stockyards Act: A
History of Failure to Date, CPI Antitrust Journal 2–
7 (April 2010) (‘‘Congress sought to ensure that the
practices of buyers and sellers in livestock (and
later poultry) markets were fair, reasonable, and
transparent. This goal can best be described as
market facilitating regulation.’’); Michael C. Stumo
& Douglas J. O’Brien, Antitrust Unfairness vs.
Equitable Unfairness in Farmer/Meat Packer
Relationships, 8 Drake J. Agric. L. 91 (2003);
Michael Kades, ‘‘Protecting livestock producers and
chicken growers,’’ Washington Center for Equitable
Growth (May 2022), https://equitablegrowth.org/
wp-content/uploads/2022/05/050522-packersstockyards-report.pdf (‘‘Section 202’s prohibitions
on unjust discrimination and undue preference are
not limited to conduct that destroys or limits
competition or creates a monopoly. These
provisions address conduct that impedes a wellfunctioning market and deprives livestock and
poultry producers of the true value of their animals.
Taken together, these provisions seek to prevent
market abuses.’’).
88 See Bowman v. U.S. Dep’t of Agric., 363 F.2d
81 at 85 (5th Cir. 1966).
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performance, and termination. Section
201.306 also proposed to prohibit a
regulated entity from providing false or
misleading information concerning a
refusal to contract. The proposal was
designed to prohibit regulated entities
from specified deceptive practices in
contracting, which are of particular
concern because of the power of the
regulated entities over their vertical
contracting relationships. As stated in
the proposal, AMS intended this
proposed regulation to address broad
areas of specific concern, not
exhaustively identify all deceptive
practices that would violate sec. 202(a)
of the Act.
Finally, AMS proposed adding
§ 201.390, titled ‘‘Severability.’’ This
provision was intended to inform
reviewing courts that if any provision of
subpart O was declared invalid, or if the
applicability of any of its provisions, or
any components of any provisions, to
any person or circumstances was held
invalid, the validity of the remaining
provisions of subpart O or their
applicability to other persons or
circumstances would not be affected.
Severability provisions are typical in
modern AMS regulations. AMS
regulations often cover several different
topics in a subpart. This provision was
added because the regulations in
subpart O are designed to address
several different types of violations
under the Act. Because these violations
address similar underlying
developments in the livestock and
poultry markets—namely, abusive
practices facilitated by increased
vertical integration and horizontal
concentration—these violations were
suitable for joining in a single
rulemaking. However, each could be
viewed as its own stand-alone
rulemaking and therefore should be
severable.
Upon consideration of public
comments on the proposed rule, AMS
modified some of its proposed
provisions to derive this final rule.
These changes are outlined below.
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V. Changes From the Proposed Rule
AMS is making the following changes
to the proposed rule based on the
agency’s analysis of the issues raised by
commenters.
A. Market Vulnerable Individual (MVI)
to Prohibited Bases
With respect to the proposed
regulations regarding undue prejudice
and unjust discrimination, § 201.304,
several commenters expressed concern
that the definition of ‘‘market vulnerable
individual (MVI)’’ as the basis for
prohibiting undue prejudice and
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discrimination was too broad and
ambiguous and could lead to an
avalanche of litigation. To simplify this
section, the final rule uses a delineated
set of protected bases against undue
prejudice and discrimination that were
discussed in the proposed rule: race,
color, national origin, religion, sex,
sexual orientation, gender identity, age,
disability, and marital status. These
delineated bases reflect the Statement of
General Policy Under the Packers and
Stockyards Act published by USDA in
1968 (9 CFR 203.12(f)) and USDA’s
Conducted Programs Statement, and
reflect a general congressional policy as
indicated in other statutory sources
(discussed below).89 The final rule
retains status as a cooperative as a
protected basis against undue prejudice
and discrimination, which reflects the
principles set forth in the Agricultural
Fair Practices Act of 1967.90 (For the
avoidance of doubt, AMS notes that
discrimination against a member of a
cooperative is prohibited under the
provisions of paragraph (b)(2)(iii).)
Accordingly, AMS has removed the
term market vulnerable individual from
the list of terms defined for subpart O
in § 201.302.
AMS is adopting the aforementioned
specific bases, as opposed to MVI,
because the specific prohibited bases
offer clearer, more workable standards
to achieve the same goal set forth and
specifically articulated in the proposed
rule, but in a manner that will facilitate
compliance by regulated entities and
better enable producers to exercise their
rights under the Act. As AMS explained
in the proposed rule, the principal
purpose of the MVI approach was to
address prejudices in the marketplace
against producers that are more
vulnerable to such treatment and to stop
unjust discrimination. AMS views
vulnerability to adverse marketplace
treatment to include, but not be limited
to, exclusion or disadvantage on the
basis of race, color, religion, national
origin, sex (including sexual orientation
and gender identity), disability, marital
status, or age, or on the basis of the
covered producer’s status as a
cooperative. AMS initially adopted the
MVI approach because it believed that
the proposed rule’s flexible approach to
resolving marketplace vulnerabilities
offered producers protection in an everevolving market. The proposed
approach had the advantage of being
responsive to the particular facts of
89 7 CFR 15d.3; U.S. Department of Agriculture,
‘‘Nondiscrimination in Programs or Activities
Conducted by the United States Department of
Agriculture,’’ 79 FR 41406, July 16, 2014.
90 Public Law 90–288.
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16113
given cases and particular markets over
time.
As part of the rulemaking process,
however, AMS sought comment on
whether this was the best approach.
AMS requested comment on whether it
should ‘‘delineate specific categories of
vulnerable producers on the basis of
membership in groups that have
historically been subject to adverse
treatment owing to racial, ethnic,
gender, or religious prejudices.’’ (87 FR
60010, Oct. 3, 2022) AMS also sought
comment on ‘‘whether this regulation
should ban discrimination against
specific classes, such as on the basis of
race, color, national origin, religion, sex,
sexual orientation, gender identity, age,
disability, marital status, or family
status. Such an approach would differ
from the market vulnerable individual
approach and would instead more
closely follow the civil rights laws that
prohibit prejudicial discrimination
against certain protected classes.’’
After considering the comments on
both the MVI approach and on specific
delineated bases, AMS determined that
MVI is not sufficiently clear enough to
meet the objectives of this regulation.
The enumeration of specific prohibited
bases provides more clarity and
certainty by limiting the scope of the
rule to prohibited adverse actions
against all producers on the basis of
their membership of a protected class,
in line with existing civil rights
requirements. Commenters, such as a
meat industry trade association, a
poultry industry trade association, and
a live poultry dealer, criticized the
proposed rule’s MVI definition for being
vague and ambiguous and potentially
exposing their businesses to an
unworkable standard that could
potentially encompass a wide range of
covered producers far beyond what the
Agency appeared to be contemplating in
the proposed rule. In contrast, these
commenters indicated that an approach
based on specific classes, such as race,
sex, sexual orientation, or religion,
would be clearer and would follow the
precedent of civil rights laws already in
place while protecting all producers.91
91 See, e.g., ‘‘Comment on AMS–FTPP–21–0045:
Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act’’ (received Jan. 17,
2023), available at https://www.regulations.gov/
comment/AMS-FTPP-21-0045-0424; ‘‘Comment on
AMS–FTPP–21–0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards
Act’’ (received Jan. 17, 2023), available at https://
www.regulations.gov/comment/AMS-FTPP-21-004504249; https://www.regulations.gov/comment/AMSFTPP-21-0045-0424; ‘‘Comment on AMS–FTPP–21–
0045: Inclusive Competitive and Market Integrity
Under the Packers and Stockyards Act’’ (received
Jan. 17, 2023), available at https://
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Several meat and poultry industry
commenters who opposed use of the
MVI approach stressed that they do not
engage in discrimination on the specific
bases set forth in this final rule and
oppose such discrimination.92
Multiple agricultural advocacy
organizations also expressed approval of
these protected classes as the prohibited
bases for discrimination when
responding to the proposed rule’s
solicitation of responses on this issue,
saying discrimination against
individuals in these groups should be
clearly recognized so those individuals
do not have to continually prove
discrimination and prejudice against
them based on the characteristic that
makes them vulnerable in the market.
AMS agrees that the bases adopted in
the final rule reflect genuine
vulnerability to market exclusion and
have no competitive benefit.
AMS also notes that some
commenters interpreted the MVI
approach as potentially providing
protection to small producers on the
basis that small producers were
vulnerable to discrimination in the form
of the same kinds of adverse treatment
proposed to be prohibited in this rule.
While AMS is sympathetic to the plight
of small producers’ challenges in
accessing fair markets, AMS did not
intend this rule to address those
concerns (as also discussed below in
Section VII—Comment Analysis).
Basing the rule on a term that gave rise
to such disparate interpretations
underlined the necessity of utilizing the
more specific bases set forth in the
proposed rule’s alternative formulation.
Additionally, AMS notes that these
prohibited bases are now widely
accepted standards of nondiscrimination at USDA and in the U.S.
economy more broadly. AMS adopted
many of these as part of its 1968
Statement of General Policy.93 Together
with the Agricultural Fair Practices Act
of 1967, these bases also apply to AMS
enforcement of the Equal Credit
Opportunity Act (ECOA) under the Act,
to USDA programs through its
Conducted Programs Statement, and,
www.regulations.gov/comment/AMS-FTPP-21-00450419.
92 See, e.g., National Cattlemen’s Beef
Association, ‘‘Comment on AMS–FTPP–21–0045:
Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act’’ (received Jan. 17,
2023), available at https://www.regulations.gov/
comment/AMS-FTPP-21-0045-0418 (Deception,
discrimination, or retaliation on the basis of race,
ethnicity, sexual orientation, gender identity,
ability, religion/spirituality, nationality and/or
socioeconomic status is reprehensible and should
be remediated using the appropriate legal avenues,
including legislative changes where necessary).)
93 9 CFR 203.12(f).
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more recently, to the terms of USDA’s
debt relief under section 22007 of the
Inflation Reduction Act.94 The terms are
also widely accepted bases in other laws
that prohibit discrimination, such as in
housing and employment.95 The
prohibited bases defined in the final
rule have become so widely accepted as
prohibited bases of discrimination that
it would be notable and arbitrary for the
Agency to pick some of the terms and
not others. Quite simply, ‘‘unjust
discrimination’’ and ‘‘undue
prejudices’’ cannot be read but to
include these widely accepted nondiscrimination terms.
Accordingly, to achieve the same goal
that the Agency set forth in the
proposed rule through both MVI and the
alternative formulation, AMS is now
adopting the alternative formulation:
race, color, religion, national origin, sex
(including sexual orientation and
gender identity), disability, marital
status, or age of the covered producer;
or because of the covered producer’s
status as a cooperative.
B. Prohibited Actions Taken on a
Prejudicial Basis
In § 201.304(a)(2), AMS made three
changes to the provisions regarding
prohibited actions taken on a prejudicial
basis. First, in paragraphs (a)(2)(i)
through (iii), AMS proposed to prohibit
offering contracts that are less favorable
than those generally or ordinarily
offered, refusing to deal, and differential
contract performance or enforcement,
when each occurred on a prohibited
basis. AMS is revising each of these
provisions to provide clarity and
uniformity across this final rule with
respect to a comparison to similarly
situated producers and also to ensure
parallel language with the retaliation
adverse actions under § 201.304(b)(3).
Paragraph (a)(2)(i) is revised to read
‘‘Offering contract terms that are less
favorable than those generally or
ordinarily offered to similarly situated
producers; paragraph (a)(2)(ii) is revised
94 USDA, Discrimination Financial Assistance
Program, ‘‘Eligibility,’’ https://22007apply.gov/
eligibility.html (last accessed Oct. 2023) (‘‘This
program covers discrimination based on different
treatment you experienced because of: Race, color,
or national origin/ethnicity (including status as a
member of an Indian Tribe); Sex, sexual orientation,
or gender identity; Religion; Age; Marital status;
Disability; Reprisal/retaliation for prior civil rights
activity’’).’’)
95 See, generally, DOJ, Civil Rights Division. The
Attorney General’s Annual Report to Congress on
Fair Lending Enforcement (2021), available at
https://www.justice.gov/d9/pages/attachments/
2022/11/14/ecoa_report_2021_final_0.pdf (In 2001
to 2021, there were 496 fair lending referrals to DOJ,
of which 163 were on the basis of race and national
origin. Other noted referrals, and then cases, in
2019 and 2020 were discrimination based on age
and gender.)
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to read ‘‘Refusing to deal with a covered
producer on terms generally or
ordinarily offered to similarly situated
covered producers’’; and paragraph
(a)(2)(iii) in the final rule is revised to
read ‘‘performing under or enforcing a
contract differently than with similarly
situated covered producers’’ [emphasis
added]. ‘‘Similarly situated,’’ is a phrase
commonly used by commenters and by
AMS in the proposed rule when
discussing producer groups.96 Including
this concept in the final regulation
provides more context for a comparison
of what differential performance or
enforcement would look like, and
therefore provides more specificity to
the regulation. This revision also
mirrors a revision made to language in
a similar provision in the retaliation
section (§ 201.304(b)(3)(ii) and (iv)). The
addition of ‘‘with a covered producer’’
in paragraph (a)(2)(ii)—Refusal to deal,
is similarly designed to align with the
parallel provision for paragraph
(b)(3)(iv) as was set out in the proposed
rule and retained in the final rule. The
final rule adds ‘‘on terms generally or
ordinarily offered to similarly situated
producers’’ as well, in response to
comments (as discussed below) to
provide similar clarity of application
that refusal to deal is not simply an
absolute boycott or making a sham or
nominal offer, but includes failure to
bid, negotiate, and otherwise make a
reasonable attempt to contract on terms
generally or ordinarily offered to
similarly situated producers when done
on the prohibited basis.
Second, AMS is adding a new
paragraph (a)(2)(iv), which prohibits—
when it occurs on a prohibited basis—
‘‘requiring a contract modification or
renewal on terms less favorable than
similarly situated covered
producers.’’ 97 The new provision
expands on the concept encompassed in
paragraph (a)(2)(i), which prohibits
‘‘offering contract terms that are less
favorable than those generally or
ordinarily offered to similarly situated
covered producers.’’ The new provision
prohibits regulated entities from making
contract terms less favorable for
producers once they are under contract
and have incurred financial obligations
because of that contract. The new
provision mirrors a new provision
96 See also Central Railroad Co. of New Jersey v.
United States, 257 U.S. 247 (1921) (‘‘They can be
held jointly and severally responsible for unjust
discrimination only if each carrier has participated
in some way in that which causes the unjust
discrimination, as where a lower joint rate is given
to one locality than to another similarly situated’’).
97 Proposed paragraph (a)(2)(iv), which prohibited
termination or non-renewal of a contract on a
prohibited basis, is renumbered in the final rule as
paragraph (a)(2)(v).
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added to the retaliation section
(§ 201.304(b)(3)(iii)) in response to
public comment on the proposed
retaliation regulations. AMS also uses a
similar approach in the retaliation
section on refusing to deal
(§ 201.304(b)(3)(iv)), as requested by
public commenters, by adding ‘‘with a
covered producer on terms generally or
ordinarily offered to similarly situated
covered producers’’ after ‘‘deal,’’ for the
same reasons—this language helps
prevent evasion. Commenters requested
that AMS provide more protection so
that regulated entities cannot formulate
new ways of harming producers in
contracting—a crucial component of a
producer’s financial well-being.
Commenters suggested an additional
provision regarding specific contract
terms, including contract modification,
be added to the regulations. While AMS
did not adopt the suggested provision in
whole, AMS recognizes the importance
of specifically prohibiting unfavorable
contract modifications or renewals that
occur on a prohibited basis, considering
the detrimental financial impact this
can have on producers already under
contract. In making these changes, the
final rule provides a greater degree of
specificity regarding the type of conduct
the rule prohibits. AMS will review the
facts and circumstances of each case
and the regulated entity’s justifications
for any modification or renewal to
determine whether the regulated entity
has violated this rule.
Third, AMS is adding a new
paragraph (a)(2)(vi), which prohibits
regulated entities from taking ‘‘any other
action that a reasonable covered
producer would find materially
adverse.’’ This provision represents a
logical outgrowth from the proposed
rule, which had indicated that the
‘‘prejudice or disadvantage with respect
to paragraph (a)(1) of this section
includes the following actions.’’ As
AMS explained in the proposed rule,
AMS believes that the type of harm to
a producer will not be difficult to
identify when it occurs based upon the
facts and circumstances, and thus
provided an exemplary list to aid in
identification and enforcement under
the rule. Such a list was not intended to
be all encompassing. However, in
response to comments, AMS has
recognized that such an open-ended
approach may create too much
uncertainty and undermine compliance
and enforcement. AMS is replacing the
use of ‘‘includes’’ with an additional,
more flexible provision that provides a
broader yet not unlimited range of
possible harms. AMS’s approach is in
response to comments that adverse
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treatment of producers by regulated
entities can occur outside the confines
of the contractual relationship. Such
conduct could include, for example,
interference by a regulated entity into
regulatory matters of significant material
importance to producers. Several public
commenters wanted more producer
protections incorporated into
§ 201.304(a)(2). This provision provides
a broad and flexible approach to these
prohibitions and allows for ‘‘material’’
to be determined by the facts and
circumstances of each case while
staying within the scope of the proposed
rule’s intent around harms to producers
under unjust discrimination and undue
prejudice deriving from adverse actions.
C. Exceptions to the Prohibited Bases
Commenters suggested that AMS
include exceptions to the prohibition on
undue prejudice and unjust
discrimination. In response to these
comments and the shift from MVI to
identifying specific prohibited bases,
AMS decided to provide specific
exceptions from the prohibition in two
circumstances. New § 201.304(a)(3)
states that the following actions by a
regulated entity do not prejudice,
disadvantage, inhibit market access, or
constitute adverse action under
§ 201.304(a)(1): (i) fulfilling a religious
commitment relating to livestock, meats,
meat food products, livestock products
in unmanufactured form, or live
poultry; (ii) a Federally-recognized
Tribe, including its wholly or majorityowned entities, corporations, or Tribal
organizations, performing its Tribal
governmental functions.
In shifting from MVI toward specific
prohibited bases, AMS identified the
need to provide certain exceptions from
the prohibition. The proposed MVI was
a flexible standard that permitted the
Agency to evaluate the facts and
circumstances of a particular case and
whether the exclusion or
disadvantageous contracting
arrangement was based on the
characteristics of the producer.
Specifying delineated prohibited bases
provides greater clarity, yet in doing so,
it eliminates a degree of flexibility that
could be valuable in a small set of
circumstances. Accordingly, the Agency
is adopting two specific exceptions to
recognize circumstances that do not give
rise to unjust discrimination. AMS
asked questions about both areas in the
proposed rule, highlighting to
commenters that the Agency recognized
the potential for additional adjustments
to be made in those areas.
First, AMS is providing a specific
exception to recognize the important
role ritual slaughter plays in certain
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religious traditions and ensure that
religiously significant meats—such as
kosher, halal, and Amish meats—are not
impacted by the rule’s prohibition on
discrimination on the basis of the
producer’s religion. According to AMS
subject matter experts, halal
slaughterers, for example, express a
legitimate, religiously grounded
preference for livestock and poultry
raised by operators of faith, e.g., the
Muslim or the Amish Christian group,
that maintain particular animal
husbandry practices. In adopting its
prohibition on prejudice on the basis of
religion, AMS is principally focused on
access to the broad livestock markets for
persons where religion has no legitimate
business purpose. In contrast, where
religion is relevant to the livestock and
meat itself, AMS is not seeking to
disturb the religiously based
determinations in what is a relatively
discrete market segment. Therefore,
when administering the Act, AMS must
allow discriminatory conduct directed
toward fulfilling religious commitments
surrounding livestock care and meat
production.
To ensure clarity in its application,
this rule respects longstanding
jurisprudence surrounding Tribal
sovereignty and the political
relationship that a Tribe has with its
members that secures the right for Tribal
entities to preference Tribal members.
To ensure that it is not read in
contradiction with existing
jurisprudence, the rule explicitly
specifies that Tribal governments can
engage in practices related to livestock,
poultry, and meats with respect to nonTribal entities or non-Tribal
descendants. The prohibition on
discrimination on the basis of race or
color would be read to protect a person
from discrimination for being of Native
American descent, but not on
preferential treatment given to Tribal
members based on their political
classification. This matter was
specifically raised by, and is responsive
to, Tribal governments during the Tribal
consultation that AMS conducted and is
described below under ‘‘VII.C.—
Executive Order 13175—Consultation
and Coordination with Indian Tribal
Governments.’’
AMS recognizes that this rulemaking
cannot foresee the range of unique or
extenuating circumstances that may
present in agricultural markets.
Commenters stated that rapidly
changing livestock and poultry markets
may require an exception to the
prohibition against undue prejudice or
disadvantage on a protected basis.
However, AMS did not identify, from
the comments or based on its
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experience, any other specific
circumstances in the livestock and
poultry industries where a prejudice
against a producer on a prohibited basis
was justified under the Act. To the
extent that unforeseen circumstances
could arise that would justify creating
the need to allow for additional
exceptions to this rule, AMS believes
that those circumstances are likely to be
rare and tailored to narrow
circumstances. Accordingly, AMS
believes that prosecutorial discretion
will provide it with adequate flexibility
to offer relief on a case-by-case basis. Of
course, if following implementation of
this rule it becomes evident that
additional exceptions should exist in
regulation, AMS may amend this
regulation through the ordinary
rulemaking process.
D. Retaliation Provisions
AMS proposed in § 201.304(b)(1) to
prohibit retaliation against a covered
producer that occurs because of the
covered producer’s participation in
protected activities ‘‘to the extent that
these activities are not otherwise
prohibited by Federal or state law,
including antitrust laws.’’ In the final
rule, AMS modified the language of this
provision to move the exception for
Federal or State law, including antitrust
laws, to paragraph (b)(2) and to add
Tribal law to the types of law identified
in this exception. AMS is adding this
language to make explicit the
applicability of Tribal law in this
circumstance. Additionally, AMS
changed ‘‘because of’’ to ‘‘based upon’’
both in response to comments and to
align with its approach in § 201.304(a)
and embodied in § 201.304(c). AMS
proposed ‘‘based upon’’ in § 201.304(a)
and ‘‘by employing’’ in § 201.304(c) to
capture actions where the prohibited
bases form a material part of the
action—discrimination or prejudice, or
as part of the deceptive practice. Section
201.304(b) is designed to achieve the
same goal. AMS also received comments
recommending broad protections for
covered producers from retaliatory
actions, including where the retaliation
was a part of the decision to take an
adverse action. AMS further
underscores that ‘‘based upon the
covered producer’s participation in an
activity . . .’’ covers threats that would
reasonably dissuade or chill a covered
producer from participating in the
activities.
Under proposed § 201.304(b)(2)(i),
AMS proposed to establish as a
protected activity a producer’s
communication with a government
agency on matters related to livestock,
meats, or live poultry or petitions for
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redress of grievances before a court,
legislature, or government agency.
Commenters requested that AMS clarify
that this protection covers
communication with any sector or level
of government, including State
governments. AMS intends for this
regulation to include protections for
communications with any level of
government, including any government
committee or official. In this final rule,
AMS is aligning the use of the terms
‘‘court, legislature, or government
agency’’ and simplifying the language to
say, ‘‘government entity or official.’’
This change ensures that protected
communications may occur with any of
the three branches of government, any
level of government, and with
individual government officials,
including committees and members of a
legislature.
AMS requested public comment on
whether the final rule should protect
producers who choose not to participate
in protected activities. In response to
public comment supporting this
proposal, AMS has revised
§ 201.304(b)(2)(ii) to protect a
producer’s right to refuse a regulated
entity’s request to engage in
communication with a government
entity or official that is not required by
law, and § 201.304(b)(2)(iii) to protect a
producer’s right to form or join, or to
refuse to form or join, a producer or
grower association or organization.
Proposed § 201.304(b)(2)(ii), which
protected a producer’s assertion of any
of the rights granted under the Act or
this part, or assertion of contract rights,
is renumbered as paragraph (b)(2)(vii) in
the final rule.
AMS proposed in § 201.304(b)(2)(v) to
protect producer communication or
negotiation with a regulated entity for
the purpose of exploring a business
relationship. In response to public
comment, AMS added in the final rule
protection for communicating;
negotiating; or contracting with a
regulated entity, another covered
producer, or with a commercial entity or
consultant; for the purposes of exploring
or entering into a business relationship.
Commenters asserted that, as proposed,
the protected activity was
‘‘unreasonably narrow’’ and that
expanding this protection would ‘‘help
ensure that covered producers may
explore all their business
opportunities.’’ 98 The Act is intended to
ensure an inclusive market to protect
and promote the ability for covered
98 ‘‘Comment on AMS–FTPP–21–0045: Inclusive
Competition and Market Integrity Under the
Packers and Stockyards Act,’’ available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450423.
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producers to compete.99 Such
competition may also take the form of
exploring or entering into opportunities
for enhanced price discovery through
market intermediaries, such as listing
cattle for competitive bidding on a
publicly transparent exchange or selling
at an auction barn or through a
cooperative or other commercial entity
that facilitates the marketing of livestock
by the covered producer. The provision
covers both the ability to negotiate or
contract with the commercial entity or
consultant serving as an intermediary or
other facilitating the marketing or
platform for marketing, such as the
exchange or auction barn; and also the
ability to negotiate or contract with
other packers during the exchange or
auction process. This is protected
because both elements may be necessary
parts of securing those opportunities to
engage in price discovery and enhance
the choice and competitive
opportunities for covered producers to
earn the full market value of their goods
and services. The provision also covers
consideration of alternative uses for
farm property. As with all protected
activities under this final rule, the
regulated entity may not present an
obstacle to engaging in these activities,
whether written in a contract, verbally
asserted, or otherwise, as those are
impermissible under the Act.
Under proposed § 201.304(b)(3), AMS
identified types of prohibited retaliatory
conduct. Commenters expressed
concern regarding the lack of clarity of
these proposed prohibitions, with some
saying the prohibitions were too broad,
some arguing that the rule should
provide even more flexibility, and some
supporting the introduction of a ‘‘catchall clause’’ to provide additional
protection against retaliatory behavior.
The final rule adds language to
paragraph (b)(3)(ii) to prohibit
performing under or enforcing a
contract differently than with similarly
situated producers [emphasis added].
This language, ‘‘similarly situated,’’ was
commonly used by commenters and
AMS in the proposed rule when
discussing producer groups. The
addition of ‘‘similarly situated’’
language provides greater specificity
regarding the scope of the regulation by
providing more context for a
comparison of what differential
99 See, e.g., U.S. Department of Justice, ‘‘Justice
Department Files Lawsuit and Proposed Consent
Decree to Prohibit Koch Foods from Imposing
Unfair and Anticompetitive Termination Penalties
in Contracts with Chicken Growers,’’ Nov. 9, 2023,
available at https://www.justice.gov/opa/pr/justicedepartment-files-lawsuit-and-proposed-consentdecree-prohibit-koch-foods-imposing.
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performance or enforcement would look
like.
The final rule also revises the
provision prohibiting a regulated entity
from refusing to deal with a covered
producer by adding the language, ‘‘on
terms generally or ordinarily offered to
similarly situated covered producers’’
(paragraph (b)(3)(iv) in the final rule). In
response to comments, AMS agrees that
the rule as proposed provided too great
a latitude for a regulated entity to
engage in retaliation because a regulated
entity could, for example, satisfy the
proposed rule by simply offering highly
unfavorable terms to the covered
producer. AMS believes that this
revision provides broader coverage
regarding the most common
circumstances that producers may
encounter in their business dealings in
which regulated entities may attempt to
exact retaliation. It would also cover
circumstances where the ‘‘similarly
situated producer’’ was the covered
producer’s own prior status quo
circumstance with the regulated entity
before the covered producer engaged in
the protected activity. AMS is also
aligning refusal to deal under paragraph
(a)(2)(ii) to address the similar risk of
evasion.
Similarly, commenters requested that
AMS add a regulation regarding contract
modification, or contract renewal. AMS
has amended proposed § 201.304(b)(3)
to add a new paragraph (b)(3)(iii) to
clarify that requiring a contract
modification or a renewal on terms less
favorable than for similarly situated
producers is covered.100 This provision
covers any adverse change to the
covered producer’s contract terms if
they are done in retaliation to a
producer’s engaging in protected
activities. Additionally, in response to
comments requesting AMS clarify that
prohibited adverse actions ‘‘includes
but is not limited to’’ the list in
proposed § 201.304(b)(3), AMS has
added a new paragraph (b)(3)(vi) to
prohibit ‘‘any other action that a
reasonable covered producer would find
materially adverse.’’ AMS designed this
rule to protect producers broadly from
adverse actions based upon the rule’s
prohibitions. The regulatory text of the
proposed rule set forth an exemplary
list, specifically denoting that
‘‘retaliation includes the following
actions’’ (paragraph (b)(2). Several
public commenters wanted more
producer protections, such as
discriminatory conduct against
producers by regulated entities through
100 Proposed paragraphs (b)(3)(iii) and (iv) are
accordingly renumbered as paragraphs (b)(3)(iv)
and (v) in the final rule.
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means outside of contractual devices.
AMS agrees that adverse, retaliatory
treatment of producers by regulated
entities can occur through a wide range
of means, including outside the confines
of contractual devices, or through
contractual means that are not easily
delineated in a specific list. Such
conduct could, for example, include
interference by a regulated entity into
regulatory matters of significant material
importance to producers. Based on
AMS’s regulatory experience, regulated
entities may interfere in covered
producers’ water rights, which are
exemplary of harms that would be
considered retaliation even if they occur
outside the confines of contractual
relationships. Or, conduct could include
retaliation during the contracting
process for protected activities that
occurred prior to the covered producer’s
attempt to form a business relationship
with the regulated entity. Such
examples might not be clearly covered
under §§ 201.304(b)(3)(i) through (v) of
the proposed rule’s protections relating
to contracts but were covered within the
scope of the proposed rule’s intent
around broad-ranging adverse actions
that harm producers. AMS also intends
the list of retaliatory activities to be
broad enough to capture the fullest
range of materially adverse harms
encompassed under unjust
discrimination and undue prejudice—
including in comparison to either their
prior circumstances or to similarly
situated producers—and threats of such
harms that are designed to deter or
punish producers from participating in
the activities protected by this final rule.
Therefore, § 201.304 (b)(3)(vi) has been
added to the final rule to cover other
types of adverse treatment. This
provision provides a broad and flexible
approach to these prohibitions and
allows for ‘‘material’’ to be determined
by the facts and circumstances of each
case.
In making these changes, the final
rule provides a greater degree of
specificity regarding the type of conduct
the rule prohibits. AMS is not, however,
providing the degree of specificity
requested by commenters regarding
unfavorable contract terms because it is
impractical to name every action a
malicious actor could use to retaliate
against a producer, and providing this
level of detail is not necessary to enforce
the rule.
E. Technical Changes
AMS made editorial changes to the
text of several proposed regulations to
improve clarity and readability. For
instance, in the definition of livestock
producer, AMS revised the proposed
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16117
definition by removing multiple
prepositions, so that the definition in
the final rule reads more simply: from
‘‘Livestock producer means any person
engaged in the raising and caring for
livestock by the producer or another
person, whether the livestock is owned
by the producer or by another person,
but not an employee of the owner of the
livestock’’ to ‘‘Livestock producer means
any person, except an employee of the
livestock owner, engaged in the raising
of and caring for livestock.’’
Additionally, AMS revised the syntax of
several proposed regulations. For
example, in § 201.304(b)(3)(i), which
lists prohibited retaliatory actions, AMS
revised the phrasing of the prohibition
from ‘‘Termination of contracts or nonrenewal of contracts’’ to ‘‘Terminating
or not renewing a contract’’ to place
emphasis on the action being prohibited
rather than the subject of that action.
AMS also made several nonsubstantive clarifying changes to the
wording of prohibited contractual
deceptive practices in paragraphs (b)
and (c) of § 201.306—Deceptive
practices. These changes are identical
under contract formation, performance,
and termination and include the
removal of the phrase ‘‘pretext’’ and
‘‘fact’’ and the inclusion of the term
‘‘information’’ in place of ‘‘fact.’’ The
term ‘‘pretext’’ was removed because it
is not needed to accomplish the
objectives of § 201.306. The conduct this
rule aims to prohibit is more directly
defined through use of the following
language: ‘‘false or misleading statement
or representation, or omission of
material information.’’ By changing the
term ‘‘fact’’ to ‘‘information’’ certain
conduct that may not be considered or
defined as ‘‘factual’’ under the Act, yet
is still deceptive, will be covered.
Lastly, AMS made a technical change
to the table of contents for subpart O. To
avoid confusion, AMS is including
§§ 201.303 and 201.305 in the table of
contents as reserved sections to indicate
the gaps between §§ 201.302, 304, and
306 are deliberate and that sections have
not been inadvertently omitted.
VI. Provisions of the Final Rule
Under the authority of the Act, this
rule adds a new subpart O to AMS’s
regulations in 9 CFR 201, titled
‘‘Competition and Market Integrity,’’
and consisting of §§ 201.300 through
201.390. This section summarizes the
substantive provisions of the new
subpart.
A. Definitions (§ 201.302)
Section 201.302 defines three terms
for subpart O: covered producer,
livestock producer, and regulated entity.
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A covered producer is defined as a
livestock producer (as defined in
§ 201.302) or swine production contract
grower or poultry grower as defined in
section 2(a) of the P&S Act (7 U.S.C.
182(8), (14)). Under section 2(a) of the
Act, swine production contract grower
means any person engaged in the
business of raising and caring for swine
in accordance with the instructions of
another person. A live poultry grower is
defined under section 2(a) of the Act as
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. AMS is adopting
this definition to facilitate a focus in
this rule on protecting livestock
producers (and other parties included in
the definition of covered producer)
because the harms of discrimination,
retaliation, and deception that are
addressed in this rule are directed
toward and experienced by those
persons. Therefore, even though the Act
does not contain a definition for
livestock producers, AMS has included
livestock producers under the definition
of covered producer; and provided a
definition for the term livestock
producer in this section.
Livestock producer is defined for the
purposes of subpart O as being any
person, except an employee of the
livestock owner, engaged in the raising
of and caring for livestock. AMS aligned
its definition of the term livestock
producer with phrasing used in the Act
for the terms poultry grower and swine
production contract grower. In response
to comment to the proposed rule, AMS
revised its definition by removing
unnecessary and potentially confusing
phrasing. Employees are specifically
excluded as they typically lack direct
financial interest in the livestock
themselves.
AMS defines regulated entity as a
swine contractor or live poultry dealer
as defined in section 2(a) of the Act (7
U.S.C. 182(8)) or a packer as defined in
section 201 of the Act (7 U.S.C. 191). A
swine contractor is defined in the Act as
any person engaged in the business of
obtaining swine under a swine
production contract for the purpose of
slaughtering the swine or selling the
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. Live
poultry dealers, the vast majority of
whom are organized in a vertical
structure with common ownership
interest in inputs, often referred to as
poultry integrators, are defined in the
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Act as 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, if poultry is obtained by
such person in commerce, or if poultry
obtained by such person is sold or
shipped in commerce, or if poultry
products from poultry obtained by such
person are sold or shipped in
commerce. A packer is defined in the
Act as 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.
B. Undue Prejudice and Unjust
Discrimination (§ 201.304(a))
Section 201.304(a) addresses the
unique and often difficult to prove
discriminatory conduct that has long
existed in the agricultural sector by
prohibiting specific bases of prejudicial
action. Paragraph (a) also lists
prohibited actions taken on a prejudicial
basis and provides clarification on the
types of actions that do not constitute
prohibited action taken on a prejudicial
basis. In doing so, AMS is clarifying the
application of the Act, better
empowering producers to protect
themselves, and encouraging companies
to adopt more robust compliance
practices to snuff out conduct
prohibited by the Act in its incipiency,
before it can distort markets in the
aggregate. In particular, this rule
addresses the longstanding and often
difficult to counter forms of exclusion
that have plagued the agricultural sector
for decades. AMS intends for this rule
to support positive trends toward
inclusivity in the marketplace.
Prejudices and disadvantages based
upon the producer’s protected
characteristics or status as a producers’
cooperative have no place in today’s
modern agricultural markets.
The Act, through section 202(a) and
(b), broadly prohibits certain practices
or devices, including undue or
unreasonable prejudices and
disadvantages and unjust
discrimination. Section 202(a) and (b) of
the Act identifies several prohibited
actions with respect to livestock, meats,
meat food products, or livestock
products in unmanufactured form, or for
any live poultry dealer with respect to
live poultry. In this rule, AMS is
prohibiting specific undue and
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unreasonable prejudices and
disadvantages, and unjust
discrimination against any covered
producer on the basis of certain
categories of characteristics or attributes
broadly and firmly established as unjust
in a modern economy. This regulatory
action implements Congress’s intent,
expressed through the Act, to stop
unjust discrimination and undue
prejudice by packers and live poultry
dealers against livestock producers and
poultry growers.
In enacting the Act, Congress cast a
wide net to capture all acts of unjust
discrimination and undue or
unreasonable prejudice against any
particular person. There is no indication
that Congress intended to exempt any
discriminatory conduct taken by
regulated entities against producers
covered under the Act.101 The Act’s
prohibition of unjustly discriminatory
or unreasonably prejudicial actions
against a particular person was not a
new statutory concept, as the Interstate
Commerce Act of 1887 (or ICA) also
banned unreasonable prejudices and
unjust discriminatory practices well
before the enactment of the Act. While
the ICA does not define the scope of the
Act, the comparison is nevertheless
useful, especially with respect to the
structure and design of provisions
governing undue prejudices. A
comparison is provided in Table 4
below.
In Mitchell v. United States,102 the
Supreme Court of the United States held
that the ICA prohibited discrimination
based on race; such discrimination was
‘‘essentially unjust.’’ The Court held
that ‘‘it is apparent from the legislative
history of the ICA that not only was the
evil of discrimination the principal
thing aimed at, but that there is no basis
for the contention that Congress
intended to exempt any discriminatory
action or practice of interstate carriers
affecting interstate commerce which it
had authority to reach.’’ 103 Further, the
Court isolated a section of the ICA and
noted that, ‘‘Paragraph 1 of Section 3 of
the Act says explicitly that it shall be
unlawful for any common carrier
subject to the Act ‘to subject any
particular person to any undue or
unreasonable prejudice or disadvantage
in any respect whatsoever.’ ’’ 104 The
Court found that unreasonable prejudice
against an individual based on race was
a violation and concluded that, ‘‘the
Interstate Commerce Act expressly
101 See 7 U.S.C. 193. C.f. Mitchell v. United
States, 313 U.S. 80, 94 (1941).
102 313 U.S. at 94.
103 Id. at 94.
104 Id. at 95 (emphasis added).
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extends its prohibitions to the
subjecting of ‘any particular person’ to
unreasonable discriminations.’’ 105
The Act contains similar, but broader,
language than sec. 3 of the ICA. Section
202 of the Act reads, ‘‘It shall be
unlawful for any packer or swine
contractor with respect to livestock,
meats, meat food products, or livestock
products in unmanufactured form, or for
any live poultry dealer with respect to
live poultry, to: (a) Engage in or use any
unfair, unjustly discriminatory, or
deceptive practice or device; or (b) Make
or give any undue or unreasonable
preference or advantage to any
16119
particular person or locality in any
respect, or subject any particular person
or locality to any undue or
unreasonable prejudice or disadvantage
in any respect . . .’’ [emphasis added].
Table 4 illustrates where the text
between the two acts is similar, and also
how the Act is broader.106
Table 4: Comparison of the Interstate Commerce Act and the Packers &
Stockyards Act 107
Interstate Commerce Act (1887 text),
Section 3
Act, Section 202 (7 U.S.C.192), Unlawful
practices enumerated
That it shall be unlawful for any
common carrier subject to the provisions
of this act to make or give any undue or
unreasonable preference or advantage
to any particular person, company, firm,
corporation, or locality, or any particular
description of traffic, in any respect
whatsoever,
It shall be unlawful for any packer or
swine contractor with respect to livestock,
meats, meat food products, or livestock
products in unmanufactured form, or for
any live poultry dealer with respect to live
poultry, to:
(a) Engage in or use any unfair,
unjustly discriminatory, or deceptive
practice or device; or
(b) Make or give any undue or
unreasonable preference or advantage to
any particular person or locality in any
respect, or subject any particular person
or locality to any undue or unreasonable
prejudice or disadvantage in any
respect; (emphasis added)
or to subject any particular person,
company, firm, corporation, or locality,
or any particular description of traffic, to
any undue or unreasonable prejudice
or disadvantage in any respect
whatsoever.
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As shown in Table 4, unlike the ICA,
the Act in secs. 202(a) and (b) prohibits
undue or unreasonable prejudices or
disadvantages as well as deception or
unjust discrimination (without
limitation to discrimination in rates and
charges in particular). In this
rulemaking, AMS applies the language
from sec. 202 to prohibit acts of
unreasonable prejudice and to prevent
105 Id.
at 97.
more on the relationship between the
Interstate Commerce Act and the Act in this area,
see Michael Kades, ‘‘Protecting Livestock Producers
and Chicken Growers,’’ Washington Center for
Equitable Growth, at 66 (May 2022) discussing
Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355, 368–
369 (5th Cir 2009) (en banc) (J. Jones concurring):
‘‘In all the cases discussed by the concurrence
106 For
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unjust discrimination including, but not
limited to, the race discrimination that
the Court found to be violative of the
ICA in Mitchell.
This rule sets forth specific
prohibitions on prejudicial or
discriminatory acts or practices against
individuals that are sufficient to
demonstrate violation of the Act
without the need to further establish
broad-based, market-wide prejudicial or
discriminatory outcomes or harms. The
prohibitions in this rule on regulated
entities adversely treating individual
producers address the types of harms
the Act is intended to prevent. AMS
finds that adverse acts on these bases
are essentially unjust and unduly
prejudicial, and actionable at the
individual level. Moreover, AMS
dealing with both terms [under the ICA], the
defendant faced charges that it treated customers
differently. According to the court, ‘railway
companies are only bound to give the same terms
to all persons alike under the same conditions.’ If
the conditions are different, then different treatment
is merited. Further, ‘competition between rival
routes is one of the matters which may lawfully be
considered in making rates.’ Differential treatment
driven by competitive forces is not a violation.
Acknowledging that competition can justify
differential treatment of customers is different than
requiring the plaintiff to prove anticompetitive
harm to establish a violation.’’
107 Bolded text highlights where the ICC and Act
use similar language. Italicized text identifies areas
where the language of both statutes is the same.
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Every common carrier subject to the
provisions of this act... shall not
discriminate in their rates and charges
between such connecting lines[.]
(emphasis added)
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believes that preventing broad-based
exclusion, and therefore promoting
competitive markets, is most effectively
enforced at the individual producer
level when the conduct is in its
incipiency.108 To further allow for
effective enforcement of the statute,
AMS is also including a recordkeeping
requirement to support evaluation of
regulated entity compliance.
In determining the bases for
protection against discrimination under
the Act, AMS drew insight initially from
the Statement of General Policy Under
the Packers and Stockyards Act
published by the Secretary in 1968
(Statement of General Policy) (9 CFR
203.12(a)), which states that the Act
provides that all stockyard services
furnished at a stockyard ‘‘shall be
reasonable and nondiscriminatory and
stockyard services which are furnished
shall not be refused on any basis that is
unreasonable or unjustly
discriminatory.’’ 109 Additionally, AMS
interprets the Act consistently with the
regulations governing USDA-conducted
programs; ECOA, which is enforced in
part by AMS under the Act; a series of
statutes identifying producers that
Congress has determined face special
disadvantages, are underserved, or are
otherwise more vulnerable to
prejudices; and the Agricultural Fair
Practices Act (AFPA) of 1967.
The Statement of General Policy
reflects the current USDA policy on the
enforcement of the Act. The Statement
of General Policy provides in part that
it is a violation of secs. 304, 307, and
312(a) of the Act for a stockyard owner
or market agency to discriminate, in the
furnishing of stockyard services or
facilities or in establishing rules or
regulations at the stockyard, because of
race, religion, color, or national origin of
those persons using the stockyard
services or facilities. Such services and
facilities include, but are not limited to,
the restaurant, restrooms, drinking
fountains, lounge accommodations,
those furnished for the selling,
weighing, or other handling of the
livestock, and facilities for observing
such services.
While this part of the Statement of
General Policy applies to violations of
secs. 304, 307, and 312(a) of the Act
108 ‘‘[T]he purpose of the Act is to halt unfair
trade practices in their incipiency, before harm has
been suffered.’’ See Farrow v. U.S. Dep’t of Agr.,
760 F.2d 211, 215 (8th Cir. 1985) (citing De Jong
Packing Co. v. U.S. Dep’t of Agric., 618 F.2d 1329,
1336–37 (9th Cir. 1980); Swift & Co. v. United
States, 393 F.2d 247, 252 (7th Cir. 1968); Armour
and Company v. United States, 402 F.2d 712, 723
n. 12 (7th Cir.1968).
109 Statement of General Policy Under the Packers
and Stockyards Act. U.S. Department of
Agriculture: Washington, DC, 1968.
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(related to the provision of services and
facilities at stockyards on an
unreasonable and discriminatory basis),
almost identical prohibitive language is
used in sec. 202 of the Act. Section 202
pertains to packers, swine contractors,
and live poultry dealers. Section 202(a)
of the Act prohibits any unjustly
discriminatory practice or device with
respect to livestock, meats, meat food
products or livestock products in
manufactured form, or live poultry.
AMS also considered USDA’s general
regulatory prohibition against
discrimination in USDA programs,
which governs how USDA provides
services to producers. In 1964, USDA
prohibited discrimination on the basis
of race, color, and national origin in its
Federally conducted activities by
adopting Title VI principles.110 USDA
then expanded the protected bases for
its conducted programs to include
religion, sex, age, marital status, familial
status, sexual orientation, disability, and
whether any portion of a person’s
income is derived from public
assistance programs.111 Most recently
updated in 2014, the general regulatory
prohibition offers a more current
interpretation of antidiscrimination
standards.112 The 2014 rule aimed to
‘‘strengthen USDA’s ability to ensure
that all USDA customers receive fair
and consistent treatment, and align the
regulations with USDA’s civil rights
goals.’’ 113 The relevant provision
provides that no agency, officer, or
employee of the USDA shall, on the
grounds of race, color, national origin,
religion, sex, sexual orientation,
disability, age, marital status, family/
parental status, income derived from a
public assistance program, political
beliefs, or gender identity, exclude from
participation in, deny the benefits of, or
110 https://www.federalregister.gov/documents/
2014/07/16/2014-16325/nondiscrimination-inprograms-or-activities-conducted-by-the-unitedstates-department-of-agriculture (See 29 FR 16966,
creating 7 CFR part 15, subpart b, referring to
nondiscrimination in direct USDA programs and
activities, now found at 7 CFR part 15d). (assessed
01–30–2024)
111 https://www.federalregister.gov/documents/
2014/07/16/2014-16325/nondiscrimination-inprograms-or-activities-conducted-by-the-unitedstates-department-of-agriculture (assessed 01/30/
2024)
112 7 CFR 15d.3; U.S. Department of Agriculture,
‘‘Nondiscrimination in Programs or Activities
Conducted by the United States Department of
Agriculture,’’ 79 FR 41406, July 16, 2014, available
at https://www.federalregister.gov/documents/2014/
07/16/2014-16325/nondiscrimination-in-programsor-activities-conducted-by-the-united-statesdepartment-of-agriculture (last accessed 8/9/2022).
113 USDA. 2014. 7 CFR part 15d RIN 0503–AA52
Nondiscrimination in Programs or Activities
Conducted by the United States Department of
Agriculture, p. 41407. 2014–16325.pdf (govinfo.gov)
(assessed 02/01/2024).
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subject to discrimination any person in
the United States under any program or
activity conducted by the USDA. In that
rulemaking, USDA identified areas
where discrimination against a producer
is an unacceptable denial of access to
USDA’s services. This prior rulemaking
provides a helpful reference to what
constitutes unjust discrimination under
the Packers and Stockyards Act.
AMS interprets the Act in light of
legislative mandates that emerged over
the last 30 years directing USDA to
make extra efforts to ensure that
members of the aforementioned groups
have equal access to USDA’s services
and agricultural markets generally.114
Congress adopted numerous statutes
seeking to remedy market exclusion on
the basis of prejudices across a wide
range of areas, including: 7 U.S.C. 8711
(base acres); 7 U.S.C. 2003 (target
participation rates); 7 U.S.C. 7333
(Administration and operation of
noninsured crop assistance program); 7
U.S.C. 1932 (Assistance for rural
entities); 16 U.S.C. 2202a, 3801, 3835,
3839aa–2, 3841, and 3844
(conservation); 7 U.S.C. 8111 (Biomass
Crop Assistance Program); 7 U.S.C. 1508
(Federal crop insurance, covering
underserved producers defined as new,
beginning, and socially disadvantaged
farmers or ranchers and including
members of an Indian Tribe); and 16
U.S.C. 3871e(d) (conservation, covering
historically underserved producers
defined as being veteran, socially
disadvantaged, and limited-resource
farmers and ranchers). In 25 U.S.C.
4301(a) and elsewhere, Congress has
clearly expressed its intent for the
United States Government to encourage
and foster Tribal commerce and
economic development.115
The definitions and coverage in these
statutes vary to some extent. Some focus
principally on members of groups that
have experienced racial or ethnic
prejudices, while others address gender
prejudices. Overall, these statutes and
Congressional deliberations provide
useful reference for USDA to most
effectively carry out the Act, which
outlaws undue prejudice against any
person in any respect. For example, in
the congressional hearings preceding
the Act’s passage, opposing members
argued against the Act because
producers were already protected by the
ICA, which guaranteed ‘‘equal rights on
the railroads to every man, woman and
114 For background, see Congressional Research
Service, Defining a Socially Disadvantaged Farmer
or Rancher (SDFR): In Brief (March 19, 2021),
available at https://crsreports.congress.gov/product/
pdf/R/R46727/6.
115 See, e.g., Native American Business
Development Act, 25 U.S.C. 4301(a).
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child,’’ and the ‘‘enforcement of the
antitrust act . . . give[s] every man a fair
show.’’ 116 Most recently, Congress
provided partial compensation for
producers who suffered discrimination
in USDA’s programs, which USDA
implemented on a set of protected bases
similar to that in this final regulation.117
Additionally, in crafting the final rule,
AMS was informed by the provisions of
two additional laws that fall under the
enforcement of USDA with respect to
livestock and poultry. The first is ECOA.
ECOA prohibits a creditor from
discriminating in the provision of credit
on the basis of race, color, religion,
national origin, sex (which includes
sexual orientation and gender identity),
marital status, or age, because the
applicant’s income derives all or in part
from a public assistance program, or
because the applicant has in good faith
exercised any right under ECOA.118 The
Secretary enforces ECOA under the Act,
with respect to activities under the
jurisdiction of the Act.119
Secondly, AFPA protects producers
from retaliation by certain market
intermediaries, defined as handlers, for
being members of a cooperative or
seeking to form a cooperative.120 The
Secretary has delegated enforcement of
the AFPA to AMS, which implements
the law through the Packers and
Stockyards Division. Congress has long
protected the rights of agricultural
cooperatives, acknowledging their
important role in helping farmers meet
the economic demands of the market.
One year after the passage of the Act,
Congress passed the Capper-Volstead
Act (Pub. L. 67–146), which permits
producer cooperatives to collectively
process, prepare for market, handle, and
market their products. In a decision
related to an antitrust action against a
nonprofit cooperative association whose
members were involved in production
and marketing of broiler chickens, the
Supreme Court noted that farmers faced
special challenges in the agricultural
market and, therefore, cooperatives are
afforded legal protections in helping
them address those challenges.121
116 See
e.g., 61 Cong. Rec. H1872 (1921).
22007 of the Inflation Reduction Act
(Pub. L. 117–169). USDA implementation available
at https://22007apply.gov/. This program covers
discrimination based on different treatment an
individual experienced because of race, color, or
national origin/ethnicity (including status as a
member of an Indian Tribe); sex, sexual orientation,
or gender identity; religion; age; marital status;
disability; reprisal/retaliation for prior civil rights
activity.
118 15 U.S.C. 1691(a).
119 15 U.S.C. 1691c.
120 7 U.S.C. 2301 et seq.
121 Nat’l Broiler Mktg. Ass’n v. United States, 436
U.S. 816, 825–26 (1978) (‘‘Farmers were perceived
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AFPA provides enhanced protections
to those seeking to form a cooperative.
In particular, that statute prevents
handlers from performing certain types
of pricing and contract discrimination,
coercion, and other practices that
undermine cooperatives. As noted
previously, the Act intended to improve
the agricultural market and includes
associations in the definition of
‘‘person’’ when referred to in the Act.
The Act affords cooperative associations
the same protections against
discrimination as are afforded to all
other covered producers.122 Thus,
protections for cooperatives against
discrimination were contemplated at the
time of the Act’s passage.123
In interpreting the Act in light of the
aforementioned policy direction, AMS
has sought to stamp out market
exclusion on prohibited bases. This
final rule establishes a prohibition of
undue prejudice or unjust
discrimination against covered
producers on the bases of race, color,
religion, national origin, sex (including
sexual orientation and gender identity),
disability, marital status, or age; or
because of the covered producer’s status
as a cooperative. Transitioning from the
proposed rule’s use of the more flexible
‘‘market vulnerable individual’’ to the
more specific list of delineated terms,
the final rule interprets the Act
consistent with the antidiscrimination
mandates in other related statutes,
including the ECOA, which is already
enforced by AMS for markets subject to
the Act,124 and the AFPA. AMS also
to be in a particularly harsh economic position.
They were subject to the vagaries of market
conditions that plague agriculture generally, and
they had no means individually of responding to
those conditions. Often the farmer had little choice
about who his buyer would be and when he would
sell. A large portion of an entire year’s labor
devoted to the production of a crop could be lost
if the farmer were forced to bring his harvest to
market at an unfavorable time. Few farmers,
however, so long as they could act only
individually, had sufficient economic power to wait
out an unfavorable situation. Farmers were seen as
being caught in the hands of processors and
distributors who, because of their position in the
market and their relative economic strength, were
able to take from the farmer a good share of
whatever profits might be available from
agricultural production. By allowing farmers to join
together in cooperatives, Congress hoped to bolster
their market strength and to improve their ability
to weather adverse economic periods and to deal
with processors and distributors.’’).
122 7 U.S.C. 182(1).
123 H.Rep. No. 85–1048, 1957.
124 15 U.S.C. 1691c(a)(5) (‘‘(a) Enforcing Agencies.
Subject to subtitle B of the Consumer Protection
Financial Protection Act of 2010withthe
requirements imposed under this subchapter shall
be enforced under:. . . (5) The Packers and
Stockyards Act, 1921 [7 U.S.C. 181 et seq.] (except
as provided in section 406 of that Act [7 U.S.C. 226,
227]), by the Secretary of Agriculture with respect
to any activities subject to that Act.’’)
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16121
references the Equal Employment
Opportunity Commission (EEOC)
definitions (described below) for
clarification regarding which
characteristics a producer must possess
to be considered a member of one or
more protected classes. It is appropriate
for the Secretary to consider these other
authorities in effectuating the purposes
of the Act as they effect a similar
purpose to this final rule.125
The EEOC has described racial
discrimination as discrimination based
on an ‘‘immutable characteristic
associated with race, such as skin color,
hair texture, or certain facial features.’’
Although race and color may appear
indistinguishable, they are not.
According to the EEOC, ‘‘color
discrimination occurs when a person is
discriminated against based on the
lightness, darkness, or other color
characteristic of the person.’’ 126 Race
discrimination involves treating an
individual differently because of his or
her race. National origin as a protected
class is defined as disparate treatment
because an individual is ‘‘from a
particular country or part of the world,
because of ethnicity or accent, or
because they appear to be of a certain
ethnic background (even if they are
not).’’ 127 Ethnicity is covered under
national origin.128 Religion as a
protected basis is defined as
discrimination based upon a person’s
religious beliefs. EEOC reports that the
law protects people in recognized
‘‘organized religions,’’ but also those
‘‘who have sincerely held religious,
ethical or moral beliefs.’’ 129 Sex as a
protected basis includes discrimination
based upon a person’s status as
pregnant, one’s sexual orientation, and
one’s gender identity.130 The EEOC
125 Michael Kades, ‘‘Protecting Livestock
Producers and Chicken Growers,’’ Washington
Center for Equitable Growth (May 5, 2022),
available at https://equitablegrowth.org/researchpaper/protecting-livestock-producers-and-chickengrowers/.
126 U.S. Equal Employment Opportunity
Commission (EEOC), No date, Facts about Race/
Color Discrimination, available at https://
www.eeoc.gov/fact-sheet/facts-about-racecolordiscrimination.
127 U.S. Equal Employment Opportunity
Commission (EEOC), National Origin
Discrimination, available at https://www.eeoc.gov/
national-origin-discrimination.
128 Ibid.
129 U.S, Equal Employment Opportunity
Commission (EEOC), Religious Discrimination,
available at https://www.eeoc.gov/religiousdiscrimination.
130 U.S, Equal Employment Opportunity
Commission (EEOC), Sex, available at https://
www.eeoc.gov/youth/sexdiscrimination#:∼:text=EEOC%20enforces
%20two%20laws%20that,sexual
%20orientation%2C%20
and%20gender%20identity.
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defines disability as follows: ‘‘Has a
physical or mental condition that
substantially limits a major life
activity;’’ a ‘‘history of disability,’’ and
‘‘is subject to an adverse employment
action because of a physical or mental
impairment the individual actually has
or is perceived to have, except if it is
transitory (lasting or expected to last six
months or less) and minor.’’ 131
ECOA defines marital status as the
‘‘existence, absence, or likelihood of a
marital relationship between the
parties,’’ and so marital discrimination
would be upon those bases.132 Age
discrimination is defined as
discrimination against those individuals
40 and older on the basis of their age.133
Cooperatives are described as ‘‘producer
and user-owned businesses that are
controlled by, and operate for the
benefit of, their members, rather than
outside investors.’’ 134 As explained
above, in formulating this rule, AMS
principally drew on its expertise and
comments gathered from market
participants about how undue
discrimination manifests in markets,
and considered the relevant references
that concern this type of discrimination.
These include the above referenced
EEOC, ECOA, and AFPA-related
approaches because these approaches:
first, align with the intent of the Act to
prohibit all instances of unjust
discrimination and undue prejudice;
second, effectuate the purposes of the
final rule to clearly prohibit that
discrimination; and third, promote more
inclusive competition by protecting the
individuals who participate in the
market.
Because of the Act’s broad
applicability (as discussed in section
III—‘‘Authority’’); the similar language
used in secs. 202, 304, 305, and 312 of
the Act; and the series of statutes
outlining a range of prejudices
identified as being deserving of public
policy efforts to ensure full market
access; AMS concludes that producers
131 U.S. Equal Employment Opportunity
Commission (EEOC). No date. Disability
Discrimination and Employment Decisions.
Accessed at https://www.eeoc.gov/disabilitydiscrimination-and-employment-decisions on
November 15, 2023.
132 Equal Credit Opportunity Act (ECOA). No
date. Access at https://www.fdic.gov/resources/
supervision-and-examinations/consumercompliance-examination-manual/documents/5/v-71.pdf.
133 U.S. Equal Employment Opportunity
Commission (EEOC). No date. Age Discrimination.
Accessed at https://www.eeoc.gov/agediscrimination on 10–04–2023.
134 Co-ops: A Key Part of Rural America, Co-ops:
A Key Part of Rural America, USDA, available at
https://www.usda.gov/topics/rural/co-ops-key-partfabric-rural-america. See also AFPA § 2301.
Congressional findings and declaration of policy.
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who have been subjected to
discrimination, prejudice, disadvantage,
or exclusion on the specific bases set
forth in this final rule should be covered
by the prohibitions against undue
prejudice or disadvantage and unjust
discrimination as enumerated by sec.
202 of the Act.
To stamp out unjustly discriminatory
and unduly prejudicial conduct and
support a more inclusive marketplace,
AMS, in § 201.304, lays out the
protected bases against which undue
prejudices or disadvantages and unjust
discrimination are prohibited, and then
describes the specific conduct that,
when initiated against a producer
belonging to one of the protected bases,
is prohibited. Paragraph (a)(1) prohibits
a regulated entity from prejudicing,
disadvantaging, inhibiting market
access, or otherwise taking an adverse
action against a covered producer on the
basis of the covered producer’s (i) race,
color, religion, national origin, sex
(including sexual orientation and
gender identity), disability, marital
status, or age; or (ii) the covered
producer’s status as a cooperative. The
sources of these bases are discussed
above. Paragraph (a)(1)’s prohibition as
‘‘based upon’’ is intended to be broader
than ‘‘but for’’ causation and so capture
when the protected characteristics or
status are a material, or non-trivial,
element of the decision to take an
adverse action against a covered
producer. AMS expects that fact-finding
tribunals will establish the necessary
processes for proving these elements,
with an eye toward the protections for
covered producers and for open,
inclusive markets that this rule is
designed to provide.
Though this regulation prohibits
prejudice or disadvantage against a
covered producer on the basis of the
specified statuses, AMS notes that
regulated entities may decline to do
business with covered producers for
justified economic reasons. For
example, a regulated entity may refuse
to contract with a cooperative of
covered producers when the contract
would not be cost-effective for the
entity, regardless of the cooperative
status of the producers. In this
hypothetical example, the regulated
entity would not be unduly prejudicing
cooperatives of covered producers based
on their status as a cooperative. Instead,
the regulated entity would have a
nonprejudicial basis for its business
decision.
Section 201.304(a)(2) describes the
actions that prejudice, disadvantage,
inhibit market access, or are otherwise
adverse under paragraph (a)(1). These
actions were chosen because they relate
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to fairness in contracting, which is a
consistent concern among producers;
and are actions that PSD has determined
are a recurring problem in the industry,
directly impacting producers’ financial
well-being. In response to the proposed
rule, many commenters noted the
financial repercussions of lack of
fairness in contracting.135 Under
§ 201.304(a)(2), regulated entities may
not prejudice or disadvantage covered
producers on the basis of a protected
status by: (i) offering contract terms that
are less favorable than those generally or
ordinarily offered to similarly situated
covered producers; (ii) refusing to deal
with a covered producer on terms
generally or ordinarily offered to
similarly situated covered producers;
(iii) performing under or enforcing a
contract differently than with similarly
situated covered producers; (iv)
requiring a contract modification or
renewal on terms less favorable than
similarly situated covered producers; (v)
terminating or not renewing a contract
with a covered producer; and (vi) any
other action that a reasonable producer
would find materially adverse.
Paragraph (a)(2)(i) prohibits the
offering of less favorable contract terms
to covered producers on the basis of
their status as members of a protected
class. In the Agency’s experience,
offering less favorable contract terms
than those generally or ordinarily
offered to similarly situated covered
producers is a means through which
regulated entities can prejudice or
disadvantage producers. For example,
the Agency has received complaints that
the bidding on livestock by regulated
entities occurs at a less advantageous
time for certain producers on the basis
of the classes protected under this rule
resulting in lower prices or less
favorable delivery terms. Similarly, in
the Agency’s experience, poultry
growers have complained about being
offered less favorable growing terms on
the basis of the classes protected under
this rule. This rule does not prohibit
ordinary contracting for different prices
on the basis of differences in product
135 See e.g., ‘‘Discrimination and retaliation mean
big profits for companies at the farmer’s expense.
While meatpackers rake in record profits during the
pandemic, farmers make less, and eaters are left
paying more at the grocery store. Farmers who
complain about their pay or the fairness of their
contracts run the risk of losing their contracts,
putting their homes and livelihoods at risk.’’,
available at https://www.regulations.gov/comment/
AMS-FTPP-21-0045-0051; see also, ‘‘This rule is
much needed so farmers can tell the truth about
their contracts and so consumers can know what
producers are actually doing to the earth, the
animals, and the farmers.’’, available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450298.
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quality, service, transportation cost, or
delivery terms.
Paragraph (a)(2)(ii) prohibits regulated
entities from refusing to deal with a
covered producer on terms generally or
ordinarily offered to similarly situated
covered producers. This refers to
situations in which a regulated entity
makes no reasonable effort to deal, bid,
or negotiate with a covered producer on
the basis of the covered producer’s
status as a member of a protected class.
Such refusal to deal has no connection
with the service or quality of product
offered, but rather is due, in material
part, to the personal characteristics or
status of the producer and restricts the
producers’ ability to obtain the fair
market value of their products and
services. In today’s highly vertically
integrated and concentrated markets,
refusal to deal by one regulated entity
will often leave a producer with very
few, if any, parties to contract with,
unduly inhibiting the competitive
marketplace when performed on the
bases prohibited by this final rule.
Paragraph (a)(2)(iii) prohibits
regulated entities from performing
under or enforcing a contract differently
than with similarly situated producers.
A violation of this regulation would
occur when a regulated entity—based
upon the covered producer’s protected
characteristics—inconsistently enforces
its contracts as it would with similarly
situated producers. For instance, a
selective information disclosure would
represent a selective performance of
contract when a regulated entity
withholds materially relevant
information from one covered producer
that the regulated entity generally or
ordinarily provides to other covered
producers. In these instances,
information-deprived producers will
have an incomplete picture of their
business relationships with regulated
entities, and therefore will operate at an
unreasonable disadvantage relative to
producers who receive the pertinent
information. Similarly, the Agency has
received complaints over the years with
respect to differential performance
under poultry growing arrangements,
such as the delivery to affected growers
of flocks that are sick or otherwise
known to be likely to perform poorly
owing to the age of the hens. Those sick
or poor performing chicks are likely to
result in lower performance for the
grower in a poultry grower ranking
system, which results in lower pay for
the grower. While that may occur from
time to time per natural cycles, a
repeated or intentional delivery of
underperforming flocks has been
commonly reported by producers as a
principal means of adversely affecting
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grower earnings. Similarly, a regulated
entity withholding or delaying delivery
of feed would result in lower
performance and profit for a producer.
Accordingly, AMS has incorporated
differential contract performance to
capture those contractual performancebased means to prejudice or
disadvantage producers. By clarifying in
its final rule that the Act prohibits such
conduct, AMS seeks to better protect
producers who suffer, or are at risk of
suffering, this type of harm.
Paragraph(a)(2)(iv) prohibits a
regulated entity from, on the basis of a
covered producer’s protected status,
requiring a contract modification or
renewal on terms less favorable than
those for similarly situated covered
producers. The Agency has determined,
based on producer complaints, that
regulated entities sometimes prejudice
or disadvantage growers by reducing
numbers of flocks delivered, changing
types of birds raised, or otherwise
changing contract terms that result in
lower incomes for growers. Poultry
producers commonly experience these
types of contract modifications.
Livestock producers also experience
modifications, such as a change from a
cash negotiated contract to a negotiated
grid contract or other purchase type that
may be adverse from the perspective of
the producer depending on the facts and
circumstances. Therefore, in the final
rule, AMS seeks to clarify that
unfavorable contract modification or
renewal by a regulated entity, on the
basis of a protected class, amounts to a
violation under the Act. This rule, by
itself does not prohibit renegotiations or
failure to renew a contract on the basis
of changes in the market. However,
while this rule does not distinguish
modification for other reasons, many
contract terms under the Act are not
subject to modification during
performance of the contract at all
because any contract modification that
serves to delay or reduce full payment
is an unfair practice under sec. 202(a) of
the Act.
Paragraph (a)(2)(v) prohibits regulated
entities from terminating or not
renewing a contract with a covered
producer on the basis of a covered
producer’s status as a protected class.
Contract termination can have
devastating consequences for producers
that have invested substantial sums in
infrastructure that only meets the
requirements of a particular integrator.
Paragraph (a)(2)(vi) prohibits
regulated entities from any other action
that a reasonable covered producer
would find materially adverse. This
provision provides a broad and flexible
approach to these prohibitions and
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16123
allows for ‘‘material’’ to be determined
by the facts and circumstances of each
case where producers were harmed.
Finally, § 201.304(a)(3) delineates two
exceptions to the prohibition on
prejudicial or discriminatory conduct
against covered producers on a
protected basis. In one, the regulated
entity is fulfilling a religious
commitment relating to livestock, meats,
meat food products, livestock products
in unmanufactured form, or live
poultry; in the other, a Federally
recognized Tribe, including its wholly
or majority-owned entities,
corporations, or Tribal organizations, is
performing Tribal governmental
functions. As discussed in Section V—
Changes from the Proposed Rule, these
exceptions were added in response to
commenters’ request that some
exceptions be provided to the
prohibition on undue prejudice and
unjust discrimination. To safeguard the
free exercise of religion, AMS has
provided an exception to allow
discriminatory conduct necessary to
fulfill religious commitments
surrounding livestock care and meat
production. To conform with
longstanding jurisprudence surrounding
Tribal sovereignty, AMS has provided
an exception to allow Tribal entities to
preference their own Tribal members in
the purchase and sale of livestock.
C. Retaliation (§ 201.304(b))
Section 201.304(b) establishes
protected activities for covered
producers and prohibits regulated
entities from engaging in retaliatory
conduct based on those activities. As
noted previously, sec. 202(a) of the Act
prohibits unjust discrimination. This
regulation is designed to protect the
essential activities producers must
engage in to bargain effectively and
exercise their economic rights, and in
doing so obtain the full value of their
livestock or poultry products or
services. As a result, retaliation against
producers because they have engaged in
protected activities is disparate
treatment that the Act intended to
prohibit.136 Retaliatory conduct is a way
for regulated entities to exploit their
market power. Increased concentration
has facilitated the exercise of market
power through various contracting
practices. Moreover, because producers
136 See e.g., 61 Cong. Rec. H1860 (1921):
‘‘However, their [packers] very organization has
given them a power for evil as well as good, and
evil practices should always be condemned.’’ and
‘‘. . . the right thing to do is to devise a law which,
while maintaining and getting the advantage for the
people of all of the fine workings of these great
organizations, at the same time control them in
such a way as to destroy the abuses that are
connected with their operation.’’
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have few processor choices in these
markets, threats of retaliation and
market exclusion take on heightened
credibility.
AMS determined the protected
activities to include in § 201.304(b)(2)
based on commonly recorded
complaints from the industry, case law,
USDA/DOJ workshops, conversations
with AMS personnel, and a recently
voiced concern from Congress. AMS
also identified these types of activities
because of their potential to mitigate
certain ways that market power is
exercised. The retaliatory conduct
prohibited by this regulation covers a
broad range of circumstances that AMS
has determined occur commonly in
connection with livestock, meats, meat
food products, livestock products in
unmanufactured form, or live poultry.
Free exercise of the protected activities
facilitates a competitive and transparent
market, ensuring producers can capture
the full value of their livestock or
growing services.
Section 201.304(b)(1) establishes that
a regulated entity may not retaliate or
otherwise take an adverse action against
a covered producer based upon the
covered producer’s participation in
protected activities. As described in
Section V—Changes from the Proposed
Rule,’’ paragraph (b)(1)’s prohibition as
‘‘based upon’’ is intended to be broader
than ‘‘but for’’ causation and so capture
when the protected characteristics or
status are a material, or non-trivial,
element of the decision to take an
adverse action against a covered
producer. AMS expects that fact-finding
tribunals will establish the necessary
processes for proving these elements,
with an eye toward the protections for
covered producers and for open,
inclusive markets that this rule is
designed to provide.
Section 201.304(b)(2) lists the
activities that are protected. Paragraph
(b)(2) also provides a caveat that the
protected activities must not otherwise
be prohibited by Federal, Tribal, or State
law, including antitrust laws. As
outlined in the following paragraphs,
these activities form an essential
foundation for producers to receive the
benefit of their bargained for exchange
and the protections afforded under the
Act itself. Acts of retaliation to chill or
curtail these protected activities offer no
competitive benefits to the market.
Commenters to the proposed rule
echoed these concerns.137 The Act was
137 See e.g., ‘‘Farmers should be able to
participate in producer organizations and
associations. Farmers have expressed concern that
associations, organizations and the farmers who
join them have repeatedly been targets of retaliatory
behavior by meat companies. When farmers
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designed to address market abuses and
business practices that inhibit
producers’ ability to obtain the full
value of their products and services.138
Covered producers have complained to
AMS over the years of having suffered
retaliation or fearing retaliation for
engaging in the conduct identified in
this paragraph.
Specifically, paragraph (b)(2)(i)
protects a covered producer’s ability to
communicate with a government entity
or official or to petition a government
entity or official for redress of
grievances with respect to livestock,
meats, meat food products, livestock
products in unmanufactured form, or
live poultry. A covered producer must
be able to freely seek redress of
grievances to ensure the protections
afforded by the Act and its regulations
have their intended effect. Government
regulators must also have the ability to
fully appreciate the views of market
participants to ensure that the rules and
regulations—and enforcement of those
laws and regulations—are sufficiently
responsive to market realities and
divergent interests and business
practices in the marketplace. Hindering
the free flow of market information
creates risks of market distortions and
will impair the ability for those with
less economic power to operate in the
marketplace.
In paragraph (b)(2)(ii), AMS adds a
new protection for a covered producer
to refuse a regulated entity’s request that
the producer communicate with a
government entity or official when that
communication is not required by law.
Just as covered producers have the right
to communicate with government
entities or officials to ensure their rights
are protected, so too do they have the
right to decide when and under what
circumstances they engage in such
communication. Based on its experience
regulating the livestock sector, AMS is
participate in these organizations it helps fill in the
information gap for their business and keeps our
economic markets competitive.
Farmers and Ranchers should be able safely
participate as witnesses in any proceeding relating
to violations of the Packers and Stockyards Act.
Unfortunately, there are recent examples of cattle
rancher witnesses who were threatened and
intimidated so much that they decided not to testify
before Congress at a hearing about cattle markets.
The ability to testify without fear of retaliation is
essential to promoting fair and competitive markets
in the livestock and poultry industries.’’, available
at https://www.regulations.gov/comment/AMSFTPP-21-0045-0299; see also, ‘‘The ability to
express an opinion and testify without fear of
retaliation is essential to promoting healthy, fair
and competitive markets in the livestock and
poultry industries, as it is in all aspects of a free
and fair democracy.’’, available at https://
www.regulations.gov/comment/AMS-FTPP-21-00450297.
138 See e.g., 61 Cong. Rec. H1860 (1921).
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aware that regulated entities may coerce
covered producers to contact the
government on regulatory and policy
matters and to espouse positions that
the covered producers disagree with.
AMS has received reports frequently in
the past, and including within the last
two years, of regulated entities
pressuring producers to oppose
regulations that the producers support,
and covered producers reported similar
concerns to AMS during earlier
rulemaking initiatives as well. Indeed,
regulated entities should not punish a
covered producer for the producer’s
decision to talk to government agencies
or not, regardless of the producer’s
reasons.
The lack of clarity around
prohibitions on retaliation in
agricultural markets—clarity which this
rule aims to provide—impairs AMS’s
ability to investigate potential violations
and effectively enforce the Act.
Accordingly, AMS has added
§ 201.304(b)(2)(ii) to clarify that the rule
protects a covered producer from
retaliation if the covered producer
decides not to engage in a
communication with a government
entity or official that is not required by
law.
Paragraph (b)(2)(iii) protects a covered
producer asserting the right to formor
join—or to refuse to form or join—
aproducer or grower association or
organization, or cooperative, or the right
to collectively process, prepare for
market, handle, or market livestock or
poultry. ‘‘Asserting the right’’ includes
the preparatory steps necessary to form
or join an association or cooperative.
This provision protects two forms of
producer interactions: cooperative and
non-cooperative associations. The
formulation ‘‘to collectively process,
prepare for market, handle, or market
livestock or poultry’’ refers to forming or
joining a cooperative, tracking the
language of the Capper Volstead Act.139
Impeding the formation of cooperatives
through retaliation harms competition
as individual producers are deprived of
the chance to mitigate market power
abuse by bargaining collectively. The
Agricultural Fair Practices Act explicitly
protects the right of individual farmers
to join cooperative organizations to
preserve their marketing and bargaining
position, stating that ‘‘[i]nterference
with this right is contrary to the public
interest and adversely affects the free
and orderly flow of goods’’ (7 U.S.C.
2301).
Non-cooperative associations and
organizations are also core activities
under the Act deserving of protection
139 7
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against regulated entity coercion
because they afford covered producers
the opportunity to combine their
resources to potentially counteract
market imbalances and capture
opportunities at scale. For example,
they provide a means for covered
producers to share information
regarding the production of poultry and
livestock (within permissible scope of
the Federal antitrust laws) even when a
cooperative is not feasible. They also
enable producers to potentially uncover
and address problematic practices in the
industry, including through working
together to reduce the risk of seeking
redress of grievances, among other
benefits. Some producer associations
also provide means for producers to
obtain lower cost inputs, such as
gasoline. AMS believes that retaliating
against producers for engaging in these
activities hinders the free flow of
information and hampers producers’
ability to fairly compete in the market
and realize full value of their livestock
and poultry. An assertion of rights in
both these contexts may involve
expressing interest or intent to engage in
these activities or engaging in these
activities.
Paragraph (b)(2)(iii) also protects a
covered producer’s right to refuse to join
a producer or grower association or
organization. AMS added protection for
refusing to form or join a producer or
grower association or organization in
response to public comment on the
proposed rule, as commenters noted
that producers have experienced
pressures from regulated entities to join
certain organizations that may express
views or interests in the livestock or
poultry industry that are contrary or not
fully reflective of the producer’s views
regarding their own interests.
Paragraph (b)(2)(iv) protects a covered
producer’s ability to communicate or
cooperate with a person for the
purposes of improving production or
marketing of livestock or poultry. ‘‘A
person’’ is intended to be broad, and
includes USDA’s Extension and other
academic experts, businesses and
associations, advisors and associates of
the covered producer, other covered
producers, including someone under
contract with the same regulated entity.
This regulation protects a covered
producer’s ability to communicate or
cooperate with other persons, including
efforts to obtain higher or otherwise
more appropriate compensation from
regulated entities, to the extent
permissible under Federal antitrust laws
and cooperative laws. Protecting such
communications enables the producer
to obtain help to enhance their ability to
compete in the market. Such
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communication may include, for
example, communication with
extension programs or with
independent veterinarians and animal
health experts. It would also include
communications with persons—
including other producers—relating to
potential illegal market abuses,
anticompetitive conduct, or otherwise
illegal conduct by regulated entities, as
that conduct would obstruct the covered
producer’s ability to secure the full
value of their livestock or poultry
product or services. AMS notes that
communications on these matters when
with the government would be
protected by paragraph (b)(2)(i), and
would include but not be limited to
communications with: USDA; the U.S.
Department of Justice; the Federal Trade
Commission; a State or Tribal attorney
general or agriculture department; or a
Federal, State, or Tribal legislative office
or committee or judicial tribunal.
Paragraph (b)(2)(v) protects a covered
producer’s ability to communicate,
negotiate, or contract with a regulated
entity, another covered producer, a
commercial entity, or a consultant for
the purpose of exploring or entering into
a business relationship. The purpose of
the provision is to preserve and promote
the competitive position of the covered
producer and ensure that a regulated
entity’s retaliation does not discourage a
covered producer from seeking
competitive alternatives. It affords
producers the opportunity to realize the
full market potential of their products
and services and participate in the
market fully, including through price
discovery and competition between
multiple regulated entities. For
example, a covered producer may want
to seek information from a regulated
entity with which they do not currently
have a business relationship regarding
the possibility of a future business
relationship, such as entering into a
contract. Or, a covered producer may
enter into a contract to sell livestock in
the market or through an auction or
exchange. Protecting these activities
allows covered producers to freely
compare potential business
relationships and choose between
several regulated entities, encouraging
competition. As also discussed in
Section V—Changes from the Proposed
Rule, communications of this type can
improve production efficiency and price
discovery mechanisms. Restricting
participation in these activities
forecloses full market participation by
producers.
Paragraph (b)(2)(vi) protects a covered
producer’s ability to support or
participate as a witness in any
proceeding under the Act or any
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16125
proceeding that relates to an alleged
violation of any law by a regulated
entity. Because of the close-knit and
concentrated markets in which covered
producers operate, AMS believes that
protecting some covered producers as
witnesses may enable other covered
producers to effectuate their rights
under the Act and related laws, which
would improve market integrity in the
markets governed by the Act. Without
such protections, enforcement of the Act
may be frustrated overall.
Finally, paragraph (b)(2)(vii) protects
a covered producer’s ability to assert
any of the rights granted under the Act
or the regulations in 9 CFR 201, or to
assert rights afforded by their contract.
These rights include, for example,
producers’ rights to view the weighing
of flocks, which is legally protected but
which producers have complained is
not practically enforceable. In the 2010
USDA–DOJ public workshop on the
poultry market, a grower said he was
retaliated against for asserting his right
to view his flock being weighed; the
integrator ‘‘cut me off from growing
business and cost me hundreds of
thousands of dollars.’’ 140 Although
these rights are ostensibly protected by
laws, regulations, or legal contracts,
they lose their efficacy if covered
producers suffer repercussions for
asserting them.
Section 201.304(b)(3) enumerates the
actions that are retaliation or an
otherwise adverse action under
paragraph (b)(1) of this section. The
final rule intends to capture the widest
range of conduct harmful to producers,
where such harms are based upon
activities protected by the rule. The
focus in any inquiry under this final
rule is whether the regulated entity has
engaged in harmful conduct in whole or
material part because a covered
producer engaged in any protected
activity. To provide examples of what
activities are materially harmful to a
reasonable covered producer, paragraph
(b)(3) sets out that regulated entities are
prohibited from (i) terminating or not
renewing a contract with a covered
producer; (ii) performing under or
enforcing a contract differently than
with similarly situated covered
producers; (iii) requiring a contract
modification or a renewal on terms less
favorable than those for similarly
situated covered producers; (iv) refusing
to deal with a covered producer on
terms generally or ordinarily offered to
similarly situated covered producers; (v)
interfering in farm real estate
transactions or contracts with third
140 Accessed at https://www.justice.gov/media/
1244676/ on 10/03/2023.
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parties; (vi) taking any other action that
a reasonable covered producer would
find materially adverse.
Paragraph (b)(3)(i) prohibits
terminating or not renewing a contract
with a covered producer because the
covered producer has engaged in
protected activities. This practice can
have devastating consequences for
producers that have invested substantial
sums in infrastructure that only meets
the requirements of a particular
regulated entity. Furthermore, in
concentrated markets, losing a contract
may put a producer out of business as
the producer has few, if any, other
livestock or poultry buyers to whom
they can sell livestock or poultry.
Paragraph (b)(3)(ii) prohibits
performance under or enforcement of a
contract differently as compared to
performance under or enforcement of
contracts for similarly situated covered
producers as retaliation for engaging in
protected activity. Depending on the
facts and circumstances of the case, the
‘‘similarly situated producer’’ could be
the covered producer’s own status quo
prior to engaging in the protected
activity. A violation of this regulation
would occur when a regulated entity, in
response to a producer engaging in
protected activities, inconsistently
enforces its contracts compared with
contract enforcement for similarly
situated producers. For instance, the
Agency has received complaints over
the years with respect to differential
performance under poultry growing
arrangements, such as the delivery to
affected growers of flocks that are sick
or otherwise known to be likely to
perform poorly owing to the age of the
hens, differential delivery of feed, or
other differential treatment such as early
or delayed harvest of birds. Those
actions are likely to result in lower
performance for the grower in a poultry
grower ranking system, which results in
lower pay for the grower. While that
may occur from time to time per natural
cycles, a repeated or intentional
delivery of underperforming flocks has
been commonly reported as a principal
means of adversely affecting grower
earnings. Accordingly, AMS has
incorporated differential contract
performance to capture those
contractual performance-based means
that a regulated entity may use to
retaliate against producers for engaging
in protected activities.
Paragraph (b)(3)(iii) prohibits
requiring a contract modification or a
renewal on terms less favorable than
those for similarly situated covered
producers as retaliation for engaging in
protected activity. Depending on the
facts and circumstances of the case, the
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similarly situated producer could be the
covered producer’s own status quo prior
to engaging in the protected activity. In
this final rule AMS seeks to clarify that
unfavorable contract modification or
renewal by a regulated entity, if it’s the
result of a producer engaging in a
protected activity, is retaliatory conduct
and amounts to a violation under the
Act. This behavior is a common way for
regulated entities to retaliate against
producers by, for example, reducing the
number of flocks or their density,
changing types of birds raised, or
otherwise changing contract terms that
result in lower incomes for growers. As
another example, if a regulated entity
requires a capital investment from a
covered producer as part of a contract
modification or contract renewal that
the regulated entity is not requiring of
similarly situated producers, this
requirement would be a violation of
paragraph (b)(3)(iii) if the regulated
entity is requiring the capital
investment in retaliation for the covered
producer’s participation in a protected
activity.
Paragraph (b)(3)(iv) prohibits refusing
to deal with a covered producer on
terms generally or ordinarily offered to
similarly situated covered producers. A
violation of this regulation could occur
if a regulated entity makes no
reasonable effort to bid or negotiate or
fails to reasonably attempt to contract in
good faith with a covered producer, due
in whole or material part to a producer’s
prior, or current, participation in
protected activities. In this context, the
regulated entity’s refusal to deal is not
connected with the service or quality of
the product offered, but rather is
material in part due to the producer
exercising his or her rights to engage in
protected activities. A similarly situated
producer may, depending on the facts
and circumstances, be the producer’s
own prior status quo with the regulated
entity before the producer engaged in a
protected activity. This provision
includes scenarios in which cattle
producers operate in the cash market for
livestock. While some cattle producers
may only be in the cash market a few
times a year, others may be in the cash
market weekly. In the latter case, this
provision would cover certain types of
retaliation. If a producer sells cattle to
a particular packer every week, and then
one week the packer refuses to buy the
producer’s cattle or offers significantly
less favorable terms after the producer
engaged in a protected activity, this
would constitute retaliation under this
rule absent evidence of changed
business conditions necessitating the
packer’s refusal to deal. AMS believes
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that retaliating against a producer in this
way is conduct the Act seeks to remedy
because it raises a barrier to competitive
entry to the market by decreasing the
number of parties a producer can do
business with, which in effect is a
market failure.
Paragraph (b)(3)(v)’s prohibition on
interfering with a covered producer’s
farm real estate transactions or with
their contracts with third parties is a
prohibition against conduct that a
regulated entity may engage in due to
the unequal power dynamic that exists
between producers and the few firms
available for them to contract with. This
conduct may take several forms but has
been observed most commonly to occur
when a producer attempts to sell its
farm to a third party and in doing so
must terminate or fail to renew their
existing contract with a regulated entity.
In these situations, the regulated entity
may choose not to guarantee a similar
contract, or any contract at all, to the
prospective buyer. Without this
guarantee, banks and prospective buyers
are unlikely to enter the farm real estate
transaction because the land is of little
use to them without a contract to grow
livestock or poultry. This is often seen
in the poultry sector, where it is alleged
that regulated entities use the potential
transfer of farm real estate as an
opportunity to require growers to make
capital improvements in exchange for
their guarantee to contract with the new
grower. This becomes retaliatory
because the unreasonable refusal to
guarantee a future contract with a
prospective landowner or operator
dramatically lowers the value of the
farm operation, to the point of
obstructing the transfer of the real
property by the landowner, and yet the
debt burden on the farm is commonly
incurred in response to the regulated
entity’s requests for additional capital
investments. The seller of farm real
estate faces an unjust extraction, or else
they are unable to sell land, as the cost
of capital improvements required by the
regulated entity in exchange for a
guarantee to contract with a new owner
or operator is not a freely-determined
agreement. Farm sales transactions are
not, however, the only circumstance
where a regulated entity can retaliate
against a covered producer through
contracts with third parties. For
example, covered producers have
sought to develop new marketing
opportunities for their livestock and
poultry through collectively processing
their product. If the regulated entity
sought to obstruct the sale of the meat
or poultry products through distribution
or retail chains as retaliation against a
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covered producer with a material
interest in the meat or poultry sales
organization, that interference would be
covered by this rule.
Paragraph (b)(3)(vi) prohibits any
other action that a reasonable covered
producer would find materially adverse.
This regulation is designed to account
for a broader scope of actions that are
considered retaliatory. Under this
provision any conduct would be
considered prohibited retaliation if such
conduct caused material harm to the
covered producer relative to the covered
producer’s situation prior to the
allegedly retaliatory conduct, or relative
to conduct toward similarly situated
producers. This provision provides a
broad and flexible approach to these
prohibitions and allows for ‘‘material’’
to be determined by the facts and
circumstances of each case. As
discussed under Section V—Changes
from the Proposed Rule, some
retaliatory activities may occur outside
the confines of contractual relationship,
for example, a regulated entity’s
interference in a covered producers’
water rights. The provision also covers
the act of making a threat to engage in
an action where the threat can
reasonably be foreseen to change the
producer’s conduct or where the threat
delivers a reasonable possibility of
material harm.
When regulated entities punish
covered producers or deny them
opportunities afforded to other covered
producers for engaging in certain
activities, it is an unjustly
discriminatory practice. Not only do
retaliatory practices harm individual
covered producers; recurrent instances
and patterns of retaliation erode market
integrity and discourage fairness and
competition in the livestock and poultry
markets. Under § 201.304(b), AMS is
providing greater clarity, specificity,
and certainty as to how the Act applies
with respect to retaliatory behavior.
This will facilitate higher levels of
compliance by regulated entities, enable
AMS to better enforce the Act, and
position producers to better assert their
rights under the Act.
D. Recordkeeping (§ 201.304(c))
Paragraph (c)(1) of § 201.304 requires
that a regulated entity retain all records
relevant to its compliance with the
prohibitions on discriminatory behavior
contained in paragraphs (a) and (b) of
this section. Records must be retained
for no less than five years from the date
of record creation. Paragraph (c)(2)
states that relevant records may include
policies and procedures, staff training
materials, materials informing covered
producers regarding reporting
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mechanisms and protections,
compliance testing, board of directors’
oversight materials, and the number and
nature of complaints received relevant
to this section.
Recordkeeping is a commonly used
regulatory compliance and monitoring
mechanism among market regulators.141
The recordkeeping requirement in this
rule is not new. AMS currently has the
authority to require regulated entities to
create, maintain, release to AMS, and
dispose of records through the Act and
its regulations, including sec. 401 of the
Act and 9 CFR 201.94, 201.95, and
203.4. Section 401 of the Act requires
regulated entities to keep ‘‘such
accounts, records, and memoranda as
fully and correctly disclose all
transactions involved in his business
. . .’’ (7 U.S.C. 221). Such records may
include details of a single transaction,
such as the name of the owner of the
livestock or poultry, date, weight of
livestock or poultry, number of head of
livestock, and unit price; all elements
necessary to recreate the total sum paid
to the producer or grower by the
regulated entity. Existing regulations
under 9 CFR 201 require regulated
entities to give the Secretary ‘‘any
information concerning the business
. . .’’ (§ 201.94) and provide authorized
representatives of the Secretary access
to their place of business to examine
records pertaining to the business
(§ 201.95). Section 203.4 is another
relevant existing regulation with respect
to the types of records to be kept by
regulated entities and the timelines for
disposal of these records by the
regulated entities.
Existing gaps in both generally
applicable agricultural and PSD-specific
data collection make addressing
widespread reports of discriminatory
behavior difficult. Access to the types of
records required by § 201.304(c) will
assist AMS in assessing the
effectiveness of a regulated entity’s
compliance with § 201.304(a) and (b).
Therefore, this recordkeeping
requirement is critical for AMS to fulfill
its duties to prevent, and if necessary
secure enforcement against, undue and
unreasonable prejudice and unjust
discrimination.
AMS believes that this recordkeeping
approach—at both the regulated entity
policy and procedural level, as well as
at the transactional level—will enable
the Agency to monitor and facilitate a
141 See, e.g., generally, Board of Governors of the
Federal Reserve System, ‘‘Federal Trade
Commission Act, Section 5: Unfair or Deceptive
Acts or Practices,’’ Consumer Compliance
Handbook, available at https://
www.federalreserve.gov/boarddocs/supmanual/cch/
ftca.pdf (last accessed June 2022).
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regulated entity’s approach to
compliance. Recordkeeping will
encourage regulated entities to adopt
more robust compliance practices to
stamp out conduct prohibited by the Act
in its incipiency. It will also enable
AMS to uncover conduct that violates
the rule in any investigation—a
deterrent which will also strengthen
compliance. AMS underscores that the
tone and compliance practices set by
senior executives play a vital role in
establishing a corporate culture of
compliance, which is a critical first step
toward more inclusive market practices.
Thus, relevant records may include
those at the highest levels, such as
relevant accountability practices of the
board of directors. In addition to the
importance of policies and procedures
in developing a corporate culture of
compliance, this rule maintains that
transactional records, where decisionmaking occurs, are also important
records to keep and to help AMS
understand why an adverse action was
taken against a producer or grower by a
regulated entity. These records may
include the number and nature of
complaints received relevant to this
section; in addition to records already
required to be retained under § 203.4,
such as buyers’ estimates; buying or
selling pricing instructions and price
lists; correspondence; telegrams; or
teletype communications and
memoranda relating to matters other
than contracts, agreements, purchase or
sales invoices, or claims or credit
memoranda.142
AMS is requiring that records be
retained for five years from their
creation date to provide a broader
ability to monitor the evolution of
compliance practices over time in this
area, and to ensure that records are
available for what may be complex
evidentiary cases. While providing the
authority for regulated entities to keep
certain records, sec. 401 of the Act does
not provide guidance on when records
can be disposed. Existing regulation at
9 CFR 203.4 provides for a disposal date
of two years, with an exception for
certain records that may be disposed of
after one year. This rule extends the
disposal date of most records from two
years to five years to promote efficient
USDA monitoring efforts. For some
records, the current disposal date is one
year, which could be extended to five
years under this rule if they are deemed
relevant to showing compliance with
this rule. Most records, such as
specified in sec. 401, ‘‘such accounts,
records, and memoranda as fully and
142 eCFR: 9 CFR part 203—Statements of General
Policy Under the Packers and Stockyards Act.
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correctly disclose all transactions
involved in his business . . .’’ are
currently kept for two years and will be
extended to five years. Other particular
records that, if kept, will be required to
be kept five years instead of the current
one year, including, for example,
buyers’ estimates; buying or selling
pricing instructions and price lists;
correspondence; telegrams; or teletype
communications and memoranda
relating to matters other than contracts,
agreements, purchase or sales invoices,
or claims or credit memoranda.
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E. Deceptive Practices (§ 201.306)
Section 201.306 is designed to
broadly address deceptive practices in
the marketplace by establishing four
categories where deceptive practices
commonly occur: contract formation,
contract performance, contract
termination, and contract refusal.
Overall, the final rule addresses areas of
concern regarding deception in
contracting but does not exhaustively
identify all deceptive practices that
violate sec. 202(a) of the Act. Through
this rule AMS aims to promote a
marketplace that is free from the type of
injury the Act was designed to prevent.
False or misleading statements, or
omissions of material information,
during the contracting process or
operation or termination of that
contract, are prohibited deceptive
practices because they prevent or
mislead sellers or buyers from making
informed decisions concerning their
livestock or poultry operations.
Deception puts honest businesses at a
competitive disadvantage; and may even
cause them to adopt deceptive
practices.143 To capture a range of
longstanding approaches to deception
that USDA has taken under the Act,
AMS is prohibiting the use of false or
misleading statements, or omission of
material information during contract
formation, performance (including
enforcement or not enforcement of the
contract), and termination. This rule
also prohibits regulated entities from
providing false or misleading
information to a covered producer or a
producer association concerning a
refusal to contract. During this
rulemaking process, AMS also
considered the FTC’s interpretation of
sec. 5 of the FTC Act regarding
143 FTC
v. Winsted Hosiery Co., 258 U.S. 483
(1922) See also, ‘‘Businesses that accurately
represent the total amount consumers will pay up
front are at a competitive disadvantage to those that
do not,’’ from FTC–2022–0069–6095 (describing
harm to competition and honest businesses through
price obfuscation). p. 77432, https://
www.federalregister.gov/documents/2023/11/09/
2023-24234/trade-regulation-rule-on-unfair-ordeceptive-fees.
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deceptive acts or practices, ‘‘FTC Policy
Statement on Deception.’’ 144 Like sec.
202(a) of the Act, sec. 5 of the Federal
Trade Commission (FTC) Act also
prohibits deceptive practices. In 1983,
the FTC adopted the aforementioned
policy statement summarizing its
longstanding approach to deception
cases.145 In this final rule, AMS
references that policy statement because
it offers useful guidance owing to the
similarity of the statutory provision and
case law history. In addition, AMS
recognizes the benefits to the practical
application of this final rule by
grounding it on the well-understood
principles of deception identified in the
FTC policy statement.146
More than 100 years of history
illustrate the types of conduct
prohibited as deceptive by the Act,
which provides a foundation for some of
the specific deceptions that this
rulemaking addresses. The regulations
implemented by this rulemaking are not
the first to prohibit deception. Current
regulations under the Act require
honesty in weighing (9 CFR 201.49 and
201.71), price reporting (§ 201.53), fees
(§ 201.98), and business relationships
(§ 201.67). Even when considering
whether termination of a contract
violated the Act, AMS currently
considers the quality of the
communication, and therefore considers
its honesty (see § 201.217). Past cases
indicate that USDA’s approach,
generally, is to view representations,
omissions, and practices from the
perspective of a reasonable party
receiving them and determine if those
deceptions affect the conduct or
decision of the recipient. As the court
explained in Gerace v. Utica Veal
Co.,147 a regulated entity is liable to
anyone for the damages its deceptive
practices cause, even if the entity is not
a direct party to the transaction.
AMS aims to have regulated entities
be truthful and straightforward—that is,
not misleading—in their dealings with
producers. With § 201.306, AMS seeks
to uncover the true motive for a
regulated entity’s treatment of a
producer with whom they are forming
or have a contractual relationship.
Whether contract language was clear
and written in a language the producer
144 FTC Policy Statement on Deception, 1983.
Available at https://www.ftc.gov/system/files/
documents/public_statements/410531/
831014deceptionstmt.pdf.
145 Ibid.
146 Kades, Michael. ‘‘Protecting Livestock
Producers and Chicken Growers,’’ Washington
Center for Equitable Growth, May 2022, https://
equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/.
147 580 F. Supp. 1465, 1469 (N.D.N.Y. 1984).
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understands will be part of any
evaluation to determine whether a
statement (including any omission) was
false or misleading; that determination
will be dependent on the particular facts
and circumstances of the contract.
Violations of the Act that would
constitute deceptive practices include
false statements or omissions that are
material in that they prevent sellers or
buyers from making an informed
business decision.148 Thus, obvious
falsehoods, such as false weighing and
false accounting, have always been
considered deceptive practices under
sec. 202(a) of the Act. Another obvious
falsehood—delivering checks drawn on
accounts with insufficient funds,
whether for livestock or meat—is also
deceptive. Moreover, the Act requires
honest dealing, so misleading omissions
of material information necessary to
make a statement not false or misleading
are also prohibited. Prohibited
omissions include failure to tell a
business partner that the regulated
entity was receiving a commission from
a competitor,149 sales records that omit
relevant information,150 or failure to
have the required bond.151 And finally,
where regulated entities have close
business relationships, kickbacks and
bribes undermine the ability of
producers and consumers to rely on an
honest market and are therefore
deceptive.152
Producers should not be misled with
respect to their business decisionmaking with regulated entities.
Deception can prevent producers from
obtaining the full value of their products
and services. In markets pervaded by
deception, formerly honest businesses
may be compelled to adopt deceptive
practices if they are to remain
competitive.153 Moreover, in a
concentrated market, if producers are
misled regarding why regulated entities
take certain actions, in particular
refusing to deal with them, they cannot
148 FTC Policy Statement on Deception, 1983.
Available at https://www.ftc.gov/system/files/
documents/public_statements/410531/831014
deceptionstmt.pdf. (‘‘Third, the representation,
omission, or practice must be a ‘‘material’’ one. The
basic question is whether the act or practice is
likely to affect the consumer’s conduct or decision
with regard to a product or service.’’).
149 9 CFR 201.61.
150 9 CFR 201.43; 9 CFR 201.99.
151 9 CFR 201.29.
152 9 CFR 201.56; 9 CFR 201.67; 9 CFR 201.71.
153 Michael Kades, ‘‘Protecting livestock
producers and chicken growers,’’ Washington
Center for Equitable Growth (May 2022), https://
equitablegrowth.org/wp-content/uploads/2022/05/
050522-packers-stockyards-report.pdf (‘‘Subversion
of normal market forces by fraud, deception, unfair
conduct, or market manipulation undermines the
integrity of the market and deprives producers of
the true value of their livestock,’’ p. 55.)
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plan or mitigate the risks they may face.
For these reasons, this final rule
establishes a robust regulatory
framework prohibiting deceptive
practices in a range of contracting
circumstances. Such a framework
should provide a broad, although nonexhaustive, set of prohibitions to
provide greater certainty for producers
and regulated entities alike in the
integrity of business dealings in the
livestock and poultry markets.
Paragraph (a) of this section sets forth
the scope of the prohibition on
deceptive practices by establishing that
the prohibitions contained in
paragraphs (b) through (e) of § 201.306
apply to livestock, meats, meat food
products, livestock products in
unmanufactured form, or live poultry.
This phrasing, which has been used in
previous rules under the Act, points to
the broadest possible interpretation of
the Act’s jurisdiction over regulated
entities’ conduct.
Section 201.306(b) prohibits a
regulated entity from making or
modifying a contract with a covered
producer by employing a false or
misleading statement, or omission of
material information necessary to make
a statement not false or misleading.
Preventing false or misleading
representations, express or implied, or
failing to provide the necessary
information necessary to make a
representation not misleading during
the contracting process, are some of the
most basic protections of the integrity of
the marketplace. ‘‘By employing’’
captures the materiality of the false or
misleading representation in that the
representation formed a material part of
the action under making or modifying
the contract. Case law applying the Act
illustrates some of the forms of
deception that regulated entities may
take during the offering or formation of
a contract with producers. While some
consumer-focused cases under the Act
have addressed false advertising—
specifically bait-and-switch advertising
that occurs through advertising on price
when, in fact, the customer has to pay
a higher price at the point of sale,154 a
regulated entity’s failure to disclose
information to a covered producer has
also been held to be deceptive under
certain circumstances. The Act’s
purposes include protecting farmers and
ranchers from receiving less than fair
market value for their livestock and
protecting consumers from unfair
practices. Among the means employed
to accomplish this purpose is the use of
154 In re: Larry W. Peterman, d/b/a Meat Masters,
42 Agric. Dec. 1848 (1983), aff’d Peterman v. United
States Dep’t of Agric, 770 F.2d 888 (10th Cir. 1985).
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surety bonds. Sellers of livestock are
entitled to the protection of a packer,
dealer, or market agency’s surety bond
securing its obligations. Failure to
maintain an adequate bond is therefore
a deceptive practice.155 When a packer
fails to maintain a bond, the seller does
not know that the sale is unsecured, and
therefore the seller is at greater risk of
nonpayment.
Deception in contract formation is not
limited to false statements and
omissions with respect to regulatory
requirements. The Act includes
affirmative duties to be truthful. For
instance, in Schumacher v. Tyson Fresh
Meats, Inc., the court recognized that
the Act prohibits a regulated entity from
negotiating by using published prices it
knows are inaccurate because using
incorrect prices deceives the livestock
seller. In Schumacher, the packer failed
to disclose to sellers inaccurately
reported boxed beef prices when it
negotiated the purchase of cattle based
on those prices. The court found that
those deceptive practices violate the
Act.156 Likewise, Bruhn’s Freezer Meats
of Chicago, Inc. v. U.S. Dept. of
Agriculture, affirmed that a variety of
deceptive practices violate the Act,
including short weighing,
misrepresenting grades and cuts of
meat, and false advertising in the selling
of meat to customers.157 The Agency’s
regulation with respect to deceptive
practices in contract formation prohibits
all these types of deception.
Section 201.306(c) prohibits a
regulated entity from performing under
or enforcing a contract with a covered
producer by employing a false or
misleading statement, or omission of
material information necessary to make
a statement not false or misleading. It is
fundamental to the integrity of the
marketplace and critical during the
performance or enforcement of contracts
that regulated entities are prohibited
from making false or misleading
representations—express or implied—
and that they are prohibited from failing
to provide the necessary fact or
information necessary to make a
representation not misleading. ‘‘By
employing’’ captures the materiality of
the false or misleading representation in
that the representation formed a
155 United States v. Hulings, 484 F. Supp. 562,
567 (D. Kan. 1980). See also In Re: Mid-W. Veal
Distributors, 43 Agric. Dec. 1124, 1139–40 (1984),
citing In re: Norwich Veal and Beef, Inc., 38 Agric.
Dec. 214 (1979), In Re: Raskin Packing Co., 37
Agric. Dec. 1890, 1894–6 (1978).
156 Schumacher v. Tyson Fresh Meats, Inc., 434
F.Supp.2d 748 (Dist. S.D. 2006).
157 Bruhn’s Freezer Meats, 438 F.3d 1337 (8th Cir.
1971).
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16129
material part of the action under
performing or enforcing the contract.
Deceptive practices take many forms
throughout the operation of a contract.
USDA and the courts have recognized
these forms in a variety of
administrative and Federal enforcement
actions, including false weighing, false
or deceptive grading (including failure
to disclose the formulas for determining
payment), failure to pay for purchases,
and pretextual refusals to deal.
False or inaccurate weighing has long
been recognized as deceptive under
secs. 202(a) and 312 of the Act.158 False
weighing can occur in various ways. In
some cases, the regulated entity records
inaccurate weights using an improperly
calibrated scale. In other cases, a
regulated entity uses the scale
improperly. In all these cases, false
weighing is a plain and straightforward
instance of a false statement that is
material to the reasonable producer.
Even if a regulated entity does not
intentionally set out to deceive with
respect to the weight of livestock, the
Act does not require proof of a
particularized intent.159 Short weighing
alone is enough to be an unfair and
deceptive practice under the Act,
without regard to the competitive injury
the short weighing causes.160
False or inaccurate grading has the
same effect as false weighing because
deceptive grading prevents the seller
from receiving the full value of their
livestock or poultry. A USDA Judicial
Officer found a deceptive practice when
a packer failed to inform hog producers
of a change in the formula it used to
estimate lean percent in hogs. Lean
percent was one factor used in
determining price when the packer
purchased hogs on a carcass merit basis.
USDA determined that nearly twenty
thousand lots of hogs were purchased
under the changed formula without
notice to producers, resulting in
payment of $1.8 million less than they
would have received under the previous
formula.161 This type of deceptive
practice harms honest competitors
because ‘‘[h]ad hog producers been
alerted to the change, they could have
shopped their hogs to other packers.’’ 162
Payment violations can also be
deceptive, especially issuance of
158 See Bruhn’s Freezer Meats, 438 F.3d 1337 (8th
Cir. 1971); Solomon Valley Feedlot, 557 F.2d at 717;
Gerace v. Utica Veal Co., 580 F. Supp. 1465, 1470
(N.D.N.Y. 1984).
159 Parchman v. U.S. Dep’t of Agric., 852 F.2d
858, 864 (6th Cir. 1988) (interpreting sec. 312 of the
Act).
160 Garace, 580 F. Supp. At 1470.
161 In re: Excel Corporation, 63 Agric. Dec. 317
(2004), aff’d Excel Corp. v. United States Dep’t of
Agric., 397 F.3d 1285, 1293 (10th Cir. 2005).
162 397 F.3d at 1291.
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insufficient funds checks. For example,
regulated entities may withhold
payment to prevent producers from
commencing legal action or reporting
otherwise unrelated violations to
authorities.163 Failing to pay for meat
has also been found to be deceptive in
numerous instances.164 Under the
similar language of secs. 312 of the Act,
the Eighth Circuit explained that lack of
timely payment was unfair and
deceptive even prior to the enactment of
sec. 409 of the Act: ‘‘Timely payment in
a livestock purchase prevents the seller
from being forced, in effect, to finance
the transaction.’’ 165
Section 201.306(d) prohibits a
regulated entity from terminating a
contract with a covered producer by
employing a false or misleading
statement, or omission of material
information necessary to make a
statement not false or misleading.
Employing false or misleading
representations, express or implied, or
failing to provide the necessary fact or
information necessary to make a
representation not misleading—critical
protections during the performance or
enforcement of contracts—are similarly
fundamental to the integrity of the
marketplace. ‘‘By employing’’ captures
the materiality of the false or misleading
representation in that the representation
formed a material part of the action
under performing or enforcing the
contract. AMS draws on its experience
in establishing the need for this
prohibition. AMS notes, for example,
that poultry growers complain of
companies terminating their broiler
production contracts based on pretext or
for a deceptive reason. Contract
termination puts the grower at severe
risk of significant economic loss. The
potential loss includes not only the loss
of production income but also a
grower’s farm or family home, since a
163 See, e.g., In Re: Mid-W. Veal Distributors, d/
b/a Nagle Packing Co., & Milton Nagle, 43 Agric.
Dec. 1124, 1140 (1984).
164 See, e.g. Milton Abeles, Inc. v. Creekstone
Farms Premium Beef, LLC, No. 06–CV–
3893(JFB)(AKT), 2009 WL 875553, at *19 (E.D.N.Y.
Mar. 30, 2009) (citing Liberty Mutual Ins. Co. v.
Bankers Trust Co., 758 F.Supp. 890, 896 n. 7
(S.D.N.Y.1991); In re FLA Packing & Provision, Inc.,
and C. Elliot Kane, P & S Docket No. D–95–0062,
1997 WL 809036, at *6 n. 1 (1997); In re: Central
Packing Co., Inc. d/b/a Plat–Central Food Services
Co., Inc., a/k/a Plat–Central Food Service Supply
Co., and Albert Brust, an individual, 48 Agric. Dec.
290, 297–99 (1989)); see also In Re: Ampex Meats
Corp. & Laurence B. Greenburg., 47 Agric. Dec.
1123, 1125 (1988) (citing In Re: Rotches Pork
Packers, Inc. & David A. Rotches., 46 Agric. Dec.
573, 579–80 (U.S.D.A. Apr. 13, 1987) In Re: George
Ash, 22 Agric. Dec. 889 (1963); In re Goldring
Packing Co., 21 Agric. Dec. 26 (1962); In Re: Eastern
Meats, Inc., 21 Agric. Dec. 580 134 (1962)).
165 Van Wyk v. Bergland, 570 F.2d 701, 704 (8th
Cir. 1978).
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production broiler house construction is
often financed with mortgages on those
assets. Pretextual cancellation, in the
form of false or misleading
representations or material omissions,
may also make even the sale or transfer
of the broiler production house
impossible because purchasers may be
unable to determine if the broiler houses
have value.
AMS included the prohibition against
false or misleading information or
material omissions in paragraphs (b)
through (d) to protect producers from
conduct that employs deceit to disguise
a regulated entity’s genuine motive. A
poultry producer stated in a public
workshop that he relied upon cash flow
statements provided by the integrator to
secure a loan for his operation only to
find out later ‘‘that the document wasn’t
accurate from the first flock that I placed
and set. The capital investment of these
facilities, while they may be greatly
benefiting the integrator, are not
returning any value to us
whatsoever.’’ 166 In another public
comment, a poultry producer asserted
that he is ‘‘not given a clear picture of
the integrator’s operating procedures
until after a contract has been signed.
The contracts are very biased and onesided, giving the bulk of control and
authority to the initiator of the contract
and then, only after you have committed
to playing their game you are then given
the rule book.’’ 167 The producer further
stated that, ‘‘the practices of the
integrators are very calculated to ensure
the integrators are protected legally
while entrapping the farmer into
modern day indentured servitude.’’ 168
Section 201.306(e) prohibits a
regulated entity from providing false
information to a covered producer or
association of covered producers
concerning a refusal to contract.
Deception related to refusal to contract
is an unlawful practice designed to
exclude producers from livestock and
poultry markets. For example, if a
producer association is asking on behalf
of its members why a regulated entity is
not executing any deals in the cash
market and the entity lies about why it
is avoiding the cash market, this could
impede market entry for the
association’s members. Owing to the
risk of retaliation, even with this final
166 United States Department of Justice, United
States Department of Agriculture. May 2010. Public
Workshops Exploring Competition in Agriculture,
Poultry. Accessed at https://www.justice.gov/
media/1244676/dl?inline on 10/03/2023. p. 366.
167 Rural Advancement Foundation International
(RAFI), ‘‘Comment on AMS–FTPP–21–0045:
Inclusive Competition and Market Integrity Under
the Packers and Stockyards Act,’’ available at
Regulations.gov.
168 Ibid.
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rule in place, a covered producer may
depend upon a producer association to
obtain the necessary understanding why
the regulated entity is engaging in
certain practices in the market, such as
refusing to contract with covered
producers.
A regulated entity that refuses to
contract on unlawful grounds may well
choose to hide their motives with
misleading or deceptive statements.
This regulation recognizes false and
misleading statements made as
justification of a refusal to enter into a
contract as ‘‘deceptive’’ within the
meaning of the Act. However, when
refusing to enter into a contract, a
regulated entity is not required to
explain its reasoning so long as it does
not offer a false or misleading statement
to a covered producer.
Producers and consumers cannot
make rational decisions in a dishonest
market, and honest competitors cannot
compete when regulated entities
deceive. With this rulemaking, AMS is
adding § 201.306 to its existing
deception regulations under the Act to
provide a broad array of coverage
regarding the general circumstances that
encourage the provision of false or
misleading information in contracting.
This regulation does not provide an
exhaustive list of instances of deceptive
practices; rather, it establishes four
categories where deceptive practices
commonly occur. The intent is to
provide guidance to covered producers
on how to effectuate their rights under
section 202(a) of the Act and to promote
a marketplace that is free from the type
of injury section 202(a) was designed to
prevent. AMS will investigate any
alleged violations of this regulation and
its determination will depend on the
facts and circumstances of each case.
F. Severability (§ 201.390)
AMS is adding § 201.390,
‘‘Severability,’’ to new subpart O to
confirm that if any provision of subpart
O, or any component of any provision,
is declared invalid or if the applicability
thereof to any person or circumstances
is held invalid, it is AMS’s intention
that the validity of the remainder of this
subpart or the applicability thereof to
other persons or circumstances shall not
be affected thereby with the remaining
provision, or component of any
provision, to continue in effect. Such a
provision is typical in AMS regulations
that cover several different topics and is
included here as a matter of
housekeeping.
This rule aims to address concerns
around unduly prejudicial, unjustly
discriminatory, retaliatory, and
deceptive conduct in the livestock and
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poultry industry to the broadest
jurisdiction of the Act. This new subpart
has two sections that prohibit unduly
prejudicial, unjustly discriminatory, and
deceptive practices. This regulation is
intended to take a series of regulatory
actions, within this rulemaking, to
address several different harms on the
same or similar subjects but not prohibit
identical conduct. The wrongful
conduct addressed in the undue
prejudice and discrimination,
retaliation, and deception provisions are
each different—the first focusing on
adverse action on the basis of a personal
characteristics or status of the producer,
the second on certain protected actions
by the covered producer, and the third
focused on deception in contracting.
AMS included these provisions based
on the likelihood that conduct falling
within one or more of these sections
will stifle honest competition or exclude
independent livestock producers,
poultry growers, and swine contractors
from the marketplace. Each provision
could, however, have been implemented
on a stand-alone basis without the
others. Conduct that violates one
provision is not dependent on
protections put in place in other
sections. For example, if a regulated
entity discriminates against a producer
on the basis of a protected class in an
unduly prejudicial manner, AMS may
enforce the regulation without alleging
violations of retaliation or deception.
These new provisions are written so that
they are not mutually exclusive.
Furthermore, the benefits of each
provision of this rule are not diminished
by the absence of a different provision.
For example, the benefits of protecting
producers against retaliation are not lost
if the rule is held to fail to protect
against deception or discrimination.
AMS intends that the severability
provision operate to the fullest extent
possible. AMS recognizes that—to a
limited extent—not all the language of
the rule is severable. For example, to
find undue prejudicial discrimination
under ‘‘race, color, religion, national
origin, sex (including sexual orientation
and gender identity), disability, or
marital status, or age of the covered
producer,’’ the prejudicial conduct must
be ‘‘on the basis of’’ one of the specified
protected bases. AMS recognizes that
this causation requirement is not
severable as it is integral to that specific
provision of the rule.
However, AMS intends that all other
portions and components of the rule
may be severable without affecting the
remaining portions of the rule, and that
the rule remains workable and
continues to serve the interests of the
agency’s policy goals. For instance,
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AMS intends that the invalidity or
unenforceability of one of the rule’s
prohibited bases does not render the
others invalid or unenforceable. The
protected bases have different reasons
for their appearance in the rule. For
example, if the protected base of
religion were found invalid or
unenforceable, this does not negate the
benefits of including protections for
another protected base, like sex. Also, to
further follow this example, the
language in § 201.304(a)(1)(i) is
severable from those included in the
retaliation (§ 201.304(b)) and deception
(§ 201.306) sections. Therefore, one or
more provisions might be unenforceable
as to an individual or a specific case,
but AMS intends that the remaining
provisions would still be enforced.
Finally, if determining the necessity of
an individual provision to the
enforceability of its entire section, and
the benefits of that section are still
intact without an unenforceable
provision, AMS would intend to retain
the enforceable provisions.
VII. Comment Analysis
AMS received 446 public submissions
in response to the proposed rule.
Numerous comments to the proposed
rule expressed concerns that
concentrated, vertically integrated
markets expose producers to exclusion
from the market on bases unrelated to
the quality of their products or services
and that the markets in which the
commenters operate lack sufficient
honesty, integrity, and fair dealing. In
addition, numerous comments stated
that, except for very narrow justified
circumstances, there are no competitive
benefits to these practices when
operating within a market where
producers are less able to compare,
negotiate, or change business
relationships.
Other commenters were critical of the
proposed rule. Some commenters
expressed disagreement with the need
for the proposed rule, arguing that it is
duplicative of the Act and existing
regulations, while other commenters
stated that the proposed rule’s
vagueness would make compliance a
challenge. Other commenters argued
that the proposed rule would result in
costly litigation and recordkeeping
burdens and exceeded AMS’s authority
under the Act.
The public comments are summarized
by topic below and include AMS’s
responses.
A. Definitions (§ 201.302)
AMS proposed to add definitions in
§ 201.302 for covered producer,
livestock producer, market vulnerable
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individual, and regulated entity. AMS
received comments about the proposed
definitions of livestock producer and
market vulnerable individual.
Comments about the latter are addressed
below in Section VII.C.i—Market
vulnerable individual approach.
In § 201.302, AMS proposed to define
livestock producer as any person
engaged in the raising and caring for
livestock by the producer or another
person, whether the livestock is owned
by the producer or by another person,
but not an employee of the owner of the
livestock. AMS proposed to add a new
definition of covered producer to
encompass livestock producers as
defined in this section, along with
swine production contract growers and
poultry growers as defined in sec. 2(a)
of the Act.
Comment: Several commenters noted
the proposed definition of livestock
producer could include individuals
only tangentially related to livestock
production, such as accountants
working for feed yards, truck drivers
hauling livestock owned by others,
veterinarians, nutritionists, or
consultants. The commenters contended
the proposal opens the definition of
livestock producer to an unlimited
number of litigants beyond the scope of
the Act.
Similarly, a meat industry trade
association said AMS should withdraw
or amend the definition of livestock
producer because its vagueness
potentially adds so many individuals to
the covered producer umbrella as to be
unworkable. Another association noted
its confusion when reading the
definition, given that the definition’s
wording explicitly excludes employees
of the owner of livestock, but includes
anyone who is not an employee of the
owner of livestock that is engaged in
raising or caring for livestock.
AMS Response: AMS is revising the
definition of livestock producer. AMS
intended that the term livestock
producer be defined in a manner similar
to other terms in the Act, so that the
protections of the rule would fit
violations that are described in this
rulemaking. Under the final rule,
livestock producer is defined as any
person—except an employee of the
livestock owner—engaged in the raising
of and caring for livestock. As
commenters noted, the proposed
definition was vague and potentially
confusing. The revised definition
provides clarity by removing
unnecessary and potentially confusing
phrasing. In response to commenters’
concerns that the term encompasses
individuals only tangentially related to
livestock production, AMS has revised
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the proposed definition to focus this
final rule on the Agency’s traditional
role in protecting the producer to the
fullest extent possible under the Act—
including but not limited to production
and marketing. To the extent that the
producer is harmed through acts that
the regulated entity takes against an
employee acting as agent for the
producer or another entity that the
covered producer utilizes or relies on
for production or marketing, the
producer could still fully benefit from
the protections of this final rule.
Whether the non-producer parties could
benefit from the protections of the Act
may depend upon particular facts and
circumstances.
B. Applicability
AMS proposed in §§ 201.304 and
201.306 to apply its prohibitions on
undue prejudice, retaliation, and
deceptive practices to swine contractors
and live poultry dealers as defined in
sec. 2(a) of the Act and to packers as
defined in sec. 201 of the Act. Proposed
§ 201.304(a)(1) would prohibit
prejudice, disadvantage, or the denial or
reduction of market access by regulated
entities against covered producers based
on their status as ‘‘market vulnerable’’
producers. AMS requested comment on
whether the prejudicial discrimination
and retaliation provisions should be
extended to all persons buying or selling
meat and meat food products, including
poultry, in markets subject to the Act.
Comment: An agricultural advocacy
organization expressed support for
AMS’s proposal to extend protections to
all covered producers who experience
retaliation by regulated entities.
An agricultural advocacy organization
said that if AMS adds aspects of
regional concentration and aspects of
contract growing arrangements, such as
high debt load, to the definition of a
market vulnerable individual, then the
proposal to provide protection based on
market vulnerable individual status is
appropriate. This commenter noted that
AMS’s question regarding extension of
the prejudicial discrimination and
retaliation provisions highlights the
need for a separate rule addressing
enforcement of the Act’s prohibition on
undue preferences. According to this
commenter, if AMS makes it clear that
it intends to enforce the Act to stop
companies from giving undue
preferences to some sellers, everyone
participating in these markets will have
adequate protection.
AMS Response: AMS appreciates the
comments regarding a broader
definition of MVI to include all those
impacted by the abusive conditions
aggravated by market concentration.
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AMS recognizes that producers face
challenges because of consolidated
market power, including from types of
conduct this rule aims to address. One
of the purposes of this rule is to address
adverse impacts of concentrated markets
by ensuring inclusive competition free
of unjust discrimination on the basis of
race, color, religion, national origin, sex,
disability, or marital status, or age or
because of the covered producer’s status
as a cooperative, as well as to protect
against retaliation and deception.
AMS underscores that the protections
for cooperatives are intended, in part, to
help producers gain market leverage in
the face of concentrated markets. In
1922 Congress passed the CapperVolstead Act providing legal protections
for producers to collectively process,
prepare for market, handle and market
their products. Cooperatives enable
smaller, disparate producers to band
together, coordinate in ways that
otherwise may not be permissible under
the antitrust laws outside of a single
company, and otherwise work together
to obtain a better bargain from market
counterparties with larger economic
footprints. AMS will continue to work
toward addressing problems associated
with concentration through subsequent
rulemaking. USDA is also utilizing other
tools to address undesirable business
practices born from market
concentration that adversely impacts
producers. USDA is investing $1 billion
to support greater choice for producers
through expanded local and regional
processing capacity in meat and poultry.
USDA has also announced
enhancements to its antitrust
enforcement partnerships, including
investing in partnerships with DOJ
through farmerfairness.gov and with
more than 32 State attorneys general,
updates to its meat and poultry labels
that will better guard against
misbranding that damages the signals
that flow from consumers to producers,
as well as other agency actions intended
to address unfavorable behavior by
regulated entities facilitated by
concentration in the livestock industry.
However, addressing unjust
discrimination solely on the basis of the
size or indebtedness of the producer is
outside the scope of this rule, and
because of the complex economic
implications of volume preferences and
efficiencies, would be more
appropriately considered in the context
of a future update to undue preferences
rules. In contrast, undue and
unreasonable prejudice or disadvantage
on the basis of the prohibited bases and
protected activities adversely affects
allocative efficiency and offers no
competitive benefits. That is true
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irrespective of whether the unlawful
conduct occurs in a concentrated market
or not.
AMS has shifted away from its market
vulnerable approach and has adopted a
well-established standard in line with
existing economic, civil rights, and
other regulatory regimes that rely on
protected bases for discrimination.
Producers with high debt loads are not
included in those well-established
protections; therefore, AMS will not
include them in its final rule.
C. Undue Prejudices and Unjust
Discrimination (§ 201.304(a))
AMS proposed new provisions in
§ 201.304(a) that would prohibit
regulated entities from prejudicing,
disadvantaging, or inhibiting market
access, or otherwise taking adverse
action against a livestock producer,
swine production contract grower, or
poultry grower based on the producer’s
status as a ‘‘market vulnerable
individual’’ or as a cooperative.
i. Market Vulnerable Individual
Approach
AMS proposed to prohibit
prejudicing, disadvantaging, inhibiting
market access, or otherwise taking
adverse action against covered
producers based on their status as a
market vulnerable individual (MVI). It
proposed to define that term as a person
who is a member, or who a regulated
entity perceives to be a member, of a
group whose members have been
subjected to, or are at heightened risk of,
adverse treatment because of their
identity as a member or perceived
member of the group without regard to
their individual qualities. A market
vulnerable individual would include a
company or organization where one or
more of the principal owners,
executives, or members would
otherwise be a market vulnerable
individual. When defining market
vulnerable individual in its proposal,
AMS listed a non-exhaustive list of
protected classes that would be
considered market vulnerable such as
race, ethnicity, or sex or gender
prejudices (including discrimination
against an individual for being lesbian,
gay, transgender, or queer), religion,
disability, or age.
AMS requested comment on whether
the regulatory protections provided by
the prohibition on undue prejudices for
market vulnerable individuals and
cooperatives would assist those
producers in overcoming barriers to
reasonable treatment, or otherwise
address prejudices or threats of
prejudice in the marketplace. It further
requested comment on whether specific
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groups should be named as market
vulnerable individuals, whether AMS
should identify defined protected
classes, or whether AMS should use a
‘‘market vulnerable producer’’
approach, which extends broad
antidiscrimination protections to any
producer belonging to a group subjected
to or at heightened risk of adverse
treatment. In addition, it requested
comment on whether it should delineate
specific examples of groups that are
market vulnerable, as well as supportive
evidence regarding historical adverse
treatment of such groups. Finally, it
requested comment on whether the
undue prejudices provision of the
proposed rule provides sufficient
protection regardless of the covered
producer’s type of business
organization.
Comment: Several commenters
indicated proposed § 201.304(a) would
provide necessary protections,
consistent with the Act, against packers
and processors who leverage their
market power to injure marginalized
farmers. Farm bureaus and other
agricultural advocacy organizations also
indicated the rule would protect
producers from certain prejudices,
unjust discrimination, retaliation, and
deceptive practices.
Several commenters stated they
preferred the market vulnerable
producer approach to fighting
discrimination over the traditional
protected classes approach because it
would allow for flexibility to address
different markets and different forms of
prejudice and discrimination that may
develop. An agricultural and
environmental organization stated the
market vulnerable producer approach
not only covers instances of
discrimination based on protected
characteristics such as race, national
origin, sex, religion, gender identity,
and disability, but can also apply to
other forms of discrimination unique to
livestock and poultry markets. This
commenter said this approach is
consistent with the Act, which prohibits
‘‘any’’ unjust discrimination, and ‘‘any’’
undue prejudice or disadvantage ‘‘in
any respect whatsoever.’’ Several State
attorneys general suggested that the
proposed definition was preferable as
proposed, without specifying traditional
protected classes, because it would
allow for flexibility among different
markets and forms of prejudice or
discrimination that may develop over
time.
Several agricultural advocacy
organizations said poultry and cattle
producers operating in regions with
monopsony or oligopsony conditions
should qualify as market-vulnerable
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individuals. Similarly, an academic or
research institution sought to add
producers operating in monopsony
conditions to the definition. A
commenter suggested AMS use the
regional Herfindahl-Hirschman index to
indicate the market vulnerable status of
producers in a region. Some
commenters cited heightened risk of
adverse treatment as a rationale for
considering these groups to be market
vulnerable or noted that monopsony
power has been legally relevant in cases
under the Act and there is judicial
precedent for acknowledging
monopsonist power as a factor in
adverse impacts to competition, while
others said these groups meet the
criteria laid out by AMS in the preamble
to the proposed rule explaining why
historically marginalized groups are
likely to be vulnerable to market
abuses.169 The latter commenter
provided detailed evidence that these
groups met each of the criteria AMS
identified: their relative ‘‘size, sales, and
incomes;’’ their ‘‘exposure to
concentrated market forces;’’ their
having ‘‘fewer economic resources’’ to
‘‘counteract’’ adverse market structures;
and their ‘‘isolation’’ from economic
networks such as sources of supply,
other producers, and distribution.
Several commenters seeking
protections for producers that are at
increased risk of being disadvantaged
due to highly concentrated regional
markets cited Colorado cattle producers
as an example, given the USDA has not
publicly reported the State’s fed cattle
prices for several years because there are
too few packers purchasing fed cattle in
Colorado to overcome USDA
confidentiality guidelines. Commenters
noted, with few packers in the region,
sellers in the region are vulnerable to
unfair practices.
An agricultural advocacy association
recommended that AMS expand the
MVI definition to include covered
producers whose geographic locations
restrict their ability or willingness to
sell and transport their livestock to two
or fewer regulated entities. This
commenter also said that it would be
helpful for AMS to expand on and
provide more ‘‘definite form’’ to the four
socioeconomic factors presented in the
rulemaking notice. The association
reasoned that if producers can
proactively demonstrate their status as
market vulnerable, it would avoid the
need for ad hoc microeconomic analyses
or expert witnesses to make assessments
on individual bases.
Several State attorneys general
suggested AMS specifically address the
169 87
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vulnerability that small, rural farmers
encounter due to their location or
production size. The commenters stated
small, rural farmers do not have enough
local processors, and those processors
give preference to packer-owned and
contract livestock for the limited
packing plant capacity available. An
agricultural advocacy organization also
said small, independent cattle
producers meet many of the criteria for
being considered market vulnerable,
arguing for example that they are
exposed to concentrated market forces
because they do not receive forward
contracting arrangements from packers;
they are denied favorable bonus,
financing, and risk sharing terms
common with other arrangements; and
they are required to sell their cattle to
packers on at-will cash markets for
lower aggregate compensation.
Agricultural advocacy organizations
also said independent cattle producers
operating in cash-negotiated spot
markets should be considered
vulnerable because of their independent
status. Other commenters recommended
AMS expand market vulnerable
individual status to include non-English
speakers, people with limited
education, producers in markets with
limited buyers, and immigrant farmers.
Agricultural advocacy organizations
recommended the definition of market
vulnerable individual explicitly
include, but not be limited to, race,
color, national origin, religion, sex,
sexual orientation, disability, age,
marital status, family or parental status,
income derived from a public assistance
program, political beliefs, or gender
identity. Commenters asserted
individuals in each of these groups
should not have to continually prove
discrimination and prejudice against
them based on the characteristic that
makes them vulnerable in the market.
Agricultural advocacy organizations
expressed support for including
cooperatives in the prohibited bases
under proposed § 201.304. These
commenters recommended that AMS
explain in the preamble to the final rule
the relationship between the producer
association protections under the
Agricultural Fair Practices Act and the
proposed new protections under the
Act, noting regulated entities have
unjustly discriminated against covered
producers based on their membership in
these cooperatives due to the increased
market leverage these cooperatives or
other producer associations provide.
An individual commenter urged AMS
to explicitly prohibit discrimination
based on sexual orientation and gender
identity for those who voluntarily
disclose such status. The commenter
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stressed AMS should not require
LGBTQ producers to disclose their
sexual orientation or gender identity in
conducting business, citing privacy, and
security concerns. Other commenters
noted sexual orientation is different
from gender identity, so both should be
listed individually in the rule.
Some agricultural and environmental
advocacy organizations expressed
support for AMS’s flexible ‘‘market
vulnerable individual’’ approach, but
also expressed concern that the
proposed rule would impose a difficult
burden of proof on covered producers,
requiring, for example, a producer
alleging discrimination based on their
status as a member of a historically
marginalized group (e.g., a racial
minority) to also demonstrate their
status as a market vulnerable individual
‘‘in relevant markets.’’ Commenters
indicated producers should not have to
continually prove they are being
discriminated against if they are
members of a protected class or qualify
as a market vulnerable individual.
These commenters urged AMS to clarify
the Act directly prohibits discrimination
based on protected class status and to
provide producers with guidance on
how to demonstrate their market
vulnerable status. Commenters
recommended that AMS include in
§ 201.304 a non-exhaustive list of factors
covered producers can rely on to
demonstrate their market vulnerable
status.
Similarly, agricultural advocacy
groups recommended that AMS clearly
identify the types of individuals the
agency would consider to be market
vulnerable, and the methodology AMS
will use to make this determination. A
commenter specified producers who
derive a substantial percentage of their
income from their livestock or poultry
operation are more vulnerable to unjust
practices than those who derive a small
percentage of their income from those
operations. A commenter suggested that
AMS develop a method to assess
regional concentration levels using
information regarding market share,
Herfindahl-Hirschman index, and price
reporting systems to allow producers to
show they operate in a region that
qualifies them as market vulnerable
individuals.
An organization urged AMS to revise
proposed § 201.304(a)(1) to clarify that
the rule bans discriminatory conduct
based on disparate treatment or
disparate impact, not just
discriminatory intent. According to the
commenter, while secs. 202(a) and (b) of
the Act clearly establish that the
determinative factor for whether
conduct constitutes a violation is its
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purpose or effects, the proposed
language in § 201.304(a)(1) potentially
requires a covered producer to prove
discriminatory intent. The commenter
said that, by describing prohibited
conduct using the verb forms of
‘‘prejudice,’’ ‘‘disadvantage,’’ ‘‘inhibit
market access,’’ and ‘‘take adverse
action,’’ this language suggests the
proposed rule would only prohibit
actions motivated by a prohibited basis.
Therefore, the commenter
recommended that AMS revise this
section to use language that parallels the
text of sects. 202(a) and (b) in clearly
distinguishing the actions of regulated
entities from their discriminatory nature
or effects.
Some commenters who supported
AMS’s market vulnerable producer
approach expressed concern that the
proposed rule could place a heavy
burden on producers to establish an
intentional discrimination claim based
on market vulnerable status, citing the
DOJ, among others, in noting that
successfully showing discriminatory
intent can be extremely difficult.170
According to the commenters,
producers would have evidence of
differential treatment, but they would
not likely have evidence to show they
were subject to adverse treatment
because of their status as market
vulnerable individuals. Therefore, these
commenters urged AMS to require
regulated entities to rebut a
presumption of discriminatory intent
once a producer demonstrates
differential treatment. Specifically, the
commenters recommended the final rule
include provisions clarifying that, to
prove an unlawful violation of
§ 201.304(a), producers must
demonstrate that they meet the
definition of a ‘‘market vulnerable
individual’’ or are a member of a
protected class, and that they were
personally subject to disparate and
adverse treatment. One commenter also
said producers’ burden here should
include showing circumstantial facts
plausibly suggesting a causal connection
between their group identity and the
treatment they received. The burden
would then shift to the regulated entity
to show that the producer’s marketvulnerable status was not a motivating
factor for its presumptively
discriminatory conduct, and the same
decision would have been made
regardless of the producer’s market
vulnerable status. The commenters cited
170 U.S. Department of Justice, Civil Rights
Division, Title VI Legal Manual, 5. See also Price
Waterhouse v. Hopkins, 490 U.S. 228, 271 (1989)
(‘‘[D]irect evidence of intentional discrimination is
hard to come by.’’).
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case law in asserting this burdenshifting approach is consistent with
other antitrust and civil rights
evidentiary frameworks developed by
the courts to reduce the burden of
proving discriminatory intent.171
A commenter also asked AMS to
establish a separate liability standard
and burden-shifting framework for
discriminatory-effects claims. The
commenter said AMS should introduce
a framework analogous to the
Department of Housing and Urban
Development’s (HUD) Discriminatory
Effects Standard,172 under which a
covered producer would have the initial
burden of demonstrating that a
regulated entity’s policy or practice
causes or predictably will cause a
discriminatory effect. The commenter
said the burden should then shift to the
regulated entity to show that the
challenged practice is necessary to
achieve a substantial, legitimate, and
nondiscriminatory interest which could
not be served by another practice with
a less discriminatory effect. The
commenter also provided further details
about what would constitute a
discriminatory effect or a legitimate
interest under this standard.
A plant worker offered three factors to
consider when determining marketvulnerable groups. These factors
included being a member of any
‘‘socially disadvantaged group’’ as
defined by the USDA Farm Bill,173
working for a small producer (no formal
definition of ‘‘small producers’’ was
offered), or being in geographic areas
with an ‘‘ultra-high’’ concentration of
buyers that leads to increased buyer
market power and reduced prices paid
to producers.174
Some commenters expressed
opposition to the proposed definition of
market vulnerable individual on the
basis that it was too vague. An
association asserted the definition is ‘‘so
vague that neither party may be able to
figure out whether the contract grower
is indeed a ‘market vulnerable
individual.’ ’’ Commenters said the
proposed definition implicates the Due
Process Clause, with commenters saying
the definition as drafted is so open171 See Impax Labs., Inc. v. Fed. Trade Comm’n,
994 F.3d 484, 497–500 (5th Cir. 2021); McDonnell
Douglas Corp. v. Green, 411 U.S. 792 (1973).
172 Reinstatement of HUD’s Discriminatory Effects
Standard, 86 FR 33590, June 25, 2021 (to be
codified at 24 CFR part 100).
173 According to the commenter: ‘‘A group whose
members have been subjected to racial or ethnic
prejudice because of their identity as members of
a group without regard to their individual
qualities.’’
174 Matthew C. Weinberg et al., ‘‘Buyer Power in
the Beef Industry,’’ https://equitablegrowth.org/
grants/buyer-power-in-the-beef-industry.
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ended that it could potentially include
any producer, thus giving processors
inadequate notice of when they might
be in danger of violating the proposed
rule. Commenters suggested AMS
intends for courts to flesh out the
specifics on who the rule covers, noting
this approach would lead to more
uncertainty and confusion. Commenters
also said the definition is vague because
it incorporates inherently subjective
concepts, such as whether a producer is
a member of a group ‘‘whose members
are at heightened risk of adverse
treatment.’’ Commenters questioned
what amount of risk constitutes
‘‘heightened risk.’’
Two cattle industry trade associations
and a live poultry dealer contended that
the ambiguity of the definition would
create uncertainty for regulated entities
when making market vulnerable-status
determinations on a case-by-case basis,
which could disincentivize bringing on
new producers in the future. They
argued that AMS could avoid this
uncertainty if it introduced codified
standards based on consistent
immutable traits, such as protected
classes.
Some commenters were opposed to
explicitly including protected classes in
the definition. A meat industry trade
association noted that it can be difficult
or impossible for regulated entities to
ascertain all the demographic
information for every producer they do
business with to determine whether the
producer they are contracting with is in
a protected class and thus a market
vulnerable individual. An agricultural
association noted that regulated entities
soliciting such demographic
information could in and of itself give
the appearance of discriminatory
behavior.
Lastly, some commenters opposed the
market vulnerable individual definition
because they thought it would be too
limiting. Two farm bureaus argued that
it would create uncertainty for
producers who do not meet the
definition, and that protections should
be available for anyone participating in
the marketing of livestock. Other farm
bureaus also suggested that market
vulnerable individual be defined solely
by economic factors, rather than social
factors, to be consistent with the
objectives of the Act.
AMS Response: AMS, in response to
these comments, has decided not to use
market vulnerable individual as the
basis for the rule’s prohibition on
discrimination or undue or
unreasonable prejudicial or
disadvantageous action. AMS agrees
that the term MVI may be too vague,
ambiguous, and overly broad to serve as
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the prohibited basis for undue or
unreasonable prejudice. Instead, this
rule uses protected classes largely as
defined by ECOA, plus disability and
status as a cooperative, as the bases
against which unjust discrimination or
undue prejudice is prohibited because,
as explained above in Section VI—
Provisions of the Final Rule, this
regulation incorporates the ECOA terms
with respect to discrimination in the
extension of credit because those terms
reflect USDA policy against
discrimination in conducted
programs.175 Protections against
discrimination on these protected bases
extend to all producers. AMS,
incorporating feedback from producers
and other stakeholders, decided to
create its protected bases on the wellestablished ECOA standards, with some
additions. Regarding the commenter’s
concern that regulated entities may not
be aware of the demographic
information of producers with whom
they conduct business, in such cases
AMS would not be able to prove
discriminatory conduct because any
adverse action taken against that
producer could not have been on the
basis of their status as a protected class.
AMS adopted several suggestions by
commenters regarding the specific bases
for protection against unjust
discrimination. Principally, AMS’s
authority to clarify the protected bases
stems from sec. 407 of the Act, which
authorizes the Secretary to ‘‘make such
rules, regulations and prescribed orders
as may be necessary to carry out the
provisions of this Act.’’ 176 The Act has
incorporated provisions of other law
(such as the FTC Act and the Clayton
Act). The Act is a remedial statute that
prohibits unlawful discrimination. To
inform the scope and bases of unlawful
discrimination and prejudice under the
Act in this rulemaking, AMS has looked
to other civil rights laws, which aid in
determining the scope of discrimination
and prejudice that is unjust and undue.
AMS concludes here that discrimination
and prejudice on the bases set forth
under this final rule inhibit the ability
of all to participate in the market, and
that the clarifications set forth in this
final rule are necessary to protect all
market participants from unjust
discrimination and undue prejudice.
Furthermore, AMS has considered
available relevant references to support
the determination. These include
USDA’s Statement on Conducted
175 15
U.S.C. 1691c(a)(5).
and Stockyards. Act, 1921. Packers
and Stockyards. Act, 1921 (Aug. 15, 1921, ch. 64,
title I, § 1, 42 Stat. 159.) Section 407.
16135
Programs 177 and evidence of a general
congressional policy found in ECOA
that prohibits discrimination on the
bases of race, color, religion, national
origin, sex (including sexual orientation
and gender identity), marital status, age,
or disability. Additionally, AMS is
including status of a covered producer
as a cooperative as a prohibited basis of
discrimination because Congress,
through passage of the Capper-Volstead
Act, has provided clear statutory
support for cooperatives as an
organizational form that allows farmers
to achieve scale through coordination
and thereby more effectively compete in
agricultural markets and engage with
other market participants. AMS is
adopting the aforementioned specific
bases, as opposed to MVI, because the
specific prohibited bases offer clearer,
more workable standards that will
facilitate compliance by regulated
entities and better enable producers to
exercise their rights under the Act.
The use of those terms comes with
well-established jurisprudence in other
contexts, such as ECOA, which
incorporates the Act’s enforcement
provisions, appropriately applied in the
context of livestock and poultry
markets. Additionally, the status of
covered producer as a cooperative was
added to the list of protected classes
against which discrimination is
prohibited. The prohibition on
discrimination covers cooperatives
consistent with and in furtherance of
the Agricultural Fair Practices Act.
Cooperatives enable smaller producers’
ability to balance concentrated
economic power through their ability to
coordinate and negotiate.
AMS will not include degrees of
market concentration within particular
geographic locations in its list of
protected bases. Doing so would give
rise to difficult questions around
whether the government should restrict
the ability of regulated entities to seek
efficiency based on production volume,
which is outside of the scope of this
rule.
Additionally, AMS will not include in
its list of protected bases a size
component for the same reasons that it
is not incorporating market
concentration or geographic location.
Nor is AMS including a prohibition
against discrimination in markets with
limited buyers. In both cases, such a
prohibition would likely result in an allencompassing rule that would swallow
this rule’s intent to protect specific wellestablished classes and activities which
are widely utilized across multiple
176 Packers
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177 USDA’s Statement on Conducted Programs,
accessed 1/30/2024.
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economic and civil rights regulatory
regimes to stop market exclusion and
enable producers to realize the full
value of their animals. AMS
underscores that the agency is aware of
and sensitive to the concerns that
smaller producers face greater
challenges in the face of concentrated
markets, where, as commenters
suggested, small rural farms are at a
disadvantage when competing with
larger operations in their sale of
livestock to a limited number of
packers.
In this rule, AMS does not address
questions of discrimination based on the
type of contract a producer has with a
regulated entity for the sale of their
livestock. Considerations raised in that
type of discrimination, revolving around
how livestock is marketed, are different
from the considerations undertaken in
this rule around whether the producer’s
personal characteristics are a prohibited
basis of unjust discrimination.
Nonetheless, AMS is aware that some
producers may be under pressure to
enter forward contacts or AMAs and
that this may limit their access to
markets. AMS is considering other rules
that may be more appropriate for
addressing those concerns.
Additionally, AMS intends for nonEnglish-speaking producers and
immigrant producers to be covered
under the prohibition on discrimination
on the basis of national origin or, in
some cases, race if they are facing
discrimination on those bases.
Therefore, AMS need not expressly
include non-English speaking producers
in this rule. However, people with
limited education are not included as
protected bases because enforcement of
such discrimination offers certain
practical challenges and is not well
defined in other areas of law.
In this final rule, AMS has expressly
prohibited discrimination based on
sexual orientation by adding that term
as well as gender identity to the
prohibited basis of sex. The Supreme
Court in Bostock v. Clayton County
recognized that to discriminate against a
person based on sexual orientation or
transgender status is to discriminate
against that individual based on sex.178
AMS has included the term sex as part
of its prohibition on discrimination. By
expressly adding ‘‘including sexual
orientation and gender identity’’ to the
rule text, AMS confirms that sex
includes those forms of discrimination.
Therefore, sexual orientation and
transgender status are covered.
178 Bostock v. Clayton County, 140 S. Ct. 1731
(2020).
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Nor is disclosure a requirement for
discrimination based on sex. If a
regulated entity takes adverse action
that amounts to undue prejudice against
a person on the basis of sex, it is
immaterial whether the decision is
based on an accurate or inaccurate
assessment of the actual gender or
sexual orientation of the covered
producer. In either instance, this
prejudice is undue under the regulation.
In terms of concerns raised by
commenters about the burden to
establish a claim, producers will not
have to prove their status as a market
vulnerable individual as originally
proposed as the bases of discrimination
are now based on discrete types of
protected classes. Therefore, as
suggested by commenters responding to
the proposed rule, AMS does not need
to provide a non-exhaustive list of
factors for covered producers to
demonstrate their market vulnerable
status.
Furthermore, because market
vulnerability is no longer a
consideration when assessing violative
conduct, AMS is not using market
vulnerability as a basis for assessing
whether unjust discrimination has
occurred in violation of the Act. As
noted above, this final rule will not
address discrimination on the basis of
geographical location, regional
concentration, or size of a producer’s
operation because this rule is focused
on prohibiting adverse actions on bases
for which there are no pro-competitive
benefits. Differences in treatment based
on geographic location, regional
concentration, or size of the producer’s
operation all raise more challenging
tradeoffs with respect to competitive
benefits. To the extent that a covered
producer suffers discrimination on
those bases, AMS encourages the
covered producer to report the concern
to PSD, including through the tips and
complaints portal farmerfairness.gov,
for consideration on a case-by-case basis
under the Act.
AMS is not establishing a formal
burden-shifting framework in this rule,
nor one specifically focused on
discriminatory effects such as an
analysis of disparate impact. Rather,
AMS will leave the development of
evidentiary proof to the facts and
circumstances of specific cases and to
the tribunals’ processes and burdens for
producing evidence. AMS has
investigatory and enforcement
capabilities to determine whether
violative conduct has occurred under
the Act. AMS’s investigative powers are
extensive and include the ability to
examine regulated entities’ records and
compel testimony. AMS may investigate
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to determine whether a regulated
entity’s disparate treatment of a
producer was on the basis of a protected
class as specified in this regulation.
Moreover, as described in Section V—
Changes from the Proposed Rule,
subsection D—Retaliation Provisions,
AMS changed ‘‘because of’’ to ‘‘based
upon.’’ Paragraph (b)(1)’s prohibition as
‘‘based upon’’ is intended to be broader
than ‘‘but for’’ causation and so capture
when the protected characteristics or
status are a material, or non-trivial,
element of the decision to take an
adverse action against a covered
producer. AMS expects that fact-finding
tribunals will establish the necessary
processes for proving these elements,
with an eye toward the protections for
covered producers and for open,
inclusive markets that this rule is
designed to provide. AMS underscores
that discriminatory intent is not an
element of this final rule and need not
be shown to establish a violation, for
example, where the regulated entity
cannot proffer a non-discriminatory
business reason that fully justifies the
adverse action, or where the producer
can show that such reason offered was
pretextual, a sham, or otherwise does
not negate the presence of the
prohibited bases as a material element
of the action.
Comment: An academic institution
expressed support for AMS’s efforts to
protect historically disadvantaged
groups within the stockyard and
packing industries but suggested it may
be more effective to address the barriers
to entry these groups face related to the
specialized education and training
required by these industries. The
commenter recommended that AMS
make agricultural and industry-specific
training and education more accessible
to minority populations.
AMS Response: This rule is designed
to strengthen the regulatory protections
afforded to producers by the Act. AMS
intends to conduct education and
outreach to producers to help them
understand their rights under these acts.
Additionally, greater access to
specialized training and education
could be helpful to stopping market
exclusion of underserved producers.
AMS and other USDA agencies conduct
a range of programs to support producer
education, with the goal of remedying
market exclusion of underserved
producers. However, providing
specialized training oriented toward
enabling members of historically
disadvantaged groups to become more
effective livestock producers is outside
the scope of this rulemaking.
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ii. Proposed Rule Is Unnecessary
Comment: Several industry
associations contended the proposed
rule is duplicative and therefore not
necessary. According to these
commenters, the conduct addressed in
the proposed rule is already prohibited
under the Act and existing regulations,
citing the ‘‘Undue and Unreasonable
Preferences and Advantages Under the
Packers and Stockyard Act’’ final rule
(the 2020 Rule).179 The commenters
explained the 2020 Rule identifies
factors for determining whether
disparate treatment of similarly situated
producers is justified. If the disparate
treatment is not justified, it is likely to
be deemed an undue or unreasonable
preference. Commenters noted the
proposed rule would prohibit several
forms of disparate treatment of covered
individuals, indicating proposed
§ 201.304(a)(2) would make it a
violation for a regulated entity, in
dealings with covered producers, to
prejudice, disadvantage, inhibit market
access, or otherwise take adverse action.
Examples of prejudice or disadvantage
specified in the proposed rule include
offering less favorable contract terms
than are customarily offered; refusing to
deal; differential contract performance
or enforcement; or termination or nonrenewal of a contract. According to the
commenters, these actions are already
prohibited under § 201.211 because they
are not justified based on cost savings,
based on meeting a competitor’s terms,
or as a business decision.
An industry association asserted
establishing antidiscrimination law
under the proposed rule is unnecessary
because civil rights laws already are
well-established. The commenter also
contended the proposed rule would not
address the market inequities faced by
producers not included in the protected
classes, and the vague proposed
definition of market vulnerable
individual would likely result in
litigation creating additional hardship
for the individuals the rule seeks to
protect.
An individual indicated the proposed
rule would not be effective in
addressing prejudices or threats of
prejudice in the marketplace and
instead recommended AMS take action
to create more packers, which would
facilitate greater market access.
AMS Response: AMS agrees with the
commenters that the conduct at issue is
prohibited under the Act and, in some
circumstances, could be enforceable
under existing rules and regulations.
However, AMS disagrees with
179 85
FR 79779, December 11, 2020.
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commenters who said this rule is
duplicative of the 2020 Rule. In
response to the proposed rulemaking
that preceded the 2020 Rule,180 AMS
received numerous comments raising
concerns regarding discriminatory and
retaliatory practices; however, AMS
stated that the 2020 Rule was published
for the narrow purpose of establishing
criteria to consider when assessing
whether a violation of sec. 202(b)’s
prohibition against undue preferences
or unreasonable advantages occurred.
The 2020 Rule established four
criteria the Secretary will consider
when determining whether conduct by
packers, swine contractors or live
poultry dealers represents an undue or
unreasonable preference or advantage.
Those criteria include whether the
preference or advantage cannot be
justified on the basis of a cost savings
related to dealing with different
producers, sellers, or growers; cannot be
justified on the basis of meeting a
competitor’s prices; cannot be justified
on the basis of meeting other terms
offered by a competitor; and cannot be
justified as a reasonable business
decision. However, as set forth in the
rule itself, the criteria are not exhaustive
and not determinative. The rule offers
limited guidance regarding how it is to
be applied.
The 2020 Rule did not include the
prohibited bases of discrimination set
forth in this rule because it asserted that
they were undue prejudices, rather than
undue preferences, which are distinct
prohibitions in the statutory text.181
Specifically, the 2020 Rule’s preamble
noted that discrimination on the basis of
race, gender, and other such protected
bases was unlawful and would be
addressed under the Act’s prohibition
against undue prejudices.182 In August
2021, AMS reiterated this policy in a
series of Frequently Asked Questions
(FAQs).183 This final rule affirms that
approach, in that the 2020 Rule clarifies
undue preference while this rule
clarifies undue prejudice. Moreover,
this rule provides clarity, specificity,
and certainty in the application of the
Act, which will facilitate compliance
and enforcement by regulated entities
180 85
FR 1771.
v. Ramsdell, 107 U.S. 147, 152
(1883) (Courts should ‘‘give effect, if possible, to
every clause and word of a statute, avoiding, if it
may be, any construction which implies that the
legislature was ignorant of the meaning of the
language it employed’’).
182 85 FR 79787.
183 USDA, Agricultural Marketing Service,
‘‘Frequently Asked Questions on the Enforcement
of Undue and Unreasonable Preferences under the
Packers and Stockyards Act,’’ August 2021, https://
www.ams.usda.gov/rules-regulations/packers-andstockyards-act/faq.
181 Montclair
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and better inform covered producers of
their protections under the Act.
AMS is not aware of a separate
Federal law or rule that would cover the
circumstances outlined in this final
rule. This rule sets forth how certain
adverse actions by regulated entities
give rise to unjust discrimination and
prejudice that, on their face, are unjust
and undue and undermine a
competitive market. This rule addresses
the unique and often difficult-to-prove
discriminatory conduct that has long
existed in the agricultural sector by
prohibiting specific bases of prejudicial
action. In doing so, AMS is clarifying
the application of the Act, better
empowering producers to protect
themselves, and encouraging companies
to adopt more robust compliance
practices to snuff out prohibited
conduct prohibited by the Act in its
incipiency, before, in the aggregate, it
can distort markets. In particular, this
rule addresses the longstanding and
often difficult-to-counter forms of
exclusion that have plagued the
agricultural sector for decades. AMS
intends for this rule to support positive
trends toward inclusivity in the
marketplace. As noted above, all
commenters, including industry
commenters, affirmed that prejudices on
the basis of race, color, religion, national
origin, sex, age, disability, and similar
bases have no place in today’s modern
agricultural markets.
Demographic information is seldom
recorded in agricultural transactions;
therefore, it is difficult to quantify
discrimination, unlike in other sectors
such as housing and banking.
Furthermore, in highly concentrated
agricultural markets with few minority
participants, further defining the Act to
include a list of prohibited bases of
unjust discrimination helps ensure fair
competition for all farmers. This rule
will help all producers better
understand their rights under the law
and come forward when they recognize
instances of unjust discrimination. This
rule will help USDA to better enforce
the Act. In addition, as AMS has
determined not to use the market
vulnerable individual approach in the
final rule, commenter concerns that the
definition for market vulnerable
individual will lead to litigation are
moot.
AMS acknowledges one commenter’s
recommendation that AMS take action
to reduce concentration in the
meatpacking industry and create more
packers, with the goal of facilitating
greater market access for livestock and
poultry operations. This
recommendation was made out of
skepticism that the rule would change
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conduct by regulated entities and
substantially enhance market access for
covered producers. While not directly
addressing this specific
recommendation, AMS is including a
recordkeeping requirement to support
evaluation of regulated entity
compliance and thus facilitate effective
enforcement of the statute. The USDA
has also taken a number of steps to
support small meat processors,
including through hundreds of millions
of dollars invested to support
competition in the processing market.
iii. Specific Challenges or Burdens
Regulated Entities May Face in
Complying With Proposed Undue
Prejudices Provisions
AMS asked about specific challenges
or burdens regulated entities may face
in complying with the undue prejudice
provisions of the proposed rule. It also
requested comment on how the undue
prejudices provisions differ from
existing policies, procedures, and
practices of regulated entities.
Comment: Industry commenters said
the vague terms in the proposed rule
present an additional challenge for
compliance. Commenters cited
unclearly defined terms such as ‘‘inhibit
market access’’ and ‘‘adverse action,’’
saying they make it impossible for
regulated entities to determine what
constitutes a violation and how to
comply with the proposed regulations.
Similarly, commenters noted it is not
clear how the regulated entity would
determine whether contract terms are
‘‘less favorable,’’ or how contracts
executed at different times, in different
regions, or in different economic
conditions would be compared.
AMS Response: ‘‘Inhibit market
access’’ means excluding producers
from livestock and poultry markets
outright or erecting barriers to market
access that prevent producers from
earning the full value of their animals.
AMS rejects the need to define ‘‘adverse
action’’ because this would too greatly
constrain the application of the
regulation. Based on its regulatory
experience, AMS believes regulated
entities are fully aware of when their
economic interactions with covered
producers, including contracting, the
operation of contracts, termination of
contracts, or refusing to deal, result in
adverse economic outcomes for
producers. However, to provide greater
clarity, the final rule provides greater
specificity with respect to prohibited
actions as set forth in § 201.304(a)(2), as
described earlier.
The scope of prohibited conduct
regarding adverse actions is clarified by
the shift from market vulnerable
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individual to membership in a protected
class as the prohibited bases of unjust
discrimination; the focus of the inquiry
should be on those bases. If a regulated
entity offers a covered producer less
favorable contract terms principally or
substantially because the covered
producer belonged to one of the
protected classes, it violates the law and
this rule.
iv. Sufficient Addressing of Concerns
Regarding Tribal Members, Tribes, and
Tribal Government Entities That
Sponsor or Manage Regulated Entities
AMS requested comment on whether
the provisions on undue prejudice
adequately address concerns regarding
inequitable market access for Tribal
members and Tribes. It also requested
comment on how it should handle
Tribal government entities that sponsor
or manage regulated entities. AMS
asked whether it should permit
compliance with proposed § 201.304(a)
to be substituted for compliance with
Tribal government rules, policies, or
guidance governing equitable market
access.
Comment: Commenters urged AMS to
consult with Tribal organizations
engaged in agricultural policy and
livestock production projects, such as
the Intertribal Agricultural Council and
the Native Farm Bill Coalition.
AMS Response: AMS engaged in an
extensive Tribal Consultation pursuant
to USDA and Federal treaties governing
U.S. relations with Indian Tribes. AMS’s
principal conclusion was that Tribal
governments have important duties to
serve their members that may require
them to treat non-Tribal members less
favorably. Accordingly, AMS has
established a legitimate business
justification as an exception to the
prohibition of unjust discrimination
against covered producers on the bases
of protected classes (race, color,
religion, national origin, sex (including
sexual orientation and gender identity),
disability, marital status, age of the
covered producer or the covered
producer’s status as a cooperative) when
the regulated entity is a Federallyrecognized Tribe, including its wholly
or majority-owned entities,
corporations, or Tribal organizations,
that is performing Tribal governmental
functions. The agency describes its
rationale for creating this exception in
greater detail above, as well as below
under the Tribal Consultation section.
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v. Treatment of Private Industry
Programs Aimed at Establishing
Preferences Intended To Address
Systemic Inequality
AMS requested comment related to
private industry programs aimed at
establishing preferences intended to
address systemic inequality by
partnering with Black producers or
similar programs designed to address
socially inclusive supply chains. It
asked whether, if such programs were
present in livestock and poultry
markets, it should evaluate them and
determine them to be undue preferences
pursuant to the criteria in 9 CFR
201.211. It also requested suggestions on
ways to address relevant concerns.
Comment: Agricultural advocacy
organizations indicated this question
relates to what is considered an
‘‘undue’’ preference. The commenters
noted a program, practice, or policy that
provides opportunities to producers
who have been vulnerable to unfair
market practices in the past may be a
justified form of preference rather than
an undue preference.
AMS Response: AMS takes note of the
commenters’ belief that a justified
preference would likely apply in those
circumstances and that this rule governs
undue or unreasonable prejudices or
disadvantages. As discussed above, the
2020 Rule establishes criteria for the
Secretary to consider when assessing
whether a preference is undue. To the
extent that there may be situations
where the 2020 Rule and this final rule
would arguably both apply, AMS would
take a facts-and-circumstances approach
to decide which rule applies.
Accordingly, AMS makes no change.
vi. Appropriateness of Proposed Rule’s
Protection for Cooperatives
AMS requested comment on whether
the proposed regulation would provide
appropriate protection for cooperatives,
particularly with respect to the fact that
their structure and organization varies
across livestock and poultry markets.
Comment: A group of State attorneys
general and an academic institution
expressed support for the proposed
protection for cooperatives, noting these
protections will ensure small farmers
can continue to compete in the market.
Agricultural advocacy organizations
recommended AMS revise the reference
to ‘‘cooperative’’ in proposed
§ 201.304(a)(1) to refer to ‘‘cooperatives
or other association of producers’’
because many producer associations
designed to give covered producers
more leverage in the market are not
structured as cooperatives, noting this
recommended change is consistent with
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the producer association definitions
related to the protections provided in
the Agricultural Fair Practices Act.184
AMS Response: AMS has included
cooperatives as a class protected against
prejudice or unjust discrimination
because cooperatives are an important
tool for smaller producers to countervail
the market power of regulated entities,
whether due to market concentration or
the inherent power imbalance that
exists in livestock supply chains
between a small number of processors
and a much larger number of producers.
This inclusion of cooperatives as a
protected class reaffirms the strong
statutory authority Congress has
provided cooperatives in agricultural
markets, as manifested by its passage in
of the Capper-Volstead Act, which
permits producer cooperatives to
collectively process, prepare for market,
handle, and market their products.
Adverse treatment at the hands of a
regulated entity based on a grower
exercising their right to join such an
organization, including a cooperative or
an association, is the exact conduct this
provision addresses. However, the
prohibition of regulated entities
prejudicing a cooperative focuses on the
cooperative’s market interactions with
the regulated entity compared to entities
that are not cooperatives, and not on the
formation or association of the
cooperative itself.
Collectively, members of cooperatives
are better able to gain access to markets,
leverage negotiating power when
dealing with regulated entities, and
meet volume demands based on their
ability to pool outputs. The rule
supports covered producers in using
procompetitive cooperatives to their
fullest extent. This rule aims to ensure
equal treatment of covered producers by
regulated entities, regardless of whether
or not a grower has exercised its right
to join a grower organization or
association. For these reasons, AMS has
not changed § 201.304(a) to include ‘‘or
other association of producers.’’
AMS notes that many producer
associations are designed to give their
members certain benefits, including
some ability to negotiate with regulated
entities around certain outcomes in the
market. However, cooperatives are the
only group of agricultural producers
with explicit ability to cooperate and
contract collectively with regulated
entities, which includes Federal
antitrust law exemptions not enjoyed by
other types of associations. Nonetheless,
AMS notes the importance of covered
producers forming associations that may
offer benefits to their members outside
184 7
U.S.C. 2302(2).
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of collective contracting. To that end,
the final rule in § 201.304(b)(2)(iii)
provides important new protections
against retaliation for forming or joining
an association.
D. Specific Actions Constituting
Prejudice or Disadvantage
(§ 201.304(a)(2))
AMS proposed a non-exhaustive list
of prejudicial actions that the regulation
would prohibit, including offering less
favorable contract terms, refusing to
deal, differential contract enforcement,
and contract termination or nonrenewal.
i. Appropriateness of Specific
Prejudicial Acts in Proposed
§ 201.304(a)(2)
AMS requested comment on the
appropriateness of the specific
prejudicial acts in proposed
§ 201.304(a)(2), as well as whether it
should include any other forms of
prejudicial conduct.
a. Offering Contract Terms Less
Favorable Than Those Generally or
Ordinarily Offered
AMS requested comment on whether
offering contract terms less favorable
than those generally or ordinarily
offered should be considered a specific
prejudicial or disadvantageous action
against covered producers.
Comment: A cattle industry trade
association and an agricultural advocacy
organization proposed amending the
prohibition of offering contract terms
‘‘less favorable than those generally or
ordinarily offered’’ to reflect the fact
that little is known about terms
contained in forward contracts. They
noted that it is unclear if the terms of
forward contracts should be considered
‘‘generally or ordinarily offered’’
because, for example, atypical bonuses
can be offered to a select number of
preferred feedlots. If these bonuses are
rarely offered, they may fall outside of
the scope of ‘‘generally or ordinarily
offered,’’ but would still disadvantage
the other feedlots (market vulnerable
individuals) that do not receive them.
The commenters suggested AMS should
instead compare specific terms of
individual purchase agreements or
contracts to determine violations.
AMS Response: Given the unique
contract types in the cattle industry,
AMS recognizes that certain premiums,
discounts, and bonuses may not be
‘‘generally or ordinarily’’ offered. In this
final rule, AMS is preserving the ability
of regulated entities to be flexible in the
types of contracts they offer to
producers, with different producers
having different contracts based on the
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particular quality and type of service
provided for in the contract. Whether
terms are generally or ordinarily offered
is specific to the facts and
circumstances of each case, including in
comparison to similarly situated
producers—a clarification which the
final rule establishes. ‘‘Generally or
ordinarily offered to similarly situated
producers’’ is a fact-specific inquiry
which looks to the contracting practices
of the regulated entity, including how
the regulated entity contracts for similar
products or services with similar
producers. While the rule does not
guarantee any producer any particular
contract terms, AMS underscores that
the purpose of the rule is to prevent an
adverse action based upon an unlawful
basis. A refusal to offer a contract term
based upon the producer’s race, color,
religion, national origin, sex (including
sexual orientation and gender identity),
disability, or marital status, or age
would weigh heavily in any analysis, as
it inherently implies that the regulated
entity is in the market to contract with
those terms by others in the market.
Such a circumstance is different than
refusing to offer a contract because the
producer is unable to meet special
contract requirements.
AMS recognizes the existence of
information asymmetry between
regulated entities and covered
producers, including in relation to what
contract terms are commonly offered or
not. AMS notes the availability of other
tools to address that challenge,
including new initiatives such as AMS’s
Cattle Contract Library Pilot, which
provides disclosure into contract terms
offered by packers with greater than 5
percent of the national market share,
including disclosure of any contract
specifications on financing, risk-sharing,
and profit-sharing.185 AMS also operates
a Swine Contract Library, which
provides transparency into contract
terms in the swine sector.186 When in
doubt, AMS encourages covered
producers to contact PSD. AMS is
making no changes to the regulation as
185 Final Rule, ‘‘Cattle Contract Library Pilot
Program,’’ Agricultural Marketing Services,
December 2022, 87 FR 74951. For more
information, see also Agricultural Marketing
Service, Cattle Contract Library Pilot, at https://
www.ams.usda.gov/market-news/livestock-poultrygrain/cattle-contracts-library (last accessed Dec.
2023). Note, as of the date of publication of the Pilot
in January 2023, no covered packers reported to
AMS contract specifications with financing, risksharing, or profit-sharing.
186 Agricultural Marketing Service, Swine
Contract Library Information, at https://
www.ams.usda.gov/rules-regulations/packers-andstockyards-act/regulated-entities/swine-contractlibrary (last accessed Dec. 2023).
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proposed in response to these
comments.
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b. Refusing To Deal
AMS requested comment on whether
refusing to deal should be considered a
specific prejudicial or disadvantageous
action against covered producers.
Comment: A cattle industry trade
association and an agricultural advocacy
organization recommended including in
the prohibition on ‘‘refusing to deal’’
instances where a producer who
ordinarily markets their livestock in the
cash market is denied a bid unless they
enter a forward contract with the
regulated entity.
AMS Response: AMS is aware that
market concentration in the cattle
industry has had a negative effect on
negotiated cash markets and on the
ranchers who choose to deal exclusively
in those markets, but the impact of
thinning cash livestock markets on the
ability of producers to use cash markets
and freely enter forward contracts with
regulated entities is outside the scope of
this rulemaking. AMS will further
consider the commenters’
recommendations in the context of other
rulemaking initiatives such as rules
focused on particular species of
livestock and evidentiary patterns of
abusive conduct. AMS is making no
further changes to the regulation as
proposed in response to these
comments.
c. Other Comments on Appropriateness
of Specific Prejudicial Acts
Comment: Two farmers unions and
several organizations generally
supported the appropriateness of the list
of specific prejudicial acts, but also
recommended adding the phrase
‘‘including, but not limited to’’ to
provide flexibility in evaluating future
acts of discrimination or prejudice. An
academic institution also endorsed the
non-exhaustive list of specific actions
provided in this section, suggesting the
listed actions would reduce uncertainty
in the industry and make this section of
the rule easier to enforce.
AMS Response: This rule is not
intended to limit AMS’s ability to
enforce the Act. Instead, the rule aims
to better define the Agency’s
enforcement authority so that
enforcement actions are more
successful. AMS agrees with the
commenters that listing specific
prohibited prejudicial acts will aid
enforcement efforts. The agency also
agrees that such a list is meant to be
exemplary, not exhaustive. To this end,
‘‘any other action that a reasonable
covered producer would find materially
adverse’’ has been added to
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§ 201.204(a)(2) to indicate that a variety
of other adverse actions done on a
prohibited basis against covered
producers may violate this section. The
facts and circumstances of each case
will be assessed in light of these
provisions when determining whether
the conduct in question violates the Act.
Comment: A swine industry trade
association said that the specific
‘‘prejudicial or disadvantaging’’ acts
listed, as well as the proposed rule’s
intimation that the list is ‘‘nonexhaustive,’’ would result in a vague
and overbroad definition of prejudicial
conduct. The commenter argued that
terms such as ‘‘favorable’’ and
‘‘generally or ordinarily offered’’ vary
with market conditions over time and
would have to be ironed out in courts
through costly litigation.
AMS Response: AMS has adequately
described the type of conduct
prohibited under this rule by expressly
stating that undue prejudice and unjust
discrimination on specified prohibited
bases constitutes a violation under the
Act.
AMS addressed concerns of
vagueness by further defining conduct
that is prejudicial or disadvantageous to
producers in the final rule (as described
in section V—Changes from the
Proposed Rule). In particular, AMS has
made a number of changes to provide
additional clarity, specificity, and
certainty to market participants relating
to the list of adverse actions set forth in
§ 201.304(a)(2). In response to the
commenter’s concern that ‘‘generally or
ordinarily offered’’ is a concept that may
vary with market conditions over time,
AMS revised the regulation to state
‘‘generally or ordinarily offered to
similarly situated covered producers.’’
Including this phrase in the final
regulations provides more specificity
with respect to the current market
context in which the regulation would
be applicable. Paragraph (a)(2)(vi) was
added to limit the list to any other
adverse action that a reasonable covered
producer would find materially adverse.
The final rule also adds two exceptions
to the rule in new paragraph (a)(3),
which provides further specificity to the
rule by defining specific actions which
are not considered prejudicial conduct
under this rule.
Nevertheless, AMS reads the statutory
term ‘‘prejudicial’’ to be a broad term,
that covers all acts that cause harm to
covered producers on a prohibited basis
with respect to livestock, meats, meat
food products, livestock products in
unmanufactured form, or live poultry.
While the term ‘‘prejudicial’’
encompasses a broad range of conduct,
it is not vague. This rule does not
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prohibit all harms that may be inflicted
on covered producers by regulated
entities, rather, only those prejudicial
acts related to livestock, meat and
poultry that occur on a prohibited basis.
Comment: A cattle industry trade
association said AMS should not
prohibit the specific acts outlined in the
rule because they are important tools
that allow the free market to function.
The commenter suggested that, while
less favorable terms or contract
terminations are unfavorable results for
producers that experience them, they
are important outcomes that incentivize
producer innovation. If these specific
acts are prohibited, the trade association
argued, regulated entities would need to
resort to ‘‘vanilla’’ standardized
contracts that would degrade consumer
outcomes and impair superior
producers’ profit opportunities.
AMS Response: AMS rejects the
argument that discrimination on the
basis of race, color, religion, national
origin, sex (including sexual orientation
and gender identity), disability, marital
status, age of the covered producer, or
the covered producer’s status as a
cooperative, or retaliation is a free
market value. Engaging in that unjust
discriminatory conduct would exclude
participants from the market, rather
than encourage them.
Moreover, the members of the trade
association were mistaken even with
respect to the original proposal
protecting market vulnerable
individuals. Regulated entities are free
to use contracting tools to develop
incentives. But a tool used to unduly
prejudice the vulnerable does not
incentivize; it oppresses. Any other
conclusion is contrary to the plain
meaning of the Act. This rule aims to
create an inclusive, fair, and equal
environment for farmers and ranchers to
conduct business by preventing
instances of unjust discrimination and
undue prejudice. The key concept here
is that there shall be no discrimination
on the protected bases regarding the
offering of ‘‘general and ordinary’’
contract terms. AMS concludes that the
benefits of protecting farmers and
ranchers from plainly unjustly
discriminatory treatment outweigh the
hypothetical prediction that such
regulations will hamper efficiency or
innovation. Inclusive markets breed
innovation and efficiencies; they do not
undermine them.
ii. Additional Forms of Prejudicial
Conduct To Include
AMS requested comment on whether
the four specific prejudicial acts are
appropriate as proposed, or whether
there are other forms of prejudicial
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conduct that should be specified. Where
other specific conduct is identified,
AMS sought examples of how these
actions have been used to target market
vulnerable individuals or cooperatives.
Comment: An academic or research
institution proposed adding a new
specific action that would encompass
‘‘information disclosure.’’ The
commenter defined information
disclosure as failing to provide
information materially relevant to a
producer’s operation while providing
that information to one or more other
producers. The commenter highlighted
information asymmetry as a major
fairness issue in livestock markets and
suggested such asymmetry can heighten
monopsony or oligopsony conditions.
The commenter also cited the former
Grain Inspection, Packers and
Stockyards Administration’s (GIPSA’s)
inclusion of information asymmetry in a
2010 proposed rule (the 2010 GIPSA
Rule),187 which defined undue or
unreasonable prejudice or disadvantage
as ‘‘whether information regarding
acquiring, handling, processing, and
quality of livestock is disclosed to all
producers when it is disclosed to one or
more producers.’’ The commenter
encouraged AMS to use similar
language in its final rule.
AMS Response: AMS is concerned
about the negative impact information
asymmetry, and the subsequent lack of
transparency, has on producers.
Information asymmetry could very well
be used as a means of unjust
discrimination if regulated entities
preference certain producers over others
through the information they choose to
disclose. Such selective disclosure of
information could cause those
producers from whom information was
withheld by regulated entities to lose
out economically to those producers
that received the information.
In the final rule, AMS has added
paragraph (a)(2)(vi) to address any other
action that a reasonably covered
producer would find materially adverse.
If a covered producer can show they are
materially harmed by information
asymmetry, they will have a recourse
under this rule. Additionally, the
prejudicial act of differential contract
performance or enforcement
(§ 204(a)(2)(iii)) covers selective
information disclosure in many
circumstances. Withholding materially
relevant information from a contractee
that it previously made available to the
contractee or which it makes generally
187 Implementation of Regulations Required
Under Title XI of the Food, Conservation and
Energy Act of 2008; Conduct in Violation of the Act,
75 FR 35338, 35352, June 22, 2010.
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or ordinarily available as part of its
contract performance to other
contractees is de facto differential
contract performance or enforcement. A
producer is likely to operate in a lessthan-optimal manner regarding financial
renumeration when the regulated entity
it is contracting with has withheld
materially relevant information that has
been disclosed to other contractees.
Such behavior will thus lead to
differential contract performance or
enforcement.
AMS has not adopted the wideranging proposal on information
asymmetry from the 2010 GIPSA Rule
because it could inhibit the ability for
regulated entities to select trusted
partners with whom to engage in more
complex, value-added production that
may require specialized cooperation and
information sharing.
Addressing information asymmetry
and improving transparency in
interactions between covered producers
and regulated entities is a focus of AMS
and will continue to be a priority in
rulemaking. AMS made no further
changes to the provisions regarding
undue prejudices in response to this
comment.
iii. Different Types of Purchase
Arrangements That Could Be Employed
in a Prejudicial Manner
AMS sought comment on whether
there are other types of purchase
agreements (outside of those generally
or ordinarily offered), such as forward
contracts, formula contracts, AMAs, or
cash market purchases, that could be
used in a prejudicial manner. AMS
requested identification of these types
and examples of how they have been
used to target vulnerable individuals or
cooperatives.
Comment: Several commenters argued
that AMAs are predatory and should be
prohibited under any name. An
agricultural advocacy organization said
that market vulnerable individuals are
often excluded from participating in
these agreements and bear negative
market consequences from this
exclusion. The individuals suggested
that a firm base price for covered
producers should be established
instead.
AMS Response: This rule prohibits
regulated entities from denying covered
producers access to the purchase or sale
of livestock on equitable terms,
including through AMAs, on account of
one of the rule’s protected bases. AMS
does not take a position in this rule on
whether AMAs on principle are unfair
or anticompetitive as such concerns are
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outside the scope of this rule.188 AMS
made no further changes in responses to
the comment.
iv. Include Other Differential Contract
Terms
AMS requested comment on whether
other differential contract terms not
listed in the proposed rule should be
included when defining contract terms
that are less favorable than those
generally or ordinarily offered.
Comment: A cattle industry trade
association urged AMS to consider three
additions to differential contract terms:
1. Bonuses offered to select producers,
which would disadvantage other
producers who do not receive bonuses.
2. ‘‘Cost-sharing.’’
3. ‘‘Cost-plus contracts’’ where a
regulated entity agrees to pay all the
costs associated with purchasing and
growing livestock, which disadvantages
producers who do not receive cost-plus
contracts.
AMS Response: This rule addresses
undue prejudices that can exclude
covered producers from the
marketplace. As such, the rule focuses
on terms that a regulated entity offers
which are less favorable to those
generally or ordinarily offered. To the
extent that a regulated entity generally,
commonly, or ordinarily offers bonuses,
cost-sharing, and cost-plus contracts,
then the denial of those terms to
covered producers on the grounds of
belonging to a protected class is covered
by this rule as forms of differential
contract terms. It is not, however,
AMS’s experience that those terms are
generally, commonly, or ordinarily
offered to producers, and based on the
reporting in AMS’s Cattle Contracts
Library Pilot, are rarely if ever
offered.189 The rule does not prevent
regulated entities from offering
preferences to some producers, in
particular for reasons relating to their
choices in types of business
relationships or how they incentivize
quality of products or services delivered
to them. This rule does not take a
position on whether bonuses, costsharing, and cost-plus contracts may
give rise to concerns of unfairness,
undue preferences, or other concerns
that are outside the scope of this rule.
188 See, generally, https://www.afpc.tamu.edu/
research/publications/710/cattle.pdf. However, see
also: https://www.antitrustinstitute.org/workproduct/aai-senior-fellow-peter-carstensenresponds-to-economic-research-on-marketing-ofbeef-cattle-says-it-fails-to-address-market-powerand-buying-methods/.
189 See Agricultural Marketing Service, Cattle
Contract Library Pilot, available at https://
www.ams.usda.gov/market-news/livestock-poultrygrain/cattle-contracts-library (2023).
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Accordingly, AMS made no change in
response to this comment.
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v. Include the Action of Offering Less
Favorable Price Terms, Contract Terms,
and Other Less Favorable Treatment in
the Course of Business Dealings
AMS requested comment on whether
AMS should include among the
prejudices the action of offering less
favorable price terms, contract terms,
and other less favorable treatment in the
course of business dealings than those
generally offered to similarly situated
producers.
Comment: A plant worker said AMS
should avoid evaluating less favorable
price or contract terms because each
contract is based on varying
circumstances that will inevitably result
in different prices or terms. The
commenter suggested that evaluating
differential terms for discrimination will
hamper regulated entities and
producers’ ability to bargain or negotiate
for appropriate contract terms.
AMS Response: AMS agrees that
contract prices commonly reflect a range
of differences in circumstances between
the contracting parties. To the extent
that those prices reflect differences in
product quality or service being
provided, including transportation and
delivery, parties are free to set prices in
contracts as they wish. This rule focuses
on exclusion or adverse actions on only
the enumerated prohibited bases.
Accordingly, AMS made no changes to
the rule based on the comment.
vi. Allowance for Offering Less
Favorable Price Terms, Contract Terms,
and Other Less Favorable Treatment in
the Course of Business Dealings for
Legitimate Business Reasons
AMS requested comment on whether
an allowance be made for offering less
favorable price or contract terms, or
other less favorable treatment due to
legitimate business reasons.
Comment: A cattle industry trade
association and agricultural advocacy
organizations argued that legitimate
business reason defenses should not be
allowed because it would weaken the
Act’s purpose and allow continued
harm to producers. A swine industry
trade association and an industry
company argued that exceptions should
be provided for legitimate business
reasons, and that AMS should: (1)
provide clear examples delineating
between legitimate and illegitimate
forms of differential treatments, and (2)
provide clarity on whose burden it is to
prove that an act meets the legitimate
business reason exception. The
company asserted that without such an
exception there would be frivolous
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litigation where regulated entities
would have to defend legitimate
behavior such as canceling contracts
with producers who are found to have
animal welfare violations. A plant
worker agreed that legitimate business
exceptions should apply, and pointed to
California employment law’s affirmative
defense, which serves as a complete
defense if a policy alleged to cause a
disparate impact is found to be efficient
for the business.
Commenters expressed concern that
the proposed rule did not define
legitimate business justification.
Commenters expressed concern that the
proposed rule fails to provide the
industry with specific exceptions or
justifications for disparate treatment of
producers, stating there are multiple
reasons why different (less favorable)
terms may be offered to certain
producers and not others, and that these
reasons are not insidious in nature but
instead a result of market forces and
other nondiscriminatory factors.
Additionally, several poultry industry
commenters noted that AMS suggests in
the preamble a legitimate business
reason may justify disparate treatment,
yet it never explains what constitutes a
legitimate business reason. Several
poultry industry commenters provided
examples of reasonable business
decisions that would result in
differential treatment and may violate
the proposed rule as written despite
their reasonableness. These commenters
urged AMS to add regulatory text
similar to that in § 201.211 to expressly
protect reasonable business conduct and
specify how a company would
demonstrate that an action was based on
a reasonable business decision. The
commenters also said that, due to the
complicated nature of business
relationships, business decisions should
be presumed reasonable unless proven
otherwise. A poultry industry trade
association provided examples of
complex fact patterns and asked, given
each situation, how the regulated entity
could demonstrate actions were taken
for appropriate reasons.
An industry association contended
proposed § 201.304(a) would eliminate
the statutory requirement in 7 U.S.C.
192 that adverse actions against a
market vulnerable individual are only
prohibited if they are undue or
unreasonable. The commenter noted the
statute only prohibits ‘‘undue or
unreasonable’’ advantages and
disadvantages, meaning advantages or
disadvantages that lack a reasonable
business purpose. However, the
commenter pointed out that, under the
proposed rule, if the action is ‘‘adverse’’
and it impacts a market vulnerable
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individual, even if it was based on a
legitimate business reason, the regulated
entity would be in violation of the
regulations. The commenter also noted
that enforcing contract rights is often
‘‘adverse against’’ the other party, but
‘‘adverse’’ does not mean inappropriate
or unfair. Commenters cautioned the
proposed rule may result in regulated
entities giving all producers the same
contract terms to avoid litigation, which
would eliminate the market competition
the Act was intended to protect.
AMS Response: AMS agrees with
commenters that legitimate business
justifications exist for disparate
treatment of producers. AMS does not
agree, however, that there are many
legitimate business justifications for
prejudice or disadvantage on the basis
of race, color, religion, national origin,
sex (including sexual orientation and
gender identity), disability, or marital
status, or age of the covered producer.
The rule seeks to prevent regulated
entities from discriminating against
producers on specific prohibited bases,
retaliating against producers for
exercising certain protected rights, and
deceiving producers in the procurement
of livestock. It does not limit the ability
of regulated entities to make other
business decisions, as long as they
comply with the Act in that they are not
unduly prejudicial or unjustly
discriminatory. This includes
terminating contracts for violating
contractual provisions such as animal
welfare policies. To clarify what types
of conduct are allowed, the final rule
delineates two specific legitimate
justifications for discriminatory action
by regulated entities against producers.
Discriminatory conduct by a regulated
entity falling in one of these categories
is not prejudicial: (1) the regulated
entity is fulfilling a religious
commitment related to livestock, meats,
meat food products, livestock products
in unmanufactured form, or live
poultry, and (2) a Federally-recognized
Tribe, including its wholly or majorityowned entities, corporations, or Tribal
organizations, that is performing Tribal
governmental functions.
AMS is adopting the religious
exception to recognize the important
role ritual slaughter plays in certain
religious traditions. AMS is also
recognizing the important roles that
Tribes play as governmental units and
operators of economic enterprises. In
those governmental activities, as
interpreted by the Supreme Court as
well as Federal laws governing Tribal
affairs, Tribes may require the flexibility
to only purchase livestock from or sell
meat to their members. AMS believes
that actions following these two
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principles do not amount to undue or
unreasonable prejudice, disadvantage,
inhibition of market access, or adverse
action. Through its review of public
comments and based on its experience,
AMS finds these are the only two
appropriate exemptions from the rule’s
broad prohibition against undue and
unreasonable prejudices and
disadvantages.
AMS underscores that, in this rule,
legitimate justification only applies to
whether adverse actions against covered
producers on a prohibited basis are still
permissible. Where the adverse action is
not on a prohibited basis or was not
differential in its treatment of producers
on the prohibited basis, then the
question of there being a legitimate
justification is not relevant.
AMS disagrees with the comment that
§ 201.304(a) would eliminate the
statutory requirement that a prohibited
prejudice, disadvantage, or
discrimination is undue, unreasonable,
or unjust. To the contrary, AMS finds
that prejudice, disadvantage, or
discrimination on the prohibited bases
set forth in this final rule to be per se
unjust, undue, and unreasonable. As
commenters to this rule have
acknowledged prejudicial treatment on
the prohibited bases has no place in the
market.
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E. Retaliation (§ 201.304(b))
AMS proposed addressing retaliation
by outlining protected activities that a
covered producer may engage in but
that a regulated entity may not use as
grounds for unjust discrimination or
undue prejudice or disadvantage. The
proposed regulations would have
prohibited regulated entities from
retaliating against covered producers for
participating in a protected activity by
terminating contracts, adversely
differential performance or enforcement
of a contract, refusing to renew
contracts, offering more unfavorable
contract terms than those generally or
ordinarily offered, refusing to deal,
interfering with third-party contracts, or
other actions with adverse impact to
covered producers. These proposed
regulations are adopted in this final
rule.
i. Usefulness of Regulatory Protections
To Protect Producers From Retaliation
AMS requested comment on whether
the proposed prohibition on retaliation
would assist producers in avoiding
unjust market discrimination, accessing
markets, obtaining meaningful price
discovery, or preventing anticompetitive
practices.
Comment: Several organizations and
an academic institution expressed
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support for the proposed rule’s
retaliation provisions, saying that
poultry and meat companies take
advantage of unbalanced power to
create a climate in which farmers and
ranchers fear retaliation for exposing
unfair industry practices. One
organization cited a recent anonymous
survey of contract growers it had
conducted, in which multiple
respondents described experiencing
retaliation from integrators and said
integrators regularly terminate the
contracts of farmers who engage in
whistleblowing activities, leaving them
with substantial debt tied up in
specialized, single-use structures built
as a condition of their contractual
agreements.
An agricultural advocacy organization
said § 201.304(b) as proposed fits easily
within the scope of the Act’s
prohibitions on undue prejudice and
unjust discrimination, closes a key
enforcement gap, and represents a solid
first step toward prohibiting unfair
retaliation. An agricultural and
environmental organization expressed
support for the proposed provision but
urged AMS to strengthen the final
version. The commenter said regulated
entities have deeply embedded
retaliation into their business practices,
leaving producers too intimidated to
expose industry abuses. The commenter
also cautioned that meat processors and
live poultry dealers may attempt to find
novel ways to retaliate against
producers that do not directly violate
the proposed rule, suggesting AMS
broaden the range of protected producer
activities and of prohibited retaliatory
behavior.
A poultry grower expressed support
for the protections, saying integrators
had taken measures, such as delivering
poor inputs and imposing extended
timeouts on flock placements, against
him and other growers who spoke up
against abusive integrator practices.
This commenter also said cattle and
pork producers take similar actions
against producers who expose
problematic practices. A meat industry
trade association said the proposed rule
would ensure that farmers and ranchers
have access to a public forum necessary
for open, transparent communication.
Numerous individuals indicated
support for the proposed rule’s
protections against retaliation, with
many saying the proposed rule would
allow farmers to engage in
whistleblowing actions without facing
repercussions and would thus promote
consumer, environmental, and animal
welfare concerns.
AMS Response: AMS takes note of the
commenters’ support for the usefulness
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of the provisions. AMS designed the
provision on retaliation to cover the
core activities of being a producer—that
is, activities are essential or unavoidable
for producers in terms of their abilities
to enjoy the full extent of their bargain
and protect their economic rights. AMS
notes that the provision that protects a
covered producer who communicates or
cooperates ‘‘with a person for the
purposes of improving production or
marketing of livestock or poultry’’ is
broad. This covers many different
scenarios not specifically named in this
rule. AMS expects the retaliation
provision of this rule to provide a
significant measure of protection to
covered producers against prohibited
conduct, and likewise provide
opportunity for redress, both to stop
particularized harmful conduct, and
keep it from persisting and causing
greater harm. AMS chose this list of
prohibited retaliatory practices based on
conduct the agency identified as most
commonly relevant to regulated entities’
practices that exclude or penalize
producers. This list is based on AMS’s
experience fielding complaints from
producers, from its expertise in the
operation of the livestock and poultry
markets and practices of market
participants, as well as the numerous
comments to this rule that identified
similar practices. AMS acknowledges
there may be other forms of retaliation
that would violate the Act that are not
specifically delineated under this
rulemaking. Prosecutorial discretion
will determine what conduct is in fact
retaliatory based on the facts and
circumstances of each case. AMS made
no further changes in response to these
comments.
Comment: An agricultural advocacy
organization suggested AMS consider
further developing the enforcement
procedures for the retaliation
provisions, as well as the evidentiary
burdens associated with complainants
and defendants. The commenter
specifically recommended that AMS
establish a burden-shifting approach
which would establish that, once a
complainant has made a prima facie
showing that a covered producer was
subjected to retaliation after engaging in
protected activities, the regulated entity
would have to show by clear and
convincing evidence that they would
have taken the same action in the
absence of the producer’s participation
in protected activities. Shifting the
burden to the regulated entity (who has
the best access to proof about the
underlying facts) once the complainant
has met an initial threshold would
reflect a public policy position against
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retaliation. The commenter said this
approach would track with that used in
other Federal whistleblower protection
regimes, such as the Criminal Antitrust
Anti-Retaliation Act 190 and the
Whistleblower Protection Act applicable
to the Federal civil service,191 and
would draw on a key element of Title
VII discrimination law that allows
complainants to initiate proceedings
without being forced to prove the
respondents’ state of mind.192
AMS Response: As described in
Section V—Changes from the Proposed
Rule, subsection D—Retaliation
Provisions, AMS changed ‘‘because of’’
to ‘‘based upon.’’ Paragraph (b)(1)’s
prohibition as ‘‘based upon’’ is intended
to be broader than ‘‘but for’’ causation
and so capture when the protected
characteristics or status are a material,
or non-trivial, element of the decision to
take an adverse action against a covered
producer. AMS expects that fact-finding
tribunals will establish the necessary
processes for proving these elements.
Moreover, AMS expects that evidentiary
presentation may often follow those
approaches to proving retaliation in
other contexts as a function of the
natural course of any litigation. AMS
underscores that the rule is designed to
protect producers’ ability to engage in
such covered activities, with the clarity
provided by the rule specifically
designed to assist producers in
identifying and acting in a manner to
effectuate their rights. AMS further
notes that the prohibition on adverse
actions taken on pretext are prohibited
under 9 CFR 201.306 as established by
this rule.
Comment: An organization said the
proposed anti-retaliation provisions
should cover violation disclosures made
within the chain of command or as part
of the producer’s job duties because
farmers and ranchers often report issues
internally as a first step in drawing
attention to them before reporting them
to regulators or going public with them.
AMS Response: The rule as written
protects covered producers from
retaliation for protected activities,
which include the assertion of
contractual rights. Violation disclosures
made within the chain of command or
as part of the covered producer’s
contractual duties fall within the
operation of the contract between the
covered producer and the regulated
entity, and as such may be expected to
be covered by the rule. Accordingly,
AMS made no change to the rule.
190 See
15 U.S.C. 7a–3(b)(2)(C).
5 U.S.C. 1221(e)(2).
192 See, e.g., Young v. United Parcel Service, Inc.,
575 U.S. 206, 206–07, 228–30 (2015)
191 See
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Comment: Several industry trade
associations said the retaliation
provisions are not necessary because the
‘‘conduct’’ at issue is already prohibited
by existing laws, such as 9 CFR 201.211
identifying the criteria used to
determine whether an action is an
undue or unreasonable preference or
advantage.
AMS Response: AMS agrees with the
commenters that the retaliatory conduct
at issue is prohibited under the Act and
could be enforceable under existing
rules and regulations, including criteria
set forth in 9 CFR 201.211.193 Compared
to general criteria and interpretive
guidance, this rule provides greater
clarity, specificity, and certainty to how
the Act applies, which will facilitate
higher levels of compliance by regulated
entities with the Act, broader
enforcement of its provisions by AMS,
and more informed producers, who will
be in a better position to assert their
rights established by the Act.
Additionally, unlike § 201.211, this rule
focuses on preventing undue prejudices
and disadvantages and does not focus
on preferential treatment that is not
discriminatory. Accordingly, AMS made
no change to the rule.
ii. Appropriateness of Specific Acts of
Retaliation Listed in Proposed
§ 201.304(b)(3)
AMS requested comment on whether
the specific retaliation acts listed in the
proposed rule are appropriate. AMS also
sought comment on whether there are
other forms of retaliatory conduct that
should be specified.
a. Termination or Non-Renewal of
Contracts
AMS requested comment on whether
termination or non-renewal of contracts
is appropriate as a specific retaliation
act listed in the proposed rule. It noted
that covered producers have expressed
fear of this type of retaliation through
communication with AMS personnel
and in comments on previous related
rulemakings.
Comment: Numerous individuals said
they are concerned about the prospect of
farmers losing their contracts and their
livelihoods if they raise issues with
their treatment by poultry and meat
companies.
AMS Response: AMS takes note of the
commenters’ support for the usefulness
of the provisions. AMS made a range of
adjustments in the final rule to enhance
193 USDA,
Agricultural Marketing Service,
‘‘Frequently Asked Questions on the Enforcement
of Undue and Unreasonable Preferences under the
Packers and Stockyards Act,’’ August 2021, https://
www.ams.usda.gov/rules-regulations/packers-andstockyards-act/faq.
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the final rule’s protections for covered
producers.
b. Interference in Farm Real Estate
Transactions or Contracts With Third
Parties
AMS requested comment on whether
interference in farm real estate
transactions or contracts with third
parties is appropriate as a specific
retaliation act listed in the proposed
rule.
Comment: A swine industry trade
association said the proposed rule
describes the retaliatory conduct too
vaguely, making it difficult for a
regulated entity to determine whether
its actions would be prohibited.
AMS Response: AMS believes that
some degree of generality is necessary to
capture the range of conduct that could
give rise to a violation of the rule.
However, the rule is not designed to
prohibit every instance where a
regulated entity’s contracting decisions
are unfavorable to a covered producer.
For example, the rule would not apply
where a regulated entity was engaged in
unrelated business around the purchase
or sale of farmland, or where a regulated
entity chose for unrelated reasons not to
continue a contract in the course of a
covered producer’s attempts to sell its
farm. AMS believes that the wording of
proposed § 201.304(b)(3)(iv)—
‘‘[i]nterference in farm sale transactions
or contracts with third parties’’—is
appropriately specific to prohibit
regulated entities from retaliating
against covered producers for engaging
in protected activities. This is because
the focus of an AMS inquiry would be
to determine the reason for the
interference. AMS would determine
whether a regulated entity interfered in
a farm sale or third party contracting; if
such interference occurred, whether it
was harmful to the covered producer;
and whether the interference occurred
because the covered producer engaged
in protected activity. Additionally, in
response to this comment, AMS has
included explanatory language in the
retaliation section (Section VI.C—
Provisions of the Final Rule, Retaliation)
discussing the adverse effects that
interference with the transfer of farm
real estate by a regulated entity has on
producers.
iii. Delineation of Additional Forms of
Retaliatory Conduct
AMS requested comment on whether
the specific acts of retaliation in the
proposed rule are appropriate, and
whether there are other forms of
retaliatory conduct that should be
specified.
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Comment: Several commenters,
including a farmers’ union, a group of
State attorneys general, and several
other organizations urged AMS to
explicitly state that the list of specific
prohibited acts of retaliation is not
meant to be exhaustive, with several
commenters suggesting AMS add the
phrase ‘‘including, but not limited to’’ to
the introductory clause of
§ 201.304(b)(3). Commenters said
establishing that prohibited activities
are not limited to those listed would
allow for future flexibility in addressing
specific acts of retaliation that may
arise.
AMS Response: As explained in
Section V—Changes from the Proposed
Rule, subsection D—Retaliation
Provisions, in response to these
comments, AMS has added a new
paragraph (b)(3)(vi) to prohibit ‘‘any
other action that a reasonable covered
producer would find materially
adverse.’’
Comment: A non-profit or other
organization said the final rule should
prohibit regulated entities from
retaliating against any covered
producers for any form of association,
broadly defined, because allowing
farmers to freely associate and to use a
range of different communications
platforms is necessary for the sector to
flourish. An organization said the final
rule should prohibit the offering of
contract terms that are less favorable
than those generally or ordinarily
offered.
AMS Response: Proposed
§ 201.204(b)(2)(iii) provided broad
protection against retaliation for a
producer to form or join a producer or
grower association and would cover all
aspects of associations and cooperatives
relevant to the business of livestock and
poultry. Further, AMS acknowledges
the importance of the freedom of
association generally but underscores
that the protections of the Act have
limits. The Act is designed to protect
covered producers in the business of
livestock and poultry. AMS is not in a
position to know or evaluate the full
range of associations that individuals
who are producers may join, and it
would not be appropriate for AMS to be
involved in encouraging or discouraging
such associational activities, including
whether regulated entities should be
required to do business with covered
producers that engage in those
activities. Some associational activities
unrelated to the business of livestock
and poultry may expose regulated
entities to reputational or other risks in
the marketplace.
Comment: An academic institution
recommended that AMS include
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language making it clear that the
prohibited retaliatory activities would
encompass coercion or intimidation,
such as threats to take one of the
prohibited actions.
AMS Response: This rule is intended
to establish broad prohibitions against
retaliatory activities that in AMS’s
experience have significantly inhibited
producers’ ability to freely compete and
secure the full value of their products
and services. AMS agrees that
intimidation or coercion that would
dissuade or coerce covered producers
from engaging in the prohibited
activities are covered under ‘‘retaliate or
otherwise take an adverse action against
a covered producer.’’ In particular,
intimidating or coercive conduct that
credibly threatens retaliation prohibited
by this rule would rise to the level of
actionable adverse conduct under by
this rule—which the Agency
underscores further through its addition
of Paragraph (b)(3)(iii) and (v) under the
list of adverse actions. For example, if
a regulated entity were to communicate
to a producer stating, ‘‘if we were you,
we would not report to the government’’
with the implication that the regulated
entity might not renew their contract on
favorable terms, AMS views this as a
form of prohibited retaliatory conduct in
its incipiency that this rule is intended
to stop.
iv. Protection of Producers Who Choose
Not To Participate in Protected
Activities
AMS requested comment on whether
prohibitions on retaliation should
protect producers who choose not to
participate in protected activities. AMS
provided the example of whether the
provision should prohibit giving
premiums or discounts for joining or not
joining livestock or poultry associations.
Comment: A cattle industry trade
association said these prohibitions
should expressly protect producers from
coercive conduct that directs them to
either join or not join a particular
producer association. An agricultural
advocacy organization said the
retaliation provisions should cover
circumstances in which regulated
entities reward producers who do not
join a producer association. An
agricultural advocacy organization
noted that the freedom to refrain from
associating is as important as the
freedom to associate and represents the
other side of the same coin.
AMS Response: AMS agrees that
protected activities include the decision
not to participate in such an activity.
Based on its experience regulating the
livestock sector, covered producers may
be coerced by regulated entities to
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16145
participate in associational activities or
contact the government on regulatory
and policy matters even when they may
not agree. As recently as AMS’s
proposal on ‘‘Transparency in Poultry
Growing Contracts and Tournaments,’’
covered producers reported to AMS
potentially coercive pressure by
regulated entities on poultry growers to
oppose the regulation. AMS also notes
commenter statements that regulated
entities have pressured and may
continue to pressure covered producers
to join associations to support industry
stances with which they disagree.
Accordingly, AMS has added
§ 201.304(b)(2)(ii) and revised
§ 201.304(b)(2)(iii) to clarify that the
decision not to participate in the
protected activities, respectively, of
engaging in a voluntary communication
with the government or of forming or
joining an association are also covered
by the rule’s protections against
retaliation.
v. Appropriateness of Bases of Protected
Activities
AMS requested comment on whether
the bases of protected activities were
appropriate, including the criteria for
selection and application of those
criteria. It further sought comment on
whether the bases of protected activities
are too broad, are too narrow, or should
be changed in any other way. Comments
received in response to this general
inquiry are outlined below.
a. Communication With a Government
Agency With Respect to Matters Related
to Livestock, Meats, or Live Poultry or
Petitions for Redress of Grievances
Comment: AMS requested comment
on whether communication with a
government agency on matters related to
livestock, meats, or live poultry or
petitions for redress of grievances is
appropriate to include as a protected
activity under § 201.304(b)(2).
Several agricultural advocacy
organizations said AMS should make
clear that the proposed rule would
protect producer communication with
any sector or level of government by
including all three branches of
government in this provision, with one
commenter also recommending AMS
specify this provision applies to both
State and Federal government.
Several commenters recommended
revised text as follows:
‘‘(i) A covered producer communicates
with a government agency, court, or
legislature with respect to any matter related
to livestock, meats, meat food products,
livestock products in unmanufactured form,
or live poultry or petitions for redress of
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grievances before a court, legislature, or
government agency.’’
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AMS Response: AMS agrees with the
commenter and intends that the rule
should include protections for
communications with any of those
entities, including any committee or
member official of those entities. In this
final rule, AMS is aligning the use of the
terms ‘‘government agency, court, or
legislature’’ and simplifying the
language to ‘‘government entity or
official.’’ This change ensures that
protected communications may occur
with any of the three branches of
governments and with individual
government officials, including
committees and members of a
legislature. As proposed, the rule did
not limit its protection to
communication with the Federal
government. By using the words
‘‘government entity or official,’’ the
rule’s plain language applies equally to
communications with all levels of
government—Federal, State, Tribal, and
local—with respect to the matters
indicated.
b. Assertion of Rights Granted Under the
Act, 9 CFR Part 201, or Contract Rights
AMS requested comment on whether
assertion of rights granted under the
Act, 9 CFR part 201, or contract rights
is appropriate to include as a protected
activity under § 201.304(b)(2).
Comment: A group of State attorneys
general said the proposed rule may
inadvertently leave out protections for
farmers who communicate their
concerns directly to regulated entities,
suggesting AMS target this gap by
expanding § 201.304(b)(2)(vii)
(§ 201.304(b)(2)(ii) in the proposed rule)
to include notification by a producer to
the regulated entity of a potential breach
of contract. An academic institution
said protected activities should include
the assertion of any civil right held by
the producer, to the full extent feasible
within the scope of AMS’s authority.
The attorneys general said that, while
the proposed rule covers rights granted
under the Act, the proposed rule, and
contract rights, it does not encompass
other rights a producer may have, such
as whistleblower or other rights
conferred by Federal or State law. An
organization said the proposed rule
should clarify, given the imbalance of
power in contracting, that producers
cannot waive the rights covered by this
provision by any agreement, policy
form, or condition of employment,
including by a pre-dispute arbitration
agreement.
AMS Response: With respect to the
suggestion that AMS revise
§ 201.304(b)(2)(vii) to include
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notification by a producer to the
regulated entity of a potential breach of
contract, the regulation as proposed
protects producers’ right to assert their
contract rights, their rights under 9 CFR
201, and their rights under the Act. The
language of this protection necessarily
encompasses the act of communicating
with regulated entities, including to
prevent a potential breach of contract;
otherwise, a producer would be unable
to exercise their contract rights.
Accordingly, there is no need to add
further notifications by the producer to
the regulated entities to the list of
protected activities in § 201.304(b)(2).
With respect to the assertion of any
civil right, the protected activities
enumerated in § 201.304(b)(2) were
chosen because of their nexus to the
business relationship between regulated
entities and covered producers with
respect to livestock, meats, meat food
products, livestock products in
unmanufactured form, or live poultry.
To the extent that a contract between a
regulated entity and a covered producer
includes representations and warranties,
including implied ones, relating to
either party’s compliance with other
Federal or State laws, such as labor,
health, and safety practices, this
provision would extend to
communications relating thereto. AMS
notes that the protection afforded in
§ 201.304(b)(2)(vi) covers supporting or
participating as a witness in any
proceeding with the regulated entity.
The rule does not change any additional
protections that may be provided under
other Federal or State anti-retaliation
laws.
With respect to the request that AMS
revise the rule to clarify that producers
cannot waive rights covered by the rule,
AMS believes that the commentors are
mistaken about the structure of the Act
and its regulations. AMS enforces this
rule. Irrespective of any agreement
between the contracting parties, AMS
does not waive its responsibilities to
enforce the Act. The Act and regulatory
scheme are designed to vindicate the
public interest in fair and honest
markets. Thus, AMS regularly brings its
own enforcement actions to sanction
companies that violate the provisions of
the Act, irrespective of the contracting
parties’ waivers of liability. A regulated
entity that seeks a waiver from a
producer through undue prejudice,
retaliation or deception still violates the
general provisions of the Act by using
a deceptive, unfair, or unjustly
discriminatory practice.
To the extent that individuals waive
their rights, AMS points the commenter
to existing regulations at 9 CFR 201.218,
which limit the use of mandatory
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arbitration clauses, as mandated by
Congress in the 2008 Farm Bill (Pub. L.
110–246). Specifically, those regulations
require that the regulated entity offer the
producer or grower a specific disclosure
regarding the ability to decline a
mandatory arbitration clause and
indicate that failure to accept or decline
the arbitration clause will be treated as
if the clause is declined. Additionally,
the regulation sets out criteria governing
the reasonableness of the arbitration
clause. Arbitration is a procedural
forum that some parties may utilize to
adjudicate substantive rights; arbitration
clauses cannot waive substantive rights
under contracts or the Act.
Accordingly, AMS is making no
changes to the rule in response to these
comments.
Comment: A swine industry trade
association said the broad language of
this provision could be read to mean
that the proposed rule extends to the
point that carrying out the terms of a
contract is considered a protected
activity.
AMS Response: AMS agrees with the
comment. The assertion of rights under
a contract includes the covered
producer’s ability to assert contract
performance. Accordingly, AMS is
making no changes to the rule in
response to this comment. However, as
the commenter notes, asserting rights
under a contract is not a protected
activity under the Act and it is not the
intention of AMS to incorrectly assert
this false presumption through this
rulemaking.
c. Assertion of Right To Form or Join a
Producer Association or Collectively
Process, Prepare for Market, Handle, or
Market Livestock or Poultry
AMS requested comment on whether
assertion of the right to form or join a
producer association or collectively
process, prepare for market, handle, or
market livestock or poultry is
appropriate to include as a protected
activity under § 201.304(b)(2).
Comment: An academic institution
said the proposed rule should extend its
protection of communications
associated with asserting the rights
named in proposed § 201.304(b)(2)(iii)
to also cover producers engaging in talks
about these activities. The commenter
said this change would ensure that
retaliation protections clearly include
the initial communications and
negotiation process for producers taking
steps to form or join a producer
association or collectively process,
prepare for market, handle, or market
livestock or poultry.
A whistleblower advocacy
organization said it supported the
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proposed rule’s protection of the right to
associate because retaliation would
limit producers’ ability to exchange
information and engage in procompetitive collaboration.
Multiple individuals said
participation in producer organizations
and associations helps provide farmers
with more access to information
relevant to their businesses and
promotes competition by enabling the
production of better-quality products. A
former trade association CEO said the
social and informational benefits of
association membership are especially
important in the farming industry
because of its potential for isolation.
This commenter further suggested large
agricultural companies would do well to
appreciate the benefits of producer
participation in such organizations,
such as opportunities to make progress
on solving problems, develop industry
consensuses for presenting to
government, and hear the perspectives
of members with opposing views. An
individual said producer organizations
often act as a barrier between individual
producers and consumers, and the
proposed rule would prevent producer
organizations from retaliating against
producers who try to change this
behavior and provide truthful
information about the conditions under
which their products are grown or
raised. The commenter said this would
protect farmers’ right to organize to
improve their pay and working
conditions.
AMS Response: AMS believes that the
act of forming or joining an association
clearly encompasses the act of
communicating about the formation or
joining, including examining the
decision whether to form or join an
association. All such activities are
covered by the final rule. Therefore,
AMS does not make any changes to the
rule on those grounds.
Additionally, AMS appreciates that
producer organizations may at times be
at odds with their producer members.
However, producer organizations are
not considered regulated entities under
this rulemaking, and thus retaliatory
conduct at the hands of such
organizations is not covered. Producers
have the choice to join or separate from
such organizations based on their
individual feelings surrounding the
costs and benefits such membership
brings. If producers feel as though their
membership of an organization is
serving as a barrier between them and
consumers, thus preventing
transparency regarding growing
conditions, producers may find it
advantageous to disassociate. Often
producers do not have this luxury in
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their relationship with packers and
integrators due to their reliance on these
regulated entities and the absence of
alternative buyers due to regional
concentration.
Comment: A swine industry trade
association said § 201.304(b)(2)(iii) is
overly broad, arguing that any covered
producer that joins an industry
association or seeks to do so would then
have the means—based on that
membership—to make a claim against a
regulated entity for engaging in
perceived retaliatory behavior.
AMS Response: AMS disagrees with
the commenter’s assertion. The
regulation protects the covered producer
from retaliation for forming or joining
an association or choosing not to join an
association. It does not protect the
covered producer from other acts that
the association may take. This rule does
not condone, for example, associational
behaviors that violate the Sherman Act.
Nor does this rule otherwise restrict the
relationship between regulated entities
and covered producers, whether the
association may support or condemn
particular acts or practices. Nor,
additionally, does it suggest that the
mere fact of forming or joining an
association garner absolute protection
from adverse actions by the regulated
entity which are unrelated to forming or
joining an association. Therefore, AMS
has made no changes to the regulation
as proposed.
d. Communication or Cooperation for
Purposes of Improving Production or
Marketing of Livestock or Poultry
AMS requested comment on whether
communication or cooperation for
purposes of improving production or
marketing of livestock or poultry is
appropriate to include as a protected
activity under § 201.304(b)(2).
Comment: A swine industry trade
association said this provision is too
broad because it could be read to mean
that many communications related to a
producer’s business are protected.
AMS Response: AMS fully intends to
protect many of the communications a
producer makes in the ordinary course
of business, so that the producer may
freely operate in the market without fear
of retaliation. Therefore, the regulation
protects lawful communications and
cannot, and does not seek to, absolve
covered producers from unlawful
communications. Section 201.304(b)(2)
makes this clear by underscoring that
the producers’ activities are protected
from retaliation only to the extent they
are not otherwise in violation of Federal
antitrust and other relevant laws.
Furthermore, to find a violation of
§ 201.304(b)(2) there must be a causal
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connection between the regulated
entity’s behavior and a producer’s
protected communications, including
where a regulated entity makes a threat
that would reasonably dissuade the
covered producer from engaging in the
protected activity. AMS made no
changes in response to this comment.
e. Supporting or Participating as a
Witness in any Proceeding Under the
Act or a Proceeding Relating to an
Alleged Violation of Law by a Regulated
Entity
AMS requested comment on whether
supporting or participating as a witness
in any proceeding under the Act or a
proceeding relating to an alleged
violation of law by a regulated entity is
appropriate to include as a protected
activity under § 201.304(b)(2).
Comment: An organization and
several individuals indicated support
for this protection, saying the ability to
testify without fear of retaliation is
crucial for promotion of fair and
competitive livestock and poultry
markets. Some of these commenters
mentioned the example of cattle
ranchers who declined to testify before
Congress after facing threats and
retaliation. The organization urged AMS
to extend this protection to
participation, assistance with, or intent
to participate in any investigation of a
possible violation of the Act.
AMS Response: The regulation
already extends this far. The proposed
regulation protected any
communication with a governmental
entity, including a governmental
agency, legislature, or court, with
respect to livestock, meats, meat food
products, livestock products in
unmanufactured form, or live poultry.
This protection encompasses
participation, assistance, or intent to
participate in any investigation of a
possible violation of the Act. AMS
provided an additional protection with
respect to serving as a witness because
of the different and more public nature
of such communication. Furthermore, to
underscore the importance of respecting
the independent functioning of the
judicial process, the provision covers
the covered producer’s ability to serve
as a witness in any proceeding against
a regulated entity. AMS made no
changes in response to this comment.
f. Other Comments on Appropriateness
of Bases of Protected Activities
Comment: A number of commenters
urged AMS to expand the list of
protected activities. An agricultural and
environmental organization said AMS
should disavow the proposed rule’s
position that adverse activities not tied
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to the proposed list of protected
activities would not receive protection
under the rule, arguing that retaliation
of any kind against producers exercising
their lawful rights qualifies as unjust
discrimination and an unreasonable
prejudice under the plain meaning of
the Act. The commenter urged AMS to
instead include the following catch-all
provision to protect covered producers
from retaliation against other lawful
conduct in service of livestock
production and marketing:
‘‘(viii) A covered producer engages in
any lawful conduct for the purpose of
improving production or marketing of
livestock or poultry.’’
A farmers union said AMS should
broaden the grievance-sharing activities
producers can participate in to give
producers more protection from
retaliation.
An agricultural advocacy organization
said AMS should protect the ability of
producers to freely associate with other
farmers and other organizations,
including using social media or other
communication platforms.
An agricultural and environmental
organization said AMS should expand
the list of protected activities to include
situations in which producers maintain
their status as independent participants
on open markets, refusing to enter into
forward contracts or other contractual
agreements that set future price or
performance at the regulated entity’s
request. According to the commenter,
producers who resist entering into
forward contracts and AMAs often face
retaliation, and therefore the final rule
should protect them. The commenter
recommended AMS add another
paragraph to § 201.304(b)(2) as follows:
(vii) A covered producer refuses to
sell livestock or poultry through forward
contracts, AMAs, or similar contractual
arrangements, opting instead to engage
in open market sales.
An organization said lawful
communications protected under the
proposed rule should also include
situations where a complainant
provides information regarding conduct
that they reasonably believe violates the
Act or is about to do so. The commenter
said that, because most people are not
experts on their rights under the Act,
the proposed rule should establish that
complainants do not need to mention
specific violations and that, as with
similar corporate anti-retaliation
measures, they do not need more than
a subjective, good faith belief that the
conduct at issue violates the Act. The
commenter also said AMS should allow
these complaints in any language and by
means including in person, in writing,
and by email.
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An academic institution said the
protected activities listed in the
proposed rule are all important in
empowering producers to assert their
rights and promote fair markets.
AMS Response: AMS appreciates and
shares the commenters’ viewpoint that
retaliation is a serious concern in the
livestock and poultry industry. AMS has
attempted to craft this regulation to
respond to the most common and
clearly defined forms of retaliation in
the form of prohibited unjust
discrimination on the basis of protected
activities. The regulation does not seek
to define every prohibited activity, as
the Act may limit unjust discrimination
in circumstances not foreseen by this
final rule. If covered producers believe
they have suffered a form of unjust
discrimination that is prohibited by the
Act, they should report that to AMS.
AMS notes that communication with
other producers for the purposes of
improving the production or growing of
livestock or poultry is already protected
by the proposed regulation. Such
communication may include sharing
grievances over practices by regulated
entities or others as such
communications relates to covered
producers’ desire to overcome obstacles
to improving or marketing their
livestock or poultry.
AMS acknowledges a commenter’s
concern regarding some covered
producers’ interest in not utilizing
forward contracting for the sale of
livestock. However, regulating whether
covered producers have a right to any
particular form of livestock sales
transaction is outside the scope of this
rule.
AMS underscores that, to obtain the
protection of this regulation, the
producer need not engage in any
particular form of the activity, such as
quoting a precise regulatory section to
assert an Act right. The focus will be on
the substance of the producer’s
activities, and a good faith effort to
assert an Act or contractual right is still
protected from retaliation on the basis
of that assertion regardless of the
precision, imprecision, or even good
faith inaccuracy of the legal or
contractual right being asserted by the
producer.
Accordingly, AMS did not make any
changes in response to the comments.
vi. Limiting of Protected Activities
Relating to Communication and
Cooperation, Beyond Government
Entities, to USDA Extension and USDA
Supported Non-Profit Entities
AMS asked for input regarding
whether protected activities related to
communication and cooperation should
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be limited to USDA extension and
USDA-supported non-profit entities,
beyond government entities.
Comment: Several commenters
supported expanded protections for
activities related to communication and
cooperation. An agricultural advocacy
organization said AMS should not limit
these protections to USDA extension
and USDA supported non-profit entities
because producers may have concerns
about their industry that extend past the
department’s jurisdiction, giving
examples such as concerns about
managing animal waste that fall under
State and Federal environmental
regulations or issues relating to
veterinary drugs or animal feed that are
regulated by the Food and Drug
Administration.
An academic or research institution
and several organizations said, given the
information asymmetry and lack of
transparency in livestock and poultry
production markets, AMS should
extend protection to more types of
communications that producers may
want or need to pursue in preventing
market exclusion and asserting their
rights and protections. Commenters
suggested AMS should protect producer
social media posts about unfair
integrator treatment, as well as producer
communications with relevant third
parties, such as lawyers and legal aid
organizations, veterinarians and others
doing work related to animal welfare,
producer advocacy organizations, and
the media.
Several commenters said AMS should
introduce this provision in a new
§ 201.304(b)(2)(ii), with other
commenters providing the following
variations on recommended regulatory
text:
(ii) A covered producer takes an action
through a non-governmental third party that
causes the producer’s grievances against a
regulated entity or a group of regulated
entities to be known.
and
(ii) A covered producer communicates
with a reporter, private investigator, public
interest organization, or the general public
through traditional media or social media
with respect to any matters related to
livestock, meats, meat food products,
livestock products in unmanufactured form,
or live poultry; so long as such
communication does not expose a trade
secret a regulated entity has reasonably and
clearly identified in writing as a sensitive
and confidential trade secret. A regulated
entity’s claim that any communicated
information is a sensitive and confidential
trade secret is not reasonable if the
information is publicly available, shared by
the regulated entity to any third party that is
authorized to disseminate the information, or
exposes standard industry practices common
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among more than one regulated entity in the
relevant market.
AMS Response: AMS takes note of the
commenters’ recommendations of
expanded protections for activities
related to communication and
cooperation. AMS believes that the
commentators’ concerns are largely
addressed in the rule, which protects
lawful communications with
government agencies or other persons
for the purpose of improving the
production or marketing of livestock or
poultry, exploring a possible business
relationship, or supporting proceedings
under the Act against a regulated entity,
among other protected activities. The
regulatory text provides broad coverage
for these activities in § 201.304(b)(2)(iv)
through (vi), without limitation. These
communications are protected because
they enhance producers’ ability to
receive protection under existing laws,
improve the production process, and
facilitate enforcement of contracts in
ensuring producers receive their bargain
for exchange. Communications
unrelated to those purposes are outside
the scope of this regulation.
Whether social media
communications are covered will
depend on the protected activity in
question and the particulars of the
social media forum in question.
Whether a public post by a covered
producer about treatment by a regulated
entity that the covered producer asserts
to be in violation of the Act or is
otherwise harmful to the producer may
depend on the facts and circumstances
of the post. For example, to the extent
that the producer is testifying to
Congress or courts regarding unfair
treatment and the social media post
simply refers to the testimony or
describes the same material, then, for
example, such a post would likely be
protected, depending on the full scope
of the facts and circumstances.
Similarly, if the social media post is
part of an effort to share information
with other producers for the
improvement of production or
marketing or is part of an effort to form
an association or engage in cooperative
activities, that would likely be protected
under this rule as well since the rule is
agnostic as to the form of the
communications between producers.
However, AMS notes that the activities
protected under this rule are covered to
the extent that these activities are not
otherwise prohibited by Federal, State,
or Tribal law. For example, the rule
does not provide an exemption from
defamation laws.
Nor does this rule attempt to preempt
freedoms of the press. Whether a
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communication with a reporter or
public investigation organization is
covered will depend upon the facts and
circumstances. The inquiry would need
to balance the important role that
freedom of the press plays in
maintaining market integrity with
legitimate expectations by a regulated
entity of good faith behavior by a
producer under a contract. Relevant
questions include whether the
communication was part of a factual
effort to assist the reporter in
understanding and reporting on asserted
violations of law and regulation and
whether the producer provided any
confidential business information to the
investigator or otherwise exposed the
regulated entity to commercial risk or
reputational damage unrelated to the
violation in question. Also potentially
relevant, in some circumstances, may be
whether the producer has exhausted
other avenues for resolving any dispute
and also the extent to which the
regulated entity has a reputation
recognized in the market for retaliation
which would otherwise place the
producer in fear of asserting rights even
with the presence of this rule.
The rule does not provide unlimited
license for producers to damage the
reputation of regulated entities. A social
media post principally functioning as a
threatening or coercive public
communication is unlikely to be
covered, absent other extenuating facts
and circumstances. AMS underscores
that the rule is intended to facilitate
lawful communication and the exercise
of lawful economic rights by covered
producers, and the promotion of
competitive markets and markets with
integrity. That goal is most effectively
served by enabling producers to exercise
contractual and legal freedoms,
communicate with government, other
producers, and competitor firms for the
purposes set forth in this rule.
Therefore, AMS makes no changes to
the rule in response to these comments.
vii. Sufficiency of Proposed AntiRetaliation Provision’s Protection
Regardless of Covered Producer’s Type
of Business Organization
AMS requested comment on whether
the proposed anti-retaliation provision
provides sufficient protection for all
types of covered producer business
organizations.
Comment: An agricultural advocacy
organization indicated that this
provision provides sufficient protection
regardless of the covered producer’s
type of business organization.
AMS Response: AMS made no
changes in response to this comment.
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viii. Extension of Protections for
Exploring a Business Relationship to
Such Activities With any Person, Rather
Than Solely Regulated Entities
AMS requested comments on whether
protections for exploring a business
relationship with a regulated entity are
sufficient, or whether such protections
should extend to exploring business
relationships with any person, in
addition to regulated entities.
Comment: Several organizations
asked AMS to broaden these protections
to include communications and
negotiations with any entity for the
purpose of exploring a business
relationship or alternative business
model. According to these commenters,
producers may want to explore
alternative uses for industry livestock or
poultry-raising infrastructure or add an
additional type of agriculture to their
operation. Several commenters said that
while they recognize that producers
who transition outside of the industry
would no longer be covered under the
Act or subject to many of the retaliatory
actions covered by the proposed rule,
they believe extending this protection is
necessary so producers can fully explore
all potential business opportunities
without worrying about punishment if
they do decide to retain their current
business relationship.
Several commenters recommended
the following revisions to
§ 201.304(b)(2)(v):
(v) A covered producer communicates or
negotiates with a regulated entity, other
commercial entity, or relevant consultant for
the purpose of exploring a business
relationship or alternative use or application
of their property.
AMS Response: The purpose of the
provision is to preserve and promote the
competitive position of the covered
producer, and as such to ensure that the
covered producer is not discouraged
from seeking competitive alternatives by
a regulated entity’s retaliation.
Paragraph (b)(2)(v) protects a covered
producer’s ability to communicate,
negotiate, or contract with a regulated
entity, another covered producer,
another commercial entity, or
consultant, for the purposes of exploring
or entering into a business relationship.
The Act is intended to ensure maximal
competitive flexibility for covered
producers. It may be the case that
producers wish to explore a business
opportunity by communicating,
negotiating, or contracting with a
consultant about forming a cooperative
or, with a commercial intermediary
such as an exchange or auction, or with
another covered producer or
commercial entity that may not yet be
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a regulated entity but intends to engage
in meat or poultry processing. It may
also be the case that producers wish to
negotiate with other covered producers
for the purpose of jointly investing in a
business venture such as a slaughter
facility. Accordingly, AMS has amended
the regulation to indicate that the final
rule provides protection for a covered
producer who communicates,
negotiates, or contracts with a regulated
entity, another commercial entity,
another covered producer, or a relevant
consultant, for the purpose of exploring
a business relationship. AMS concludes
that a consultant either works to benefit
another commercial entity or works to
benefit the covered producer, and so
would be covered by the provision.
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ix. Include Catch-All Clause in
Proposed List of Regulatory Actions To
Cover Offering of Less Favorable
Contract Terms
AMS requested comment on whether
the proposed list of retaliatory actions
should include a catch-all clause, such
as ‘‘offering contract terms that are less
favorable than those generally or
ordinarily offered.’’
Comment: Several organizations
indicated support for a catch-all
provision. The commenters said they
would be in favor of prohibiting the
retaliatory offering of less favorable
contract terms as AMS suggested in the
preamble to the proposed rule.
Commenters said this addition would
recognize the importance of contracts as
a retaliatory weapon because of their
effect on producers’ financial well-being
and would avoid a potential loophole
for the proposed rule’s prohibition on
retaliatory termination or non-renewal
of contracts and refusals to deal. One
commenter suggested that AMS include
a new provision saying ‘‘offering
unfavorable contract terms that
otherwise affect reprisal’’ or ‘‘offering
contract terms that are less favorable
than those generally or ordinarily
offered’’ is a prohibited action.
However, several commenters
recommended that AMS also introduce
a second, broader catch-all provision to
ensure that regulated entities cannot
simply formulate new ways to retaliate
against producers for engaging in
protected activities. These commenters
suggested that AMS add the following
regulatory text to § 201.304(b)(3) to
achieve both aims:
(v) Offering unfavorable contract terms in
contract formation, contract modification, or
contract renewal that affect reprisal.
(vi) Any other action that adversely
impacts a covered producer’s financial or
reputational interests or may result in
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diminished contract performance with the
regulated entity.
Unfavorable contract terms include,
but are not limited to: price terms,
including any base or formula price;
formulas used for premiums or
discounts related to grade, yield,
quality, or specific characteristics of the
animals or meat; the duration of the
commitment to purchase or to contract
for the production of animals;
transportation requirements; delivery
location requirements; delivery date and
time requirements; terms related to who
determines date of delivery; the
required number of animals to be
delivered; layout periods in production
contracts; financing, risk-sharing, and
profit-sharing; or terms related to the
companies’ provision of inputs or
services, grower compensation, or
capital investment requirements under
production contracts.
AMS Response: AMS elected not to
introduce a provision prohibiting the
‘‘offering of contract terms that are less
favorable than those generally or
ordinarily offered’’ to its list of
prohibited retaliatory actions as
requested by a commenter because
retaliation is principally focused on
protecting producers from adverse
actions by regulated entities in which
they already have establish or recurring
contractual relationships. The list of
adverse actions in paragraph (b)(3) was
designed to provide examples of the
most common forms of retaliation as
discrimination addressed by this rule.
However, the proposed rule was
intended and drafted broadly so as to
ensure producers can engage in
protected activities at all times and with
all regulated entities in the marketplace.
As described in Section V—Changes
from the Proposed Rule, the final rule
provides more specificity. Yet the final
rule would still protect a producer
against adverse treatment by a regulated
entity which may be seeking to chill
those activities across the marketplace—
such as forming a producer association
or asserting rights under the Act with
other regulated entities—through the
clarification that other actions that a
reasonable covered producers would
find materially adverse.
Additionally, AMS accepts the
commenters’ critique that the proposed
regulatory text was insufficiently
specific to provide clarity regarding
when regulated entities could and could
not take adverse actions against covered
producers. In particular, AMS is
concerned that the proposed contours
regarding refusals to deal and nonrenewals offer regulated entities too
great a latitude to engage in retaliation,
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because a regulated entity could, in
theory, satisfy the proposed rule by
simply offering highly unfavorable
terms to the covered producer—which it
could not do if the agency prohibited
‘‘offering of contract terms that are less
favorable than those generally or
ordinarily offered.’’ That is not,
however, the intent of the regulation.
Rather, it is to ensure that covered
producers, in whatever circumstance
they enjoy, do not suffer retaliation for
effectuating their rights under the Act.
Accordingly, in the final rule, AMS
has amended the provision to add
several clarifying details. First, the final
rule clarifies that requiring
modifications or only offering to renew
contracts on terms less favorable than
those enjoyed by the covered producer
is a violation where it occurs because
the covered producer engaged in
protected activities. This provision
covers any adverse change to the
covered producer’s terms to provide
maximum flexibility to the covered
producer to exercise protected rights
regardless of the particular
circumstances. Second, the final rule
clarifies that a refusal to deal with
covered producers would be triggered
where the regulated entity fails to offer
terms generally or ordinarily offered to
other similarly situated covered
producers. This provision does not
guarantee the covered producer the
most favorable contract terms in the
market, but simply those that the
covered producer would generally or
ordinarily offer to other similarly
situated covered producers that had not
engaged in protected activities, which
could include the situation previously
enjoyed by the covered producer prior
to having engaged in the protected
activity. Such a provision is necessary
because covered producers may enter or
exit the market at different times, and
during that period may engage in
protected activities for which a
regulated entity may attempt to retaliate.
Together, AMS believes that these
modifications cover the most common
circumstances that covered producers
may encounter in their business
dealings in which regulated entities may
attempt to exact retaliation.
AMS is not including the level of
detail sought by some commenters
regarding the specific form of
retaliation. This rule is intended to
provide protections for adverse actions
against a covered producer based upon
the protected activity (including threats
intended to chill engaging in that
activity). Any inquiry should focus on
those bases, rather than on the
particular form of the discriminatory
harm. AMS recognizes that unfavorable
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contractual terms can cover a wide
range of elements of a contractual
relationship, such as prices, formulas,
premiums or discounts, transportation
provisions, delivery dates, duration, the
required number of animals,
arrangements such as financing,
investment requirements or incentives,
and other contractual specifications,
among other terms and conditions. Such
unfavorable terms may have direct
financial impacts but may also have
indirect financial impacts, such as
reputational impacts which adversely
affect the covered producer’s ability to
conduct business in the marketplace.
Providing further detail in the
regulatory text is not necessary to
enforce the rule. It is not practical to
name all the different ways a malicious
actor could find to retaliate. The rule is
intended to capture as fully as possible
the difference between a serious
contract offer and an offer that has the
practical intent to retaliate.
Additionally, AMS confirms that
when a regulated entity claims that
modification or renewal of a contract on
less favorable terms is common with
similarly situated producers for reasons
unrelated to any exercise of protected
activities, AMS will not automatically
consider the less favorable modification
or renewal a violation of this particular
rule. AMS will, however, review
modification and renewal and will
carefully examine the regulated entity’s
justifications. Even outside of
retaliation, unilateral modification of
existing contracts has been a violation of
the Act. The Act considers it an unfair
and deceptive practice to modify an
existing contract to either extend the
time for payment or reduce the full
price agreed upon at delivery. Moreover,
contract modification has been a
deceptive practice where the terms
offered publicly were privately
disavowed.
x. Include Other Contract Terms That
Could Affect Reprisal
AMS requested comment on whether
other contract terms should be included
as part of including a non-exhaustive
list of contract terms that could affect
reprisal.
Comment: An organization said AMS
should provide examples of adverse
actions that could constitute retaliation
to help regulated entities comply with
the Act. The commenter said that, for
example, adverse actions for speaking
out might include negative performance
reviews; denial of bonuses; harassment
or assault; reduced input quality; or
increased scrutiny. The commenter said
the proposed rule should cover adverse
actions in contract terms such as
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impacts on price terms; formulas used
for premiums or discounts related to
grade or other characteristics of the
animals or meat; duration of
commitment to purchase or contract for
the production of animals;
transportation or delivery requirements;
or terms related to companies’ provision
of inputs or services, grower
compensation, or capital investment
requirements under production
contracts.
AMS Response: AMS recognizes that
unfavorable contractual terms can cover
a wide range of elements of a
contractual relationship, such as prices,
formulas, premiums or discounts,
transportation provisions, delivery
dates, duration, the required number of
animals, arrangements such as
financing, investment requirements or
incentives, and other contractual
specifications, among other terms and
conditions. Such unfavorable terms may
have direct financial impacts but may
also have indirect financial impacts,
such as reputational impacts which
adversely affect the covered producer’s
ability to conduct business in the
marketplace. In the final rule, AMS has
added paragraph (b)(3)(iv) to address
any other adverse action that a
reasonable covered producer would find
materially adverse. This is intended to
focus on material harms to covered
producers, including threats, based on
the protected activities. However, AMS
is not including the level of detail
sought by some commenters regarding
the specific forms of retaliation, because
providing further detail in the
regulatory text is not necessary to
enforce the rule. There are too many
possibilities to encompass every
possible retaliatory action in a single
rulemaking. The Agency prefers the
general prohibitions because their
simplicity reaches a broad array of
unlawful retaliatory activities, including
the ones the commenter raises.
xi. Specific Challenges or Burdens
Regulated Entities Might Face in
Complying With Anti-Retaliation
Provisions of Proposed Rule
AMS requested comment on what
challenges or burdens regulated entities
may face in complying with the
proposed rule’s anti-retaliation
provisions.
Comment: Multiple industry groups
argued the retaliation provisions are
overly broad and vague, leading to
compliance uncertainties and the threat
of litigation.
A cattle industry trade association
said that AMS’s decision to allow
violations of the proposed rule’s
retaliation provisions without
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demonstrating harm to competition,
along with ambiguous definitions letting
a wide range of parties qualify as
potential complainants, puts the cattle
industry in danger of a huge wave of
lawsuits that could thwart innovation. A
swine industry trade association said
the prohibited forms of retaliation listed
in § 201.304(b)(3) include a broad range
of activities that a regulated entity may
have legitimate business reasons to
carry out. According to the commenter,
these prohibitions would restrict the
rights of regulated entities to freely deal
and require them to treat every producer
the same, putting the proposed rule in
conflict with the Act and with antitrust
law. A poultry industry trade
association and several live poultry
dealers said that the list of activities that
constitute retaliation is not exhaustive,
so regulated entities have no way to
know what activities they must avoid to
comply with the rule.
AMS Response: In this final rule,
AMS has made a number of changes,
outlined above in Section V—Changes
from the Proposed Rule, to provide
additional clarity, specificity, and
certainty to market participants. These
include switching prohibited conduct in
§ 201.304(b)(3) from an exemplary list to
a specific list of covered items. AMS
rejects the general assertion that the
provisions on retaliation are vague,
ambiguous, or non-exhaustive. To the
contrary, the final rule sets forth specific
activities that are protected
(§ 201.304(b)(2)) and specific conduct
(§ 201.304(b)(3)) that would constitute
retaliation if it were done because of the
producer engaging the protected
activities. As described above under
Section V—Changes from the Proposed
Rule, these included a range of further
clarifications to the specific conduct.
Notably, the inexhaustive list under
paragraph (b)(3) has been refined, with
paragraph (b)(3)(v) added to limit the
list to any other adverse action that a
reasonable covered producer would
find materially adverse.
The activities protected by this final
rule each constitute an exercise of basic
freedoms necessary and essential to
maintain a free and competitive
market—freedoms such as exercising
contractual and legal rights, seeking
recourse through governmental
channels, forming cooperatives or
associations relating to the business of
livestock and poultry, and being a
witness in court. Most regulated entities
assert that retaliation for engaging in
these types of activities is not a common
practice in the industry. AMS finds that
factually questionable, given the level of
complaints and concerns expressed by
producers over the years, including
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experience in response to producers’
participation in hearings on competition
by USDA and the DOJ in 2010. But to
the extent that regulated entities stand
by that position, then there should be
little risk to regulated entities from
litigation on the grounds of the activities
protected in this rule. Regardless, AMS
can identify no competitive benefits to
adverse actions against covered
producers for engaging in the activities
protected by this final rule and can
identify no genuine risks to contractual
freedoms or ability to legitimately
innovate from the activities protected by
this final rule.
AMS has further responded to the
question of the costs and risks of
litigation below.
Comment: A swine industry trade
association said that the retaliation
provisions provide no guidance on
legitimate business reasons to engage in
the activities deemed as retaliatory
conduct or on whose shoulders the
burden of proving that a regulated
entity’s conduct was ‘‘because of’’ the
producer’s activity rather than based on
a legitimate reason. A poultry industry
trade association and several live
poultry dealers said the proposed rule
also does not clarify how to establish
that a live poultry dealer, and the
specific employees involved in grower
contracting, knew that a grower had
engaged in one of the protected
activities.
AMS Response: AMS has not
identified any competitive benefits to
adverse actions against covered
producers for their having engaged in
any of the protected activities set forth
in this final rule. Accordingly, AMS has
not provided any exemptions to the
prohibition on retaliation against
covered producers. If a regulated entity
claims it has taken an adverse action
against a covered producer for reasons
unrelated to the producer’s exercise of
rights protected by this final rule, it
becomes a factual question of proof. The
agency has the burden of showing that
the regulated entity violated the rule by
taking covered adverse actions against a
producer or grower wholly or in part
because of the producer’s or grower’s
exercise of a protected right under the
rule. Any such determination will turn
heavily on the particular facts and
circumstances of any claim. This factual
determination is not a question of
whether a legitimate business reason
existed to engage in the retaliation;
rather it is a question of whether a
violation occurred at all. In some cases,
it may be possible that the regulated
entity, including in the form of its agent
interacting with the covered producer,
is genuinely not aware of the protected
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activity by the covered producer
(including not having constructive
knowledge, being willfully blind, or
grossly negligent in its affairs), the
adverse action would not constitute a
violation. AMS does not expect, and
indeed does not encourage, the
regulated entity to engage in any
monitoring activities to attempt to make
itself aware of when covered producers
may be engaging in these activities. In
fact, the purpose of the rule is the
opposite, and were AMS to identify a
regulated entity engaging in any such
monitoring program, it would likely
view such activities as being in
violation of this regulation owing to
their likely effect of intimidating
producers.
Comment: A swine industry trade
association said the proposed rule
would allow producers who engage in
common conduct, such as joining a
cooperative or asserting their rights
under a contract, to claim that a
regulated entity engaged in retaliation
by terminating a contract or giving
differential treatment to a producer. A
poultry industry trade association and
several live poultry dealers said the
retaliation provisions create a
presumption that all grower protected
activities are legitimate, which could
open the door to strategically planned
actions by poor performing growers
designed to trigger these protections and
would lead to especially severe risks if
a grower has committed animal welfare
violations.
AMS Response: AMS rejects the
assertion that the rule would permit or
encourage gaming by producers to avoid
accountability for poor performance or
violations of animal welfare guidelines.
This final rule clearly specifies that the
adverse action must be taken based on
the producer participating in such
protected activities. The mere
coincidence, or correlation, between a
producer joining an association or
reporting to the government and then
experiencing an adverse action is not
enough for a violation. There must be
evidence showing the adverse action
taken by a regulated entity was in
response to the producer engaging in a
protected activity for a violation to be
exist.
Additionally, AMS rejects the
comment that the regulated entity
would face a burden because it would
not know which protected activities the
producer has engaged in. The purpose
of the rule is for the regulated entity to
not adversely treat producers based on
their participation in protected
activities.
Comment: A poultry industry trade
association and several live poultry
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dealers said the proposed rule also does
not provide clarity regarding
cooperative activity: live poultry dealers
would still need to select which specific
growers to contract with, choose where
to place birds, and evaluate and approve
housing and other grow-out
specifications even if growers form
cooperatives, but the proposed rule does
not provide guidance on whether a
regulated entity making these decisions
might be considered to be engaging in
retaliation.
AMS Response: A cooperative is a
well understood legal status under the
Co-Operative Marketing Associations
(Capper-Volstead) Act of 1922 (Pub. L.
67–146) and protected by the
Agricultural Fair Practice Act of 1967,
which the proposed and final rule have
both referenced. Generally, a
cooperative is an organization
established by individuals to provide
themselves with goods and services or
to produce and dispose of the products
of their labor. The property of a
cooperative, including the means of
production and distribution, are
typically owned in common. The final
rule covers activities inherent in the
planning and organization of a
cooperative.
AMS also rejects the comment that
live poultry dealers would still need to
determine how to treat particular
growers when dealing with a
cooperative. Cooperatives are
independent entities, and the live
poultry dealer would enter in a contract
with the cooperative as a whole, rather
than with any individual grower. The
terms of the general contract would
govern the relationship between the live
poultry dealer and the cooperative.
Generally, a cooperative is an
organization established by individuals
to provide themselves with goods and
services or to produce and dispose of
the products of their labor. The property
of a cooperative, including the means of
production and distribution, are
typically owned in common. This rule
prohibits live poultry dealers from
discrimination against a cooperative
because it is a cooperative or from
retaliating against producers for forming
a cooperative. Because a cooperative is
an entity, a regulated entity cannot
assert that they are dealing with a
cooperative but then limit the agreement
to individuals.
Comment: A poultry industry trade
association and several live poultry
dealers urged AMS to introduce
exceptions to the proposed rule’s
protection of information sharing
activities under § 201.304(b)(2)(iv) and
(v) that would cover confidential or
proprietary information, saying that the
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unauthorized release of confidential
business information can harm
businesses substantially and irreparably
and therefore companies act legitimately
in exercising their contractual rights to
protect this information.
AMS Response: This rule will not
create exceptions to existing laws
governing the sharing of information
between members of associations and
cooperatives. Information sharing by
associations remains governed by the
Federal antitrust laws and other relevant
laws. Certain conduct by cooperatives is
exempt from the Federal antitrust laws.
This rule does not change whether these
activities are lawful and protected, or
prohibited, under Federal law. AMS
makes no changes in response to this
comment.
xii. Other Comments on Retaliation
Comment: A whistleblower advocacy
organization suggested several changes
to expand the proposed rule’s coverage.
First, it recommended AMS extend the
proposed rule’s anti-retaliation
protection to all natural or legal persons
who provide information they
reasonably believe is evidence of a
violation of the Act or who refuse to
take action they reasonably believe
would violate the Act. According to the
commenter, protected persons should
include, but not be limited to,
employees of meatpackers and
integrators reporting violations of the
Act; employees, contractors, and
subcontractors of protected farmers or
ranchers; and associates and relatives of
protected persons or entities. Second,
the commenter said that AMS should
clarify language in the proposed rule
stating that it does not protect farmers
and ranchers acting in contravention of
the Act from retaliation. According to
the commenter, the final rule should
exclude from protection only
individuals acting without express or
implied direction from the covered
entity or its agent, and who deliberately
and willfully cause a violation of any
requirement relating to any violation or
alleged violation under the Act. The
commenter said this clarification would
ensure that live poultry dealers cannot
use this provision to attack farmers
under broiler production contracts who
engage in whistleblowing. According to
this commenter, these contractors are
subject to extreme corporate control that
denies them the right to act under their
own agency, so it would not be fair to
exclude them from the protections
against retaliation based on actions they
could not control.
This commenter also said that,
because farmers are often unfamiliar
with protections that apply to their
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exposure of industry wrongdoing,
USDA must make efforts to share
information about producer rights and
company responsibilities at the
beginning of the contractual
relationship as well as throughout the
engagement. The commenter suggested
that AMS host educational
programming about rights under the Act
and develop language-appropriate
educational material. The commenter
urged USDA and DOJ to continue to
offer anonymous protected disclosures
through their joint portal and be
transparent about subsequent regulatory
and enforcement activity, saying most
producers prefer to make reports
anonymously or through another party
to avoid retaliation.
AMS Response: In this rule, AMS is
principally focused on providing robust
protections for covered producers
participating in the market.
Accordingly, AMS has not amended the
regulatory text to extend the rule’s
coverage to all natural or legal persons
who provide information regarding
perceived violations of the Act or who
refuse to take action they believe would
violate the Act. AMS has, however,
revised the regulatory text of
§ 201.304(b)(2)(i) to extend the coverage
from a covered producer’s
communication ‘‘with a government
agency’’ to communication ‘‘with a
government entity or official’’ and from
‘‘petitions for redress of grievances
before a court, legislature, or
government agency’’ to ‘‘petitioning a
government entity or official for redress
of grievances.’’ AMS believes that this
change ensures that protected
communications may occur with any of
the three branches of the Federal
government and with individual
government officials, including
committees or members of a legislature.
The regulation applies equally to
communications with all levels of
government—Federal, State, and local—
with respect to the matters indicated.
Furthermore, AMS is sympathetic to
and broadly in agreement with the
commenter’s perspective that covered
producers should not be required to
understand the precise contours of the
Act to exert their protected activity
rights, and that they should be enjoyed
heightened protection when acting at
the express or implied direction of a
regulated entity. Regulated entities have
no motive to purposefully induce
producers to commit unlawful acts. If a
regulated entity induces criminal
activity, irrespective of retaliation, this
inducement may be deceptive within
the meaning of the Act.
AMS appreciates the commenter’s
advocacy regarding the need for
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continuing USDA-sponsored education
regarding producer rights and company
responsibilities under the Act. AMS is
taking steps to increase producer
education and outreach, including, for
example, establishing the
farmerfairness.gov portal to facilitate
ease of access for submitting
complaints. AMS intends to expand
education and outreach regarding this
rule and other regulatory requirements.
F. Recordkeeping (§ 201.304(c))
AMS proposed a recordkeeping
requirement that records related to
compliance with this rule be kept for a
period of five years from the date of
record creation. These records include
policies and procedures, staff training
materials, materials informing covered
producers about reporting mechanisms
and protections, compliance testing,
board of directors’ oversight materials,
and records about the nature of
complaints received relevant to
prejudice and retaliation. AMS stated
the purpose of this proposal was to
reduce the threat of retaliation and to
enhance AMS’s ability to investigate
and secure enforcement against undue
prejudice and unjust discrimination.
i. Appropriateness of Proposed
Regulation’s Recordkeeping Obligations
To Permit AMS To Monitor Regulated
Entities for Compliance
AMS requested comment on whether
the proposed recordkeeping obligations
were appropriate to allow AMS to
monitor regulated entities for
compliance.
Comment: A group of State attorneys
general and several organizations
generally supported the proposed
recordkeeping obligations in order to
enhance compliance by regulated
entities and enhance AMS’s ability to
monitor them for discriminatory
treatment.
Other commenters supported the
proposed recordkeeping requirements,
but suggested AMS should require
regulated entities to maintain additional
specific records. A cattle industry trade
association said AMS should require
retention of any records that include
specific terms (including prices paid) of
purchase agreements or contracts, as
well as any methodologies used to
calculate premiums or discounts paid to
producers. This commenter argued that
such records would enable AMS to
evaluate differential treatment. An
agricultural advocacy organization made
a similar suggestion for regulated
entities to maintain income/payment
formulas and pre-contract discussions
with producers as part of their
recordkeeping obligations.
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AMS Response: AMS takes note of the
commenters’ support for the usefulness
of the provisions. With respect to the
request that AMS revise the rule to
identify specific records that regulated
entities must retain, AMS notes that the
regulation as proposed provides
flexibility for a regulated entity to retain
any records relevant to its compliance
with § 201.304(c), including records not
specifically referenced in the regulation.
Under sec. 401 of the Act, regulated
entities are already required to maintain
the accounts, records, and memoranda
necessary to fully and correctly disclose
all transactions involved in their
business. USDA’s implementing
regulations can be found at 9 CFR
201.94, 201.95, and 203.4. Existing
regulations under part 201 require
regulated entities to give the Secretary
‘‘any information concerning the
business . . .’’ (§ 201.94) and provide
authorized representatives of the
Secretary access to their place of
business to examine records pertaining
to the business (§ 201.95). Section 203.4
regulates the types of records that must
be kept by regulated entities and the
timelines for disposal of these records.
As part of its enforcement capabilities
under sec. 401 of the Act, AMS can
inspect the records of regulated entities
to review detailed information related to
purchases and ensure that regulated
entities are in compliance. Because
these records are already required under
existing law, AMS made no further
changes in response to the comments.
Comment: A poultry industry trade
association argued that the proposed
recordkeeping regulation—as written—
is not appropriate because it is vague
and does not make clear that it only
requires integrators to maintain records
relevant to proposed § 201.304(a) and
(b). The trade association contended
that the rule should make explicit that,
if a regulated entity does not maintain
records relevant to those respective
proposals, no recordkeeping is required.
The commenter also recommended
exempting privileged communications
or attorney work product from the
recordkeeping requirement.
AMS Response: AMS disagrees with
the commenter’s view that the
regulation as proposed does not make
clear that regulated entities are only
required to maintain records relevant to
proposed § 201.304(a) and (b): the
regulation as proposed specifically
stated that a regulated entity ‘‘shall
retain all records relevant to its
compliance with paragraphs (a) and (b)
of this section.’’ Further, AMS does not
believe it necessary to specify that
certain records do not need to be
retained if they are irrelevant because
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the regulatory text states explicitly that
the recordkeeping requirement applies
only to records relevant to a regulated
entity’s compliance with this section.
Under the Act and existing PSD
regulations, regulated entities are
required to keep records pertaining to
their business. To comply with the
proposed regulation, a regulated entity
must retain all records relevant to its
compliance with § 201.304(a) and (b) for
no less than five years from the date of
record creation. Lastly, AMS does not
believe that adding an exemption for
privileged communication, such as
attorney work product, is necessary
because attorney work product is
already protected from disclosure under
current law. Therefore, AMS makes no
changes to the rule in response to this
comment.
ii. Requirements for Regulated Entities
To Produce and Maintain Specific
Policies, Compliance Practices, or
Disclosures To Help Ensure Compliance
With Undue Prejudice and AntiRetaliation Provisions
AMS requested comment on whether
the proposal should require regulated
entities to produce and maintain their
specific policies and procedures,
compliance practices or certifications,
or disclosures to ensure compliance
with the undue prejudices and
provisions and anti-retaliation
provisions in the proposed rule.
Comment: Several commenters
expressed concern that the proposed
recordkeeping requirement would not
be sufficient to ensure compliance. One
organization argued that AMS should
require regulated entities to proactively
identify and record the basis of
differential treatment (e.g., differences
in prices paid) among producers. An
academic or research institution
concurred, suggesting that any
differential treatment in price or
contract terms should be justified by
regulated entities in their records.
An agricultural and environmental
organization proposed regulated entities
should be subject to an Annual
Compliance Report to AMS that requires
a detailed list of all their transactions.
This list would include, specifically: (1)
an anonymized list of producers the
regulated entity did business with; (2)
terms offered to producer during
contract negotiations; (3) terms entered
with producer and whether these terms
differ with similarly situated producers;
(4) prices paid to producers and
methodology for the price; (5) whether
AMAs were used; and 6) accounts of all
instances of the regulated entity’s
refusal to deal with a producer and
justification for the refusal. The
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commenter argued that it will be
difficult for producers or AMS to prove
violations of proposed § 201.304(a)
without these detailed disclosures.
An agricultural advocacy organization
proposed requiring regulated entities to
report to AMS the contract terms and
payments made to producers, as well as
producer demographic information
necessary to determine which producers
are market vulnerable individuals. The
commenter argued this was necessary to
put the burden of enforcement of the
new rule on AMS and regulated entities
rather than covered producers. This
commenter also suggested requiring
regulated entities to use a uniform
recordkeeping system that tracks and
reports ‘‘relevant data’’ to allow AMS to
monitor for potential differential
treatment or discrimination. This
commenter likened the proposed system
to the Home Mortgage Disclosure Act,
which allows regulators to use data from
regulated entities to ensure compliance
with fair housing laws.
AMS Response: AMS is making no
changes to the rule as proposed based
on this comment. AMS believes that the
regulation as proposed permits
flexibility for regulated entities to
determine which records best
demonstrate compliance with § 201.304.
Such an approach is appropriate, given
that this rule regulates the poultry,
cattle, and swine industries, and that
regulated entities vary in size and in the
nature of their business operations.
Regulated entities may have an existing
recordkeeping system in place that is
suited to their industry, size, or business
operation. The proposed regulation’s
flexibility regarding the types of records
that must be kept will ensure that the
array of regulated entities covered by
this rule can choose the method of
compliance most relevant to their
circumstances; the proposed
regulation’s specification that a
regulated entity must retain all records
relevant to their compliance with
§ 201.304(a) and (b) will aid in PSD’s
enforcement of paragraphs (a) and (b).
As noted above, under sec. 401 of the
Act, AMS is authorized to conduct
compliance inspections, which may
include examination of information
related to differences in purchases and
prices. AMS also has the power under
sec. 6 of the FTC Act to require reports
from corporations on a case-by-case
basis. The additional reporting
requirements suggested by commenters
are outside the scope of this rulemaking,
but AMS reserves the right to consider
those approaches in future rulemakings.
Comment: A poultry industry trade
association and several live poultry
dealers said AMS should identify
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specific records that need to be kept or
generated, arguing that without specific
guidance regulated entities will be left
guessing which records are relevant to
its compliance obligations.
AMS Response: As noted in the
response above, this rule regulates a
wide array of entities. Regulated entities
may have an existing recordkeeping
system in place that is suited to their
industry, size, or business operation.
Also as noted above, existing
regulations and the Act require
regulated entities to keep records of
their business operations, subject to
AMS compliance investigations. The
regulation as proposed provides the
flexibility for regulated entities to keep
the types of records they deem
appropriate to demonstrate their
compliance with § 201.304, rather than
requiring all regulated entities to keep
the same set of records that may not be
relevant to how they run their
businesses. Paragraph (c)(2) provides a
non-exhaustive list of examples of the
types of records that may be relevant for
a regulated entity to demonstrate
compliance with § 201.304(a) and (b).
AMS is making no changes to the rule
as proposed based on this comment.
iii. Specific Challenges or Burdens
Regulated Entities Might Face in
Complying With Recordkeeping Duties
of Proposed Rule
AMS sought comment on what
specific challenges regulated entities
may face in complying with the
recordkeeping duties of the proposed
rule.
Comment: A poultry industry trade
association and several live poultry
dealers said that the proposed
recordkeeping rule was overly broad,
such that regulated entities would need
to document and maintain every
document related to interactions with
producers (such as emails, visits, or
notes from calls or meetings). The
commenters raised concerns that this
obligation would impose an
overwhelming administrative burden
and exorbitant compliance costs on
regulated entities, which would be
compounded by the 5-year record
maintenance requirement. They
suggested reducing the requirement
period to two years. An agricultural
association shared these concerns, in
particular around the possibility that
communications with any person about
potentially entering into a contract may
be deemed relevant under the rule and
that, as such communications could be
directed at any employee, a regulated
entity could have to maintain records of
all communications with its employees
for a period of five years. This
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commenter said, if USDA interprets the
recordkeeping requirements in this
broad manner, would impose a
particular burden on smaller entities
subject to the recordkeeping
requirement since these entities lack the
administrative or IT infrastructure
necessary to comply. A legal foundation
also posited that the recordkeeping
proposal would impose significant costs
on regulated entities and—to reduce
their burden—urged AMS to impose a
warrant requirement before requiring
disclosure of records.
AMS Response: AMS is making no
changes to the regulation as proposed.
The recordkeeping requirement in this
rule is not new. PSD currently has
recordkeeping authority through the Act
and its existing regulations, including
sec. 401 of the Act, and 9 CFR 201.94,
201.95, and 203.4. Further, AMS subject
matter experts—economists and
supervisors with years of experience in
AMS’s PSD conducting inspections and
compliance reviews—have estimated
the recordkeeping costs associated with
this rule to be relatively low. They have
estimated that recordkeeping costs
would be correlated with the size of the
regulated entity, with the assumption
that the hour burden would be highest
for the largest entities. Therefore, at the
highest end of the spectrum, AMS has
estimated that annual recordkeeping
compliance costs for the largest
regulated entities would average of 4
hours of administrative assistant time
and 1.5 hours of time each for managers,
attorneys, and information technology
staff in the first year. Thereafter, for the
largest entities, annual recordkeeping
compliance costs would average 3 hours
per year of administrative assistant time,
1.5 hours per year of manager and
attorney time, and 1.00 hour of time
from information technology staff. As
stated previously, AMS estimates that
the hour burden would decrease
proportionate to the size of the entity.
AMS also notes that some firms might
not have any records to store, while
other firms may already store relevant
records and may have no new costs
associated with this rule. It also notes
that the list of suggested records in
§ 201.304(c)(2) is illustrative and that
regulated entities are not required to
document and maintain all of these
records. Therefore, AMS estimates that
the compliance costs associated with
this rule will be relatively low and, as
these costs are likely to vary in
proportion to the size of the regulated
entity, smaller entities are unlikely to
face particular burdens. The objective of
the recordkeeping requirement is to
support USDA monitoring efforts as
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well as to preserve the flexibility of
allowing regulated entities to decide
how best to comply with the rule. It is
incumbent upon regulated entities to
decide which records are relevant for
rule compliance.
AMS is also declining to revise the
regulation to limit the record retention
requirement to two years. AMS believes
that requiring that records be retained
for five years from their creation date
will enable the agency to monitor the
evolution of compliance practices over
time in this area and will ensure that
records are available for what may be
complex evidentiary cases. AMS will
not be adding a warrant requirement to
the rule at this time because the Agency
already has jurisdiction under the Act to
request documents concerning a
regulated entity’s business and therefore
no warrant is required to do so under
governing law.194
iv. Ways in Which Recordkeeping
Duties Differ From Existing Policies,
Procedures, and Practices of Regulated
Entities
AMS requested comment on how the
proposed recordkeeping duties may
differ from the current policies,
procedures, or practices of regulated
entities.
Comment: A poultry industry trade
association and several live poultry
dealers argued that the proposal to
include board of directors and other
corporate governance materials as a
matter of routine compliance with the
Act is not typical of compliance records
maintenance. The commenters
suggested that these materials would not
be helpful in demonstrating violations
of the proposed rule, and their inclusion
may be an attempt to create liability for
executives or board members for
everyday regulatory requirements.
AMS Response: AMS is making no
changes to the rule as proposed based
on this comment. The rule does not
require regulated entities to maintain
board of directors’ materials. These
materials are referenced in the rule as an
example of the types of records that may
be relevant for a regulated entity to
demonstrate that it has complied with
§ 201.304(a) and (b). Therefore,
regulated entities are not required to
retain these materials. However, AMS
notes that the conduct of executives and
board members is a critical component
in establishing a corporate culture of
194 Section 201.94 of the regulations requires
regulated entities to give the Secretary ‘‘any
information concerning the business . . .’’ Section
201.95 of the regulations requires that regulated
entities provide authorized representatives of the
Secretary access to their plaice of business to
examine records pertaining to the business.
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compliance. As noted previously, a
culture of compliance is a critical tool
for preventing legal and regulatory
violations and a first step toward more
inclusive market practices.
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G. Deceptive Practices (§ 201.306)
AMS proposed to prohibit regulated
entities from participating in several
types of deceptive practices with respect
to livestock, meats, meat food products,
livestock products in unmanufactured
form, or live poultry. These relate to
contract formation, performance,
termination, and refusal.
i. Accuracy and Adequacy of Proposed
Regulations in Identifying Recurrent
Deceptive Practices in Livestock and
Poultry Industries
AMS requested comment on whether
the proposed regulations accurately and
adequately identify recurrent deceptive
practices in the livestock and poultry
industries, as well as whether any areas
of deception may be missing.
Comment: Commenters including a
group of State attorneys general, several
organizations, and an academic
institution indicated support for the
deceptive practices provisions, with one
commenter saying the provisions would
clarify the duties of regulated entities to
engage in honesty and market integrity.
Two agricultural advocacy
organizations recommended that, in
addition to the four broad prohibitions
on behavior enumerated under
proposed § 201.306, AMS should
provide a non-exhaustive list of
prohibited conduct known to harm
producers, saying this measure would
provide clear guardrails and foster
quicker termination of abusive practices
against producers. These commenters
also said the deception provisions of the
proposed rule fall well within AMS’s
authority under the Act, noting that
Congress gave USDA broad powers
under the Act with the intention of
halting unfair trade practices against
producers before producers suffer actual
harm.
AMS Response: AMS is making no
changes to the rule as proposed. AMS
appreciates the views expressed by
commenters but believes specifying the
duties of regulated entities to engage
honestly and itemizing prohibited
deceptive practices adds unnecessary
complexity. Firstly, specific guidance as
to what constitutes deceptive practices
can be taken from existing regulations in
9 CFR part 201, such as: §§ 201.49 and
201.71 (requiring honesty in weighing);
§ 201.53 (requiring honesty in
representation of market conditions or
prices); § 201.98 (requiring honesty in
collection of fees); § 201.67 (prohibiting
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deception regarding the nature of packer
and selling agency business
relationships); and § 201.217 (requiring
transparency regarding breach of
contract determinations). Secondly, in
the event deception occurs in ways
actionable under sec. 202(a) of the Act,
yet that violation is not specifically
covered by this rule, AMS will look to
the legislative history and case law of
the Act to guide its handling of these
matters. For example, obvious
falsehoods, such as false weighing and
false accounting have always been
considered deceptive practices under
sec. 202(a) of the Act. Therefore, AMS
believes it is not necessary to itemize
such practices in this particular section.
Lastly, AMS underscores that this rule
is intended to provide a broad array of
coverage regarding the general
circumstances that encourage the
provision of false or misleading
information. Facts and circumstances
are unique to every case and may vary
significantly; therefore, AMS has
determined to retain the four broad
prohibitions on behavior under
§ 201.306 as initially proposed.
Comment: A poultry industry trade
association said all actions prohibited
under proposed § 201.306 are already
addressed in sec. 202(a) of the Act,
which prohibits regulated entities from
engaging in unfair, unjustly
discriminatory, or deceptive practices or
devices.
AMS Response: AMS is making no
changes to the rule as proposed based
on this comment. AMS agrees that the
prohibitions established by this rule are
well within the scope of sec. 202(a) of
the Act. This rule is designed to help
producers better understand what
behavior constitutes a violation of sec.
202(a). Based on complaints and
comments from stakeholders over the
years, as well as in response to the
proposed rule, AMS is aware that
deceptive practices continue to harm
producers and market integrity. Thus,
AMS has determined it necessary to
codify in its regulations deceptive
practices prohibited under sec. 202(a) of
the Act to better ensure that producers
benefit from the protections intended by
the passage of the Act.
ii. Specific Deceptive Practices
AMS proposed prohibiting regulated
entities from:
• Making or modifying a contract by
employing a pretext, a false or
misleading statement, or an omission of
a material fact necessary to make a
statement not false or misleading
(§ 201.306(b)).
• Performing under or enforcing a
contract by employing a pretext, false or
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misleading statement, or omission of
material fact necessary to make a
statement not false or misleading
(§ 201.306(c)).
• Terminating a contract or taking
any other adverse action against a
covered producer by employing a
pretext, false or misleading statement, or
omission of material fact necessary to
make a statement not false or misleading
(§ 201.306(d)).
• Providing false or misleading
information to a covered producer or
association of covered producers
concerning a refusal to contract
(§ 201.306(e)).
Comment: An agricultural advocacy
organization suggested the final rule’s
explanatory text should clarify that
deceptive practices related to contract
formation also include the making of
false or misleading statements to
prospective producers on the benefits of
a contractual relationship with a
regulated entity. The commenter said
that this clarification would, for
example, better address circumstances
such as representatives of live poultry
dealers who make verbal claims to
prospective growers about benefits not
reflected in the actual contract the
grower later receives to sign.
AMS Response: AMS is not making
the specific changes to proposed
§ 201.306(b) requested in this comment
but is making changes to this paragraph
to clarify the range of deceptive conduct
prohibited during contract formation.
AMS agrees with the commenter
regarding the harm of false statements in
contract formation. AMS formulated
§ 201.306(b) specifically to address the
making of false statements in contract
formation. The revised regulation states
that not only is a regulated entity
prohibited from employing a ‘‘false or
misleading statement’’ but it also may
not omit ‘‘material information
necessary to make a statement not false
or misleading.’’ Therefore, AMS
believes the regulation encompasses the
protection against misleading
statements requested by the commenter.
AMS will address the specific
circumstances raised by the commenter
via other rulemakings.
Comment: An agricultural advocacy
organization pointed out a potential
discrepancy, saying the range of
deceptive behavior in contract
formation, performance, and
termination covered in § 201.306(b)
through (d) of the proposed rule as
drafted appears narrower than that
contemplated in the proposed rule’s
preamble. The commenter noted that
the preamble said USDA generally
approaches deceptive practices from the
perspective of a reasonable party
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receiving them and asks whether they
would affect the conduct or decision of
a reasonable recipient of these practices
and asserts that the Act reaches beyond
common-law fraud to affirmatively
require honest dealing and truthfulness
in the marketplace.195 The commenter
said that, if AMS intended the
description in the preamble to
encompass a broader range of deceptive
behavior than that in the proposed
rule’s current language, it should
broaden the language in § 201.306(b)
through (d) of the proposed rule to
prohibit any practices likely to mislead
a covered producer, acting reasonably
under the circumstances, to the
producer’s detriment.
AMS Response: There is not a
contradiction or discrepancy between
the preamble and the proposed
regulation. The preamble discusses
deception more generally, providing
background on AMS’s approach to
implementing the prohibition on
deceptive practices and its legal
authority to do so under sec. 202(a) of
the Act. The regulatory text is designed
to provide example prohibited
deceptions under the Act. It is not
designed to enumerate every
circumstance that may be a prohibited
deceptive practice under the Act. There
are circumstances where a deceptive
practice could be covered under sec.
202(a)’s prohibition on deceptive
practices even if that practice is not
expressly addressed by this final rule.
AMS chose not to provide an exhaustive
coverage of every possible circumstance
that could be a deceptive practice
because such an effort would be
unwieldly as a matter of rulemaking and
likely offer little benefit to producers in
terms of making the protections of the
Act concrete and understandable. Such
an effort would require such breadth of
coverage and flexibility in application
as to effectively replicate the
interpretive process that is needed to
analyze deceptive practices under the
Act, which may vary significantly
depending on the facts and
circumstances of each case. In this rule,
AMS has instead chosen to strike a
balance, and is offering clear protection
for a broad range of commonly
encountered circumstances. AMS notes
that the regulatory text in paragraphs (b)
through (d) does include a prohibition
on employing a ‘‘false or misleading
statement.’’ Therefore, AMS is making
no changes to the regulation as
proposed.
Comment: Agricultural advocacy
organizations urged AMS to expand and
clarify the proposed rule’s prohibition
195 87
FR 60010, 60032, 60034, October 3, 2022.
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on deceptive conduct during contract
refusal, saying regulated entities can use
this tactic to manipulate producers, as
they may do with contract termination.
The commenters gave the example of a
dominant buyer who only wants to
purchase cattle from producers locked
into AMAs, rather than those selling on
a negotiated cash market, so it can pay
lower than fair market value. If this
buyer simply tells producers on the
open cash market that it does not need
their cattle, this statement may not
necessarily be false or misleading, but it
would be a pretextual justification for
refusing to deal with them. A cattle
industry trade association also urged
AMS to ban the practice of refusing to
buy a producer’s cattle in the negotiated
cash market unless the producer agrees
to enter a forward contract, saying this
practice is so widespread that it is
common knowledge among cattle
producers that packers who say they do
not need their cattle are tacitly
providing them with an ultimatum.
Several commenters recommended
the following amended regulatory text,
with changes in bold:
‘‘(e) Contract refusal. A regulated
entity may not rely on a pretext or
provide false or misleading information
to a covered producer or association of
covered producers concerning a refusal
to contract.’’
AMS Response: AMS has designed
the prohibition on deceptive practices
in refusal to contract differently than the
prohibition for other circumstances
because the relationship between a
regulated entity and a covered producer
differs in this circumstance. During
contract formation, performance, or
termination, there is a high degree of
reliance by the covered producer on the
regulated entity, owing to the existence
of the contract. In a refusal-to-contract
circumstance, however, the reliance is
limited principally to the denial of the
opportunity to transact. In general,
regulated entities may refuse to contract
with a covered producer for any reason
or no reason at all, unless the reason is
impermissible under the Act. This final
rule’s prohibition on deception seeks to
ensure that any reasons provided by the
regulated entity to the producer are
truthful and not misleading. Failure to
provide such truthfulness is deceptive
because, given the high levels of vertical
integration and horizonal concentration,
producers lack marketing options and
thus heavily depend on regulated
entities for market integrity and,
ultimately, the information needed to
compete effectively. Producers are
harmed when they cannot evaluate their
competitive opportunities in an honest,
objective manner. While the USDA
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Extension Service and other third
parties may assist producers in
appreciating their competitive strengths
and weaknesses, ultimately the signals
sent by packers are critical for
competitive opportunities.
The final rule does not include
‘‘pretext’’ or ‘‘omission of material fact
necessary to make a statement not false
or misleading’’ in this refusal to contract
provision because refusals to contract
may occur for any number of reasons,
and regulated entities may not always
be in a position to reveal the reason for
a refusal to contract. There may be
economic, social, community, or even
simply polite reasons for offering an
incomplete, if not untruthful, reason for
a refusal to contract. As long as a
regulated entity is not providing false or
misleading information to a covered
producer or omitting material
information, it will not run afoul of
§ 201.306(e).
AMS appreciates the commenter’s
concerns regarding the use of forward
contracts. However, including a specific
prohibition regarding this practice was
not under consideration in the proposal.
With this rulemaking, AMS is
implementing regulations to provide a
broad array of coverage against
deceptive practices during various
stages of the contracting process.
Deceptive acts in contract refusal will be
determined on a case-by-case basis
based on the facts and circumstances of
each individual case. In the example
raised by the commenter, were a packer
to refuse to purchase cattle in the cash
market and state that its plant has
acquired all the cattle it needs, the
packer would not run afoul of the final
rule if that statement was true. However,
were the packer to make such a
statement but would be willing—or
attempt—to purchase the cattle under a
different marketing arrangement, that
would suggest that the information
provided was false or misleading and
the packer would run afoul of the final
rule. If the cattle were of a quality or
type that the packer does not want and
the packer has already acquired all the
cattle it needs for a given week, the
packer could state that it is full without
telling the covered producer its real
reason for refusing to purchase cattle—
again, as long as the statement provided
is truthful.
Accordingly, AMS is not making any
changes to the regulation as proposed in
response to these comments.
iii. Recurrent Deceptive Practices Not
Adequately Addressed by Proposed
Regulations
AMS asked whether there were
recurrent deceptive practices not
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adequately addressed by the proposed
regulations.
Comment: Several organizations
recommended AMS add the clause ‘‘but
is not limited to’’ to § 201.306(a) to
provide flexibility regarding other
deceptive actions that may arise.
AMS Response: AMS is not adopting
the recommendation. ‘‘Not limited to’’
language is unnecessary, as paragraphs
(b) through (e) of this section are not
stated as being exhaustive. This
regulation is not designed to, and
should not be read to, create an
exclusive or exhaustive set of instances
of deceptive practices. This rulemaking
is intended to provide guidance to
covered producers for how to effectuate
their rights under the Act by
implementing regulations that provide a
broad array of coverage against
deceptive practices during various
stages of the contracting process. Future
rulemaking or enforcement actions
would not be restricted to the conduct
identified in § 201.306 when dealing
with deception, as the Act’s coverage is
broader than this final rule.
Comment: An agricultural advocacy
organization recommended that AMS
address common cattle contracting
practices that enable regulated entities
to consolidate their power, expand their
profit margins, and shift their risks to
producers, particularly those practices
facilitated by increased use of AMAs.
The commenter asserted AMAs, which
are typically contracts for future
delivery of cattle where the price paid
at time of delivery is tied to a
contemporaneous price such as that in
the ‘‘spot’’ cash market for cattle, give
packers ample opportunity to offload
the risks of changes in the spot market
onto producers by manipulating the
prices they pay them at delivery. The
commenter cited several ways in which
the prevalence of AMAs shapes the
market to packers’ advantage. According
to the commenter, animals under AMAs
contribute, along with those directly
owned by packers, to a large ‘‘captive
supply’’ of cattle for packers, which
gives these regulated entities substantial
control over the cash price of beef. In
addition, the commenter said lack of
participation in spot markets means
they provide less reliable price signals
for AMAs, allowing packers to easily
conduct limited spot market sales at low
prices, in turn lowering the prices they
pay producers at time of delivery.
The commenter argued that many of
these packer practices relating to AMAs
are deceptive because they can induce
producers to enter into contracts in
which they do not fully appreciate the
extent to which packers control the
applicable risks. At a minimum, the
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commenter urged AMS to clarify that
the proposed rule’s ban on deceptive
practices extends to packer
manipulation of spot market prices to
lower the price paid to independent
producers at time of delivery. The
commenter also stressed that it would
prefer AMS to introduce a
comprehensive prohibition of deceptive
practices associated with AMAs to
avoid placing the burden of identifying
manipulation on individual producers.
Specifically, the commenter
recommended that AMS require forward
livestock contracts to include a firm and
predictable base price, so packers have
no room to manipulate prices, citing the
recent Cargill case under which DOJ
alleged that contracts executed by major
poultry processor defendants under the
tournament system violated the Act.
The final judgment agreed to by the
parties and entered by the Court
requires that the defendant processors
pay contract poultry growers a firm and
predictable base price.196 The
commenter also suggested AMS
consider banning packer-owned cattle
as well as captive supply arrangements
that use formula or basis price forward
contracts.
AMS Response: AMS is aware that
concerns exist around forward cattle
contracts and AMAs, especially those
linked to thin cash markets. AMS is not
addressing in this rulemaking whether
AMAs are inherently deceptive.
Therefore, AMS will not include a
blanket prohibition on such contracting
in this rule.
Likewise, AMS has determined it will
not add the commenter’s suggested ban
on packer-owned cattle and captive
supply arrangements that use formula or
basis price forward contracts. AMS
believes more analysis is needed to
ensure such intervention is appropriate.
Comment: An agricultural advocacy
organization recommended that AMS
add a provision to § 201.306
establishing a standard for contract
completeness and providing that use of
contracts that do not meet these
minimum standards constitutes an
unlawful deceptive practice under the
Act. The commenter argued this
measure would help producers
operating in monopolistic regional
markets, saying integrators often take
advantage of the lack of buyer-side
competition by unilaterally dictating
base prices, providing deceptive
earnings claims, offering incomplete
and one-sided contracts leaving out key
terms such as the number of flocks a
poultry grower can expect to receive,
196 See U.S. v Cargill Meat Solutions Corp., et al.
at https://www.justice.gov/d9/2023-11/418169.pdf.
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and coercing producers into taking on
additional debt to upgrade their
facilities. The commenter recommended
that the proposed rule specify that
complete contracts include the
expectation that contracts clearly state a
minimum price or rate of pay for
products or services rendered; a detailed
disclosure of potential expected capital
investments necessary for a continued
contractual relationship; and a
minimum commitment of contract
years, annual animal placements, and
stocking density sufficient for the
producer to maintain any contractually
expected debt payments at the
minimum guaranteed price or payment
rate. The commenter also suggested
AMS clarify that it would be unlawful
retaliation for an integrator to coerce,
intimidate, or break contract with a
producer based on the producer’s
unwillingness to implement integratordesired upgrades not previously
detailed in a complete contract, as long
as the producer’s infrastructure is
legally compliant and in good working
order.
AMS Response: AMS understands
that in highly concentrated buyer
markets, producers may have limited
control over contract terms due to the
limited availability of buyers; however,
AMS will not be establishing minimum
standards for contract completeness via
this rulemaking. This rule is intended to
address broad areas of specific concern,
not exhaustively identify all deceptive
practices that could violate sec. 202(a)
of the Act. Deceptive acts in contracting
will be determined on a case-by-case
basis based on the facts and
circumstances of each individual case.
Similarly, AMS will not be amending
the regulations prohibiting retaliation
(§ 201.304(b)) to implement the
commenter’s specific circumstance
regarding unwillingness to implement
upgrades not previously detailed in a
complete contract. This comment is
outside the scope of this rulemaking and
AMS is making no changes to the rule
based on this comment.
Comment: Agricultural advocacy
organizations asked AMS to include a
new paragraph enumerating a nonexhaustive list of prohibited conduct,
saying this addition would clarify that
the Act explicitly prohibits certain
conduct known to harm producers and
market integrity. The commenters
further said AMS should include any
other specific types of harmful conduct
producers currently face and stress that
all other conduct known to harm
producers or market integrity is
prohibited even if not directly listed.
The commenters provided the following
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recommended regulatory text to
incorporate these suggested changes:
(f) Specific deceptive practices
prohibited.197 In addition to any other
conduct prohibited by subsections (b)
through (e), a regulated entity may not engage
in the following conduct during contract
formation, performance, or termination or
when refusing to contract:
(1) Demanding capital investments as a
condition of contract renewal if such capital
investment demands were not previously
agreed to in writing between the covered
producer and regulated entity.
(2) Demanding capital investments by a
covered producer without commensurate and
enforceable obligations on the part of the
regulated entity that will reasonably allow
the covered producer to recover the
demanded capital costs plus a reasonable
return.
(3) Refusing to deal because the livestock
producer is selling livestock on the cash
market rather than through a contract
arrangement and the livestock is otherwise
marketable.
(4) Failing to provide a guaranteed base
pay in Alternative Marketing Agreements,
production contracts, or other similar
arrangements.
(5) Inequitably distributing inputs such as
animal placements, feed, veterinary care, or
other inputs controlled by a regulated entity
that can impact a covered producers’
performance or compensation.
(6) Shifting environmental compliance
costs or responsibilities exclusively to a
covered producer when the regulated entity
exercises substantial operational control,
through contract or otherwise, over the
producer through an ownership interest in
the livestock or poultry, land or other capital,
or control of a covered producers’ activities,
inputs, management and waste management
practices, or capital investments.
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AMS Response: AMS is making no
changes to the rule based on this
comment. The commenters’ proposed
specific prohibitions are outside the
scope of the deceptive practices AMS
intended to address in this rule.
Comment: Agricultural advocacy
organizations suggested AMS look to the
poultry transparency proposed rule 198
and the advance notice of proposed
rulemaking regarding fairness and
related concerns in poultry grower
tournament systems,199 saying AMS
197 The commenters noted that, if AMS adopts
this addition, it must also revise § 201.306(a) to
include paragraph (f): ‘‘A regulated entity may not
engage in the specific deceptive practices
prohibited in paragraphs (b) through (f) of this
section.’’
198 Agricultural Marketing Service,
‘‘Transparency in Poultry Grower Contracting and
Tournaments,’’ Proposed Rule (87 FR 34980, June
8, 2022), available at https://
www.federalregister.gov/documents/2022/06/08/
2022-11997/transparency-in-poultry-growercontracting-and-tournaments.
199 Agricultural Marketing Service, ‘‘Poultry
Growing Tournament Systems: Fairness and
Related Concerns,’’ Request for Comments (87 FR
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should ensure that the deceptive
practices identified in these
rulemakings, such as unfounded claims
about potential earnings made to
prospective contract growers, lack of
transparency in explaining tournament
results, and inconsistent input quality,
are also incorporated into this rule.
AMS Response: AMS is making no
changes to the rule based on this
comment. This final rule seeks to
provide a broad set of protections for all
producers. Other rules that AMS may
propose or finalize, including rules
relating to poultry grower ranking
systems, are separate and distinct.
iv. Approach to Governance and
Structuring of Deception and Employing
False or Misleading Statements
AMS requested comment on whether
deception in contract refusal should be
governed by the categorial approach as
proposed, or whether it should be
governed by a single statement setting
out one standard for contract formation,
performance, and termination. It also
requested comment on whether it
should structure deception around
prohibiting the deceptive pretext,
statement, or omission, rather than
prohibiting the contractual activity
based on the deceptive statement or
omission as proposed. In addition, it
requested comment on whether the
prohibitions on ‘‘employing’’ certain
false or misleading statements, pretexts,
and omissions in the formation,
operation, etc., of a contract
appropriately capture the importance or
effect of the misleading statement, such
as its material or relevance to the
producer or the formation, operation,
etc., of the contract. Alternatively, it
asked whether it should prohibit a
regulated entity from employing any
pretext, false or misleading statement, or
omission of material facts necessary to
make a statement not false or
misleading, in connection with making,
enforcing, or cancelling a contract. AMS
also asked if there was a better way to
approach the issue, such as using
elements or defenses.
Comment: An agricultural advocacy
organization said the categorical
approach to governance in the rule as
proposed is appropriate because
itemizing the likely deceptive actions
more effectively draws attention to the
various deceptive actions potentially
used by regulated entities. This
commenter indicated that either
approach to structuring would be
34814, June 8, 2022), available at https://
www.federalregister.gov/documents/2022/06/08/
2022-11998/poultry-growing-tournament-systemsfairness-and-related-concerns.
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effective but said the structure as
proposed would better make current
producers and prospective aware of the
types of potential deception they may
encounter. It also indicated support for
the approach to employing of false or
misleading statements, pretexts, or
omissions AMS took in the proposed
rule.
AMS Response: AMS takes note of the
commenter’s support for the usefulness
of the provisions. AMS made no
changes to the rule in response to this
comment; however, as discussed in
Section V—Changes from the Proposed
Rule, AMS made several changes to the
verbiage of § 201.306(b) through (d),
including removing the word ‘‘pretext’’
and replacing the phrase ‘‘omission of
material fact’’ with ‘‘omission of
material information.’’
v. Other Elements To Explicitly
Consider in Rule on Deception
AMS requested comment on whether
there are other elements, such as the
reasonableness of the recipient, that it
should explicitly consider in a rule on
deception.
Comment: An agricultural advocacy
organization said AMS should consider
whether the contract language was clear
and written in a language the producer
understands when evaluating if a
regulated entity used deceptive
practices. The commenter also said the
proposed rule on transparency in
tournament systems addressed
disclosure-related issues that AMS
should consider in establishing when
contract terms should be considered
deceptive.
AMS Response: Whether the contract
language was clear and written in a
language the producer understands
would be part of any evaluation to
determine whether a statement
(including any omission of material
information) was false or misleading
and that determination would be
dependent on the particular facts and
circumstances of the contract. This rule
is intended to cover not only the poultry
industry, but the swine and cattle
industries. As such, it focuses on
general circumstances that may give rise
to the provision of false or misleading
information. Therefore, AMS is making
no changes to the rule based on this
comment.
vi. Specific Challenges or Burdens
Regulated Entities Might Face in
Complying With Deceptive Practices
Provisions of Proposed Rule
AMS requested comment on specific
challenges or burdens regulated entities
might face in complying with the
deceptive practices provisions of the
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proposed rule and how they differ from
existing policies, procedures, and
practices of regulated entities.
Comment: A poultry industry trade
association and several live poultry
dealers said the deceptive practices
provisions of the proposed rule would
discourage legitimate adverse actions by
companies, making the system less
efficient overall. First, the commenters
said AMS does not provide guidance on
how it defines ‘‘pretext’’ or how a
regulated entity would demonstrate that
an explanation is not pretextual, which
raises uncertainties in terms of
compliance and may dissuade
companies from providing detailed
explanations to producers to avoid the
potential for second-guessing on motive.
The commenters also said the proposed
rule is unclear about whether regulated
entities seeking to avoid a potential
omission of material fact need to
mention every business reason that
contributed to a decision even if other
factors were more relevant. In addition,
the commenters said the proposed
deception provision makes it more
challenging to terminate relationships
with contractors who perform poorly or
mistreat animals, giving regulated
entities incentive to keep these contracts
in place rather than risk lawsuits over
whether any communications leading
up to the termination were deceptive
and resulted in fewer opportunities for
new entrants to the poultry industry.
A swine industry trade association
said the deceptive practices provisions
would likely lead to costly litigation
because the rule is overly broad and
vague in its description of prohibited
conduct. For example, according to the
commenter, the proposed rule does not
provide any definition or guidance on
what constitutes a ‘‘material’’ fact,
which is deceptive if omitted, and its
ban on deceptive practices with respect
to ‘‘any matter’’ related to livestock,
meats, or live poultry does not clearly
establish the scope of conduct at issue.
In addition, the commenter said much
of § 201.306 is unnecessary because
other laws already sufficiently restrict
the conduct at issue.
AMS Response: Section 201.306 is
designed to address deceptive practices
in the marketplace by establishing four
categories in the contracting process
where deceptive practices commonly
occur. The aim is to promote a
marketplace that is free from the type of
injury the Act was designed to prevent.
Such a framework is necessarily broad,
as the commenters noted, however, this
framework is not intended to, and
should not, cripple regulated entities’
decision-making or the system overall.
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AMS must help ensure that regulated
entities are truthful in their dealings
with producers. Under these rules, AMS
would seek to uncover the real motive
for a regulated entity’s treatment of a
producer with whom they are forming
or have a contractual relationship. AMS
is including a prohibition against false
or misleading statements, or omission of
material information necessary to make
a statement not false or misleading (in
paragraphs (b) through (d)) to protect
producers from conduct that employs
deceit to disguise a regulated entity’s
genuine motive. Over the years,
producers have reported concerns
regarding their inability to understand
and appreciate the real reasons why
regulated entities take certain actions
against them, in particular with respect
to certain actions such as reduced chick
placement or contract termination. For
example, producers have asserted that
sometimes a regulated entity will
suddenly enforce certain parts of a
contract in a stricter manner—such as
animal welfare guidelines—even though
the regulated entity had earlier found
the producer’s conduct under the
contract acceptable. Producers assert
that this is an example of a form of
retaliation for actions by the producer or
a deceptive practice to accommodate
unrelated economic decision-making.
Producers need to understand the real
reasons for regulated entities’ decisionmaking both to protect themselves from
specific inappropriate adverse actions
(such as undue prejudice or retaliation)
and to be able to compete more
effectively in a concentrated
marketplace. If they cannot learn the
real reasons why certain actions are
taken against them, they cannot plan or
mitigate the risks they may face.
Therefore, AMS believes it is crucial to
establish a regulatory framework
prohibiting deceptive practices in
contracting. AMS believes such a
framework should provide broad, nonexhaustive prohibitions to provide
better coverage for producers against
deceptive practices in various stages of
the contracting process. AMS may refine
this framework via future rulemakings if
the need arises.
With respect to the commenters’ view
that AMS does not provide guidance on
how it defines ‘‘pretext’’ or how a
regulated entity would demonstrate that
an explanation is not pretextual, AMS
adopted clarifying language by
withdrawing its use of ‘‘pretext’’ and
relying on the prohibition against
employing a ‘‘false or misleading
statement.’’
With respect to the commenters’
critiques regarding the materiality
standard, under the FTC’s Policy
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Statement on Deception, ‘‘material’’
refers to information that would affect a
consumer’s—in this case, producer’s—
conduct or decision-making, from the
perspective of a producer acting
reasonably under the circumstances. Act
precedent may not require AMS to
follow FTC’s precedent in all
circumstances, but AMS has designed
the rule to satisfy the approach set forth
in the FTC Policy Statement on
Deception in this set of deceptive
practice prohibitions. AMS is not
seeking to establish a ‘‘but for’’
standard; however, the materiality of the
information is already embedded in the
regulated entity’s act of ‘‘employing’’
the omission on which the covered
producer has relied on in the
contracting activity under § 201.306.
Commenters also expressed concern
about § 201.306’s prohibition against the
omission of material facts, questioning
whether compliance would require that
regulated entities mention every
business reason that contributed to a
decision even if other factors were more
relevant. AMS notes that proposed
§ 201.306(b) through (d) specified that
the prohibition applies to the ‘‘omission
of material fact necessary to make a
statement not false or misleading.’’ If
one of the factors that contributed to a
regulated entity’s business decision was
not material or relevant, then the
omission of that information would be
unlikely to make a statement false or
misleading from the perspective of a
producer acting reasonably under the
circumstances. AMS therefore made no
changes to the proposed regulations in
response to this comment; however,
AMS notes that as discussed in Section
V—Changes from the Proposed Rule,
AMS made several changes to the
verbiage of § 201.306(b) through (d),
including replacing the phrase
‘‘omission of material fact’’ with
‘‘omission of material information.’’
In response to commenters’ concerns
regarding the potential for increased
litigation, AMS acknowledges that the
provisions of § 201.306 could result in
additional litigation because the
regulations could provide producers
new hope for relief from deceptive
conduct in the contracting process.
However, as discussed in more detail in
this rule’s Regulatory Impact Analysis
in Section VIII.B., AMS does not expect
large increases or decreases in litigation
from this rule. Though commenters
expressed concern that this regulation
will lead to costly litigation because it
is too broad and vague, AMS notes that
in this final rule the Agency has
provided additional clarity on the
meaning of ‘‘material’’ in these
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regulations and removed use of the
word pretext. AMS also rejects the
commenter’s assertion that the rule is
overly broad and vague in its ban on
deceptive practices with respect to ‘‘any
matter’’ related to livestock, meats, or
live poultry because this assertion is
inaccurate. This regulation does not ban
any deceptive practice related livestock,
meats, or live poultry: paragraph (a)
establishes that the scope of § 201.306 is
prohibiting deceptive practices that
occur in specific stages of the
contracting process. These stages are
then delineated in paragraphs (b)
through (e). AMS notes, however, that it
has removed the words ‘‘any matter’’
from § 201.306(a).
With respect to the commenter’s view
that § 201.306 is unnecessary, AMS
disagrees. AMS believes that, while
USDA regulations prohibiting specific
deceptive practices already exist, a
regulatory framework prohibiting
deception during the contracting
process is necessary because this will
provide much-needed certainty and
predictability to the interpretation of
this section of the Act.
vii. Specific Recordkeeping Provisions
Relating to Deceptive Practices
AMS requested comment on whether
it should propose specific
recordkeeping provisions relating to
deceptive practices and what such
practices should include.
Comment: An agricultural advocacy
organization recommended that AMS
introduce a recordkeeping requirement
related to deceptive practices to help it
enforce these practices. Another
agricultural advocacy organization
suggested AMS require regulated
entities to provide examples of contract
terms as well as procedures related to
tournament settlements and input
quality, saying this requirement would
help it identify deceptive practices.
AMS Response: In response to
commenters’ suggestions, AMS notes
that regulated entities are already
required to maintain records pertaining
to their business activities (see 9 CFR
201.95). In light of existing law, a
specific recordkeeping requirement
covering every statement or interaction
that could amount to deception is not
appropriate as it could be expensive and
burdensome, while yielding little
benefit in terms of usable, searchable
information. AMS will monitor
regulated entities’ practices to evaluate
whether additional requirements are
necessary. AMS further notes that
should specific problems emerge,
heightened recordkeeping could be a
requirement arising out of enforcement
actions or adopted in future rulemaking.
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AMS is not adopting the commenter’s
suggestion regarding examples of
contract terms and procedures related to
tournament settlements and input
quality because they are outside the
scope of this rule. AMS made no further
changes in response to the comments.
viii. Requirement That All Contracts be
in Writing
AMS requested comment on whether
all contracts with respect to livestock,
meats, meat food products, livestock
products in unmanufactured form, or
live poultry should be in writing.
Comment: Agricultural advocacy
organizations said AMS should require
all contracts to be in writing because
doing so is necessary for enforcing the
Act. These commenters said AMS
should also require regulated entities to
make all claims to prospective
producers in writing to deter false or
misleading statements designed to
encourage signing of a contract.
A plant worker indicated support for
requiring all contracts to be in writing,
while noting that some benefits would
be limited. According to the commenter,
introducing this type of requirement
would help producers by providing a
record of the transaction and an increase
in transparency. However, the
commenter also said such a requirement
would be less likely to address packer
pressure on producers to use formula
market arrangements to incentivize
cattle quality if the packers present
these arrangements as take-it-or-leave-it
offers, although it would at least help
create an environment that is
transparent about material terms. The
commenter also said that many
jurisdictions may already require
contracts to be in writing to satisfy the
statute of frauds, especially if they cover
multiple years, thus making a provision
requiring written contracts potentially
redundant in some cases.
AMS Response: AMS appreciates the
commenters’ views on the value of
written contracts and agrees that written
contracts have significant benefits for
reducing deceptive practices and
encouraging market integrity. Written
contracts provide both parties clearer
understanding of their positions and the
opportunity for regulators to review and
evaluate the functioning of the market.
However, AMS also recognizes that it is
a longstanding trade practice in the
agricultural sector for many parties to
negotiate and assent to contract terms
orally, which holds the same weight
under the law as a written contract.
USDA has pursued many cases based on
the violation of unwritten terms, and
this will not change. Requiring that all
contracts be in writing would more
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significantly affect cattle markets, as
more of those markets remain cashnegotiated. Contract formation regarding
the purchase and sale of livestock often
occurs over the phone and quickly.
Requiring written contracts would
impede the ability of parties to conduct
business expeditiously, which is often
necessary in fluctuating commodity
markets, especially for perishable
products like meat. Vertically integrated
contract growing arrangements, which
are nearly universal in poultry and
widespread in hogs, are more
characterized by written contracts
already. In this rule, AMS is choosing
not to adopt a requirement for written
contracts or claims in all circumstances.
While AMS believes that written
contracts are a good practice, especially
in light of changes in technology (like
email and electronic signatures), AMS
believes additional study and
consideration is needed and is deferring
for future consideration whether a
mandate is appropriate.
ix. Treatment of Failure To Continue To
Buy in Cash Market Following Regular
Pattern or Practice of Such Buying
AMS requested comment on whether
a failure to continue to buy in the cash
market, following a regular or
dependable pattern or practice of such
buying, should be treated for the
purposes of this proposed rule as more
similar to termination of a contract,
rather than as refusal to deal.
Comment: An agricultural advocacy
organization said it agreed with AMS
that a decision or action on the part of
a regulated entity to stop buying on the
cash market is more analogous to a
contract termination than a refusal to
deal but notes that these decisions or
actions also share key features with the
latter. The commenter provided the
example of a packer who refuses to buy
cattle in the cash market from a covered
producer who regularly sells on the cash
market unless the producer agrees to
enter a forward contract with a packer;
this act would constitute both refusal to
deal and termination of a contract, and
would also be a form of prohibited
retaliation.
AMS Response: AMS agrees that a
circumstance where a packer refuses to
buy cattle in the cash market from a
covered producer who regularly sells on
the cash market to the regulated entity
is analogous to a contract termination,
as past court decisions have recognized
a remedial duty under the Act to a make
purchases in certain circumstances.200
200 Swift & Co. v. United States, 393 F.2d 247, 253
(7th Cir. 1968).
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AMS did not make any revisions to
§ 201.306 in response to this comment;
however, AMS is clarifying in
§ 201.304(b)(3)(iv) of this final rule that
refusing to deal with a covered producer
refers to refusing to deal on terms
generally or ordinarily offered to
similarly situated covered producers,
which would include the producer’s
prior status quo. This would address the
case where a producer has a prior track
record of regular sales to the packer but
is cut off. AMS also added
§ 201.304(b)(3)(vi) to further clarify that
harm to a producer on the basis of
protected activities is intended broadly
to capture materially adverse retaliatory
action that a packer may take against a
producer.
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H. Severability (§ 201.390)
AMS proposed adding a new
provision to 9 CFR part 201 of the
Packers and Stockyards regulations
ensuring that if any provision—or
applicability of any provision—of
subpart O was declared invalid, the
validity of the other provisions of
subpart O would be unaffected. AMS
noted this is to provide a reviewing
court some guidance on the Agency’s
position on how the rule is intended to
function.
Comment: An agricultural advocacy
organization indicated support for the
severability provision, saying that, in
the event of successful court challenges
to specific provisions of the proposed
rule, it would help ensure that the
protections in the rest of the rule
remain.
AMS Response: AMS agrees that a
severability clause is appropriate
because the undue prejudice,
retaliation, and deception sections of
this rule can be enforced as stand-alone
provisions. They are not
interdependent, therefore the exclusion
of one does not disqualify any of the
others. For this reason, as discussed in
more detail in Section VI.F—Provisions
of the Final Rule, Severability, AMS has
included under § 201.390 a severability
clause in its final rule.
I. Effective and Compliance Dates
Comment: An industry company said
AMS should consider what amount of
time is necessary to implement changes
resulting from its new rules, and
recommended it provide one effective
date for all regulatory changes required
by updates to the Act.
AMS Response: AMS agrees with
commenters that the final rule should
provide a clear effective date for
implementation. The AMS Act final rule
‘‘Undue and Unreasonable Preferences
and Advantages Under the Packers and
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Stockyards Act’’ was published on
December 11, 2020, and became
effective on January 11, 2021, providing
a 30-day period. AMS believes that this
rule presents a similar scope of
rulemaking coverage, relating to basic
principles that regulated entities
themselves have acknowledged they
already comply with. However, in
response to requests from commenters
for additional time, AMS will give 60
days, which the Agency feels provides
adequate time for regulated entities to
become compliant with this rule given
the low cost and minimal process
changes required to do so. Accordingly,
within 60 days of publication in the
Federal Register, regulated entities are
expected to comply with all
components of new subpart O.
J. Regulatory Notices & Analysis &
Executive Order Determinations
i. Costs and Benefits of Proposed Rule
Pursuant to the requirements of
Executive Order 12866, AMS conducted
a cost-benefit analysis of the proposed
rulemaking by considering three
regulatory alternatives: (1) maintaining
the status quo and not implementing the
proposed rulemaking, (2) issuing the
proposed rulemaking, or (3) issuing the
proposed rulemaking but exempting
small businesses from compliance with
the recordkeeping requirement.
a. Costs of Proposed Rule
Comment: Several live poultry dealers
and trade associations took issue with
the accuracy of cost estimates in the
proposed rulemaking. A poultry
industry trade association and several
live poultry dealers contended that the
Agency’s first-year estimate of $504 per
live poultry dealer to comply with the
proposed rule is a drastic
underestimate. They argued that the
costs of physical filing cabinets to
maintain the requisite paperwork alone
would exceed the estimated first-year
cost, and that recordkeeping and
computer systems to digitally maintain
records would be more costly. The
commenters also contended that the
AMS cost estimates overlooked
significant labor costs that would be
required to comply with the new rules,
including legal services.
AMS Response: AMS disagrees with
commenters’ assertions regarding the
accuracy of its cost estimates. AMS
subject matter experts calculated the
estimated compliance and
recordkeeping costs associated with this
rule. These experts are economists and
supervisors in AMS’s PSD with many
years of experience conducting
investigations and compliance reviews.
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AMS stands behind their estimates.
AMS believes that the costs associated
with this rule will be minimal: the firstyear total cost is estimated to be
$586,000, or 0.0002 percent of revenues,
given that total sales of beef, pork, and
broiler chicken was approximately
$294.5 billion in 2022.201 This figure
encompasses an estimate of the total
value of the time required to review and
learn the rule, review live poultry
dealers’ and packers’ procurement
policies and production contracts, make
any necessary changes to ensure
compliance with the new regulations,
and maintain records to demonstrate
compliance practices. AMS estimates
that the total cost for each succeeding
year would be $298,000, or 0.0001
percent of revenues.
With respect to commenters’ assertion
that AMS has neglected to account for
labor costs, including legal services,
AMS notes that in the proposed rule’s
Paperwork Reduction Act analysis,
AMS provided a compliance cost
breakdown for the hours required of
attorneys, as well as administrative
assistants, managers, and information
technology staff. AMS does not expect
large increases or decreases in litigation
costs, and thus regulated entity legal
services. The clarity provided by the
rule encourages regulated entities to
proactively avoid prejudicial,
discriminatory, and deceptive practices
that could otherwise lead to costly
litigation. Likewise, the rule could also
provide producers hope for relief from
the courts for perceived prejudicial,
discriminatory, and deceptive practices,
which could, in turn, increase litigation
but would return benefits to producers
in reduced harms. In response to
commenters’ concerns regarding the
costliness of the rule’s recordkeeping
requirements, AMS argues that the
recordkeeping requirements were
crafted to provide flexibility for
regulated entities. The rule does not
prescribe the manner in which records
must be stored. If a regulated entity
finds the cost of filing cabinets
prohibitive, the entity may choose
whichever means of file retention is
most cost effective, including currently
available computer filing systems,
which most companies maintain in the
normal course of business. Additionally,
the rule provides regulated entities
leeway to determine which records they
choose to maintain. Because this rule
applies to regulated entities across a
201 Total meat and poultry processing industry
revenues. Source: https://www.ibisworld.com/
industry-statistics/market-size/meat-beef-poultryprocessing-united-states/#:∼:text=The%20market
%20size%2C%20measured%20by,industry
%20increased%200.2%25%20in%202022.
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variety of industries and of varying
sizes, AMS did not prescribe a set of
records each entity must retain,
regardless of their relevance to a
particular entity’s circumstances. Some
firms might not have any records to
store. Others may already store relevant
records and may have no new costs.
Therefore, the rule saves regulated
entities from the burden of maintaining
records irrelevant to their
circumstances.
Accordingly, AMS makes no changes
to the rule in response to these
comments.
Comment: Many industry companies
and trade associations argued that the
cost estimates put forward in the
proposed rule ignore significant
litigation costs that would be inevitable
under the proposed regulations. A cattle
industry trade association disagreed
with AMS’s cost analysis that the rule
could plausibly reduce litigation costs
‘‘if companies come into compliance
without any enforcement action.’’ The
trade association argued that the rule
contains vague standards and eliminates
the requirement that a plaintiff must
show competitive harm, both of which
would lead to a proliferation of
litigation. It asserted that the threat of
litigation would cause packers to reduce
their legal risk exposure by
standardizing their contracts with
producers, which could be costly for
producers who benefit from contracts
tailored to their individual needs or
conditions (e.g., cattle weight targets
based on geographic location and
regional feedstuffs availability). Finally,
it noted that AMS itself acknowledged
that GIPSA declined finalizing the
agency’s proposed rule in 2016—the
Farmer Fair Practices Rule—because it
contained ambiguous terms that would
increase litigation between regulated
entities and producers.
A live poultry dealer echoed this
concern, citing USDA’s
acknowledgement in the previously
proposed 2016 Farmer Fair Practice
Rule that rolling back the harm to
competition requirement would
‘‘inevitably lead to more litigation in the
livestock and poultry industries.’’ 202
The dealer also said that if the proposed
rule is implemented, the company
would no longer have incentive to
contract with individuals due to
litigation risk and would need to rely
more heavily on company-owned farms
to raise its poultry. It argued that the
result would be decreased grower
competition and thus decreased grower
202 Org.
for Competitive Mkts. v. Dep’t of
Agriculture, 912 F.3d 455, 459 (8th Cir. 2018)
(quoting 82 FR 48594, 48597 (Oct. 18, 2018)).
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pay, resulting in another unmeasured
cost of the proposed rule.
An industry trade association
suggested that millions of dollars per
year would be required to litigate,
define, and refine the terms of the new
rule due to ambiguity. It said that
frivolous litigation that misunderstands
or capitalizes on vagueness in the rule
would add significant litigation costs.
The trade association estimated the cost
of compliance with the new rule
(including anticipated litigation) to be
more than $100 million to the industry.
It cited independent economic analyses
of previous AMS rulemakings on similar
topics that estimated economic impact
costs exceeding $1 billion,203 arguing
that AMS significantly underestimates
cost estimates in the new proposed rule.
AMS Response: Litigation is possible
following the passage of any rule. The
threat of such litigation does not
preclude AMS from fulfilling its
mandate to administer the Act. AMS
believes that discriminatory, retaliatory,
and deceptive practices only serve to
exclude qualified producers from the
market. Even if such conduct impacts a
single producer, it can reasonably be
inferred that, if unchecked, such
conduct will proliferate and negatively
impact other producers and the market.
Therefore, it is the opinion of the
Agency that such conduct must be
stopped in its incipiency, or it will
likely cause widespread harm.
In response to commenters’ complaint
that AMS has overlooked significant
litigation costs that would be inevitable
under the proposed regulations, AMS
does not expect large increases or
decreases in litigation costs. The clarity
provided by the rule encourages
regulated entities to proactively avoid
prejudicial, discriminatory, and
deceptive practices that could otherwise
lead to costly litigation. This effect
would lead to a decrease in litigation
costs. Likewise, the rule could also
provide producers hope for relief from
the courts for perceived prejudicial,
discriminatory, and deceptive practices,
which could, in turn, increase litigation
costs but would return benefits to
producers in reduced harms. AMS is
uncertain as to which effect will
dominate and to what extent and,
therefore, does not estimate litigation
costs in this analysis.
With respect to the comments
regarding compliance costs for the 2016
Farmer Fair Practice Rule, commentors
discussed that a trade association
203 Scope of §§ 202(a) and (b) of the Packers and
Stockyards Act, 81 FR 92566, 92576, December 20,
2016 (discussing cost estimates prepared by
Thomas Elam and Informa Economics).
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estimated the cost of compliance with
rule (including anticipated litigation) to
be more than $100 million to the
industry. A commentor also noted that
an independent economic analyses of
previous AMS rulemakings on similar
topics that estimated economic impact
costs exceeding $1 billion. The 2016
Farmer Fair Practice Rule was a very
different proposed rule with a much
wider scope than this final rule, and
AMS does not consider a comparison of
the 2016 Farmer Fair Practice Rule and
this final rule to be an accurate
comparison. The costs of this final rule
are much smaller than the estimated
costs of the 2016 Farmer Fair Practice
Rule. GIPSA estimates the average
litigation cost of the 2016 Farmer Fair
Practice Rule to be less than $9 million
in the first year. Given the scope of this
final rule is smaller than the 2016
Farmer Fair Practice Rule, AMS expects
litigation to be smaller. This, combined
with the offsetting effects of the
increases and decreases in litigation,
leads AMS to not consider adding
litigation costs to the rule.
The assertion that packers will be
forced to standardize all contracts to
ensure conformity with the rule is
without basis. Standardizing contracts
may be one way to ensure fair treatment
of producers, however, this rule in no
way mandates such a response from
packers. Similarly, AMS disagrees with
the assertion that fear of litigation
would remove any incentive to contract
with individual poultry growers. The
aim of the rule is to discourage abuses
of power in the marketplace to allow
qualified producers to participate freely
in the market and receive full value for
their efforts. Reliance on individuals to
raise poultry evolved as an
economically advantageous way for
integrators to bring poultry to the
market. AMS does not believe that a
greater focus on ensuring honest dealing
and honest decision-making is
incompatible with this model. Further,
AMS disagrees with the assumption that
a regulated entity would need to abstain
from contracting with individuals to
ensure that they are not abusing their
market power by operating in
prejudicial, retaliatory, or deceptive
ways.
With respect to the comments
regarding rules previously published by
GIPSA, AMS notes that GIPSA’s
withdrawal of its 2016 rules was
justified in part due to the rules’ lack of
clarity regarding prohibited behavior
and the agency’s perception that such
ambiguity would increase litigation
costs. This rule differs from the GIPSA
rules by more clearly and specifically
laying out the types of conduct that will
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be prohibited. Additionally, much has
changed since the withdrawal of
GIPSA’s 2016 rules. In 2017, GIPSA
merged with AMS. AMS now
administers regulations under the Act
and undertook this rulemaking to meet
its statutory mandate. Also, in the years
since the GIPSA rules were withdrawn,
USDA has continued to receive
complaints from producers regarding
undue prejudice and unfair, unjustly
discriminatory, and deceptive practices.
When Congress, in April 2022, held
hearings to discuss such concerns
regarding the cattle and poultry markets,
the hearings were marked by the
absence of producers who chose to
avoid public testimony for fear of
retribution.204 Meanwhile, the market
remains highly concentrated and
vertically integrated, which enables
market power abuses and unjust
distortions of the competitive landscape
and makes any harms from them more
significant. Smaller producers are
unable to freely compete and receive
fair value for their goods because in
highly concentrated markets they often
have no option but to do business with
regulated entities which, in AMS’s
experience, have caused producers to
experience unjust and adverse
treatment. AMS has not been able to
effectively address these complaints,
partly because of the lack of clarity
regarding its regulations under the Act
and the ability for individuals to bring
cases based on specific instances of
harm. Therefore, it is now the Agency’s
belief that the potential costs of
increased litigation are outweighed by
the benefits to the market as a whole.
With respect to the ‘‘vague standards’’
giving rise to increased litigation
specifically, AMS has taken note and
addressed clarity in this rule.
Further, AMS will review the facts
and circumstances of each case and the
regulated entity’s justifications for any
alleged adverse treatment to determine
whether the regulated entity has
violated this rule. AMS is making no
changes to the rule in response to these
comments.
Comment: A plant worker argued
that—given the modest cost estimates
AMS provided for regulated entities to
administratively comply with the
recordkeeping requirements ($231–$485
for first-year costs and less in
succeeding years) of proposed
§ 201.304(c)—consideration of the third
regulatory alternative put forth by AMS
was unnecessary. The commenter
reasoned that because over 95 percent of
packers reporting to AMS are small
businesses, exempting such a large part
of the industry would not be conducive
to creating a uniform standard of
recordkeeping and reducing deceptive
practices across the industry.
AMS Response: AMS agrees with the
commenter that the third regulatory
alternative was not the best option.
AMS opted to proceed under regulatory
alternative two, the proposed
alternative. AMS chose to publish its
legal and economic analysis regarding
the third alternative to provide better
transparency to the public regarding the
Agency’s decision-making process. AMS
is making no changes to the rule in
response to this comment.
AMS chose final §§ 201.304 and
201.306 over the Small Business
Exemption Alternative because AMS
wishes to prevent the kind of undue
prejudices and unjust discrimination
described in the rule. AMS believes that
keeping relevant records will help
promote compliance with this rule, that
all packers, live poultry dealers, and
swine contractors cannot purchase
livestock or enter into contracts for
growing services with the kind of undue
prejudices and unjust discrimination
described in the rule. All packers, live
poultry dealers, and swine contractors
cannot purchase livestock or enter into
contracts for growing services with the
kind of undue prejudices and unjust
discrimination described in the rule.
204 See House Chair David Scott D–GA, Opening
remarks, U.S. House, Committee on Agriculture,
‘‘An Examination of Price Discrepancies,
Transparency, and Alleged Unfair Practices in
Cattle Markets,’’ April 27, 2022, (14 min: 24 sec),
available at https://anchor.fm/houseagdems/
episodes/An-Examination-of-Price-Discrepancies-Transparency--and-Alleged-Unfair-Practices-inCattle-Markets-e1hpvo8/a-a7r40dk. See also U.S.
Senate Committee on Agriculture, Nutrition, and
Forestry, ‘‘Legislative hearing to review S. 4030, the
Cattle Price Discovery and Transparency Act of
2022, and S. 3870, the Meat and Poultry Special
Investigator Act of 2022,’’ April 26, 2022, (1 hour
39 min), available at https://
www.agriculture.senate.gov/hearings/legislativehearing-to-review-s-4030-the-cattle-price-discoveryand-transparency-act-of-2022-and-s3870-the-meatand-poultry-special-investigator-act-of-2022
(Described fear of retaliation in livestock and
poultry markets).
b. Other Comments on the Cost-Benefit
Analysis
Comment: An agricultural advocacy
organization contended that AMS
should clarify the role of litigation costs
in its cost-benefit analysis. It argued that
litigation resulting from proposed
rulemaking should not be treated purely
as a cost, since (1) changes in behavior
by regulated entities to reduce
violations of the Act and (2)
compensatory awards to market
participants that suffer from violations
of the Act both result in benefits that
AMS should weigh in calculating the
net costs of the proposed regulation.
The association said that the Act relies
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in part on private litigation to keep
livestock markets competitive, and
while AMS is right to be cognizant of
litigation costs by providing clear and
unambiguous language to forestall
unnecessary legal proceedings, litigation
in general should not be treated solely
as an ancillary cost without considering
the benefits it confers.
AMS Response: AMS is making no
changes to the rule in response to this
comment. Rulemaking procedure
regarding the calculation of costs and
benefits requires the inclusion of
specific costs. The benefits of litigation
are harder to quantify, and thus were
not specifically included in the
proposed rule. However, AMS agrees
with commenter that there are benefits
of litigation in that producers will be
better able to protect themselves from
undue prejudice, retaliation, and
deception, and thus that litigation does
not result solely in negative costs. By
adding private rights of action to the Act
as recently as 1987, Congress has
expressly recognized that private
litigation, or the threat thereof, is a force
that shapes conduct for the protection of
producers. To the extent that the threat
of private litigation pressures regulated
entities into compliance and keeps their
conduct fair, litigation risks can serve to
ensure this rule’s full potential is
realized.
K. Comments on Legal Authority or
Other Legal Issues
i. Statutory Authority Under the Act
Comment: Several live poultry
dealers, an industry company, industry
associations, a legal foundation, and an
individual argued the proposed rule
exceeds AMS’s authority because it
unlawfully seeks to transform the Act
from an antitrust statute into a civil
rights law despite Congress’s clear
intention to address the type of harm to
producers covered by the proposed rule
via other statutory schemes rather than
under the auspices of the Act. They
argued that, if these laws still do not
cover certain types of mistreatment
producers may face, the correct course
of action is for Congress to revise these
statutes or pass new ones, not for AMS
to attempt to address them via the Act.
For example, a cattle industry trade
association noted that 42 U.S.C. 1981
already prohibits racial discrimination
in private contracting in cases where the
contractor cannot show harm to
competition. The cattle industry trade
association contended that, because
Congress has never sought to expand the
protections of section 1981 to other
protected categories, AMS lacks
authority to use the Act to effectively do
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so in the absence of enabling legislation.
This commenter also noted that
multiple other USDA statutes explicitly
refer to socially disadvantaged groups
and socially disadvantaged farmers or
ranchers, saying the lack of such
references in the Act itself indicates that
Congress did not intend for issues
relating to exclusion or disadvantage of
covered producers to fall within its
scope. A swine industry trade
association said proposed § 201.304(a)
of the proposed rule covers conduct
already prohibited by the Act itself as
well as by other antitrust and antidiscrimination laws, such as the Civil
Rights Act of 1964, the Agricultural Fair
Practices act, and the Robinson-Patman
Act. Industry trade associations and
companies said other statutes such as
the Agricultural Fair Practices Act, the
Capper-Volstead Act, and laws
protecting farmers from retaliation if
they act as witnesses in a Federal
investigation already prohibit retaliation
against essentially all covered activities
under proposed § 201.304(b).
AMS Response: Consistent with the
Act, this rule protects inclusive
competition and market integrity, and is
designed to ensure that fair and
competitive conditions prevail in
livestock and poultry markets. While
this rule may in some ways resemble
certain civil rights laws, it is distinct as
it draws its authority from the Act,
which sets forth a general prohibition
on unjust discrimination and undue
prejudice that is broader than civil
rights statutes that focus solely on
discrimination on account of a protected
status. AMS believes that discrimination
on the basis of an individual’s
characteristics—in particular, the bases
(as set forth in § 201.304(a)) of race,
color, religion, national origin, sex
(including sexual orientation and
gender identity), disability, or marital
status, or age, and the producer’s status
as a cooperative)—has no place in the
market for livestock and poultry.
Prejudices, disadvantages, inhibitions
on market access, or otherwise adverse
actions against covered producers on
these bases must fundamentally be
viewed as unjust forms of
discrimination, lest the word unjust be
unmoored from its plain meaning.
Moreover, this rule addresses the
unique and often difficult-to-prove
discriminatory conduct that has long
existed in the agricultural sector.
Demographic information is seldom
recorded in agricultural transactions;
therefore, it is difficult to quantify
discrimination. However, as the
preamble set forth, agricultural markets
are not representative of the population
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as a whole, for reasons in part arising
from a well-established track record of
unjust discrimination from USDA itself.
Unjust discrimination on the bases set
forth in this rule does not stem solely
from USDA’s actions, rather it was
widespread across society.
Discrimination and prejudice have not
been eliminated from society, and
heightened steps are appropriate to
prevent unjust discrimination from
coloring public or private decisionmaking. Such clarity is especially
important in today’s highly
concentrated agricultural markets, with
few minority participants, as the lack of
competition means that failure of
inclusion for all farmers gives rise to a
competitive harm under the Act.
AMS recognizes that section 1981 of
the Civil Rights Act establishes that
certain rights are to be guaranteed, and
these rights are to be protected against
impairment by nongovernment and state
discrimination. This rule addresses
prohibited conduct specifically in the
agricultural sector and is not superseded
by section 1981. By expressly stating
prohibited conduct that is violative of
the Act, this rule seeks to allow AMS to
better enforce the Act. AMS
acknowledges that multiple USDAadministered statutes explicitly refer to
socially disadvantaged groups and
socially disadvantaged farmers or
ranchers but underscores that AMS has
replaced the definition of ‘‘market
vulnerable individual’’ (which was
more closely aligned with the
formulations under those laws) with a
simpler set of prohibited bases. And for
the reasons described above, AMS’s
interpretation of the Act is faithful to its
text and purposes. AMS notes that
comments indicated that the Act in fact
does prohibit the conduct set forth in
this rule, in which case the rule will
function to clarify and explicate already
prohibited conduct.
AMS notes commenters’ argument
that § 201.304(a) covers similar conduct
as the Civil Rights Act of 1964, the
Agricultural Fair Practices Act (AFPA),
and the Robinson-Patman Act. However,
the fact that such conduct is prohibited
under those statutes does not mean that
it is not also prohibited by the P&S Act,
which is broader in scope than other
antitrust laws.205 AMS believes it is
appropriate to provide clarity regarding
205 H.R. Rep. 67–77, at 2 (1921); see also Swift &
Co. v. United States, 308 F.2d 849, 853 (7th Cir.
1962) (‘‘The legislative history showed Congress
understood the sections of the [P&S Act] under
consideration were broader in scope than
antecedent legislation such as the Sherman
Antitrust Act, sec. 2 of the Clayton Act, 15 U.S.C.
13, sec. 5 of the Federal Trade Commission Act, 15
U.S.C. 45 and sec. 3 of the Interstate Commerce Act,
49 U.S.C. 3.’’).
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application of the Act because AMS has
the authority to enforce the Act (and the
AFPA), and not the Civil Rights Act of
1964 or the Robinson-Patman Act, with
respect to livestock and poultry. The
Act provides supplemental and parallel
coverage to the AFPA, making its
application appropriate and valuable to
livestock producers and poultry growers
who have, over the years, found it
challenging to earn the full value of
their animals in their dealings with
packers and live poultry dealers.
Similarly, AMS disagrees with
commenters’ argument that § 201.304(b),
which prohibits retaliation, is
unnecessary because these protections
are already afforded by the AFPA, the
Capper-Volstead Act, and other laws
which specifically protect farmers from
retaliation for acting as a witness in a
Federal investigation. USDA has
continually received complaints from
producers regarding retaliatory
practices. Therefore, AMS concludes
that promulgating these rules under the
authority of the Act is necessary to
address these concerns.
Therefore, AMS makes no changes to
the rule as proposed in response to
these comments.
Comment: A legal foundation and a
cattle industry trade association claimed
AMS’s decision to broadly restrict
discrimination against ‘‘market
vulnerable’’ individuals exceeds its
statutory authority. One commenter said
this decision, and its likely result of
leaving courts to flesh out the vague
definition to determine whom the
proposed rule should protect, is
inconsistent with Congress’s
longstanding and repeated choices to
ban discrimination using an approach
based on protected classifications.
Another commenter said AMS acts
beyond its authority in proposing a
broad definition of ‘‘market vulnerable’’
individuals because its goal in taking
such an approach is to ensure that the
rule can address prejudice based on
categories such as sexual orientation or
gender identity. According to the
commenter, AMS cannot redefine the
meaning of the key terms ‘‘undue
prejudice’’ and ‘‘unjust discrimination’’
under the Act to include protections
based on these categories because the
Congress that enacted the Act in 1921
would not have contemplated such
protections. The commenter further
critiqued AMS’s citation of Bostock v.
Clayton County 206 to support its
approach. According to the commenter,
Bostock, which establishes that
discriminating against an individual for
being lesbian, gay, transgender, or
206 140
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queer, constitutes discrimination on the
basis of sex or gender prejudices, is in
fact limited to an employment context
and does not apply to contract
arrangements.
AMS Response: AMS accepts the
comment that it would be burdensome
for the courts to flesh out the vague
definition of ‘‘market vulnerable
individual’’ to determine who the
proposed rule should protect and that
the approach is inconsistent with
Congress’s longstanding and repeated
choices to ban unjust discrimination
using an approach based on protected
classifications. Accordingly, AMS is
adopting specific prohibited bases in
this final rule.
AMS rejects the commenter’s view
that it is beyond the authority of the Act
for AMS to address prejudice based on
categories, such as sexual orientation or
gender identity, because the Congress
that enacted the Act in 1921 would not
have contemplated such protections.
The Act specifically addressed ‘‘unjust
discrimination’’ and ‘‘undue prejudice’’
and left it to the Secretary to set out the
scope of equitable terms such as
‘‘unjust’’ and ‘‘undue,’’ as well as
‘‘unfair.’’ 207 Moreover, ECOA
prohibitions on discrimination in the
extension of credit—which includes
many of the protected bases covered by
this final rule, including sex, shall be
enforced under the P&S Act. Therefore,
a violation of ECOA (if committed by a
regulated entity) is also violation of the
P&S Act.208 It is widely accepted,
following Bostock v. Clayton Cnty 209
and other cases, that the term ‘‘sex’’
covers sexual orientation and gender
identity and the categorization as such
is not limited to employment law.210
Moreover, since 2014, USDA has
prohibited discrimination on those
bases in all of USDA’s Conducted
Programs.211
Comment: Industry trade associations
said proposed § 201.304(a)
inappropriately fails to incorporate the
requirement from section 202(b) of the
Act that a prejudice or disadvantage be
‘‘undue or unreasonable’’ to constitute a
violation. The commenters said this
provision would go against precedent
207 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.’’
208 15 U.S.C. 1691c(a)(5).
209 140 S. Ct. 1731, 1741 (2020).
210 https://www.consumerfinance.gov/about-us/
newsroom/cfpb-clarifies-discrimination-by-lenderson-basis-of-sexual-orientation-and-gender-identityis-illegal/.
211 https://www.federalregister.gov/documents/
2014/07/16/2014-16325/nondiscrimination-inprograms-or-activities-conducted-by-the-unitedstates-department-of-agriculture.
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which has concluded that the Act, as
well as the broader antitrust regime,
allows actions such as refusal to deal or
non-renewal of a contract when
conducted reasonably. One commenter
said AMS exceeds its authority in
omitting this statutory requirement from
the proposed rule.
AMS Response: Under Act precedent,
the Secretary is authorized to determine
whether discriminatory conduct is
‘‘undue’’ or ‘‘unreasonable.’’ 212 The
Secretary has in the past interpreted
similar provisions governing stockyards
to include prohibitions on
discrimination on similar bases.213
Moreover, multiple precedents interpret
the unfair practices provisions of sec. 5
of the FTC Act to incorporate
discrimination on race, sex, and similar
prohibited bases.214 The ICA’s
provisions barring unjust discrimination
too, have been interpreted to bar
discrimination on the protected
bases.215 Therefore, this rule is within
the Secretary’s authority under secs.
202(a) and (b) of the Act. Under Act
precedent, whether discriminatory
conduct amounts to being ‘‘undue’’ or
‘‘unreasonable’’ is a determination that
the statute provides broad discretion to
the Secretary to determine. Advantages
are not a component of this rule instead
the rule focuses on prohibiting conduct
that disadvantages producers based on
characteristics unrelated to the quality
of their products or services.
Comment: Multiple industry
companies and associations, another
organization, and an individual
contended that AMS unlawfully
rejected precedent by asserting that
discriminatory conduct can violate secs.
202(a) or (b) of the Act without
demonstrating injury, or likelihood of
injury, to competition. The commenters
cited legislative history and judicial
precedent to argue that the Act is
fundamentally an antitrust statute and is
212 Mahon v. Stowers, 416 U.S. 100, 112 (1974)).
Section 407 of the Act (7 U.S.C. 228) also provides
that the Secretary ‘‘may make such rules,
regulations, and orders as may be necessary to carry
out the provisions of this Act.’’
213 Statement of General Policy Under the Packers
and Stockyards Act published by the Secretary of
Agriculture in 1968 (Statement of General Policy)
(9 CFR 203.12(f)).
214 See Federal Trade Commission v. Passport
Automotive Group, Inc., No. 8:22–cv–02670 (D. Md.
filed Oct. 18, 2022) (Settlement resulting from FTC
allegations that Passport’s discriminatory conduct,
including charging Black and Latino customers
interest-rate markups not tied to creditworthiness,
violated the ‘‘unfairness’’ prong of Section 5 of the
FTC Act); Michael Kades, ‘‘Protecting Livestock
Producers and Chicken Growers,’’ Washington
Center for Equitable Growth (May 5, 2022),
available at Protecting livestock producers and
chicken growers—Equitable Growth.
215 See 7 U.S.C. 193. Cf. Mitchell v. United States,
313 U.S. 80, 94 (1941)).
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thus bound by the key antitrust
principle of preventing harm to
competition. Commenters said
Congress’s main concern in enacting the
Act was preventing harm to competition
from meatpacker monopolies and that,
in drafting the Act, Congress used the
basic blueprint of the Sherman Act and
other existing antitrust statutes, which
distinguish between fair competition
and undesirable predatory competition.
Commenters said interpreting secs.
202(a) and (b) to require plaintiffs to
prove actual or likely harm to
competition thus promotes the Act’s
main purpose of protecting healthy
competition in the meatpacking
industry. Commenters also cited
numerous court cases holding that the
Act requires a showing of injury to
competition, including rulings spanning
eight circuits.216 The commenters
argued AMS’s approach would open the
door to baseless litigation and increased
costs to industry. A commenter argued
that, in the absence of the harm-tocompetition standard, courts will use a
range of inconsistent means to establish
violations of the Act, meaning
individual cases will more likely require
judicial resolution despite AMS’s claim
that its proposed approach will reduce
litigation.
AMS Response: Congress designed the
Act to provide broader protections than
existing antitrust laws such as the
Clayton and Sherman Acts due to
specific challenges in agricultural
markets.217 The existence of the Act is
proof that existing antitrust laws were
not sufficient in protecting livestock
producers and ensuring fair agricultural
markets. It is well established that, to
meet the needs of livestock producers
more effectively, the Act provides
broader protections than existing
antitrust laws. The statutory text, case
law, and legislative history make plain
that the Act’s protections extend beyond
216 Terry v. Tyson Farms, Inc., 604 F.3d 272, 276–
79 (6th Cir. 2010); Wheeler v. Pilgrim’s Pride Corp.,
591 F.3d 355 (5th Cir. 2009) (en banc); Been v. O.K.
Indus., Inc., 495 F.3d 1217, 1230 (10th Cir. 2007);
Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272,
1280 (11th Cir. 2005), cert. denied, 547 U.S. 1040
(2006); London v. Fieldale Farms Corp., 410 F.3d
1295, 1303 (11th Cir.), cert. denied, 546 U.S. 1034
(2005); IBP, Inc. v. Glickman, 187 F.3d 974, 977 (8th
Cir. 1999); Philson v. Goldsboro Milling Co., 1998
WL 709324 at *4–5 (4th Cir., Oct. 5, 1998); Jackson
v. Swift Eckrich, Inc., 53 F.3d 1452, 1458 (8th Cir.
1995); Farrow v. United States Dep’t of Agric., 760
F.2d 211, 215 (8th Cir. 1985); De Jong, 618 F.2d at
1336–37; Pac. Trading Co. v. Wilson & Co., 547 F.2d
367, 369–70 (7th Cir. 1976); see also Armour & Co.,
402 F.2d 712.
217 See In re Pilgrim’s Pride, 728 F.3d 457, 460
(5th Cir. 2013) Been, 495 F.3d at 1231 Swift & Co.
v. US, 393 F.3d 247, 253 (7th Cir. 1968) Swift & Co.
v. United States, 308 F.3d 849, 853 (7th Cir. 1962).
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antitrust laws.218 Accordingly, it has
been the Agency’s longstanding position
that because the Act addresses more and
different types of harmful conduct than
antitrust laws, a showing of competitive
injury is not required to establish
violations of secs. 202(a) and 202(b).
Market abuses such as deception, unjust
discrimination, and retaliation are
illegal per se under the act. Addressing
the harmful conduct this rule aims to
prevent is squarely within the authority
of the Secretary and accords with
Congressional intent.219 Moreover, the
Secretary, exercising broad authority to
define the scope of secs. 202(a) and (b),
has determined that the prohibited
practices are likely to exclude producers
from the market, thereby lessening
competition and causing widespread
marketplace harm if not addressed in
their incipiency, before competitive
injury has occurred.
Commenters cite several circuit court
decisions that required a showing of
harm to competition or a likely harm to
competition establish a violation of sec.
202. These cases involved private
claims and do not control the Agency’s
statutory authority to promulgate
regulations. AMS is within its statutory
authority to promulgate rules that
‘‘assure fair competition and fair-trade
practices, to safeguard farmers and
ranchers . . . to protect consumers . . .
and to protect members of the livestock,
meat, and poultry industries from
unfair, deceptive, unjustly
discriminatory and monopolistic
practices. . . .’’ Congress granted the
Secretary broad authority to determine
the scope of coverage of terms such as
‘‘unjust discrimination’’ and ‘‘undue
prejudice’’ or ‘‘unreasonable
disadvantage’’ under secs. 202(a) and (b)
of the Act.
This rule aims to prevent market
exclusion of producers who have been
subjected to unjust discrimination on a
prohibited basis or based on engaging in
a protected activity, and to snuff out
those harms at their incipiency. Based
on its knowledge of the industry, AMS
has determined that undue and
unreasonable prejudice and unjust
discrimination on the prohibited bases
and the protected activities identified in
the rule amount to conduct that
negatively effects these markets, and
therefore AMS is establishing these
regulations to address that conduct at its
218 See Wilson & Co. v. Benson, 286 F.2d 891, 895
(7th Cir. 1961); Bowman v. USDA, 363 F.2d 81, 85
(5th Cir. 1966), Swift, 393 F.3d at 253.
219 Title 9, part 201 of the Code of Federal
Regulations (CFR). Section 407 of the P&S 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.
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incipiency, when it occurs against a
single individual.
Additionally, deceptive conduct
violative of the Act has routinely been
enforced on an individual basis absent
a required showing of any particularized
harm to competition since the very first
administrative actions brought by the
Department. Deceptive conduct often
takes the form of unfair contract
formation, enforcement, and
termination and therefore most
frequently occurs on an individual
basis. To require a showing of harm to
competition to prove deception
violations under the Act would be
contrary to longstanding enforcement
standards and is adverse to the intent of
the Act to protect farmers and ranchers
from deception. Furthermore, the
assertion from commenters that this rule
will result in costly ‘‘baseless’’ litigation
is contrary to the findings of AMS. AMS
has determined that this rule will not
increase litigation significantly due to
the assertion by regulated entities,
through their comments, that they do
not engage in the conduct this rule aims
to prohibit.
Comment: Several advocacy
organizations and a cattle industry trade
association supported AMS’s position
that prohibited conduct under the Act
need not lead to market-wide harm to
competition, with some urging AMS to
explicitly state that a showing of such
harm is not required under the proposed
rule. An agricultural and environmental
organization cited E.O. 14036 on
Promoting Competition in the American
Economy,220 which called for a rule
explicitly stating individuals should be
able to prevail under the Act without
proving market-wide harm. This
commenter argued AMS needs to
explicitly state its position to stop
judicial confusion in the face of a
Federal circuit court split on the
competitive-harm issue. The commenter
said that, since the proposed rule
contains multiple references to both
USDA’s position on market-wide harm
to competition and E.O. 14036’s explicit
direction to incorporate this position
into a final rule, amending the rule to
clearly adopt this position would be a
logical outgrowth of the proposed rule.
An agricultural advocacy organization
contended the text, structure, and
legislative history of the Act indicate
that it prohibits discrimination based on
market-vulnerable and protected-class
status, giving AMS the legal authority to
promulgate regulations based on this
interpretation. The commenter argued
the Act’s prohibition of differential
treatment on an ‘‘unjust,’’ ‘‘undue,’’ or
220 86
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‘‘unreasonable’’ basis encompasses all
forms of discrimination based on a
producer’s market vulnerability or
protected classification because it
includes all actions that adversely
differentiate between producers without
a legitimate basis. The commenter said
that, in using such words in the Act,
Congress clearly intended to invoke
national values and policies related to
fairness and equal treatment, including
equal protection jurisprudence as it
existed during enactment. According to
the commenter, this jurisprudence was
understood to prohibit essentially
unjust or arbitrary discrimination
between persons or corporations ‘‘in a
similar situation or condition.’’ 221
The commenter next looked at secs.
202(a) and (b) of the Act in the context
of the statutory scheme, contrasting
their broad reach with the more limited
scope of secs. 202(c) through (f), which
specifically target business practices
with anticompetitive effects, and
arguing this difference implies Congress
intended for these first two sections to
apply more expansively. This
commenter further claimed, if unfair,
discriminatory, prejudicial, or deceptive
conduct always required proof of
market-wide competitive injury, these
paragraphs would be superfluous
because paragraph (e), which prohibits
‘‘any course of business’’ or ‘‘any act’’
for the purpose or with the effect of
causing competitive injury, would
always apply. The commenter said this
broad interpretation of secs. 202(a) and
(b) to include discrimination based on
protected-class or market-vulnerable
status easily advances the Act’s
statutory purpose of ensuring fair
competition and trade practices in
livestock markets, noting that this type
of discrimination reduces output and
prevents efficient resource allocation by
restricting certain producers’ ability to
enter and participate in markets. The
commenter also said legislators enacting
the Act sought to broadly address
imbalances between buyers and sellers
of livestock, referring in detail to the
Act’s legislative history for evidence
that Congress intended for it to have an
expansive scope, including coverage of
a wide range of unfair and unjust
practices.
The commenter also argued that the
prohibitions in secs. 202(a) and (b) do
not merely include intentionally
221 See 14 Fletcher Cyc. L. Corps. section 6716
(2022). See also, e.g., Holden v. Hardy, 169 U.S.
366, 383 (1898)); Yick Wo, 118 U.S. 356, 373–74;
(1886); San Bernardino Cnty. v. S. Pac. R. Co., 118
U.S. 417, 422–23 (1886) (Field, J., concurring);
Barbier v. Connolly, 113 U.S. 27, 31 (1884); C.R.
Cases, 109 U.S. 3, 25 (1883); In re State Freight Tax,
82 U.S. 232, 263 (1872).
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discriminatory actions but also extend
to actions with a disparate impact on
covered producers based on their
protected-class or market-vulnerable
status. To support this position, the
commenter noted that sec. 202(a)
prohibits regulated entities from
engaging in practices or using devices
that are ‘‘unjustly discriminatory,’’
rather than simply prohibiting them
from actively discriminating, and that
sec. 202(b) prohibits regulated entities
from ‘‘subject[ing]’’ persons or localities
to undue or unreasonable prejudices or
disadvantages, arguing that both
provisions specifically use language
intended to encompass non-intentional
actions.
The commenter further argued that
AMS holds authority to interpret the
meaning of sec. 202 and identify
practices that violate its prohibitions.
The commenter said Congress modeled
USDA’s role under the Act on that of the
Federal Trade Commission under the
FTC Act, envisioning an authority with
broad jurisdiction and power.
According to the commenter, Congress
even went beyond the FTC Act model
in one respect in its grant of authority
to USDA, with sec. 407 of the Act giving
USDA unequivocal authority to
promulgate rules as needed to carry out
its provisions. The commenter also said
many court decisions have given strong
deference to USDA determinations on
whether a practice violates the Act,
relying on reasoning that the facts of
individual cases determine the meaning
of the Act’s operative terms, and that
USDA is responsible for efficiently
regulating market agencies and packers.
Finally, the commenter argued
‘‘Chevron deference’’ 222 applies to
USDA interpretations of the Act
regarding differential treatment because
these interpretations would be
promulgated pursuant to express
delegation of rulemaking authority as
given in sec. 407, fill in the gaps
Congress left in sec. 202, reflect a
permissible construction of the statutory
text that aligns with the statute’s
purpose, and take advantage of USDA
expertise regarding the details of
livestock production and marketing.
One commenter recommended the
following proposed regulatory text
language to explicitly state violations of
the proposed rule require no showing of
competitive harm:
§ 201.308 No Requirement to Cause
Market-Wide Harm
Where a regulated entity commits conduct
prohibited by Subpart 201.302–201.306, such
conduct violates §§ 202(a) and (b) of the Act
222 Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc., 468 U.S. 837 (1984).
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whether or not market-wide harm to
competition results. The unfair, unjustly
discriminatory, or deceptive treatment of one
covered producer, the giving to one covered
producer of an undue or unreasonable
preference or advantage, or the subjection of
one covered producer to an undue or
unreasonable prejudice or disadvantage in
any respect violates the Act.
AMS Response: AMS notes and
appreciates the comments, but made no
further changes in response to the
comments.
AMS acknowledges the commentors’
comments around a showing of harm to
competition. The meaning of
competition or harm to competition
must be broader than its meaning under
the antitrust laws.223 USDA maintains
that this consistently held position is
based on the language, structure,
purpose, and legislative history of the
Act, and USDA continues to adhere to
this longstanding position,
notwithstanding the disagreement of
some courts as to the relationship
between harm to competition and
violations under the Act. Discrimination
and undue prejudice on the bases set
forth in this final rule are both
essentially unjust and undue as forms of
unacceptable personal discrimination
under the Act (drawing on similar
precedent from the ICA and from P&S
Act implementation in stockyards), and
also subvert normal market forces,
undermine market integrity, and
deprive producers of the true value of
their products and services. AMS has
not incorporated the suggested
§ 201.308 provisions because the rule
itself prohibits discrimination against an
individual producer on the prohibited
bases or protected activities. The
proposed rule elaborated on the
regulatory text, stating ‘‘[t]his proposed
regulation sets forth specific
prohibitions on prejudicial or
discriminatory acts or practices against
individuals that are sufficient to
demonstrate violation of the Act
without the need to further establish
broad-based, market-wide prejudicial or
223 Herbert Hovenkamp, ‘‘Does the Packers and
Stockyards Act Require Antitrust Harm?’’ (2011).
Faculty Scholarship at Penn Carey Law. 1862.
https://scholarship.law.upenn.edu/faculty_
scholarship/1862; Peter Carstensen, The Packers
and Stockyards Act: A History of Failure to Date,
CPI Antitrust Journal 2–7 (April 2010) (‘‘Congress
sought to ensure that the practices of buyers and
sellers in livestock (and later poultry) markets were
fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.’’);
Michael C. Stumo & Douglas J. O’Brien, ‘‘Antitrust
Unfairness vs. Equitable Unfairness in Farmer/Meat
Packer Relationships,’’ 8 Drake J. Agric. L. 91
(2003); Michael Kades, ‘‘Protecting livestock
producers and chicken growers,’’ Washington
Center for Equitable Growth (May 2022), https://
equitablegrowth.org/wp-content/uploads/2022/05/
050522-packers-stockyards-report.pdf.
PO 00000
Frm 00078
Fmt 4701
Sfmt 4700
discriminatory outcomes or harms.’’ 224
AMS’s position is that under the Act
even a single instance of discriminatory
or prejudicial conduct may violate the
Act.225 The Act prohibits ‘‘essentially
unjust’’ discrimination and undue
prejudice, which AMS has determined
the provisions of this final rule to
address. Moreover, discrimination on
prohibited bases and retaliation on the
basis of protected activities in livestock
and poultry markets leads to economic
inefficiency, and has no procompetitive
justification. Undue prejudices or
disadvantages and discriminatory
practices in a concentrated livestock or
poultry market inflict economic harm
through a distortion of market signals
such as a distortion of market prices and
exclusion of market participants, which,
in turn, can lead to disinvestments in
the livestock and poultry markets and a
misallocation of scarce resources.
Deception deprives the seller of the
benefits of the market, as competitors of
the initial deceiving regulated entity
may be induced to likewise engage in
such practices. When market abuses
become widespread, market success
becomes less based on productive
efficiency or quality and more on who
can engage in the most abuses, leading
to allocative inefficiencies and loss of
social welfare.
Comment: Commenters representing
industry perspectives said proposed
§ 201.306 on deceptive practices is
outside the scope of the Act because it
would require all tort or contract
disputes under the Act to be addressed
in Federal courts rather than as State
matters. According to the commenters,
Congress would have explicitly said so
if it intended to give AMS wide-ranging
authority to regulate the specifics of
livestock industry contracts and
business practices regardless of their
effect on competition. According to
commenters, further evidence that
Congress did not intend to give the
agency such authority includes its
previous rejections of other proposals to
expand the Act to cover contractual
matters traditionally covered under
State law, with Federal courts likewise
holding that the Act does not cover
these circumstances.
A cattle industry trade association
said this provision also exceeds the
scope of the Act because AMS’s
contention that deception does not
224 87
FR 60018.
discussed in Michael Kades,
‘‘Protecting livestock producers and chicken
growers,’’ Washington Center for Equitable Growth
(May 2022), https://equitablegrowth.org/wpcontent/uploads/2022/05/050522-packersstockyards-report.pdf, among other articles
referenced above.
225 Extensively
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require proof of a particularized intent
contradicts the plain text of the statute
as it would have been interpreted at
enactment. According to the
commenter, Congress at this time would
have understood meatpacker conduct
only to be deceptive when committed
with the intent to deceive a producer.
The commenter further stated that
AMS’s arguments that deceptive
practices under sec. 202 of the Act do
not necessarily require intent to
deceive—based on analogy to
developments in the law of deceptive
marketing—do not provide sufficient
support for its position. An organization
asserted that the proposed rule attempts
to undercut Federal court rulings, such
as Jackson v. Swift Eckrich, Inc.,226
which hold that the Act is not intended
to undermine traditional freedom-ofcontract principles by exposing
producers to Federal liability if they
refuse to enter into certain contracts or
exercise basic contract rights.
AMS Response: This rule does not
require all tort or contract disputes
under the Act to be addressed in Federal
courts rather than as State matters. It
only addresses the specific prohibited
conduct covered by the rule. Moreover,
in secs. 202(a) and (b), Congress gave
broad authority to the Secretary to
establish the scope of Federal
protections governing transactions in
livestock and poultry, given the
interstate nature of the industry.
The Act does not require proof of a
particularized intent to deceive.227 This
rule does not inhibit freedom to contract
by exposing producers to liability if they
refuse to enter into a contract.228 It
addresses undue prejudice, retaliation,
and deception which may occur at
various stages of the contracting
process, including the stage when a
refusal to deal may amount to
discrimination on the bases of
prohibited categories specified in the
final rule or a deceptive practice when
distorted owing to an untrue statement.
Therefore, this rule does not contradict
the holding in Jackson v. Swift Eckrich,
Inc. Accordingly, AMS made no
changes to the rule in response to these
comments.
Comment: Cattle industry trade
associations argued the proposed rule
also represents an inappropriate attempt
to regulate commercial feed yards under
the Act, saying AMS improperly cites
Solomon Valley Feedlot Inc. v.
226 53
F.3d 1452, 1458 (8th Cir. 1995).
Parchman v. U.S. Dep’t of Agric., 852 F.2d
858, 864 (6th Cir. 1988).
228 Swift & Co. v. United States, 393 F.2d 247, 253
(7th Cir. 1968).
227 See
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Butz 229—a case holding that feed yards
are not regulated entities under the
Act—to support its reference to surety
bonds as one means to protect farmers
and consumers from unfair practices
under the Act. According to the
commenters, AMS’s citation in this
context suggests commercial feed yards
are required to post bonds despite the
case holding that they are not regulated
entities and thus do not need to do so.
A commenter further said this
inaccurate citation, combined with the
proposed rule’s overbroad definition of
‘‘livestock producer,’’ suggests AMS is
trying to regulate feed yards under the
Act despite both Congressional intent
and judicial precedent supporting their
exclusion.
AMS Response: AMS respectfully
considers these comments to be outside
the scope of this rulemaking. To be
clear, AMS does not intend to refute the
court’s holding in Solomon Valley that
feedlots are unregulated. Nor does the
rule make any attempt to define
‘‘regulated entities’’ to include feedlots.
This final rule prohibits regulated
entities from engaging in deceptive
practices. Regulated entities include
packers, swine contractors, and live
poultry dealers. The rule protects
feedlots as livestock producers from
undue prejudice, retaliation, and
deception. AMS sees no reason for the
commenter’s argument that the
definition of livestock producers should
exclude feedlots, except to the extent
that the feedlot is acting as a dealer
under the Act. This rule does not
attempt to regulate the behavior of
livestock dealers or feedlots in any
capacity. The Solomon Valley decision,
which shows it is a deceptive practice
for a regulated entity to fail to maintain
a bond, was cited in the proposed rule
to provide an example of what the court
has found constitutes a deceptive
practice.
ii. Congressional Direction
Comment: Live poultry dealers and
poultry industry trade associations said
Congressional authority for AMS to
issue the proposed rule has expired
because the agency did not promulgate
it within the deadline set by the 2008
Farm Bill. A commenter said this Farm
Bill included language asking GIPSA,
the agency formerly in charge of
implementing the Act, to promulgate
new regulations dealing with several
sections of the Act. The commenter
noted that section 11006 of the 2008
Farm Bill tasked AMS with writing new
regulations establishing criteria to
determine four issues, including
229 550
PO 00000
F. 2d 717 (10th Cir. 1977).
Frm 00079
Fmt 4701
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16169
whether an undue or unreasonable
preference or advantage has occurred in
violation of the Act. Section 11006
included a timeline, requiring AMS to
promulgate these new regulations no
later than two years after the Farm Bill’s
May 22, 2008, enactment. However,
AMS did not publish the proposed rule
for comment until October 3, 2022,
nearly 12 years after the Farm Bill
deadline expired. According to the
commenter, finalizing the proposed rule
would therefore unconstitutionally
exceed the scope of Congress’s grant of
authority to USDA.
Likewise, a meat industry trade
association argued that Congress
referred to issues relating to socially
disadvantaged farmers and ranchers in
other parts of the 2008 Farm Bill but
failed to do so in the context of its
direction for rulemaking under the Act;
therefore, it is reasonable to assume
Congress did not seek to address such
topics under the Act.
AMS Response: AMS respectfully
considers these comments to be outside
the scope of this rule. The 2008 Farm
Bill’s directive that GIPSA promulgate
rulemaking pertaining to the Act does
not restrict USDA’s and AMS’s
authority to conduct this rulemaking
and thus effectuate the purposes of the
Act.
Further, as noted earlier, Executive
Order 14036 directs the Secretary to
address unfair treatment of farmers and
improve conditions of competition in
their markets by considering rulemaking
to address, among other things, certain
market abuses and anticompetitive
practices in the livestock, poultry, and
related markets, including unjustly
discriminatory, unduly prejudicial, and
deceptive practices—in particular
retaliation. This final rule is responsive
to the Executive Order.
Comment: A cattle industry trade
association and a live poultry dealer
argued that, in addition to taking
advantage of an expired grant of
authority, the proposed rule also
extends beyond the scope of the original
Congressional authority to amend the
Act. Commenters said issues not
covered under the Farm Bill grant
include the introduction of a vague and
ambiguous definition of ‘‘market
vulnerable individual;’’ a determination
that proof of anticompetitive harm is no
longer necessary to prevail under secs.
202(a) or (b) of the Act; and regulation
of deceptive practices and of
recordkeeping.
AMS Response: As stated by
Congress, the purpose of the Act is ‘‘to
assure fair competition and fair trade
practices, to safeguard farmers and
ranchers . . . to protect consumers . . .
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and to protect members of the livestock,
meat, and poultry industries from
unfair, deceptive, unjustly
discriminatory and monopolistic
practices. . . .’’ This regulation bans
behavior that is unjustly discriminatory,
unreasonably prejudicial and
disadvantageous, and deceptive. AMS
has addressed the other matters raised
by the commenter in previous comment
responses.
Comment: Multiple industry
commenters argued that the proposed
rule triggers the major questions
doctrine under West Virginia v. EPA,
under which an agency lacks authority
to take politically or economically
significant regulatory actions without
‘‘clear congressional authorization.’’ 230
Commenters said the Supreme Court
has indicated particular concern where
an agency fundamentally changes the
regulatory scheme under a statute, seeks
to adopt a rule Congress has clearly and
repeatedly declined to enact, or claims
broad authority for which there is a lack
of historical precedent, arguing that the
proposed rule raises all three of these
issues.231 Commenters argued that the
Act has long been understood to be
grounded in antitrust principles and has
never in its hundred-year history been
used to broadly address the kind of
discriminatory conduct covered in the
proposed rule. The commenters further
claim that the proposed rule’s treatment
of the Act as an antidiscrimination
statute also unprecedently extends past
the scope of other such laws by targeting
discrimination against independent
contractors rather than employees.232
They also note that, in addition to
declining to apply the Act as an
antidiscrimination statute, Congress has
also declined to adopt any general
prohibitions on discrimination in
contracting extending beyond the ban
on racial discrimination in 42 U.S.C.
230 West Virginia v. EPA, 142 S. Ct. 2587, 2613–
14 (2022).
231 Id. at 2612, 2610; NFIB v. OSHA, 142 S. Ct.
661, 666 (2022) (per curiam).
232 42 U.S.C. 2000e-2; E.E.O.C., Coverage, https://
www.eeoc.gov/employers/coverage.cfm (last visited
Jan. 1, 2023); see also Health Care Workers and the
Americans with Disabilities Act, https://www.
eeoc.gov/laws/guidance/health-care-workers-andamericans-disabilitiesact#:∼:text=
While%20the%20ADA’s%20
protections%20apply,does%20not
%20cover%20independent20contractors (last
visited Jan. 1, 2023) (‘‘While the ADA’s protections
apply to applicants and employees, the statute does
not cover independent contractors.’’); 29 U.S.C. 623;
E.E.O.C., Coverage, https://www.eeoc.gov/
employers/coverage-0#:∼:text=
People%20who%20are%20not
%20employed,by%20the%20anti
%2Ddiscrimination%20laws (last visited Jan. 1,
2023) (‘‘People who are not employed by the
employer, such as independent contractors, are not
covered by the antidiscrimination laws.’’).
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1981. The commenters stressed that it
would be the role of Congress, not AMS,
to decide to apply the Act like an
antidiscrimination statute. According to
the commenters, specific aspects of the
proposed rule that trigger this doctrine
include the elimination of the harm-tocompetition standard, the creation of a
definition of ‘‘market vulnerable
individuals,’’ the identification of
conduct constituting deceptive conduct,
and the 5-year document retention
mandate for regulated entities.
AMS Response: As discussed in the
preamble to this final rule, Congress
enacted the Act after many years of
concern about farmers and ranchers
being cheated and mistreated. In the
Act, Congress gave the Secretary broad
authority to regulate the meatpacking
industry. Congress believed that existing
antitrust and market regulatory laws,
including the Sherman Act and Federal
Trade Commission Act, did not
sufficiently protect farmers and
ranchers. In the Act, Congress gave the
Secretary broad authority to regulate the
meatpacking industry. The House of
Representatives’ report on the Act stated
that it was 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.’’ 233 The Conference Report on the
Act stated that: ‘‘Congress intends to
exercise, in the bill, the fullest control
of the packers and stockyards which the
Constitution permits. . . .’’ 234
Congress considered this a power
beyond the authority that of the FTC
and the Interstate Commerce
Commission.
This rule’s interpretations of unjust
discrimination, undue and unreasonable
prejudice, and retaliation are consistent
with longstanding approaches to
protecting producers under the Act, are
consistent with interpretations of
similar provisions of sec. 5 of the FTC
Act and the ICA, and mirror
congressional policy as reflected in
ECOA. Moreover, Congress as recently
as 2008 directed USDA to conduct
rulemakings on sec. 202, which led to
the 2020 Rule discussed above on
undue preferences. The 2020 Rule
wrestles with questions of undue
prejudices which this final rule settles.
Deception similarly follows a long line
of cases and rules covering deceptive
practices under the Act. Regarding
issues raised by commenters around the
major question doctrine, this rule does
not address political matters, nor does it
focus on fixing purely economic harms.
233 House
234 House
PO 00000
Report No. 67–77, at 2 (1921).
Report No. 67–324, at 3 (1921).
Frm 00080
Fmt 4701
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This rule aims to increase protections
for producers by clarifying that secs. 202
(a) and (b) of the Act prohibit
discriminatory, retaliatory, and
deceptive conduct by regulated entities.
iii. Legal Justification
Comment: Live poultry dealers and
industry associations argued that the
administrative record for the proposed
rule fails to support a rulemaking.
Commenters contended AMS has failed
to identify any actual harmful conduct
that would justify the proposed rule.
Several commenters criticized specific
aspects of the record, saying the court
cases providing examples of alleged
violations of the Act seem to be
‘‘opportunistically selected’’ and
inaccurately cited, while the
discussions of previous rulemaking
efforts, many of which were withdrawn
after Congressional objection, do not
provide legitimacy. The commenters
said, rather than basing its justification
on facts, AMS instead acted arbitrarily
and capriciously in supporting it with
unverifiable anecdotal evidence and
anonymous sources. A cattle industry
trade association said that the proposed
rule is too reliant on unexplained
anecdotal evidence and suggested AMS
has compounded this problem by
encouraging commenters to respond
anonymously.
A commenter said AMS aggravates
these issues by inviting more
anonymous feedback in its request for
comment on the proposed rule, making
it difficult to assess commenters’
credibility, encouraging more false or
unverifiable anecdotes, and further
weakening the evidentiary foundation of
the eventual final rule. The commenter
urged AMS to reopen the comment
period after clarifying that it will not
give anonymous anecdotes
disproportionate weight. Another
commenter said, as AMS explicitly left
racially discriminatory practices off its
list of criteria for finding undue or
unreasonable preferences under the Act
in promulgating the final rule codified
at 9 CFR 201.211,235 it must explain its
rationale for reversing its position to
determine that the Act now covers
protected-class discrimination.
AMS Response: AMS disagrees with
commenters’ argument that the
administrative record for the proposed
rule fails to support this rulemaking.
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.’’ Under the APA,
an Agency may conduct rulemaking to
235 See
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revise prior positions if it can show that
there are ‘‘good reasons’’ for the change
and that the ‘‘new policy is permissible
under the statute.’’ 236 AMS gathered
evidence from livestock producer and
poultry grower testimonies,
Congressional testimonies, DOJ and
USDA public workshops, case law, and
economic data. AMS has gathered
economic data on disparities between
white farmers and ranchers and other
racial and ethnic groups. This data is
presented in Figure 5 and highlights the
need for this rulemaking to provide fair
access to markets for all producers.
Preliminary empirical results indicate
that there are some systemic differences
in prices received across ethnic/racial
groups after accounting for regional
fixed effects and marketing variables.
Relative to White producers, historically
underserved Black and American Indian
groups receive lower cattle prices; Black
groups receive lower contract broiler
prices, and Black and American Indian
groups receive lower hog prices.237
The provisions in this rule are basic,
fundamental protections against
discrimination on prohibited bases as
authorized by the Act and as consistent
with congressional policy. The
prohibition on retaliation protects the
ability for producers to communicate
with governmental entities, associate,
cooperate, and compete. The
prohibitions on deception are equally
basic. These basic and fundamental
provisions are justified with the record
presented. Decades of complaints by
producers, include public hearings with
the Department of Justice, have
catalogued how vertical integration and
market concentration have left
producers unable to avoid adverse
treatment that tends to exclude them
from the marketplace, including
retaliation preventing them from even
reporting these concerns to
governmental authorities. The result has
been producers unable to bargain
effectively in the marketplace or fully
obtain the benefits of their livestock
production and poultry grow out
services. Regulated entities consistently
assert they do not engage in such
practices; if so, then the burdens from
adopting this rule are low.
AMS is not reopening the comment
period for this rule. Consistent with the
Administrative Procedure Act, all
interested persons had an opportunity
to comment and the agency has
236 FCC v. Fox Television Stations, 556 U.S. 502,
514 (2009).
237 ‘‘Competition and Discrimination—is there is
a relationship between livestock prices received
and whether the grower is in a historically
underserved group?’’ 2023 AAEA Annual Meeting,
Washington, DC, July 23–July 25, 2023.
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considered all relevant matter received
through the public comment process.
AMS does not agree that it has
reversed its position with respect to the
rationale underpinning the rule
promulgating § 201.211. This final rule
addresses undue and unreasonable
prejudices and disadvantages and unjust
discrimination. Conversely, the rule
implementing § 201.211 addressed
undue and unreasonable preferences
and advantages. AMS may return to the
question of undue and unreasonable
preferences and advantages in future
rulemaking but does not have at this
time any further information to offer
with respect to how AMS would or
would not apply the Act’s prohibition
on undue or unreasonable preferences
or advantages. AMS is not making any
further changes in response to this
comment.
Comment: A cattle industry
association said AMS has provided no
meaningful evidence of discrimination
on grounds other than race, saying
evidence of the latter is unnecessary
because racial discrimination in private
contracting is already prohibited.
According to the commenter, AMS also
has provided no evidence that would
justify its proposal to establish a broad
market vulnerable producer approach to
discrimination. This commenter also
criticized AMS’s citation of disparities
in farm size and income along racial and
ethnic lines. It said the agency confuses
correlation and causation by arguing
that smaller minority-owned farms
necessarily have a harder time
competing because of race
discrimination when it has merely
shown that minority-owned farms tend
to be smaller and that any smaller farms
tend to face competitive disadvantages
compared to larger ones.
AMS Response: The existence of the
continued correlation suggests the
continued persistence of problems, and
accordingly the need for additional
clarity regarding the enforcement of the
Act. To the extent that the activities
covered are already prohibited, then the
clarity provided by this rule should
place no new burdens on industry with
respect to compliance. Additionally,
AMS has adopted in its final rule a list
of prohibited bases for undue and
unreasonable prejudice and
disadvantages instead of using the term
‘‘market vulnerable,’’ therefore
addressing commenters’ concerns
around the term’s broadness.
Recent research conducted by the
USDA’s Office of the Chief Economist
and presented at the American
Association for Agricultural
PO 00000
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Economics 238 suggests that certain
ethnic or racial groups may be suffering
currently from discrimination by
packers in the establishment and/or
performance of livestock and poultry
contracts. Qualitatively, the research
found consistent differences in prices
received for livestock (cattle and hogs)
and broiler products across ethnic or
racial groups after controlling for
variables such as farm size, regional
differences, type of marketing contract
or channel, organic certification status,
distance to closest packer, and size of
closest packer. Limitations of the study
include that it is unable to control for
all animal characteristics and cannot
separate disparate economic outcomes
arising from current racial
discrimination from disparate economic
outcomes due to historical
discrimination.
Comment: A cattle industry
association said the proposed rule is
arbitrary and capricious because AMS
has yet to release several related
proposals dealing with rulemakings
under the Act. The commenter notes
that sec. 553(c) of the Administrative
Procedure Act requires agencies to give
interested parties a ‘‘reasonable’’ and
‘‘meaningful’’ opportunity to participate
in the rulemaking, then argues that
AMS’s failure to disclose how this
proposed rule will fit in with other
related rules addressing poultry and
livestock contractors under the Act does
not meet this standard because it does
not give parties a chance to respond to
the rulemaking actions as a whole.
AMS Response: That previous
rulemaking efforts, such as those
published in 2016, tied multiple
rulemakings together with respect to
certain assumptions in their cost-benefit
analysis is not dispositive on how this
set of rulemakings—which are entirely
different and unconnected to the 2016
effort—should be designed or presented
for public comment. This final rule is a
logical outgrowth of the rule as
proposed and does not in any way
depend upon what AMS may or may
not propose or finalize in any other
rules. AMS made no changes to the rule
based on this comment.
Comment: A meat industry trade
association expressed concern because
AMS stated in the preamble to the
proposed rule that retaliation may
include activities other than those listed
in the proposal. The commenter said the
statement in the preamble, which says
238 Breneman, V., Cooper, J. Nemec Boeme, R. and
Kohl, M. ‘‘Competition and Discrimination—is
there is a relationship between livestock prices
received and whether the grower is in a historically
underserved group?’’ 2023 AAEA Annual Meeting,
Washington, DC, July 23–July 25.
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the proposed rule is ‘‘designed to
prohibit all such actions with an
adverse impact on a covered
producer,’’ 239 conflicts with another
statement in the preamble regarding
§ 201.304(b), which says the proposed
regulations are ‘‘narrowly tailored,
requiring the adverse action to be linked
to specific protected activities,’’ 240
making the rule arbitrary and capricious
in failing to give useful guidance on
permissible activities.
AMS Response: The commenter
confuses the design of the rule. The
specific protected activities set forth
under § 201.304(b)(1) and (2) are
narrowly tailored and limited to those
delineated. In contrast, the forms of
adverse conduct, as set forth in
201.304(b)(3), are inherently broader
and more flexible. Additionally, the
final rule provides greater specificity
with respect to forms of adverse
conduct, which are now delineated
specifically and are no longer subject to
open-ended addition.
Therefore, AMS will not make
changes to the final rule in response to
this comment.
iv. Vagueness
Comment: Commenters argued that
multiple provisions of the proposed rule
are so vague and open-ended they
thwart processors’ ability to determine
how it may apply to their conduct.
According to the commenters, these
provisions raise issues under the Fifth
Amendment’s Due Process Clause,
which requires rules of law to define
unlawful conduct with enough
specificity to let interested parties
understand what conduct is prohibited
and to prevent arbitrary or
discriminatory application of the
rule.241
Live poultry dealers and a poultry
industry trade association said the
proposed rule is unconstitutionally
vague because it includes a number of
poorly defined or undefined terms for
which failure to comply would result in
a regulatory violation. The commenters
said it provides only examples of
behavior that would constitute a
prohibited ‘‘prejudice or disadvantage’’
or ‘‘retaliation,’’ rather than spelling out
definitive lists or definitions that
regulated entities can use to comply
with the proposed rule. The
commenters highlighted other terms
raising vagueness issues, such as
‘‘generally or ordinarily offered,’’
‘‘differential contract performance or
239 87
FR 60026, October 3, 2022.
at 60024.
241 See Skilling v. United States, 130 S. Ct. 2896,
2927–28 (2010).
240 Id.
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enforcement,’’ and ‘‘tak[ing] an adverse
action.’’ These commenters said the rule
also fails to spell out other concepts
essential for identifying unlawful
conduct, such as what would constitute
a prohibited pretext or a legitimate
explanation, how the recordkeeping
requirements would be triggered, or
what records must be kept. Commenters
emphasized clear definitions are critical
for companies to know what is and is
not allowed under the rule.
AMS Response: The Due Process
Clause under the Fifth Amendment
requires legal matters to be resolved
according to established rules and
principles. AMS has adequately
described the type of conduct
prohibited under this rule by expressly
stating that prejudices on specified
prohibited bases constitutes a violation
under the Act. These prohibited bases
expressly draw from ECOA and apply to
the Act and are explained in this rule
with the specificity required to give
notice to interested parties as to what
conduct is prohibited. Moreover,
changes in this final rule more clearly
delineate prohibited bases of
discrimination in § 201.304(a)(1),
prohibited prejudicial conduct under
§ 201.304(a)(2), prohibited retaliatory
conduct under § 201.304(b)(3), and
more. Concerns of vagueness are
addressed by AMS further explaining
terms in the final rule with the
specificity needed to thwart claims of
unconstitutional government action.
The final rule also provides two new
specific exceptions that address
commenters’ concerns regarding the
proposed rule not including exceptions.
Furthermore, as explained in response
to earlier comments, the recordkeeping
requirement is clear and specific in its
explanation in requiring regulated
entities to keep certain records
pertaining to their business practices
relating to activities subject to the
jurisdiction of the Act.
The terms used in this rule are
intended to follow their plain language
meaning, as applied to the livestock and
poultry industries and within the legal
framework regulating these industries.
The following discussion demonstrates
how these terms support the rule’s
prohibitions against undue prejudice,
deception, and retaliation and in fact are
quite specific.
‘‘Retaliation’’ is set forth in paragraph
(b)(3) and encompasses actions taken by
regulated entities against covered
producers such as contract termination,
refusal to renew a contract, offering of
more unfavorable contract terms than
those generally or ordinarily offered,
refusal to deal, interference with thirdparty contracts, and modification of
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contracts on less favorable terms than
those previously enjoyed in response to
the producer’s participation in a
protective activity. What constitutes
retaliation is clearly defined in the rule,
and likewise the rule clearly lays out
protected activities against which
retaliation is prohibited.
In this rule, ‘‘generally or ordinarily
offered’’ terms are terms most producers
would qualify for when contracting with
a regulated entity. Whether terms are
‘‘generally or ordinarily offered’’ is an
inquiry regarding specific facts and
circumstances. Each case may vary by
regulated entity and even for any given
regulated entity may vary based on how
the regulated entity would normally
deal in the circumstances presented by
the producer in question. However,
‘‘generally or ordinarily’’ does not apply
to special contract terms that some
regulated entities may use with certain
producers, whether to receive particular
quality attributes or services or for other
reasons that are not discrimination on
prohibited bases. The purpose of the
rule is to ensure that a covered producer
is not denied contract terms on the basis
of a protected class that an ‘‘ordinary’’
similarly situated producer could
receive from the regulated entity.
‘‘Performing under or forcing a
contract differently than with similarly
situated producers’’ refers to situations
where a regulated entity operates in
such a way that it denies a grower the
full benefits to which it is entitled under
its contract with the regulated entity. A
poultry grower may seek to enforce a
production contract term that gives the
grower the right to receive appropriate
feed for the grower’s flocks on a timely
basis in the event the grower regularly
or at critical times experiences
insufficient, delayed, or inappropriate
feed. If a regulated entity threatens to
terminate a grower’s contract in
response to the grower’s efforts to
enforce a particular contract term (a
protected activity), this retaliatory
conduct would violate the Act. AMS
notes that this violation would be
separate from any violation of contract
law that may also exist. Another
example is selective information
disclosures. These often take the form of
a regulated entity withholding
materially relevant information from
one covered producer that the regulated
entity generally or ordinarily provides
to other covered producers. In these
instances, information-deprived
producers will have an incomplete
picture of their business relationships
with regulated entities, and therefore
will operate at an unreasonable
disadvantage relative to producers who
receive the pertinent information.
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Furthermore, this rule not only protects
covered producers from such conduct in
the form of retaliation. If a regulated
entity engages in differential contract
enforcement on the bases of a
producer’s protected class, this would
constitute discriminatory conduct in
violation of § 201.304(a) of this
regulation.
‘‘Tak[ing] an adverse action’’
encompasses a range of prejudicial,
deceptive, or retaliatory actions that
unjustly inhibit market access such as
prejudice, disadvantage, retaliation,
deception, or any action that inhibits
market access to producers. A range of
actions taken by producers on legitimate
business grounds can be adverse to
producer welfare. However, in the
context of this rule, adverse actions are
those actions taken by regulated entities
against producers that either unfairly
discriminate against producers on the
basis of a protected class, deceive
producers, or represent retaliation
against producers for engaging in
protected activities such as lawful
communications, assertion of contract
rights, associational participation, or
participating as a witness in any
proceeding under the Act.
v. Other Legal Issues
Comment: A cattle industry trade
association said the requirement to
demonstrate harm to competition is
crucial within its industry because
packers differentiate cattle values using
an array of different factors including
production method, animal handling
requirements, and program enrollment,
meaning that seemingly similar lots of
cattle may be valued substantially
differently. The commenter expressed
concern that the results of individual
adjudications taking place under sec.
202 of the Act without the threshold of
a competitive-injury requirement would
vary significantly, diminishing
innovation and product differentiation,
confusing market participants, and
ultimately harming both producers and
consumers. A poultry industry trade
association said that, if AMS seeks to
establish circumstances in which
conduct can violate secs. 202(a) and (b)
without a showing of competitive
injury, a separate standalone rulemaking
would be more suitable than inclusion
in the proposed rule.
AMS Response: This final rule solely
addresses the prohibited conduct it
covers—undue prejudice on prohibited
bases, retaliation as unjust
discrimination for engaging in protected
activities, and certain forms of
deception. It does not, beyond the
specific prohibitions, interfere with the
manner in which packers differentiate
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cattle values using an array of different
factors including production method,
animal handling requirements, and
program enrollment, meaning that
seemingly similar lots of cattle may be
valued substantially differently.
Individual adjudications with respect to
the conduct covered by this proposed
rule are essential to effectuate the
prohibitions set forth in this rule, so as
to eliminate in their incipiency
occurrences of undue prejudice on
prohibited bases and retaliation on
protected activities.242 The Act
empowers the Secretary to make the
determinations around what conduct is
unreasonable and undue prejudices and
disadvantages and unjust
discrimination. It is also wellestablished that deception is a
prohibition that can be enforced on the
bases of each individual occurrence.
Moreover, even where relevant, the
meaning of competition or harm to
competition must be broader than its
meaning under the antitrust laws.243
USDA has previously explained that
this consistently held position is based
on the language, structure, purpose, and
legislative history of the Act, and USDA
continues to adhere to this longstanding
position, despite the disagreement of
some courts as to the relationship
between harm to competition and
violations under the Act. See Scope of
Sections 202(a) and (b) of the Packers
and Stockyards Act, 82 FR 48596 (Oct.
18, 2017), (reaffirming that ‘‘USDA has
adhered to this interpretation of the P&S
Act for decades’’ and rejecting
comments that this interpretation is not
the USDA’s longstanding position).
Regardless, even if a showing of harm to
competition were required for an undue
prejudice or discrimination claim, the
discriminatory practices prohibited in
this rule would meet such a
requirement. Discrimination and undue
prejudice have no value or place in a
competitive market, and in fact can lead
to inefficiencies as personal
242 Bowman v. United States Dep’t of Agric., 363
F.2d 81, 85 (5th Cir. 1966)
243 Herbert Hovenkamp, ‘‘Does the Packers and
Stockyards Act Require Antitrust Harm?’’ (2011).
Faculty Scholarship at Penn Carey Law. 1862.
https://scholarship.law.upenn.edu/faculty_
scholarship/1862; Peter Carstensen, The Packers
and Stockyards Act: A History of Failure to Date,
CPI Antitrust Journal 2–7 (April 2010) (‘‘Congress
sought to ensure that the practices of buyers and
sellers in livestock (and later poultry) markets were
fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.’’);
Michael C. Stumo & Douglas J. O’Brien, ‘‘Antitrust
Unfairness vs. Equitable Unfairness in Farmer/Meat
Packer Relationships,’’ 8 Drake J. Agric. L. 91
(2003); Michael Kades, ‘‘Protecting livestock
producers and chicken growers,’’ Washington
Center for Equitable Growth (May 2022), https://
equitablegrowth.org/wp-content/uploads/2022/05/
050522-packers-stockyards-report.pdf.
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characteristics, not production factors
influence contracting decisions.
Ultimately, the conduct at issue is
squarely within the purposes of the Act.
Where conduct ‘‘prevents an honest give
and take in the market,’’ it ‘‘deprives
market participants of the benefits of
competition’’ and ‘‘impedes . . . a wellfunctioning market.’’ In its report on the
1958 amendments to the Act, the U.S.
House of Representatives explained that
the statute promotes both ‘‘fair
competition and fair trade’’ and is
designed to guard ‘‘against [producers]
receiving less than the true market value
of their livestock.’’ Discrimination and
undue prejudice on the bases set forth
in this final rule are both essentially
unjust and undue as forms of
unacceptable personal discrimination
under the Act (drawing on similar
precedent from the ICA and from P&S
Act implementation in stockyards), and
also subvert normal market forces,
undermine market integrity, and
deprive producers of the true value of
their products and services.
Comment: A legal foundation said the
introduction of a recordkeeping
requirement for processors may violate
the due process clause by imposing
unreasonable burdens on them and may
exceed the limits of Federal enumerated
powers under the Constitution. The
commenter said that, although the
Supreme Court upheld a recordkeeping
requirement for banks against a due
process challenge, the ruling was
specific to entities receiving public
funds and does not apply to regulated
entities under the proposed rule. The
commenter also contended such
recordkeeping requirements generally
lead to warrantless searches of
businesses, and that these types of
searches are only authorized for
pervasively regulated, inherently
hazardous industries, which likely does
not apply to the meat or poultry
industries.
AMS Response: AMS has authority
under the Act to regulate certain entities
and to promulgate rulemaking
accordingly. The inclusion of a
recordkeeping requirements serves the
legitimate purpose to ensure compliance
with this rule. Recordkeeping is
regularly a component of rulemaking to
ensure compliance and allow the
regulating agency to better monitor
impacts of the Rule. Regulated entities
are already subject to a range of
oversight by AMS subject to the
longstanding application of the Act.
Indeed, the Act already requires
recordkeeping that fully and completely
discloses the transactions by regulated
entities of their poultry growing
arrangements and transactions in
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livestock, meat, live poultry, etc.244 The
recordkeeping addressed by this rule is
to keep records already kept, and is
within the scope of AMS’s authority
under the Act.245
Comment: A cattle industry trade
association said AMS failed to clarify
the causation standards for proving a
violation of its new discrimination rule.
The commenter suggested AMS should
confirm that the default causation rule
under tort law applies, meaning a
violation would require impermissible
discrimination to be the but-for cause of
a packer’s contracting decision.
AMS Response: Although pervasive
unjust discrimination has in the past
kept outstanding producers from
achieving their potential, AMS
recognizes that adverse actions against
producers commonly have several
elements mixed in, some of which may
include the discrimination or retaliation
covered by this rule. AMS has set forth
a standard causation standard:
‘‘because’’ and ‘‘on the basis of.’’
Further cause will be determined in the
specific facts and circumstances of any
enforcement matter. Those facts will
determine whether AMS brings any
particular matters and AMS expects
unjust discrimination and retaliation to
be the principal, or at least substantial,
part of any decision by the regulated
entity. Moreover, AMS is choosing not
to require ‘‘sole’’ causation because
doing so would undermine the
effectiveness of the rule and encourage
after-the-fact revisions of causation.
Rather, AMS believes that regulated
entities should have a heightened duty
to eliminate unjust discrimination on
the protected basis and retaliation for
engaging in protected activities. To do
so, boards of directors and chief
executive officers may wish to establish
clear corporate policies, adopt
procedures to provide for heightened
managerial supervision for
circumstances where a close call may
arise, and implement training across the
244 Section 401 of the Act requires regulated
entities to keep ‘‘such accounts, records, and
memoranda as fully and correctly disclose all
transactions involved in his business . . .’’ Section
201.94 of the regulations requires regulated entities
to give the Secretary ‘‘any information concerning
the business . . .’’ Section 201.95 of the regulations
requires that regulated entities provide authorized
representatives of the Secretary access to their
plaice of business to examine records pertaining to
the business. Section 203.4 of the regulations is a
Statement of General Policy regarding disposition of
records by regulated entities that records be
retained for a period of two full years. We have
interpreted this to mean that records should be
maintained for the current year to date, plus the
prior two full years (Jan–Dec). This regulation also
provides that longer retention periods may be
required upon notice by the Administrator.
245 Id.
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corporate structure. ‘‘Tone at the top’’
should direct employees such that
undue prejudice and retaliation are not
acceptable forms of conduct, and when
close calls arise, the regulated entity has
taken every step reasonably possible to
ensure that its conduct is focused solely
on the merits of the producer’s
performance and the other competitive
factors that the regulated entity must
take into account when running its
business. AMS made no changes to the
final rule based on this comment.
L. Other Comments Related to the
Proposed Rule
Comment: A cattle industry trade
association said that AMS has not yet
made available its proposal for an
additional related rule concerning
section 202 of the Act, which must be
considered alongside the current
proposal. A meat industry trade
association likewise cited AMS’s
anticipation of a ‘‘suite of major actions
[. . .] to create fairer marketplaces for
poultry, livestock and hog producers’’
and argued that AMS should withdraw
the current proposal until the entire
suite of proposals can be submitted
holistically. Live poultry dealers and
industry companies, a poultry industry
trade association, and a swine industry
trade association concurred that
piecemeal updates to the Act would
create challenges and confusion for
regulated entities and producers. They
suggested updating regulations
collectively at one time.
AMS Response: AMS made no
changes to the proposed regulations
based on this comment. AMS
appreciates the comments regarding the
desire to view the rules holistically.
However, AMS is under no obligation to
make all potential rules available to the
public simultaneously, regardless of
their potential connection to
components of this rulemaking. AMS is
addressing issues in the livestock and
poultry sector through its statutorily
defined authority to administer the Act.
Federal agencies commonly use separate
rulemakings to address specific issues
under their regulatory authority. As
stated elsewhere, the authority or effect
of this rule does not in any way depend
upon the proposal or adoption of any
other rules, proposed or not yet
proposed. Accordingly, AMS made no
changes based on this comment.
Comment: A cattle industry trade
association noted that the proposed
rule’s preamble implied a strong
relationship between concentration in
the meatpacking industry and declining
use of negotiated cash trades, with the
further implication that the use of
AMAs in place of cash trades has
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negatively impacted the market and
rural economies. The commenter said
that AMAs are not germane to the
proposed rule and requested
information on whether AMS intends
the proposed rule to limit the ability of
cattle producers to use AMAs. It argued
that AMAs are critical to funding
production of more sustainable and
climate-friendly cattle production. In
defense of AMAs, the trade association
cited a 2021 Texas A&M study finding
that AMAs do not change underlying
supply-and-demand fundamentals and
so do not create market power 246 and a
2007 GIPSA Livestock and Meat
Marketing Study finding a negative
effect on producer and consumer
surplus measures in response to
reducing AMA use.247 Another cattle
industry trade association agreed that
AMAs benefit producers and cautioned
against any attempts to standardize
agreements between producers and
regulated entities through new rules.
AMS Response: AMS acknowledges
the commenters’ concerns over the
relationship between this rulemaking
and the use of AMAs in the cattle
industry. According to some in the
industry, the growth of these vertical
contracting relationships in the context
of highly concentrated markets has led
to concerns that firms have greater
control over producers and thus have
more ability to abuse their market
power, impede producer choices,
exclude some market participants, and
coerce producers unwittingly into
inefficient farm decisions. This rule
prohibits prejudices on certain
protected bases that tend to exclude or
disadvantage covered producers in
those markets; identifies retaliatory
practices that interfere with lawful
communications, assertion of rights, and
associational participation, among other
protected activities, as unjust
discrimination prohibited by the law;
and identifies deceptive practices that
violate the Act with respect to contract
formation, contract performance,
contract termination, and contract
refusal. AMS sees no manner in which
this regulation affects the general
existence or use of AMAs. Therefore,
AMS has made no changes to the
regulations in response to this comment.
Comment: An industry company
rejected any implication that food
companies are withholding critical
business information from producers
246 Fischer, Bart, L., Joe L. Outlaw, and David P.
Anderson, eds. The U.S. Beef Supply Chain: Issues
and Challenges. Texas A&M University (June 2021)
available at https://www.afpc.tamu.edu/research/
publications/710/cattle.pdf.
247 GIPSA Livestock and Meat Marketing Study,
Vol. 1, ES–8 (January 2007).
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and argued that producers are already
provided critical information required
to make informed business decisions. It
suggested that, in lieu of new rules to
require greater information disclosure,
AMS should consider dedicated
producer education resources or
outreach programs to raise producer
awareness.
AMS Response: AMS appreciates this
commenter’s suggestion to further
educate producers and will take this
under consideration as additional
support AMS may offer to producers.
This rulemaking action clarifies that if
regulated entities make omission of
material information necessary to make
a statement or representation not false
or misleading (as defined in the rule)
against a covered producer, such
conduct amounts to deception and is a
violation of the Act. The codification of
these regulations stems from existing
law that aims to prohibit deception in
Act-regulated markets. The new
regulations do not create any specific
disclosure of information requirements.
To the extent that regulated entities
identify the need to provide additional
information to producers, the facts and
circumstances of the transaction will
determine whether the information is in
violation of the rule. AMS agrees that
producer education and outreach are
valuable to protecting producers and
effectuating the purpose of the Act and
intends to conduct more of such
activities in the immediate term. AMS is
making no changes to the regulations as
proposed in response to this comment.
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VIII. Regulatory Analysis
A. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
chapter 35), an agency may not conduct
or sponsor, and a person is not required
to respond to, a collection of
information unless it displays a
currently valid Office of Management
and Budget (OMB) control number. This
final rule includes a new collection of
information contained in new
§ 201.304(c), ‘‘Recordkeeping of
compliance practices.’’ The proposed
rule requested comment on the
estimated recordkeeping burden. All
comments received on this information
collection are summarized and included
in the final request for OMB approval.
Under the final rule, there are no new
regulatory text changes that would
change the proposed rule costs and
benefits analyses. The burden estimates
under the final rule are updated to
reflect the most recent data available,
updates in regulated entity wages, and
the number of regulated entities. The
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estimated burden for the recordkeeping
requirement imposed by this final rule
is as follows:
OMB Number: 0581–NEW.
Expiration Date of Approval: This is
a NEW collection.
Type of Request: Approval of a New
Information Collection.
Abstract: Section 201.304(c) will
require live poultry dealers, swine
contractors, and packers to retain all
relevant records relating to their
compliance with § 201.304(a) and (b) for
no less than five years. This
recordkeeping requirement is necessary
to evaluate compliance with
§ 201.304(a) and (b) and to facilitate
investigations and enforcements based
on producer and grower complaints.
This recordkeeping requirement will
bolster AMS’s ability to review the
records of regulated entities during
compliance reviews and investigations
based on complaints of undue
prejudices, unjust discrimination, and
retaliation in the livestock and poultry
industries in accordance with the
purposes of the Act. Costs of
recordkeeping include maintaining and
updating records by regulated entities
and will be discussed and quantified
below.
Live Poultry Dealer, Swine Contractor,
and Packer Recordkeeping Costs
Estimate of Burden: The burden for
maintaining records for this information
collection is estimated to average 4.25
hours per respondent in the first year,
and 3.50 hours annually thereafter.
Respondents: Live poultry dealers,
swine contractors, and packers.
Estimated Number of Respondents:
1,030.
Estimated Total Annual Burden on
Respondents: 4,377 hours in the first
year and 3,605 hours annually
thereafter.
Information Collection and
Recordkeeping Costs of § 201.304(c):
Costs to comply with the recordkeeping
are likely relatively low. This rule
extends the disposal date of most
records, if already kept, from 2 years to
five years to promote efficient USDA
monitoring efforts. For some records,
the current disposal date is 1 year,
which could be extended to five years
under this rule if they are deemed
relevant to showing compliance with
this rule. Costs of recordkeeping include
regulated entities maintaining and
updating compliance records they
already keep. From the perspective of
the regulated entity, recordkeeping is a
direct cost. Some smaller regulated
entities that currently do not maintain
records may voluntarily decide to
develop formal policies, procedures,
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training, etc., to comply with the rule
and will then have records to maintain.
AMS expects the recordkeeping costs
will be comprised of the time required
by regulated entities to store and
maintain records they already keep.
AMS expects that the costs will be
relatively small because some packers,
live poultry dealers, and swine
contractors may currently have few
records concerning policies and
procedures, staff training materials,
materials informing covered producers
regarding reporting mechanisms and
protections, compliance testing, board
of directors’ oversight materials, and the
number and nature of complaints
received related to unduly prejudicial
and unjustly discriminatory treatment.
Some firms might not have any records
to store. Others already store the records
and may have no new costs.
The amount of time required to keep
records was estimated 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 the May 2022 U.S.
Bureau of Labor Statistics (BLS)
Occupational Employment and Wage
Statistics for the time values in this
analysis.248 BLS estimated an average
hourly wage for general and operations
managers in animal slaughtering and
processing to be $61.24. The average
hourly wage for lawyers in food
manufacturing was $103.81. In applying
the cost estimates, AMS marked-up the
wages by 41.79 percent to account for
fringe benefits.
AMS expects that recordkeeping costs
will be correlated with the size of the
firms. AMS ranked packers, live poultry
dealers, and swine contractors by size
and grouped them into quartiles,
estimating more recordkeeping time for
the largest entities in the first quartile
than for the smallest entities in the
fourth quartile. The first quartile
contains the largest 25 percent of
entities, and the fourth quartile contains
the smallest 25 percent of entities. AMS
estimated that § 201.304(c) will require
an average of 4.00 hours of
administrative assistant time, 1.50 hours
of time each from managers, attorneys,
and information technology staff for
packers, live poultry dealers, and swine
contractors in the first quartile to setup
and maintain the required records in the
248 Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage
Statistics, available at https://www.bls.gov/oes/
special-requests/oesm22all.zip (accessed 7/14/
2023). Featured OES Searchable Databases: U.S.
Bureau of Labor Statistics (bls.gov) (accessed July
2023).
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first year. AMS expects the packers, live
poultry dealers, and swine contractors
in the second quartile will require an
average of 2.00 hours of administrative
assistant time, 0.75 hours of time each
from managers, attorneys, and
information technology staff for first
year costs. The third quartile will
require 1.33 hours of administrative
assistant time, 0.50 hours of time each
from managers, attorneys, and
information technology staff for first
year costs, and the fourth quartile will
require 0.67 hours of administrative
assistant time, 0.25 hours of time each
from managers, attorneys, and
information technology staff.
AMS also expects that packers, live
poultry dealers, and swine contractors
will incur continuing recordkeeping
costs in each successive year. AMS
estimated that § 201.304(c) will require
an average of 3.00 hours of
administrative assistant time, 1.50 hours
of time each from managers, attorneys,
and 1.00 hour of time from information
technology staff for packers, live poultry
dealers, and swine contractors in the
first quartile to setup and maintain the
required records in each succeeding
year. AMS expects that packers, live
poultry dealers, and swine contractors
in the second quartile will require an
average of 1.50 hours of administrative
assistant time, 0.75 hours of time each
from managers, attorneys, and 0.50
hours of time from information
technology staff in each succeeding
year. The third quartile will require 1.00
hour of administrative assistant time,
0.50 hours of time each from managers,
attorneys, and 0.33 hours of time from
information technology staff in each
succeeding year, and the fourth quartile
will require 0.50 hours of administrative
assistant time, 0.25 hours of time each
from managers, and attorneys, and 0.17
hours from information technology staff.
Estimated first-year costs for
recordkeeping requirements in
§ 201.304(c) totaled $30,000 for live
poultry dealers,249 $193,000 for swine
contractors,250 and $122,000 for
249 90 live poultry dealers × ($44.51 per hour
admin. cost × (4 hours + 2 hours + 1.33 hours +
.67 hours)) + ($86.83 per hour manger cost × (1.5
hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost × (1.5 hours + .75 hours + .5
hours + .25 hours)) + ($93.68 information tech cost
× (1.5 hours + .75 hours + .5 hours + .25 hours))/
4 = $30,132.
250 575 swine contractors × ($44.51 per hour
admin. cost × (4 hours + 2 hours + 1.33 hours +
.67 hours)) + ($86.83 per hour manger cost × (1.5
hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost × (1.5 hours + .75 hours + .5
hours + .25 hours)) + ($93.68 information tech cost
× (1.5 hours + .75 hours + .5 hours + .25 hours))/
4 = $192,507.
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packers.251 Estimated yearly continuing
costs for recordkeeping requirements in
§ 201.304(c) totaled $26,000 for live
poultry dealers,252 $166,000 for swine
contractors,253 and $106,000 for
packers.254
Breaking out costs by market, AMS
expects recordkeeping requirements in
§ 201.304(c) to cost beef packers $58,000
in the first year and $50,000 in each
following year. Section 201.304(c) will
cost lamb packers $23,000 in the first
year and $20,000 in successive years.
Section 201.304(c) will cost pork
packers $42,000, and it will cost swine
contractors $193,000 for a total of
$235,000 in the first year. Section
201.304(c) will cost swine contractors
$166,000 in successive years, and it will
cost pork packers $36,000 for a total of
$202,000 in successive years.
B. Executive Orders 12866, 13563, and
14094; Regulatory Impact Analysis; and
the Regulatory Flexibility Act
AMS prepared this assessment in
compliance with the requirements of
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
251 365 packers × ($44.51 per hour admin. cost ×
(4 hours + 2 hours + 1.33 hours + .67 hours)) +
($86.83 per hour manger cost × (1.5 hours + .75
hours + .5 hours + .25 hours)) + ($147.19 legal cost
× (1.5 hours + .75 hours + .5 hours + .25 hours))
+ ($93.68 information tech cost × (1.5 hours + .75
hours + .5 hours + .25 hours))/4 = $122,200.
252 90 live poultry dealers × ($44.51 per hour
admin. cost × (3 hours + 1.5 hours + 1 hours + .5
hours)) + ($86.83 per hour manger cost × (1.5 hours
+ .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost × (1.5 hours + .75 hours + .5 hours + .25 hours))
+ $93.68 information tech cost × (1 hours + .5 hours
+ .33 hours + .17 hours))/4 = $26,021.
253 575 swine contractors × ($44.51 per hour
admin. cost × (3 hours + 1.5 hours + 1 hours + .5
hours)) + ($86.83 per hour manger cost × (1.5 hours
+ .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost × (1.5 hours + .75 hours + .5 hours + .25 hours))
+ $93.68 information tech cost × (1 hours + .5 hours
+ .33 hours + .17 hours))/4 = $166,244.
254 365 packers × ($44.51 per hour admin. cost ×
(3 hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83
per hour manger cost × (1.5 hours + .75 hours + .5
hours + .25 hours)) + ($147.19 legal cost × (1.5
hours + .75 hours + .5 hours + .25 hours)) + $93.68
information tech cost × (1 hours + .5 hours + .33
hours + .17 hours))/4 = $105,529.
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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 E.O.
12866 as amended by E.O. 14094 and,
therefore, has been reviewed by OMB.
As a required part of the regulatory
process, AMS prepared an economic
analysis of the costs and benefits of
§§ 201.302, 201.304, 201.306, and
201.390.
This Regulatory Impact Analysis
(RIA) presents an assessment of the
anticipated benefits and costs from the
rule including an assessment of
regulatory alternatives: the status quo,
the preferred alternative, and the small
business exemption alternative. The
Regulatory Flexibility Analysis (RFA)
evaluates the effect of the rule on small
businesses.
This regulatory filing is comprised of
definitions in § 201.302, specific
prohibited discriminatory and unduly
prejudicial practices in § 201.304,
specific prohibited deceptive practices
in § 201.306, and a statement of
severability among the provisions in
§ 201.390. The definitions in § 201.302
of a covered producer, livestock
producer, and regulated entity will
apply to §§ 201.304 and 201.306, and
the regulatory impacts of the definitions
are captured in the regulatory impacts of
§§ 201.304 and 201.306, which are
highlighted in this analysis.
The statement of severability in
§ 201.390 has no quantified regulatory
impact, as it only serves to ensure that
if any provision of §§ 201.302, 201.304,
or 201.306 is declared invalid or the
applicability to any person or
circumstance is invalid, the remainder
of the provisions will remain valid.
Under the final rule, there are no new
regulatory text changes that would
change the proposed rule costs and
benefits of the regulatory analyses. The
new information collection and
recordkeeping requirements under the
final rule are updated to reflect only the
most recent data available, updates in
regulated entity wages and number of
regulated entities.
The Need for the Rule: Market Failure
in Livestock and Poultry Markets
This section describes the need for the
regulatory action, and how the
regulatory action will meet this need.
The structure of the livestock and
poultry industries sets the stage for
unjustly discriminatory and deceitful
conduct by regulated entities. This rule
aims to benefit covered producers by
protecting their rights from these market
harms. This regulatory action addresses
market failure in the livestock and
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poultry industries. This section will
show how high levels of concentration,
the prevalence of vertical contracting,
asymmetry of information and the holdup problem together create an
environment facilitating abusive
conduct that this rule addresses and
defines the need for this rule.
Discriminatory practices are the
exclusionary or adverse treatment
which market concentration and vertical
contracting makes possible and hard to
avoid on the basis of a covered
producer’s race, or other protected basis,
and on the basis of actions that
prejudice, disadvantage, inhibit market
access, or are otherwise adverse
compared to terms generally or
ordinarily offered to similarly situation
covered producers. This rule focuses on
prohibiting regulated entities from
wrongfully excluding producers from
markets or denying those producers the
full value of their products or services
in those markets. It will then be shown
how the livestock and poultry market
structures help define the distribution of
this rule’s costs and benefits.
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The Need for the Rule: Prevalence of
Concentration and Contracting in Cattle,
Hog, and Poultry Industries
The rise of concentration and vertical
contracts in livestock and poultry
markets has increasingly created an
environment that enables packers,
swine contractors, and live poultry
dealers to unjustly exclude many
producers from, and otherwise
undermine their economic
opportunities in, the marketplace. This
adverse treatment is a cost, or economic
harm, to covered producers born from
market exclusion and associated high
search costs of finding alternative
markets in concentrated markets
coordinated with vertical contracts.
Concentration in these markets has
intensified over the past several decades
and continues today. Concentration
ratios are one metric to track the
increasing share of slaughter of livestock
and poultry in U.S. attributed to fewer
packers and poultry integrators. Table 1
in the Background section shows the
level of concentration in the livestock
and poultry slaughtering industries for
1980–2020 using four-firm
Concentration Ratios (CR4). The CR4 for
steers and heifers was 36 percent in
1980 and rose to 81 percent in 2020.
That is, in 2020, the top four beef
packers slaughtered 81 percent of the
nation’s steers and heifers. The CR4 for
hogs was 32 percent in 1980 and rose to
64 in 2020, and the CR4 was 32 percent
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in 1980 for broilers and rose to 53
percent in 2020.255
The data in Table 1 are estimates of
CR4s at the national level; however, in
practice, the relevant economic markets
for livestock and poultry may be
regional or local, where concentration
may be higher than those at the national
level. This is because of limits on how
far live animals can be safely and
efficiently transported. In particular,
regional concentration is often higher
than national concentration for hogs.256
Similarly, based on AMS’s experience
conducting investigations and
monitoring cattle markets, there are
often only one or two cattle buyers in
many local geographic markets, and
very few sellers have the option of
selling fed cattle to more than three or
four packers. Likewise, even though
poultry markets are the least
concentrated of the four markets
described above as measured by their
national CR4s, relevant markets for
poultry growing services are more
localized than markets for fed cattle or
hogs, and local concentration in poultry
markets is often greater than the
national concentration level. Thus, the
current environment is one where
producers have little choice in whom
they do business with, resulting in an
unequal distribution of bargaining
power between parties. MacDonald and
Key found that about one quarter of
contract growers reported that there was
just one live poultry dealer in their area,
defined by a roughly 34-mile radius
from their farm; another quarter
reported two; another quarter reported
three; and the rest reported four or
more.257 Table 2 in the Background
section 258 highlights this issue by using
the Herfindahl-Hirschman Index (HHI)
to show the limited ability of poultry
growers to switch to different
integrators. Similar to a CR4, HHI is an
indicator of market concentration, with
255 Sheep and turkeys exhibit similar increases in
concentration between 1980 and 2020.
256 Wise, T.A., S.E. Trist. ‘‘Buyer Power in U.S.
Hog Markets: A Critical Review of the Literature,’’
Tufts University, Global Development and
Environment Institute (GDAE) Working Paper No.
10–04, August 2010, available at https://
sites.tufts.edu/gdae/files/2020/03/1004HogBuyerPower.pdf.TAbl (last accessed 8/9/
2022).
257 MacDonald, James M. ‘‘Technology,
Organization, and Financial Performance in U.S.
Broiler Production,’’ EIB–126, U.S. Department of
Agriculture, Economic Research Service, June 2014.
(In the 2011 Agricultural Resource Management
Survey (ARMS), the mean distance from a grower
to the integrator’s processing plant was 34 miles,
and 90 percent of all birds were produced on farms
within 60 miles of the plant.)
258 MacDonald, James M., and Nigel Key. ‘‘Market
power in poultry production contracting? Evidence
from a farm survey.’’ Journal of Agricultural and
Applied Economics 44, no. 4 (2012): 477–490.
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16177
the index increasing as market shares
across firms (packers) become more
unequal or the number of these firms
decrease. Markets with HHIs above
2,500 are considered highly
concentrated. Table 2 presented earlier
from MacDonald showed that 88.4
percent of growers face an integrator
HHI of at least 2,500. As stated earlier,
the data suggest that most contract
broiler growers in the U.S. are thus in
markets where the sellers have the
potential for market power advantage.
Livestock producers face similar market
vulnerabilities as shown here for
poultry growers given that livestock
producers also face regional market
concentration that is more concentrated
than national data would indicate.
Market concentration and the use of
vertical contracts are interrelated; as
such, growing, production, and
marketing contracts feature prominently
in the livestock and poultry industries.
As outlined above, several provisions in
§§ 201.304 and 201.306 will affect the
process of contract formation,
performance, termination, and any other
action that a reasonable covered
producer would find materially adverse
for livestock, poultry, and meat grown
or marketed.
The type of contracting varies among
cattle, hogs, and poultry. Broilers, the
largest segment of poultry, are almost
exclusively grown under production
contracts, in which the live poultry
dealers, a regulated entity, own the
birds and provide poultry growers with
feed and medication to raise and care
for the birds until they reach the desired
market size. Poultry growers provide the
housing, the skill and labor, water,
electricity, fuel, and provide for waste
removal. Fed cattle marketing contracts
typically take the form of marketing
agreements. Hog production falls
between these two extremes.
As shown in Table 5 below, over 96
percent of all broilers and over 42
percent of all hogs are grown under
contractual arrangements. Similar to
poultry contracts, swine contractors
typically own the slaughter hogs and
sell the finished hogs to pork packers.
The swine contractors typically provide
feed and medication to the swine
production contract growers who own
the growing facilities and provide
growing services. The following table
shows that the percentage of contract
growing arrangements by species has
remained relatively stable between 2007
and 2017.
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Table 5: Percentage of Poultry and Hogs Raised and Delivered Under
Production Contracts259
Species
2007
2012
2017
Broilers
Turkeys
96.5
67.7
96.4
68.5
96.3
69.5
Hogs
43.3
43.5
42.4
Other types of contracts include
marketing agreements and forward
contracts. Under marketing agreements
and forward contracts, producers and
packers agree to terms on a future sale
and purchase of livestock. These types
of agreements and contracts are
commonly referred to as AMAs. Pricing
mechanisms vary across AMAs. Some
AMAs rely on a reported spot, or
negotiated, market price or exchangebased futures price for at least one
aspect of its price, while others involve
complicated pricing formulas with
premiums and discounts based on
carcass merits. The livestock producer
and packer agree on a pricing
mechanism under AMAs, but usually
not on a specific price.
AMS reports the number of cattle sold
to packers under formula, forward
contract, and negotiated pricing
mechanisms. Table 6 illustrates the
prevalence of contracting in the
marketing of fed cattle. Formula pricing
methods and forward contracts are two
forms of AMA contracts. Thus, the first
two columns in the following table are
cattle marketed under contract and the
third column represents the spot
market, or negotiated market, for fed
cattle including negotiated grid. The
data in the below table show that the
AMA contracting of cattle has increased
since 2010. Approximately 55 percent of
fed cattle were marketed under
contracts in 2010 (formula and forward
contracts in the below table). By 2021,
the percentage of fed cattle marketed to
packers under AMA contracts had
increased to just over 72 percent. These
data also show the declines in the
percentage of cattle sold on the spot
market, or negotiated trades, from 46 in
2010 to 28 in 2021.
Table 6: Percentage of Fed Cattle Sold by Type of Purchase260
Forward Contract
9.5
10.9
11.4
10.2
14.2
16.5
12.0
11.4
8.8
9.8
9.0
10.9
Negotiated
45.6
40.7
33.8
29.8
27.6
25.3
29.8
29.9
29.2
24.4
27.0
27.6
As previously discussed, and
illustrated in Table 5 above, over 40
percent of hogs are grown under
production contracts. These hogs are
then sold by swine contractors to
packers. The percentage of hogs sold
under marketing contracts or produced
by packers has increased to over 98
percent in 2020 (other marketing
agreements and formula sales in the
table below). The spot market, or
negotiated trades, for hogs has declined
from 5.2 percent in 2010 to 1.5 percent
in 2020. As these data demonstrate,
almost all hogs are marketed to packers
under some type of marketing contract.
259 Agricultural Census, 2012 and 2017, available
at https://www.nass.usda.gov/Publications/
AgCensus/2017/Full_Report/Volume_1,_Chapter_1_
US/usv1.pdf (last accessed 8/9/2022).
260 U.S. Department of Agriculture, Agricultural
Marketing Service, available at: https://
mpr.datamart.ams.usda.gov/
menu.do?path=Products\Cattle\Weekly%20Cattle
(last accessed Aug. 2022).
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Formula
44.9
48.4
54.7
60.0
58.1
58.2
58.2
58.7
62.0
65.7
64.1
61.5
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Table 7: Percentage of Hogs Sold by Type of Purchase261
Other Marketing
Arrane;ements262
45.4
47.6
47.7
48.3
45.9
46.0
50.0
52.5
56.5
59.8
61.3
The Need for the Rule: Structural Issues
in the Cattle, Hog, and Poultry
Industries
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The livestock and poultry industries
are characterized by a high volume of
growing, production, and marketing
contracts. When coupled with high
levels of market concentration, this
market environment can make it easier
for regulated entities to engage in undue
prejudice and unjust discrimination,
retaliation, and deception and make the
harms to producers greater from those
abuses.
Despite various policy and public
concerns, contracting, growing,
production, and marketing contracts can
offer certain benefits to the contracting
parties. Properly tailored, benefits can
include helping farmers, livestock
producers, and processors manage price
and production risks, elicit the
production of products with specific
quality attributes by tying prices to
those attributes, and facilitate the
smooth flow of commodities to
processing plants. Such attributes may
encourage certain efficiencies in use of
farm and processing capacities. Qualityrelated attributes and standards can
incentivize farmers to deliver products
that consumers desire and produce
261 U.S.
Department of Agriculture, Agricultural
Marketing Service, available at: https://
mpr.datamart.ams.usda.gov/
menu.do?path=\Products (Last accessed Aug.
2022).
262 Includes Packer Owned and Packer Sold, and
Other Purchase Arrangements.
263 Includes Swine Pork Market Formula, and
Other Market Formula.
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Formula263
49.4
48.2
48.6
48.4
51.4
51.4
47.6
45.0
41.3
38.4
37.1
products in ways that reduce processing
costs.264
There are, however, trade-offs with
the use of these contracts. In
concentrated industries, like the cattle,
hog, and poultry industries, where
market power is present, these types of
contracts may result in increased
opportunities for undue prejudices and
unjust discrimination, retaliation, and
deception, among other concerns, which
cause inefficiencies in the markets for
livestock, poultry, and meat.265
Heightened market concentration
implies that livestock producers and
poultry growers face fewer marketing
and contract options compared to less
concentrated markets. Livestock
producers and poultry growers may find
themselves in a take-it-or-leave it
situation when a new or renewal
contract is presented due to a limited
number of packers and live poultry
dealers with which to contract. Thus,
livestock producers and poultry dealers
entering into new, or renewal contracts
may be taken advantage of through
discriminatory, deceptive, or retaliatory
practices.
Livestock and poultry contracts may
lead to unjust, prejudicial, and
retaliatory practices. For example, a
contract that limits a poultry grower’s
264 RTI International, 2007, GIPSA Livestock and
Meat Marketing Study, Prepared for USDA, GIPSA;
Stephen R. Koontz, ‘‘Another Look at Alternative
Marketing Arrangement Use by the Cattle and Beef
Industry,’’ in Bart Fischer et al, ‘‘The U.S. Beef
Supply Chain: Issues and Challenges Proceedings of
a Workshop on Cattle Markets,’’.
265 Nathan H. Miller, et al., ‘‘Buyer Power in the
Beef Packing Industry: An Update on Research in
Progress,’’ April 13, 2022, available at https://
www.nathanhmiller.org/cattlemarkets.pdf.
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N ee;otiated
5.2
4.2
3.6
3.2
2.7
2.6
2.5
2.5
2.2
1.8
1.5
services to a single integrator, even if
the contract provides for fair
compensation to the grower, still leaves
the grower subject to risks. The grower
faces the risk that the contractor may
require additional capital investments
or the contractor may impose lower
returns at the time of contract renewal—
leveraging its market power given the
grower’s limited options.266 Some
poultry make substantial long-term
capital investments as part of livestock
or poultry production contracts,
including land, poultry or hog houses,
and equipment. Those investments may
bind the grower to a single contractor or
integrator, furthering the indebtedness
and exacerbating an imbalance of
power.
In the poultry industry, limited
integrator choice may accentuate
contract risks. The data in Table 2 above
show that 52 percent of broiler growers,
who account for 56 percent of total
production, report having only one or
two integrators in their local areas. Even
where multiple integrators are present,
there are high costs to switching, owing
to the differences in technical
specifications that integrators require.
The growers likely need to invest in
new equipment and learn to apply
different operational techniques due to
different breeds, target weights, and
grow-out cycles.
A 2006 survey indicated that growers
with access to a single integrator
received seven to eight percent less
266 See Vukina and Leegomonchai, ‘‘Oligopsony
Power, Asset Specificity, and Hold-Up: Evidence
from The Broiler Industry,’’ American Journal of
Agricultural Economics, 88(3): 589–605 (August
2006).
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compensation, on average, than farmers
located in areas with four or more
integrators.267 If live poultry dealers
already possess some market power to
reduce prices for poultry growing
services, some contracts can extend that
power by raising the costs of entry for
new competitors or allowing for price
discrimination.268
In 2013, production contracts covered
$58 billion in agricultural production,
83 percent of which was poultry and
hog contracts.269 Most hogs are
produced and marketed under
production and marketing contracts.
Open market negotiated trade
represented nine percent of total trades
for hogs in 2008 and dropped to two
percent in 2020.270 In effect, the only
production or marketing choice for a
hog producer is to enter a contract.
In the cattle sector, cow-calf
operations incur a significant
investment in breeding stock and
typically sell steers and heifers once a
year. Access to competitive markets,
absent from unjust discrimination,
undue prejudice, and retaliation, is
important to the economic livelihood of
the market. Reduced marketing
options—fewer options to sell on the
spot market, or lack of access to
contracts—can leave producers
susceptible to unfair trade practices.
Spot market trades, or negotiated trades,
as opposed to marketing agreements or
contracts, for fed cattle accounted for 51
percent of all trades in 2008 and fell to
29 percent in 2022.271
One indication of potential market
power is industry concentration.272
Market concentration facilitates the
exclusionary and adverse treatment
267 MacDonald, J. and N. Key. ‘‘Market Power in
Poultry Production Contracting? Evidence from a
Farm Survey.’’ Journal of Agricultural and Applied
Economics. 44(4) (November 2012): 477–490.
268 See, e.g., Williamson, Oliver E. ‘‘Markets and
Hierarchies: Analysis and Antitrust Implications,’’
New York: The Free Press (1975); Edlin, Aaron S.
& Stefan Reichelstein (1996) ‘‘Holdups, Standard
Breach Remedies, and Optimal Investment,’’ The
American Economic Review 86(3): 478–501 (June
1996).
269 MacDonald, J.M. ‘‘Trends in Agricultural
Contracts.’’ Choices. 2015. Quarter 3. Available at
https://www.choicesmagazine.org/choicesmagazine/theme-articles/current-issues-inagricultural-contracts/trends-in-agriculturalcontracts, accessed 9–19–22.
270 USDA, AMS, FTPP, Packers and Stockyards
Division. Packer Annual Reports, 2021 and 2012.
Available at https://www.ams.usda.gov/reports/psdannual-reports, accessed 9–19–22.
271 USDA, AMS, FTPP, Packers and Stockyards
Division. Packer Annual Reports, 2021 and 2022
pending, and 2012. Available at https://
www.ams.usda.gov/reports/psd-annual-reports,
accessed 9–19–22.
272 For additional discussion see MacDonald, J.M.
2016 ‘‘Concentration, contracting, and competition
policy in U.S. agribusiness,’’ Competition Law
Review, No. 1–2016: 3–8.
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observed in discriminatory practices.
The data in Table 1 are estimates of
national four-firm concentration ratios
at the national level, but the relevant
economic markets for livestock and
poultry may be regional or local, and
concentration in the relevant market
may be higher than the national level.
For example, while poultry markets may
appear to be the least concentrated in
terms of the four-firm concentration
ratios presented above, relevant
economic markets for poultry growing
services are more localized than markets
for fed cattle or hogs, and local
concentration in poultry markets is
often greater than in hog and other
livestock markets. The data presented
earlier in Table 2 highlights this issue
by showing the limited ability a poultry
grower has to switch to a different
integrator. As a result, national
concentration may not demonstrate
accurately the options poultry growers
in a particular region face.
The levels of industry concentration
shown in Tables 1 and 2 may contribute
to oligopolistic market power and
asymmetric information. The result is
that the contracts bargained between the
parties may leave livestock producers,
swine production contract growers, and
poultry growers vulnerable to
anticompetitive conduct such as undue
prejudice and unjust discrimination,
retaliation, and deception.
The Need for the Rule: Asymmetric
Information
There is asymmetry in the
information available to livestock
producers and livestock and poultry
growers as compared to the packers,
swine contractors, and live poultry
dealers with whom they contract. The
larger packers, swine contractors, and
live poultry dealers generally have more
information (costs of production, input
quality, and consumer demand, for
example) that is useful in contracting
than the smaller livestock producers
and livestock and poultry growers. This
asymmetry of information can lead to
deceptive practices by regulated entities
with superior information in contract
formation, performance, termination, or
refusal by employing a false or
misleading statement, or omission of
material information necessary to make
a statement not false or misleading. A
2023 AMS rule, Transparency in Poultry
Grower Contracting and Tournaments,
directly aims to address this asymmetric
information in the poultry industry by
adding disclosures and information that
live poultry dealers engaged in the
production of broilers must furnish to
poultry growers with whom dealers
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make poultry growing arrangements.273
There remains a wide range of
circumstances where information
asymmetry is present in the livestock
and poultry markets, which would be
addressed in whole or in part by this
final rule. Additionally, the information
this rule provides can help producers
know if they are treated unfairly.
Some marketing contracts for fed
cattle, for example, use various plant
averages in the calculation for the base
price of the cattle in the marketing
contract. Only the packer has the
information about the plant averages
and producers cannot independently
verify the information. Similar issues
exist in hog marketing contracts. For
contracts based on the pork cutout, the
hog packer has more information about
the direct retail pork demand and hence
pork cutout prices than hog sellers.
Live poultry dealers hold information
on how individual poultry growers
perform under a variety of contracts.
The average number of contracts for the
live poultry dealers filing annual reports
with AMS in 2020 was 251. The largest
live poultry dealers contracted with
several thousand growers.274
Most growers producing poultry
under production contracts are paid
under a poultry grower ranking or
‘‘tournament’’ pay system. Under
tournament systems, the contract
between the poultry grower and the
company for whom the grower raises
poultry for slaughter pays the grower
based on a grouping, ranking, or
comparison of poultry growers
delivering poultry to the same company
during a specified period. Generally,
live poultry dealers provide most of the
inputs to all the growers in each poultry
tournament used to determine grower
pay. In these tournaments, the live
poultry dealers have information about
the quality of the inputs, while each
grower only knows what he or she can
observe. A grower may not be able to
evaluate the inputs it received such as
chicks and feed, and he or she almost
certainly will not know about the inputs
received by other growers. A live
poultry dealer also has historical
information concerning growers’
production and income under many
273 Transparency in Poultry Grower Contracting
and Tournaments. A Rule by the Agricultural
Marketing Service on 11/28/2023. https://
www.federalregister.gov/documents/2023/11/28/
2023-24922/transparency-in-poultry-growercontracting-and-tournaments.
274 All live poultry dealers are required to
annually file Packers and Stockyards Division (PSD)
form 3002 ‘‘Annual Report of Live Poultry Dealers,’’
OMB control number 0581–0308. The annual report
form is available to public on the internet at https://
www.ams.usda.gov/sites/default/files/media/
PSP3002.pdf.
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different circumstances for all the
growers with which the dealer
contracts, while an individual grower,
like most other producers, only has
information concerning his or her own
production and income. Prohibiting
deception may serve to reduce the
negative impacts from asymmetric
information. Prohibiting retaliation
against producers or growers because
they joined a cooperative or grower
association organization, shared
information to improve their production
or growing practices with a regulated
entity, another covered producer, or
with a commercial entity,
communicated with the government, or
asserted any of the rights granted under
the Act should lead to reducing the
information asymmetry between
regulated entities and producers.
The Need for the Rule: Hold-Up
Problem
Hold-up is another problem that is
particularly acute in service contracts
between poultry growers and live
poultry dealers. The economic concept
of a hold-up problem refers to a
situation in which two parties may be
unable to cooperate efficiently due to
incomplete or asymmetric information
and the inability to write, enforce, or
commit to contracts. Once a party
becomes locked into a transaction,
especially as a result of making a
transaction-specific investment, they
become vulnerable to exploitation by
the other party. This may involve one
party to a contract opportunistically
deviating from expectations of the other
party or failing to live up to previously
agreed upon terms.
In the poultry industry, hold-up
occurs when a poultry grower makes an
investment, such as in poultry housing,
and becomes dependent upon the
growing arrangement to repay the
investment. Hold-up is less common for
hog and cattle producers, so the
discussion here is limited to poultry
growing to highlight this risk to poultry
growers. Substantial gaps exist between
the periods of time covered by the
contract and the mortgage on poultry
housing, creating uncertainty around
whether growers will be able to repay
their debt and recoup their investments,
introducing the potential for hold-up
into the contracting process. If the
integrator takes advantage of the
grower’s dependence, for example, by
delaying delivery of chicks that the
grower depends upon to make payments
on investments, it would be holding up
the grower. The aim of the economic
hold-up may be to coerce the grower
into accepting conditions that benefit
the integrator at the expense of the
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grower. For example, refusing to supply
chicks until a contract amendment with
unfavorable conditions is signed.
This is of concern in poultry
production contracts because the capital
investment requirements related to
growing chickens are significant and
highly specialized (that is, they have
little value outside of growing
chickens). As a result, growers entering
the market are tied to growing chickens
to pay off the financing of the capital
investment. Growers have reported that
they must accept unfavorable contract
terms or endure unfavorable treatment
during a contract—including
inappropriate limits on their ability to
form associations, assert their rights
under the law or contract (such as
viewing the weighing of broilers),
communicate with government entities,
and seek alternative business
relationships—because they are tied to
production to pay off lenders and they
have few, if any, alternative integrators
with whom they can contract. Hog
producers, which invest heavily in
production facilities, may face similar
risks.
Long term, this behavior may result in
underinvestment in production, which
is inefficient. Alternatively, if growers
make a significant investment because
they do not anticipate hold-up, but then
it does occur, then growers may be
required to spend too much on
investments. The resulting overinvestment in capital by those growers
facing hold-up is also inefficient. The
hold-up problem is a manifestation of
both market power and asymmetric
information.
Summary Need for the Rule:
Contracting, Industry Structure, and
Market Failure
As described previously, the
organization and structure of poultry
and livestock markets is characterized
by regional market power; substantial
investment in production capital that is
specific to a single production purpose;
and, in the poultry industry, nearly
universal use of production contracts,
and widespread use of marketing
contracts in the cattle industry, while
less so, for hogs. These conditions create
the potential for market failures.
Asymmetric information and imperfect
competition are concerns in livestock
and poultry markets. economically
incomplete contracts and hold-up are of
particular concern in poultry markets
and can exacerbate the risk of undue
prejudice and unjust discrimination,
retaliation, and deception in poultry
and livestock markets.
By setting forth specific prohibitions
on unduly prejudicial and unjustly
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discriminatory and deceptive practices,
the rule will reinforce producers’
existing rights to gather and share
information, while reducing the fear of
retaliation and interference in the
contracting process. The prohibitions in
the rule will also continue to support,
and possibly promote more efficient and
equitable information access, reduce the
hold-up problem, reduce retaliation,
discourage false and misleading
statements, and increase
communication, cooperation, and
retention of legal rights. The
prohibitions specified in §§ 201.304 and
201.306 will ultimately assist in
mitigating the impacts of imperfect
competition.
Cost-Benefit Analysis of §§ 201.304 and
201.306
Regulatory Alternatives Considered
Executive Order 12866 requires an
assessment of costs and benefits of
potentially effective and reasonably
feasible alternatives to the planned
regulations and an explanation of why
the planned regulatory action is
preferable to the potential
alternatives.275 AMS considered three
regulatory alternatives. The first
alternative that AMS considered is to
maintain the status quo and not propose
§§ 201.304 and 201.306. The second
alternative that AMS considered is to
issue §§ 201.304 and 201.306 as
presented in this rule.276 This second
alternative is AMS’s preferred
alternative as will be explained below.
The third alternative that AMS
considered is proposing §§ 201.304 and
201.306, but exempting small
businesses, as defined by the Small
Business Administration (SBA), from
having to comply with the
recordkeeping requirement of
§ 201.304(c).
Regulatory Alternative 1: Status Quo
Alternative
If §§ 201.304 and 201.306 are never
promulgated, there are no marginal
costs and marginal benefits as industry
participants will not alter their conduct.
From a cost standpoint, this Status Quo
Alternative is the least-cost alternative
compared to the other two alternatives.
This alternative also has no marginal
benefits. Since there are no changes
from the status quo under this
275 See
sec. 6(a)(3)(C), E.O. 12866.
final rule includes § 201.302, which
defines a covered producer, livestock producer, and
regulated entity. These definitions will apply to
final §§ 201.304 and 201.306. The definitions final
in § 201.302 are captured in the regulatory impacts
of final §§ 201.304 and 201.306. The final rule also
includes § 201.390 which states all provisions are
severable in case any provision is declared invalid.
276 This
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regulatory alternative, it will serve as
the baseline against which to measure
the other two alternatives.
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Final Rule
As discussed above, final § 201.304
prohibits undue prejudice, unjust
discrimination, and retaliation by
regulated entities and adds a
requirement for regulated entities to
maintain records that they already keep,
for up to a period of five years, related
to its compliance with final § 201.304.
Section 201.306 will prohibit deceptive
practices by regulated entities in
contract formation, performance, or
termination by employing a false or
misleading statement, or omission of
material information necessary to make
a statement not false or misleading.
Additionally, a regulated entity may not
refuse a contract by providing false or
misleading information to a covered
producer or associations of covered
producers.
Final Rule: Benefits
Reductions in prejudicial,
discriminatory, retaliatory, and
deceptive practices by packers, swine
contractors, and live poultry dealers
will benefit society. These types of
conduct are inefficient, and often
difficult to quantify for prejudicial,
discriminatory, retaliatory, and
deceptive practices are not necessarily
written into contracts but in contract
offers, preparation and enforcement.
Production contracts need not change to
realize benefits in this rule. The amount
of benefits that depends on the extent to
which the rule reduces prejudicial,
discriminatory, retaliatory, and
deceptive practices. That, in turn, is
bounded by the degree to which any of
these types of activities are occurring in
the baseline. If the reductions are small,
the benefits will be small. The greater
the reductions, the greater the potential
benefits. USDA’s long-standing policy
has been that the Act prohibits the type
of conduct that final §§ 201.304 and
201.306 addresses.
Final §§ 201.304 and 201.306 add
specificity to what constitutes undue
prejudices, unjustly discriminatory
practices, retaliation, and deception.
The size of the benefits is difficult to
quantify as it depends on the amount of
undue prejudice, unjust discrimination
and deception that will be avoided due
to added specificity provided by the
rule. The added benefits to the industry
from final §§ 201.304 and 201.306 over
the Status Quo occur when packers,
swine contractors, and live poultry
dealers alter their conduct to reduce
instances of deceptive, prejudicial, and
discriminatory practices, including
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retaliation. The potential benefits
include protecting producer and grower
rights, improved corporate culture,
improved information, fewer deceptive
practices, among others. The more
undue prejudice, unjust discrimination,
retaliation, and deception that will be
avoided, the larger the benefits. AMS is
unable to quantify the benefits and will
present a qualitative discussion of the
types of potential benefits that accrue
from reductions in undue prejudice,
unjust discrimination, retaliation, and
deception.
Benefits: Protecting Producer and
Grower Rights
A key purpose of specifying certain
prohibitions on unduly prejudicial,
discriminatory, and deceptive practices,
including those in final §§ 201.304 and
201.306, is to protect livestock
producers, swine contractors and
poultry growers’ rights under the Act.
Final §§ 201.304 and 201.306 will also
help protect producers from unfair and
deceptive practices stemming from
market power imbalances such as undue
prejudice, unjust discrimination,
retaliation, and deception by using false
or misleading statements in contracting
by packers and live poultry dealers. The
benefits of prohibiting prejudicial,
discriminatory, and deceptive practices,
will accrue not only to the market’s
covered producers and cooperative
producers who have been subjected to
the prohibited practices, but also to
those for whom the rule’s deterrence
effects will protect from future potential
abuses.
Benefits: Addressing Imperfect
Information
Several provisions in the final rule
will enhance the protection of the rights
of producers to lawfully communicate
and to associate with others to explore
business relationships and improve
production practices and in the
marketing of livestock, poultry, and
meat. These provisions will benefit
producers by encouraging the use of
their currently existing legal rights that
will solidify and enhance their access to
information. This in turn will help
address information asymmetry and
thus help producers make better
business decisions, enhance their
competitiveness, reduce the hold-up
problem, and promote innovation and
economic efficiency in the industry.
The final rule will help close this
information gap by protecting the rights
of producers to form associations and
communicate freely with one another,
and to communicate with other
regulated entities for the purpose of
exploring a business relationship. This
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will benefit producers by improving
their ability to strengthen the returns to
their livestock and poultry investments,
by enhancing the bargaining power of
supplier groups if they elect to organize
in such a way.
This rule will prohibit retaliation
against covered producers due to their
communicating, negotiating, or
contracting with other covered
producers, a commercial entity,
consultant, or regulated entities, which
could increase the important decisionmaking information available to
producers. Improved safeguarding of
protected activities may enable the
producer to improve business decisionmaking and manage risk, including
potentially acquiring external insurance
and risk-management products. In
addition, facilitating producers’ ability
to gain more and better information will
help correct information asymmetry and
improve transparency and completeness
in contracts.
More information will also reduce the
risks associated with hold-up as
discussed above. By protecting rights to
freely communicate and associate, this
rule will facilitate communication
across the industry that may help
disseminate information regarding new
innovations and best practices within
the industry. These types of provisions
that could provide producers with
access to more and better information
should promote innovation and
economic efficiency in the industry.
The final rule may also serve to
reduce the risk of violating sec. 202(a)
of the Act because it will provide
clarification to the livestock, and
poultry industries as to the
discriminatory and deceptive practices
that will be prohibited under that
section of the Act. Less risk through the
clarification provided in the final rule
will likely foster fairness in contracting
by providing explicit protections for
livestock producers, swine production
contract growers, and poultry growers.
Benefits: Prohibiting Deceptive Practices
Final § 201.306 specifies prohibited
practices that will be considered
deceptive, and thus in violation of sec.
202(a) of the Act. Though USDA already
protects producers from deceptive
practices, the rule will explicitly protect
suppliers from deception by packers
and live poultry dealers by employing a
false and misleading statement, or
omission of material information
necessary to make a statement not false
or misleading in contracting. Prohibited
deceptions, including false statements
or omissions, can prevent or mislead
producers, sellers, or buyers from
making informed decisions and thus
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represents a market inefficiency. The
provisions in final §§ 201.304 and
201.306 will help give producers
confidence that the information
provided by processors is reliable,
which will help them to make better
and more informed business decisions
and manage risk.
Other Benefits
While some of these protections
already benefit individual producers,
ensuring they cover the full marketplace
and can be enforced individually adds
to the integrity and fairness of livestock
and poultry contracting. Specifying
these protections may bring additional
benefits above the Status Quo
Alternative.
Production and marketing contracting
has many benefits in the livestock and
poultry industries. The final rule can
further enhance the documented
benefits of contracting by prohibiting
unduly prejudicial, discriminatory, and
deceptive practices. Livestock producers
often have few choices of packers to
which they sell, and poultry growers
often have few choices in the live
poultry dealers for which they raise
poultry. The limited alternatives cause
fear among producers that certain
actions they might undertake, such as
communication with government or
other regulated entities to pursue
business relationships, association with
certain groups, or making lawful public
complaints about the packers, swine
contractors, or live poultry dealers
might result in harmful retaliations.
AMS intends the final rule to promote
integrity to the marketplace by
enhancing the protection of the rights of
the producers and alleviating those
fears.
The literature and data on these topics
are not sufficient to allow AMS to
estimate the magnitude of the
inefficiencies that the final rule may
correct above the Status Quo
Alternative, nor the degree to which the
additional producer and grower
protections will address inefficiencies.
Though AMS is unable to quantify the
benefits of the regulation, this analysis
has explained the types of benefits that
will be derived from reductions in
undue prejudice, unjust discrimination,
retaliation, and deception. If the
reductions are small, the benefits will be
small. The greater the reductions, the
greater the potential benefits.
Final Rule: Costs
The final rule will not impose any
restrictions on numbers or types of
production or marketing contracts that
can be utilized, use of AMAs, poultry
tournaments, or base price mechanisms
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in contracts for packers, swine
contractors, and live poultry dealers.
Instead, the final rule clarifies the
prohibited unduly prejudicial, unjustly
discriminatory, and deceptive practices
that AMS considers violations of
sections 202(a) and (b) of the Act. The
final rule will require packers, live
poultry dealers, and swine contractors
to discontinue any prejudicial, unjustly
discriminatory, or deceptive practices, if
any are occurring. The practices
prohibited by §§ 201.304 and 201.306
are the kind of practices that do not
benefit society as a whole, but there is
uncertainty about the extent of net costs
to regulated entities of preventing them
since they are based on behaviors and
are not expressly written into contracts.
In other words, §§ 201.304 and 201.306
result in uncertain-in-magnitude
indirect costs resulting from
adjustments by the livestock and
poultry industries to reduce their use of
AMAs, poultry tournaments, and
pricing mechanisms, with the
possibility of a number of changes to
existing marketing or production
contracts.
Though the magnitude of indirect
costs is uncertain, AMS has constructed
a scenario that indicates the magnitude
is likely below an established dollar
value benchmark. The following
scenario illustrates why it is extremely
unlikely that the rule’s indirect costs
will exceed the Unfunded Mandates
Reform Act’s (UMRA) cost compliance
threshold of $170 million annually, a
benchmark used to assess this rule’s
effects on the private sector.277 If some
cattle contracts are altered to come into
compliance with the rule, and cattle
prices to some producers are increased,
AMS expects that the packers will offer,
at most, the average price paid for cattle.
Looking just at cattle, the weighted
average difference between the
minimum and average liveweight prices
paid for cattle over the last nine years
in four cattle regions reported by AMS
Market News is $1.31 per cwt ($.01/
lb.).278 If AMS assumes that the entire
277 Title II of the Unfunded Mandates Reform Act
of 1995 (UMRA, Pub. L. 104–4) requires Federal
agencies to assess the effects of their regulatory
actions on State, local, and Tribal Governments and
on the private sector. Agencies generally must
prepare a written statement, including cost benefits
analysis, for proposed and final rules with ‘‘Federal
mandates’’ that may result in expenditures of $100
million or more (adjusted for inflation) in any 1
year for State, local or Tribal governments, in the
aggregate, or to the private sector. Congressional
Research Service. Updated February 23, 2021.
Unfunded Mandates Reform Act: History, Impact,
and Issues. Accessed at https://
crsreports.congress.gov/product/pdf/R/R40957/109
on 02/08/2024.
278 Data for negotiated steers and heifers, across
all Choice cattle, four cattle regions, 2015–2023.
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difference between the minimum and
average prices paid was due to unlawful
discrimination, deception, and
retaliation, this will require 13 billion
pounds of liveweight cattle to meet the
$170 million threshold.279 This
assumption does not account for any
price differences for cattle related to
quality of the animal. Taking the 2022
average liveweight per head for all cattle
of 1,369 lbs. per head,280 this means that
9.5 million head of cattle in one year
would have to face conduct this rule
aims to prohibit to equal $170 million
in costs in that year.281 This number
accounts for 28 percent of all cattle
slaughtered in 2022.282 Based on AMS’s
knowledge of the livestock industry, it
is not expected that the number of cattle
affected by unlawful discrimination,
retaliation, or deception reaches this
level. This fact, combined with the
unrealistic assumption that any price
deduction below the average price does
not account for quality differences and
is wholly the result of discrimination,
retaliation, and deception, points to a
conclusion that this rule will have
limited impacts, and not exceed the
UMRA threshold.
Litigation Costs
AMS expects §§ 201.304 and 201.306
to reduce litigation costs due to
increased compliance with the rule
associated with the clarity provided by
the rule as to the conduct that violates
the Act, but also to increase litigation as
this rule allows producers to find relief
in courts. AMS is uncertain as to which
of these offsetting effects will dominate
and to what extent. The final rule
clarifies the prohibited unduly
prejudicial, discriminatory, and
deceptive practices that will violate
section 202(a) of the Act. The
clarification could result in a reduction
in litigation costs if companies come
Sources: U.S. Department of Agriculture,
Agricultural Marketing Service. Texas-OklahomaNew Mexico Weekly Direct Slaughter Cattle—
Negotiated Purchases (LM_CT156), Kansas Weekly
Direct Slaughter Cattle—Negotiated Purchases (LM_
CT157), Nebraska Weekly Direct Slaughter cattle—
Negotiated Purchases (LM_CT158), and Iowa/
Minnesota Weekly Weighted Average Cattle
Report—Negotiated (LM_CT167).
279 13 billion lbs. = UMRA $170 million threshold
divided by $0.01 per lb. (difference between the
minimum and average liveweight prices paid for
cattle over the last nine years in eight cattle markets
is $1.31 per cwt ($.01/lb.)).
280 U.S. Department of Agriculture, National
Agricultural Statistical Service. April 2023.
Livestock Slaughter 2022 Summary. Accessed at
https://downloads.usda.library.cornell.edu/usdaesmis/files/r207tp32d/8p58qs65g/g445dv089/
lsan0423.pdf on 02/08/2024.
281 9.5 million head of cattle = 13 million lbs. of
cattle divided by 1,369 lbs. per head.
282 28 percent = (9,479,254 head divided by
34,300,00 head annual slaughter) multiplied by 100.
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into compliance without any
enforcement action. These regulations
encourage regulated entities to
proactively avoid prejudicial,
discriminatory, and deceptive practices
that could otherwise lead to costly
litigation. Further, some firms may
develop policies and procedures to
comply with the recordkeeping
requirements. This effect could reduce
litigation and thus result in reduced
litigation costs for regulated entities.
However, there are several provisions
in § 201.304 that could result in
additional litigation. AMS has received
formal and informal complaints against
packers, swine contractors, and live
poultry dealers for retaliation for
belonging to various producer and
grower associations, contacting AMS to
file a complaint, asserting legal rights,
and contacting a competing regulated
entity to pursue a contractual
relationship. Similarly, there are several
provisions in § 201.306 that could result
in additional litigation, including
refusals by regulated entities to enter
into or renegotiate contracts and
contract terminations by producers. The
clarity of the practices that AMS
considers to be discriminatory and
deceptive in §§ 201.304 and 201.306
could offer producers new hope for
relief from courts for undue prejudicial,
discriminatory, and deceptive practices
by regulated entities. This effect could
result in increased litigation.
As stated above, AMS is uncertain as
to which effect will dominate and to
what extent. AMS does not estimate
litigation costs in this analysis.
Direct Costs of the Final Rule
AMS expects §§ 201.304 and 201.306
will result in direct administrative and
recordkeeping costs to the industry.
AMS expects that packers, swine
contractors, and live poultry dealers
will incur direct administrative costs of
learning the rule and then reviewing
and, if necessary, revising marketing
and production contracts to ensure
compliance with §§ 201.304 and
201.306. Regulated entities will also
incur recordkeeping costs from keeping
the records they already maintain for up
to five years as required under
§ 201.304. The expected total costs of
§§ 201.304 and 201.306 will be the
direct administrative costs and
recordkeeping costs of that regulatory
alternative. The direct administrative
costs and recordkeeping costs will be
estimated below.
Direct Administrative Costs of the Final
Rule
AMS expects that §§ 201.304 and
201.306 will prompt packers, live
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poultry dealers, and swine contractors
to first review and learn the rule and
then review their procurement policies
and production contracts and make any
necessary changes to ensure compliance
with the new regulations. Expected
costs are estimated as the total value of
the time required to review and learn
the rule and then review and, if
necessary, revise procurement and
production contracts.
AMS expects the direct administrative
costs of complying with §§ 201.304 and
201.306 will be relatively small.
The certain types of benefits outlined
above will be in proportion to the extent
to which the rule reduces prejudicial,
discriminatory, retaliatory, and
deceptive practices. The USDA policy
has long held that several of the
provisions in §§ 201.304 and 201.306 or
similar provisions were violations of the
Act, although the position has not been
established in regulations.
Consequently, AMS expects packers,
live poultry dealers, and swine
contractors to make changes to
relatively few contracts.
The direct costs of the rule are low
because the discriminatory, retaliatory,
and deceptive behavior which the rule
seeks to mitigate are not overtly written
into the terms of the contracts between
regulated entities and producers. They
are behaviors or conduct in which some
regulated entities engage, for example
by not offering contracts to some
producers due to discrimination and
retaliation or by offering less favorable
contract terms due to discrimination,
retaliation, and deception. If the rule
results in less discriminatory,
retaliatory, or deceptive behavior by
regulated entities, the costs of offering a
contract to a producer or grower that
was previously denied a contract or
amending the terms of a less favorable
contract to an impacted producer or
grower will be of uncertain. Given that
the behavior that the rule seeks to
mitigate is not overtly written into
contracts and is behavior during the
contract offering process, the potential
costs of mitigating the behavior are
uncertain. The more that
discriminatory, retaliatory, and
deceptive behavior is mitigated because
of the rule, the greater the benefits. AMS
does not expect any changes in types of
production and marketing contracts
offered. AMS expects the same types of
contracts to be offered, but with more
equitable performance under the
contracts by regulated entities across
producers, fewer producers denied or
terminated from contracts, and better
clarity regarding contractual
expectations. AMS also expects more
contracts to be offered to producers who
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may not previously have been offered a
contract due to discrimination, for
example. Given its professional
expertise based on regulating the
industry and investigating complaints of
the prohibited behaviors, AMS does not
believe that the discriminatory,
retaliatory, and deceptive behavior
addressed by this rule is written into
contract terms frequently enough to
warrant changes to very many contracts.
Although the amount of indirect costs
is uncertain, AMS expects any indirect
costs will likely range from marginal to
modest. As shown above, AMS
acknowledges that some regulated
entities may offer higher prices to some
livestock producers and growers when
they come into compliance with this
rule. This could shift livestock and
poultry prices offered to some producers
and growers toward the true value of
their livestock or poultry that would
prevail in a more competitive market
and away from the artificially low prices
offered through the abuse of market
power by engaging in deception,
discrimination, or retaliation. This
would reduce the cost to society due to
the market inefficiency (dead weight
loss) created by discriminatory,
retaliatory, and deceptive practices by
some regulated entities. This shift in
prices offered to some producers and
growers toward their true value would
result, in some instances, in a transfer
of excess profits (profits that exceed
those that would be earned in a more
competitive market) from regulated
entities to some growers and producers.
This transfer from regulated entities to
some producers and growers could
occur. AMS cannot quantify the extent
to which the behavior this rule aims to
prohibit occurs in the industry or the
extent of any harm that would be
avoided by regulated entities’ cessation
of the behavior under the clearer
limitations set by this rule. AMS notes
that regulated entities, in their
comments to the proposed rule, asserted
that the occurrence of the practices
addressed in the rule are not
widespread. Assuming this is true, the
indirect costs will be marginal. AMS,
however, has noted the behaviors have
been sufficiently widespread to warrant
the intervention provided by this final
rule.
Estimates of the amount of time
required to review and learn the rule
and to review and revise contracts and
keep records 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. In May 2022, BLS released
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Occupational Employment and Wage
Statistics that AMS used for the time
values in this analysis.283 BLS estimated
an average hourly wage for general and
operations managers in animal
slaughtering and processing to be
$61.24. The average hourly wage for
lawyers in food manufacturing was
$103.81. In applying the cost estimates,
AMS marked up the wages by 41.79
percent to account for fringe benefits.284
AMS expects that each packer, swine
contractor, and live poultry dealer will
spend one hour of legal time and one
hour of management time to review and
learn the rule and then, if necessary,
revise production and marketing
contracts to ensure compliance with the
rule.
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.
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. One hundred
ninety-six were pork packers, and 139
were lamb, sheep, or goat packers.285
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, 112
packers slaughtered both beef and pork,
and 66 slaughtered beef, pork, and lamb.
AMS expects that packers processing
more than one species of livestock will
not incur additional costs for each
species. That is, AMS expects that each
packer will require one hour of
attorney’s time and one hour of
management time regardless of how
many species of livestock it processes.
To allocate costs across (1) beef, (2)
283 Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage
Statistics, available https://www.bls.gov/oes/
special-requests/oesm22all.zip (accessed 7/14/
2023).
284 Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage
Statistics, available https://www.bls.gov/oes/
special-requests/oesm22all.zip (accessed 7/14/
2023).
285 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.
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pork, and (3) lamb processors, AMS
allocated one-third of the costs to each
of (1) beef, (2) pork, and (3) lamb for
packers that processed all three species.
For packers processing any two, AMS
allocated one half the costs to each.
AMS estimated that all live poultry
dealers that are regulated under the final
rule will require one hour of an
attorney’s time costing the industry
$13,000 286 and one hour of
management time costing the industry
$8,000 287 for learning the rule,
reviewing, and adjusting contracts. The
total costs for learning, reviewing, and
adjusting contracts will be $21,000 288
for live poultry dealers.
AMS expects that packers will require
an estimated one hour of an attorney’s
time and one hour of management time
costing the industry $85,000. AMS
estimates the total costs will be $40,000
for beef packers and $16,000 for lamb
packers to learn and review the rule and
adjust contracts.289 Pork packers’ share
of the packers’ costs will be $29,000.
AMS also expects that rule will cost all
575 swine contractors an hour of an
attorney’s time and one hour of
management time costing a total of
$135,000 across all swine contractors.290
Combining costs to pork packers with
costs to swine contractors arrives at a
total cost of $164,000 for hog and pork
markets.
Direct Recordkeeping Costs for the Final
Rule
Costs to comply with the
recordkeeping requirements are likely
relatively low. Section 201.304(c)
requires specific records that, if the
regulated entity maintains, should be
kept for a period of five years, including
policies and procedures, staff training
materials, materials informing covered
producers regarding reporting
mechanisms and protections,
compliance testing, board of directors’
oversight materials, and any records of
the number and nature of unduly
prejudicial or unjustly discriminatorybased complaints received.
Costs of recordkeeping include
regulated entities maintaining and
updating compliance records and are
considered a direct cost. Some smaller
regulated entities that currently don’t
maintain records may voluntarily
decide to develop formal policies,
286 90 live poultry dealers × $147.19 per hour ×
1 hour = $13,247.
287 90 live poultry dealers × $86.83 per hour × 1
hour = $7,815.
288 $13,247 + $7,815 = $21,062.
289 365 × ($147.19 per hour × 1 hour + $86.83 per
hour × 1 hour) = $85,417.
290 575 × ($147.19 per hour × 1 hour + $86.83 per
hour × 1 hour) = $134,562.
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16185
procedures, training, etc. to comply
with the rule and will then have records
to maintain.
AMS expects the recordkeeping costs
will comprise the time required by
regulated entities to store and maintain
records they already keep. AMS expects
that the costs will be relatively small
because many packers, live poultry
dealers, and swine contractors may
currently have few records concerning
policies and procedures, staff training
materials, materials informing covered
producers regarding reporting
mechanisms and protections,
compliance testing, and board of
directors’ oversight materials related to
prejudicial treatment. Some smaller
firms might not have any records to
store. Others already store the records
and may have no new costs.
AMS estimated that recordkeeping
time for larger entities will be greater
than for smaller entities, and thus
estimated costs by quartiles, from largest
entities to smallest. AMS estimated that
§ 201.304(c) will require packers, live
poultry dealers, and swine contractors
in each quartile an average 4.00 hours,
2.00 hours, 1.33 hours, and 0.67 hours
of administrative time for the first,
second, third, and fourth quartiles,
respectively. Additionally, AMS
estimated that the hours required of
managers, attorneys, and information
technology staff each will average 1.50
hours, 0.75 hours, 0.50 hours, and 0.25
hours for the first, second, third, and
fourth quartiles, respectively.
AMS also expects that packers, live
poultry dealers, and swine contractors
will incur continuing recordkeeping
costs in each successive year. AMS
estimated that § 201.304(c) will require
an average of 3.00 hours, 1.50 hours,
1.00 hour, and 0.50 hour of
administrative assistant time; 1.50
hours, 0.75 hour, 0.50 hour, and 0.25
hour of time each from managers and
attorneys; and 1.00 hour, 0.50 hour, 0.33
hour, and 0.17 hour of time from
information technology staff for packers,
live poultry dealers, and swine
contractors in the first, second, third,
and fourth quartiles, respectively, to
setup and maintain the required records
in each succeeding year.
Estimated first-year costs for
recordkeeping requirements in
§ 201.304(c) totaled $30,000 for live
poultry dealers,291 $193,000 for swine
291 90 live poultry dealers × (($44.51 per hour
admin. Cost × (4 hours + 2 hours + 1.33 hours +
.67 hours)) + ($86.83 per hour manger cost × (1.5
hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost × (1.5 hours + .75 hours + .5
hours + .25 hours)) + ($93.68 information tech cost
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contractors,292 and $122,000 for
packers.293 Estimated yearly continuing
costs for recordkeeping requirements in
§ 201.304(c) totaled $26,000 for live
poultry dealers,294 $166,000 for swine
contractors,295 and $106,000 for
packers.296
Breaking out costs by market, AMS
expects recordkeeping requirements in
§ 201.304(c) to cost beef packers $58,000
in the first year and $50,000 in each
following year. Section 201.304(c) will
cost lamb packers $23,000 in the first
year and $20,000 in successive years.
Section 201.304(c) will cost pork
packers $42,000, and it will cost swine
contractors $193,000 for a total of
$235,000 in the first year. Section
201.304(c) will cost swine contractors
$166,000 in successive years, and it will
cost pork packers $36,000 for a total
$202,000.
Total Direct Administrative &
Recordkeeping Costs for the Final Rule
Table 8 below summarizes combined
expected administrative and
recordkeeping costs for regulated
entities in the first year and in
succeeding years. AMS expects that
administrative and recordkeeping costs
associated with §§ 201.304 and 201.306
will cost each packer, swine contractor,
and live poultry dealer an average $569
in the first year and an average $289 in
each succeeding year. First-year costs
will total $51,000 for live poultry
dealers, $327,000 for swine contractors,
and $208,000 for packers. Costs in
successive years will be due to
recordkeeping requirements and will
total $26,000 for live poultry dealers,
$166,000 for swine contractors, and
$105,000 for packers annually.
Table 8: Expected First-Year Cost and Succeeding Years Costs for Live
Poultry Dealers, Packers, and Swine Contractors
First-Year Cost ($)
Dealer
er to Swine Contractor
569
569
Cost for Each
Succeeding Year ($)
289
51,000
327,000
208,000
98,000
71,000
39,000
Dealers
Total Cost to Swine Contractors
Total Cost to Packers
Beef Packers*
Pork Packers*
Lamb Packers*
26,000
166,000
105,000**
50,000
35,000
20,000
× (1.5 hours + .75 hours + .5 hours + .25 hours)))/
4 = $30,132.
292 575 swine contractors × (($44.51 per hour
admin. cost × (4 hours + 2 hours + 1.33 hours +
.67 hours)) + ($86.83 per hour manger cost × (1.5
hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost × (1.5 hours + .75 hours + .5
hours + .25 hours)) + ($93.68 information tech cost
× (1.5 hours + .75 hours + .5 hours + .25 hours)))/
4 = $192,507.
293 365 packers × (($44.51 per hour admin. cost
× (4 hours + 2 hours + 1.33 hours + .67 hours)) +
($86.83 per hour manger cost × (1.5 hours + .75
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hours + .5 hours + .25 hours)) + ($147.19 legal cost
× (1.5 hours + .75 hours + .5 hours + .25 hours))
+ ($93.68 information tech cost × (1.5 hours + .75
hours + .5 hours + .25 hours)))/4 = $122,200.
294 90 live poultry dealers × (($44.51 per hour
admin. cost × (3 hours + 1.5 hours + 1 hours + .5
hours)) + ($86.83 per hour manger cost × (1.5 hours
+ .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost × (1.5 hours + .75 hours + .5 hours + .25 hours))
+ $93.68 information tech cost × (1 hours + .5 hours
+ .33 hours + .17 hours)))/4 = $26,021.
295 575 swine contractors × (($44.51 per hour
admin. Cost × (3 hours + 1.5 hours + 1 hours + .5
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hours)) + ($86.83 per hour manger cost × (1.5 hours
+ .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost × (1.5 hours + .75 hours + .5 hours + .25 hours))
+ $93.68 information tech cost × (1 hours + .5 hours
+ .33 hours + .17 hours)))/4 = $166,244.
296 365 packers × (($44.51 per hour admin. cost
× (3 hours + 1.5 hours + 1 hours + .5 hours)) +
($86.83 per hour manger cost × (1.5 hours + .75
hours + .5 hours + .25 hours)) + ($147.19 legal cost
× (1.5 hours + .75 hours + .5 hours + .25 hours))
+ $93.68 information tech cost × (1 hours + .5 hours
+ .33 hours + .17 hours)))/4 = $105,529.
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*Many packers process more than one species of livestock, but AMS expects that each packer will
require one hour of attorney's time and one hour of management time regardless of how many species of
livestock it processes. To allocate costs across 1) beef, 2) pork, and 3) lamb processors, AMS allocated
one-third of the costs to each of 1) beef, 2) pork, and 3) lamb for packers that processed all three species.
**Column total may not sum due to rounding.
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
The total direct administrative and
recordkeeping costs are estimated to be
$586,000 in the first year. Estimated first
year total direct administrative and
recordkeeping costs for the cattle and
beef industry, hogs and pork, lamb, and
16187
poultry industries rounded to the
nearest thousand dollars are listed in
the following table.
Table 9: Direct Administrative and Recordkeeping Costs for §§ 201.304 and
201.306 in 2023
Cattle
($ Th)
Hogs
($ Th)
Lambs
($ Th)
Poultry
($ Th)
Total
($ Th)
98
398
39
51
586
Final Rule: Ten-Year Total Direct
Administrative and Recordkeeping
Costs
201.306 for each year from 2023 through
2032 appear in the table below. Based
on the analysis, AMS expects the tenyear total direct administrative and
Expected administrative and
recordkeeping costs of §§ 201.304 and
recordkeeping costs of §§ 201.304 and
201.306 to be $3.3 million.
Table 10: Ten-Year Total Direct Administrative and Recordkeeping Costs of
§§ 201.304 and 201.306*
Year
Cattle
($ Th)
Hogs
($ Th)
Lambs
($ Th)
Poultry
($ Th)
Total
($ Th)
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
98
50
50
50
50
50
50
50
50
50
398
202
202
202
202
202
202
202
202
202
39
20
20
20
20
20
20
20
20
20
51
26
26
26
26
26
26
26
26
26
586
298
298
298
298
298
298
298
298
298
547
2,216
217
285
3,266
Totals
*Column total may not sum due to rounding.
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discount rate as discussed in Circular
A–4.297
297 Circular A–4. September 17, 2003, available at
https://obamawhitehouse.archives.gov/omb/
circulars_a004_a-4/. Note: OMB issued an updated
Circular A–4 on November 9, 2023. AMS developed
its analysis for this final rule using the 2003
Circular A–4 guidance. The 2023 guidance is
effective March 1, 2024, and applies to draft final
rules submitted to OMB’s Office of Information and
Regulatory Affairs after December 31, 2024. The
2023 guidance is available at https://
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Costs to be incurred in the future are
lower than the same costs to be incurred
today. This is because the money that
will be used to pay the costs in the
future can be invested today and earn a
return on investment until the period in
which the cost is incurred. After the
cost has been incurred, the earned
returns will still be available.
To account for the time value of
money, the administrative costs to be
incurred in the future are discounted
back to today’s dollars using a discount
rate. The sum of all costs discounted
back to the present is called the present
value (PV) of total costs. AMS relied on
both a three percent and seven percent
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Final Rule: Present Value of Ten-Year
Total Direct Administrative and
Recordkeeping Costs
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AMS calculated the PV of the ten-year
total direct administrative and
recordkeeping costs of the regulations
using a three percent and seven percent
discount rate. The PVs appear in Table
11.
Table 11: PV of Ten-Year Direct Administrative and Recordkeeping Cost of
§§ 201.304 and 201.306
Final Rule($ Th)
2,820
2,361
Discount Rate
Three Percent
Seven Percent
AMS expects the PV of the ten-year
total administrative and recordkeeping
costs of §§ 201.304 and 201.306 to be
$2.8 million at a three percent discount
rate and $2.4 million at a seven percent
discount rate.
Final Rule: Annualized PV of Ten-Year
Total Direct Administrative and
Recordkeeping Costs
AMS then annualized the PV of the
ten-year total administrative and
recordkeeping costs (referred to as
annualized costs) of §§ 201.304 and
201.306 using both a three percent and
seven percent discount rate as required
by Circular A–4 and the results appear
in Table 12.298
Table 12: Annualized Direct Administrative and Recordkeeping Costs of
§§ 201.304 and 201.306
Discount Rate
Final Rule($ Th)
Three Percent
331
Seven Percent
336
www.whitehouse.gov/wp-content/uploads/2023/11/
CircularA-4.pdf.
298 Circular A–4. September 17, 2003, available at
https://obamawhitehouse.archives.gov/omb/
circulars_a004_a-4/.
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Regulatory Alternative 3: Small
Business Exemption Alternative
The third regulatory alternative that
AMS considered is issuing §§ 201.304
and 201.306, but exempting small
businesses, as defined by the SBA, from
compliance with the recordkeeping
requirement of § 201.304(c).300 All other
provisions of §§ 201.304 and 201.306
will still apply to small businesses.
Most packers are small businesses under
the SBA definition. Of the 365 packers
reporting to AMS, 348 are small
businesses. Two hundred fifty-three
beef packers and 183 pork packers are
small businesses. All 139 lamb packers
are small businesses. Packers include
299 Total meat and poultry processing industry
revenues. Source: https://www.ibisworld.com/
industry-statistics/market-size/meat-beef-poultryprocessing-united-states/#:∼:text=The%20market
%20size%2C%20measured%20by,industry
%20increased%200.2%25%20in%202022.
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multi-species packers. One hundred
eight swine contractors are small
businesses. There are 55 small poultry
dealers.
Regulatory Alternative 3: Total Costs of
the Small Business Exemption
Alternative
Table 13 summarizes combined
expected administrative and
recordkeeping costs for regulated
entities in the first year and in
succeeding years. AMS expects that
administrative and recordkeeping costs
associated with a small business
exemption alternative will cost each live
poultry dealer, swine contractor, and
packer an average of $448, $548, and
$265, respectively, in the first year.
AMS expects costs to average $185,
$271, and $27 for live poultry dealers,
swine contractors, and packers,
respectively, in each succeeding year.
First-year costs will total $40,000 for
live poultry dealers, $315,000 for swine
contractors, and $97,000 for packers.
300 See, ‘‘Stay legally compliant (sba.gov),’’
available at https://www.sba.gov/business-guide/
manage-your-business/stay-legally-compliant (Last
accessed 8/9/2022).
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Cost-Benefit Comparison of the Final
Rule
The expected costs of this rule are
very small relative to the size of the
industry; and expected benefits are
expected to be proportional to
reductions in conduct this rule
addresses. Combined sales of beef, pork,
and broiler chicken in the U.S. for 2022
were approximately $294.5 billion.299
As discussed above, the total cost of
§§ 201.304 and 201.306 in the first year
is estimated to be $586,000, or 0.0002
percent of revenues. A reduction in
prejudicial, discriminatory, retaliatory,
and deceptive practices will lead to
benefits that will be directly related to
the reductions in these practices. If the
reductions are small, the benefits will be
small. The greater the reductions, the
greater the benefits. AMS expects that
the costs and benefits to society from
the rule will be very small in relation to
the total value of industry production,
leading to negligible indirect effects on
industry supply and demand, including
price and quantity effects.
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AMS expects the annualized ten-year
administrative and recordkeeping costs
of final §§ 201.304 and 201.306 to be
$331,000 at a three percent discount rate
and $336,000 at a seven percent
discount rate.
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Costs in successive years will be due to
recordkeeping requirements and will
total $17,000 for live poultry dealers,
$156,000 for swine contractors, and
$10,000 for packers annually. The total
direct administrative and recordkeeping
16189
costs are estimated to be $452,000 in the
first year.
Table 13: Small Business Recordkeeping Exemption Alternative Expected
First-Year Cost and Succeeding Years Costs for Live Poultry Dealers,
Packers, and Swine Contractors
First Year Cost ($)
Dealer
er Swine Contractor
er Packer
Dealers
Total Cost to Swine Contractors
Total Cost to Packers
Beef Packers*
Pork Packers*
Lamb Packers*
Cost for Each
Succeeding Year ($)
448
548
271
185
40,000
315,000
97,000
44,000
36,000
16,000
17,000
156,000
10,000
3,000
6,000
0
*Many packers process more than one species of livestock, but AMS expects that each packer will
require one hour of attorney's time and one hour of management time regardless of how many species of
livestock it processes. To allocate costs across 1) beef, 2) pork, and 3) lamb processors, AMS allocated
one-third of the costs to each of 1) beef, 2) pork, and 3) lamb for packers that processed all three species.
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estimated the costs to small business
from the direct administrative costs of
§§ 201.304 and 201.306 but excluded
the recordkeeping costs of § 201.304(c)
in this alternative option.
AMS estimated the costs to small
business to be the value of the time for
management, attorneys, administrative
staff, and information technology staff to
review the rule and the firms’ practices
determining compliance with the direct
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administrative costs of §§ 201.304 and
201.306. AMS estimated costs for the
Small Business Exemption Alternative
similarly to the final rule. The only
difference is the recordkeeping costs of
§ 201.304(c) attributable to small
business are not included in the costs
for the Small Business Exemption
Alternative. The estimates appear in
Table 14. Costs for the final rule are also
shown for convenience.
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As discussed above, AMS considers
the total costs from §§ 201.304 and
201.306 to be increased direct
administrative and recordkeeping costs
with no indirect costs from adjustments
by the cattle, hog, and poultry industries
to reduce their use of AMAs, change to
pricing mechanisms or poultry
tournaments, and no substantial
changes to existing marketing, or
growing or production contracts. AMS
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Table 14: Annual Total Direct Costs: Small Business Exemption Alternative
Year
Final Rule
($ Th)
Small Business Exemption
Alternative($ Th)
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
586
298
298
298
298
298
298
298
298
298
427
182
182
182
182
182
182
182
182
182
Total
3,266
2,067
AMS estimates that §§ 201.304 and
201.306, with the small business
exemption, will result in $427,000 in
direct total costs in the cattle, hog, lamb,
and poultry industries in the first full
year following implementation and
$182,000 each year in ongoing costs.
AMS expects the ten-year total costs of
§ 201.304 and 201.306 with a small
business exemption to be $2.1 million.
Exempting small business will save
approximately $159,000 in the first year
and $1.1 million over ten years.
Regulatory Alternative 3: PV of Total
Costs of the Small Business Exemption
Alternative
AMS calculated the PV of the ten-year
total costs of the Small Business
Exemption Alternative using both a
three percent and seven percent
discount rate and the PVs appear in the
following table. Costs for the final rule
are also shown for convenience.
Table 15: PV of Ten-Year Total Cost: Small Business Exemption
Discount Rate
Final Rule($ Th)
Small Business
Exemption
Alternative ($ Th)
Three Percent
Seven Percent
2,820
2,361
1,792
1,509
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Table 16: Ten-Year Annualized Costs - Small Business Exemption
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Discount Rate
Final Rule($ Th)
Small Business
Exemption Alternative
($ Th)
Three Percent
Seven Percent
331
336
210
215
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AMS then annualized the PV of the
ten-year total costs of §§ 201.304 and
201.306 with a small business
exemption using both a three percent
and seven percent discount rate and the
results appear in Table 16. The final
rule is also shown for convenience.
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Regulatory Alternative 3: Annualized
Costs of the Small Business Exemption
Alternative
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AMS expects the PV of the ten-year
total costs of §§ 201.304 and 201.306
with a small business exemption to be
$1.8 million at a three percent discount
rate and $1.5 million at a seven percent
discount rate.
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
AMS expects the annualized costs of
§§ 201.304 and 201.306 with a small
business exemption to be $210,000 at a
three percent discount rate and
$215,000 at a seven percent discount
rate.
Cost-Benefit Comparison of Regulatory
Alternatives
The status quo alternative has zero
marginal costs. AMS compared the
annualized costs of the final rule to the
16191
annualized costs of the Small Business
Exemption Alternative by subtracting
the annualized costs of the Small
Business Exemption Alternative from
those of the final rule and the results
appear in Table 17.
Table 17: Difference in Ten-Year Annualized Costs of§§ 201.304 and
201.306 Between the Final Rule and Small Business Exemption Alternative
Regulatory Flexibility Analysis
The SBA defines small businesses by
their North American Industry
Classification System Codes (NAICS).301
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.
AMS maintains data on live poultry
dealers from the annual reports these
firms file with AMS. Currently, 90 live
poultry dealers will be subject to the
regulation. Fifty-five of the live poultry
dealers will be small businesses
according to the SBA standard.
AMS records identified 365 packers
that file annual reports or are due to file
with PSD for their 2021 fiscal year. Two
hundred sixty-one were beef packers.
One hundred ninety-six were pork
packers, and 139 were lamb or goat
packers. Many firms slaughtered more
than one species of livestock. For
instance, 112 packers slaughtered both
beef and pork.
Most packers will be small
businesses, although large packers are
responsible for most meat production.
Three hundred forty-eight packers will
be small businesses. Two hundred fiftythree beef packers and 183 pork packers
were small businesses. All 139 lamb and
goat packers were small businesses.
AMS does not have similar records for
swine contractors because they are not
As part of the regulatory process, a
Regulatory Flexibility Analysis (RFA) is
conducted in order to evaluate the
effects of this rule on small businesses.
Under the final rule, there are no new
regulatory text changes that would
change the proposed rule costs and
benefits of the regulatory analyses.
301 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 https://
www.sba.gov/article/2018/feb/27/sba-issues-finalrule-adopt-naics-2017-small-business-sizestandards.
The annualized costs of the Small
Business Exemption Alternative are
$121,000 less expensive using a three
percent discount rate and $121,000 less
expensive using a seven percent
discount rate. As is the case with costs,
the benefits will be highest for the final
rule because the full benefits will be
received by all livestock producers and
poultry growers, not just those doing
business with large packers, swine
contractors and live poultry dealers.
Though the Small Business
Exemption Alternative will save
approximately $121,000 on an
annualized basis, AMS chose final
§§ 201.304 and 201.306 over the Small
Business Exemption Alternative because
AMS wishes to prevent broadly the kind
of undue prejudices and unjust
discrimination described in the rule.
AMS believes that keeping relevant
records will help promote compliance
with this rule, that all packers, live
poultry dealers, and swine contractors
cannot purchase livestock or enter into
contracts for growing services with the
kind of undue prejudices and unjust
discrimination described in the rule.
AMS considered all three regulatory
alternatives and believes that the final
rule is the best alternative, as it benefits
all livestock producers, swine
production contract growers, and
poultry growers, regardless of the size of
the packer, swine contractor, or live
poultry dealer with which they contract
above the Status Quo Alternative.
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($ Th)
121
121
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required to register with AMS or
provide annual reports. Table 24 of the
2017 USDA Census of Agriculture
indicated that there were 575 swine
contractors in 2017. 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 467 swine
contractors that sold 5,000 head of hogs
or more were large businesses, and the
108 contractors that sold less than 5,000
head were small businesses.
AMS estimated the costs in two parts.
First, AMS expects that each packer,
swine contractor, and live poultry
dealer will review and learn the new
rule and, if necessary, revise production
and marketing contracts to ensure
compliance with the new rule. Second,
AMS expects that packers, live poultry
dealers, and swine contractors will have
additional costs associated with the new
recordkeeping requirements in
§ 201.304(c).
AMS estimated that costs for
reviewing and learning the final rule to
small live poultry dealers, small
packers, and small swine contractors
will consist of one hour of a manager’s
time and one hour of a lawyer’s time to
review the requirements of §§ 201.304
and 201.306. Expected first-year costs
will be $234 302 for each live poultry
dealer, each swine contractor, and each
packer. This will amount to a total
$13,000 for the 55 live poultry dealers,
$81,000 for the 348 packers, and
$25,000 for the 108 swine contractors.
Concerning the recordkeeping
requirements in final § 201.304(c), AMS
expects the cost will be comprised of
the time required to store and maintain
records already kept. AMS expects that
the costs will be relatively small
302 $147.19 per hour × 1 hour of an attorney’s
time + $86.83 per hour × 1 hour of a manager’s time
= $234.
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Discount Rate
Three Percent
Seven Percent
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because packers, live poultry dealers,
and swine contractors will likely have
few records concerning policies and
procedures, staff training materials,
materials informing covered producers
regarding reporting mechanisms and
protections, compliance testing, and
board of directors’ oversight materials
related to prejudicial treatment. Many
firms might not have any records to
maintain. Others already maintain the
records and have no new costs.
AMS expects that recordkeeping costs
will be correlated with the size of the
firms. AMS ranked packers, live poultry
dealers, and swine contractors by size
and grouped them into quartiles,
estimating more recordkeeping time for
larger entities than for the smaller
entities. AMS estimated that
§ 201.304(c) will require an average of
4.00 hours of administrative assistant
time, 1.50 hours of time each from
managers, attorneys, and information
technology staff for packers, live poultry
dealers, and swine contractors in the
first quartile, containing the largest
entities, to setup and maintain the
required records in the first year. AMS
expects the packers, live poultry
dealers, and swine contractors in the
second quartile will require an average
of 2.00 hours of administrative assistant
time, 0.75 hours of time each from
managers, attorneys, and information
technology staff for first year costs. The
third quartile will require 1.33 hours of
administrative assistant time, 0.50 hours
of time each from managers, attorneys,
and information technology staff for first
year costs, and the fourth quartile,
containing the smallest entities, will
require 0.67 hours of administrative
assistant time, 0.25 hours of time each
from managers, attorneys, and
information technology staff.
AMS also expects that packers, live
poultry dealers, and swine contractors
will incur continuing costs in each
successive year. AMS estimated that
§ 201.304(c) will require an average of
3.00 hours of administrative assistant
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time, 1.50 hours of time each from
managers and attorneys, and 1.00 hour
of time from information technology
staff for packers, live poultry dealers,
and swine contractors in the first
quartile to setup and maintain the
required records in each succeeding
year. AMS expects the packers, live
poultry dealers, and swine contractors
in the second quartile will require an
average of 1.50 hours of administrative
assistant time, 0.75 hours of time each
from managers and attorneys, and 0.50
hours of time from information
technology staff in each succeeding
year. The third quartile will require 1.00
hour of administrative assistant time,
0.50 hours of time each from managers
and attorneys, and 0.33 hours of time
from information technology staff in
each succeeding year, and the fourth
quartile will require 0.50 hours of
administrative assistant time, 0.25 hours
of time each from managers and
attorneys, and 0.17 hours from
information technology staff.
Estimated first-year costs for
recordkeeping requirements in final
§ 201.304(c) totaled $11,000 for live
poultry dealers,303 $12,000 for swine
contractors,304 and $111,000 for
packers.305 Estimated yearly continuing
303 10 live poultry dealers × ($44.51 per hour
admin. cost × 2 hours + $86.83 per hour manger
cost × .75 + $147.19 legal cost × .75 hours + $93.68
information tech cost × .75 hours) + 45 live poultry
dealers × ($44.51 per hour admin. cost × (1.33 hours
+ .67 hours) + $86.83 per hour manger cost × (.5
hours + .25 hours) + $147.19 legal cost × (.5 hours
+ .25 hours) + $93.68 information tech cost × (.5
hours + .25 hours))/2 = $10,881.
304 108 swine contractors × ($44.51 per hour
admin. cost × .67 hours + $86.83 per hour manger
cost × .25 hours + $147.19 legal cost × .25 hours
+ $93.68 information tech cost × .25 hours) =
$12,053.
305 74.25 packers × ($44.51 per hour admin. cost
× 2 hours + $86.83 per hour manger cost × .75 hours
+ $147.19 legal cost × .75 hours + $93.68
information tech cost × .75 hours + 273.75 packers
× ($44.51 per hour admin. cost × (2 hours + 1.33
hours + .67 hours) + $86.83 per hour manger cost
× (.75 hours + .5 hours + .25 hours) + $147.19 legal
cost × (.75 hours + .5 hours + .25 hours) + $93.68
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costs for recordkeeping requirements in
§ 201.304(c) totaled $9,000 for live
poultry dealers,306 $10,000 for swine
contractors,307 and $96,000 for
packers.308
Total expected first year costs for
small businesses, including one time
reviewing costs and recordkeeping costs
will be $192,000 for packers, $37,000 for
swine contractors, and $24,000 for live
poultry dealers. The table below lists
expected costs for small businesses
subject to §§ 201.304 and 201.306. AMS
expects marginal costs to total $255,000
in the first year. Ten-year costs
annualized at three percent will be
$107,000 for packers, $13,000 for swine
contractors, and $11,000 for live poultry
dealers. Total ten-year costs annualized
at three percent will be expected to be
$131,000.
The table below shows that ten-year
costs annualized at seven percent will
be $109,000 for packers, $14,000 for
swine contractors, and $11,000 for live
poultry dealers. Total ten-year costs
annualized at seven percent will be
expected to be $134,000.
information tech cost × (.75 hours + .5 hours + .25
hours))/3 = $110,817.
306 10 live poultry dealers × ($44.51 per hour
admin. cost × 1.5 hours + $86.83 per hour manger
cost × .75 + $147.19 legal cost × .75 hours + $93.68
information tech cost × .50 hours) + 45 live poultry
dealers × ($44.51 per hour admin. cost × (1 hours
+ .5 hours) + $86.83 per hour manger cost × (.5
hours + .25 hours) + $147.19 legal cost × (.5 hours
+ .25 hours) + $93.68 information tech cost × (.33
hours + .17 hours))/2 = $9,396.
307 108 swine contractors × ($44.51 per hour
admin. cost × .5 hours + $86.83 per hour manger
cost × .25 hours + $147.19 legal cost × .25 hours
+ $93.68 information tech cost × .17 hours) =
$10,408.
308 74.25 packers × ($44.51 per hour admin. cost
× 3 hours + $86.83 per hour manger cost × 1.5 hours
+ $147.19 legal cost × 1.5 hours + $93.68
information tech cost × 1 hours + 273.75 packers
× ($44.51 per hour admin. cost × (1.5 hours + 1
hours + .5 hours) + $86.83 per hour manger cost ×
(.75 hours + .5 hours + .25 hours) + $147.19 legal
cost × (.75 hours + .5 hours + .25 hours) + $93.68
information tech cost × (.5 hours + .33 hours + .17
hours))/3 = $110,817.
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16193
Table 18: Estimated Industry Total Costs to Small Businesses
Packers
Estimate Type
($)
Swine
Contractors
Poultry
Processors
($)
($)
Total
($)
First-Year Costs
192,000
37,000
24,000
255,000
10 years Annualized at Three
Percent
107,000
13,000
11,000
131,000
10 years Annualized at Seven
Percent
109,000
14,000
11,000
134,000
Live poultry dealers annually file
reports with AMS that list each firm’s
net sales. Packers that purchase more
than $500,000 annually in livestock also
file annual reports that list net sales.
While packers that annually slaughter
less than $500,000 in livestock also file
annual reports with AMS, in order to
reduce the reporting requirements for
small packers, they are not required to
provide annual net sales.
Data from the annual reports enables
AMS to compare average net sales for
small pork packers, beef packers, and
live poultry dealers to the expected
costs of §§ 201.304 and 201.306 in the
table below. A shortcoming in the
comparison is that net sales for smallest
packers, those that purchase less than
$500,000 in livestock, are not included
in the average.
Swine contractors are not required to
file annual reports with AMS, and
similar net sales data are not available
for swine contractors. Census of
Agriculture’s data have the number of
head sold by size classes for farms that
sold their own hogs and pigs in 2017
and that identified themselves as
contractors or integrators, but not the
value of sales nor the number of head
sold from the farms of the contracted
production. To estimate average revenue
per establishment, AMS used the
estimated average value per head for
sales of all swine operations and the
production values for firms in the
Agriculture Census size classes for
swine contractors.
Table 19 compares the average per
entity first-year costs of final §§ 201.304
and 201.306 to the average revenue per
establishment for all regulated small
businesses. First-year costs are
appropriate for a threshold analysis
because all the costs will occur in the
first year. First-year costs per regulated
entity are considerably higher than
annualized costs, and any ratio of
annualized costs to revenues will be less
than a ratio of first-year costs to
revenues.
Table 19: Comparison of Average Costs per Entity to Average Revenues per
Entity for Small Businesses
Annualized
Annualized
Cost as
Cost
Percent of
Discounted
Revenue
at 7 Percent
(percent)
108
485,860
346
0.0711
130
0.0267
55
52,888,111
432
0.0008
206
0.0004
348
75,838,951
552
0.0007
312
0.0004
*Averages exclude net sales for packers that purchased less than $500,000 in livestock annually.
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112210 Swine
Contractor
311615 Poultry
Processor
311611 Meat Packer*
Average
First-Year
Cost as
Percent of
Revenue
(percent)
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NAICS
Average
Average
FirstNo. of
Revenue or
Small
Net Sales Per
Year
Businesses Establishment Costs
($)
($)
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Average first-year costs as a percent of
revenues are small. It is highest for
swine contractors because average
revenues for swine contractors are
considerably smaller than average
revenues for packers and live poultry
dealers. At 0.0711 percent, the average
first-year cost is small compared to
revenue.
Average net sales for packers listed in
Table 18 have the problem of excluding
the smallest packers, and consequently
the averages are biased toward being too
large. However, first-year cost as a
percent of net sales is 0.0007 percent.
Estimated first year cost for each packer
is $552. These are relatively small
numbers. If average net sales for each
packer were only one hundredth of the
amount listed in Table 19, estimated
average first-year costs will be less than
0.1 percent of net sales.
AMS has limited data on revenues for
the smallest packers and live poultry
dealers. One hundred eleven packers
submitted shortened annual reports to
AMS because they purchased less than
$500,000 in livestock. For the largest of
these small packers, annual revenues
are likely close to $500,000 and
expected costs will be about 0.07
percent.
RFA Small Business Exemption
Alternative: Recordkeeping Exemption
AMS also considered a Small
Business Exemption Alternative to final
§§ 201.304 and 201.306. The Small
Business Exemption Alternative will be
the same as the final §§ 201.304 and
201.306 in all respects with the
exception that none of the
recordkeeping requirements in
§ 201.304(c) will apply to small
businesses. This Small Business
Exemption Alternative will cost small
packers, swine contractors, and live
poultry dealers less than §§ 201.304 and
201.306 will cost. Recordkeeping costs
comprised the largest share of the costs
associated with §§ 201.304 and 201.306.
Although the Small Business
Exemption Alternative will not require
small businesses to keep any additional
records, small businesses will still be
required to comply with all the other
provisions of §§ 201.304 and 201.306.
AMS expects that small live poultry
dealers, small packers, and small swine
contractors will need to review the new
rule and determine whether the rule
will require any changes to their
procurement contracts or other business
practices and make the necessary
changes. AMS estimated that costs will
consist of one hour of a manager’s time
and one hour of a lawyer’s time to
review the requirements of final
§§ 201.304 and 201.306. This amounts
to expected first-year costs of $234 309
for each live poultry dealer, each swine
contractor, and each packer that
qualifies as a small business. All costs
will occur in the first year.
The table below lists expected costs
for small businesses subject to the Small
Business Exemption Alternative. AMS
expects marginal costs to total $120,000
in the first year. The Small Business
Exemption Alternative is expected to
cost $81,000, $25,000, and $13,000 in
the first year for packers, swine
contractors, and live poultry dealers,
respectively.
Table 20: Estimated Industry Total Costs for the Small Business Exemption
Alternative
Packers
Estimate Type
($)
Swine
Contractors
Poultry
Processors
($)
($)
Total Costs*
($)
First-Year Costs
81,000
25,000
13,000
120,000
10 years Annualized at Three
Percent
9,000
3,000
1,000
14,000
10 years Annualized at Seven
Percent
11,000
3,000
2,000
16,000
309 $147.19 per hour × 1 hour of an attorney’s
time + $86.83 per hour × 1 hour of a manager’s time
= $234.
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*Due to rounding, values in "Total Costs" column may not match the sum of costs by entity type.
Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
Ten-year costs annualized at three
percent will be $9,000 for packers,
$3,000 for swine contractors, and $1,000
for live poultry dealers. This amounts to
$27 for each live poultry dealer, swine
contractor, and packer. Total ten-year
costs annualized at three percent will be
expected to be $14,000.
Ten-year costs annualized at seven
percent will be $11,000 for packers,
$3,000 for swine contractors, and $2,000
for live poultry dealers. This amounts to
$31 for each live poultry dealer, swine
contractor, and packer. Total ten-year
costs annualized at seven percent will
be expected to be $16,000.
16195
The table below compares the average
per entity first-year costs of the Small
Business Exemption Alternative to the
average revenue for each regulated small
business. First-year costs are
appropriate for a threshold analysis
because all the costs associated with the
alternative will occur in the first year.
Table 21: Comparison of Per Entity Cost to Revenues for the Small Business
Exemption Alternative
No. of
Small
Businesses
NAICS
112210 - Swine Contractor
311615 - Poultry Processor
311611 -Meat Packer*
Average
FirstYear
Costs
Average
Revenue or
Net Sales Per
Establishment
($)
($)
234
234
234
485,860
52,888,111
75,838,951
108
55
348
Average FirstYear Cost as
Percent of
Revenue
(percent)
0.0482
0.0004
0.0003
*Averages exclude net sales for packers that purchased less than $500,000 in livestock annually.
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Comparison of Alternatives
Expected costs for small businesses
under final §§ 201.304 and 201.306 will
be more than double the expected costs
for small businesses under a Small
Business Exemption Alternative. The
cost difference is due to recordkeeping
requirements. First-year costs will be
$159,000 more for final §§ 201.304 and
201.306 than the Small Business
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Exemption Alternative.310 While all the
costs associated with the Small Business
Exemption Alternative occur in the first
year, small businesses will continue to
incur recordkeeping costs associated
with final §§ 201.304 and 201.306 into
the future. Estimated costs annualized at
seven percent are $121,000 higher for
final §§ 201.304 and 201.306 than for
the Small Business Exemption
Alternative.
With either the Small Business
Exemption Alternative or the final rule,
AMS expects the costs per entity to be
relatively small. The number of
regulated entities that could experience
a cost increase is substantial. Most
regulated packers and live poultry
dealers are small businesses. However,
AMS expects that few small businesses
will experience significant costs. For all
three groups of regulated entities:
packers, live poultry dealers, and swine
contractors, average first year costs are
expected to amount to less than 0.1
percent of annual revenue for either of
the alternatives. AMS expects that any
additional costs to small packers, live
poultry dealers, and swine contractors
from this rulemaking will not change
their ability to continue operations or
place any small businesses at a
competitive disadvantage.
AMS chose final §§ 201.304 and
201.306 over the Small Business
Exemption Alternative because AMS
wishes to prevent the kind of undue
310 $586,000¥$427,000
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= $159,000 (Table 15).
Sfmt 4700
prejudices and unjust discrimination
described in the rule. AMS believes that
keeping relevant records serves as
constant reminder to all packers, live
poultry dealers, and swine contractors
that they cannot practice undue
prejudice on the basis of protected bases
and protected actions; retaliate on the
basis of protected activities or actions;
or deceive on the basis of contract
formation, performance, termination, or
refusal.
Final §§ 201.304 and 201.306 are not
expected to have a significant economic
impact on a substantial number of small
business entities as defined in the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.).
C. Executive Order 13175—Consultation
and Coordination With Indian Tribal
Governments
E.O. 13175 requires Federal agencies
to consult with Tribes on a governmentto-government basis on policies that
have Tribal implications, including
regulations, legislative comments or
proposed legislation, and other policy
statements or actions that have
substantial direct effects on one or more
Indian Tribes, on the relationship
between the Federal Government and
Indian Tribes or the distribution of
power and responsibilities between the
Federal Government and Indian Tribes.
Three commenters including the
Cherokee Nation, the Coalition of Large
Tribes (COLT), and an academic
commenter who is the executive
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Average first-year costs as a percent of
revenues are small. Similar to
§§ 201.304 and 201.306, relative costs
are highest for swine contractors
because average revenues for swine
contractors are considerably smaller
than average revenues for packers and
live poultry dealers. At 0.0482 percent,
the first-year cost to swine contractors is
small compared to revenue.
Average net sales for packers listed in
Table 20 have the same problem as the
net sales figures in Table 18. They
exclude the smallest packers, and
consequently the averages are biased
toward being too large. However, firstyear cost as a percent of net sales for
packers purchasing more than $500,000
per year is 0.0002 percent. Estimated
first year cost for each packer is $234.
Costs will be less than 0.1 percent of
revenues for any packer with revenue
greater than $23,400. Even for the
smallest packer that AMS regulates,
$234 will not likely have a significant
economic impact.
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director of the Indigenous Food and
Agriculture Initiative (IFAI) at the
University of Arkansas School of Law,
responded to USDA’s January 19, 2023,
Tribal consultation seeking input on the
proposed rule on Inclusive Competition
and Market Integrity Under the Act. All
three commenters gave context about
Tribal participation in the meat and
livestock industry and contended that
the proposed rule should not apply to
Tribes and Tribal entities.
Comment: A commenter stated that
the proposed rule’s provisions targeting
unjust discrimination could
inadvertently ban practices designed to
enable Tribal enterprises to serve their
own community, such as laws requiring
businesses to provide contracting and
employment preferences to Tribal
members. According to the commenter,
these practices could arguably be
interpreted under the proposed rule as
‘‘offering contract terms that are less
favorable than those generally or
ordinarily offered’’ or ‘‘differential
contract performance or enforcement’’
which are ‘‘based upon the covered
producer’s status as a market vulnerable
individual.’’ According to the
commenter, the regulation’s language, as
proposed, and the lack of exceptions
provided could have a chilling effect on
the traditional animal husbandry
practices of Tribes regardless of a Tribal
business’s likelihood of prevailing
under a legal challenge.
AMS Response: In its final rule, AMS
has included a limited list of legitimate
business justifications including an
exception to the rule’s prohibition on
unjust discrimination for Tribes
fulfilling their governmental function of
serving their members. In doing so,
AMS in this rule recognizes
longstanding practice around Tribal
entities, acting in their governmental
capacities, in preferencing their own
Tribal members and their descendants
in the purchase and sale of livestock.
Additionally, AMS has changed its
approach from the proposed rule to no
longer use the term ‘‘Market
Vulnerable’’ to define to whom the rule
offers protections. In shifting to the
specific terms identified, the final rule
provides greater certainty that Tribal
members will be protected against
discriminatory practices they may
encounter in the marketplace.
Comment: A Tribal commenter stated
that Tribal producers may be hesitant to
report discriminatory practices, stating
that the long history of governmental
indifference to, or even complicity in,
unjust discrimination against their
communities’ factors into a fear of
retaliation. The commenter noted Tribal
producers have also reported that they
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are not sure where to report violations
of the Act, suggesting USDA should
consider establishing a streamlined
process for reporting issues under the
Act and make concerted efforts to
inform producers of their rights.
AMS Response: Through expressly
prohibiting discriminatory and
retaliatory conduct in this rulemaking,
AMS aims to address the commenters
concern that ‘‘a long history of
governmental indifference to, or even
complicity in, discrimination against
their communities’ factors into a fear of
retaliation.’’ AMS has an online portal
designed to receive complaints that may
amount to violations under the Act and
will direct Tribal producers to this
portal as well as educating them as to
other methods of reporting potential
violations. Furthermore, AMS will
consult with the USDA Office of Tribal
Relations (OTR) and recommend
educational outreach to ensure Tribal
producers understand how to report a
violation.
Comment: All three commenters
urged AMS not to apply the proposed
rule to Tribes and Tribal entities. The
commenters said Tribes are sovereign
governments that retain authority to
make their own laws and be ruled by
them, unless expressly abrogated.
Commenters cited the Supreme Court’s
holding in Vermont Agency of Natural
Resources v. United States ex rel.
Stevens that statutory use of the term
‘‘person’’ does not include sovereign
entities unless there is an ‘‘affirmative
showing of statutory intent to the
contrary,’’ arguing that Tribes do not fall
within any of these categories.311
Commenters said the omission of Tribes
from the ‘‘person’’ definition also
excludes them from being defined as
‘‘packers’’ under the Act, as it defines
packers as ‘‘any person engaged in’’ the
packing activities enumerated in the
definition.
AMS Response: In this final rule,
AMS excludes Tribes that are fulfilling
their governmental function of serving
their members from the rule’s
prohibition on unjust discrimination. In
doing so, AMS recognizes the
longstanding practice of Tribal entities,
acting in their governmental capacities,
in preferencing their own Tribal
members and their descendants in the
purchase and sale of livestock. AMS
believes that these changes are sufficient
to address the immediate policy
concerns underlying the comments in
relation to this final rule and that any
further changes would be outside the
scope of this rule.
311 See Vermont Agency of Natural Resources v.
United States ex rel. Stevens, 529 U.S. 765 (2000).
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Comment: Commenters stated that
‘‘complying with unnecessary and
burdensome federal regulations will
hinder our small Tribal agricultural
operations that already operate on very
thin margins.’’ Arguing that given the
small size of packing operations on
Tribal land, they may lack the resources
or financial ability to comply with
recordkeeping and other regulatory
requirements the rule imposes. A
commenter stated that ‘‘record keeping,
and other regulatory obligations are
always more burdensome to small
businesses that lack the legal and
compliance departments of a large
corporation, and isolated rural locations
often struggle to hire and retain
adequate office staff.’’
AMS Response: The economic costs of
preventing undue prejudice, unjust
discrimination, retaliation, and
deception are minor in comparison to
the benefit such protections will ensure
for farmers and ranchers, including
Tribal members. Many businesses
already keep records for business
purposes, therefore adding hardly any
additional costs associated with
compliance with this rule. Furthermore,
Tribal commenters state that
discrimination and retaliation are
commonplace in Indian country and
that these harms greatly hinder the
success of Tribal producers. This rule
aims to address those issues directly.
AMS notes that the final rule excludes
Tribes fulfilling their governmental
function of serving their members from
the rule’s prohibition on unjust
discrimination and that any further
changes would be outside the scope of
this rule.
Comment: Commenters stated that
under Federal jurisprudence, sovereign
immunity extends to business activities
conducted off Tribal lands. Commenters
contend that the U.S. Supreme Court
has determined in Oklahoma Tax
Commission v. Citizen Band
Potawatomi Indian Tribe of Oklahoma,
498 U.S. 505 (1991) decision, that Tribes
in their commercial activity with other
entities are covered under the umbrella
of the Tribes’ sovereignty and even
when Tribes entered into activities,
executed off-reservation, they still enjoy
sovereign immunity Kiowa Tribe of
Oklahoma v. Manufacturing
Technologies, 523 U.S. 751 (1998). See
Garcia v. San Antonio Metro. Transit
Auth., 469 U.S. 528, 546–47 (1985).
AMS Response: AMS notes that the
final rule excludes Tribes fulfilling their
governmental function of serving its
members from the rule’s prohibition on
unjust discrimination. Any further
changes would be outside the scope of
this rule.
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Comment: A commenter suggests that
if adopted and applied to Tribal entities,
the rule would have an adverse effect to
its intent. Stating that if the intent of the
proposed rule is to decrease market
concentration and increase market
access, adding additional regulatory
burdens on small scale meat packing
plants will make it more difficult for
these small operations to enter, and
maintain presence in, the market.
AMS Response: The overarching
objective of this rule is to improve
market integrity and inclusive
competition, and to decrease the
undesirable conduct that is facilitated
by concentration in agricultural
markets. This rule aims to address three
specific types of conduct that harm
competition: undue prejudice and
unjust discrimination, retaliation, and
deception. As explained in the RIA/
RFA, any regulatory burdens created
from enforcing the Act in this regard
will be minimal in comparison to the
benefits of protecting producers from
this harmful conduct. AMS notes that
the final rule excludes Tribes fulfilling
their governmental function of serving
their members from the rule’s
prohibition on unjust discrimination
and that any further changes would be
outside the scope of this rule.
D. Civil Rights Impact Statement
Objective and Purpose AMS is issuing
this final rule to revise the regulations
that effectuate the Act. AMS is adopting
these regulations under the Act’s
provisions prohibiting undue prejudice,
unjust discrimination, and deception to
establish clearer, more effective
standards to govern the modern
marketplace and to better protect,
through compliance and enforcement,
individually harmed producers. AMS is
concerned that the current regulations
do not adequately address many unduly
prejudicial, unjustly discriminatory,
retaliatory, and deceptive practices,
which are exacerbated by the
environment created through increased
horizontal concentration and vertical
contracting.
Who Is Impacted—The effects of this
new regulation will fall on packers,
swine contractors and live poultry
dealers. AMS will cite regulated entities
initiating actions or conduct. AMS
believes creating an undue prejudice is
a violation of section 202(b) of the Act.
This is particularly true for those
purchasing livestock on a carcass grade,
carcass weight, or carcass grade and
weight basis, under marketing
agreements and production contracts.
Swine contractors obtaining swine
under swine production contracts and
live poultry dealers acquiring poultry
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through poultry growing arrangements
will also feel the impacts of the new
regulation.
Beneficiaries—The primary
beneficiaries of §§ 201.304 and 201.306
will include farmers, feedlot owners,
swine production contract growers, and
poultry growers. These producers and
growers are those most likely to be
harmed by undue prejudices, unjust
discrimination, retaliation, and
deception resulting from the actions or
conduct of firms subject to the Act.
Identifying criteria for recognizing what
actions or conduct may create undue
prejudices, discrimination, retaliation,
and deception will help lower the
number of instances and severity of the
harm done by these types of actions or
conduct.
The Civil Rights Impact Analysis
found that Asian, and Native Hawaiians
or Other Pacific Islanders are
disproportionately impacted by this
rule. Other impacted producers,
including Men, Women, Hispanics,
Whites, Black/African Americans, and
American Indians, are not
disproportionately impacted by this
rule.
Impacts on Regulated Entities—AMS
estimated the direct and indirect costs
of regulation over a period of 10 years,
from 2023 through 2032. AMS expects
the direct costs to be comprised of
administrative and litigation costs,
largely borne by regulated entities.
Impacts on Protected Groups—
Protected groups will see minimal, if
any, direct or indirect costs because of
the implementation or enforcement of
the new regulations. Although the
required analysis indicates a
disproportionate impact for Asian, and
Native Hawaiians or Other Pacific
Islanders, because the new regulations
impact all industry participants equally,
no individual or group would likely be
adversely impacted.
AMS has considered the potential
civil rights implications of this final rule
on members of protected groups to
ensure that no person or group will be
adversely or disproportionately at risk
or discriminated against on the basis of
race, color, national origin, gender,
religion, age, disability, sexual
orientation, marital or family status, or
protected genetic information.
Tribal Implications—Executive Order
13175 requires Federal agencies to
consult with American Indian Tribes on
a government-to-government basis on
policies that have Tribal implications.
This includes regulations, legislative
comments or proposed legislation, and
other policy statements or actions.
Consultation is required when such
policies have substantial direct effects
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16197
on one or more Indian Tribes, on the
relationship between the Federal
Government and Indian Tribes, or the
distribution of power and
responsibilities between the Federal
Government and Indian Tribes.
AMS has determined that this final
rule does not have substantial direct
effects on one or more Tribes that would
require consultation. If a Tribe requests
consultation, AMS will work with
USDA’s Office of Tribal Relations to
ensure meaningful consultation is
provided where changes, additions, and
modifications identified herein are not
expressly mandated by Congress. AMS
will also conduct outreach to ensure
that Tribes and Tribal members are
aware of the requirements and benefits
under this final rule.
Positive Impacts—This final rule
affirms the importance of a clear and
direct regulatory framework that
prohibits deception, retaliation, undue
prejudice, and unjust discrimination,
thus protecting producers in the
marketplace. The rational decisionmaking and robust competition so
critical to economic success can most
effectively occur in a market free of such
practices.
To ensure the potential disparately
impacted groups identified above
receive the full measure of the positive
impacts of this new regulation, AMS
will provide addition outreach actions
directed toward these groups.
E. Executive Order 12988—Civil Justice
Reform
This rule has been reviewed under
Executive Order 12988. This rule is not
intended to have retroactive effect. This
rule would not preempt State or local
laws, regulations, or policies, unless
they present an irreconcilable conflict
with this rulemaking. There are no
administrative procedures that must be
exhausted prior to any judicial
challenge to the provisions of this rule.
Nothing in this rule is intended to
interfere with a person’s right to enforce
liability against any person subject to
the Act under authority granted in
section 308 of the Act.
F. E-Government Act
USDA is committed to complying
with the E-Government Act by
promoting the use of the internet and
other information technologies to
provide increased opportunities for
citizen access to Government
information and services, and for other
purposes.
G. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA, Pub. L.
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Federal Register / Vol. 89, No. 45 / Wednesday, March 6, 2024 / Rules and Regulations
104–4) requires Federal agencies to
assess the effects of their regulatory
actions on State, local, and Tribal
Governments and on the private sector.
Agencies generally must prepare a
written statement, including cost
benefits analysis, for proposed and final
rules with ‘‘Federal mandates’’ that may
result in expenditures of $100 million or
more (adjusted for inflation) in any 1
year for State, local or Tribal
governments, in the aggregate, or to the
private sector. UMRA generally requires
agencies to consider alternatives and
adopt the more cost effective or least
burdensome alternative that achieves
the objectives of the rule. This rule
contains no Federal mandates, as
defined in title II of UMRA, for State,
local, or Tribal Governments, and it
does not contain a mandate for the
private sector that would likely result in
compliance costs of $100 million or
more (adjusted annually for inflation) in
at least one year. Therefore, this rule is
not subject to the requirements of
sections 202 and 205 of UMRA.
AMS expects that the direct costs of
this final rule will be 0.0002 percent of
industry revenues in the first year of the
rule, or $586,000. Indirect costs would
have to be nearly 300 times 312 the
expected direct costs to meet the
compliance cost threshold of $170
million or more in a single year ($100
million in 1994 dollars adjusted for
inflation as of 2021),313 which AMS has
no basis to expect, given its professional
expertise gained by regulating the
industry and regularly communicating
with regulated entities, growers, and
producers. Indeed, to reach that
threshold, discrimination, retaliation,
and deception would have to occur at a
prevalence that would have to touch
more than 28 percent of all cattle
slaughtered in the United States in 2022
and account for the entirety of the
difference in prices between the
minimum and average liveweight price
paid for cattle at the five regional cattle
markets over the last 9 years. Extending
that analysis to poultry and hogs would
not change the conclusion. If anything,
it would be even harder to meet the
UMRA threshold because almost
universal use of the tournament system
in the poultry industry means higher
compensation to certain growers is
unlikely to increase compensation for
growers in aggregate. Each tournament
312 $170 million UMRA threshold divided by
$586,000 (first-year direct costs) multiplied by 100
= 290.
313 Congressional Research Service. Updated
February 23, 2021. Unfunded Mandates Reform Act:
History, Impact, and Issues. Accessed at https://
crsreports.congress.gov/product/pdf/R/R40957/
109on02/08/2024.
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has a fixed total compensation pool,
with growers ranked relative to other
members of their respective tournament
and compensated accordingly.
In addition, AMS takes note of the
exemption from UMRA for rules
enforcing Constitutional rights of
individuals or establishing or enforcing
a statutory right that prohibits
discrimination on the basis of age, race,
color, religion, sex, national origin,
handicap, or disability. (2 U.S.C. 1503)
Provisions of this rule enforce the Act’s
prohibition against unjust
discrimination and undue prejudice to
prohibit adverse treatment on the basis
of race, color, religion, national origin
(including ethnicity), sex (including
sexual orientation and gender identity,
as well as pregnancy), disability, marital
status, or age. The rule also prohibits
retaliatory and adverse actions that
interfere with lawful communications,
assertion of rights, associational
participation, and other protected
activities.
H. Congressional Review Act
Pursuant to Subtitle E of the Small
Business Regulatory Enforcement
Fairness Act of 1996 (also known as the
Congressional Review Act, 5 U.S.C. 801
et seq.), OMB’s Office of Information
and Regulatory Affairs has determined
that this final rule does not meet the
criteria set forth in 5 U.S.C. 804(2).
List of Subjects in 9 CFR Part 201
Confidential business information,
Reporting and recordkeeping
requirements, Stockyards, Surety bonds,
Trade practices.
For the reasons set forth in the
preamble, AMS amends 9 CFR part 201
as follows:
PART 201—ADMINISTERING THE
PACKERS AND STOCKYARDS ACT
1. The authority citation for part 201
continues to read as follows:
■
Authority: 7 U.S.C. 181–229c.
2. Add subpart O, consisting of
§§ 201.300 through 201.390, to read as
follows:
■
Subpart O—Competition and Market
Integrity
Sec.
201.300–201.301 [Reserved]
201.302 Definitions.
201.303 [Reserved]
201.304 Undue prejudices or disadvantages
and unjust discriminatory practices.
201.305 [Reserved]
201.306 Deceptive practices.
201.307–201.308 [Reserved]
201.389 [Reserved]
201.390 Severability.
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Subpart O—Competition and Market
Integrity
§ § 201.300–201.301
§ 201.302
[Reserved]
Definitions.
For purposes of this subpart, the
following definitions apply:
Covered producer means a livestock
producer as defined in this section or a
swine production contract grower or
poultry grower as defined in section 2(a)
of the Act (7 U.S.C. 182(8), (14)).
Livestock producer means any person,
except an employee of the livestock
owner, engaged in the raising of and
caring for livestock.
Regulated entity means a swine
contractor or live poultry dealer as
defined in section 2(a) of the Act (7
U.S.C. 182(8)) or a packer as defined in
section 201 of the Act (7 U.S.C. 191).
§ 201.303
[Reserved]
§ 201.304 Undue prejudices or
disadvantages and unjust discriminatory
practices.
(a) Prohibited bases. (1) Except as
provided in paragraph (a)(3) of this
section, a regulated entity may not
prejudice, disadvantage, inhibit market
access, or otherwise take an adverse
action against a covered producer with
respect to livestock, meats, meat food
products, livestock products in
unmanufactured form, or live poultry
based upon the following
characteristics:
(i) On the basis of the covered
producer’s race, color, religion, national
origin, sex (including sexual orientation
and gender identity), disability, marital
status, or age.
(ii) On the basis of the covered
producer’s status as a cooperative.
(2) Actions that prejudice,
disadvantage, inhibit market access, or
are otherwise adverse under paragraph
(a)(1) of this section are as follows:
(i) Offering contract terms that are less
favorable than those generally or
ordinarily offered to similarly situated
covered producers.
(ii) Refusing to deal with a covered
producer on terms generally or
ordinarily offered to similarly situated
covered producers.
(iii) Performing under or enforcing a
contract differently than with similarly
situated covered producers.
(iv) Requiring a contract modification
or renewal on terms less favorable than
similarly situated covered producers.
(v) Terminating or not renewing a
contract.
(vi) Any other action that a reasonable
covered producer would find materially
adverse.
(3) The following actions by a
regulated entity do not prejudice,
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disadvantage, inhibit market access, or
constitute adverse action under
paragraph (a)(1) of this section:
(i) Fulfilling a religious commitment
relating to livestock, meats, meat food
products, livestock products in
unmanufactured form, or live poultry.
(ii) A Federally recognized Tribe,
including its wholly or majority-owned
entities, corporations, or Tribal
organizations, performing its Tribal
governmental functions.
(b) Retaliation prohibited. (1) A
regulated entity may not retaliate or
otherwise take an adverse action against
a covered producer based upon the
covered producer’s participation in an
activity described in paragraph (b)(2) of
this section.
(2) The following activities by covered
producers are protected under
paragraph (b)(1) of this section unless
otherwise prohibited by Federal, Tribal,
or State law, including antitrust laws:
(i) Communicating with a government
entity or official or petitioning a
government entity or official for redress
of grievances with respect to livestock,
meats, meat food products, livestock
products in unmanufactured form, or
live poultry.
(ii) Refusing a request of the regulated
entity to engage in a communication
with a government entity or official that
is not required by law.
(iii) Asserting the right to form or join,
or to refuse to form or join, a producer
or grower association or organization, or
cooperative or to collectively process,
prepare for market, handle, or market
livestock or poultry.
(iv) Communicating or cooperating
with a person for the purposes of
improving production or marketing of
livestock or poultry.
(v) Communicating, negotiating, or
contracting with a regulated entity,
another covered producer, or with a
commercial entity or consultant, for the
purpose of exploring or entering into a
business relationship.
(vi) Supporting or participating as a
witness in any proceeding under the
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Act, or any proceeding that relates to an
alleged violation of any law by a
regulated entity.
(vii) Asserting any of the rights
granted under Act or this part, or
asserting contract rights.
(3) The following actions are
considered retaliation or an otherwise
adverse action under paragraph (b)(1) of
this section:
(i) Terminating or not renewing a
contract.
(ii) Performing under or enforcing a
contract differently than with similarly
situated covered producers.
(iii) Requiring a contract modification
or a renewal on terms less favorable
than similarly situated covered
producers.
(iv) Refusing to deal with a covered
producer on terms generally or
ordinarily offered to similarly situated
covered producers.
(v) Interfering in a farm real estate
transaction or a contract with third
parties.
(vi) Any other action that a reasonable
covered producer would find materially
adverse.
(c) Recordkeeping of compliance
practices. (1) The regulated entity shall
retain all records relevant to its
compliance with paragraphs (a) and (b)
of this section for no less than 5 years
from the date of record creation.
(2) Relevant records to paragraph
(c)(1) of this section may include:
policies and procedures, staff training
materials, materials informing covered
producers regarding reporting
mechanisms and protections,
compliance testing, board of directors’
oversight materials, and the number and
nature of complaints received relevant
to this section.
§ 201.305
[Reserved]
§ 201.306
Deceptive practices.
(a) Prohibited practices. A regulated
entity may not engage in the deceptive
practices in paragraphs (b) through (e) of
this section with respect to livestock,
PO 00000
Frm 00109
Fmt 4701
Sfmt 9990
16199
meats, meat food products, livestock
products in unmanufactured form, or
live poultry.
(b) Contract formation. A regulated
entity may not make or modify a
contract with a covered producer by
employing a false or misleading
statement, or omission of material
information necessary to make a
statement not false or misleading.
(c) Contract performance. A regulated
entity may not perform under or enforce
a contract with a covered producer by
employing a false or misleading
statement, or omission of material
information necessary to make a
statement not false or misleading.
(d) Contract termination. A regulated
entity may not terminate a contract with
a covered producer by employing a false
or misleading statement, or omission of
material information necessary to make
a statement not false or misleading.
(e) Contract refusal. A regulated entity
may not provide false or misleading
information to a covered producer or
association of covered producers
concerning a refusal to contract.
§ § 201.307—201.308
[Reserved]
§ 201.389
[Reserved]
§ 201.390
Severability.
If any provision of this subpart, or any
component of any provision, is declared
invalid or the applicability thereof to
any person or circumstances is held
invalid, it is the Agricultural Marketing
Service’s intention that the validity of
the remainder of this subpart or the
applicability thereof to other persons or
circumstances shall not be affected
thereby with the remaining provision, or
component of any provision, to
continue in effect.
Erin Morris,
Associate Administrator, Agricultural
Marketing Service.
[FR Doc. 2024–04419 Filed 3–5–24; 8:45 am]
BILLING CODE 3410–02–P
E:\FR\FM\06MRR2.SGM
06MRR2
]]>Agencies
[Federal Register Volume 89, Number 45 (Wednesday, March 6, 2024)]
[Rules and Regulations]
[Pages 16092-16199]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-04419]
[[Page 16091]]
Vol. 89
Wednesday,
No. 45
March 6, 2024
Part II
Department of Agriculture
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Agricultural Marketing Service
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9 CFR Part 201
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act; Final Rule
Federal Register / Vol. 89 , No. 45 / Wednesday, March 6, 2024 /
Rules and Regulations
[[Page 16092]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-21-0045]
RIN 0581-AE05
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act
AGENCY: Agricultural Marketing Service, Department of Agriculture
(USDA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The U.S. Department of Agriculture's (USDA or Department)
Agricultural Marketing Service (AMS or the Agency) amends its Packers
and Stockyards Act, 1921, regulations to prohibit undue prejudice and
unjust discrimination against individuals on a prohibited basis
unrelated to the quality of the service or product provided. The rule
also identifies retaliatory practices that interfere with lawful
communications, assertion of rights, and associated participation,
among other protected activities, as unjust discrimination prohibited
by the law. Finally, the rule identifies deceptive practices that
violate the Packers and Stockyards Act with respect to contract
formation, contract performance, contract termination, and contract
refusal. The purpose of this rule is to promote inclusive competition
and market integrity in the livestock, meats, poultry, and live poultry
markets.
DATES: This rule is effective May 6, 2024.
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;
Telephone: (202) 690-4355; or email: usda.gov">s.brett.offutt@usda.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Background
A. Current Market Structure
B. Risks and Implications for Producers
C. Need for This Rulemaking
III. Authority
IV. Summary of the Proposed Rule
V. Changes From the Proposed Rule
A. Market Vulnerable Individual (MVI) to Prohibited Bases
B. Prohibited Actions Taken on a Prejudicial Basis
C. Exceptions to the Prohibited Bases
D. Retaliation Provisions
E. Technical Changes
VI. Provisions of the Final Rule
A. Definitions (Sec. 201.302)
B. Undue Prejudice and Unjust Discrimination (Sec. 201.304(a))
C. Retaliation (Sec. 201.304(b))
D. Recordkeeping (Sec. 201.304(c))
E. Deceptive Practices (Sec. 201.306)
F. Severability (Sec. 201.390)
VII. Comment Analysis
A. Definitions (Sec. 201.302)
B. Applicability
C. Undue Prejudices and Unjust Discrimination (Sec. 201.304(a))
D. Specific Actions Constituting Prejudice or Disadvantage
(Sec. 201.304(a)(2))
E. Retaliation (Sec. 201.304(b))
F. Recordkeeping (Sec. 201.304(c))
G. Deceptive Practices (Sec. 201.306)
H. Severability (Sec. 201.390)
I. Effective and Compliance Dates
J. Regulatory Notices & Analysis & Executive Order
Determinations
K. Comments on Legal Authority or Other Legal Issues
L. Other Comments Related to the Proposed Rule
VIII. Regulatory Analysis
A. Paperwork Reduction Act
B. Executive Orders 12866, 13563, and 14094; Regulatory Impact
Analysis; and the Regulatory Flexibility Act
C. Executive Order 13175--Consultation and Coordination With
Indian Tribal Governments
D. Civil Rights Impact Statement
E. Executive Order 12988--Civil Justice Reform
F. E-Government Act
G. Unfunded Mandates Reform Act
H. Congressional Review Act
I. Executive Summary
The rise of concentration and changes in contracting practices in
livestock and poultry markets over the last four decades have
facilitated and exposed producers and growers (hereafter, producers
unless otherwise noted) to increasing economic harms from exclusionary,
prejudicial, or otherwise discriminatory conduct, as well as deceptive
conduct, by packers, swine contractors, and live poultry dealers
(hereinafter regulated entities, unless otherwise noted). The
regulatory toolkit embodied in the Packers and Stockyards Act, 1921, as
amended (P&S Act or the Act) (7 U.S.C. 181 et seq.), authorizes USDA to
issue regulations to address these issues. This final rule seeks to
address a discrete but important set of those wrongfully exclusionary
or deceptive practices that undermine inclusive competition and market
integrity: specifically, (1) discriminatory prejudices on certain bases
relating to the producer's characteristics, (2) retaliation for
engaging in certain acts as part of being a livestock or poultry
producer or grower, and (3) false or misleading statements or material
omissions in certain contexts. These practices deny producers
opportunities to compete in the marketplace and earn the full value of
their livestock sales or poultry growout services.
On October 3, 2022, AMS published in the Federal Register (87 FR
60010) a proposal to amend the regulations implementing the Act located
in title 9, part 201, of the Code of Federal Regulations (CFR) by
adding a new subpart O titled ``Competition and Market Integrity.'' AMS
solicited comments on the proposed rule for an initial period of 60
days, and extended the comment period for an additional 45 days on
November 30, 2022 (87 FR 73507). AMS received 446 comments from
industry trade associations, non-profit organizations, individuals,
State attorneys general, farm bureaus, academic/research institutions,
and other groups. After consideration of all comments, AMS is adopting
the proposed rule, with modifications designed to increase specificity
and, therefore, certainty and enforceability.
AMS is issuing these regulations to enhance basic protections that
modern livestock and poultry producers need to promote inclusive
competition and market integrity. Specifically, this final rule will:
Prohibit, as undue prejudices or disadvantages, actions
that inhibit market access or actions that are otherwise adverse to
covered producers on the basis of race, color, religion, national
origin (including ethnicity), sex (including sexual orientation and
gender identity, as well as pregnancy), disability, marital status, or
age; or because of the covered producer's status as a cooperative, with
certain narrow exceptions such as the provision of religious meats and
the functions of Tribal governments;
Prohibit, as unjust discrimination, retaliatory and
adverse actions that interfere with lawful communications, assertion of
rights, associational participation, and other protected activities;
Prohibit, as deceptive practices, regulated entities
employing false or misleading statements or omissions of material
information in contract formation, performance, and termination; and
prohibit regulated entities from providing false or misleading
representations regarding refusal to contract; and
Require recordkeeping to support USDA monitoring,
evaluation, and enforcement of compliance with aspects of this rule.
AMS is adopting this final rule to promote inclusive competition
and market integrity, as rational decision-making, so critical to
economic success, can most effectively occur in a market free of the
practices prohibited by this
[[Page 16093]]
rule. This final rule also affirms the importance of a clear and direct
regulatory framework with respect to prohibited conduct, thus
protecting producers in the marketplace. This rule does not address
every possible way in which producers may be wrongfully excluded or
deceived under the Act. Producers who believe their rights under the
Act have been violated--whether specifically under this final rule, or
in other circumstances--can report a violation to AMS.\1\ For some
matters in poultry, USDA further refers the case to the U.S. Department
of Justice (DOJ) for enforcement.\2\ Producers may also enforce the law
and its regulations through private rights of action under the Act.
Penalties under the Act depend upon the nature of the particular
violation, including the particular animal species, and range from
monetary penalties to injunctive relief.
---------------------------------------------------------------------------
\1\ Parties may report tips or complaints to farmerfairness.gov.
Additional information is available at https://www.ams.usda.gov/services/enforcement/psd/reporting-violations.
\2\ 7 U.S.C. 181, including sections 203-205, 404, and 308 of
the Act.
---------------------------------------------------------------------------
This final rule is effective 60 days after publication in the
Federal Register. AMS has chosen this effective date because it
believes that compliance with this final rule will not require
significant administrative or financial obligations for regulated
entities. The low cost, coupled with minimal process changes regulated
entities will be required to make to comply, support an effective date
60 days after publication. Sixty days will provide adequate time for
regulated entities to be informed of the specified conduct this final
rule prohibits as well as make changes to comply with the final rule.
II. Background
A. Current Market Structure and Risks for Producers
Market abuses of discrimination, retaliation, and deception can
occur in livestock and poultry markets. Such conduct is amplified and
exacerbated under increasingly concentrated livestock and poultry
markets. Such markets are dominated by a few large packers and live
poultry dealers. Additionally, changes in contracting practices,
specifically bilateral contracting and vertical contracting that
reaches farther into the production aspects of livestock and poultry,
have given processors greater control over producers. These changes can
exacerbate the impacts of discriminatory, retaliatory, and deceptive
conduct by packers and live poultry dealers, which inhibits producers
from fully participating in livestock and poultry markets or obtaining
the full value of their livestock and poultry products and services.
With few marketing options in concentrated markets, producers are more
likely to suffer long lasting harm from market abuses by packers and
live poultry dealers than would be the case in a marketplace that is
more competitive.
A review of the historical structure of livestock and poultry
markets shows how the risk of worsened competitive conditions or
materially adverse effects to producers at the hands of a few large
processors (livestock packers and live poultry dealers) has grown over
time. In the late 1800s to early 1900s, the ``Big Five'' \3\ large meat
packers dominated the livestock market by working cooperatively to
jointly set prices and divide territories amongst
themselves.4 5 In 1921, Congress enacted the Packers and
Stockyards Act, 7 U.S.C. 181-229, to promote effective competition and
integrity in livestock, meat, and poultry markets because it believed
that the large packers employed anticompetitive or abusive practices
that harmed producers and consumers.\6\ The objective of the P&S Act is
``to assure fair trade practices in the livestock marketing . . .
industry in order to safeguard farmers and ranchers against receiving
less than the true market value of their livestock.'' \7\ After the
enactment of the P&S Act, several decades of relatively more
competitive conditions in the livestock markets prevailed; however,
structural shifts in the industry defined by technological and
productivity advances and mergers and acquisitions by meat processors
led to fewer and larger meat processors--increased market
concentration--in the latter half of the 20th century. This
transformation led to much larger sized packing plants, multi-plant
packers and live poultry dealers; raised barriers to entry; reduced the
number of meat processor competitors; and reduced competition. Today,
greater use of bilateral and vertical contracting in the livestock and
poultry industries also gives regulated entities greater practical
ability to cause these harms in ways that are hard for producers to
avoid.
---------------------------------------------------------------------------
\3\ Swift & Company, Armour and Company, The Cudahy Packing
Company, Wilson & Co., Inc., and Morris & Company, Rosales, W.E.,
2005. Dethroning economic kings: The Packers and Stockyards Act of
1921 and its modern awakening. Journal of Agricultural & Food
Industrial Organization, 3(2). Accessed at https://www.degruyter.com/document/doi/10.2202/1542-0485.1118/html on 01-09-
2024. See also, David Gordon, The Beef Trust: Antitrust Policy and
the Meat Packing Industry, 1902-1922, at 230, 290 (1983) (Ph.D.
Dissertation, Claremont Graduate School) (on file with the Wisconsin
Historical Society Library) (referring to the ``Big Five'' and the
``Beef Trust'' interchangeably). https://www.proquest.com/openview/b8fb565a39cdb1190b7b80e932cb8495/1?cbl=18750&diss=y&pq-origsite=gscholar&parentSessionId=XHRnq%2FulA9IQvIv3F8HNW40SbD8BIeNZTdBAIYAD8bQ%3D.
\4\ Rosales, William E. ``Dethroning Economic Kings: The Packers
and Stockyards Act of 1921 and its Modern Awekening'' Journal of
Agricultural & Food Industrial Organization 3, no. 2, access Feb. 1,
2024, (2005), https://doi.org/10.2202/1542-0485.1118.
\5\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt,
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May
15, 2006. Available online at: https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.
\6\ The Packers and Stockyards Act: An Overview, National
Agricultural Law Center, access Feb. 1, 2024, https://nationalaglawcenter.org/overview/packers-and-stockyards/
\7\ Bruhn's Freezer Meats v. U.S. Dep't of Agric., 438 F.2d
1332, 1337 (8th Cir. 1971), cited in Van Wyk v. Bergland, 570 F.2d
701, 704 (8th Cir. 1978) in AGRICULTURE DECISIONS Volume 72 Book One
Part Two (P & S) Pages 371-434, page 13, access Feb. 1, 2024,
https://www.usda.gov/sites/default/files/documents/Vol%2072%20Book%201%20Part%202.pdf.
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The following table shows the level of concentration in the
livestock and poultry slaughtering industries for 1980-2020 using four-
firm Concentration Ratios (CR4).
[[Page 16094]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.000
The data are estimates of four-firm concentration ratios at the
national level, but the relevant economic markets for livestock and
poultry may be regional or local, where concentration may be higher
than at the national level. The following figure shows the relative
access that producers have to slaughter plants within various draw
areas.
[[Page 16095]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.001
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\8\ Meat, Poultry and Egg Product Inspection Directory by
Establishment Name, by Number, and Demographic Data, USDA Food
Safety Inspection Service, available at https://www.fsis.usda.gov/inspection/establishments/meat-poultry-and-egg-product-inspection-directory. Big Meat Acquisition Datasets, Yale Thurman Arnold
Project, access Feb. 1, 2024, (2021), https://som.yale.edu/centers/thurman-arnold-project-at-yale/agriculture-and-antitrust. Haines,
Michael, Fishback, Price, and Rhode, Paul. United States Agriculture
Data, 1840-2012, Inter-university Consortium for Political and
Social Research [distributor], access Feb. 1, 2024, (2018), https://doi.org/10.3886/ICPSR35206.v4 (County-level census data from 1978-
2012). USDA Census of Agriculture Large Datasets, USDA National
Agricultural Statistics Services, access at Feb. 1, 2024, https://www.nass.usda.gov/datasets/ (Livestock data from 1997-2017). Ward,
C.E., Meatpacking plant capacity and utilization: Implications for
competition and pricing, access at Feb. 1, 2024, (1990), https://doi.org/10.1002/1520-6297(199001)6:1%3C65::AID-
AGR2720060107%3E3.0.CO;2-V (Estimating travel distances for cattle
to be around 100 miles). MacDonald, James M. & Ollinger, Michael &
Nelson, Kenneth E. & Handy, Charles R., 2000, ``Consolidation In
U.S. Meatpacking,'' Agricultural Economic Reports 34021, United
States Department of Agriculture, Economic Research Service, access
at Feb. 1, 2024, (2020), https://www.ers.usda.gov/webdocs/publications/41108/18011_aer785_1_.pdf?v=0. Smith, Timothy L.,
Andrew L. Goodkind, Tae-Gon Kim, Rylie E. O. Pelton, Kyo Suh, and
Jennifer Schmitt, (2017). ``Subnational mobility and consumption-
based environmental accounting of us corn in animal protein and
ethanol supply chains'', Proceedings of the National Academy of
Sciences (38), 114, access at Feb. 1, 2024, https://doi.org/10.1073/pnas.1703793114 (Estimating travel distances for broilers to be 48
miles on average; and for pigs and cattle, ~115 miles). Beam, A.L. &
Thilmany, Dawn & Pritchard, R.W. & Garber, L.P. & Metre, DC & Olea-
Popelka, F.J.. (2015). Beam, A.L., D.D. Thilmany, R.W. Pritchard,
L.P. Garber, DC Van Metre, and F.J. Olea-Popelka. ``Distance to
Slaughter, Markets and Feed Sources Used by Small-Scale Food Animal
Operations in the United States.'' Renewable Agriculture and Food
Systems 31, no. 1, access at Feb. 1, 2024, (2016): 49-59. https://doi.org/10.1017/S1742170514000441. (Estimating transportation
distances of 90 miles for 95 percent of percent of small-scale
livestock operations). (Analysts filtered for plants that
slaughtered beef, pork, and chicken. Analysts joined firm name
appearing in directory to likely parent firm name by constructing a
name lookup using merger data published by Yale Thurman Arnold
Project; and manual internet search for poultry and livestock firms'
mergers and acquisitions. Analysts obtained geographic coordinates
from establishment address. For each establishment per animal class,
analysts calculated the distance from the centroids of all U.S.
counties to all plant establishments; and filtered for distances
within 50 miles (broiler) and 115 miles (hog, cattle), based on
estimates of travel distances for each animal obtained from
literature search. Analysts calculated number of counties reachable
by the travel distance for each animal species, i.e.: geographic
draw area for each plant. Analysts produced for each county the
number of plants appended with the parent firm name derived from the
historic merger dataset described above. Analysts present as the
summary figure the total number of unique parent firm names located
within 90 (broilers) and 115 (hog, cattle) miles of county centroids
that contain, for the purposes of this county-level analysis, the
total number farm operations of each animal type in the county.
Analysts summarized the number of counties, inventory, and
operations with hog, broiler, and cattle sales, for all counties
from 2017 NASS county-level dataset; and, for farm operations,
filtered only for farm operations above the smallest class size,
e.g.: for hog, above 25 head; for cattle, above 10 head; for
broilers, above 2,000 head. This smallest class size is not likely
to be utilizing the slaughter plants).
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[[Page 16096]]
Half of all broiler growers have two or fewer processors for which
they can grow broilers.\9\ The following table is a modification of a
table in MacDonald (2012),\10\ adding the market concentration measure,
the Herfindahl-Hirshman Index (HHI) \11\ indices to MacDonald's
calculations of the integrators, i.e., live poultry dealers who
typically have vertically integrated production, in the broiler
grower's geographic region. The HHIs in the table assume equal market
share for each integrator and, as such, are the minimum HHIs possible
(at least with 2 to 4 growers). They show that 88.4 percent of growers
are facing an integrator HHI of at least 2,500. The data suggest that
most contract broiler growers in the U.S. are thus in markets where the
live poultry dealers have the potential to exercise market power.
---------------------------------------------------------------------------
\9\ MacDonald, J.M. and Key, N., 2012, Market power in poultry
production contracting? Evidence from a farm survey, Journal of
Agricultural and Applied Economics, 44(4), pp.477-490, access at
Feb. 1, 2024, (2012), https://www.proquest.com/scholarly-journals/market-power-poultry-production-contracting/docview/1183766436/se-2.
\10\ Ibid.
\11\ The Herfindahl-Hirschman Index, HHI, is a ``commonly
accepted measure of market concentration. The HHI is calculated by
squaring the market share of each firm competing in the market and
then summing the resulting numbers.'' U.S. Department of Justice,
``Herfindahl-Hirschman Index,'' accessed Feb. 1, 2024, (2018),
https://www.justice.gov/atr/herfindahl-hirschman-index.
[GRAPHIC] [TIFF OMITTED] TR06MR24.002
By the late 20th century and early 21st century, contracting
practices were also changing. Bilateral and vertical contracting were
becoming the increasingly dominant means to coordinate live animal
supplies.\12\ Today, most poultry production and about 98 percent of
hog production fall under production contracts, and roughly 70 percent
of cattle procurement falls under marketing contracts.\13\ Bilateral
and vertical contracting have benefits
[[Page 16097]]
and disadvantages for both processors and producers. However, the
exercise of market power through the contracting practices occurring in
concentrated livestock and poultry markets have left producers
susceptible to the conduct this rule aims to prohibit.
---------------------------------------------------------------------------
\12\ Lauck, J. K. (1998). Competition in the Grain Belt
Meatpacking Sector After World War. II. The annals of Iowa, 57(2),
https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/ (Finding
that in 1984, only 7 percent of livestock were marketed through
terminal markets. By this time, many packers made vertical contracts
with farmers or feedlots). ``Structural Change in Livestock: Causes,
Implications, Alternatives,'' Research Institute on Livestock
Pricing 232728, Virginia Polytechnic Institute and State University,
Department of Agricultural and Applied Economics, access at Feb. 1,
2024, (1990), available at https://ideas.repec.org/p/ags/vtrilp/232728.html. See James M. MacDonald and Christopher Burns,
``Marketing and Production Contracts Are Widely Used in U.S.
Agriculture,'' Economic Research Service, (July 2019), available at
https://www.ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/ (For a
producer to successfully bring an animal to processing, they must
secure a source of animals to raise, feed, medicine, and processing
services, among other needs. In contract production, regulated
entities typically control the inputs and processing and
distribution channels, and therefore can largely block market access
for independent producers seeking to bypass these tightly
controlled, vertically contracted supply chains).
\13\ USDA ERS, J. M. MacDonald and C. Burnes, (July 1, 2019),
Marketing and Production Contracts Are Widely Use in U.S.
Agriculture, Amber Waves. (In 2017, 49 percent of the value of
livestock production was raised under contract agreements--usually
between farmers and processors. Most poultry is produced under
contract, and what is not produced under contracts between
processors and growers is raised in facilities operated directly by
processors. See graph for data on hogs.) https://ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/; See also, USDA Packers and Stockyards Division
(PSD), (2020), Packers and Stockyards Division Annual Report 2020,
access at Feb. 1, 2024, https://www.ams.usda.gov/sites/default/files/media/PackersandStockyardsAnnualReport2020.pdf.
---------------------------------------------------------------------------
One of the notable structural changes over the course of the 20th
century was the improvement in refrigeration technology. Refrigeration
enabled meat packers to move away from the from Great Lakes and the
Upper Midwest, where they could source large quantities of ice and
build facilities closer to the centers of livestock production.\14\
Slaughterhouse and fabrication plants, therefore, could and did move
away from urban areas to remote rural locations. As technology and the
ability to scale operations also grew in the latter half of the 20th
century, plants also grew in size.\15\
---------------------------------------------------------------------------
\14\ David I. Smith, (Spring 2019), 19th Century Development of
Refrigeration in The American Meat Packing Industry, access at Feb.
1, 2024, https://scholarworks.harding.edu/cgi/viewcontent.cgi?article=1118&context=tenor. (``Development of
refrigeration and transportation in Chicago led the city to become
the meat packing center of the world,'' p. 100 from Howard Copeland
Hill, ``The Development of Chicago as a Center of the Meat Packing
Industry,'' Mississippi Valley Historical Review 10, no. 3 (1923):
253). (And, ``Refrigerator cars ``enabled dressed beef to be
slaughtered in Chicago and shipped to the East at a lower cost than
livestock,'' p. 103, from Mary Yeager Kujovich, ``The Refrigerator
Car and the Growth of the American Dressed Beef Industry,'' The
Business History Review 44, no. 4 (1970): 460.); Warren, Wilson,
(2009), Tied to the Great Packing Machine: The Midwest and
Meatpacking, Bibliovault OAI Repository, the University of Chicago
Press, access at Feb. 1, 2024, https://books.google.com/books?hl=en&lr=&id=f-CAclXhhCYC&oi=fnd&pg=PR7&dq=history+of+meat+packing&ots=oFnnxzABzR&sig=gp3eackbDY2CzAdcz8Q67cg0pvQ#v=onepage&q=history%20of%20meat%20packing&f=false (Wilson notes that in the late 19th century plants were
starting to move closer to livestock; and, by the 1950s, the
industry hit the end of its third phase (1920s to 1950s) of packers
buying direct from feedlots/producers and the decline of terminal
markets.).
\15\ MacDonald, J.M., Ollinger, M., Nelson, K.E. and Handy,
C.R., (2000), Consolidation in US meatpacking. Economic Research
Service, U.S. Department of Agriculture. Agricultural Economic
Report No. 785, access at Feb. 1, 2024, https://www.ers.usda.gov/
webdocs/publications/41108/
18011_aer785_1_.pdf?v=0#:~:text=Consolidation%20in%20slaughter%20feat
ures%20three,the%20location%20of%20animal%20feeders.
---------------------------------------------------------------------------
These changes had two implications over time. First, as processing
plants moved from urban to rural areas, producers were more vulnerable
to an exercise of monopsony power because the local and regional
markets became more concentrated.\16\ Second, instead of terminal
(auction) stockyards aggregating livestock for sales to packers,
packers and producers increasingly entered into bilateral contractual
relationships to buy livestock.\17\ When producers utilized stockyards
for their livestock sales, they could rely for protection on the
provisions of title III under the Act, which established robust
nondiscrimination protections for producers (in sec. 312), as well as a
DOJ Consent Decree in 1920 with the major packers, which established
that the stockyards had to be structurally separate from packers.\18\
For example, in 1968 USDA issued a Statement of General Policy under
the Packers and Stockyards Act to clarify that the prohibitions against
unjust discrimination under sec. 312 governing ``just and reasonable
stockyard services'' prohibited discrimination on the basis of race,
religion, color, or national origin. However, as the industry structure
evolved and livestock were increasingly sold through bilateral,
vertical contracts, producers were no longer protected by sec. 312 of
the Act. Instead, the sales were governed by title II of the Act, under
which sec. 202(a) and (b) prohibits unjust discrimination and undue
prejudice.\19\ This final rule seeks to articulate the necessary
protections around unjust discrimination and deception under those
provisions of the Act.
---------------------------------------------------------------------------
\16\ Willard Williams, ``Small Business Problems in the
Marketing of Meat and Other Commodities (Part 4, Changing Structure
of Beef Packing Industry),'' Hearings before the Subcommittee on SBA
and SBIC Authority and General Small Business Problems of the
Committee on Small Business, House, 96th Cong., 1st sess.
(Washington, DC, 1979), 3; ``Structural Change in Livestock: Causes,
Implications, Alternatives,'' Research Institute on Livestock
Pricing 232728, Virginia Polytechnic Institute and State University,
Department of Agricultural and Applied Economics, access at Feb. 1,
2024, (1990), available at https://ideas.repec.org/p/ags/vtrilp/232728.html; Lauck, J. K., (1998), Competition in the Grain Belt
Meatpacking Sector After World War. II. The annals of Iowa, 57(2),
access at Feb. 1, 2024, available at https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/; Marion, Bruce W., ``Restructuring
of Meat Packing Industries: Implications for Farmers and
Consumers,'' Working Papers 204107, University of Wisconsin-Madison,
Department of Agricultural and Applied Economics, Food System
Research Group (1988), available at https://ideas.repec.org/p/ags/uwfswp/204107.html; Aduddell, Robert M. & Cain, Louis P., ``The
Consent Decree in the Meatpacking Industry, 1920-1956,'' Business
History Review, Cambridge University Press, vol. 55(3) 1981;
Aduddell, Robert M., and Louis P. Cain. ``A Strange Sense of Deja
Vu: The Packers and the Feds, 1915-82.'' Business and Economic
History 11 (1982): 49-60. https://www.jstor.org/stable/23702755
(Documenting the historic shift from terminal auctions, in which
around 90 percent of livestock were marketed in the 1920s; to 75
percent in the 1940s; to just 7 percent by 1984 (Lauck 1998;
Aduddell 1981). In terminal auctions, market participants, including
producers, new independent packers, and retailers enjoyed the
benefits of transparent pricing and many possible marketing
channels. The number of terminal auctions doubled every decade from
1935-1955 (Aduddell 1981). In the latter half of the 20th century, a
new generation of large packers located closer to producers; and
built new facilities to process larger numbers of animals which they
purchased directly from increasingly larger feedlots (Williams
1978). Various researchers during the time period documented how
direct purchases from these packers accounted for a larger share of
the industry's sales; and contributed to decreasing numbers of
market transactions and bids in terminal markets. For example, for
cattle, the number of single bid transactions for cattle increased
by 64 percent from 1982 to 1987; and by 38 percent for hogs (Purcell
1990). In turn, producers facing fewer buyers often reported lower
prices paid (Marion 1988).
\17\ Lauck, J.K., (1998), Competition in the Grain Belt
Meatpacking Sector After World War. II. The annals of Iowa, 57(2),
access Feb. 1, 2024, available at https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/; Unknown (W. Purcell, editor), (1990),
``Structural Change in Livestock: Causes, Implications,
Alternatives,'' https://ideas.repec.org/p/ags/vtrilp/232728.html.
Research Institute on Livestock Pricing Virginia Polytechnic
Institute and State University, Department of Agricultural and
Applied Economics, available at https://ideas.repec.org/p/ags/vtrilp/232728.html; Dickes, L.A. and Dickes, A.L. (2002),
``Oligopolists then and now: a study of the meatpacking industry,''
In Allied Academies International Conference. Academy for Economics
and Economic Education. Proceedings (Vol. 5, No. 1, p. 15). Jordan
Whitney Enterprises, Inc. https://www.proquest.com/openview/919b243381c017244c764591d3d50a90/1?pq-origsite=gscholar&cbl=38640.
\18\ Aduddell 1981, supra.
\19\ 7 U.S.C. 192(a) and (b).
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The broiler industry also grew quickly after the Second World War.
Early on it adopted a production model in which live poultry dealers
contracted with poultry growers to grow-out broilers, rather than a
model of independent producers selling broilers on the open market.
With most broiler growing contracts, the live poultry dealer provides
the chicks, the feed, and veterinary services, while the grower
provides labor, facilities, equipment, and energy necessary to turn the
chicks into slaughter-ready birds. At first, live poultry dealers were
often feed suppliers, but now most processors act as live poultry
dealers. Overall, the reality is that live poultry dealers have
extensive control over production through the contracting practices.
Furthermore, it is important to acknowledge the impact of a
consolidating farm production landscape overall. With the livestock and
poultry farming sectors consolidating over the last several decades,
the aggregate number of producers has declined significantly, even as
total production is stable or growing. Many factors driving the loss of
producers in the marketplace are the same factors underlying the market
changes referenced above and include productivity growth wrought by
scientific and technological advances, economies of scale, and
transportation improvements. As shown in Figures 2 and 3 below, over
the last 60 years, changes in animal production have corresponded to
declines on the order of
[[Page 16098]]
hundreds of thousands of producers in nearly every size class except
the largest, which increased by only hundreds of producers.\20\
---------------------------------------------------------------------------
\20\ Haines, Michael, Fishback, Price, and Rhode, Paul. United
States Agriculture Data, 1840-2012, Inter-university Consortium for
Political and Social Research [distributor], (2018), https://doi.org/10.3886/ICPSR35206.v4 (County-level census data from 1978-
2012). USDA Census of Agriculture Large Datasets, USDA National
Agricultural Statistics Services, available at https://www.nass.usda.gov/datasets/ (Livestock data from 1997-2017).
\21\ USDA Census of Agriculture Historical Archive, USDA
National Agricultural Statistics Services, available at https://agcensus.library.cornell.edu/ (National-level statistics from 1978-
2012); USDA Census of Agriculture 2017, USDA National Agricultural
Statistics Services, available at https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/
(National-level statistics for 2017) (Analysts obtained the total
number of operations with sales for each animal size class from
historic national-level statistics from 1978-2017. Analysts summed
the number of operations of every class other than the largest size
class for each animal species, compared to the largest size class;
and excluded the very smallest size class in each summary because
the smallest size is not likely to receive slaughter services by
regulated entities).
[GRAPHIC] [TIFF OMITTED] TR06MR24.003
[[Page 16099]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.004
In the figure above, the intensity of shading indicates the
magnitude of decrease (left) or increase (right), with shading
intensity scaled individually to each map panel. Generally, the number
of cattle and hog operations for every size class except the largest
decreased in many counties across the U.S., while the number of
operations for the largest size class increased in only a few counties.
Owing to the limitations of available county-level data, the above map
for cattle operations include both feedlot and cow-calf operations, of
which only the first sell directly to packers in most instances.
Feedlots and packers tended to locate closer to producers in the latter
half of the 20th century. As feedlots became larger and more
concentrated, the number of farms with fed cattle sales declined. For
example, McBride found that from 1978-1992, as the distribution of
cattle feedlots became geographically tighter, the number of counties
contributing to half of cattle sales decreased from 73 counties in 1978
to just 44 counties in 1992, with a fourth
[[Page 16100]]
of sales coming from 13 counties. The number of feedlots declined from
approximately 175,155 in 23 states in 1970 to 27,000 feedlots in 2020,
with half of all fed cattle from just 132 of them.\22\
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\22\ 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,
available at https://doi.org/10.32747/2023.8054022.ers. McBride,
William D. (1997). ``Change in U.S. Livestock Production, 1969-92,''
Agricultural Economic Reports 262047, United States Department of
Agriculture, Economic Research Service, available at https://www.ers.usda.gov/webdocs/publications/40794/32767_aer754fm.pdf?v=1657.7. ``Final Estimates for 1970-1975,'' USDA
(1978), available at https://downloads.usda.library.cornell.edu/usda-esmis/files/sq87bt648/7w62fc32q/qf85nf445/cattleest_Cattle_-_Final_Estimates__1970-75.pdf.
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Data from Figure 3 clearly indicate a shift in livestock and
poultry raising to larger farms. This shift has occurred in concert
with an increase in bilateral and vertical contracting. Bilateral and
vertical contracting facilitate the conditions in which discrimination
and retaliation are more likely to restrict market opportunities of
producers and cause them to earn less than the full value of their
animals. It is harder to discriminate in the aggregated market of the
stockyard than through bilateral contracting regimes. When producers
are locked into long-term agreements with a single buyer, it is easier
for buyers to discriminate on prohibited bases or retaliate in response
to protected activities because they exercise considerably more
leverage over producers. Buyer-seller relationships are more fixed,
providing much less flexibility for producers. Furthermore, with the
number of farms declining in number, the economic harms of
discrimination and retaliation are more likely to be permanent as being
denied a long-term contract may lead to permanent exclusion from the
market. Smaller farms in particular may be more likely to be permanent
casualties of discriminatory or retaliatory behavior in a consolidated
farm context as buyers gravitate toward larger suppliers to more easily
satisfy their volume requirements. Discriminatory or retaliatory
behavior is more likely to harm producers economically because it is
much harder to find alternative buyers in a world with fewer, bigger
farms and fewer, bigger packers and live poultry dealers. This rule is
not directly addressing consolidation at the farm level or
concentration at the processor level, but in providing more protections
to producers from discriminatory and retaliatory conduct, it is helping
to prevent market exclusion.
A long-time scholar of these markets stated as early 2004 that the
livestock and poultry markets appear to be by ``invitation only.'' \23\
That statement underscores the power of incumbent entities to control
access to the market and, in many ways, the destiny of what had been
multigenerational successful operations of producers and smaller
competitors.\24\ This final rule addresses some of the ways that
livestock and poultry markets unfairly exclude producers or otherwise
limit their ability to obtain the full value of their animals. This
final rule does not address all the factors contributing to market
exclusion. However, it does address several practices that exclude
producers and, in doing so, violate the Packers and Stockyards Act. AMS
recognizes that creating inclusive and competitive markets with
integrity requires multiple legal, regulatory, and programmatic
strategies to mitigate the potential harmful effects of concentration
and vertical contracting; build up alternatives through investments in
regional meat and poultry processing; \25\ and protect the rights of
producers to develop producer organizations that advance farmer
welfare, rural prosperity, and quality food. Thus, this rulemaking is
one key piece to AMS's strong commitment to mitigating the factors that
restrict market access for livestock and poultry producers.
---------------------------------------------------------------------------
\23\ C. Robert Taylor, ``The Many Faces of Corporate Power in
the Food System.'' Presented at DOJ/FTC Workshop on Merger
Enforcement, February 2004, available at https://www.justice.gov/sites/default/files/atr/legacy/2007/08/30/202608.pdf.
\24\ See, e.g., Jon Lauck, ``Toward an Agrarian Antitrust: A New
Direction for Agricultural Law,'' 75 N. D. L. Rev. 449 (1999); Peter
C. Carstensen, ``Buyer Power and the Horizontal Merger Guidelines,''
14 U. Penn. J. Bus. L. 775 (2012); Peter. C. Carstensen, ``Buyer
Power, competition policy, and antitrust: the competitive effect of
discrimination among suppliers,'' The Antitrust Bulletin: Vol. 53,
No. 2/Summer 2008; Kenneth E. Boulding, ``Towards a Pure Theory of
Threat Systems,'' The American Economic Review, May, 1963, Vol. 53,
No. 2, 424-434.
\25\ https://www.usda.gov/media/press-releases/2023/04/19/usda-announces-funding-availability-expand-meat-and-poultry.
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B. Discrimination, Retaliation, and Deception
The P&S Act is a remedial statute enacted to address problems faced
by farmers, producers, and other participants in the markets for
livestock, meats, meat food products, livestock products in
unmanufactured form, poultry, and live poultry; to protect the public
from predatory practices; and to protect freedom for farmers and
businesses to engage in the flow of commerce.\26\ Thus, as academics
and courts have noted, the Act has ``tort-like provisions that are
concerned with unfair practices and discrimination'' that fulfill a
``market facilitating function,'' which Congress designed to prevent
``market abuse.'' \27\ AMS interprets and implements the Act to achieve
its core statutory purposes.\28\
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\26\ Stafford v. Wallace, 258 U.S. 495 (1922). Bruhn's Freezer
Meats of Chicago, Inc. v. U. S. Dep't of Agric., 438 F.2d 1332,
1337-38 (8th Cir. 1971) (quoting H.R. Rep. No. 1048, 85th Cong., 1st
Sess. (1957), U.S. Code Cong. & Admin. News 1958, p. 5213). Public
Law 99-198, 99 Stat. 1535, 7 U.S.C. 1631 (Section 1324 of the Food
Security Act). Fed. Trade Comm'n, Report of the Fed. Trade Comm'n on
the Meat-Packing Industry, Part I (Extent and Growth of Power of the
Five Packers in Meat and Other Industries); Fed. Trade Comm'n,
Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part
II (Evidence of Combination among Packers); Fed. Trade Comm'n,
Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part
III (Methods of the Five Packers in Controlling the Meat-Packing
Industry) (1919) (Finding that the purpose of the combination of Big
Five packers was to ``monopolize and divide among the several
interests the distribution of the food supply not only of the United
States but of all countries which produce a food surplus, and, as a
result of this monopolistic position, to extort excessive profits
from the people not only of the United States but a large part of
the world'').
\27\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862 (``subsections (a) and (b) appear to be tort-like provisions
that are concerned with unfair practices and discrimination, but not
with restraint of trade or monopoly as such''); Peter Carstensen,
The Packers and Stockyards Act: A History of Failure to Date, CPI
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that
the practices of buyers and sellers in livestock (and later poultry)
markets were fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.''); Michael C. Stumo
& Douglas J. O'Brien, ``Antitrust Unfairness vs. Equitable
Unfairness in Farmer/Meat Packer Relationships,'' 8 Drake J. Agric.
L. 91 (2003); Michael Kades, ``Protecting livestock producers and
chicken growers,'' Washington Center for Equitable Growth (May
2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Section 202's prohibitions
on unjust discrimination and undue preference are not limited to
conduct that destroys or limits competition or creates a monopoly.
These provisions address conduct that impedes a well-functioning
market and deprives livestock and poultry producers of the true
value of their animals. Taken together, these provisions seek to
prevent market abuses.'').
\28\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th
Cir. 1966).
---------------------------------------------------------------------------
AMS finds that current regulations under the Act do not
sufficiently address the many unduly prejudicial, unjustly
discriminatory, and deceptive practices in the livestock and poultry
industry. As discussed above, the combination of increased
concentration and use of vertical contracts in livestock and poultry
markets enhances regulated entities' ability to unjustly discriminate
against or deceive market participants and effect significant harm upon
[[Page 16101]]
producers. With bilateral contracts where one side has significant
market power, regulated entities can target specific individuals,
whether because of their personal characteristics (prejudice) or
because of they have engaged in certain activities (retaliation). With
market concentration, producers have limited options in the marketplace
with which to avoid the harms. Vertical contracts where regulated
entities have greater control over producers' operations also enable
certain forms of discrimination, such as in the provision of inputs, as
live poultry dealers particularly have heightened control and
involvement in the growers' poultry operations. The provision of
accurate and not misleading information also takes on heightened
importance in these markets. In markets where producers are exiting, it
is especially difficult for producers to reenter after being excluded,
and the harms from exclusion are significant.
i. Discrimination and Prejudice
Discrimination and prejudice harm market participants and overall
market integrity and efficiency. Discrimination is economically
inefficient.\29\ The prejudicing entity that pays a producer below
market value for his or her cattle or hogs because the producer belongs
to a protected class causes that producer to not receive the full
economic value of his or her animals; this discrimination also prevents
the market from reaching an optimal allocation of wages and labor,
contributing to a deadweight loss for the economy at large.\30\
Likewise, a regulated entity's refusal to buy from a producer of a
protected class offering animals of comparable quality to those being
sold by other producers to that same buyer in the same time-frame may
cause that disfavored producer to exit the market.\31\ If an entity
refuses to purchase product from a producer of a particular class who
offers identical product, such as cattle, that disfavored producer may
face a lower price, resulting in a loss to the producer that may
discourage the producer from continuing to operate or would-be
producers of that class from entering the market.\32\ Using non-
economic characteristics of the livestock or poultry producers to
dictate patterns of production thwarts efforts by producers to
accurately assess market conditions and make sound business decisions.
---------------------------------------------------------------------------
\29\ Stiglitz, J. ``Approaches to the Economics of
Discrimination,'' American Economic Review, vol. 63/2, May 1973:
287-295 (Discussing how discrimination in markets produces an
economic inefficiency: ``If all firms are profit maximizers, then
all will demand the services of the low-wage individual, bidding
their wages up until the wage differential is eliminated. Why does
this not occur?'').
\30\ Ibid.
\31\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado,
available at https://www.justice.gov/media/1244701/dl?inline;
https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885 (Producers
described how packers could ``pick . . . large entities'' as part of
marketing agreements to procure supply. In turn, this drove up an
excess supply and drove down prices for producers or suppliers who
did not receive such an agreement in the cash-negotiated market. One
producer said that this discrimination had the effect of
``controlling . . . inventory;'' another said that this conduct had
the effect of ``tens of thousands of independent producers being
purged out of the business or going into bankruptcy . . . exited out
of agriculture'').
\32\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado,
available at https://www.justice.gov/media/1244701/dl?inline;
https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885 (Producers
described how packers could ``pick . . . large entities'' as part of
marketing agreements to procure supply. In turn, this drove up an
excess supply and drove down prices for producers or suppliers who
did not receive such an agreement in the cash-negotiated market. One
producer said that this discrimination had the effect of
``controlling . . . inventory''; another said that this conduct had
the effect of ``tens of thousands of independent producers being
purged out of the business or going into bankruptcy . . . exited out
of agriculture'').
---------------------------------------------------------------------------
In comments to the proposed rule, multiple organizations spoke of
the widespread economic harms resulting from discrimination and
prejudice in livestock and poultry markets.\33\ A producer advocacy
organization reported that ``discrimination, retaliation, and deception
have become common features of livestock and poultry markets, leading
to widespread fear and anxiety among producers.'' \34\ Another
commenter wrote, ``The current ability to exclude marginal competitors
and exploit covered producers, rather than producing meaningful price
discovery and transparency in the production and sales of livestock,
meat and poultry, has greatly injured not only those involved in
production but has restricted consumers from accessing reliable,
affordable sources of protein.'' \35\ We acknowledge that these
comments addressed what commenters viewed as a range of discrimination
that could be covered by the proposed rule, and some that we are not
addressing in this rule. Comments relating to these topics are
discussed further in Section V--Changes from the Proposed Rule, and in
Section VII--Comment Analysis.
---------------------------------------------------------------------------
\33\ Government Accountability Project, Comments on Proposed
Rule: Inclusive Competition and Market Integrity, (AugJan. 20232),
available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427 (``Many of these Vietnamese growers were enticed to sell
profitable businesses and family homes and take out huge loans to
enter broiler production contracts. Bearing all the same burdens of
other broiler producers, they were further victimized by language
barriers, cultural differences, and blatant mockery and exploitative
behavior. In some cases, to keep their contracts, Vietnamese growers
were asked to do additional work that was not required of white
counterparts. Many of the Vietnamese farmers we have spoken to have
likened the abusive and threatening behavior of their integrators to
the communist government from which they fled'').
Rural Advancement Foundation International--USA, Comments on
Proposed Rule: Inclusive Competition and Market Integrity, (AugJan.
20232), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0437 (``They don't have to cut you off, they can just bleed
you dry. The barn we're sitting in here hatched flocks with
salmonella issues. They can send those compromised flocks to growers
they want to bleed.'' ``My main concern is that [my integrator]
operates on fear and threatening tactics to make every grower they
have scared they are going to lose their contract every single day.
No human being should have to live every single day in fear that
their livelihood and only source of income can be taken away from
them. I am sick of it, someone needs to do something to help us! I
love to grow chickens and feed the world, but I do not like to live
as if under a dictatorship.'' ``When I filed a complaint with the
Packers and Stockyards Division about a weight issue, in which I was
proven right, I was punished with bad tournament grouping for a
year. Also, I have been told by my integrator, after receiving a
really bad flock of birds, that they would be sure to not let it
happen next time--so they know how to make it happen!'').
\34\ Food & Water Watch, ``Comment on AMS-FTPP-21-0045:
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act,'' (Jan. 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.
\35\ Rocky Mountain Farmers Union, ``RMFU Comment for the
Proposed Rule Inclusive Competition and Market Integrity Under the
Packers and Stockyards Act'' (Jan. 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441.
---------------------------------------------------------------------------
As previously noted, this rule does not address every form of
discrimination or prejudicial exclusion or disadvantage in the
marketplace but focuses on providing clarity regarding certain specific
discriminatory and prejudicial practices that AMS has identified in
this final rule as essentially unjust, which offer no benefits to the
competitive market or producers, and which undermine competition on the
merits of the products and services that producers offer. Additionally,
although the descriptive analyses set forth below do not address the
prevalence or degree or prejudice for each and every prohibited basis,
owing to the limitations of available data, AMS believes that leaving
out any of the bases listed in this rule would be inappropriate. Not
only would that be inconsistent with the Department's approach toward
discrimination in other contexts, as repeatedly endorsed by Congress,
but the resulting uncertainty could also open the door to those forms
of discrimination in livestock, poultry, and related markets under the
Act, which would be contrary to the purposes of this regulation and
[[Page 16102]]
the Act, which prohibits ``undue prejudice . . . in any respect.''
a. Discrimination and Prejudice on Personal Characteristics and Status
AMS (including its predecessor agencies) has received complaints
over the years of discrimination against producers, in particular in
the poultry industry, and especially on the basis of race. The Agency
has not always been able to act on these complaints for a variety of
reasons. The Agency also believes that some complaints may have been
suppressed due to the risks of retaliation, which are discussed below.
As highlighted below, comments to this rulemaking affirmed the
prevalence and remaining challenge of discrimination on prohibited
bases.
Researchers have documented the history of discrimination against
racial and ethnic minorities in agricultural markets. Multiple factors
have contributed to the decline of non-white-owned farms, specifically
to the decline of Black-owned farms, including the Homestead Act of
1862, the Morrill Land Grant Act of 1862, lack of legal protections for
heirs' property, and limited access to capital through discriminatory
lending practices.\36\ For example, in the earlier part of the 20th
century, the Federal government and agricultural landholders restricted
land sales, engaged in predatory and fraudulent lending practices, and
denied farm support programs to Black farmers and ranchers,\37\ which
has resulted in the loss of Black economic security and land
loss.38 39 40 41 A 1959 paper reported ``significant market
discrimination'' against Black American producers in the Southern
United States.\42\ Discrimination by the Federal government and private
sector also caused Hispanic people and American Indian people farming
on reservations to lose farmland and decline in number.43 44
More recently, some news reports have documented that companies may
present contract terms to non-native English speaking immigrant
communities who may not understand them, and have spotlighted the
treatment of Asian American and Pacific Islander poultry growers in
particular.\45\
---------------------------------------------------------------------------
\36\ McKinsey & Company. November 10, 2021. Black Farmers in the
U.S: The Opportunity for Addressing Racial Disparities in Farming.
Accessed at Black farmers in the US: The opportunity for addressing
racial disparities in farming [verbar] McKinsey on 10/04/2023; and
https:/www.archives./gov/milestone-documents/morrill-act https://www.archives.gov/milestone-documents/morrill-act (see, e.g.,
``People of color were often excluded from these educational
opportunities due to their race.'').
\37\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell,
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss:
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42.
American Economic Association, 2022.
\38\ U.S. Department of Agriculture, National Agricultural
Library, ``Heirs' Property,'' https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property (last accessed Aug.
2022).
\39\ Mitchell, Thomas W. 2019. Historic Partition Law Reform: A
Game Changer for Heirs' Property Owners. In Heirs' property and land
fractionation: fostering stable ownership to prevent land loss and
abandonment. https://www.fs.usda.gov/treesearch/pubs/58543 (last
accessed 8/9/2022).
\40\ U.S. Commission on Civil Rights. 1965. Equal Opportunity in
Farm Programs: An Appraisal of Services Rendered by Agencies of the
U.S. Department of Agriculture. https://files.eric.ed.gov/fulltext/ED068206.pdf US Commission on Civil Rights. 1982. ``The Decline of
Black Farming in America.'' https://eric.ed.gov/?id=ED222604.
\41\ Feder, J. and T. Cowan. 2013. ``Garcia v. Vilsack: A Policy
and Legal Analysis of a USDA Discrimination Case,'' Congressional
Research Service report number 7-5700, February 22, 2013.
\42\ Tang, Anthony M. ``Economic development and changing
consequences of race discrimination in Southern agriculture.''
Journal of Farm Economics 41, no. 5 (1959): 1113-1126.
\43\ Casey, Alyssa R. Racial Equity in U.S. Farming: Background
in Brief 2021. Congressional Research Service. https://crsreports.congress.gov/product/pdf/R/R46969 (Finding that the
percent of American Indian and Hispanic producers increased by 1.3
and 2.4 percent between the early 1900s to 2017, compared to White
producers which increased by 9 percent).
\44\ Horst, M., Marion, A. ``Racial, ethnic and gender
inequities in farmland ownership and farming in the U.S.'' Agric Hum
Values 36, 1-16 (2019), available at https://doi.org/10.1007/s10460-018-9883-3.
\45\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt,
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May
15, 2006. Available online at: https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.
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Researchers have also documented some of the adverse outcomes,
including economic outcomes, caused by discrimination. In the livestock
sector, the results of historical prejudice and the risk of present-day
prejudice are apparent when looking at data from the 2017 Census of
Agriculture, which show that a small fraction of livestock farms with
production contracts are operated by Black, Asian, American Indian, or
Native Hawaiian producers (Figure 1).\46\ In Figure 1, the checkered
bars represent the share of racial and ethnic groups among all
livestock and poultry farms, and the colored bars indicate the share of
production contracts received by each group. As indicated in Figure 1,
American Indian, Black, Native Hawaiian, and Hispanic producers receive
less than a proportional share of livestock and poultry production
contracts relative to their respective populations. For example, Black
producers and growers account for 1.6 percent of U.S. farms by race and
ethnicity and receive a disproportionately lower 0.5 percent of
livestock and poultry contracts. White producers and growers,
meanwhile, represent 91 percent of all farms, but 98 percent of hog
contracts and 97 percent of cattle contracts--a greater than
proportionate share of livestock contracts, and at 90 percent, a lower
than proportionate share of poultry contracts. Non-white racial and
ethnic groups constitute a very small share of contracted livestock and
poultry producers, which can be attributed to limited access to land
and capital,\47\ having on average smaller operations, and
discrimination.
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\46\ Most production contracts are held by poultry growers and
less so by packers. A production contract, according to USDA NASS,
``is an agreement between a producer or grower and a contractor
(integrator) setting terms, conditions, and fees to be paid by the
contractor to the operation for the production of crops, livestock,
or poultry.'' In contrast, many packers hold marketing contracts
which, according to NASS, are ``based strictly on price.'' USDA
NASS, No Date. ``Appendix B. General Explanation and Census of
Agriculture Report Form.'' usappxb.pdf (usda.gov), accessed 8/12/23.
\47\ See, generally, Congressional Research Service, ``Racial
Equity in Farming,'' Nov. 2021, available at https://crsreports.congress.gov/product/pdf/R/R46969; Economic Research
Service, USDA, ``Access to Farmland by Beginning and Socially
Disadvantaged Farmers: Issues and Opportunities,'' Dec. 2022,
available at https://www.ers.usda.gov/publications/pub-details/?pubid=105395.
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[[Page 16103]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.005
Disparities are also found in income across racial and ethnic
groups. It is difficult to disentangle historical discrimination--
whether that be prejudicial administration of USDA farm policies,
racial segregation laws, or discriminatory private lending policies,
from current discrimination practiced by livestock and poultry
companies. Figure 5 shows the percentage of livestock and poultry farms
(omitting nonfamily farms) by the reported race or ethnicity, and
categorized by the lowest level of Gross Cash Farm Income (GCFI), which
is annual income before expenses, including cash receipts, farm-related
cash income, and government payments.\48\ These data indicate that
livestock and poultry farms with producers who identify as American
Indian, Black, Native Hawaiian, and Hispanic are more likely to be in
the lowest income category (measured by GCFI <$150,999) than their
white counterparts. Those farms with producers who identify as Asian
are less likely than their White counterparts to fall into the lowest
income group, which might be a factor of being relatively recent
immigrants and not facing past discrimination.\49\ The fact that Black,
Native Hawaiian, Native American, and Hispanic livestock and poultry
farmers are more likely to be in the lower income GFCI category could
be an effect of past discrimination, and it also could make such
producers more vulnerable to current discriminatory behavior by
packers. Markets dominated by one or a few large packers or live
poultry dealers may also be less accessible to these lower income
farms, which have limited financial or other economic resources with
which to engage.
---------------------------------------------------------------------------
\48\ USDA ERS, No date. Farming and Farm Income. Available at
https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income/ (last accessed 9/8/
23). GCFI income categories incude <$149,900, $150,000-$349,999,
$350,000-$999,999, and >=$1,000,000.
\49\ Pew Research Center. June 19, 2012. The Rise of Asian
Americans. Accessed at https://www.pewresearch.org/social-trends/2012/06/19/the-rise-of-asian-americans/ on 10-13-23.
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[[Page 16104]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.006
Recent research conducted by the USDA's Office of the Chief
Economist and presented at the Agricultural & Applied Economics
Association \50\ suggests that certain ethnic or racial groups are
receiving lower prices compared to White producers from regulated
entities in livestock and poultry contracts. In some cases, the
research showed statistically significant differences in prices
received for livestock (cattle and hogs) and broiler products across
ethnic or racial groups after controlling for variables such as farm
size, region, type of marketing contract or channel, organic
certification status, distance to closest packer, and size of closest
packer. Specifically, Black and American Indian cattle producers, Black
contract broiler producers, and Black and American Indian hog producers
all received lower prices for their livestock products relative to
White producers. However, the effect of many animal quality variables,
such as weight per animal, dressing percentage, and yield grade, cannot
be controlled for under this analysis because the data is not in the
Census of Agriculture or other data sets organized by race and
ethnicity. Thus, endowment differences, such as better land and more
capital, that represent the legacy of historical discrimination may
account for a portion of these price differentials.
---------------------------------------------------------------------------
\50\ Breneman, V., Cooper, J. Nemec Boeme, R. and Kohl, M.,
``Competition and Discrimination--is there is a relationship between
livestock prices received and whether the grower is in a
historically underserved group?'' 2023 AAEA Annual Meeting,
Washington, DC, July 23-July 25.
---------------------------------------------------------------------------
Differences in livestock and broiler prices could also be due, at
least in part, to discrimination. Due to current data deficiencies,
however, it is impossible to tell whether differences in prices
received across ethnic or racial groups are due to current
discriminatory practices, historic discrimination, or some combination
thereof. These omitted variables may be correlated with race or
ethnicity, and thus may account for a substantial portion of the price
differentials. Additional data collection efforts may shed light on the
role of omitted variables, such as animal size, thus helping to
distinguish economic effects arising from current racial discrimination
from disparate economic outcomes due to historical discrimination.
Gender is also a basis of discrimination in livestock and poultry
markets. According to the 2017 Census, livestock and poultry operations
where principal operators are female received significantly lower
market value for the livestock and poultry they sell. Female principal
operators in livestock and poultry earned 53 cents per operation for
every dollar earned by male principal operators per operation. By
comparison, in the broader U.S. population, females earn 77 to 82 cents
for every dollar earned by men in 2022.\51\ Figure 6 shows that the
difference in livestock and poultry sales by gender is about $117,000
less per operation for female principal operators, or 47 percent less,
compared to male principal-operated farms. Disproportionately more
female operators are found in the lower income classes relative to
males, and a disproportionately higher number of male operators are
found in the highest income classes. The value of livestock and poultry
production per total acres owned by males and females is $0.22 per acre
for males and $0.18 per acre for females, or $0.82 per acre for female
operators relative to every $1 per acre earned by male operators.
Together, these data suggest that female
[[Page 16105]]
producers--in livestock and poultry markets--achieve poorer economic
outcomes than male producers.
---------------------------------------------------------------------------
\51\ The Pew Research Center. March 1, 2023. ``The Enduring Grip
of the Gender Pay Gap.'' Accessed at https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/ on
09-25-2023, and World Economic Forum. July 2023. Global Gender Gap
Report 2023 Accessed at WEF_GGGR_2023.pdf (weforum.org) on 09-225-
2023.
[GRAPHIC] [TIFF OMITTED] TR06MR24.007
AMS also utilized a regression analysis showing support for
disparities in income across different protected classes. Table 3
presents the empirical results of multivariate regression analysis of
the 2017 Agricultural Census and other data by the USDA Office of the
Chief Economist. Black and American Indian cattle and broiler
producers, and Black and American Indian hog producers of owned hogs
(hogs not sold under production contracts) all received lower prices
for their livestock products relative to White producers. For example,
Black and American Indian producers received around 5 percent lower
broiler prices but no statistically significant decrease in payments
for hogs delivered under production contracts. However, the effect of
many animal quality variables, such as weight per animal, dressing
percentage, and yield grade, cannot be controlled for under this
analysis because the data is not in the Census of Agriculture or other
data sets organized by race and ethnicity. Thus, endowment differences,
such as better land and more capital, that represent the legacy of
historical discrimination may account for a portion of these price
differentials. Hawaiian contract hog producers received 68 percent
higher prices even though producer location was controlled for in the
analysis, but the analysis cannot control for some unknown factors
associated with this relatively small cohort of producers that may
account for this relatively large price effect.
[[Page 16106]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.008
The results of an analysis presented in Table 3 found there is a
statistically significant and positive relationship between female
operators and price received for the owned-hog market, which includes
producers of both contracted and owned hogs (the regression accounted
for whether the producer was on a production contract or not through an
explanatory variable), but which examines the price impact only on
owned-hogs sold.\52\ However, for the production contract-only hog
market, which makes up about 70 percent of all hogs produced, this
relationship becomes negative, though not at a statistically
significant level (non-statistically significant results are shown as
zero values in the table). From regression results not shown in Table
3, it appears that female contract hog producers who also produce owned
hogs receive a higher price for owned hogs than female farmers who only
produce owned hogs. This finding suggests that females with hog
contracts face preferential prices relative to those females that do
not hold contracts.
---------------------------------------------------------------------------
\52\ From the Agricultural Census data, some farmers who produce
under production contracts also report some owned production as
well.
---------------------------------------------------------------------------
The regression analysis used above to study the effect of sex on
prices received in livestock and poultry markets also found a
statistically significant negative relationship between age of a farm
operator and price received in poultry and owned-hog markets, as well
as a statistically significant negative relationship between the
experience of a farm operator and price received in the contract hog
market. That is, as producers and growers age in the owned-hog and
poultry markets and gain experience in the contract hog market, average
price received declines. However, the same finding was not evident in
cattle markets, where the relationship between increasing producer age
and price is positive and statistically significant.
Gender is also a basis of discrimination in livestock and poultry
markets. According to the 2017 Census, livestock and poultry operations
where principal operators are female received significantly lower
market value for the livestock and poultry they sell. Female principal
operators in livestock and poultry earned 53 cents per operation for
every dollar earned by male principal operators per operation. By
comparison, in the broader U.S. population, females earn 77 to 82 cents
for every dollar earned by men in
[[Page 16107]]
2022.\53\ Figure 7 shows that the difference in livestock and poultry
sales by gender is about $117,000 less per operation for female
principal operators, or 47 percent less, compared to male principal-
operated farms. Disproportionately more female operators are found in
the lower income classes relative to males, and a disproportionately
higher number of male operators are found in the highest income
classes. The value of livestock and poultry production per total acres
owned by males and females is $0.22 per acre for males and $0.18 per
acre for females, or $0.82 per acre for female operators relative to
every $1 per acre earned by male operators. Together, these data
suggest that female producers in livestock and poultry markets achieve
lesser economic outcomes than male producers.
---------------------------------------------------------------------------
\53\ The Pew Research Center. March 1, 2023. ``The Enduring Grip
of the Gender Pay Gap.'' Accessed at https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/ on
09-25-2023, and World Economic Forum. July 2023. Global Gender Gap
Report 2023 Accessed at WEF_GGGR_2023.pdf (weforum.org) on 09-225-
2023.
[GRAPHIC] [TIFF OMITTED] TR06MR24.009
Producers have also been targeted by processors that discriminate
or retaliate against them for forming or being members of a cooperative
because of the check on dominant firm bargaining power that
cooperatives provide.\54\ Growers and experts on agricultural
cooperatives have reported numerous instances of live poultry dealers
taking adverse actions against producers for their participation in
agricultural cooperative activities.\55\
---------------------------------------------------------------------------
\54\ USDA, Publications for Cooperatives, available at https://www.rd.usda.gov/resources/publications-for-cooperatives (See
generally USDA's published research reports that document the
history and importance of agricultural cooperatives that allow
farmers to negotiate collectively for prices on product either sold
or bought by input or buyer entities. For example, USDA in Farm
Bargaining Cooperatives: Group Action, Greater Gain (1994) describes
one harrowing instance in which members of a cooperative initially
hesitated in bringing a complaint against a processor that allegedly
punished them by refusing to buy their fruit due to their
association with the cooperative; but eventually successfully
brought the complaint and, after a lengthy legal process, won
punitive damages and the processor's agreement to buy product);
Vaheesan, S. and Schneider, N., 2019. Cooperative Enterprise as an
Antimonopoly Strategy. Penn St. L. Rev., 124, p.1. Accessed at
https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1000&context=pslr (Oct. 2023).
\55\ Baldree v. Cargill, Inc. and United States v. Cargill,
Inc., et al., 758 F.Supp.704 (M.D.Fla. 1990). Arkansas Valley
Industries, Inc., Ralston Purina Company, and Tyson's Foods, Inc.,
27 Ag. Dec. 84 (January 23, 1968), and In Re: Curtis Davis, Leon
Davis, and Moody Davis d/b/a Pelahatchie Poultry Company, 28 Ag.
Dec. 406 (April 3, 1969).
\56\ For the purposes of this preamble, a cooperative is an
incorporated or unincorporated association of producers, with or
without capital stock, formed for mutual benefit of its members.
Farm cooperatives are formed under State, not Federal law, even
though cooperatives have Federal protections. See James B. Dean &
Thomas Earl Geu, The Uniform Limited Cooperative Association Act: An
Introduction, 13 Drake J. Agric. L. 63, 67 (2008) (``There is,
however, no single type of cooperative. Although much of the law
that has developed around cooperatives has developed with respect to
agricultural cooperatives, cooperatives exist in many areas . . .
including housing, insurance, banking, health care, and retail
sales, among others.''). Cooperatives can both be buyers and sellers
of agricultural products. Cooperatives made up of sellers, because
they jointly fix the prices of their goods, are legally permitted to
market the products they produce when the cooperative organization
meets the requirements of the Capper-Volstead Act (see 7 U.S.C.
291)7 U.S.C. 291) or the Clayton Act (see 15 U.S.C. 17).15 U.S.C.
17).
---------------------------------------------------------------------------
Regulated entity resistance to producer cooperatives is not
difficult to understand--and indeed has been the basis for
congressional action in the past. The increased bargaining power that
cooperatives give to their members makes them a target for opposition
or curtailment by regulated entities. In a market characterized by
concentration of larger market intermediaries, cooperatives \56\ can
assist producers in promoting equal access to the market
[[Page 16108]]
and enhance the bargaining power of smaller producers. At the same
time, cooperatives are responsive to the needs of regulated entities
and the market for greater volume, as opposed to negotiating with many
smaller producers.\57\ Yet precisely that presence of enhanced
bargaining power, which cooperatives give to their members, makes them
a target for opposition or curtailment by regulated entities. Congress
has affirmed that cooperatives are necessary to protect the marketing
and bargaining position of individual farmers and that interference
with this right is not only contrary to the public interest but
damaging to the free market.\58\ As stated in the Congressional Record
``. . . wherever waste and uneconomic practices are discovered they
should be eliminated, and whenever improvement can be made by
cooperative effort these improvements should be sanctioned and adopted
by those interested in our marketing system. . . .'' \59\
---------------------------------------------------------------------------
\57\ At least some of the drafters of the Act fully expected the
Act to be consonant to the goals of cooperatives: ``My own
conviction is that the cooperative effort of producers and consumers
to get closer together in an effort to reduce the spread between
them is the most favorable tendency of our time, so far as the
question of marketing and distribution is concerned.'' 61 Cong. Rec.
1882 (1921).
\58\ 7 U.S.C. 2301.
\59\ 61 Cong. Rec. 1882 (1921).
---------------------------------------------------------------------------
Producers have indicated to AMS that increased use of cooperatives
is necessary because of the rise of abusive conduct aggravated by
concentration in the markets and the decline in marketing options for
smaller producers. For example, small cattle producers have expressed
their concern to AMS about packers' disparate treatment of large and
small producers. Large packers have commonly shown limited interest in
dealing with producers that operate on a smaller capacity. Packers
often prefer to buy large numbers of animals at once to lower
transaction costs,\60\ and if a single producer is unable to meet such
demand, that producer is unable to compete in the industry. Smaller
livestock producers can join together through cooperatives to achieve
scale and meet buyers' volume requirements. Thus, cooperatives can help
smaller producers gain business they would otherwise be unable to
compete for in light of the current market structure. Moreover,
Congress has encouraged the formation of agricultural cooperatives and,
under the AFPA, has provided enhanced protection for them in the
marketplace. Given that policy and statutory judgment, AMS interprets
the Act to reinforce that objective. Accordingly, discriminating
against a cooperative, absent a legitimate basis set forth under this
final rule, is unjust and violative of the Act.
---------------------------------------------------------------------------
\60\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops, Exploring Competition Issues in
Agriculture Livestock Workshop: A Dialogue on Competition Issues
Facing Farmers in Today's Agricultural Marketplaces, Fort Collins,
Colorado August 27, 2010. Available at https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf.
---------------------------------------------------------------------------
Additionally, cooperatives counterbalance the ability of regulated
entities to exert market power against smaller or more vulnerable
producers. Facing the threat of such a counterbalance, regulated
entities have over time stymied producers' ability to form and utilize
cooperatives. AMS has heard numerous reports of regulated entities
terminating growers' or producers' contracts for their attempts to form
cooperatives, as well as reports of the chilling effect such action has
on any future attempts to do so.\61\ More recently, cooperatives in the
cattle sector have been frustrated in their effort to negotiate
collectively. In recent years, the number of livestock and poultry
cooperatives has declined, as shown in the figure below. While many
reasons for that decline are unconnected to the discrimination
prohibited in this rule, AMS believes cooperatives serve a crucial
function in the marketplace and need protection against unjust
discrimination by regulated entities. This final rule will protect
producers who wish to form cooperatives and will strengthen the
marketing and bargaining position of smaller or more vulnerable
producers by enabling them to pool resources, coordinate, compete more
effectively, and negotiate for fair and appropriate terms in the open
market without fear of prejudice or discrimination from larger market
intermediaries.
---------------------------------------------------------------------------
\61\ United States Department of Justice, United States
Department of Agriculture, Public Workshops Exploring Competition in
Agriculture: Poultry Workshops, (2010), available at https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305; https://youtu.be/8CvEGyMQ9v8?si=_tvtJVtlNmWDxedQ&t=3675; https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305 (In which poultry growers
discussed numerous instances of regulated entities terminating their
contracts, reducing the quality of their feed, or otherwise
intimidating them for participating in cooperative activities).
---------------------------------------------------------------------------
[[Page 16109]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.010
Numerous public comments on the proposed rule supported the
prohibition of undue prejudice based on protected bases such as those
described above. In expressing support for the proposed ``market
vulnerable individual (MVI)'' approach to addressing undue prejudices,
several agricultural advocacy groups recommended that AMS explicitly
enumerate protected bases in its definition of MVI. MVI, as defined in
the proposed rule, is a person who is a member, or who a regulated
entity perceives to be a member, of a group whose members have been
subjected to, or are at heightened risk of, adverse treatment because
of their identity as a member or perceived member of the group without
regard to their individual qualities. The organizations said these
protected bases should include, but not be limited to, the protected
classes of race, color, national origin, religion, sex, sexual
orientation, disability, age, income derived from a public assistance
program, and political beliefs.\62\ An agricultural advocacy group
commented in support of a protected-bases approach, saying that ``fair
access to markets for growers, farmers, and ranchers should be based on
their farming and business skills, not on their membership in any of
the above groups.'' \63\ Another advocacy group added that defining
protected bases ``will be an appropriately flexible concept with which
to enforce enhanced protections against discrimination in the
marketplace.'' \64\ The group continued: ``Given the history of
discrimination that farmers of color have faced over the course of
American history, these producers should not be made to relitigate
their status as market vulnerable in any given complaint.'' \65\
---------------------------------------------------------------------------
\62\ Government Accountability Project, Comments on Proposed
Rule: Inclusive Competition and Market Integrity, (AugJan. 2022),
https://www.regulations.gov/comment/AMS-FTPP-21-0045-042720232),
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427
(Describing instances in which some producers described racially
prejudicial treatment received from regulated entities, including
requirements to do additional work, mockery, and exploitative
behavior). Farm Action, Comments on Proposed Rule: Inclusive
Competition and Market Integrity, (AugJan. 20232), https://www.regulations.gov/comment/AMS-FTPP-21-0045-0435 (Listing Supreme
Court and lower court cases finding these forms of discrimination to
be essentially unjust).
\63\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045:
Inclusive Competitive and Market Integrity Under the Packers and
Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434. https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434.
\64\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045:
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act,'' available at Regulations.gov.
\65\ Agricultural Advocacy Group. ``Comment on AMS-FTPP-21-0045:
Inclusive Competition and Market Integrity Under the Packers and
Stockyards Act,'' available at Regulations.gov.
---------------------------------------------------------------------------
Multiple commenters from the meat and poultry industry who opposed
the MVI approach nevertheless indicated that they would support rules
targeting discrimination on specific prohibited bases.\66\ A livestock
industry association said discrimination on these types of bases is
``reprehensible and should be remediated using the appropriate legal
avenues.'' \67\ Several national and State farm bureaus expressed
support for the rule's action to protect producers facing undue
prejudice and unjust discrimination.\68\
---------------------------------------------------------------------------
\66\ See, e.g., Meat Industry Trade Association, ``Comment on
AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act'' (received Jan. 17, 2023), available
at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424;
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; Industry
Trade Association, ``Comment on AMS-FTPP-21-0045: Inclusive
Competitive and Market Integrity Under the Packers and Stockyards
Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424 Live Poultry
Dealer;, ``Comment on AMS-FTPP-21-0045: Inclusive Competitive and
Market Integrity Under the Packers and Stockyards Act'' (received
Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419.
\67\ Industry Trade Association, ``Comment on AMS-FTPP-21-0045:
Inclusive Competitive and Market Integrity Under the Packers and
Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418.
\68\ See, e.g., Farm Bureau, ``Comment on AMS-FTPP-21-0045:
Inclusive Competitive and Market Integrity Under the Packers and
Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426; Other Association
or Non-Profit, ``Comment on AMS-FTPP-21-0045: Inclusive Competitive
and Market Integrity Under the Packers and Stockyards Act''
(received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426; Other Association or Non-Profit, ``Comment on
AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under
the Packers and Stockyards Act'' (received Jan. 17, 2023), available
at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416;
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; Other
Association or Non-Profit, ``Comment on AMS-FTPP-21-0045: Inclusive
Competitive and Market Integrity Under the Packers and Stockyards
Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441.
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[[Page 16110]]
Discrimination on the bases of race, color, religion, national
origin, sex (including sexual orientation and gender identity),\69\
disability, marital status, or age is recognized throughout economic
markets as impermissible, yet commonly occurring, bases for
discrimination.\70\ AMS recognizes the other Federal laws and
authorities that justify these bases, finds that these bases are
consistent with its understanding drawn from complaints and in the
field, and accordingly adopts these bases as part of this rule.\71\
Removing prejudicial barriers to the market will enhance producers'
economic bargaining power, support investment in rural America, assure
the next generation that taking over the farm can be a wise economic
decision, and otherwise enhance economic opportunity and vitality in
communities facing higher business and labor market concentration and
the conduct addressed by this rule.
---------------------------------------------------------------------------
\69\ 140 S. Ct. at 1737, available at https://www.supremecourt.gov/opinions/19pdf/17-1618_hfci.pdf (The Supreme
Court has held that the prohibition on discrimination ``because of .
. . sex'' covers discrimination on the basis of gender identity and
sexual orientation).
\70\ See, e.g., U.S. Department of Justice, ``The Attorney
General's 2021 Annual Report to Congress on Fair Lending
Enforcement,'' available at https://www.justice.gov/media/1259491/dl?inline.
\71\ 15 U.S.C. 1691; 7 U.S.C. 2301 et seq. (See below section,
Provisions of the Final Rule--Undue Prejudice and Unjust
Discrimination, that discusses the adoption of other Federally
listed bases as part of this rule).
---------------------------------------------------------------------------
AMS finds that discrimination continues to occur through adverse
actions described in the inexhaustive list offered in the final rule.
The list includes offering contract terms that are less favorable than
those generally or ordinarily offered, refusing to deal, performing
under or enforcing a contract differently than with similarly situated
producers, requiring modifications to contracts on terms that are less
favorable than the existing contract with the covered producer or only
offering to renew contracts on terms that are less favorable than those
of the existing contract with the covered producer, and terminating or
not renewing a contract.
As discussed further in Section VII--Comment Analysis, producers
have indicated that regulated entities continue to engage in these
types of discriminatory actions.
ii. Retaliation as Discrimination
Many producers across all animal species have expressed concerns
about being retaliated against for engaging in legitimate business and
advocacy activities inextricably linked to livestock and poultry
markets. Contract poultry growers and hog producers have expressed to
USDA that they have experienced--and consistently fear--retaliation
from live poultry dealers and packers for communicating with each
other, with their dealer's and packer's competitors, and with
governmental officials, as well as for forming associations and
cooperatives, exercising contract or legal rights, or being a witness
in proceedings against the regulated entity.\72\ Cattle producers have
similarly expressed fear that packers will refuse to offer bids on
livestock, or purchase livestock from disfavored producers, and they
have highlighted other, more subtle retaliatory behaviors, like
delaying delivery or shipment, for engaging in similar activities.\73\
Producers believe the ability to communicate with others, to form
associations and cooperatives, to exercise legal rights, and to witness
against regulated entities are critical to free participation in the
livestock and poultry markets. Inhibition of these freedoms jeopardizes
producers' ability to obtain the full value of their livestock and
poultry products and services. Indeed, producers have reported to AMS
over the years that retaliation by regulated entities--or threat
thereof--for producers' exercise of these rights is significant enough
to place a producer's entire farm at risk. This reported conduct is the
type of behavior AMS aims to prohibit through this rulemaking.\74\
---------------------------------------------------------------------------
\72\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript (justice.gov)
(https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656; https://youtu.be/8QJ_K06lp5M?si=C1HA0i84opqaoIn8&t=1051).
\73\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Livestock Industry, August 27, 2010, Fort Collins, Colorado,
Available at https://www.justice.gov/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10 (https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656https://youtu.be/Ygerhjjp0Is?si=WMS4YGdAjNtIsBgH&t=1833; https://youtu.be/tF4Dr-O-l8s?si=BZJQYN-rkp-qqvjN&t=1158; numerous producers, including the
previous president of the Kansas Cattlemen's Association, discussed
instances in which they experienced retaliation from the largest
packers. For example, one producer described how they decided to
allow other packer buyers first opportunity to buy cattle in
response to the packer not selecting them for a contracting
agreement. The producer said that the packer told ``his buyer to
quit coming into our yard.'' Another producer agreed, describing an
incident in which they perceived that one of the largest packers
possibly retaliating against them for previous litigation: the
producer described how the packer hung a ``No Trespassing'' sign on
the producer's door and began offering a ``five-minute window'' to
buy cattle).
\74\ Lina Khan, ``Obama's Game of Chicken,'' Wash. Monthly
(2012), https://washingtonmonthly.com/magazine/novdec-2012/obamas-game-of-chicken/ (Recounting testimony by Tom Green, an Alabama
farmer who contested a contract and lost their farm: ``We did not
give up a fundamental right to access the public court . . . which
is guaranteed by our Constitution, regardless of price. I had flown
too many combat missions defending that Constitution to forfeit it.
It was truly ironic that protecting one right, we lost another. We
lost the right to property''). Isaac Arnsdorf, ``How a Top Chicken
Company Cut Off Black Farmers, One by One,'' Propublica (June 26,
2019), https://www.propublica.org/article/how-a-top-chicken-company-cut-off-black-farmers-one-by-one (Describing how one farmer
participated in the 2010 USDA-DOJ workshops and ``. . . never got
another chicken after going to that meeting over there in Alabama. .
. They put me slap out of business'').
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This is a persistent problem. As recently as April 2022, threats
and fear of retaliation interfered with witness testimony at each of
the House and Senate Agriculture Committees' hearings on livestock
competition practices. In his opening remarks, House Agriculture
Committee Chair David Scott noted, ``We were supposed to have a 4th
witness, a rancher, on our panel, but due to intimidation and threats
to this person's livelihood, to this person's reputation, they chose
not to participate out of fear. Witness intimidation is unacceptable. .
. .'' \75\
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\75\ House Chair David Scott D-GA, opening remarks, U.S. House,
Committee on Agriculture, ``An Examination of Price Discrepancies,
Transparency, and Alleged Unfair Practices in Cattle Markets,''
April 27, 2022, (14 min: 24 sec), available at https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk.
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The day before, Senator Deborah Fischer had stated, ``I wish we had
a Nebraska producer here, but as is noted in their letter, none of our
producer members we encouraged to testify were willing to put
themselves out front for fear of possible retribution from other market
participants, an unfortunate reality of today's cattle industry.'' \76\
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\76\ U.S. Senate Committee on Agriculture, Nutrition, and
Forestry, ``Legislative hearing to review S. 4030, the Cattle Price
Discovery and Transparency Act of 2022, and S. 3870, the Meat and
Poultry Special Investigator Act of 2022,'' April 26, 2022, (1 hour
39 min), available at https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022.
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In response to the proposed rule, commenters expressed support and
opposition for the proposal to establish prohibitions against
retaliatory practices. Several industry associations opposed the
proposed rule, indicating it is duplicative and therefore not
necessary. These commenters contended the conduct addressed in the
[[Page 16111]]
proposed rule is not a widespread problem and is already prohibited
under the Act. Other commenters supported the rule. One organization
cited a recent anonymous survey of contract growers it had conducted.
Multiple respondents had experienced retaliation from integrators and
said integrators regularly terminate contracts with farmers who engage
in whistleblowing activities. These contract terminations leave growers
with substantial debt tied up in specialized, single-use structures
built as a condition of their contractual agreements. Although comments
in response to the proposed rule differ greatly regarding the need for
this rule, commenters generally do not disagree that discriminatory and
retaliatory conduct is harmful to producers and offers no
procompetitive benefits. For these reasons, AMS needs to use its
statutory authority to provide a regulatory framework for prohibiting
retaliatory behavior by regulated entities against covered producers.
Establishing regulatory protections to prohibit regulated entities from
retaliating against producers engaging in lawful activity will help
promote fair trade practices and competitive markets.
In recent years, producers have been increasingly vulnerable to
harms from retaliatory behavior due to the market power afforded
regulated entities under contracts that can reach further down into
livestock and poultry production and/or are bilateral. This is in
contrast to past circumstances where these relationships were
intermediated through an institution such as a stockyard (auction)
subject to heightened regulatory duties around nondiscrimination.
As regulated entities have obtained greater control over the input
industries, particularly in poultry, producers are increasingly
dependent upon regulated entities for success. That dependence, in
combination with high levels of debt, leaves producers vulnerable to
the retaliation that regulated entities can exact through input
distribution and in other ways. Growers have for years reported
punitive delivery of inputs to deter their exercise of a wide range of
legal rights and remedies that would enable them to earn the full value
of their services.77 78
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\77\ U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama. Available at Poultry Workshop Transcript (justice.gov); see
also Lina Khan, ``Obama's Game of Chicken,'' The Washington Monthly,
Nov. 2012, available at
\78\ Oscar Hanke, ed., American Poultry History, 1823-1973
(Madison, Wisc., 1974), 384-85. Fite, Cotton Fields No More, 201;
Peck, A, (2006), ``State regulation of production contracts.''
University of Arkansas National Center for Law Research and
Information, available at https://nationalaglawcenter.org/wp-content/uploads/assets/articles/peck_contractregulation.pdf; Stephen F.
Strausberg, From Hills and Hollers: Rise of the Poultry Industry in
Arkansas (Fayetteville, Ark., 1995), 136; Heffernan, W. D., (1984),
Constraints in the U.S. poultry industry. Research in Rural
Sociology and Development, 1, 237-260 (Researchers have documented
the increased incidence of producers' complaints and decreasing
satisfaction in the industry beginning in the 1980s, which coincided
with increasing concentration of the industry. Weinberg writes how,
in 1960, 19 firms processed 30 percent of total US poultry processed
and that producers who entered the business tended to achieve upward
mobility. In the 1970s, only 8 firms processed the same percent of
poultry. This trend accompanied an increased incidence of grower
dissatisfaction. Gordy notes how ``loss of independence and lower
incomes caused some growers to become disenchanted.'' Fite observed
how poultry farmers were ``controlled and sometimes exploited by
their suppliers.'' Peck notes how dissatisfaction by growers
prompted State attorneys general to propose a 3-day right of review
in a model producer protection act in the early 2000s. In 2010, the
USDA and DOJ hosted a series of workshops in which growers raised
concerns about retaliation in the industry. These trends, which
occurred alongside increased productivity gains and use of
technology, coincided with exits in the industry. As Weinberg
documented, in Georgia, in 1950, 1176 Hall County farms sold 6.8
million chickens; in 1992, only 192 sold 44.3 million chickens).
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Based on complaints and industry experience, AMS is aware that
retaliation by regulated entities may take many forms, such as
canceling contracts, selectively enforcing contract terms, refusing to
deal or negotiate, or otherwise impairing an individual's or group of
producers' ability to operate.\79\ In contrast, in more competitive
markets, producers facing retaliation can more easily avoid or mitigate
adverse impacts by simply finding other entities with whom to do
business. Without choices, producers are at the mercy of the types of
abuses the Act was designed to prevent--market abuses that inhibit
producers' ability to get the full value of their products and
services. Ultimately, regulated entities may retaliate for various
reasons, but none have any role in or benefit to the competitive
functioning of the market.\80\
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\79\ See, e.g., U.S. Department of Justice & U.S. Department of
Agriculture, Public Workshops Exploring Competition in Agriculture,
Poultry Workshop, May 21, 2010, Alabama A&M University Normal,
Alabama, available at https://youtu.be/8CvEGyMQ9v8?t=3135 (in which
poultry growers described how companies seemingly arbitrary mandated
expensive upgrades).
\80\ Fehr, Ernst, and Simon G[auml]chter. ``Fairness and
retaliation: The economics of reciprocity.'' Journal of economic
perspectives 14, no. 3 (2000): 159-181.
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As discussed below in Section VII--Comment Analysis, in response to
the proposed rule, commenters expressed extensive agreement with the
need to establish prohibitions against retaliatory practices.
iii. Deceptive Practices
The Packers and Stockyards Act has long recognized that integrity
and honesty are vital to the marketing of livestock and, therefore, to
the efficiency with which these markets supply meat to the American
consumer.\81\ This rulemaking is a response, in part, to the range of
complaints lodged with USDA, Congress, and the media over the years
regarding inaccurate, incomplete, or otherwise false or misleading
statements, or omission of material information that affects decision-
making or access to markets by producers. These complaints reflect, in
part, changed industry contracting norms or a market environment where
the prevalent norms result in more acute harms to producers. For
example, packers and industry representatives have routinely indicated
that producers may choose the form of pricing mechanism for their
transactions. However, as cash-negotiated markets have declined,
producers have increasingly complained to USDA that they are not
provided such a choice, and are commonly given a take-it-or-leave-it
offer to buy their cattle off of a pricing formula provided by the
company.\82\ Producers have complained they have been told that packers
refuse to buy their cattle on the grounds they are not of sufficiently
high quality or that formula market arrangements are necessary to
incentivize such quality, when the cattle being offered were of no less
quality than those the packer procured under other marketing
arrangements.\83\
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\81\ See, e.g., Midwest Farmers v. United States, 64 F. Supp.
91, 95 (D. Minn. 1945); In re: Frosty Morn Meats, Inc., 7 B.R. 988,
1020 (M.D. Tenn. 1980).
\82\ Other Association or Non-Profit, ``Comment on AMS-FTPP-21-
0045: Inclusive Competitive and Market Integrity Under the Packers
and Stockyards Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.
\83\ C. Robert Taylor, ``Harvested Cattle, Slaughtered
Markets,'' April 27, 2022, 7-9, available at https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/.
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Poultry producers have complained to USDA over the years regarding
unfavorable provision of inputs made to certain producers despite
statements by live poultry dealers that there are no differences in
treatment. Producers have also complained to USDA of terminations,
suspensions, or reductions in flocks on pretexts--i.e., on the
provision of false or misleading information such as claims of animal
[[Page 16112]]
welfare contractual violations--when other reasons may exist for the
adverse actions, including the discrimination and retaliation noted
previously, or other unreasonable bases, such as a preference for
family or friends of the local agent of a live poultry dealer or for a
poultry grower connected to a senior executive of a live poultry
dealer.\84\ Contract termination puts the grower at severe risk of
significant economic loss. A production broiler house often has
significant long-term financial obligations. The potential loss
includes not only the loss of production income, but financing for
construction, which often comes from mortgages on the grower's farm or
family home. Pretextual cancellation may make even the sale or transfer
of the broiler production house impossible because purchasers may be
unable to determine whether the broiler houses have value.
---------------------------------------------------------------------------
\84\ Wheeler v. Pilgrim's Pride, 536 F.3d 455 (5th Cir. 2008);
United States Department of Justice, United States Department of
Agriculture, Public Workshops Exploring Competition in Agriculture:
Poultry Workshop May 21, 2010; Normal, Alabama, https://www.justice.gov/sites/default/files/atr/legacy/2010/11/04/alabama-agworkshop-transcript.pdf, last accessed 8/14/23.
---------------------------------------------------------------------------
As discussed in Section VII--Comment Analysis, comments underscored
the need to address deceptive practices in this rulemaking.
III. Authority
Congress enacted the Act to promote fairness, reasonableness, and
transparency in the marketplace by prohibiting practices that are
contrary to these goals. AMS is issuing these regulations under the
Act's provisions prohibiting undue prejudice, unjust discrimination,
and deception to provide for clearer, more effective standards to
govern the modern marketplace and to better protect, through compliance
and enforcement, individually harmed producers.
Enacted in 1921 ``to comprehensively regulate packers, stockyards,
marketing agents and dealers,'' \85\ the Act, among other things,
prohibits actions that hinder integrity and competition in the
livestock and poultry markets. Section 202(a) of the Act states that it
is unlawful for any packer, swine contractor, or live poultry dealer to
engage in or use any unfair, unjustly discriminatory, or deceptive
practice or device.\86\ Section 202(b) of the Act states that it is
unlawful for any packer, swine contractor, or live poultry dealer to
make or give any undue or unreasonable preference or advantage to any
particular person or locality, or subject any particular person or
locality to any undue or unreasonable prejudice or disadvantage in any
respect.
---------------------------------------------------------------------------
\85\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498
F.2d 925, 927 (10th Cir. 1974).
\86\ 7 U.S.C. 192(a).
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Section 407 of the Act provides that the Secretary ``may make such
rules, regulations, and orders as may be necessary to carry out the
provisions of this [Act].'' (7 U.S.C. 228(a)) The Secretary has
delegated the responsibility for administering the 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 CFR. Therefore, based on the authority
delegated to USDA by Congress to administer the Act, AMS is
promulgating this rulemaking to amend part 201 to specifically clarify
that discriminatory, deceptive, and retaliatory conduct, as defined in
this rule, are violations of the Act.
Executive Order (E.O.) 14036, ``Promoting Competition in the
American Economy'' (86 FR 36987, July 9, 2021), directs the Secretary
to further the vigorous implementation of the Act. Accordingly, this
final rule addresses the unfair treatment of farmers and improves
competitive conditions in markets. This rule adds clarity to USDA's
regulations concerning unjustly discriminatory practices, deceptive
practices, and undue or unreasonable prejudices or disadvantages. E.O.
14036 underscored that ``it is unnecessary under the... Act to
demonstrate industry-wide harm to establish a violation of the Act and
that the `unfair, unjustly discriminatory, or deceptive' treatment of
one farmer'' violates the Act. Among other policy goals in the E.O.,
this final rule is specifically intended to address the unfair
treatment of farmers and make it easier for them to garner the full
value of their animals. The Act is a remedial statute enacted to
address problems faced by farmers, producers, and other participants in
the markets for livestock, meats, meat food products, livestock
products in unmanufactured form, poultry, and live poultry; to protect
the public from predatory practices; and to help ensure a stable food
supply. Thus, as academics and courts have noted, the Act has ``tort-
like provisions that are concerned with unfair practices and
discrimination'' that fulfill a ``market facilitating function,'' which
Congress designed to prevent ``market abuse.'' \87\ AMS interprets and
implements the Act to achieve its core statutory purposes.\88\
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\87\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862 (``subsections (a) and (b) appear to be tort-like provisions
that are concerned with unfair practices and discrimination, but not
with restraint of trade or monopoly as such''); Peter Carstensen,
The Packers and Stockyards Act: A History of Failure to Date, CPI
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that
the practices of buyers and sellers in livestock (and later poultry)
markets were fair, reasonable, and transparent. This goal can best
be described as market facilitating regulation.''); Michael C. Stumo
& Douglas J. O'Brien, Antitrust Unfairness vs. Equitable Unfairness
in Farmer/Meat Packer Relationships, 8 Drake J. Agric. L. 91 (2003);
Michael Kades, ``Protecting livestock producers and chicken
growers,'' Washington Center for Equitable Growth (May 2022),
https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Section 202's prohibitions on
unjust discrimination and undue preference are not limited to
conduct that destroys or limits competition or creates a monopoly.
These provisions address conduct that impedes a well-functioning
market and deprives livestock and poultry producers of the true
value of their animals. Taken together, these provisions seek to
prevent market abuses.'').
\88\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th
Cir. 1966).
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IV. Summary of the Proposed Rule
In the October 2022 proposal, AMS proposed amending 9 CFR 201 by
adding a new subpart O, titled ``Competition and Market Integrity,''
and containing Sec. Sec. 201.300 through 201.390. AMS proposed adding
a Definitions section, Sec. 201.302, containing the terms covered
producer, livestock producer, market vulnerable individual, and
regulated entity.
AMS also proposed adding Sec. 201.304, titled ``Undue prejudices
or disadvantages and unjust discriminatory practices,'' to prohibit
regulated entities from discriminating against a market vulnerable
individual or a cooperative, detailing in proposed paragraph (a) types
of prohibited actions. Paragraph (b) of the proposed regulation would
prohibit regulated entities from retaliating against a covered producer
because of the covered producer's participation in a producer
association, protected activities, including assertion of rights under
the Act, and lawful communication. Proposed paragraph (b) also provided
examples of prohibited retaliatory actions. Proposed paragraph (c)
included a requirement that regulated entities retain records of
compliance with paragraphs (a) and (b) for no less than five years from
the date of record creation.
AMS also proposed adding Sec. 201.306, titled ``Deceptive
practices,'' prohibiting a regulated entity from employing a false or
misleading statement or omission of material information necessary to
make a statement not false or misleading during contract formation,
[[Page 16113]]
performance, and termination. Section 201.306 also proposed to prohibit
a regulated entity from providing false or misleading information
concerning a refusal to contract. The proposal was designed to prohibit
regulated entities from specified deceptive practices in contracting,
which are of particular concern because of the power of the regulated
entities over their vertical contracting relationships. As stated in
the proposal, AMS intended this proposed regulation to address broad
areas of specific concern, not exhaustively identify all deceptive
practices that would violate sec. 202(a) of the Act.
Finally, AMS proposed adding Sec. 201.390, titled
``Severability.'' This provision was intended to inform reviewing
courts that if any provision of subpart O was declared invalid, or if
the applicability of any of its provisions, or any components of any
provisions, to any person or circumstances was held invalid, the
validity of the remaining provisions of subpart O or their
applicability to other persons or circumstances would not be affected.
Severability provisions are typical in modern AMS regulations. AMS
regulations often cover several different topics in a subpart. This
provision was added because the regulations in subpart O are designed
to address several different types of violations under the Act. Because
these violations address similar underlying developments in the
livestock and poultry markets--namely, abusive practices facilitated by
increased vertical integration and horizontal concentration--these
violations were suitable for joining in a single rulemaking. However,
each could be viewed as its own stand-alone rulemaking and therefore
should be severable.
Upon consideration of public comments on the proposed rule, AMS
modified some of its proposed provisions to derive this final rule.
These changes are outlined below.
V. Changes From the Proposed Rule
AMS is making the following changes to the proposed rule based on
the agency's analysis of the issues raised by commenters.
A. Market Vulnerable Individual (MVI) to Prohibited Bases
With respect to the proposed regulations regarding undue prejudice
and unjust discrimination, Sec. 201.304, several commenters expressed
concern that the definition of ``market vulnerable individual (MVI)''
as the basis for prohibiting undue prejudice and discrimination was too
broad and ambiguous and could lead to an avalanche of litigation. To
simplify this section, the final rule uses a delineated set of
protected bases against undue prejudice and discrimination that were
discussed in the proposed rule: race, color, national origin, religion,
sex, sexual orientation, gender identity, age, disability, and marital
status. These delineated bases reflect the Statement of General Policy
Under the Packers and Stockyards Act published by USDA in 1968 (9 CFR
203.12(f)) and USDA's Conducted Programs Statement, and reflect a
general congressional policy as indicated in other statutory sources
(discussed below).\89\ The final rule retains status as a cooperative
as a protected basis against undue prejudice and discrimination, which
reflects the principles set forth in the Agricultural Fair Practices
Act of 1967.\90\ (For the avoidance of doubt, AMS notes that
discrimination against a member of a cooperative is prohibited under
the provisions of paragraph (b)(2)(iii).) Accordingly, AMS has removed
the term market vulnerable individual from the list of terms defined
for subpart O in Sec. 201.302.
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\89\ 7 CFR 15d.3; U.S. Department of Agriculture,
``Nondiscrimination in Programs or Activities Conducted by the
United States Department of Agriculture,'' 79 FR 41406, July 16,
2014.
\90\ Public Law 90-288.
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AMS is adopting the aforementioned specific bases, as opposed to
MVI, because the specific prohibited bases offer clearer, more workable
standards to achieve the same goal set forth and specifically
articulated in the proposed rule, but in a manner that will facilitate
compliance by regulated entities and better enable producers to
exercise their rights under the Act. As AMS explained in the proposed
rule, the principal purpose of the MVI approach was to address
prejudices in the marketplace against producers that are more
vulnerable to such treatment and to stop unjust discrimination. AMS
views vulnerability to adverse marketplace treatment to include, but
not be limited to, exclusion or disadvantage on the basis of race,
color, religion, national origin, sex (including sexual orientation and
gender identity), disability, marital status, or age, or on the basis
of the covered producer's status as a cooperative. AMS initially
adopted the MVI approach because it believed that the proposed rule's
flexible approach to resolving marketplace vulnerabilities offered
producers protection in an ever-evolving market. The proposed approach
had the advantage of being responsive to the particular facts of given
cases and particular markets over time.
As part of the rulemaking process, however, AMS sought comment on
whether this was the best approach. AMS requested comment on whether it
should ``delineate specific categories of vulnerable producers on the
basis of membership in groups that have historically been subject to
adverse treatment owing to racial, ethnic, gender, or religious
prejudices.'' (87 FR 60010, Oct. 3, 2022) AMS also sought comment on
``whether this regulation should ban discrimination against specific
classes, such as on the basis of race, color, national origin,
religion, sex, sexual orientation, gender identity, age, disability,
marital status, or family status. Such an approach would differ from
the market vulnerable individual approach and would instead more
closely follow the civil rights laws that prohibit prejudicial
discrimination against certain protected classes.''
After considering the comments on both the MVI approach and on
specific delineated bases, AMS determined that MVI is not sufficiently
clear enough to meet the objectives of this regulation. The enumeration
of specific prohibited bases provides more clarity and certainty by
limiting the scope of the rule to prohibited adverse actions against
all producers on the basis of their membership of a protected class, in
line with existing civil rights requirements. Commenters, such as a
meat industry trade association, a poultry industry trade association,
and a live poultry dealer, criticized the proposed rule's MVI
definition for being vague and ambiguous and potentially exposing their
businesses to an unworkable standard that could potentially encompass a
wide range of covered producers far beyond what the Agency appeared to
be contemplating in the proposed rule. In contrast, these commenters
indicated that an approach based on specific classes, such as race,
sex, sexual orientation, or religion, would be clearer and would follow
the precedent of civil rights laws already in place while protecting
all producers.\91\
[[Page 16114]]
Several meat and poultry industry commenters who opposed use of the MVI
approach stressed that they do not engage in discrimination on the
specific bases set forth in this final rule and oppose such
discrimination.\92\
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\91\ See, e.g., ``Comment on AMS-FTPP-21-0045: Inclusive
Competitive and Market Integrity Under the Packers and Stockyards
Act'' (received Jan. 17, 2023), available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; ``Comment on AMS-
FTPP-21-0045: Inclusive Competitive and Market Integrity Under the
Packers and Stockyards Act'' (received Jan. 17, 2023), available at
https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; ``Comment on AMS-
FTPP-21-0045: Inclusive Competitive and Market Integrity Under the
Packers and Stockyards Act'' (received Jan. 17, 2023), available at
https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419.
\92\ See, e.g., National Cattlemen's Beef Association, ``Comment
on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity
Under the Packers and Stockyards Act'' (received Jan. 17, 2023),
available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418 (Deception, discrimination, or retaliation on the basis of
race, ethnicity, sexual orientation, gender identity, ability,
religion/spirituality, nationality and/or socioeconomic status is
reprehensible and should be remediated using the appropriate legal
avenues, including legislative changes where necessary).)
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Multiple agricultural advocacy organizations also expressed
approval of these protected classes as the prohibited bases for
discrimination when responding to the proposed rule's solicitation of
responses on this issue, saying discrimination against individuals in
these groups should be clearly recognized so those individuals do not
have to continually prove discrimination and prejudice against them
based on the characteristic that makes them vulnerable in the market.
AMS agrees that the bases adopted in the final rule reflect genuine
vulnerability to market exclusion and have no competitive benefit.
AMS also notes that some commenters interpreted the MVI approach as
potentially providing protection to small producers on the basis that
small producers were vulnerable to discrimination in the form of the
same kinds of adverse treatment proposed to be prohibited in this rule.
While AMS is sympathetic to the plight of small producers' challenges
in accessing fair markets, AMS did not intend this rule to address
those concerns (as also discussed below in Section VII--Comment
Analysis). Basing the rule on a term that gave rise to such disparate
interpretations underlined the necessity of utilizing the more specific
bases set forth in the proposed rule's alternative formulation.
Additionally, AMS notes that these prohibited bases are now widely
accepted standards of non-discrimination at USDA and in the U.S.
economy more broadly. AMS adopted many of these as part of its 1968
Statement of General Policy.\93\ Together with the Agricultural Fair
Practices Act of 1967, these bases also apply to AMS enforcement of the
Equal Credit Opportunity Act (ECOA) under the Act, to USDA programs
through its Conducted Programs Statement, and, more recently, to the
terms of USDA's debt relief under section 22007 of the Inflation
Reduction Act.\94\ The terms are also widely accepted bases in other
laws that prohibit discrimination, such as in housing and
employment.\95\ The prohibited bases defined in the final rule have
become so widely accepted as prohibited bases of discrimination that it
would be notable and arbitrary for the Agency to pick some of the terms
and not others. Quite simply, ``unjust discrimination'' and ``undue
prejudices'' cannot be read but to include these widely accepted non-
discrimination terms.
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\93\ 9 CFR 203.12(f).
\94\ USDA, Discrimination Financial Assistance Program,
``Eligibility,'' https://22007apply.gov/eligibility.html (last
accessed Oct. 2023) (``This program covers discrimination based on
different treatment you experienced because of: Race, color, or
national origin/ethnicity (including status as a member of an Indian
Tribe); Sex, sexual orientation, or gender identity; Religion; Age;
Marital status; Disability; Reprisal/retaliation for prior civil
rights activity'').'')
\95\ See, generally, DOJ, Civil Rights Division. The Attorney
General's Annual Report to Congress on Fair Lending Enforcement
(2021), available at https://www.justice.gov/d9/pages/attachments/2022/11/14/ecoa_report_2021_final_0.pdf (In 2001 to 2021, there were
496 fair lending referrals to DOJ, of which 163 were on the basis of
race and national origin. Other noted referrals, and then cases, in
2019 and 2020 were discrimination based on age and gender.)
---------------------------------------------------------------------------
Accordingly, to achieve the same goal that the Agency set forth in
the proposed rule through both MVI and the alternative formulation, AMS
is now adopting the alternative formulation: race, color, religion,
national origin, sex (including sexual orientation and gender
identity), disability, marital status, or age of the covered producer;
or because of the covered producer's status as a cooperative.
B. Prohibited Actions Taken on a Prejudicial Basis
In Sec. 201.304(a)(2), AMS made three changes to the provisions
regarding prohibited actions taken on a prejudicial basis. First, in
paragraphs (a)(2)(i) through (iii), AMS proposed to prohibit offering
contracts that are less favorable than those generally or ordinarily
offered, refusing to deal, and differential contract performance or
enforcement, when each occurred on a prohibited basis. AMS is revising
each of these provisions to provide clarity and uniformity across this
final rule with respect to a comparison to similarly situated producers
and also to ensure parallel language with the retaliation adverse
actions under Sec. 201.304(b)(3). Paragraph (a)(2)(i) is revised to
read ``Offering contract terms that are less favorable than those
generally or ordinarily offered to similarly situated producers;
paragraph (a)(2)(ii) is revised to read ``Refusing to deal with a
covered producer on terms generally or ordinarily offered to similarly
situated covered producers''; and paragraph (a)(2)(iii) in the final
rule is revised to read ``performing under or enforcing a contract
differently than with similarly situated covered producers'' [emphasis
added]. ``Similarly situated,'' is a phrase commonly used by commenters
and by AMS in the proposed rule when discussing producer groups.\96\
Including this concept in the final regulation provides more context
for a comparison of what differential performance or enforcement would
look like, and therefore provides more specificity to the regulation.
This revision also mirrors a revision made to language in a similar
provision in the retaliation section (Sec. 201.304(b)(3)(ii) and
(iv)). The addition of ``with a covered producer'' in paragraph
(a)(2)(ii)--Refusal to deal, is similarly designed to align with the
parallel provision for paragraph (b)(3)(iv) as was set out in the
proposed rule and retained in the final rule. The final rule adds ``on
terms generally or ordinarily offered to similarly situated producers''
as well, in response to comments (as discussed below) to provide
similar clarity of application that refusal to deal is not simply an
absolute boycott or making a sham or nominal offer, but includes
failure to bid, negotiate, and otherwise make a reasonable attempt to
contract on terms generally or ordinarily offered to similarly situated
producers when done on the prohibited basis.
---------------------------------------------------------------------------
\96\ See also Central Railroad Co. of New Jersey v. United
States, 257 U.S. 247 (1921) (``They can be held jointly and
severally responsible for unjust discrimination only if each carrier
has participated in some way in that which causes the unjust
discrimination, as where a lower joint rate is given to one locality
than to another similarly situated'').
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Second, AMS is adding a new paragraph (a)(2)(iv), which prohibits--
when it occurs on a prohibited basis--``requiring a contract
modification or renewal on terms less favorable than similarly situated
covered producers.'' \97\ The new provision expands on the concept
encompassed in paragraph (a)(2)(i), which prohibits ``offering contract
terms that are less favorable than those generally or ordinarily
offered to similarly situated covered producers.'' The new provision
prohibits regulated entities from making contract terms less favorable
for producers once they are under contract and have incurred financial
obligations because of that contract. The new provision mirrors a new
provision
[[Page 16115]]
added to the retaliation section (Sec. 201.304(b)(3)(iii)) in response
to public comment on the proposed retaliation regulations. AMS also
uses a similar approach in the retaliation section on refusing to deal
(Sec. 201.304(b)(3)(iv)), as requested by public commenters, by adding
``with a covered producer on terms generally or ordinarily offered to
similarly situated covered producers'' after ``deal,'' for the same
reasons--this language helps prevent evasion. Commenters requested that
AMS provide more protection so that regulated entities cannot formulate
new ways of harming producers in contracting--a crucial component of a
producer's financial well-being. Commenters suggested an additional
provision regarding specific contract terms, including contract
modification, be added to the regulations. While AMS did not adopt the
suggested provision in whole, AMS recognizes the importance of
specifically prohibiting unfavorable contract modifications or renewals
that occur on a prohibited basis, considering the detrimental financial
impact this can have on producers already under contract. In making
these changes, the final rule provides a greater degree of specificity
regarding the type of conduct the rule prohibits. AMS will review the
facts and circumstances of each case and the regulated entity's
justifications for any modification or renewal to determine whether the
regulated entity has violated this rule.
---------------------------------------------------------------------------
\97\ Proposed paragraph (a)(2)(iv), which prohibited termination
or non-renewal of a contract on a prohibited basis, is renumbered in
the final rule as paragraph (a)(2)(v).
---------------------------------------------------------------------------
Third, AMS is adding a new paragraph (a)(2)(vi), which prohibits
regulated entities from taking ``any other action that a reasonable
covered producer would find materially adverse.'' This provision
represents a logical outgrowth from the proposed rule, which had
indicated that the ``prejudice or disadvantage with respect to
paragraph (a)(1) of this section includes the following actions.'' As
AMS explained in the proposed rule, AMS believes that the type of harm
to a producer will not be difficult to identify when it occurs based
upon the facts and circumstances, and thus provided an exemplary list
to aid in identification and enforcement under the rule. Such a list
was not intended to be all encompassing. However, in response to
comments, AMS has recognized that such an open-ended approach may
create too much uncertainty and undermine compliance and enforcement.
AMS is replacing the use of ``includes'' with an additional, more
flexible provision that provides a broader yet not unlimited range of
possible harms. AMS's approach is in response to comments that adverse
treatment of producers by regulated entities can occur outside the
confines of the contractual relationship. Such conduct could include,
for example, interference by a regulated entity into regulatory matters
of significant material importance to producers. Several public
commenters wanted more producer protections incorporated into Sec.
201.304(a)(2). This provision provides a broad and flexible approach to
these prohibitions and allows for ``material'' to be determined by the
facts and circumstances of each case while staying within the scope of
the proposed rule's intent around harms to producers under unjust
discrimination and undue prejudice deriving from adverse actions.
C. Exceptions to the Prohibited Bases
Commenters suggested that AMS include exceptions to the prohibition
on undue prejudice and unjust discrimination. In response to these
comments and the shift from MVI to identifying specific prohibited
bases, AMS decided to provide specific exceptions from the prohibition
in two circumstances. New Sec. 201.304(a)(3) states that the following
actions by a regulated entity do not prejudice, disadvantage, inhibit
market access, or constitute adverse action under Sec. 201.304(a)(1):
(i) fulfilling a religious commitment relating to livestock, meats,
meat food products, livestock products in unmanufactured form, or live
poultry; (ii) a Federally-recognized Tribe, including its wholly or
majority-owned entities, corporations, or Tribal organizations,
performing its Tribal governmental functions.
In shifting from MVI toward specific prohibited bases, AMS
identified the need to provide certain exceptions from the prohibition.
The proposed MVI was a flexible standard that permitted the Agency to
evaluate the facts and circumstances of a particular case and whether
the exclusion or disadvantageous contracting arrangement was based on
the characteristics of the producer. Specifying delineated prohibited
bases provides greater clarity, yet in doing so, it eliminates a degree
of flexibility that could be valuable in a small set of circumstances.
Accordingly, the Agency is adopting two specific exceptions to
recognize circumstances that do not give rise to unjust discrimination.
AMS asked questions about both areas in the proposed rule, highlighting
to commenters that the Agency recognized the potential for additional
adjustments to be made in those areas.
First, AMS is providing a specific exception to recognize the
important role ritual slaughter plays in certain religious traditions
and ensure that religiously significant meats--such as kosher, halal,
and Amish meats--are not impacted by the rule's prohibition on
discrimination on the basis of the producer's religion. According to
AMS subject matter experts, halal slaughterers, for example, express a
legitimate, religiously grounded preference for livestock and poultry
raised by operators of faith, e.g., the Muslim or the Amish Christian
group, that maintain particular animal husbandry practices. In adopting
its prohibition on prejudice on the basis of religion, AMS is
principally focused on access to the broad livestock markets for
persons where religion has no legitimate business purpose. In contrast,
where religion is relevant to the livestock and meat itself, AMS is not
seeking to disturb the religiously based determinations in what is a
relatively discrete market segment. Therefore, when administering the
Act, AMS must allow discriminatory conduct directed toward fulfilling
religious commitments surrounding livestock care and meat production.
To ensure clarity in its application, this rule respects
longstanding jurisprudence surrounding Tribal sovereignty and the
political relationship that a Tribe has with its members that secures
the right for Tribal entities to preference Tribal members. To ensure
that it is not read in contradiction with existing jurisprudence, the
rule explicitly specifies that Tribal governments can engage in
practices related to livestock, poultry, and meats with respect to non-
Tribal entities or non-Tribal descendants. The prohibition on
discrimination on the basis of race or color would be read to protect a
person from discrimination for being of Native American descent, but
not on preferential treatment given to Tribal members based on their
political classification. This matter was specifically raised by, and
is responsive to, Tribal governments during the Tribal consultation
that AMS conducted and is described below under ``VII.C.--Executive
Order 13175--Consultation and Coordination with Indian Tribal
Governments.''
AMS recognizes that this rulemaking cannot foresee the range of
unique or extenuating circumstances that may present in agricultural
markets. Commenters stated that rapidly changing livestock and poultry
markets may require an exception to the prohibition against undue
prejudice or disadvantage on a protected basis. However, AMS did not
identify, from the comments or based on its
[[Page 16116]]
experience, any other specific circumstances in the livestock and
poultry industries where a prejudice against a producer on a prohibited
basis was justified under the Act. To the extent that unforeseen
circumstances could arise that would justify creating the need to allow
for additional exceptions to this rule, AMS believes that those
circumstances are likely to be rare and tailored to narrow
circumstances. Accordingly, AMS believes that prosecutorial discretion
will provide it with adequate flexibility to offer relief on a case-by-
case basis. Of course, if following implementation of this rule it
becomes evident that additional exceptions should exist in regulation,
AMS may amend this regulation through the ordinary rulemaking process.
D. Retaliation Provisions
AMS proposed in Sec. 201.304(b)(1) to prohibit retaliation against
a covered producer that occurs because of the covered producer's
participation in protected activities ``to the extent that these
activities are not otherwise prohibited by Federal or state law,
including antitrust laws.'' In the final rule, AMS modified the
language of this provision to move the exception for Federal or State
law, including antitrust laws, to paragraph (b)(2) and to add Tribal
law to the types of law identified in this exception. AMS is adding
this language to make explicit the applicability of Tribal law in this
circumstance. Additionally, AMS changed ``because of'' to ``based
upon'' both in response to comments and to align with its approach in
Sec. 201.304(a) and embodied in Sec. 201.304(c). AMS proposed ``based
upon'' in Sec. 201.304(a) and ``by employing'' in Sec. 201.304(c) to
capture actions where the prohibited bases form a material part of the
action--discrimination or prejudice, or as part of the deceptive
practice. Section 201.304(b) is designed to achieve the same goal. AMS
also received comments recommending broad protections for covered
producers from retaliatory actions, including where the retaliation was
a part of the decision to take an adverse action. AMS further
underscores that ``based upon the covered producer's participation in
an activity . . .'' covers threats that would reasonably dissuade or
chill a covered producer from participating in the activities.
Under proposed Sec. 201.304(b)(2)(i), AMS proposed to establish as
a protected activity a producer's communication with a government
agency on matters related to livestock, meats, or live poultry or
petitions for redress of grievances before a court, legislature, or
government agency. Commenters requested that AMS clarify that this
protection covers communication with any sector or level of government,
including State governments. AMS intends for this regulation to include
protections for communications with any level of government, including
any government committee or official. In this final rule, AMS is
aligning the use of the terms ``court, legislature, or government
agency'' and simplifying the language to say, ``government entity or
official.'' This change ensures that protected communications may occur
with any of the three branches of government, any level of government,
and with individual government officials, including committees and
members of a legislature.
AMS requested public comment on whether the final rule should
protect producers who choose not to participate in protected
activities. In response to public comment supporting this proposal, AMS
has revised Sec. 201.304(b)(2)(ii) to protect a producer's right to
refuse a regulated entity's request to engage in communication with a
government entity or official that is not required by law, and Sec.
201.304(b)(2)(iii) to protect a producer's right to form or join, or to
refuse to form or join, a producer or grower association or
organization. Proposed Sec. 201.304(b)(2)(ii), which protected a
producer's assertion of any of the rights granted under the Act or this
part, or assertion of contract rights, is renumbered as paragraph
(b)(2)(vii) in the final rule.
AMS proposed in Sec. 201.304(b)(2)(v) to protect producer
communication or negotiation with a regulated entity for the purpose of
exploring a business relationship. In response to public comment, AMS
added in the final rule protection for communicating; negotiating; or
contracting with a regulated entity, another covered producer, or with
a commercial entity or consultant; for the purposes of exploring or
entering into a business relationship. Commenters asserted that, as
proposed, the protected activity was ``unreasonably narrow'' and that
expanding this protection would ``help ensure that covered producers
may explore all their business opportunities.'' \98\ The Act is
intended to ensure an inclusive market to protect and promote the
ability for covered producers to compete.\99\ Such competition may also
take the form of exploring or entering into opportunities for enhanced
price discovery through market intermediaries, such as listing cattle
for competitive bidding on a publicly transparent exchange or selling
at an auction barn or through a cooperative or other commercial entity
that facilitates the marketing of livestock by the covered producer.
The provision covers both the ability to negotiate or contract with the
commercial entity or consultant serving as an intermediary or other
facilitating the marketing or platform for marketing, such as the
exchange or auction barn; and also the ability to negotiate or contract
with other packers during the exchange or auction process. This is
protected because both elements may be necessary parts of securing
those opportunities to engage in price discovery and enhance the choice
and competitive opportunities for covered producers to earn the full
market value of their goods and services. The provision also covers
consideration of alternative uses for farm property. As with all
protected activities under this final rule, the regulated entity may
not present an obstacle to engaging in these activities, whether
written in a contract, verbally asserted, or otherwise, as those are
impermissible under the Act.
---------------------------------------------------------------------------
\98\ ``Comment on AMS-FTPP-21-0045: Inclusive Competition and
Market Integrity Under the Packers and Stockyards Act,'' available
at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.
\99\ See, e.g., U.S. Department of Justice, ``Justice Department
Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods
from Imposing Unfair and Anticompetitive Termination Penalties in
Contracts with Chicken Growers,'' Nov. 9, 2023, available at https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing.
---------------------------------------------------------------------------
Under proposed Sec. 201.304(b)(3), AMS identified types of
prohibited retaliatory conduct. Commenters expressed concern regarding
the lack of clarity of these proposed prohibitions, with some saying
the prohibitions were too broad, some arguing that the rule should
provide even more flexibility, and some supporting the introduction of
a ``catch-all clause'' to provide additional protection against
retaliatory behavior. The final rule adds language to paragraph
(b)(3)(ii) to prohibit performing under or enforcing a contract
differently than with similarly situated producers [emphasis added].
This language, ``similarly situated,'' was commonly used by commenters
and AMS in the proposed rule when discussing producer groups. The
addition of ``similarly situated'' language provides greater
specificity regarding the scope of the regulation by providing more
context for a comparison of what differential
[[Page 16117]]
performance or enforcement would look like.
The final rule also revises the provision prohibiting a regulated
entity from refusing to deal with a covered producer by adding the
language, ``on terms generally or ordinarily offered to similarly
situated covered producers'' (paragraph (b)(3)(iv) in the final rule).
In response to comments, AMS agrees that the rule as proposed provided
too great a latitude for a regulated entity to engage in retaliation
because a regulated entity could, for example, satisfy the proposed
rule by simply offering highly unfavorable terms to the covered
producer. AMS believes that this revision provides broader coverage
regarding the most common circumstances that producers may encounter in
their business dealings in which regulated entities may attempt to
exact retaliation. It would also cover circumstances where the
``similarly situated producer'' was the covered producer's own prior
status quo circumstance with the regulated entity before the covered
producer engaged in the protected activity. AMS is also aligning
refusal to deal under paragraph (a)(2)(ii) to address the similar risk
of evasion.
Similarly, commenters requested that AMS add a regulation regarding
contract modification, or contract renewal. AMS has amended proposed
Sec. 201.304(b)(3) to add a new paragraph (b)(3)(iii) to clarify that
requiring a contract modification or a renewal on terms less favorable
than for similarly situated producers is covered.\100\ This provision
covers any adverse change to the covered producer's contract terms if
they are done in retaliation to a producer's engaging in protected
activities. Additionally, in response to comments requesting AMS
clarify that prohibited adverse actions ``includes but is not limited
to'' the list in proposed Sec. 201.304(b)(3), AMS has added a new
paragraph (b)(3)(vi) to prohibit ``any other action that a reasonable
covered producer would find materially adverse.'' AMS designed this
rule to protect producers broadly from adverse actions based upon the
rule's prohibitions. The regulatory text of the proposed rule set forth
an exemplary list, specifically denoting that ``retaliation includes
the following actions'' (paragraph (b)(2). Several public commenters
wanted more producer protections, such as discriminatory conduct
against producers by regulated entities through means outside of
contractual devices. AMS agrees that adverse, retaliatory treatment of
producers by regulated entities can occur through a wide range of
means, including outside the confines of contractual devices, or
through contractual means that are not easily delineated in a specific
list. Such conduct could, for example, include interference by a
regulated entity into regulatory matters of significant material
importance to producers. Based on AMS's regulatory experience,
regulated entities may interfere in covered producers' water rights,
which are exemplary of harms that would be considered retaliation even
if they occur outside the confines of contractual relationships. Or,
conduct could include retaliation during the contracting process for
protected activities that occurred prior to the covered producer's
attempt to form a business relationship with the regulated entity. Such
examples might not be clearly covered under Sec. Sec. 201.304(b)(3)(i)
through (v) of the proposed rule's protections relating to contracts
but were covered within the scope of the proposed rule's intent around
broad-ranging adverse actions that harm producers. AMS also intends the
list of retaliatory activities to be broad enough to capture the
fullest range of materially adverse harms encompassed under unjust
discrimination and undue prejudice--including in comparison to either
their prior circumstances or to similarly situated producers--and
threats of such harms that are designed to deter or punish producers
from participating in the activities protected by this final rule.
Therefore, Sec. 201.304 (b)(3)(vi) has been added to the final rule to
cover other types of adverse treatment. This provision provides a broad
and flexible approach to these prohibitions and allows for ``material''
to be determined by the facts and circumstances of each case.
---------------------------------------------------------------------------
\100\ Proposed paragraphs (b)(3)(iii) and (iv) are accordingly
renumbered as paragraphs (b)(3)(iv) and (v) in the final rule.
---------------------------------------------------------------------------
In making these changes, the final rule provides a greater degree
of specificity regarding the type of conduct the rule prohibits. AMS is
not, however, providing the degree of specificity requested by
commenters regarding unfavorable contract terms because it is
impractical to name every action a malicious actor could use to
retaliate against a producer, and providing this level of detail is not
necessary to enforce the rule.
E. Technical Changes
AMS made editorial changes to the text of several proposed
regulations to improve clarity and readability. For instance, in the
definition of livestock producer, AMS revised the proposed definition
by removing multiple prepositions, so that the definition in the final
rule reads more simply: from ``Livestock producer means any person
engaged in the raising and caring for livestock by the producer or
another person, whether the livestock is owned by the producer or by
another person, but not an employee of the owner of the livestock'' to
``Livestock producer means any person, except an employee of the
livestock owner, engaged in the raising of and caring for livestock.''
Additionally, AMS revised the syntax of several proposed regulations.
For example, in Sec. 201.304(b)(3)(i), which lists prohibited
retaliatory actions, AMS revised the phrasing of the prohibition from
``Termination of contracts or non-renewal of contracts'' to
``Terminating or not renewing a contract'' to place emphasis on the
action being prohibited rather than the subject of that action.
AMS also made several non-substantive clarifying changes to the
wording of prohibited contractual deceptive practices in paragraphs (b)
and (c) of Sec. 201.306--Deceptive practices. These changes are
identical under contract formation, performance, and termination and
include the removal of the phrase ``pretext'' and ``fact'' and the
inclusion of the term ``information'' in place of ``fact.'' The term
``pretext'' was removed because it is not needed to accomplish the
objectives of Sec. 201.306. The conduct this rule aims to prohibit is
more directly defined through use of the following language: ``false or
misleading statement or representation, or omission of material
information.'' By changing the term ``fact'' to ``information'' certain
conduct that may not be considered or defined as ``factual'' under the
Act, yet is still deceptive, will be covered.
Lastly, AMS made a technical change to the table of contents for
subpart O. To avoid confusion, AMS is including Sec. Sec. 201.303 and
201.305 in the table of contents as reserved sections to indicate the
gaps between Sec. Sec. 201.302, 304, and 306 are deliberate and that
sections have not been inadvertently omitted.
VI. Provisions of the Final Rule
Under the authority of the Act, this rule adds a new subpart O to
AMS's regulations in 9 CFR 201, titled ``Competition and Market
Integrity,'' and consisting of Sec. Sec. 201.300 through 201.390. This
section summarizes the substantive provisions of the new subpart.
A. Definitions (Sec. 201.302)
Section 201.302 defines three terms for subpart O: covered
producer, livestock producer, and regulated entity.
[[Page 16118]]
A covered producer is defined as a livestock producer (as defined in
Sec. 201.302) or swine production contract grower or poultry grower as
defined in section 2(a) of the P&S Act (7 U.S.C. 182(8), (14)). Under
section 2(a) of the Act, swine production contract grower means any
person engaged in the business of raising and caring for swine in
accordance with the instructions of another person. A live poultry
grower is defined under section 2(a) of the Act as 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. AMS is adopting this
definition to facilitate a focus in this rule on protecting livestock
producers (and other parties included in the definition of covered
producer) because the harms of discrimination, retaliation, and
deception that are addressed in this rule are directed toward and
experienced by those persons. Therefore, even though the Act does not
contain a definition for livestock producers, AMS has included
livestock producers under the definition of covered producer; and
provided a definition for the term livestock producer in this section.
Livestock producer is defined for the purposes of subpart O as
being any person, except an employee of the livestock owner, engaged in
the raising of and caring for livestock. AMS aligned its definition of
the term livestock producer with phrasing used in the Act for the terms
poultry grower and swine production contract grower. In response to
comment to the proposed rule, AMS revised its definition by removing
unnecessary and potentially confusing phrasing. Employees are
specifically excluded as they typically lack direct financial interest
in the livestock themselves.
AMS defines regulated entity as a swine contractor or live poultry
dealer as defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a
packer as defined in section 201 of the Act (7 U.S.C. 191). A swine
contractor is defined in the Act as any person engaged in the business
of obtaining swine under a swine production contract for the purpose of
slaughtering the swine or selling the 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. Live poultry dealers, the vast majority of whom are organized
in a vertical structure with common ownership interest in inputs, often
referred to as poultry integrators, are defined in the Act as 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, if poultry is
obtained by such person in commerce, or if poultry obtained by such
person is sold or shipped in commerce, or if poultry products from
poultry obtained by such person are sold or shipped in commerce. A
packer is defined in the Act as 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.
B. Undue Prejudice and Unjust Discrimination (Sec. 201.304(a))
Section 201.304(a) addresses the unique and often difficult to
prove discriminatory conduct that has long existed in the agricultural
sector by prohibiting specific bases of prejudicial action. Paragraph
(a) also lists prohibited actions taken on a prejudicial basis and
provides clarification on the types of actions that do not constitute
prohibited action taken on a prejudicial basis. In doing so, AMS is
clarifying the application of the Act, better empowering producers to
protect themselves, and encouraging companies to adopt more robust
compliance practices to snuff out conduct prohibited by the Act in its
incipiency, before it can distort markets in the aggregate. In
particular, this rule addresses the longstanding and often difficult to
counter forms of exclusion that have plagued the agricultural sector
for decades. AMS intends for this rule to support positive trends
toward inclusivity in the marketplace. Prejudices and disadvantages
based upon the producer's protected characteristics or status as a
producers' cooperative have no place in today's modern agricultural
markets.
The Act, through section 202(a) and (b), broadly prohibits certain
practices or devices, including undue or unreasonable prejudices and
disadvantages and unjust discrimination. Section 202(a) and (b) of the
Act identifies several prohibited actions with respect to livestock,
meats, meat food products, or livestock products in unmanufactured
form, or for any live poultry dealer with respect to live poultry. In
this rule, AMS is prohibiting specific undue and unreasonable
prejudices and disadvantages, and unjust discrimination against any
covered producer on the basis of certain categories of characteristics
or attributes broadly and firmly established as unjust in a modern
economy. This regulatory action implements Congress's intent, expressed
through the Act, to stop unjust discrimination and undue prejudice by
packers and live poultry dealers against livestock producers and
poultry growers.
In enacting the Act, Congress cast a wide net to capture all acts
of unjust discrimination and undue or unreasonable prejudice against
any particular person. There is no indication that Congress intended to
exempt any discriminatory conduct taken by regulated entities against
producers covered under the Act.\101\ The Act's prohibition of unjustly
discriminatory or unreasonably prejudicial actions against a particular
person was not a new statutory concept, as the Interstate Commerce Act
of 1887 (or ICA) also banned unreasonable prejudices and unjust
discriminatory practices well before the enactment of the Act. While
the ICA does not define the scope of the Act, the comparison is
nevertheless useful, especially with respect to the structure and
design of provisions governing undue prejudices. A comparison is
provided in Table 4 below.
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\101\ See 7 U.S.C. 193. C.f. Mitchell v. United States, 313 U.S.
80, 94 (1941).
---------------------------------------------------------------------------
In Mitchell v. United States,\102\ the Supreme Court of the United
States held that the ICA prohibited discrimination based on race; such
discrimination was ``essentially unjust.'' The Court held that ``it is
apparent from the legislative history of the ICA that not only was the
evil of discrimination the principal thing aimed at, but that there is
no basis for the contention that Congress intended to exempt any
discriminatory action or practice of interstate carriers affecting
interstate commerce which it had authority to reach.'' \103\ Further,
the Court isolated a section of the ICA and noted that, ``Paragraph 1
of Section 3 of the Act says explicitly that it shall be unlawful for
any common carrier subject to the Act `to subject any particular person
to any undue or unreasonable prejudice or disadvantage in any respect
whatsoever.' '' \104\ The Court found that unreasonable prejudice
against an individual based on race was a violation and concluded that,
``the Interstate Commerce Act expressly
[[Page 16119]]
extends its prohibitions to the subjecting of `any particular person'
to unreasonable discriminations.'' \105\
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\102\ 313 U.S. at 94.
\103\ Id. at 94.
\104\ Id. at 95 (emphasis added).
\105\ Id. at 97.
---------------------------------------------------------------------------
The Act contains similar, but broader, language than sec. 3 of the
ICA. Section 202 of the Act reads, ``It shall be unlawful for any
packer or swine contractor with respect to livestock, meats, meat food
products, or livestock products in unmanufactured form, or for any live
poultry dealer with respect to live poultry, to: (a) Engage in or use
any unfair, unjustly discriminatory, or deceptive practice or device;
or (b) Make or give any undue or unreasonable preference or advantage
to any particular person or locality in any respect, or subject any
particular person or locality to any undue or unreasonable prejudice or
disadvantage in any respect . . .'' [emphasis added]. Table 4
illustrates where the text between the two acts is similar, and also
how the Act is broader.\106\
---------------------------------------------------------------------------
\106\ For more on the relationship between the Interstate
Commerce Act and the Act in this area, see Michael Kades,
``Protecting Livestock Producers and Chicken Growers,'' Washington
Center for Equitable Growth, at 66 (May 2022) discussing Wheeler v.
Pilgrim's Pride Corp., 591 F.3d 355, 368-369 (5th Cir 2009) (en
banc) (J. Jones concurring): ``In all the cases discussed by the
concurrence dealing with both terms [under the ICA], the defendant
faced charges that it treated customers differently. According to
the court, `railway companies are only bound to give the same terms
to all persons alike under the same conditions.' If the conditions
are different, then different treatment is merited. Further,
`competition between rival routes is one of the matters which may
lawfully be considered in making rates.' Differential treatment
driven by competitive forces is not a violation. Acknowledging that
competition can justify differential treatment of customers is
different than requiring the plaintiff to prove anticompetitive harm
to establish a violation.''
\107\ Bolded text highlights where the ICC and Act use similar
language. Italicized text identifies areas where the language of
both statutes is the same.
[GRAPHIC] [TIFF OMITTED] TR06MR24.011
As shown in Table 4, unlike the ICA, the Act in secs. 202(a) and
(b) prohibits undue or unreasonable prejudices or disadvantages as well
as deception or unjust discrimination (without limitation to
discrimination in rates and charges in particular). In this rulemaking,
AMS applies the language from sec. 202 to prohibit acts of unreasonable
prejudice and to prevent unjust discrimination including, but not
limited to, the race discrimination that the Court found to be
violative of the ICA in Mitchell.
This rule sets forth specific prohibitions on prejudicial or
discriminatory acts or practices against individuals that are
sufficient to demonstrate violation of the Act without the need to
further establish broad-based, market-wide prejudicial or
discriminatory outcomes or harms. The prohibitions in this rule on
regulated entities adversely treating individual producers address the
types of harms the Act is intended to prevent. AMS finds that adverse
acts on these bases are essentially unjust and unduly prejudicial, and
actionable at the individual level. Moreover, AMS
[[Page 16120]]
believes that preventing broad-based exclusion, and therefore promoting
competitive markets, is most effectively enforced at the individual
producer level when the conduct is in its incipiency.\108\ To further
allow for effective enforcement of the statute, AMS is also including a
recordkeeping requirement to support evaluation of regulated entity
compliance.
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\108\ ``[T]he purpose of the Act is to halt unfair trade
practices in their incipiency, before harm has been suffered.'' See
Farrow v. U.S. Dep't of Agr., 760 F.2d 211, 215 (8th Cir. 1985)
(citing De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329,
1336-37 (9th Cir. 1980); Swift & Co. v. United States, 393 F.2d 247,
252 (7th Cir. 1968); Armour and Company v. United States, 402 F.2d
712, 723 n. 12 (7th Cir.1968).
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In determining the bases for protection against discrimination
under the Act, AMS drew insight initially from the Statement of General
Policy Under the Packers and Stockyards Act published by the Secretary
in 1968 (Statement of General Policy) (9 CFR 203.12(a)), which states
that the Act provides that all stockyard services furnished at a
stockyard ``shall be reasonable and nondiscriminatory and stockyard
services which are furnished shall not be refused on any basis that is
unreasonable or unjustly discriminatory.'' \109\ Additionally, AMS
interprets the Act consistently with the regulations governing USDA-
conducted programs; ECOA, which is enforced in part by AMS under the
Act; a series of statutes identifying producers that Congress has
determined face special disadvantages, are underserved, or are
otherwise more vulnerable to prejudices; and the Agricultural Fair
Practices Act (AFPA) of 1967.
---------------------------------------------------------------------------
\109\ Statement of General Policy Under the Packers and
Stockyards Act. U.S. Department of Agriculture: Washington, DC,
1968.
---------------------------------------------------------------------------
The Statement of General Policy reflects the current USDA policy on
the enforcement of the Act. The Statement of General Policy provides in
part that it is a violation of secs. 304, 307, and 312(a) of the Act
for a stockyard owner or market agency to discriminate, in the
furnishing of stockyard services or facilities or in establishing rules
or regulations at the stockyard, because of race, religion, color, or
national origin of those persons using the stockyard services or
facilities. Such services and facilities include, but are not limited
to, the restaurant, restrooms, drinking fountains, lounge
accommodations, those furnished for the selling, weighing, or other
handling of the livestock, and facilities for observing such services.
While this part of the Statement of General Policy applies to
violations of secs. 304, 307, and 312(a) of the Act (related to the
provision of services and facilities at stockyards on an unreasonable
and discriminatory basis), almost identical prohibitive language is
used in sec. 202 of the Act. Section 202 pertains to packers, swine
contractors, and live poultry dealers. Section 202(a) of the Act
prohibits any unjustly discriminatory practice or device with respect
to livestock, meats, meat food products or livestock products in
manufactured form, or live poultry.
AMS also considered USDA's general regulatory prohibition against
discrimination in USDA programs, which governs how USDA provides
services to producers. In 1964, USDA prohibited discrimination on the
basis of race, color, and national origin in its Federally conducted
activities by adopting Title VI principles.\110\ USDA then expanded the
protected bases for its conducted programs to include religion, sex,
age, marital status, familial status, sexual orientation, disability,
and whether any portion of a person's income is derived from public
assistance programs.\111\ Most recently updated in 2014, the general
regulatory prohibition offers a more current interpretation of
antidiscrimination standards.\112\ The 2014 rule aimed to ``strengthen
USDA's ability to ensure that all USDA customers receive fair and
consistent treatment, and align the regulations with USDA's civil
rights goals.'' \113\ The relevant provision provides that no agency,
officer, or employee of the USDA shall, on the grounds of race, color,
national origin, religion, sex, sexual orientation, disability, age,
marital status, family/parental status, income derived from a public
assistance program, political beliefs, or gender identity, exclude from
participation in, deny the benefits of, or subject to discrimination
any person in the United States under any program or activity conducted
by the USDA. In that rulemaking, USDA identified areas where
discrimination against a producer is an unacceptable denial of access
to USDA's services. This prior rulemaking provides a helpful reference
to what constitutes unjust discrimination under the Packers and
Stockyards Act.
---------------------------------------------------------------------------
\110\ https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (See 29 FR 16966, creating 7
CFR part 15, subpart b, referring to nondiscrimination in direct
USDA programs and activities, now found at 7 CFR part 15d).
(assessed 01-30-2024)
\111\ https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (assessed 01/30/2024)
\112\ 7 CFR 15d.3; U.S. Department of Agriculture,
``Nondiscrimination in Programs or Activities Conducted by the
United States Department of Agriculture,'' 79 FR 41406, July 16,
2014, available at https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (last
accessed 8/9/2022).
\113\ USDA. 2014. 7 CFR part 15d RIN 0503-AA52 Nondiscrimination
in Programs or Activities Conducted by the United States Department
of Agriculture, p. 41407. 2014-16325.pdf (govinfo.gov) (assessed 02/
01/2024).
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AMS interprets the Act in light of legislative mandates that
emerged over the last 30 years directing USDA to make extra efforts to
ensure that members of the aforementioned groups have equal access to
USDA's services and agricultural markets generally.\114\ Congress
adopted numerous statutes seeking to remedy market exclusion on the
basis of prejudices across a wide range of areas, including: 7 U.S.C.
8711 (base acres); 7 U.S.C. 2003 (target participation rates); 7 U.S.C.
7333 (Administration and operation of noninsured crop assistance
program); 7 U.S.C. 1932 (Assistance for rural entities); 16 U.S.C.
2202a, 3801, 3835, 3839aa-2, 3841, and 3844 (conservation); 7 U.S.C.
8111 (Biomass Crop Assistance Program); 7 U.S.C. 1508 (Federal crop
insurance, covering underserved producers defined as new, beginning,
and socially disadvantaged farmers or ranchers and including members of
an Indian Tribe); and 16 U.S.C. 3871e(d) (conservation, covering
historically underserved producers defined as being veteran, socially
disadvantaged, and limited-resource farmers and ranchers). In 25 U.S.C.
4301(a) and elsewhere, Congress has clearly expressed its intent for
the United States Government to encourage and foster Tribal commerce
and economic development.\115\
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\114\ For background, see Congressional Research Service,
Defining a Socially Disadvantaged Farmer or Rancher (SDFR): In Brief
(March 19, 2021), available at https://crsreports.congress.gov/product/pdf/R/R46727/6.
\115\ See, e.g., Native American Business Development Act, 25
U.S.C. 4301(a).
---------------------------------------------------------------------------
The definitions and coverage in these statutes vary to some extent.
Some focus principally on members of groups that have experienced
racial or ethnic prejudices, while others address gender prejudices.
Overall, these statutes and Congressional deliberations provide useful
reference for USDA to most effectively carry out the Act, which outlaws
undue prejudice against any person in any respect. For example, in the
congressional hearings preceding the Act's passage, opposing members
argued against the Act because producers were already protected by the
ICA, which guaranteed ``equal rights on the railroads to every man,
woman and
[[Page 16121]]
child,'' and the ``enforcement of the antitrust act . . . give[s] every
man a fair show.'' \116\ Most recently, Congress provided partial
compensation for producers who suffered discrimination in USDA's
programs, which USDA implemented on a set of protected bases similar to
that in this final regulation.\117\
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\116\ See e.g., 61 Cong. Rec. H1872 (1921).
\117\ Section 22007 of the Inflation Reduction Act (Pub. L. 117-
169). USDA implementation available at https://22007apply.gov/. This
program covers discrimination based on different treatment an
individual experienced because of race, color, or national origin/
ethnicity (including status as a member of an Indian Tribe); sex,
sexual orientation, or gender identity; religion; age; marital
status; disability; reprisal/retaliation for prior civil rights
activity.
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Additionally, in crafting the final rule, AMS was informed by the
provisions of two additional laws that fall under the enforcement of
USDA with respect to livestock and poultry. The first is ECOA. ECOA
prohibits a creditor from discriminating in the provision of credit on
the basis of race, color, religion, national origin, sex (which
includes sexual orientation and gender identity), marital status, or
age, because the applicant's income derives all or in part from a
public assistance program, or because the applicant has in good faith
exercised any right under ECOA.\118\ The Secretary enforces ECOA under
the Act, with respect to activities under the jurisdiction of the
Act.\119\
---------------------------------------------------------------------------
\118\ 15 U.S.C. 1691(a).
\119\ 15 U.S.C. 1691c.
---------------------------------------------------------------------------
Secondly, AFPA protects producers from retaliation by certain
market intermediaries, defined as handlers, for being members of a
cooperative or seeking to form a cooperative.\120\ The Secretary has
delegated enforcement of the AFPA to AMS, which implements the law
through the Packers and Stockyards Division. Congress has long
protected the rights of agricultural cooperatives, acknowledging their
important role in helping farmers meet the economic demands of the
market. One year after the passage of the Act, Congress passed the
Capper-Volstead Act (Pub. L. 67-146), which permits producer
cooperatives to collectively process, prepare for market, handle, and
market their products. In a decision related to an antitrust action
against a nonprofit cooperative association whose members were involved
in production and marketing of broiler chickens, the Supreme Court
noted that farmers faced special challenges in the agricultural market
and, therefore, cooperatives are afforded legal protections in helping
them address those challenges.\121\
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\120\ 7 U.S.C. 2301 et seq.
\121\ Nat'l Broiler Mktg. Ass'n v. United States, 436 U.S. 816,
825-26 (1978) (``Farmers were perceived to be in a particularly
harsh economic position. They were subject to the vagaries of market
conditions that plague agriculture generally, and they had no means
individually of responding to those conditions. Often the farmer had
little choice about who his buyer would be and when he would sell. A
large portion of an entire year's labor devoted to the production of
a crop could be lost if the farmer were forced to bring his harvest
to market at an unfavorable time. Few farmers, however, so long as
they could act only individually, had sufficient economic power to
wait out an unfavorable situation. Farmers were seen as being caught
in the hands of processors and distributors who, because of their
position in the market and their relative economic strength, were
able to take from the farmer a good share of whatever profits might
be available from agricultural production. By allowing farmers to
join together in cooperatives, Congress hoped to bolster their
market strength and to improve their ability to weather adverse
economic periods and to deal with processors and distributors.'').
---------------------------------------------------------------------------
AFPA provides enhanced protections to those seeking to form a
cooperative. In particular, that statute prevents handlers from
performing certain types of pricing and contract discrimination,
coercion, and other practices that undermine cooperatives. As noted
previously, the Act intended to improve the agricultural market and
includes associations in the definition of ``person'' when referred to
in the Act. The Act affords cooperative associations the same
protections against discrimination as are afforded to all other covered
producers.\122\ Thus, protections for cooperatives against
discrimination were contemplated at the time of the Act's passage.\123\
---------------------------------------------------------------------------
\122\ 7 U.S.C. 182(1).
\123\ H.Rep. No. 85-1048, 1957.
---------------------------------------------------------------------------
In interpreting the Act in light of the aforementioned policy
direction, AMS has sought to stamp out market exclusion on prohibited
bases. This final rule establishes a prohibition of undue prejudice or
unjust discrimination against covered producers on the bases of race,
color, religion, national origin, sex (including sexual orientation and
gender identity), disability, marital status, or age; or because of the
covered producer's status as a cooperative. Transitioning from the
proposed rule's use of the more flexible ``market vulnerable
individual'' to the more specific list of delineated terms, the final
rule interprets the Act consistent with the antidiscrimination mandates
in other related statutes, including the ECOA, which is already
enforced by AMS for markets subject to the Act,\124\ and the AFPA. AMS
also references the Equal Employment Opportunity Commission (EEOC)
definitions (described below) for clarification regarding which
characteristics a producer must possess to be considered a member of
one or more protected classes. It is appropriate for the Secretary to
consider these other authorities in effectuating the purposes of the
Act as they effect a similar purpose to this final rule.\125\
---------------------------------------------------------------------------
\124\ 15 U.S.C. 1691c(a)(5) (``(a) Enforcing Agencies. Subject
to subtitle B of the Consumer Protection Financial Protection Act of
2010withthe requirements imposed under this subchapter shall be
enforced under:. . . (5) The Packers and Stockyards Act, 1921 [7
U.S.C. 181 et seq.] (except as provided in section 406 of that Act
[7 U.S.C. 226, 227]), by the Secretary of Agriculture with respect
to any activities subject to that Act.'')
\125\ Michael Kades, ``Protecting Livestock Producers and
Chicken Growers,'' Washington Center for Equitable Growth (May 5,
2022), available at https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------
The EEOC has described racial discrimination as discrimination
based on an ``immutable characteristic associated with race, such as
skin color, hair texture, or certain facial features.'' Although race
and color may appear indistinguishable, they are not. According to the
EEOC, ``color discrimination occurs when a person is discriminated
against based on the lightness, darkness, or other color characteristic
of the person.'' \126\ Race discrimination involves treating an
individual differently because of his or her race. National origin as a
protected class is defined as disparate treatment because an individual
is ``from a particular country or part of the world, because of
ethnicity or accent, or because they appear to be of a certain ethnic
background (even if they are not).'' \127\ Ethnicity is covered under
national origin.\128\ Religion as a protected basis is defined as
discrimination based upon a person's religious beliefs. EEOC reports
that the law protects people in recognized ``organized religions,'' but
also those ``who have sincerely held religious, ethical or moral
beliefs.'' \129\ Sex as a protected basis includes discrimination based
upon a person's status as pregnant, one's sexual orientation, and one's
gender identity.\130\ The EEOC
[[Page 16122]]
defines disability as follows: ``Has a physical or mental condition
that substantially limits a major life activity;'' a ``history of
disability,'' and ``is subject to an adverse employment action because
of a physical or mental impairment the individual actually has or is
perceived to have, except if it is transitory (lasting or expected to
last six months or less) and minor.'' \131\
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\126\ U.S. Equal Employment Opportunity Commission (EEOC), No
date, Facts about Race/Color Discrimination, available at https://www.eeoc.gov/fact-sheet/facts-about-racecolor-discrimination.
\127\ U.S. Equal Employment Opportunity Commission (EEOC),
National Origin Discrimination, available at https://www.eeoc.gov/national-origin-discrimination.
\128\ Ibid.
\129\ U.S, Equal Employment Opportunity Commission (EEOC),
Religious Discrimination, available at https://www.eeoc.gov/religious-discrimination.
\130\ U.S, Equal Employment Opportunity Commission (EEOC), Sex,
available at https://www.eeoc.gov/youth/sex-
discrimination#:~:text=EEOC%20enforces%20two%20laws%20that,sexual%20o
rientation%2C%20and%20gender%20identity.
\131\ U.S. Equal Employment Opportunity Commission (EEOC). No
date. Disability Discrimination and Employment Decisions. Accessed
at https://www.eeoc.gov/disability-discrimination-and-employment-decisions on November 15, 2023.
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ECOA defines marital status as the ``existence, absence, or
likelihood of a marital relationship between the parties,'' and so
marital discrimination would be upon those bases.\132\ Age
discrimination is defined as discrimination against those individuals
40 and older on the basis of their age.\133\ Cooperatives are described
as ``producer and user-owned businesses that are controlled by, and
operate for the benefit of, their members, rather than outside
investors.'' \134\ As explained above, in formulating this rule, AMS
principally drew on its expertise and comments gathered from market
participants about how undue discrimination manifests in markets, and
considered the relevant references that concern this type of
discrimination. These include the above referenced EEOC, ECOA, and
AFPA-related approaches because these approaches: first, align with the
intent of the Act to prohibit all instances of unjust discrimination
and undue prejudice; second, effectuate the purposes of the final rule
to clearly prohibit that discrimination; and third, promote more
inclusive competition by protecting the individuals who participate in
the market.
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\132\ Equal Credit Opportunity Act (ECOA). No date. Access at
https://www.fdic.gov/resources/supervision-and-examinations/consumer-compliance-examination-manual/documents/5/v-7-1.pdf.
\133\ U.S. Equal Employment Opportunity Commission (EEOC). No
date. Age Discrimination. Accessed at https://www.eeoc.gov/age-discrimination on 10-04-2023.
\134\ Co-ops: A Key Part of Rural America, Co-ops: A Key Part of
Rural America, USDA, available at https://www.usda.gov/topics/rural/co-ops-key-part-fabric-rural-america. See also AFPA Sec. 2301.
Congressional findings and declaration of policy.
---------------------------------------------------------------------------
Because of the Act's broad applicability (as discussed in section
III--``Authority''); the similar language used in secs. 202, 304, 305,
and 312 of the Act; and the series of statutes outlining a range of
prejudices identified as being deserving of public policy efforts to
ensure full market access; AMS concludes that producers who have been
subjected to discrimination, prejudice, disadvantage, or exclusion on
the specific bases set forth in this final rule should be covered by
the prohibitions against undue prejudice or disadvantage and unjust
discrimination as enumerated by sec. 202 of the Act.
To stamp out unjustly discriminatory and unduly prejudicial conduct
and support a more inclusive marketplace, AMS, in Sec. 201.304, lays
out the protected bases against which undue prejudices or disadvantages
and unjust discrimination are prohibited, and then describes the
specific conduct that, when initiated against a producer belonging to
one of the protected bases, is prohibited. Paragraph (a)(1) prohibits a
regulated entity from prejudicing, disadvantaging, inhibiting market
access, or otherwise taking an adverse action against a covered
producer on the basis of the covered producer's (i) race, color,
religion, national origin, sex (including sexual orientation and gender
identity), disability, marital status, or age; or (ii) the covered
producer's status as a cooperative. The sources of these bases are
discussed above. Paragraph (a)(1)'s prohibition as ``based upon'' is
intended to be broader than ``but for'' causation and so capture when
the protected characteristics or status are a material, or non-trivial,
element of the decision to take an adverse action against a covered
producer. AMS expects that fact-finding tribunals will establish the
necessary processes for proving these elements, with an eye toward the
protections for covered producers and for open, inclusive markets that
this rule is designed to provide.
Though this regulation prohibits prejudice or disadvantage against
a covered producer on the basis of the specified statuses, AMS notes
that regulated entities may decline to do business with covered
producers for justified economic reasons. For example, a regulated
entity may refuse to contract with a cooperative of covered producers
when the contract would not be cost-effective for the entity,
regardless of the cooperative status of the producers. In this
hypothetical example, the regulated entity would not be unduly
prejudicing cooperatives of covered producers based on their status as
a cooperative. Instead, the regulated entity would have a
nonprejudicial basis for its business decision.
Section 201.304(a)(2) describes the actions that prejudice,
disadvantage, inhibit market access, or are otherwise adverse under
paragraph (a)(1). These actions were chosen because they relate to
fairness in contracting, which is a consistent concern among producers;
and are actions that PSD has determined are a recurring problem in the
industry, directly impacting producers' financial well-being. In
response to the proposed rule, many commenters noted the financial
repercussions of lack of fairness in contracting.\135\ Under Sec.
201.304(a)(2), regulated entities may not prejudice or disadvantage
covered producers on the basis of a protected status by: (i) offering
contract terms that are less favorable than those generally or
ordinarily offered to similarly situated covered producers; (ii)
refusing to deal with a covered producer on terms generally or
ordinarily offered to similarly situated covered producers; (iii)
performing under or enforcing a contract differently than with
similarly situated covered producers; (iv) requiring a contract
modification or renewal on terms less favorable than similarly situated
covered producers; (v) terminating or not renewing a contract with a
covered producer; and (vi) any other action that a reasonable producer
would find materially adverse.
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\135\ See e.g., ``Discrimination and retaliation mean big
profits for companies at the farmer's expense. While meatpackers
rake in record profits during the pandemic, farmers make less, and
eaters are left paying more at the grocery store. Farmers who
complain about their pay or the fairness of their contracts run the
risk of losing their contracts, putting their homes and livelihoods
at risk.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0051; see also, ``This rule is much needed so farmers
can tell the truth about their contracts and so consumers can know
what producers are actually doing to the earth, the animals, and the
farmers.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0298.
---------------------------------------------------------------------------
Paragraph (a)(2)(i) prohibits the offering of less favorable
contract terms to covered producers on the basis of their status as
members of a protected class. In the Agency's experience, offering less
favorable contract terms than those generally or ordinarily offered to
similarly situated covered producers is a means through which regulated
entities can prejudice or disadvantage producers. For example, the
Agency has received complaints that the bidding on livestock by
regulated entities occurs at a less advantageous time for certain
producers on the basis of the classes protected under this rule
resulting in lower prices or less favorable delivery terms. Similarly,
in the Agency's experience, poultry growers have complained about being
offered less favorable growing terms on the basis of the classes
protected under this rule. This rule does not prohibit ordinary
contracting for different prices on the basis of differences in product
[[Page 16123]]
quality, service, transportation cost, or delivery terms.
Paragraph (a)(2)(ii) prohibits regulated entities from refusing to
deal with a covered producer on terms generally or ordinarily offered
to similarly situated covered producers. This refers to situations in
which a regulated entity makes no reasonable effort to deal, bid, or
negotiate with a covered producer on the basis of the covered
producer's status as a member of a protected class. Such refusal to
deal has no connection with the service or quality of product offered,
but rather is due, in material part, to the personal characteristics or
status of the producer and restricts the producers' ability to obtain
the fair market value of their products and services. In today's highly
vertically integrated and concentrated markets, refusal to deal by one
regulated entity will often leave a producer with very few, if any,
parties to contract with, unduly inhibiting the competitive marketplace
when performed on the bases prohibited by this final rule.
Paragraph (a)(2)(iii) prohibits regulated entities from performing
under or enforcing a contract differently than with similarly situated
producers. A violation of this regulation would occur when a regulated
entity--based upon the covered producer's protected characteristics--
inconsistently enforces its contracts as it would with similarly
situated producers. For instance, a selective information disclosure
would represent a selective performance of contract when a regulated
entity withholds materially relevant information from one covered
producer that the regulated entity generally or ordinarily provides to
other covered producers. In these instances, information-deprived
producers will have an incomplete picture of their business
relationships with regulated entities, and therefore will operate at an
unreasonable disadvantage relative to producers who receive the
pertinent information. Similarly, the Agency has received complaints
over the years with respect to differential performance under poultry
growing arrangements, such as the delivery to affected growers of
flocks that are sick or otherwise known to be likely to perform poorly
owing to the age of the hens. Those sick or poor performing chicks are
likely to result in lower performance for the grower in a poultry
grower ranking system, which results in lower pay for the grower. While
that may occur from time to time per natural cycles, a repeated or
intentional delivery of underperforming flocks has been commonly
reported by producers as a principal means of adversely affecting
grower earnings. Similarly, a regulated entity withholding or delaying
delivery of feed would result in lower performance and profit for a
producer. Accordingly, AMS has incorporated differential contract
performance to capture those contractual performance-based means to
prejudice or disadvantage producers. By clarifying in its final rule
that the Act prohibits such conduct, AMS seeks to better protect
producers who suffer, or are at risk of suffering, this type of harm.
Paragraph(a)(2)(iv) prohibits a regulated entity from, on the basis
of a covered producer's protected status, requiring a contract
modification or renewal on terms less favorable than those for
similarly situated covered producers. The Agency has determined, based
on producer complaints, that regulated entities sometimes prejudice or
disadvantage growers by reducing numbers of flocks delivered, changing
types of birds raised, or otherwise changing contract terms that result
in lower incomes for growers. Poultry producers commonly experience
these types of contract modifications. Livestock producers also
experience modifications, such as a change from a cash negotiated
contract to a negotiated grid contract or other purchase type that may
be adverse from the perspective of the producer depending on the facts
and circumstances. Therefore, in the final rule, AMS seeks to clarify
that unfavorable contract modification or renewal by a regulated
entity, on the basis of a protected class, amounts to a violation under
the Act. This rule, by itself does not prohibit renegotiations or
failure to renew a contract on the basis of changes in the market.
However, while this rule does not distinguish modification for other
reasons, many contract terms under the Act are not subject to
modification during performance of the contract at all because any
contract modification that serves to delay or reduce full payment is an
unfair practice under sec. 202(a) of the Act.
Paragraph (a)(2)(v) prohibits regulated entities from terminating
or not renewing a contract with a covered producer on the basis of a
covered producer's status as a protected class. Contract termination
can have devastating consequences for producers that have invested
substantial sums in infrastructure that only meets the requirements of
a particular integrator.
Paragraph (a)(2)(vi) prohibits regulated entities from any other
action that a reasonable covered producer would find materially
adverse. This provision provides a broad and flexible approach to these
prohibitions and allows for ``material'' to be determined by the facts
and circumstances of each case where producers were harmed.
Finally, Sec. 201.304(a)(3) delineates two exceptions to the
prohibition on prejudicial or discriminatory conduct against covered
producers on a protected basis. In one, the regulated entity is
fulfilling a religious commitment relating to livestock, meats, meat
food products, livestock products in unmanufactured form, or live
poultry; in the other, a Federally recognized Tribe, including its
wholly or majority-owned entities, corporations, or Tribal
organizations, is performing Tribal governmental functions. As
discussed in Section V--Changes from the Proposed Rule, these
exceptions were added in response to commenters' request that some
exceptions be provided to the prohibition on undue prejudice and unjust
discrimination. To safeguard the free exercise of religion, AMS has
provided an exception to allow discriminatory conduct necessary to
fulfill religious commitments surrounding livestock care and meat
production. To conform with longstanding jurisprudence surrounding
Tribal sovereignty, AMS has provided an exception to allow Tribal
entities to preference their own Tribal members in the purchase and
sale of livestock.
C. Retaliation (Sec. 201.304(b))
Section 201.304(b) establishes protected activities for covered
producers and prohibits regulated entities from engaging in retaliatory
conduct based on those activities. As noted previously, sec. 202(a) of
the Act prohibits unjust discrimination. This regulation is designed to
protect the essential activities producers must engage in to bargain
effectively and exercise their economic rights, and in doing so obtain
the full value of their livestock or poultry products or services. As a
result, retaliation against producers because they have engaged in
protected activities is disparate treatment that the Act intended to
prohibit.\136\ Retaliatory conduct is a way for regulated entities to
exploit their market power. Increased concentration has facilitated the
exercise of market power through various contracting practices.
Moreover, because producers
[[Page 16124]]
have few processor choices in these markets, threats of retaliation and
market exclusion take on heightened credibility.
---------------------------------------------------------------------------
\136\ See e.g., 61 Cong. Rec. H1860 (1921): ``However, their
[packers] very organization has given them a power for evil as well
as good, and evil practices should always be condemned.'' and ``. .
. the right thing to do is to devise a law which, while maintaining
and getting the advantage for the people of all of the fine workings
of these great organizations, at the same time control them in such
a way as to destroy the abuses that are connected with their
operation.''
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AMS determined the protected activities to include in Sec.
201.304(b)(2) based on commonly recorded complaints from the industry,
case law, USDA/DOJ workshops, conversations with AMS personnel, and a
recently voiced concern from Congress. AMS also identified these types
of activities because of their potential to mitigate certain ways that
market power is exercised. The retaliatory conduct prohibited by this
regulation covers a broad range of circumstances that AMS has
determined occur commonly in connection with livestock, meats, meat
food products, livestock products in unmanufactured form, or live
poultry. Free exercise of the protected activities facilitates a
competitive and transparent market, ensuring producers can capture the
full value of their livestock or growing services.
Section 201.304(b)(1) establishes that a regulated entity may not
retaliate or otherwise take an adverse action against a covered
producer based upon the covered producer's participation in protected
activities. As described in Section V--Changes from the Proposed
Rule,'' paragraph (b)(1)'s prohibition as ``based upon'' is intended to
be broader than ``but for'' causation and so capture when the protected
characteristics or status are a material, or non-trivial, element of
the decision to take an adverse action against a covered producer. AMS
expects that fact-finding tribunals will establish the necessary
processes for proving these elements, with an eye toward the
protections for covered producers and for open, inclusive markets that
this rule is designed to provide.
Section 201.304(b)(2) lists the activities that are protected.
Paragraph (b)(2) also provides a caveat that the protected activities
must not otherwise be prohibited by Federal, Tribal, or State law,
including antitrust laws. As outlined in the following paragraphs,
these activities form an essential foundation for producers to receive
the benefit of their bargained for exchange and the protections
afforded under the Act itself. Acts of retaliation to chill or curtail
these protected activities offer no competitive benefits to the market.
Commenters to the proposed rule echoed these concerns.\137\ The Act was
designed to address market abuses and business practices that inhibit
producers' ability to obtain the full value of their products and
services.\138\ Covered producers have complained to AMS over the years
of having suffered retaliation or fearing retaliation for engaging in
the conduct identified in this paragraph.
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\137\ See e.g., ``Farmers should be able to participate in
producer organizations and associations. Farmers have expressed
concern that associations, organizations and the farmers who join
them have repeatedly been targets of retaliatory behavior by meat
companies. When farmers participate in these organizations it helps
fill in the information gap for their business and keeps our
economic markets competitive.
Farmers and Ranchers should be able safely participate as
witnesses in any proceeding relating to violations of the Packers
and Stockyards Act. Unfortunately, there are recent examples of
cattle rancher witnesses who were threatened and intimidated so much
that they decided not to testify before Congress at a hearing about
cattle markets. The ability to testify without fear of retaliation
is essential to promoting fair and competitive markets in the
livestock and poultry industries.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0299; see also, ``The
ability to express an opinion and testify without fear of
retaliation is essential to promoting healthy, fair and competitive
markets in the livestock and poultry industries, as it is in all
aspects of a free and fair democracy.'', available at https://www.regulations.gov/comment/AMS-FTPP-21-0045-0297.
\138\ See e.g., 61 Cong. Rec. H1860 (1921).
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Specifically, paragraph (b)(2)(i) protects a covered producer's
ability to communicate with a government entity or official or to
petition a government entity or official for redress of grievances with
respect to livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry. A covered producer must be able
to freely seek redress of grievances to ensure the protections afforded
by the Act and its regulations have their intended effect. Government
regulators must also have the ability to fully appreciate the views of
market participants to ensure that the rules and regulations--and
enforcement of those laws and regulations--are sufficiently responsive
to market realities and divergent interests and business practices in
the marketplace. Hindering the free flow of market information creates
risks of market distortions and will impair the ability for those with
less economic power to operate in the marketplace.
In paragraph (b)(2)(ii), AMS adds a new protection for a covered
producer to refuse a regulated entity's request that the producer
communicate with a government entity or official when that
communication is not required by law. Just as covered producers have
the right to communicate with government entities or officials to
ensure their rights are protected, so too do they have the right to
decide when and under what circumstances they engage in such
communication. Based on its experience regulating the livestock sector,
AMS is aware that regulated entities may coerce covered producers to
contact the government on regulatory and policy matters and to espouse
positions that the covered producers disagree with. AMS has received
reports frequently in the past, and including within the last two
years, of regulated entities pressuring producers to oppose regulations
that the producers support, and covered producers reported similar
concerns to AMS during earlier rulemaking initiatives as well. Indeed,
regulated entities should not punish a covered producer for the
producer's decision to talk to government agencies or not, regardless
of the producer's reasons.
The lack of clarity around prohibitions on retaliation in
agricultural markets--clarity which this rule aims to provide--impairs
AMS's ability to investigate potential violations and effectively
enforce the Act. Accordingly, AMS has added Sec. 201.304(b)(2)(ii) to
clarify that the rule protects a covered producer from retaliation if
the covered producer decides not to engage in a communication with a
government entity or official that is not required by law.
Paragraph (b)(2)(iii) protects a covered producer asserting the
right to formor join--or to refuse to form or join--aproducer or grower
association or organization, or cooperative, or the right to
collectively process, prepare for market, handle, or market livestock
or poultry. ``Asserting the right'' includes the preparatory steps
necessary to form or join an association or cooperative. This provision
protects two forms of producer interactions: cooperative and non-
cooperative associations. The formulation ``to collectively process,
prepare for market, handle, or market livestock or poultry'' refers to
forming or joining a cooperative, tracking the language of the Capper
Volstead Act.\139\ Impeding the formation of cooperatives through
retaliation harms competition as individual producers are deprived of
the chance to mitigate market power abuse by bargaining collectively.
The Agricultural Fair Practices Act explicitly protects the right of
individual farmers to join cooperative organizations to preserve their
marketing and bargaining position, stating that ``[i]nterference with
this right is contrary to the public interest and adversely affects the
free and orderly flow of goods'' (7 U.S.C. 2301).
---------------------------------------------------------------------------
\139\ 7 U.S.C. 291.
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Non-cooperative associations and organizations are also core
activities under the Act deserving of protection
[[Page 16125]]
against regulated entity coercion because they afford covered producers
the opportunity to combine their resources to potentially counteract
market imbalances and capture opportunities at scale. For example, they
provide a means for covered producers to share information regarding
the production of poultry and livestock (within permissible scope of
the Federal antitrust laws) even when a cooperative is not feasible.
They also enable producers to potentially uncover and address
problematic practices in the industry, including through working
together to reduce the risk of seeking redress of grievances, among
other benefits. Some producer associations also provide means for
producers to obtain lower cost inputs, such as gasoline. AMS believes
that retaliating against producers for engaging in these activities
hinders the free flow of information and hampers producers' ability to
fairly compete in the market and realize full value of their livestock
and poultry. An assertion of rights in both these contexts may involve
expressing interest or intent to engage in these activities or engaging
in these activities.
Paragraph (b)(2)(iii) also protects a covered producer's right to
refuse to join a producer or grower association or organization. AMS
added protection for refusing to form or join a producer or grower
association or organization in response to public comment on the
proposed rule, as commenters noted that producers have experienced
pressures from regulated entities to join certain organizations that
may express views or interests in the livestock or poultry industry
that are contrary or not fully reflective of the producer's views
regarding their own interests.
Paragraph (b)(2)(iv) protects a covered producer's ability to
communicate or cooperate with a person for the purposes of improving
production or marketing of livestock or poultry. ``A person'' is
intended to be broad, and includes USDA's Extension and other academic
experts, businesses and associations, advisors and associates of the
covered producer, other covered producers, including someone under
contract with the same regulated entity. This regulation protects a
covered producer's ability to communicate or cooperate with other
persons, including efforts to obtain higher or otherwise more
appropriate compensation from regulated entities, to the extent
permissible under Federal antitrust laws and cooperative laws.
Protecting such communications enables the producer to obtain help to
enhance their ability to compete in the market. Such communication may
include, for example, communication with extension programs or with
independent veterinarians and animal health experts. It would also
include communications with persons--including other producers--
relating to potential illegal market abuses, anticompetitive conduct,
or otherwise illegal conduct by regulated entities, as that conduct
would obstruct the covered producer's ability to secure the full value
of their livestock or poultry product or services. AMS notes that
communications on these matters when with the government would be
protected by paragraph (b)(2)(i), and would include but not be limited
to communications with: USDA; the U.S. Department of Justice; the
Federal Trade Commission; a State or Tribal attorney general or
agriculture department; or a Federal, State, or Tribal legislative
office or committee or judicial tribunal.
Paragraph (b)(2)(v) protects a covered producer's ability to
communicate, negotiate, or contract with a regulated entity, another
covered producer, a commercial entity, or a consultant for the purpose
of exploring or entering into a business relationship. The purpose of
the provision is to preserve and promote the competitive position of
the covered producer and ensure that a regulated entity's retaliation
does not discourage a covered producer from seeking competitive
alternatives. It affords producers the opportunity to realize the full
market potential of their products and services and participate in the
market fully, including through price discovery and competition between
multiple regulated entities. For example, a covered producer may want
to seek information from a regulated entity with which they do not
currently have a business relationship regarding the possibility of a
future business relationship, such as entering into a contract. Or, a
covered producer may enter into a contract to sell livestock in the
market or through an auction or exchange. Protecting these activities
allows covered producers to freely compare potential business
relationships and choose between several regulated entities,
encouraging competition. As also discussed in Section V--Changes from
the Proposed Rule, communications of this type can improve production
efficiency and price discovery mechanisms. Restricting participation in
these activities forecloses full market participation by producers.
Paragraph (b)(2)(vi) protects a covered producer's ability to
support or participate as a witness in any proceeding under the Act or
any proceeding that relates to an alleged violation of any law by a
regulated entity. Because of the close-knit and concentrated markets in
which covered producers operate, AMS believes that protecting some
covered producers as witnesses may enable other covered producers to
effectuate their rights under the Act and related laws, which would
improve market integrity in the markets governed by the Act. Without
such protections, enforcement of the Act may be frustrated overall.
Finally, paragraph (b)(2)(vii) protects a covered producer's
ability to assert any of the rights granted under the Act or the
regulations in 9 CFR 201, or to assert rights afforded by their
contract. These rights include, for example, producers' rights to view
the weighing of flocks, which is legally protected but which producers
have complained is not practically enforceable. In the 2010 USDA-DOJ
public workshop on the poultry market, a grower said he was retaliated
against for asserting his right to view his flock being weighed; the
integrator ``cut me off from growing business and cost me hundreds of
thousands of dollars.'' \140\ Although these rights are ostensibly
protected by laws, regulations, or legal contracts, they lose their
efficacy if covered producers suffer repercussions for asserting them.
---------------------------------------------------------------------------
\140\ Accessed at https://www.justice.gov/media/1244676/ on 10/
03/2023.
---------------------------------------------------------------------------
Section 201.304(b)(3) enumerates the actions that are retaliation
or an otherwise adverse action under paragraph (b)(1) of this section.
The final rule intends to capture the widest range of conduct harmful
to producers, where such harms are based upon activities protected by
the rule. The focus in any inquiry under this final rule is whether the
regulated entity has engaged in harmful conduct in whole or material
part because a covered producer engaged in any protected activity. To
provide examples of what activities are materially harmful to a
reasonable covered producer, paragraph (b)(3) sets out that regulated
entities are prohibited from (i) terminating or not renewing a contract
with a covered producer; (ii) performing under or enforcing a contract
differently than with similarly situated covered producers; (iii)
requiring a contract modification or a renewal on terms less favorable
than those for similarly situated covered producers; (iv) refusing to
deal with a covered producer on terms generally or ordinarily offered
to similarly situated covered producers; (v) interfering in farm real
estate transactions or contracts with third
[[Page 16126]]
parties; (vi) taking any other action that a reasonable covered
producer would find materially adverse.
Paragraph (b)(3)(i) prohibits terminating or not renewing a
contract with a covered producer because the covered producer has
engaged in protected activities. This practice can have devastating
consequences for producers that have invested substantial sums in
infrastructure that only meets the requirements of a particular
regulated entity. Furthermore, in concentrated markets, losing a
contract may put a producer out of business as the producer has few, if
any, other livestock or poultry buyers to whom they can sell livestock
or poultry.
Paragraph (b)(3)(ii) prohibits performance under or enforcement of
a contract differently as compared to performance under or enforcement
of contracts for similarly situated covered producers as retaliation
for engaging in protected activity. Depending on the facts and
circumstances of the case, the ``similarly situated producer'' could be
the covered producer's own status quo prior to engaging in the
protected activity. A violation of this regulation would occur when a
regulated entity, in response to a producer engaging in protected
activities, inconsistently enforces its contracts compared with
contract enforcement for similarly situated producers. For instance,
the Agency has received complaints over the years with respect to
differential performance under poultry growing arrangements, such as
the delivery to affected growers of flocks that are sick or otherwise
known to be likely to perform poorly owing to the age of the hens,
differential delivery of feed, or other differential treatment such as
early or delayed harvest of birds. Those actions are likely to result
in lower performance for the grower in a poultry grower ranking system,
which results in lower pay for the grower. While that may occur from
time to time per natural cycles, a repeated or intentional delivery of
underperforming flocks has been commonly reported as a principal means
of adversely affecting grower earnings. Accordingly, AMS has
incorporated differential contract performance to capture those
contractual performance-based means that a regulated entity may use to
retaliate against producers for engaging in protected activities.
Paragraph (b)(3)(iii) prohibits requiring a contract modification
or a renewal on terms less favorable than those for similarly situated
covered producers as retaliation for engaging in protected activity.
Depending on the facts and circumstances of the case, the similarly
situated producer could be the covered producer's own status quo prior
to engaging in the protected activity. In this final rule AMS seeks to
clarify that unfavorable contract modification or renewal by a
regulated entity, if it's the result of a producer engaging in a
protected activity, is retaliatory conduct and amounts to a violation
under the Act. This behavior is a common way for regulated entities to
retaliate against producers by, for example, reducing the number of
flocks or their density, changing types of birds raised, or otherwise
changing contract terms that result in lower incomes for growers. As
another example, if a regulated entity requires a capital investment
from a covered producer as part of a contract modification or contract
renewal that the regulated entity is not requiring of similarly
situated producers, this requirement would be a violation of paragraph
(b)(3)(iii) if the regulated entity is requiring the capital investment
in retaliation for the covered producer's participation in a protected
activity.
Paragraph (b)(3)(iv) prohibits refusing to deal with a covered
producer on terms generally or ordinarily offered to similarly situated
covered producers. A violation of this regulation could occur if a
regulated entity makes no reasonable effort to bid or negotiate or
fails to reasonably attempt to contract in good faith with a covered
producer, due in whole or material part to a producer's prior, or
current, participation in protected activities. In this context, the
regulated entity's refusal to deal is not connected with the service or
quality of the product offered, but rather is material in part due to
the producer exercising his or her rights to engage in protected
activities. A similarly situated producer may, depending on the facts
and circumstances, be the producer's own prior status quo with the
regulated entity before the producer engaged in a protected activity.
This provision includes scenarios in which cattle producers operate in
the cash market for livestock. While some cattle producers may only be
in the cash market a few times a year, others may be in the cash market
weekly. In the latter case, this provision would cover certain types of
retaliation. If a producer sells cattle to a particular packer every
week, and then one week the packer refuses to buy the producer's cattle
or offers significantly less favorable terms after the producer engaged
in a protected activity, this would constitute retaliation under this
rule absent evidence of changed business conditions necessitating the
packer's refusal to deal. AMS believes that retaliating against a
producer in this way is conduct the Act seeks to remedy because it
raises a barrier to competitive entry to the market by decreasing the
number of parties a producer can do business with, which in effect is a
market failure.
Paragraph (b)(3)(v)'s prohibition on interfering with a covered
producer's farm real estate transactions or with their contracts with
third parties is a prohibition against conduct that a regulated entity
may engage in due to the unequal power dynamic that exists between
producers and the few firms available for them to contract with. This
conduct may take several forms but has been observed most commonly to
occur when a producer attempts to sell its farm to a third party and in
doing so must terminate or fail to renew their existing contract with a
regulated entity. In these situations, the regulated entity may choose
not to guarantee a similar contract, or any contract at all, to the
prospective buyer. Without this guarantee, banks and prospective buyers
are unlikely to enter the farm real estate transaction because the land
is of little use to them without a contract to grow livestock or
poultry. This is often seen in the poultry sector, where it is alleged
that regulated entities use the potential transfer of farm real estate
as an opportunity to require growers to make capital improvements in
exchange for their guarantee to contract with the new grower. This
becomes retaliatory because the unreasonable refusal to guarantee a
future contract with a prospective landowner or operator dramatically
lowers the value of the farm operation, to the point of obstructing the
transfer of the real property by the landowner, and yet the debt burden
on the farm is commonly incurred in response to the regulated entity's
requests for additional capital investments. The seller of farm real
estate faces an unjust extraction, or else they are unable to sell
land, as the cost of capital improvements required by the regulated
entity in exchange for a guarantee to contract with a new owner or
operator is not a freely-determined agreement. Farm sales transactions
are not, however, the only circumstance where a regulated entity can
retaliate against a covered producer through contracts with third
parties. For example, covered producers have sought to develop new
marketing opportunities for their livestock and poultry through
collectively processing their product. If the regulated entity sought
to obstruct the sale of the meat or poultry products through
distribution or retail chains as retaliation against a
[[Page 16127]]
covered producer with a material interest in the meat or poultry sales
organization, that interference would be covered by this rule.
Paragraph (b)(3)(vi) prohibits any other action that a reasonable
covered producer would find materially adverse. This regulation is
designed to account for a broader scope of actions that are considered
retaliatory. Under this provision any conduct would be considered
prohibited retaliation if such conduct caused material harm to the
covered producer relative to the covered producer's situation prior to
the allegedly retaliatory conduct, or relative to conduct toward
similarly situated producers. This provision provides a broad and
flexible approach to these prohibitions and allows for ``material'' to
be determined by the facts and circumstances of each case. As discussed
under Section V--Changes from the Proposed Rule, some retaliatory
activities may occur outside the confines of contractual relationship,
for example, a regulated entity's interference in a covered producers'
water rights. The provision also covers the act of making a threat to
engage in an action where the threat can reasonably be foreseen to
change the producer's conduct or where the threat delivers a reasonable
possibility of material harm.
When regulated entities punish covered producers or deny them
opportunities afforded to other covered producers for engaging in
certain activities, it is an unjustly discriminatory practice. Not only
do retaliatory practices harm individual covered producers; recurrent
instances and patterns of retaliation erode market integrity and
discourage fairness and competition in the livestock and poultry
markets. Under Sec. 201.304(b), AMS is providing greater clarity,
specificity, and certainty as to how the Act applies with respect to
retaliatory behavior. This will facilitate higher levels of compliance
by regulated entities, enable AMS to better enforce the Act, and
position producers to better assert their rights under the Act.
D. Recordkeeping (Sec. 201.304(c))
Paragraph (c)(1) of Sec. 201.304 requires that a regulated entity
retain all records relevant to its compliance with the prohibitions on
discriminatory behavior contained in paragraphs (a) and (b) of this
section. Records must be retained for no less than five years from the
date of record creation. Paragraph (c)(2) states that relevant records
may include policies and procedures, staff training materials,
materials informing covered producers regarding reporting mechanisms
and protections, compliance testing, board of directors' oversight
materials, and the number and nature of complaints received relevant to
this section.
Recordkeeping is a commonly used regulatory compliance and
monitoring mechanism among market regulators.\141\ The recordkeeping
requirement in this rule is not new. AMS currently has the authority to
require regulated entities to create, maintain, release to AMS, and
dispose of records through the Act and its regulations, including sec.
401 of the Act and 9 CFR 201.94, 201.95, and 203.4. Section 401 of the
Act requires regulated entities to keep ``such accounts, records, and
memoranda as fully and correctly disclose all transactions involved in
his business . . .'' (7 U.S.C. 221). Such records may include details
of a single transaction, such as the name of the owner of the livestock
or poultry, date, weight of livestock or poultry, number of head of
livestock, and unit price; all elements necessary to recreate the total
sum paid to the producer or grower by the regulated entity. Existing
regulations under 9 CFR 201 require regulated entities to give the
Secretary ``any information concerning the business . . .'' (Sec.
201.94) and provide authorized representatives of the Secretary access
to their place of business to examine records pertaining to the
business (Sec. 201.95). Section 203.4 is another relevant existing
regulation with respect to the types of records to be kept by regulated
entities and the timelines for disposal of these records by the
regulated entities.
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\141\ See, e.g., generally, Board of Governors of the Federal
Reserve System, ``Federal Trade Commission Act, Section 5: Unfair or
Deceptive Acts or Practices,'' Consumer Compliance Handbook,
available at https://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf (last accessed June 2022).
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Existing gaps in both generally applicable agricultural and PSD-
specific data collection make addressing widespread reports of
discriminatory behavior difficult. Access to the types of records
required by Sec. 201.304(c) will assist AMS in assessing the
effectiveness of a regulated entity's compliance with Sec. 201.304(a)
and (b). Therefore, this recordkeeping requirement is critical for AMS
to fulfill its duties to prevent, and if necessary secure enforcement
against, undue and unreasonable prejudice and unjust discrimination.
AMS believes that this recordkeeping approach--at both the
regulated entity policy and procedural level, as well as at the
transactional level--will enable the Agency to monitor and facilitate a
regulated entity's approach to compliance. Recordkeeping will encourage
regulated entities to adopt more robust compliance practices to stamp
out conduct prohibited by the Act in its incipiency. It will also
enable AMS to uncover conduct that violates the rule in any
investigation--a deterrent which will also strengthen compliance. AMS
underscores that the tone and compliance practices set by senior
executives play a vital role in establishing a corporate culture of
compliance, which is a critical first step toward more inclusive market
practices. Thus, relevant records may include those at the highest
levels, such as relevant accountability practices of the board of
directors. In addition to the importance of policies and procedures in
developing a corporate culture of compliance, this rule maintains that
transactional records, where decision-making occurs, are also important
records to keep and to help AMS understand why an adverse action was
taken against a producer or grower by a regulated entity. These records
may include the number and nature of complaints received relevant to
this section; in addition to records already required to be retained
under Sec. 203.4, such as buyers' estimates; buying or selling pricing
instructions and price lists; correspondence; telegrams; or teletype
communications and memoranda relating to matters other than contracts,
agreements, purchase or sales invoices, or claims or credit
memoranda.\142\
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\142\ eCFR: 9 CFR part 203--Statements of General Policy Under
the Packers and Stockyards Act.
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AMS is requiring that records be retained for five years from their
creation date to provide a broader ability to monitor the evolution of
compliance practices over time in this area, and to ensure that records
are available for what may be complex evidentiary cases. While
providing the authority for regulated entities to keep certain records,
sec. 401 of the Act does not provide guidance on when records can be
disposed. Existing regulation at 9 CFR 203.4 provides for a disposal
date of two years, with an exception for certain records that may be
disposed of after one year. This rule extends the disposal date of most
records from two years to five years to promote efficient USDA
monitoring efforts. For some records, the current disposal date is one
year, which could be extended to five years under this rule if they are
deemed relevant to showing compliance with this rule. Most records,
such as specified in sec. 401, ``such accounts, records, and memoranda
as fully and
[[Page 16128]]
correctly disclose all transactions involved in his business . . .''
are currently kept for two years and will be extended to five years.
Other particular records that, if kept, will be required to be kept
five years instead of the current one year, including, for example,
buyers' estimates; buying or selling pricing instructions and price
lists; correspondence; telegrams; or teletype communications and
memoranda relating to matters other than contracts, agreements,
purchase or sales invoices, or claims or credit memoranda.
E. Deceptive Practices (Sec. 201.306)
Section 201.306 is designed to broadly address deceptive practices
in the marketplace by establishing four categories where deceptive
practices commonly occur: contract formation, contract performance,
contract termination, and contract refusal. Overall, the final rule
addresses areas of concern regarding deception in contracting but does
not exhaustively identify all deceptive practices that violate sec.
202(a) of the Act. Through this rule AMS aims to promote a marketplace
that is free from the type of injury the Act was designed to prevent.
False or misleading statements, or omissions of material information,
during the contracting process or operation or termination of that
contract, are prohibited deceptive practices because they prevent or
mislead sellers or buyers from making informed decisions concerning
their livestock or poultry operations. Deception puts honest businesses
at a competitive disadvantage; and may even cause them to adopt
deceptive practices.\143\ To capture a range of longstanding approaches
to deception that USDA has taken under the Act, AMS is prohibiting the
use of false or misleading statements, or omission of material
information during contract formation, performance (including
enforcement or not enforcement of the contract), and termination. This
rule also prohibits regulated entities from providing false or
misleading information to a covered producer or a producer association
concerning a refusal to contract. During this rulemaking process, AMS
also considered the FTC's interpretation of sec. 5 of the FTC Act
regarding deceptive acts or practices, ``FTC Policy Statement on
Deception.'' \144\ Like sec. 202(a) of the Act, sec. 5 of the Federal
Trade Commission (FTC) Act also prohibits deceptive practices. In 1983,
the FTC adopted the aforementioned policy statement summarizing its
longstanding approach to deception cases.\145\ In this final rule, AMS
references that policy statement because it offers useful guidance
owing to the similarity of the statutory provision and case law
history. In addition, AMS recognizes the benefits to the practical
application of this final rule by grounding it on the well-understood
principles of deception identified in the FTC policy statement.\146\
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\143\ FTC v. Winsted Hosiery Co., 258 U.S. 483 (1922) See also,
``Businesses that accurately represent the total amount consumers
will pay up front are at a competitive disadvantage to those that do
not,'' from FTC-2022-0069-6095 (describing harm to competition and
honest businesses through price obfuscation). p. 77432, https://www.federalregister.gov/documents/2023/11/09/2023-24234/trade-regulation-rule-on-unfair-or-deceptive-fees.
\144\ FTC Policy Statement on Deception, 1983. Available at
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.
\145\ Ibid.
\146\ Kades, Michael. ``Protecting Livestock Producers and
Chicken Growers,'' Washington Center for Equitable Growth, May 2022,
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
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More than 100 years of history illustrate the types of conduct
prohibited as deceptive by the Act, which provides a foundation for
some of the specific deceptions that this rulemaking addresses. The
regulations implemented by this rulemaking are not the first to
prohibit deception. Current regulations under the Act require honesty
in weighing (9 CFR 201.49 and 201.71), price reporting (Sec. 201.53),
fees (Sec. 201.98), and business relationships (Sec. 201.67). Even
when considering whether termination of a contract violated the Act,
AMS currently considers the quality of the communication, and therefore
considers its honesty (see Sec. 201.217). Past cases indicate that
USDA's approach, generally, is to view representations, omissions, and
practices from the perspective of a reasonable party receiving them and
determine if those deceptions affect the conduct or decision of the
recipient. As the court explained in Gerace v. Utica Veal Co.,\147\ a
regulated entity is liable to anyone for the damages its deceptive
practices cause, even if the entity is not a direct party to the
transaction.
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\147\ 580 F. Supp. 1465, 1469 (N.D.N.Y. 1984).
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AMS aims to have regulated entities be truthful and
straightforward--that is, not misleading--in their dealings with
producers. With Sec. 201.306, AMS seeks to uncover the true motive for
a regulated entity's treatment of a producer with whom they are forming
or have a contractual relationship. Whether contract language was clear
and written in a language the producer understands will be part of any
evaluation to determine whether a statement (including any omission)
was false or misleading; that determination will be dependent on the
particular facts and circumstances of the contract. Violations of the
Act that would constitute deceptive practices include false statements
or omissions that are material in that they prevent sellers or buyers
from making an informed business decision.\148\ Thus, obvious
falsehoods, such as false weighing and false accounting, have always
been considered deceptive practices under sec. 202(a) of the Act.
Another obvious falsehood--delivering checks drawn on accounts with
insufficient funds, whether for livestock or meat--is also deceptive.
Moreover, the Act requires honest dealing, so misleading omissions of
material information necessary to make a statement not false or
misleading are also prohibited. Prohibited omissions include failure to
tell a business partner that the regulated entity was receiving a
commission from a competitor,\149\ sales records that omit relevant
information,\150\ or failure to have the required bond.\151\ And
finally, where regulated entities have close business relationships,
kickbacks and bribes undermine the ability of producers and consumers
to rely on an honest market and are therefore deceptive.\152\
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\148\ FTC Policy Statement on Deception, 1983. Available at
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf. (``Third, the representation, omission, or
practice must be a ``material'' one. The basic question is whether
the act or practice is likely to affect the consumer's conduct or
decision with regard to a product or service.'').
\149\ 9 CFR 201.61.
\150\ 9 CFR 201.43; 9 CFR 201.99.
\151\ 9 CFR 201.29.
\152\ 9 CFR 201.56; 9 CFR 201.67; 9 CFR 201.71.
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Producers should not be misled with respect to their business
decision-making with regulated entities. Deception can prevent
producers from obtaining the full value of their products and services.
In markets pervaded by deception, formerly honest businesses may be
compelled to adopt deceptive practices if they are to remain
competitive.\153\ Moreover, in a concentrated market, if producers are
misled regarding why regulated entities take certain actions, in
particular refusing to deal with them, they cannot
[[Page 16129]]
plan or mitigate the risks they may face. For these reasons, this final
rule establishes a robust regulatory framework prohibiting deceptive
practices in a range of contracting circumstances. Such a framework
should provide a broad, although non-exhaustive, set of prohibitions to
provide greater certainty for producers and regulated entities alike in
the integrity of business dealings in the livestock and poultry
markets.
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\153\ Michael Kades, ``Protecting livestock producers and
chicken growers,'' Washington Center for Equitable Growth (May
2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Subversion of normal market
forces by fraud, deception, unfair conduct, or market manipulation
undermines the integrity of the market and deprives producers of the
true value of their livestock,'' p. 55.)
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Paragraph (a) of this section sets forth the scope of the
prohibition on deceptive practices by establishing that the
prohibitions contained in paragraphs (b) through (e) of Sec. 201.306
apply to livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry. This phrasing, which has been
used in previous rules under the Act, points to the broadest possible
interpretation of the Act's jurisdiction over regulated entities'
conduct.
Section 201.306(b) prohibits a regulated entity from making or
modifying a contract with a covered producer by employing a false or
misleading statement, or omission of material information necessary to
make a statement not false or misleading. Preventing false or
misleading representations, express or implied, or failing to provide
the necessary information necessary to make a representation not
misleading during the contracting process, are some of the most basic
protections of the integrity of the marketplace. ``By employing''
captures the materiality of the false or misleading representation in
that the representation formed a material part of the action under
making or modifying the contract. Case law applying the Act illustrates
some of the forms of deception that regulated entities may take during
the offering or formation of a contract with producers. While some
consumer-focused cases under the Act have addressed false advertising--
specifically bait-and-switch advertising that occurs through
advertising on price when, in fact, the customer has to pay a higher
price at the point of sale,\154\ a regulated entity's failure to
disclose information to a covered producer has also been held to be
deceptive under certain circumstances. The Act's purposes include
protecting farmers and ranchers from receiving less than fair market
value for their livestock and protecting consumers from unfair
practices. Among the means employed to accomplish this purpose is the
use of surety bonds. Sellers of livestock are entitled to the
protection of a packer, dealer, or market agency's surety bond securing
its obligations. Failure to maintain an adequate bond is therefore a
deceptive practice.\155\ When a packer fails to maintain a bond, the
seller does not know that the sale is unsecured, and therefore the
seller is at greater risk of nonpayment.
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\154\ In re: Larry W. Peterman, d/b/a Meat Masters, 42 Agric.
Dec. 1848 (1983), aff'd Peterman v. United States Dep't of Agric,
770 F.2d 888 (10th Cir. 1985).
\155\ United States v. Hulings, 484 F. Supp. 562, 567 (D. Kan.
1980). See also In Re: Mid-W. Veal Distributors, 43 Agric. Dec.
1124, 1139-40 (1984), citing In re: Norwich Veal and Beef, Inc., 38
Agric. Dec. 214 (1979), In Re: Raskin Packing Co., 37 Agric. Dec.
1890, 1894-6 (1978).
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Deception in contract formation is not limited to false statements
and omissions with respect to regulatory requirements. The Act includes
affirmative duties to be truthful. For instance, in Schumacher v. Tyson
Fresh Meats, Inc., the court recognized that the Act prohibits a
regulated entity from negotiating by using published prices it knows
are inaccurate because using incorrect prices deceives the livestock
seller. In Schumacher, the packer failed to disclose to sellers
inaccurately reported boxed beef prices when it negotiated the purchase
of cattle based on those prices. The court found that those deceptive
practices violate the Act.\156\ Likewise, Bruhn's Freezer Meats of
Chicago, Inc. v. U.S. Dept. of Agriculture, affirmed that a variety of
deceptive practices violate the Act, including short weighing,
misrepresenting grades and cuts of meat, and false advertising in the
selling of meat to customers.\157\ The Agency's regulation with respect
to deceptive practices in contract formation prohibits all these types
of deception.
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\156\ Schumacher v. Tyson Fresh Meats, Inc., 434 F.Supp.2d 748
(Dist. S.D. 2006).
\157\ Bruhn's Freezer Meats, 438 F.3d 1337 (8th Cir. 1971).
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Section 201.306(c) prohibits a regulated entity from performing
under or enforcing a contract with a covered producer by employing a
false or misleading statement, or omission of material information
necessary to make a statement not false or misleading. It is
fundamental to the integrity of the marketplace and critical during the
performance or enforcement of contracts that regulated entities are
prohibited from making false or misleading representations--express or
implied--and that they are prohibited from failing to provide the
necessary fact or information necessary to make a representation not
misleading. ``By employing'' captures the materiality of the false or
misleading representation in that the representation formed a material
part of the action under performing or enforcing the contract.
Deceptive practices take many forms throughout the operation of a
contract. USDA and the courts have recognized these forms in a variety
of administrative and Federal enforcement actions, including false
weighing, false or deceptive grading (including failure to disclose the
formulas for determining payment), failure to pay for purchases, and
pretextual refusals to deal.
False or inaccurate weighing has long been recognized as deceptive
under secs. 202(a) and 312 of the Act.\158\ False weighing can occur in
various ways. In some cases, the regulated entity records inaccurate
weights using an improperly calibrated scale. In other cases, a
regulated entity uses the scale improperly. In all these cases, false
weighing is a plain and straightforward instance of a false statement
that is material to the reasonable producer. Even if a regulated entity
does not intentionally set out to deceive with respect to the weight of
livestock, the Act does not require proof of a particularized
intent.\159\ Short weighing alone is enough to be an unfair and
deceptive practice under the Act, without regard to the competitive
injury the short weighing causes.\160\
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\158\ See Bruhn's Freezer Meats, 438 F.3d 1337 (8th Cir. 1971);
Solomon Valley Feedlot, 557 F.2d at 717; Gerace v. Utica Veal Co.,
580 F. Supp. 1465, 1470 (N.D.N.Y. 1984).
\159\ Parchman v. U.S. Dep't of Agric., 852 F.2d 858, 864 (6th
Cir. 1988) (interpreting sec. 312 of the Act).
\160\ Garace, 580 F. Supp. At 1470.
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False or inaccurate grading has the same effect as false weighing
because deceptive grading prevents the seller from receiving the full
value of their livestock or poultry. A USDA Judicial Officer found a
deceptive practice when a packer failed to inform hog producers of a
change in the formula it used to estimate lean percent in hogs. Lean
percent was one factor used in determining price when the packer
purchased hogs on a carcass merit basis. USDA determined that nearly
twenty thousand lots of hogs were purchased under the changed formula
without notice to producers, resulting in payment of $1.8 million less
than they would have received under the previous formula.\161\ This
type of deceptive practice harms honest competitors because ``[h]ad hog
producers been alerted to the change, they could have shopped their
hogs to other packers.'' \162\
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\161\ In re: Excel Corporation, 63 Agric. Dec. 317 (2004), aff'd
Excel Corp. v. United States Dep't of Agric., 397 F.3d 1285, 1293
(10th Cir. 2005).
\162\ 397 F.3d at 1291.
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Payment violations can also be deceptive, especially issuance of
[[Page 16130]]
insufficient funds checks. For example, regulated entities may withhold
payment to prevent producers from commencing legal action or reporting
otherwise unrelated violations to authorities.\163\ Failing to pay for
meat has also been found to be deceptive in numerous instances.\164\
Under the similar language of secs. 312 of the Act, the Eighth Circuit
explained that lack of timely payment was unfair and deceptive even
prior to the enactment of sec. 409 of the Act: ``Timely payment in a
livestock purchase prevents the seller from being forced, in effect, to
finance the transaction.'' \165\
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\163\ See, e.g., In Re: Mid-W. Veal Distributors, d/b/a Nagle
Packing Co., & Milton Nagle, 43 Agric. Dec. 1124, 1140 (1984).
\164\ See, e.g. Milton Abeles, Inc. v. Creekstone Farms Premium
Beef, LLC, No. 06-CV-3893(JFB)(AKT), 2009 WL 875553, at *19
(E.D.N.Y. Mar. 30, 2009) (citing Liberty Mutual Ins. Co. v. Bankers
Trust Co., 758 F.Supp. 890, 896 n. 7 (S.D.N.Y.1991); In re FLA
Packing & Provision, Inc., and C. Elliot Kane, P & S Docket No. D-
95-0062, 1997 WL 809036, at *6 n. 1 (1997); In re: Central Packing
Co., Inc. d/b/a Plat-Central Food Services Co., Inc., a/k/a Plat-
Central Food Service Supply Co., and Albert Brust, an individual, 48
Agric. Dec. 290, 297-99 (1989)); see also In Re: Ampex Meats Corp. &
Laurence B. Greenburg., 47 Agric. Dec. 1123, 1125 (1988) (citing In
Re: Rotches Pork Packers, Inc. & David A. Rotches., 46 Agric. Dec.
573, 579-80 (U.S.D.A. Apr. 13, 1987) In Re: George Ash, 22 Agric.
Dec. 889 (1963); In re Goldring Packing Co., 21 Agric. Dec. 26
(1962); In Re: Eastern Meats, Inc., 21 Agric. Dec. 580 134 (1962)).
\165\ Van Wyk v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978).
---------------------------------------------------------------------------
Section 201.306(d) prohibits a regulated entity from terminating a
contract with a covered producer by employing a false or misleading
statement, or omission of material information necessary to make a
statement not false or misleading. Employing false or misleading
representations, express or implied, or failing to provide the
necessary fact or information necessary to make a representation not
misleading--critical protections during the performance or enforcement
of contracts--are similarly fundamental to the integrity of the
marketplace. ``By employing'' captures the materiality of the false or
misleading representation in that the representation formed a material
part of the action under performing or enforcing the contract. AMS
draws on its experience in establishing the need for this prohibition.
AMS notes, for example, that poultry growers complain of companies
terminating their broiler production contracts based on pretext or for
a deceptive reason. Contract termination puts the grower at severe risk
of significant economic loss. The potential loss includes not only the
loss of production income but also a grower's farm or family home,
since a production broiler house construction is often financed with
mortgages on those assets. Pretextual cancellation, in the form of
false or misleading representations or material omissions, may also
make even the sale or transfer of the broiler production house
impossible because purchasers may be unable to determine if the broiler
houses have value.
AMS included the prohibition against false or misleading
information or material omissions in paragraphs (b) through (d) to
protect producers from conduct that employs deceit to disguise a
regulated entity's genuine motive. A poultry producer stated in a
public workshop that he relied upon cash flow statements provided by
the integrator to secure a loan for his operation only to find out
later ``that the document wasn't accurate from the first flock that I
placed and set. The capital investment of these facilities, while they
may be greatly benefiting the integrator, are not returning any value
to us whatsoever.'' \166\ In another public comment, a poultry producer
asserted that he is ``not given a clear picture of the integrator's
operating procedures until after a contract has been signed. The
contracts are very biased and one-sided, giving the bulk of control and
authority to the initiator of the contract and then, only after you
have committed to playing their game you are then given the rule
book.'' \167\ The producer further stated that, ``the practices of the
integrators are very calculated to ensure the integrators are protected
legally while entrapping the farmer into modern day indentured
servitude.'' \168\
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\166\ United States Department of Justice, United States
Department of Agriculture. May 2010. Public Workshops Exploring
Competition in Agriculture, Poultry. Accessed at https://www.justice.gov/media/1244676/dl?inline on 10/03/2023. p. 366.
\167\ Rural Advancement Foundation International (RAFI),
``Comment on AMS-FTPP-21-0045: Inclusive Competition and Market
Integrity Under the Packers and Stockyards Act,'' available at
Regulations.gov.
\168\ Ibid.
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Section 201.306(e) prohibits a regulated entity from providing
false information to a covered producer or association of covered
producers concerning a refusal to contract. Deception related to
refusal to contract is an unlawful practice designed to exclude
producers from livestock and poultry markets. For example, if a
producer association is asking on behalf of its members why a regulated
entity is not executing any deals in the cash market and the entity
lies about why it is avoiding the cash market, this could impede market
entry for the association's members. Owing to the risk of retaliation,
even with this final rule in place, a covered producer may depend upon
a producer association to obtain the necessary understanding why the
regulated entity is engaging in certain practices in the market, such
as refusing to contract with covered producers.
A regulated entity that refuses to contract on unlawful grounds may
well choose to hide their motives with misleading or deceptive
statements. This regulation recognizes false and misleading statements
made as justification of a refusal to enter into a contract as
``deceptive'' within the meaning of the Act. However, when refusing to
enter into a contract, a regulated entity is not required to explain
its reasoning so long as it does not offer a false or misleading
statement to a covered producer.
Producers and consumers cannot make rational decisions in a
dishonest market, and honest competitors cannot compete when regulated
entities deceive. With this rulemaking, AMS is adding Sec. 201.306 to
its existing deception regulations under the Act to provide a broad
array of coverage regarding the general circumstances that encourage
the provision of false or misleading information in contracting. This
regulation does not provide an exhaustive list of instances of
deceptive practices; rather, it establishes four categories where
deceptive practices commonly occur. The intent is to provide guidance
to covered producers on how to effectuate their rights under section
202(a) of the Act and to promote a marketplace that is free from the
type of injury section 202(a) was designed to prevent. AMS will
investigate any alleged violations of this regulation and its
determination will depend on the facts and circumstances of each case.
F. Severability (Sec. 201.390)
AMS is adding Sec. 201.390, ``Severability,'' to new subpart O to
confirm that if any provision of subpart O, or any component of any
provision, is declared invalid or if the applicability thereof to any
person or circumstances is held invalid, it is AMS's intention that the
validity of the remainder of this subpart or the applicability thereof
to other persons or circumstances shall not be affected thereby with
the remaining provision, or component of any provision, to continue in
effect. Such a provision is typical in AMS regulations that cover
several different topics and is included here as a matter of
housekeeping.
This rule aims to address concerns around unduly prejudicial,
unjustly discriminatory, retaliatory, and deceptive conduct in the
livestock and
[[Page 16131]]
poultry industry to the broadest jurisdiction of the Act. This new
subpart has two sections that prohibit unduly prejudicial, unjustly
discriminatory, and deceptive practices. This regulation is intended to
take a series of regulatory actions, within this rulemaking, to address
several different harms on the same or similar subjects but not
prohibit identical conduct. The wrongful conduct addressed in the undue
prejudice and discrimination, retaliation, and deception provisions are
each different--the first focusing on adverse action on the basis of a
personal characteristics or status of the producer, the second on
certain protected actions by the covered producer, and the third
focused on deception in contracting. AMS included these provisions
based on the likelihood that conduct falling within one or more of
these sections will stifle honest competition or exclude independent
livestock producers, poultry growers, and swine contractors from the
marketplace. Each provision could, however, have been implemented on a
stand-alone basis without the others. Conduct that violates one
provision is not dependent on protections put in place in other
sections. For example, if a regulated entity discriminates against a
producer on the basis of a protected class in an unduly prejudicial
manner, AMS may enforce the regulation without alleging violations of
retaliation or deception. These new provisions are written so that they
are not mutually exclusive. Furthermore, the benefits of each provision
of this rule are not diminished by the absence of a different
provision. For example, the benefits of protecting producers against
retaliation are not lost if the rule is held to fail to protect against
deception or discrimination.
AMS intends that the severability provision operate to the fullest
extent possible. AMS recognizes that--to a limited extent--not all the
language of the rule is severable. For example, to find undue
prejudicial discrimination under ``race, color, religion, national
origin, sex (including sexual orientation and gender identity),
disability, or marital status, or age of the covered producer,'' the
prejudicial conduct must be ``on the basis of'' one of the specified
protected bases. AMS recognizes that this causation requirement is not
severable as it is integral to that specific provision of the rule.
However, AMS intends that all other portions and components of the
rule may be severable without affecting the remaining portions of the
rule, and that the rule remains workable and continues to serve the
interests of the agency's policy goals. For instance, AMS intends that
the invalidity or unenforceability of one of the rule's prohibited
bases does not render the others invalid or unenforceable. The
protected bases have different reasons for their appearance in the
rule. For example, if the protected base of religion were found invalid
or unenforceable, this does not negate the benefits of including
protections for another protected base, like sex. Also, to further
follow this example, the language in Sec. 201.304(a)(1)(i) is
severable from those included in the retaliation (Sec. 201.304(b)) and
deception (Sec. 201.306) sections. Therefore, one or more provisions
might be unenforceable as to an individual or a specific case, but AMS
intends that the remaining provisions would still be enforced. Finally,
if determining the necessity of an individual provision to the
enforceability of its entire section, and the benefits of that section
are still intact without an unenforceable provision, AMS would intend
to retain the enforceable provisions.
VII. Comment Analysis
AMS received 446 public submissions in response to the proposed
rule. Numerous comments to the proposed rule expressed concerns that
concentrated, vertically integrated markets expose producers to
exclusion from the market on bases unrelated to the quality of their
products or services and that the markets in which the commenters
operate lack sufficient honesty, integrity, and fair dealing. In
addition, numerous comments stated that, except for very narrow
justified circumstances, there are no competitive benefits to these
practices when operating within a market where producers are less able
to compare, negotiate, or change business relationships.
Other commenters were critical of the proposed rule. Some
commenters expressed disagreement with the need for the proposed rule,
arguing that it is duplicative of the Act and existing regulations,
while other commenters stated that the proposed rule's vagueness would
make compliance a challenge. Other commenters argued that the proposed
rule would result in costly litigation and recordkeeping burdens and
exceeded AMS's authority under the Act.
The public comments are summarized by topic below and include AMS's
responses.
A. Definitions (Sec. 201.302)
AMS proposed to add definitions in Sec. 201.302 for covered
producer, livestock producer, market vulnerable individual, and
regulated entity. AMS received comments about the proposed definitions
of livestock producer and market vulnerable individual. Comments about
the latter are addressed below in Section VII.C.i--Market vulnerable
individual approach.
In Sec. 201.302, AMS proposed to define livestock producer as any
person engaged in the raising and caring for livestock by the producer
or another person, whether the livestock is owned by the producer or by
another person, but not an employee of the owner of the livestock. AMS
proposed to add a new definition of covered producer to encompass
livestock producers as defined in this section, along with swine
production contract growers and poultry growers as defined in sec. 2(a)
of the Act.
Comment: Several commenters noted the proposed definition of
livestock producer could include individuals only tangentially related
to livestock production, such as accountants working for feed yards,
truck drivers hauling livestock owned by others, veterinarians,
nutritionists, or consultants. The commenters contended the proposal
opens the definition of livestock producer to an unlimited number of
litigants beyond the scope of the Act.
Similarly, a meat industry trade association said AMS should
withdraw or amend the definition of livestock producer because its
vagueness potentially adds so many individuals to the covered producer
umbrella as to be unworkable. Another association noted its confusion
when reading the definition, given that the definition's wording
explicitly excludes employees of the owner of livestock, but includes
anyone who is not an employee of the owner of livestock that is engaged
in raising or caring for livestock.
AMS Response: AMS is revising the definition of livestock producer.
AMS intended that the term livestock producer be defined in a manner
similar to other terms in the Act, so that the protections of the rule
would fit violations that are described in this rulemaking. Under the
final rule, livestock producer is defined as any person--except an
employee of the livestock owner--engaged in the raising of and caring
for livestock. As commenters noted, the proposed definition was vague
and potentially confusing. The revised definition provides clarity by
removing unnecessary and potentially confusing phrasing. In response to
commenters' concerns that the term encompasses individuals only
tangentially related to livestock production, AMS has revised
[[Page 16132]]
the proposed definition to focus this final rule on the Agency's
traditional role in protecting the producer to the fullest extent
possible under the Act--including but not limited to production and
marketing. To the extent that the producer is harmed through acts that
the regulated entity takes against an employee acting as agent for the
producer or another entity that the covered producer utilizes or relies
on for production or marketing, the producer could still fully benefit
from the protections of this final rule. Whether the non-producer
parties could benefit from the protections of the Act may depend upon
particular facts and circumstances.
B. Applicability
AMS proposed in Sec. Sec. 201.304 and 201.306 to apply its
prohibitions on undue prejudice, retaliation, and deceptive practices
to swine contractors and live poultry dealers as defined in sec. 2(a)
of the Act and to packers as defined in sec. 201 of the Act. Proposed
Sec. 201.304(a)(1) would prohibit prejudice, disadvantage, or the
denial or reduction of market access by regulated entities against
covered producers based on their status as ``market vulnerable''
producers. AMS requested comment on whether the prejudicial
discrimination and retaliation provisions should be extended to all
persons buying or selling meat and meat food products, including
poultry, in markets subject to the Act.
Comment: An agricultural advocacy organization expressed support
for AMS's proposal to extend protections to all covered producers who
experience retaliation by regulated entities.
An agricultural advocacy organization said that if AMS adds aspects
of regional concentration and aspects of contract growing arrangements,
such as high debt load, to the definition of a market vulnerable
individual, then the proposal to provide protection based on market
vulnerable individual status is appropriate. This commenter noted that
AMS's question regarding extension of the prejudicial discrimination
and retaliation provisions highlights the need for a separate rule
addressing enforcement of the Act's prohibition on undue preferences.
According to this commenter, if AMS makes it clear that it intends to
enforce the Act to stop companies from giving undue preferences to some
sellers, everyone participating in these markets will have adequate
protection.
AMS Response: AMS appreciates the comments regarding a broader
definition of MVI to include all those impacted by the abusive
conditions aggravated by market concentration. AMS recognizes that
producers face challenges because of consolidated market power,
including from types of conduct this rule aims to address. One of the
purposes of this rule is to address adverse impacts of concentrated
markets by ensuring inclusive competition free of unjust discrimination
on the basis of race, color, religion, national origin, sex,
disability, or marital status, or age or because of the covered
producer's status as a cooperative, as well as to protect against
retaliation and deception.
AMS underscores that the protections for cooperatives are intended,
in part, to help producers gain market leverage in the face of
concentrated markets. In 1922 Congress passed the Capper-Volstead Act
providing legal protections for producers to collectively process,
prepare for market, handle and market their products. Cooperatives
enable smaller, disparate producers to band together, coordinate in
ways that otherwise may not be permissible under the antitrust laws
outside of a single company, and otherwise work together to obtain a
better bargain from market counterparties with larger economic
footprints. AMS will continue to work toward addressing problems
associated with concentration through subsequent rulemaking. USDA is
also utilizing other tools to address undesirable business practices
born from market concentration that adversely impacts producers. USDA
is investing $1 billion to support greater choice for producers through
expanded local and regional processing capacity in meat and poultry.
USDA has also announced enhancements to its antitrust enforcement
partnerships, including investing in partnerships with DOJ through
farmerfairness.gov and with more than 32 State attorneys general,
updates to its meat and poultry labels that will better guard against
misbranding that damages the signals that flow from consumers to
producers, as well as other agency actions intended to address
unfavorable behavior by regulated entities facilitated by concentration
in the livestock industry.
However, addressing unjust discrimination solely on the basis of
the size or indebtedness of the producer is outside the scope of this
rule, and because of the complex economic implications of volume
preferences and efficiencies, would be more appropriately considered in
the context of a future update to undue preferences rules. In contrast,
undue and unreasonable prejudice or disadvantage on the basis of the
prohibited bases and protected activities adversely affects allocative
efficiency and offers no competitive benefits. That is true
irrespective of whether the unlawful conduct occurs in a concentrated
market or not.
AMS has shifted away from its market vulnerable approach and has
adopted a well-established standard in line with existing economic,
civil rights, and other regulatory regimes that rely on protected bases
for discrimination. Producers with high debt loads are not included in
those well-established protections; therefore, AMS will not include
them in its final rule.
C. Undue Prejudices and Unjust Discrimination (Sec. 201.304(a))
AMS proposed new provisions in Sec. 201.304(a) that would prohibit
regulated entities from prejudicing, disadvantaging, or inhibiting
market access, or otherwise taking adverse action against a livestock
producer, swine production contract grower, or poultry grower based on
the producer's status as a ``market vulnerable individual'' or as a
cooperative.
i. Market Vulnerable Individual Approach
AMS proposed to prohibit prejudicing, disadvantaging, inhibiting
market access, or otherwise taking adverse action against covered
producers based on their status as a market vulnerable individual
(MVI). It proposed to define that term as a person who is a member, or
who a regulated entity perceives to be a member, of a group whose
members have been subjected to, or are at heightened risk of, adverse
treatment because of their identity as a member or perceived member of
the group without regard to their individual qualities. A market
vulnerable individual would include a company or organization where one
or more of the principal owners, executives, or members would otherwise
be a market vulnerable individual. When defining market vulnerable
individual in its proposal, AMS listed a non-exhaustive list of
protected classes that would be considered market vulnerable such as
race, ethnicity, or sex or gender prejudices (including discrimination
against an individual for being lesbian, gay, transgender, or queer),
religion, disability, or age.
AMS requested comment on whether the regulatory protections
provided by the prohibition on undue prejudices for market vulnerable
individuals and cooperatives would assist those producers in overcoming
barriers to reasonable treatment, or otherwise address prejudices or
threats of prejudice in the marketplace. It further requested comment
on whether specific
[[Page 16133]]
groups should be named as market vulnerable individuals, whether AMS
should identify defined protected classes, or whether AMS should use a
``market vulnerable producer'' approach, which extends broad
antidiscrimination protections to any producer belonging to a group
subjected to or at heightened risk of adverse treatment. In addition,
it requested comment on whether it should delineate specific examples
of groups that are market vulnerable, as well as supportive evidence
regarding historical adverse treatment of such groups. Finally, it
requested comment on whether the undue prejudices provision of the
proposed rule provides sufficient protection regardless of the covered
producer's type of business organization.
Comment: Several commenters indicated proposed Sec. 201.304(a)
would provide necessary protections, consistent with the Act, against
packers and processors who leverage their market power to injure
marginalized farmers. Farm bureaus and other agricultural advocacy
organizations also indicated the rule would protect producers from
certain prejudices, unjust discrimination, retaliation, and deceptive
practices.
Several commenters stated they preferred the market vulnerable
producer approach to fighting discrimination over the traditional
protected classes approach because it would allow for flexibility to
address different markets and different forms of prejudice and
discrimination that may develop. An agricultural and environmental
organization stated the market vulnerable producer approach not only
covers instances of discrimination based on protected characteristics
such as race, national origin, sex, religion, gender identity, and
disability, but can also apply to other forms of discrimination unique
to livestock and poultry markets. This commenter said this approach is
consistent with the Act, which prohibits ``any'' unjust discrimination,
and ``any'' undue prejudice or disadvantage ``in any respect
whatsoever.'' Several State attorneys general suggested that the
proposed definition was preferable as proposed, without specifying
traditional protected classes, because it would allow for flexibility
among different markets and forms of prejudice or discrimination that
may develop over time.
Several agricultural advocacy organizations said poultry and cattle
producers operating in regions with monopsony or oligopsony conditions
should qualify as market-vulnerable individuals. Similarly, an academic
or research institution sought to add producers operating in monopsony
conditions to the definition. A commenter suggested AMS use the
regional Herfindahl-Hirschman index to indicate the market vulnerable
status of producers in a region. Some commenters cited heightened risk
of adverse treatment as a rationale for considering these groups to be
market vulnerable or noted that monopsony power has been legally
relevant in cases under the Act and there is judicial precedent for
acknowledging monopsonist power as a factor in adverse impacts to
competition, while others said these groups meet the criteria laid out
by AMS in the preamble to the proposed rule explaining why historically
marginalized groups are likely to be vulnerable to market abuses.\169\
The latter commenter provided detailed evidence that these groups met
each of the criteria AMS identified: their relative ``size, sales, and
incomes;'' their ``exposure to concentrated market forces;'' their
having ``fewer economic resources'' to ``counteract'' adverse market
structures; and their ``isolation'' from economic networks such as
sources of supply, other producers, and distribution.
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\169\ 87 FR 60020-21, October 3, 2022.
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Several commenters seeking protections for producers that are at
increased risk of being disadvantaged due to highly concentrated
regional markets cited Colorado cattle producers as an example, given
the USDA has not publicly reported the State's fed cattle prices for
several years because there are too few packers purchasing fed cattle
in Colorado to overcome USDA confidentiality guidelines. Commenters
noted, with few packers in the region, sellers in the region are
vulnerable to unfair practices.
An agricultural advocacy association recommended that AMS expand
the MVI definition to include covered producers whose geographic
locations restrict their ability or willingness to sell and transport
their livestock to two or fewer regulated entities. This commenter also
said that it would be helpful for AMS to expand on and provide more
``definite form'' to the four socioeconomic factors presented in the
rulemaking notice. The association reasoned that if producers can
proactively demonstrate their status as market vulnerable, it would
avoid the need for ad hoc microeconomic analyses or expert witnesses to
make assessments on individual bases.
Several State attorneys general suggested AMS specifically address
the vulnerability that small, rural farmers encounter due to their
location or production size. The commenters stated small, rural farmers
do not have enough local processors, and those processors give
preference to packer-owned and contract livestock for the limited
packing plant capacity available. An agricultural advocacy organization
also said small, independent cattle producers meet many of the criteria
for being considered market vulnerable, arguing for example that they
are exposed to concentrated market forces because they do not receive
forward contracting arrangements from packers; they are denied
favorable bonus, financing, and risk sharing terms common with other
arrangements; and they are required to sell their cattle to packers on
at-will cash markets for lower aggregate compensation. Agricultural
advocacy organizations also said independent cattle producers operating
in cash-negotiated spot markets should be considered vulnerable because
of their independent status. Other commenters recommended AMS expand
market vulnerable individual status to include non-English speakers,
people with limited education, producers in markets with limited
buyers, and immigrant farmers.
Agricultural advocacy organizations recommended the definition of
market vulnerable individual explicitly include, but not be limited to,
race, color, national origin, religion, sex, sexual orientation,
disability, age, marital status, family or parental status, income
derived from a public assistance program, political beliefs, or gender
identity. Commenters asserted individuals in each of these groups
should not have to continually prove discrimination and prejudice
against them based on the characteristic that makes them vulnerable in
the market.
Agricultural advocacy organizations expressed support for including
cooperatives in the prohibited bases under proposed Sec. 201.304.
These commenters recommended that AMS explain in the preamble to the
final rule the relationship between the producer association
protections under the Agricultural Fair Practices Act and the proposed
new protections under the Act, noting regulated entities have unjustly
discriminated against covered producers based on their membership in
these cooperatives due to the increased market leverage these
cooperatives or other producer associations provide.
An individual commenter urged AMS to explicitly prohibit
discrimination based on sexual orientation and gender identity for
those who voluntarily disclose such status. The commenter
[[Page 16134]]
stressed AMS should not require LGBTQ producers to disclose their
sexual orientation or gender identity in conducting business, citing
privacy, and security concerns. Other commenters noted sexual
orientation is different from gender identity, so both should be listed
individually in the rule.
Some agricultural and environmental advocacy organizations
expressed support for AMS's flexible ``market vulnerable individual''
approach, but also expressed concern that the proposed rule would
impose a difficult burden of proof on covered producers, requiring, for
example, a producer alleging discrimination based on their status as a
member of a historically marginalized group (e.g., a racial minority)
to also demonstrate their status as a market vulnerable individual ``in
relevant markets.'' Commenters indicated producers should not have to
continually prove they are being discriminated against if they are
members of a protected class or qualify as a market vulnerable
individual. These commenters urged AMS to clarify the Act directly
prohibits discrimination based on protected class status and to provide
producers with guidance on how to demonstrate their market vulnerable
status. Commenters recommended that AMS include in Sec. 201.304 a non-
exhaustive list of factors covered producers can rely on to demonstrate
their market vulnerable status.
Similarly, agricultural advocacy groups recommended that AMS
clearly identify the types of individuals the agency would consider to
be market vulnerable, and the methodology AMS will use to make this
determination. A commenter specified producers who derive a substantial
percentage of their income from their livestock or poultry operation
are more vulnerable to unjust practices than those who derive a small
percentage of their income from those operations. A commenter suggested
that AMS develop a method to assess regional concentration levels using
information regarding market share, Herfindahl-Hirschman index, and
price reporting systems to allow producers to show they operate in a
region that qualifies them as market vulnerable individuals.
An organization urged AMS to revise proposed Sec. 201.304(a)(1) to
clarify that the rule bans discriminatory conduct based on disparate
treatment or disparate impact, not just discriminatory intent.
According to the commenter, while secs. 202(a) and (b) of the Act
clearly establish that the determinative factor for whether conduct
constitutes a violation is its purpose or effects, the proposed
language in Sec. 201.304(a)(1) potentially requires a covered producer
to prove discriminatory intent. The commenter said that, by describing
prohibited conduct using the verb forms of ``prejudice,''
``disadvantage,'' ``inhibit market access,'' and ``take adverse
action,'' this language suggests the proposed rule would only prohibit
actions motivated by a prohibited basis. Therefore, the commenter
recommended that AMS revise this section to use language that parallels
the text of sects. 202(a) and (b) in clearly distinguishing the actions
of regulated entities from their discriminatory nature or effects.
Some commenters who supported AMS's market vulnerable producer
approach expressed concern that the proposed rule could place a heavy
burden on producers to establish an intentional discrimination claim
based on market vulnerable status, citing the DOJ, among others, in
noting that successfully showing discriminatory intent can be extremely
difficult.\170\ According to the commenters, producers would have
evidence of differential treatment, but they would not likely have
evidence to show they were subject to adverse treatment because of
their status as market vulnerable individuals. Therefore, these
commenters urged AMS to require regulated entities to rebut a
presumption of discriminatory intent once a producer demonstrates
differential treatment. Specifically, the commenters recommended the
final rule include provisions clarifying that, to prove an unlawful
violation of Sec. 201.304(a), producers must demonstrate that they
meet the definition of a ``market vulnerable individual'' or are a
member of a protected class, and that they were personally subject to
disparate and adverse treatment. One commenter also said producers'
burden here should include showing circumstantial facts plausibly
suggesting a causal connection between their group identity and the
treatment they received. The burden would then shift to the regulated
entity to show that the producer's market-vulnerable status was not a
motivating factor for its presumptively discriminatory conduct, and the
same decision would have been made regardless of the producer's market
vulnerable status. The commenters cited case law in asserting this
burden-shifting approach is consistent with other antitrust and civil
rights evidentiary frameworks developed by the courts to reduce the
burden of proving discriminatory intent.\171\
---------------------------------------------------------------------------
\170\ U.S. Department of Justice, Civil Rights Division, Title
VI Legal Manual, 5. See also Price Waterhouse v. Hopkins, 490 U.S.
228, 271 (1989) (``[D]irect evidence of intentional discrimination
is hard to come by.'').
\171\ See Impax Labs., Inc. v. Fed. Trade Comm'n, 994 F.3d 484,
497-500 (5th Cir. 2021); McDonnell Douglas Corp. v. Green, 411 U.S.
792 (1973).
---------------------------------------------------------------------------
A commenter also asked AMS to establish a separate liability
standard and burden-shifting framework for discriminatory-effects
claims. The commenter said AMS should introduce a framework analogous
to the Department of Housing and Urban Development's (HUD)
Discriminatory Effects Standard,\172\ under which a covered producer
would have the initial burden of demonstrating that a regulated
entity's policy or practice causes or predictably will cause a
discriminatory effect. The commenter said the burden should then shift
to the regulated entity to show that the challenged practice is
necessary to achieve a substantial, legitimate, and nondiscriminatory
interest which could not be served by another practice with a less
discriminatory effect. The commenter also provided further details
about what would constitute a discriminatory effect or a legitimate
interest under this standard.
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\172\ Reinstatement of HUD's Discriminatory Effects Standard, 86
FR 33590, June 25, 2021 (to be codified at 24 CFR part 100).
---------------------------------------------------------------------------
A plant worker offered three factors to consider when determining
market-vulnerable groups. These factors included being a member of any
``socially disadvantaged group'' as defined by the USDA Farm Bill,\173\
working for a small producer (no formal definition of ``small
producers'' was offered), or being in geographic areas with an ``ultra-
high'' concentration of buyers that leads to increased buyer market
power and reduced prices paid to producers.\174\
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\173\ According to the commenter: ``A group whose members have
been subjected to racial or ethnic prejudice because of their
identity as members of a group without regard to their individual
qualities.''
\174\ Matthew C. Weinberg et al., ``Buyer Power in the Beef
Industry,'' https://equitablegrowth.org/grants/buyer-power-in-the-beef-industry.
---------------------------------------------------------------------------
Some commenters expressed opposition to the proposed definition of
market vulnerable individual on the basis that it was too vague. An
association asserted the definition is ``so vague that neither party
may be able to figure out whether the contract grower is indeed a
`market vulnerable individual.' '' Commenters said the proposed
definition implicates the Due Process Clause, with commenters saying
the definition as drafted is so open-
[[Page 16135]]
ended that it could potentially include any producer, thus giving
processors inadequate notice of when they might be in danger of
violating the proposed rule. Commenters suggested AMS intends for
courts to flesh out the specifics on who the rule covers, noting this
approach would lead to more uncertainty and confusion. Commenters also
said the definition is vague because it incorporates inherently
subjective concepts, such as whether a producer is a member of a group
``whose members are at heightened risk of adverse treatment.''
Commenters questioned what amount of risk constitutes ``heightened
risk.''
Two cattle industry trade associations and a live poultry dealer
contended that the ambiguity of the definition would create uncertainty
for regulated entities when making market vulnerable-status
determinations on a case-by-case basis, which could disincentivize
bringing on new producers in the future. They argued that AMS could
avoid this uncertainty if it introduced codified standards based on
consistent immutable traits, such as protected classes.
Some commenters were opposed to explicitly including protected
classes in the definition. A meat industry trade association noted that
it can be difficult or impossible for regulated entities to ascertain
all the demographic information for every producer they do business
with to determine whether the producer they are contracting with is in
a protected class and thus a market vulnerable individual. An
agricultural association noted that regulated entities soliciting such
demographic information could in and of itself give the appearance of
discriminatory behavior.
Lastly, some commenters opposed the market vulnerable individual
definition because they thought it would be too limiting. Two farm
bureaus argued that it would create uncertainty for producers who do
not meet the definition, and that protections should be available for
anyone participating in the marketing of livestock. Other farm bureaus
also suggested that market vulnerable individual be defined solely by
economic factors, rather than social factors, to be consistent with the
objectives of the Act.
AMS Response: AMS, in response to these comments, has decided not
to use market vulnerable individual as the basis for the rule's
prohibition on discrimination or undue or unreasonable prejudicial or
disadvantageous action. AMS agrees that the term MVI may be too vague,
ambiguous, and overly broad to serve as the prohibited basis for undue
or unreasonable prejudice. Instead, this rule uses protected classes
largely as defined by ECOA, plus disability and status as a
cooperative, as the bases against which unjust discrimination or undue
prejudice is prohibited because, as explained above in Section VI--
Provisions of the Final Rule, this regulation incorporates the ECOA
terms with respect to discrimination in the extension of credit because
those terms reflect USDA policy against discrimination in conducted
programs.\175\ Protections against discrimination on these protected
bases extend to all producers. AMS, incorporating feedback from
producers and other stakeholders, decided to create its protected bases
on the well-established ECOA standards, with some additions. Regarding
the commenter's concern that regulated entities may not be aware of the
demographic information of producers with whom they conduct business,
in such cases AMS would not be able to prove discriminatory conduct
because any adverse action taken against that producer could not have
been on the basis of their status as a protected class.
---------------------------------------------------------------------------
\175\ 15 U.S.C. 1691c(a)(5).
---------------------------------------------------------------------------
AMS adopted several suggestions by commenters regarding the
specific bases for protection against unjust discrimination.
Principally, AMS's authority to clarify the protected bases stems from
sec. 407 of the Act, which authorizes the Secretary to ``make such
rules, regulations and prescribed orders as may be necessary to carry
out the provisions of this Act.'' \176\ The Act has incorporated
provisions of other law (such as the FTC Act and the Clayton Act). The
Act is a remedial statute that prohibits unlawful discrimination. To
inform the scope and bases of unlawful discrimination and prejudice
under the Act in this rulemaking, AMS has looked to other civil rights
laws, which aid in determining the scope of discrimination and
prejudice that is unjust and undue. AMS concludes here that
discrimination and prejudice on the bases set forth under this final
rule inhibit the ability of all to participate in the market, and that
the clarifications set forth in this final rule are necessary to
protect all market participants from unjust discrimination and undue
prejudice. Furthermore, AMS has considered available relevant
references to support the determination. These include USDA's Statement
on Conducted Programs \177\ and evidence of a general congressional
policy found in ECOA that prohibits discrimination on the bases of
race, color, religion, national origin, sex (including sexual
orientation and gender identity), marital status, age, or disability.
Additionally, AMS is including status of a covered producer as a
cooperative as a prohibited basis of discrimination because Congress,
through passage of the Capper-Volstead Act, has provided clear
statutory support for cooperatives as an organizational form that
allows farmers to achieve scale through coordination and thereby more
effectively compete in agricultural markets and engage with other
market participants. AMS is adopting the aforementioned specific bases,
as opposed to MVI, because the specific prohibited bases offer clearer,
more workable standards that will facilitate compliance by regulated
entities and better enable producers to exercise their rights under the
Act.
---------------------------------------------------------------------------
\176\ Packers and Stockyards. Act, 1921. Packers and Stockyards.
Act, 1921 (Aug. 15, 1921, ch. 64, title I, Sec. 1, 42 Stat. 159.)
Section 407.
\177\ USDA's Statement on Conducted Programs, accessed 1/30/
2024.
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The use of those terms comes with well-established jurisprudence in
other contexts, such as ECOA, which incorporates the Act's enforcement
provisions, appropriately applied in the context of livestock and
poultry markets. Additionally, the status of covered producer as a
cooperative was added to the list of protected classes against which
discrimination is prohibited. The prohibition on discrimination covers
cooperatives consistent with and in furtherance of the Agricultural
Fair Practices Act. Cooperatives enable smaller producers' ability to
balance concentrated economic power through their ability to coordinate
and negotiate.
AMS will not include degrees of market concentration within
particular geographic locations in its list of protected bases. Doing
so would give rise to difficult questions around whether the government
should restrict the ability of regulated entities to seek efficiency
based on production volume, which is outside of the scope of this rule.
Additionally, AMS will not include in its list of protected bases a
size component for the same reasons that it is not incorporating market
concentration or geographic location. Nor is AMS including a
prohibition against discrimination in markets with limited buyers. In
both cases, such a prohibition would likely result in an all-
encompassing rule that would swallow this rule's intent to protect
specific well-established classes and activities which are widely
utilized across multiple
[[Page 16136]]
economic and civil rights regulatory regimes to stop market exclusion
and enable producers to realize the full value of their animals. AMS
underscores that the agency is aware of and sensitive to the concerns
that smaller producers face greater challenges in the face of
concentrated markets, where, as commenters suggested, small rural farms
are at a disadvantage when competing with larger operations in their
sale of livestock to a limited number of packers.
In this rule, AMS does not address questions of discrimination
based on the type of contract a producer has with a regulated entity
for the sale of their livestock. Considerations raised in that type of
discrimination, revolving around how livestock is marketed, are
different from the considerations undertaken in this rule around
whether the producer's personal characteristics are a prohibited basis
of unjust discrimination. Nonetheless, AMS is aware that some producers
may be under pressure to enter forward contacts or AMAs and that this
may limit their access to markets. AMS is considering other rules that
may be more appropriate for addressing those concerns.
Additionally, AMS intends for non-English-speaking producers and
immigrant producers to be covered under the prohibition on
discrimination on the basis of national origin or, in some cases, race
if they are facing discrimination on those bases. Therefore, AMS need
not expressly include non-English speaking producers in this rule.
However, people with limited education are not included as protected
bases because enforcement of such discrimination offers certain
practical challenges and is not well defined in other areas of law.
In this final rule, AMS has expressly prohibited discrimination
based on sexual orientation by adding that term as well as gender
identity to the prohibited basis of sex. The Supreme Court in Bostock
v. Clayton County recognized that to discriminate against a person
based on sexual orientation or transgender status is to discriminate
against that individual based on sex.\178\ AMS has included the term
sex as part of its prohibition on discrimination. By expressly adding
``including sexual orientation and gender identity'' to the rule text,
AMS confirms that sex includes those forms of discrimination.
Therefore, sexual orientation and transgender status are covered.
---------------------------------------------------------------------------
\178\ Bostock v. Clayton County, 140 S. Ct. 1731 (2020).
---------------------------------------------------------------------------
Nor is disclosure a requirement for discrimination based on sex. If
a regulated entity takes adverse action that amounts to undue prejudice
against a person on the basis of sex, it is immaterial whether the
decision is based on an accurate or inaccurate assessment of the actual
gender or sexual orientation of the covered producer. In either
instance, this prejudice is undue under the regulation.
In terms of concerns raised by commenters about the burden to
establish a claim, producers will not have to prove their status as a
market vulnerable individual as originally proposed as the bases of
discrimination are now based on discrete types of protected classes.
Therefore, as suggested by commenters responding to the proposed rule,
AMS does not need to provide a non-exhaustive list of factors for
covered producers to demonstrate their market vulnerable status.
Furthermore, because market vulnerability is no longer a
consideration when assessing violative conduct, AMS is not using market
vulnerability as a basis for assessing whether unjust discrimination
has occurred in violation of the Act. As noted above, this final rule
will not address discrimination on the basis of geographical location,
regional concentration, or size of a producer's operation because this
rule is focused on prohibiting adverse actions on bases for which there
are no pro-competitive benefits. Differences in treatment based on
geographic location, regional concentration, or size of the producer's
operation all raise more challenging tradeoffs with respect to
competitive benefits. To the extent that a covered producer suffers
discrimination on those bases, AMS encourages the covered producer to
report the concern to PSD, including through the tips and complaints
portal farmerfairness.gov, for consideration on a case-by-case basis
under the Act.
AMS is not establishing a formal burden-shifting framework in this
rule, nor one specifically focused on discriminatory effects such as an
analysis of disparate impact. Rather, AMS will leave the development of
evidentiary proof to the facts and circumstances of specific cases and
to the tribunals' processes and burdens for producing evidence. AMS has
investigatory and enforcement capabilities to determine whether
violative conduct has occurred under the Act. AMS's investigative
powers are extensive and include the ability to examine regulated
entities' records and compel testimony. AMS may investigate to
determine whether a regulated entity's disparate treatment of a
producer was on the basis of a protected class as specified in this
regulation.
Moreover, as described in Section V--Changes from the Proposed
Rule, subsection D--Retaliation Provisions, AMS changed ``because of''
to ``based upon.'' Paragraph (b)(1)'s prohibition as ``based upon'' is
intended to be broader than ``but for'' causation and so capture when
the protected characteristics or status are a material, or non-trivial,
element of the decision to take an adverse action against a covered
producer. AMS expects that fact-finding tribunals will establish the
necessary processes for proving these elements, with an eye toward the
protections for covered producers and for open, inclusive markets that
this rule is designed to provide. AMS underscores that discriminatory
intent is not an element of this final rule and need not be shown to
establish a violation, for example, where the regulated entity cannot
proffer a non-discriminatory business reason that fully justifies the
adverse action, or where the producer can show that such reason offered
was pretextual, a sham, or otherwise does not negate the presence of
the prohibited bases as a material element of the action.
Comment: An academic institution expressed support for AMS's
efforts to protect historically disadvantaged groups within the
stockyard and packing industries but suggested it may be more effective
to address the barriers to entry these groups face related to the
specialized education and training required by these industries. The
commenter recommended that AMS make agricultural and industry-specific
training and education more accessible to minority populations.
AMS Response: This rule is designed to strengthen the regulatory
protections afforded to producers by the Act. AMS intends to conduct
education and outreach to producers to help them understand their
rights under these acts. Additionally, greater access to specialized
training and education could be helpful to stopping market exclusion of
underserved producers. AMS and other USDA agencies conduct a range of
programs to support producer education, with the goal of remedying
market exclusion of underserved producers. However, providing
specialized training oriented toward enabling members of historically
disadvantaged groups to become more effective livestock producers is
outside the scope of this rulemaking.
[[Page 16137]]
ii. Proposed Rule Is Unnecessary
Comment: Several industry associations contended the proposed rule
is duplicative and therefore not necessary. According to these
commenters, the conduct addressed in the proposed rule is already
prohibited under the Act and existing regulations, citing the ``Undue
and Unreasonable Preferences and Advantages Under the Packers and
Stockyard Act'' final rule (the 2020 Rule).\179\ The commenters
explained the 2020 Rule identifies factors for determining whether
disparate treatment of similarly situated producers is justified. If
the disparate treatment is not justified, it is likely to be deemed an
undue or unreasonable preference. Commenters noted the proposed rule
would prohibit several forms of disparate treatment of covered
individuals, indicating proposed Sec. 201.304(a)(2) would make it a
violation for a regulated entity, in dealings with covered producers,
to prejudice, disadvantage, inhibit market access, or otherwise take
adverse action. Examples of prejudice or disadvantage specified in the
proposed rule include offering less favorable contract terms than are
customarily offered; refusing to deal; differential contract
performance or enforcement; or termination or non-renewal of a
contract. According to the commenters, these actions are already
prohibited under Sec. 201.211 because they are not justified based on
cost savings, based on meeting a competitor's terms, or as a business
decision.
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\179\ 85 FR 79779, December 11, 2020.
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An industry association asserted establishing antidiscrimination
law under the proposed rule is unnecessary because civil rights laws
already are well-established. The commenter also contended the proposed
rule would not address the market inequities faced by producers not
included in the protected classes, and the vague proposed definition of
market vulnerable individual would likely result in litigation creating
additional hardship for the individuals the rule seeks to protect.
An individual indicated the proposed rule would not be effective in
addressing prejudices or threats of prejudice in the marketplace and
instead recommended AMS take action to create more packers, which would
facilitate greater market access.
AMS Response: AMS agrees with the commenters that the conduct at
issue is prohibited under the Act and, in some circumstances, could be
enforceable under existing rules and regulations. However, AMS
disagrees with commenters who said this rule is duplicative of the 2020
Rule. In response to the proposed rulemaking that preceded the 2020
Rule,\180\ AMS received numerous comments raising concerns regarding
discriminatory and retaliatory practices; however, AMS stated that the
2020 Rule was published for the narrow purpose of establishing criteria
to consider when assessing whether a violation of sec. 202(b)'s
prohibition against undue preferences or unreasonable advantages
occurred.
---------------------------------------------------------------------------
\180\ 85 FR 1771.
---------------------------------------------------------------------------
The 2020 Rule established four criteria the Secretary will consider
when determining whether conduct by packers, swine contractors or live
poultry dealers represents an undue or unreasonable preference or
advantage. Those criteria include whether the preference or advantage
cannot be justified on the basis of a cost savings related to dealing
with different producers, sellers, or growers; cannot be justified on
the basis of meeting a competitor's prices; cannot be justified on the
basis of meeting other terms offered by a competitor; and cannot be
justified as a reasonable business decision. However, as set forth in
the rule itself, the criteria are not exhaustive and not determinative.
The rule offers limited guidance regarding how it is to be applied.
The 2020 Rule did not include the prohibited bases of
discrimination set forth in this rule because it asserted that they
were undue prejudices, rather than undue preferences, which are
distinct prohibitions in the statutory text.\181\ Specifically, the
2020 Rule's preamble noted that discrimination on the basis of race,
gender, and other such protected bases was unlawful and would be
addressed under the Act's prohibition against undue prejudices.\182\ In
August 2021, AMS reiterated this policy in a series of Frequently Asked
Questions (FAQs).\183\ This final rule affirms that approach, in that
the 2020 Rule clarifies undue preference while this rule clarifies
undue prejudice. Moreover, this rule provides clarity, specificity, and
certainty in the application of the Act, which will facilitate
compliance and enforcement by regulated entities and better inform
covered producers of their protections under the Act.
---------------------------------------------------------------------------
\181\ Montclair v. Ramsdell, 107 U.S. 147, 152 (1883) (Courts
should ``give effect, if possible, to every clause and word of a
statute, avoiding, if it may be, any construction which implies that
the legislature was ignorant of the meaning of the language it
employed'').
\182\ 85 FR 79787.
\183\ USDA, Agricultural Marketing Service, ``Frequently Asked
Questions on the Enforcement of Undue and Unreasonable Preferences
under the Packers and Stockyards Act,'' August 2021, https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq.
---------------------------------------------------------------------------
AMS is not aware of a separate Federal law or rule that would cover
the circumstances outlined in this final rule. This rule sets forth how
certain adverse actions by regulated entities give rise to unjust
discrimination and prejudice that, on their face, are unjust and undue
and undermine a competitive market. This rule addresses the unique and
often difficult-to-prove discriminatory conduct that has long existed
in the agricultural sector by prohibiting specific bases of prejudicial
action. In doing so, AMS is clarifying the application of the Act,
better empowering producers to protect themselves, and encouraging
companies to adopt more robust compliance practices to snuff out
prohibited conduct prohibited by the Act in its incipiency, before, in
the aggregate, it can distort markets. In particular, this rule
addresses the longstanding and often difficult-to-counter forms of
exclusion that have plagued the agricultural sector for decades. AMS
intends for this rule to support positive trends toward inclusivity in
the marketplace. As noted above, all commenters, including industry
commenters, affirmed that prejudices on the basis of race, color,
religion, national origin, sex, age, disability, and similar bases have
no place in today's modern agricultural markets.
Demographic information is seldom recorded in agricultural
transactions; therefore, it is difficult to quantify discrimination,
unlike in other sectors such as housing and banking. Furthermore, in
highly concentrated agricultural markets with few minority
participants, further defining the Act to include a list of prohibited
bases of unjust discrimination helps ensure fair competition for all
farmers. This rule will help all producers better understand their
rights under the law and come forward when they recognize instances of
unjust discrimination. This rule will help USDA to better enforce the
Act. In addition, as AMS has determined not to use the market
vulnerable individual approach in the final rule, commenter concerns
that the definition for market vulnerable individual will lead to
litigation are moot.
AMS acknowledges one commenter's recommendation that AMS take
action to reduce concentration in the meatpacking industry and create
more packers, with the goal of facilitating greater market access for
livestock and poultry operations. This recommendation was made out of
skepticism that the rule would change
[[Page 16138]]
conduct by regulated entities and substantially enhance market access
for covered producers. While not directly addressing this specific
recommendation, AMS is including a recordkeeping requirement to support
evaluation of regulated entity compliance and thus facilitate effective
enforcement of the statute. The USDA has also taken a number of steps
to support small meat processors, including through hundreds of
millions of dollars invested to support competition in the processing
market.
iii. Specific Challenges or Burdens Regulated Entities May Face in
Complying With Proposed Undue Prejudices Provisions
AMS asked about specific challenges or burdens regulated entities
may face in complying with the undue prejudice provisions of the
proposed rule. It also requested comment on how the undue prejudices
provisions differ from existing policies, procedures, and practices of
regulated entities.
Comment: Industry commenters said the vague terms in the proposed
rule present an additional challenge for compliance. Commenters cited
unclearly defined terms such as ``inhibit market access'' and ``adverse
action,'' saying they make it impossible for regulated entities to
determine what constitutes a violation and how to comply with the
proposed regulations. Similarly, commenters noted it is not clear how
the regulated entity would determine whether contract terms are ``less
favorable,'' or how contracts executed at different times, in different
regions, or in different economic conditions would be compared.
AMS Response: ``Inhibit market access'' means excluding producers
from livestock and poultry markets outright or erecting barriers to
market access that prevent producers from earning the full value of
their animals. AMS rejects the need to define ``adverse action''
because this would too greatly constrain the application of the
regulation. Based on its regulatory experience, AMS believes regulated
entities are fully aware of when their economic interactions with
covered producers, including contracting, the operation of contracts,
termination of contracts, or refusing to deal, result in adverse
economic outcomes for producers. However, to provide greater clarity,
the final rule provides greater specificity with respect to prohibited
actions as set forth in Sec. 201.304(a)(2), as described earlier.
The scope of prohibited conduct regarding adverse actions is
clarified by the shift from market vulnerable individual to membership
in a protected class as the prohibited bases of unjust discrimination;
the focus of the inquiry should be on those bases. If a regulated
entity offers a covered producer less favorable contract terms
principally or substantially because the covered producer belonged to
one of the protected classes, it violates the law and this rule.
iv. Sufficient Addressing of Concerns Regarding Tribal Members, Tribes,
and Tribal Government Entities That Sponsor or Manage Regulated
Entities
AMS requested comment on whether the provisions on undue prejudice
adequately address concerns regarding inequitable market access for
Tribal members and Tribes. It also requested comment on how it should
handle Tribal government entities that sponsor or manage regulated
entities. AMS asked whether it should permit compliance with proposed
Sec. 201.304(a) to be substituted for compliance with Tribal
government rules, policies, or guidance governing equitable market
access.
Comment: Commenters urged AMS to consult with Tribal organizations
engaged in agricultural policy and livestock production projects, such
as the Intertribal Agricultural Council and the Native Farm Bill
Coalition.
AMS Response: AMS engaged in an extensive Tribal Consultation
pursuant to USDA and Federal treaties governing U.S. relations with
Indian Tribes. AMS's principal conclusion was that Tribal governments
have important duties to serve their members that may require them to
treat non-Tribal members less favorably. Accordingly, AMS has
established a legitimate business justification as an exception to the
prohibition of unjust discrimination against covered producers on the
bases of protected classes (race, color, religion, national origin, sex
(including sexual orientation and gender identity), disability, marital
status, age of the covered producer or the covered producer's status as
a cooperative) when the regulated entity is a Federally-recognized
Tribe, including its wholly or majority-owned entities, corporations,
or Tribal organizations, that is performing Tribal governmental
functions. The agency describes its rationale for creating this
exception in greater detail above, as well as below under the Tribal
Consultation section.
v. Treatment of Private Industry Programs Aimed at Establishing
Preferences Intended To Address Systemic Inequality
AMS requested comment related to private industry programs aimed at
establishing preferences intended to address systemic inequality by
partnering with Black producers or similar programs designed to address
socially inclusive supply chains. It asked whether, if such programs
were present in livestock and poultry markets, it should evaluate them
and determine them to be undue preferences pursuant to the criteria in
9 CFR 201.211. It also requested suggestions on ways to address
relevant concerns.
Comment: Agricultural advocacy organizations indicated this
question relates to what is considered an ``undue'' preference. The
commenters noted a program, practice, or policy that provides
opportunities to producers who have been vulnerable to unfair market
practices in the past may be a justified form of preference rather than
an undue preference.
AMS Response: AMS takes note of the commenters' belief that a
justified preference would likely apply in those circumstances and that
this rule governs undue or unreasonable prejudices or disadvantages. As
discussed above, the 2020 Rule establishes criteria for the Secretary
to consider when assessing whether a preference is undue. To the extent
that there may be situations where the 2020 Rule and this final rule
would arguably both apply, AMS would take a facts-and-circumstances
approach to decide which rule applies. Accordingly, AMS makes no
change.
vi. Appropriateness of Proposed Rule's Protection for Cooperatives
AMS requested comment on whether the proposed regulation would
provide appropriate protection for cooperatives, particularly with
respect to the fact that their structure and organization varies across
livestock and poultry markets.
Comment: A group of State attorneys general and an academic
institution expressed support for the proposed protection for
cooperatives, noting these protections will ensure small farmers can
continue to compete in the market. Agricultural advocacy organizations
recommended AMS revise the reference to ``cooperative'' in proposed
Sec. 201.304(a)(1) to refer to ``cooperatives or other association of
producers'' because many producer associations designed to give covered
producers more leverage in the market are not structured as
cooperatives, noting this recommended change is consistent with
[[Page 16139]]
the producer association definitions related to the protections
provided in the Agricultural Fair Practices Act.\184\
---------------------------------------------------------------------------
\184\ 7 U.S.C. 2302(2).
---------------------------------------------------------------------------
AMS Response: AMS has included cooperatives as a class protected
against prejudice or unjust discrimination because cooperatives are an
important tool for smaller producers to countervail the market power of
regulated entities, whether due to market concentration or the inherent
power imbalance that exists in livestock supply chains between a small
number of processors and a much larger number of producers. This
inclusion of cooperatives as a protected class reaffirms the strong
statutory authority Congress has provided cooperatives in agricultural
markets, as manifested by its passage in of the Capper-Volstead Act,
which permits producer cooperatives to collectively process, prepare
for market, handle, and market their products.
Adverse treatment at the hands of a regulated entity based on a
grower exercising their right to join such an organization, including a
cooperative or an association, is the exact conduct this provision
addresses. However, the prohibition of regulated entities prejudicing a
cooperative focuses on the cooperative's market interactions with the
regulated entity compared to entities that are not cooperatives, and
not on the formation or association of the cooperative itself.
Collectively, members of cooperatives are better able to gain
access to markets, leverage negotiating power when dealing with
regulated entities, and meet volume demands based on their ability to
pool outputs. The rule supports covered producers in using
procompetitive cooperatives to their fullest extent. This rule aims to
ensure equal treatment of covered producers by regulated entities,
regardless of whether or not a grower has exercised its right to join a
grower organization or association. For these reasons, AMS has not
changed Sec. 201.304(a) to include ``or other association of
producers.''
AMS notes that many producer associations are designed to give
their members certain benefits, including some ability to negotiate
with regulated entities around certain outcomes in the market. However,
cooperatives are the only group of agricultural producers with explicit
ability to cooperate and contract collectively with regulated entities,
which includes Federal antitrust law exemptions not enjoyed by other
types of associations. Nonetheless, AMS notes the importance of covered
producers forming associations that may offer benefits to their members
outside of collective contracting. To that end, the final rule in Sec.
201.304(b)(2)(iii) provides important new protections against
retaliation for forming or joining an association.
D. Specific Actions Constituting Prejudice or Disadvantage (Sec.
201.304(a)(2))
AMS proposed a non-exhaustive list of prejudicial actions that the
regulation would prohibit, including offering less favorable contract
terms, refusing to deal, differential contract enforcement, and
contract termination or non-renewal.
i. Appropriateness of Specific Prejudicial Acts in Proposed Sec.
201.304(a)(2)
AMS requested comment on the appropriateness of the specific
prejudicial acts in proposed Sec. 201.304(a)(2), as well as whether it
should include any other forms of prejudicial conduct.
a. Offering Contract Terms Less Favorable Than Those Generally or
Ordinarily Offered
AMS requested comment on whether offering contract terms less
favorable than those generally or ordinarily offered should be
considered a specific prejudicial or disadvantageous action against
covered producers.
Comment: A cattle industry trade association and an agricultural
advocacy organization proposed amending the prohibition of offering
contract terms ``less favorable than those generally or ordinarily
offered'' to reflect the fact that little is known about terms
contained in forward contracts. They noted that it is unclear if the
terms of forward contracts should be considered ``generally or
ordinarily offered'' because, for example, atypical bonuses can be
offered to a select number of preferred feedlots. If these bonuses are
rarely offered, they may fall outside of the scope of ``generally or
ordinarily offered,'' but would still disadvantage the other feedlots
(market vulnerable individuals) that do not receive them. The
commenters suggested AMS should instead compare specific terms of
individual purchase agreements or contracts to determine violations.
AMS Response: Given the unique contract types in the cattle
industry, AMS recognizes that certain premiums, discounts, and bonuses
may not be ``generally or ordinarily'' offered. In this final rule, AMS
is preserving the ability of regulated entities to be flexible in the
types of contracts they offer to producers, with different producers
having different contracts based on the particular quality and type of
service provided for in the contract. Whether terms are generally or
ordinarily offered is specific to the facts and circumstances of each
case, including in comparison to similarly situated producers--a
clarification which the final rule establishes. ``Generally or
ordinarily offered to similarly situated producers'' is a fact-specific
inquiry which looks to the contracting practices of the regulated
entity, including how the regulated entity contracts for similar
products or services with similar producers. While the rule does not
guarantee any producer any particular contract terms, AMS underscores
that the purpose of the rule is to prevent an adverse action based upon
an unlawful basis. A refusal to offer a contract term based upon the
producer's race, color, religion, national origin, sex (including
sexual orientation and gender identity), disability, or marital status,
or age would weigh heavily in any analysis, as it inherently implies
that the regulated entity is in the market to contract with those terms
by others in the market. Such a circumstance is different than refusing
to offer a contract because the producer is unable to meet special
contract requirements.
AMS recognizes the existence of information asymmetry between
regulated entities and covered producers, including in relation to what
contract terms are commonly offered or not. AMS notes the availability
of other tools to address that challenge, including new initiatives
such as AMS's Cattle Contract Library Pilot, which provides disclosure
into contract terms offered by packers with greater than 5 percent of
the national market share, including disclosure of any contract
specifications on financing, risk-sharing, and profit-sharing.\185\ AMS
also operates a Swine Contract Library, which provides transparency
into contract terms in the swine sector.\186\ When in doubt, AMS
encourages covered producers to contact PSD. AMS is making no changes
to the regulation as
[[Page 16140]]
proposed in response to these comments.
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\185\ Final Rule, ``Cattle Contract Library Pilot Program,''
Agricultural Marketing Services, December 2022, 87 FR 74951. For
more information, see also Agricultural Marketing Service, Cattle
Contract Library Pilot, at https://www.ams.usda.gov/market-news/livestock-poultry-grain/cattle-contracts-library (last accessed Dec.
2023). Note, as of the date of publication of the Pilot in January
2023, no covered packers reported to AMS contract specifications
with financing, risk-sharing, or profit-sharing.
\186\ Agricultural Marketing Service, Swine Contract Library
Information, at https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/regulated-entities/swine-contract-library (last
accessed Dec. 2023).
---------------------------------------------------------------------------
b. Refusing To Deal
AMS requested comment on whether refusing to deal should be
considered a specific prejudicial or disadvantageous action against
covered producers.
Comment: A cattle industry trade association and an agricultural
advocacy organization recommended including in the prohibition on
``refusing to deal'' instances where a producer who ordinarily markets
their livestock in the cash market is denied a bid unless they enter a
forward contract with the regulated entity.
AMS Response: AMS is aware that market concentration in the cattle
industry has had a negative effect on negotiated cash markets and on
the ranchers who choose to deal exclusively in those markets, but the
impact of thinning cash livestock markets on the ability of producers
to use cash markets and freely enter forward contracts with regulated
entities is outside the scope of this rulemaking. AMS will further
consider the commenters' recommendations in the context of other
rulemaking initiatives such as rules focused on particular species of
livestock and evidentiary patterns of abusive conduct. AMS is making no
further changes to the regulation as proposed in response to these
comments.
c. Other Comments on Appropriateness of Specific Prejudicial Acts
Comment: Two farmers unions and several organizations generally
supported the appropriateness of the list of specific prejudicial acts,
but also recommended adding the phrase ``including, but not limited
to'' to provide flexibility in evaluating future acts of discrimination
or prejudice. An academic institution also endorsed the non-exhaustive
list of specific actions provided in this section, suggesting the
listed actions would reduce uncertainty in the industry and make this
section of the rule easier to enforce.
AMS Response: This rule is not intended to limit AMS's ability to
enforce the Act. Instead, the rule aims to better define the Agency's
enforcement authority so that enforcement actions are more successful.
AMS agrees with the commenters that listing specific prohibited
prejudicial acts will aid enforcement efforts. The agency also agrees
that such a list is meant to be exemplary, not exhaustive. To this end,
``any other action that a reasonable covered producer would find
materially adverse'' has been added to Sec. 201.204(a)(2) to indicate
that a variety of other adverse actions done on a prohibited basis
against covered producers may violate this section. The facts and
circumstances of each case will be assessed in light of these
provisions when determining whether the conduct in question violates
the Act.
Comment: A swine industry trade association said that the specific
``prejudicial or disadvantaging'' acts listed, as well as the proposed
rule's intimation that the list is ``non-exhaustive,'' would result in
a vague and overbroad definition of prejudicial conduct. The commenter
argued that terms such as ``favorable'' and ``generally or ordinarily
offered'' vary with market conditions over time and would have to be
ironed out in courts through costly litigation.
AMS Response: AMS has adequately described the type of conduct
prohibited under this rule by expressly stating that undue prejudice
and unjust discrimination on specified prohibited bases constitutes a
violation under the Act.
AMS addressed concerns of vagueness by further defining conduct
that is prejudicial or disadvantageous to producers in the final rule
(as described in section V--Changes from the Proposed Rule). In
particular, AMS has made a number of changes to provide additional
clarity, specificity, and certainty to market participants relating to
the list of adverse actions set forth in Sec. 201.304(a)(2). In
response to the commenter's concern that ``generally or ordinarily
offered'' is a concept that may vary with market conditions over time,
AMS revised the regulation to state ``generally or ordinarily offered
to similarly situated covered producers.'' Including this phrase in the
final regulations provides more specificity with respect to the current
market context in which the regulation would be applicable. Paragraph
(a)(2)(vi) was added to limit the list to any other adverse action that
a reasonable covered producer would find materially adverse. The final
rule also adds two exceptions to the rule in new paragraph (a)(3),
which provides further specificity to the rule by defining specific
actions which are not considered prejudicial conduct under this rule.
Nevertheless, AMS reads the statutory term ``prejudicial'' to be a
broad term, that covers all acts that cause harm to covered producers
on a prohibited basis with respect to livestock, meats, meat food
products, livestock products in unmanufactured form, or live poultry.
While the term ``prejudicial'' encompasses a broad range of conduct, it
is not vague. This rule does not prohibit all harms that may be
inflicted on covered producers by regulated entities, rather, only
those prejudicial acts related to livestock, meat and poultry that
occur on a prohibited basis.
Comment: A cattle industry trade association said AMS should not
prohibit the specific acts outlined in the rule because they are
important tools that allow the free market to function. The commenter
suggested that, while less favorable terms or contract terminations are
unfavorable results for producers that experience them, they are
important outcomes that incentivize producer innovation. If these
specific acts are prohibited, the trade association argued, regulated
entities would need to resort to ``vanilla'' standardized contracts
that would degrade consumer outcomes and impair superior producers'
profit opportunities.
AMS Response: AMS rejects the argument that discrimination on the
basis of race, color, religion, national origin, sex (including sexual
orientation and gender identity), disability, marital status, age of
the covered producer, or the covered producer's status as a
cooperative, or retaliation is a free market value. Engaging in that
unjust discriminatory conduct would exclude participants from the
market, rather than encourage them.
Moreover, the members of the trade association were mistaken even
with respect to the original proposal protecting market vulnerable
individuals. Regulated entities are free to use contracting tools to
develop incentives. But a tool used to unduly prejudice the vulnerable
does not incentivize; it oppresses. Any other conclusion is contrary to
the plain meaning of the Act. This rule aims to create an inclusive,
fair, and equal environment for farmers and ranchers to conduct
business by preventing instances of unjust discrimination and undue
prejudice. The key concept here is that there shall be no
discrimination on the protected bases regarding the offering of
``general and ordinary'' contract terms. AMS concludes that the
benefits of protecting farmers and ranchers from plainly unjustly
discriminatory treatment outweigh the hypothetical prediction that such
regulations will hamper efficiency or innovation. Inclusive markets
breed innovation and efficiencies; they do not undermine them.
ii. Additional Forms of Prejudicial Conduct To Include
AMS requested comment on whether the four specific prejudicial acts
are appropriate as proposed, or whether there are other forms of
prejudicial
[[Page 16141]]
conduct that should be specified. Where other specific conduct is
identified, AMS sought examples of how these actions have been used to
target market vulnerable individuals or cooperatives.
Comment: An academic or research institution proposed adding a new
specific action that would encompass ``information disclosure.'' The
commenter defined information disclosure as failing to provide
information materially relevant to a producer's operation while
providing that information to one or more other producers. The
commenter highlighted information asymmetry as a major fairness issue
in livestock markets and suggested such asymmetry can heighten
monopsony or oligopsony conditions. The commenter also cited the former
Grain Inspection, Packers and Stockyards Administration's (GIPSA's)
inclusion of information asymmetry in a 2010 proposed rule (the 2010
GIPSA Rule),\187\ which defined undue or unreasonable prejudice or
disadvantage as ``whether information regarding acquiring, handling,
processing, and quality of livestock is disclosed to all producers when
it is disclosed to one or more producers.'' The commenter encouraged
AMS to use similar language in its final rule.
---------------------------------------------------------------------------
\187\ Implementation of Regulations Required Under Title XI of
the Food, Conservation and Energy Act of 2008; Conduct in Violation
of the Act, 75 FR 35338, 35352, June 22, 2010.
---------------------------------------------------------------------------
AMS Response: AMS is concerned about the negative impact
information asymmetry, and the subsequent lack of transparency, has on
producers. Information asymmetry could very well be used as a means of
unjust discrimination if regulated entities preference certain
producers over others through the information they choose to disclose.
Such selective disclosure of information could cause those producers
from whom information was withheld by regulated entities to lose out
economically to those producers that received the information.
In the final rule, AMS has added paragraph (a)(2)(vi) to address
any other action that a reasonably covered producer would find
materially adverse. If a covered producer can show they are materially
harmed by information asymmetry, they will have a recourse under this
rule. Additionally, the prejudicial act of differential contract
performance or enforcement (Sec. 204(a)(2)(iii)) covers selective
information disclosure in many circumstances. Withholding materially
relevant information from a contractee that it previously made
available to the contractee or which it makes generally or ordinarily
available as part of its contract performance to other contractees is
de facto differential contract performance or enforcement. A producer
is likely to operate in a less-than-optimal manner regarding financial
renumeration when the regulated entity it is contracting with has
withheld materially relevant information that has been disclosed to
other contractees. Such behavior will thus lead to differential
contract performance or enforcement.
AMS has not adopted the wide-ranging proposal on information
asymmetry from the 2010 GIPSA Rule because it could inhibit the ability
for regulated entities to select trusted partners with whom to engage
in more complex, value-added production that may require specialized
cooperation and information sharing.
Addressing information asymmetry and improving transparency in
interactions between covered producers and regulated entities is a
focus of AMS and will continue to be a priority in rulemaking. AMS made
no further changes to the provisions regarding undue prejudices in
response to this comment.
iii. Different Types of Purchase Arrangements That Could Be Employed in
a Prejudicial Manner
AMS sought comment on whether there are other types of purchase
agreements (outside of those generally or ordinarily offered), such as
forward contracts, formula contracts, AMAs, or cash market purchases,
that could be used in a prejudicial manner. AMS requested
identification of these types and examples of how they have been used
to target vulnerable individuals or cooperatives.
Comment: Several commenters argued that AMAs are predatory and
should be prohibited under any name. An agricultural advocacy
organization said that market vulnerable individuals are often excluded
from participating in these agreements and bear negative market
consequences from this exclusion. The individuals suggested that a firm
base price for covered producers should be established instead.
AMS Response: This rule prohibits regulated entities from denying
covered producers access to the purchase or sale of livestock on
equitable terms, including through AMAs, on account of one of the
rule's protected bases. AMS does not take a position in this rule on
whether AMAs on principle are unfair or anticompetitive as such
concerns are outside the scope of this rule.\188\ AMS made no further
changes in responses to the comment.
---------------------------------------------------------------------------
\188\ See, generally, https://www.afpc.tamu.edu/research/publications/710/cattle.pdf. However, see also: https://www.antitrustinstitute.org/work-product/aai-senior-fellow-peter-carstensen-responds-to-economic-research-on-marketing-of-beef-cattle-says-it-fails-to-address-market-power-and-buying-methods/.
---------------------------------------------------------------------------
iv. Include Other Differential Contract Terms
AMS requested comment on whether other differential contract terms
not listed in the proposed rule should be included when defining
contract terms that are less favorable than those generally or
ordinarily offered.
Comment: A cattle industry trade association urged AMS to consider
three additions to differential contract terms:
1. Bonuses offered to select producers, which would disadvantage
other producers who do not receive bonuses.
2. ``Cost-sharing.''
3. ``Cost-plus contracts'' where a regulated entity agrees to pay
all the costs associated with purchasing and growing livestock, which
disadvantages producers who do not receive cost-plus contracts.
AMS Response: This rule addresses undue prejudices that can exclude
covered producers from the marketplace. As such, the rule focuses on
terms that a regulated entity offers which are less favorable to those
generally or ordinarily offered. To the extent that a regulated entity
generally, commonly, or ordinarily offers bonuses, cost-sharing, and
cost-plus contracts, then the denial of those terms to covered
producers on the grounds of belonging to a protected class is covered
by this rule as forms of differential contract terms. It is not,
however, AMS's experience that those terms are generally, commonly, or
ordinarily offered to producers, and based on the reporting in AMS's
Cattle Contracts Library Pilot, are rarely if ever offered.\189\ The
rule does not prevent regulated entities from offering preferences to
some producers, in particular for reasons relating to their choices in
types of business relationships or how they incentivize quality of
products or services delivered to them. This rule does not take a
position on whether bonuses, cost-sharing, and cost-plus contracts may
give rise to concerns of unfairness, undue preferences, or other
concerns that are outside the scope of this rule.
[[Page 16142]]
Accordingly, AMS made no change in response to this comment.
---------------------------------------------------------------------------
\189\ See Agricultural Marketing Service, Cattle Contract
Library Pilot, available at https://www.ams.usda.gov/market-news/livestock-poultry-grain/cattle-contracts-library (2023).
---------------------------------------------------------------------------
v. Include the Action of Offering Less Favorable Price Terms, Contract
Terms, and Other Less Favorable Treatment in the Course of Business
Dealings
AMS requested comment on whether AMS should include among the
prejudices the action of offering less favorable price terms, contract
terms, and other less favorable treatment in the course of business
dealings than those generally offered to similarly situated producers.
Comment: A plant worker said AMS should avoid evaluating less
favorable price or contract terms because each contract is based on
varying circumstances that will inevitably result in different prices
or terms. The commenter suggested that evaluating differential terms
for discrimination will hamper regulated entities and producers'
ability to bargain or negotiate for appropriate contract terms.
AMS Response: AMS agrees that contract prices commonly reflect a
range of differences in circumstances between the contracting parties.
To the extent that those prices reflect differences in product quality
or service being provided, including transportation and delivery,
parties are free to set prices in contracts as they wish. This rule
focuses on exclusion or adverse actions on only the enumerated
prohibited bases. Accordingly, AMS made no changes to the rule based on
the comment.
vi. Allowance for Offering Less Favorable Price Terms, Contract Terms,
and Other Less Favorable Treatment in the Course of Business Dealings
for Legitimate Business Reasons
AMS requested comment on whether an allowance be made for offering
less favorable price or contract terms, or other less favorable
treatment due to legitimate business reasons.
Comment: A cattle industry trade association and agricultural
advocacy organizations argued that legitimate business reason defenses
should not be allowed because it would weaken the Act's purpose and
allow continued harm to producers. A swine industry trade association
and an industry company argued that exceptions should be provided for
legitimate business reasons, and that AMS should: (1) provide clear
examples delineating between legitimate and illegitimate forms of
differential treatments, and (2) provide clarity on whose burden it is
to prove that an act meets the legitimate business reason exception.
The company asserted that without such an exception there would be
frivolous litigation where regulated entities would have to defend
legitimate behavior such as canceling contracts with producers who are
found to have animal welfare violations. A plant worker agreed that
legitimate business exceptions should apply, and pointed to California
employment law's affirmative defense, which serves as a complete
defense if a policy alleged to cause a disparate impact is found to be
efficient for the business.
Commenters expressed concern that the proposed rule did not define
legitimate business justification. Commenters expressed concern that
the proposed rule fails to provide the industry with specific
exceptions or justifications for disparate treatment of producers,
stating there are multiple reasons why different (less favorable) terms
may be offered to certain producers and not others, and that these
reasons are not insidious in nature but instead a result of market
forces and other nondiscriminatory factors. Additionally, several
poultry industry commenters noted that AMS suggests in the preamble a
legitimate business reason may justify disparate treatment, yet it
never explains what constitutes a legitimate business reason. Several
poultry industry commenters provided examples of reasonable business
decisions that would result in differential treatment and may violate
the proposed rule as written despite their reasonableness. These
commenters urged AMS to add regulatory text similar to that in Sec.
201.211 to expressly protect reasonable business conduct and specify
how a company would demonstrate that an action was based on a
reasonable business decision. The commenters also said that, due to the
complicated nature of business relationships, business decisions should
be presumed reasonable unless proven otherwise. A poultry industry
trade association provided examples of complex fact patterns and asked,
given each situation, how the regulated entity could demonstrate
actions were taken for appropriate reasons.
An industry association contended proposed Sec. 201.304(a) would
eliminate the statutory requirement in 7 U.S.C. 192 that adverse
actions against a market vulnerable individual are only prohibited if
they are undue or unreasonable. The commenter noted the statute only
prohibits ``undue or unreasonable'' advantages and disadvantages,
meaning advantages or disadvantages that lack a reasonable business
purpose. However, the commenter pointed out that, under the proposed
rule, if the action is ``adverse'' and it impacts a market vulnerable
individual, even if it was based on a legitimate business reason, the
regulated entity would be in violation of the regulations. The
commenter also noted that enforcing contract rights is often ``adverse
against'' the other party, but ``adverse'' does not mean inappropriate
or unfair. Commenters cautioned the proposed rule may result in
regulated entities giving all producers the same contract terms to
avoid litigation, which would eliminate the market competition the Act
was intended to protect.
AMS Response: AMS agrees with commenters that legitimate business
justifications exist for disparate treatment of producers. AMS does not
agree, however, that there are many legitimate business justifications
for prejudice or disadvantage on the basis of race, color, religion,
national origin, sex (including sexual orientation and gender
identity), disability, or marital status, or age of the covered
producer. The rule seeks to prevent regulated entities from
discriminating against producers on specific prohibited bases,
retaliating against producers for exercising certain protected rights,
and deceiving producers in the procurement of livestock. It does not
limit the ability of regulated entities to make other business
decisions, as long as they comply with the Act in that they are not
unduly prejudicial or unjustly discriminatory. This includes
terminating contracts for violating contractual provisions such as
animal welfare policies. To clarify what types of conduct are allowed,
the final rule delineates two specific legitimate justifications for
discriminatory action by regulated entities against producers.
Discriminatory conduct by a regulated entity falling in one of these
categories is not prejudicial: (1) the regulated entity is fulfilling a
religious commitment related to livestock, meats, meat food products,
livestock products in unmanufactured form, or live poultry, and (2) a
Federally-recognized Tribe, including its wholly or majority-owned
entities, corporations, or Tribal organizations, that is performing
Tribal governmental functions.
AMS is adopting the religious exception to recognize the important
role ritual slaughter plays in certain religious traditions. AMS is
also recognizing the important roles that Tribes play as governmental
units and operators of economic enterprises. In those governmental
activities, as interpreted by the Supreme Court as well as Federal laws
governing Tribal affairs, Tribes may require the flexibility to only
purchase livestock from or sell meat to their members. AMS believes
that actions following these two
[[Page 16143]]
principles do not amount to undue or unreasonable prejudice,
disadvantage, inhibition of market access, or adverse action. Through
its review of public comments and based on its experience, AMS finds
these are the only two appropriate exemptions from the rule's broad
prohibition against undue and unreasonable prejudices and
disadvantages.
AMS underscores that, in this rule, legitimate justification only
applies to whether adverse actions against covered producers on a
prohibited basis are still permissible. Where the adverse action is not
on a prohibited basis or was not differential in its treatment of
producers on the prohibited basis, then the question of there being a
legitimate justification is not relevant.
AMS disagrees with the comment that Sec. 201.304(a) would
eliminate the statutory requirement that a prohibited prejudice,
disadvantage, or discrimination is undue, unreasonable, or unjust. To
the contrary, AMS finds that prejudice, disadvantage, or discrimination
on the prohibited bases set forth in this final rule to be per se
unjust, undue, and unreasonable. As commenters to this rule have
acknowledged prejudicial treatment on the prohibited bases has no place
in the market.
E. Retaliation (Sec. 201.304(b))
AMS proposed addressing retaliation by outlining protected
activities that a covered producer may engage in but that a regulated
entity may not use as grounds for unjust discrimination or undue
prejudice or disadvantage. The proposed regulations would have
prohibited regulated entities from retaliating against covered
producers for participating in a protected activity by terminating
contracts, adversely differential performance or enforcement of a
contract, refusing to renew contracts, offering more unfavorable
contract terms than those generally or ordinarily offered, refusing to
deal, interfering with third-party contracts, or other actions with
adverse impact to covered producers. These proposed regulations are
adopted in this final rule.
i. Usefulness of Regulatory Protections To Protect Producers From
Retaliation
AMS requested comment on whether the proposed prohibition on
retaliation would assist producers in avoiding unjust market
discrimination, accessing markets, obtaining meaningful price
discovery, or preventing anticompetitive practices.
Comment: Several organizations and an academic institution
expressed support for the proposed rule's retaliation provisions,
saying that poultry and meat companies take advantage of unbalanced
power to create a climate in which farmers and ranchers fear
retaliation for exposing unfair industry practices. One organization
cited a recent anonymous survey of contract growers it had conducted,
in which multiple respondents described experiencing retaliation from
integrators and said integrators regularly terminate the contracts of
farmers who engage in whistleblowing activities, leaving them with
substantial debt tied up in specialized, single-use structures built as
a condition of their contractual agreements.
An agricultural advocacy organization said Sec. 201.304(b) as
proposed fits easily within the scope of the Act's prohibitions on
undue prejudice and unjust discrimination, closes a key enforcement
gap, and represents a solid first step toward prohibiting unfair
retaliation. An agricultural and environmental organization expressed
support for the proposed provision but urged AMS to strengthen the
final version. The commenter said regulated entities have deeply
embedded retaliation into their business practices, leaving producers
too intimidated to expose industry abuses. The commenter also cautioned
that meat processors and live poultry dealers may attempt to find novel
ways to retaliate against producers that do not directly violate the
proposed rule, suggesting AMS broaden the range of protected producer
activities and of prohibited retaliatory behavior.
A poultry grower expressed support for the protections, saying
integrators had taken measures, such as delivering poor inputs and
imposing extended timeouts on flock placements, against him and other
growers who spoke up against abusive integrator practices. This
commenter also said cattle and pork producers take similar actions
against producers who expose problematic practices. A meat industry
trade association said the proposed rule would ensure that farmers and
ranchers have access to a public forum necessary for open, transparent
communication. Numerous individuals indicated support for the proposed
rule's protections against retaliation, with many saying the proposed
rule would allow farmers to engage in whistleblowing actions without
facing repercussions and would thus promote consumer, environmental,
and animal welfare concerns.
AMS Response: AMS takes note of the commenters' support for the
usefulness of the provisions. AMS designed the provision on retaliation
to cover the core activities of being a producer--that is, activities
are essential or unavoidable for producers in terms of their abilities
to enjoy the full extent of their bargain and protect their economic
rights. AMS notes that the provision that protects a covered producer
who communicates or cooperates ``with a person for the purposes of
improving production or marketing of livestock or poultry'' is broad.
This covers many different scenarios not specifically named in this
rule. AMS expects the retaliation provision of this rule to provide a
significant measure of protection to covered producers against
prohibited conduct, and likewise provide opportunity for redress, both
to stop particularized harmful conduct, and keep it from persisting and
causing greater harm. AMS chose this list of prohibited retaliatory
practices based on conduct the agency identified as most commonly
relevant to regulated entities' practices that exclude or penalize
producers. This list is based on AMS's experience fielding complaints
from producers, from its expertise in the operation of the livestock
and poultry markets and practices of market participants, as well as
the numerous comments to this rule that identified similar practices.
AMS acknowledges there may be other forms of retaliation that would
violate the Act that are not specifically delineated under this
rulemaking. Prosecutorial discretion will determine what conduct is in
fact retaliatory based on the facts and circumstances of each case. AMS
made no further changes in response to these comments.
Comment: An agricultural advocacy organization suggested AMS
consider further developing the enforcement procedures for the
retaliation provisions, as well as the evidentiary burdens associated
with complainants and defendants. The commenter specifically
recommended that AMS establish a burden-shifting approach which would
establish that, once a complainant has made a prima facie showing that
a covered producer was subjected to retaliation after engaging in
protected activities, the regulated entity would have to show by clear
and convincing evidence that they would have taken the same action in
the absence of the producer's participation in protected activities.
Shifting the burden to the regulated entity (who has the best access to
proof about the underlying facts) once the complainant has met an
initial threshold would reflect a public policy position against
[[Page 16144]]
retaliation. The commenter said this approach would track with that
used in other Federal whistleblower protection regimes, such as the
Criminal Antitrust Anti-Retaliation Act \190\ and the Whistleblower
Protection Act applicable to the Federal civil service,\191\ and would
draw on a key element of Title VII discrimination law that allows
complainants to initiate proceedings without being forced to prove the
respondents' state of mind.\192\
---------------------------------------------------------------------------
\190\ See 15 U.S.C. 7a-3(b)(2)(C).
\191\ See 5 U.S.C. 1221(e)(2).
\192\ See, e.g., Young v. United Parcel Service, Inc., 575 U.S.
206, 206-07, 228-30 (2015)
---------------------------------------------------------------------------
AMS Response: As described in Section V--Changes from the Proposed
Rule, subsection D--Retaliation Provisions, AMS changed ``because of''
to ``based upon.'' Paragraph (b)(1)'s prohibition as ``based upon'' is
intended to be broader than ``but for'' causation and so capture when
the protected characteristics or status are a material, or non-trivial,
element of the decision to take an adverse action against a covered
producer. AMS expects that fact-finding tribunals will establish the
necessary processes for proving these elements. Moreover, AMS expects
that evidentiary presentation may often follow those approaches to
proving retaliation in other contexts as a function of the natural
course of any litigation. AMS underscores that the rule is designed to
protect producers' ability to engage in such covered activities, with
the clarity provided by the rule specifically designed to assist
producers in identifying and acting in a manner to effectuate their
rights. AMS further notes that the prohibition on adverse actions taken
on pretext are prohibited under 9 CFR 201.306 as established by this
rule.
Comment: An organization said the proposed anti-retaliation
provisions should cover violation disclosures made within the chain of
command or as part of the producer's job duties because farmers and
ranchers often report issues internally as a first step in drawing
attention to them before reporting them to regulators or going public
with them.
AMS Response: The rule as written protects covered producers from
retaliation for protected activities, which include the assertion of
contractual rights. Violation disclosures made within the chain of
command or as part of the covered producer's contractual duties fall
within the operation of the contract between the covered producer and
the regulated entity, and as such may be expected to be covered by the
rule. Accordingly, AMS made no change to the rule.
Comment: Several industry trade associations said the retaliation
provisions are not necessary because the ``conduct'' at issue is
already prohibited by existing laws, such as 9 CFR 201.211 identifying
the criteria used to determine whether an action is an undue or
unreasonable preference or advantage.
AMS Response: AMS agrees with the commenters that the retaliatory
conduct at issue is prohibited under the Act and could be enforceable
under existing rules and regulations, including criteria set forth in 9
CFR 201.211.\193\ Compared to general criteria and interpretive
guidance, this rule provides greater clarity, specificity, and
certainty to how the Act applies, which will facilitate higher levels
of compliance by regulated entities with the Act, broader enforcement
of its provisions by AMS, and more informed producers, who will be in a
better position to assert their rights established by the Act.
Additionally, unlike Sec. 201.211, this rule focuses on preventing
undue prejudices and disadvantages and does not focus on preferential
treatment that is not discriminatory. Accordingly, AMS made no change
to the rule.
---------------------------------------------------------------------------
\193\ USDA, Agricultural Marketing Service, ``Frequently Asked
Questions on the Enforcement of Undue and Unreasonable Preferences
under the Packers and Stockyards Act,'' August 2021, https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq.
---------------------------------------------------------------------------
ii. Appropriateness of Specific Acts of Retaliation Listed in Proposed
Sec. 201.304(b)(3)
AMS requested comment on whether the specific retaliation acts
listed in the proposed rule are appropriate. AMS also sought comment on
whether there are other forms of retaliatory conduct that should be
specified.
a. Termination or Non-Renewal of Contracts
AMS requested comment on whether termination or non-renewal of
contracts is appropriate as a specific retaliation act listed in the
proposed rule. It noted that covered producers have expressed fear of
this type of retaliation through communication with AMS personnel and
in comments on previous related rulemakings.
Comment: Numerous individuals said they are concerned about the
prospect of farmers losing their contracts and their livelihoods if
they raise issues with their treatment by poultry and meat companies.
AMS Response: AMS takes note of the commenters' support for the
usefulness of the provisions. AMS made a range of adjustments in the
final rule to enhance the final rule's protections for covered
producers.
b. Interference in Farm Real Estate Transactions or Contracts With
Third Parties
AMS requested comment on whether interference in farm real estate
transactions or contracts with third parties is appropriate as a
specific retaliation act listed in the proposed rule.
Comment: A swine industry trade association said the proposed rule
describes the retaliatory conduct too vaguely, making it difficult for
a regulated entity to determine whether its actions would be
prohibited.
AMS Response: AMS believes that some degree of generality is
necessary to capture the range of conduct that could give rise to a
violation of the rule. However, the rule is not designed to prohibit
every instance where a regulated entity's contracting decisions are
unfavorable to a covered producer. For example, the rule would not
apply where a regulated entity was engaged in unrelated business around
the purchase or sale of farmland, or where a regulated entity chose for
unrelated reasons not to continue a contract in the course of a covered
producer's attempts to sell its farm. AMS believes that the wording of
proposed Sec. 201.304(b)(3)(iv)--``[i]nterference in farm sale
transactions or contracts with third parties''--is appropriately
specific to prohibit regulated entities from retaliating against
covered producers for engaging in protected activities. This is because
the focus of an AMS inquiry would be to determine the reason for the
interference. AMS would determine whether a regulated entity interfered
in a farm sale or third party contracting; if such interference
occurred, whether it was harmful to the covered producer; and whether
the interference occurred because the covered producer engaged in
protected activity. Additionally, in response to this comment, AMS has
included explanatory language in the retaliation section (Section
VI.C--Provisions of the Final Rule, Retaliation) discussing the adverse
effects that interference with the transfer of farm real estate by a
regulated entity has on producers.
iii. Delineation of Additional Forms of Retaliatory Conduct
AMS requested comment on whether the specific acts of retaliation
in the proposed rule are appropriate, and whether there are other forms
of retaliatory conduct that should be specified.
[[Page 16145]]
Comment: Several commenters, including a farmers' union, a group of
State attorneys general, and several other organizations urged AMS to
explicitly state that the list of specific prohibited acts of
retaliation is not meant to be exhaustive, with several commenters
suggesting AMS add the phrase ``including, but not limited to'' to the
introductory clause of Sec. 201.304(b)(3). Commenters said
establishing that prohibited activities are not limited to those listed
would allow for future flexibility in addressing specific acts of
retaliation that may arise.
AMS Response: As explained in Section V--Changes from the Proposed
Rule, subsection D--Retaliation Provisions, in response to these
comments, AMS has added a new paragraph (b)(3)(vi) to prohibit ``any
other action that a reasonable covered producer would find materially
adverse.''
Comment: A non-profit or other organization said the final rule
should prohibit regulated entities from retaliating against any covered
producers for any form of association, broadly defined, because
allowing farmers to freely associate and to use a range of different
communications platforms is necessary for the sector to flourish. An
organization said the final rule should prohibit the offering of
contract terms that are less favorable than those generally or
ordinarily offered.
AMS Response: Proposed Sec. 201.204(b)(2)(iii) provided broad
protection against retaliation for a producer to form or join a
producer or grower association and would cover all aspects of
associations and cooperatives relevant to the business of livestock and
poultry. Further, AMS acknowledges the importance of the freedom of
association generally but underscores that the protections of the Act
have limits. The Act is designed to protect covered producers in the
business of livestock and poultry. AMS is not in a position to know or
evaluate the full range of associations that individuals who are
producers may join, and it would not be appropriate for AMS to be
involved in encouraging or discouraging such associational activities,
including whether regulated entities should be required to do business
with covered producers that engage in those activities. Some
associational activities unrelated to the business of livestock and
poultry may expose regulated entities to reputational or other risks in
the marketplace.
Comment: An academic institution recommended that AMS include
language making it clear that the prohibited retaliatory activities
would encompass coercion or intimidation, such as threats to take one
of the prohibited actions.
AMS Response: This rule is intended to establish broad prohibitions
against retaliatory activities that in AMS's experience have
significantly inhibited producers' ability to freely compete and secure
the full value of their products and services. AMS agrees that
intimidation or coercion that would dissuade or coerce covered
producers from engaging in the prohibited activities are covered under
``retaliate or otherwise take an adverse action against a covered
producer.'' In particular, intimidating or coercive conduct that
credibly threatens retaliation prohibited by this rule would rise to
the level of actionable adverse conduct under by this rule--which the
Agency underscores further through its addition of Paragraph
(b)(3)(iii) and (v) under the list of adverse actions. For example, if
a regulated entity were to communicate to a producer stating, ``if we
were you, we would not report to the government'' with the implication
that the regulated entity might not renew their contract on favorable
terms, AMS views this as a form of prohibited retaliatory conduct in
its incipiency that this rule is intended to stop.
iv. Protection of Producers Who Choose Not To Participate in Protected
Activities
AMS requested comment on whether prohibitions on retaliation should
protect producers who choose not to participate in protected
activities. AMS provided the example of whether the provision should
prohibit giving premiums or discounts for joining or not joining
livestock or poultry associations.
Comment: A cattle industry trade association said these
prohibitions should expressly protect producers from coercive conduct
that directs them to either join or not join a particular producer
association. An agricultural advocacy organization said the retaliation
provisions should cover circumstances in which regulated entities
reward producers who do not join a producer association. An
agricultural advocacy organization noted that the freedom to refrain
from associating is as important as the freedom to associate and
represents the other side of the same coin.
AMS Response: AMS agrees that protected activities include the
decision not to participate in such an activity. Based on its
experience regulating the livestock sector, covered producers may be
coerced by regulated entities to participate in associational
activities or contact the government on regulatory and policy matters
even when they may not agree. As recently as AMS's proposal on
``Transparency in Poultry Growing Contracts and Tournaments,'' covered
producers reported to AMS potentially coercive pressure by regulated
entities on poultry growers to oppose the regulation. AMS also notes
commenter statements that regulated entities have pressured and may
continue to pressure covered producers to join associations to support
industry stances with which they disagree. Accordingly, AMS has added
Sec. 201.304(b)(2)(ii) and revised Sec. 201.304(b)(2)(iii) to clarify
that the decision not to participate in the protected activities,
respectively, of engaging in a voluntary communication with the
government or of forming or joining an association are also covered by
the rule's protections against retaliation.
v. Appropriateness of Bases of Protected Activities
AMS requested comment on whether the bases of protected activities
were appropriate, including the criteria for selection and application
of those criteria. It further sought comment on whether the bases of
protected activities are too broad, are too narrow, or should be
changed in any other way. Comments received in response to this general
inquiry are outlined below.
a. Communication With a Government Agency With Respect to Matters
Related to Livestock, Meats, or Live Poultry or Petitions for Redress
of Grievances
Comment: AMS requested comment on whether communication with a
government agency on matters related to livestock, meats, or live
poultry or petitions for redress of grievances is appropriate to
include as a protected activity under Sec. 201.304(b)(2).
Several agricultural advocacy organizations said AMS should make
clear that the proposed rule would protect producer communication with
any sector or level of government by including all three branches of
government in this provision, with one commenter also recommending AMS
specify this provision applies to both State and Federal government.
Several commenters recommended revised text as follows:
``(i) A covered producer communicates with a government agency,
court, or legislature with respect to any matter related to
livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry or petitions for redress of
[[Page 16146]]
grievances before a court, legislature, or government agency.''
AMS Response: AMS agrees with the commenter and intends that the
rule should include protections for communications with any of those
entities, including any committee or member official of those entities.
In this final rule, AMS is aligning the use of the terms ``government
agency, court, or legislature'' and simplifying the language to
``government entity or official.'' This change ensures that protected
communications may occur with any of the three branches of governments
and with individual government officials, including committees and
members of a legislature. As proposed, the rule did not limit its
protection to communication with the Federal government. By using the
words ``government entity or official,'' the rule's plain language
applies equally to communications with all levels of government--
Federal, State, Tribal, and local--with respect to the matters
indicated.
b. Assertion of Rights Granted Under the Act, 9 CFR Part 201, or
Contract Rights
AMS requested comment on whether assertion of rights granted under
the Act, 9 CFR part 201, or contract rights is appropriate to include
as a protected activity under Sec. 201.304(b)(2).
Comment: A group of State attorneys general said the proposed rule
may inadvertently leave out protections for farmers who communicate
their concerns directly to regulated entities, suggesting AMS target
this gap by expanding Sec. 201.304(b)(2)(vii) (Sec. 201.304(b)(2)(ii)
in the proposed rule) to include notification by a producer to the
regulated entity of a potential breach of contract. An academic
institution said protected activities should include the assertion of
any civil right held by the producer, to the full extent feasible
within the scope of AMS's authority. The attorneys general said that,
while the proposed rule covers rights granted under the Act, the
proposed rule, and contract rights, it does not encompass other rights
a producer may have, such as whistleblower or other rights conferred by
Federal or State law. An organization said the proposed rule should
clarify, given the imbalance of power in contracting, that producers
cannot waive the rights covered by this provision by any agreement,
policy form, or condition of employment, including by a pre-dispute
arbitration agreement.
AMS Response: With respect to the suggestion that AMS revise Sec.
201.304(b)(2)(vii) to include notification by a producer to the
regulated entity of a potential breach of contract, the regulation as
proposed protects producers' right to assert their contract rights,
their rights under 9 CFR 201, and their rights under the Act. The
language of this protection necessarily encompasses the act of
communicating with regulated entities, including to prevent a potential
breach of contract; otherwise, a producer would be unable to exercise
their contract rights. Accordingly, there is no need to add further
notifications by the producer to the regulated entities to the list of
protected activities in Sec. 201.304(b)(2).
With respect to the assertion of any civil right, the protected
activities enumerated in Sec. 201.304(b)(2) were chosen because of
their nexus to the business relationship between regulated entities and
covered producers with respect to livestock, meats, meat food products,
livestock products in unmanufactured form, or live poultry. To the
extent that a contract between a regulated entity and a covered
producer includes representations and warranties, including implied
ones, relating to either party's compliance with other Federal or State
laws, such as labor, health, and safety practices, this provision would
extend to communications relating thereto. AMS notes that the
protection afforded in Sec. 201.304(b)(2)(vi) covers supporting or
participating as a witness in any proceeding with the regulated entity.
The rule does not change any additional protections that may be
provided under other Federal or State anti-retaliation laws.
With respect to the request that AMS revise the rule to clarify
that producers cannot waive rights covered by the rule, AMS believes
that the commentors are mistaken about the structure of the Act and its
regulations. AMS enforces this rule. Irrespective of any agreement
between the contracting parties, AMS does not waive its
responsibilities to enforce the Act. The Act and regulatory scheme are
designed to vindicate the public interest in fair and honest markets.
Thus, AMS regularly brings its own enforcement actions to sanction
companies that violate the provisions of the Act, irrespective of the
contracting parties' waivers of liability. A regulated entity that
seeks a waiver from a producer through undue prejudice, retaliation or
deception still violates the general provisions of the Act by using a
deceptive, unfair, or unjustly discriminatory practice.
To the extent that individuals waive their rights, AMS points the
commenter to existing regulations at 9 CFR 201.218, which limit the use
of mandatory arbitration clauses, as mandated by Congress in the 2008
Farm Bill (Pub. L. 110-246). Specifically, those regulations require
that the regulated entity offer the producer or grower a specific
disclosure regarding the ability to decline a mandatory arbitration
clause and indicate that failure to accept or decline the arbitration
clause will be treated as if the clause is declined. Additionally, the
regulation sets out criteria governing the reasonableness of the
arbitration clause. Arbitration is a procedural forum that some parties
may utilize to adjudicate substantive rights; arbitration clauses
cannot waive substantive rights under contracts or the Act.
Accordingly, AMS is making no changes to the rule in response to
these comments.
Comment: A swine industry trade association said the broad language
of this provision could be read to mean that the proposed rule extends
to the point that carrying out the terms of a contract is considered a
protected activity.
AMS Response: AMS agrees with the comment. The assertion of rights
under a contract includes the covered producer's ability to assert
contract performance. Accordingly, AMS is making no changes to the rule
in response to this comment. However, as the commenter notes, asserting
rights under a contract is not a protected activity under the Act and
it is not the intention of AMS to incorrectly assert this false
presumption through this rulemaking.
c. Assertion of Right To Form or Join a Producer Association or
Collectively Process, Prepare for Market, Handle, or Market Livestock
or Poultry
AMS requested comment on whether assertion of the right to form or
join a producer association or collectively process, prepare for
market, handle, or market livestock or poultry is appropriate to
include as a protected activity under Sec. 201.304(b)(2).
Comment: An academic institution said the proposed rule should
extend its protection of communications associated with asserting the
rights named in proposed Sec. 201.304(b)(2)(iii) to also cover
producers engaging in talks about these activities. The commenter said
this change would ensure that retaliation protections clearly include
the initial communications and negotiation process for producers taking
steps to form or join a producer association or collectively process,
prepare for market, handle, or market livestock or poultry.
A whistleblower advocacy organization said it supported the
[[Page 16147]]
proposed rule's protection of the right to associate because
retaliation would limit producers' ability to exchange information and
engage in pro-competitive collaboration.
Multiple individuals said participation in producer organizations
and associations helps provide farmers with more access to information
relevant to their businesses and promotes competition by enabling the
production of better-quality products. A former trade association CEO
said the social and informational benefits of association membership
are especially important in the farming industry because of its
potential for isolation. This commenter further suggested large
agricultural companies would do well to appreciate the benefits of
producer participation in such organizations, such as opportunities to
make progress on solving problems, develop industry consensuses for
presenting to government, and hear the perspectives of members with
opposing views. An individual said producer organizations often act as
a barrier between individual producers and consumers, and the proposed
rule would prevent producer organizations from retaliating against
producers who try to change this behavior and provide truthful
information about the conditions under which their products are grown
or raised. The commenter said this would protect farmers' right to
organize to improve their pay and working conditions.
AMS Response: AMS believes that the act of forming or joining an
association clearly encompasses the act of communicating about the
formation or joining, including examining the decision whether to form
or join an association. All such activities are covered by the final
rule. Therefore, AMS does not make any changes to the rule on those
grounds.
Additionally, AMS appreciates that producer organizations may at
times be at odds with their producer members. However, producer
organizations are not considered regulated entities under this
rulemaking, and thus retaliatory conduct at the hands of such
organizations is not covered. Producers have the choice to join or
separate from such organizations based on their individual feelings
surrounding the costs and benefits such membership brings. If producers
feel as though their membership of an organization is serving as a
barrier between them and consumers, thus preventing transparency
regarding growing conditions, producers may find it advantageous to
disassociate. Often producers do not have this luxury in their
relationship with packers and integrators due to their reliance on
these regulated entities and the absence of alternative buyers due to
regional concentration.
Comment: A swine industry trade association said Sec.
201.304(b)(2)(iii) is overly broad, arguing that any covered producer
that joins an industry association or seeks to do so would then have
the means--based on that membership--to make a claim against a
regulated entity for engaging in perceived retaliatory behavior.
AMS Response: AMS disagrees with the commenter's assertion. The
regulation protects the covered producer from retaliation for forming
or joining an association or choosing not to join an association. It
does not protect the covered producer from other acts that the
association may take. This rule does not condone, for example,
associational behaviors that violate the Sherman Act. Nor does this
rule otherwise restrict the relationship between regulated entities and
covered producers, whether the association may support or condemn
particular acts or practices. Nor, additionally, does it suggest that
the mere fact of forming or joining an association garner absolute
protection from adverse actions by the regulated entity which are
unrelated to forming or joining an association. Therefore, AMS has made
no changes to the regulation as proposed.
d. Communication or Cooperation for Purposes of Improving Production or
Marketing of Livestock or Poultry
AMS requested comment on whether communication or cooperation for
purposes of improving production or marketing of livestock or poultry
is appropriate to include as a protected activity under Sec.
201.304(b)(2).
Comment: A swine industry trade association said this provision is
too broad because it could be read to mean that many communications
related to a producer's business are protected.
AMS Response: AMS fully intends to protect many of the
communications a producer makes in the ordinary course of business, so
that the producer may freely operate in the market without fear of
retaliation. Therefore, the regulation protects lawful communications
and cannot, and does not seek to, absolve covered producers from
unlawful communications. Section 201.304(b)(2) makes this clear by
underscoring that the producers' activities are protected from
retaliation only to the extent they are not otherwise in violation of
Federal antitrust and other relevant laws. Furthermore, to find a
violation of Sec. 201.304(b)(2) there must be a causal connection
between the regulated entity's behavior and a producer's protected
communications, including where a regulated entity makes a threat that
would reasonably dissuade the covered producer from engaging in the
protected activity. AMS made no changes in response to this comment.
e. Supporting or Participating as a Witness in any Proceeding Under the
Act or a Proceeding Relating to an Alleged Violation of Law by a
Regulated Entity
AMS requested comment on whether supporting or participating as a
witness in any proceeding under the Act or a proceeding relating to an
alleged violation of law by a regulated entity is appropriate to
include as a protected activity under Sec. 201.304(b)(2).
Comment: An organization and several individuals indicated support
for this protection, saying the ability to testify without fear of
retaliation is crucial for promotion of fair and competitive livestock
and poultry markets. Some of these commenters mentioned the example of
cattle ranchers who declined to testify before Congress after facing
threats and retaliation. The organization urged AMS to extend this
protection to participation, assistance with, or intent to participate
in any investigation of a possible violation of the Act.
AMS Response: The regulation already extends this far. The proposed
regulation protected any communication with a governmental entity,
including a governmental agency, legislature, or court, with respect to
livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry. This protection encompasses
participation, assistance, or intent to participate in any
investigation of a possible violation of the Act. AMS provided an
additional protection with respect to serving as a witness because of
the different and more public nature of such communication.
Furthermore, to underscore the importance of respecting the independent
functioning of the judicial process, the provision covers the covered
producer's ability to serve as a witness in any proceeding against a
regulated entity. AMS made no changes in response to this comment.
f. Other Comments on Appropriateness of Bases of Protected Activities
Comment: A number of commenters urged AMS to expand the list of
protected activities. An agricultural and environmental organization
said AMS should disavow the proposed rule's position that adverse
activities not tied
[[Page 16148]]
to the proposed list of protected activities would not receive
protection under the rule, arguing that retaliation of any kind against
producers exercising their lawful rights qualifies as unjust
discrimination and an unreasonable prejudice under the plain meaning of
the Act. The commenter urged AMS to instead include the following
catch-all provision to protect covered producers from retaliation
against other lawful conduct in service of livestock production and
marketing:
``(viii) A covered producer engages in any lawful conduct for the
purpose of improving production or marketing of livestock or poultry.''
A farmers union said AMS should broaden the grievance-sharing
activities producers can participate in to give producers more
protection from retaliation.
An agricultural advocacy organization said AMS should protect the
ability of producers to freely associate with other farmers and other
organizations, including using social media or other communication
platforms.
An agricultural and environmental organization said AMS should
expand the list of protected activities to include situations in which
producers maintain their status as independent participants on open
markets, refusing to enter into forward contracts or other contractual
agreements that set future price or performance at the regulated
entity's request. According to the commenter, producers who resist
entering into forward contracts and AMAs often face retaliation, and
therefore the final rule should protect them. The commenter recommended
AMS add another paragraph to Sec. 201.304(b)(2) as follows:
(vii) A covered producer refuses to sell livestock or poultry
through forward contracts, AMAs, or similar contractual arrangements,
opting instead to engage in open market sales.
An organization said lawful communications protected under the
proposed rule should also include situations where a complainant
provides information regarding conduct that they reasonably believe
violates the Act or is about to do so. The commenter said that, because
most people are not experts on their rights under the Act, the proposed
rule should establish that complainants do not need to mention specific
violations and that, as with similar corporate anti-retaliation
measures, they do not need more than a subjective, good faith belief
that the conduct at issue violates the Act. The commenter also said AMS
should allow these complaints in any language and by means including in
person, in writing, and by email.
An academic institution said the protected activities listed in the
proposed rule are all important in empowering producers to assert their
rights and promote fair markets.
AMS Response: AMS appreciates and shares the commenters' viewpoint
that retaliation is a serious concern in the livestock and poultry
industry. AMS has attempted to craft this regulation to respond to the
most common and clearly defined forms of retaliation in the form of
prohibited unjust discrimination on the basis of protected activities.
The regulation does not seek to define every prohibited activity, as
the Act may limit unjust discrimination in circumstances not foreseen
by this final rule. If covered producers believe they have suffered a
form of unjust discrimination that is prohibited by the Act, they
should report that to AMS.
AMS notes that communication with other producers for the purposes
of improving the production or growing of livestock or poultry is
already protected by the proposed regulation. Such communication may
include sharing grievances over practices by regulated entities or
others as such communications relates to covered producers' desire to
overcome obstacles to improving or marketing their livestock or
poultry.
AMS acknowledges a commenter's concern regarding some covered
producers' interest in not utilizing forward contracting for the sale
of livestock. However, regulating whether covered producers have a
right to any particular form of livestock sales transaction is outside
the scope of this rule.
AMS underscores that, to obtain the protection of this regulation,
the producer need not engage in any particular form of the activity,
such as quoting a precise regulatory section to assert an Act right.
The focus will be on the substance of the producer's activities, and a
good faith effort to assert an Act or contractual right is still
protected from retaliation on the basis of that assertion regardless of
the precision, imprecision, or even good faith inaccuracy of the legal
or contractual right being asserted by the producer.
Accordingly, AMS did not make any changes in response to the
comments.
vi. Limiting of Protected Activities Relating to Communication and
Cooperation, Beyond Government Entities, to USDA Extension and USDA
Supported Non-Profit Entities
AMS asked for input regarding whether protected activities related
to communication and cooperation should be limited to USDA extension
and USDA-supported non-profit entities, beyond government entities.
Comment: Several commenters supported expanded protections for
activities related to communication and cooperation. An agricultural
advocacy organization said AMS should not limit these protections to
USDA extension and USDA supported non-profit entities because producers
may have concerns about their industry that extend past the
department's jurisdiction, giving examples such as concerns about
managing animal waste that fall under State and Federal environmental
regulations or issues relating to veterinary drugs or animal feed that
are regulated by the Food and Drug Administration.
An academic or research institution and several organizations said,
given the information asymmetry and lack of transparency in livestock
and poultry production markets, AMS should extend protection to more
types of communications that producers may want or need to pursue in
preventing market exclusion and asserting their rights and protections.
Commenters suggested AMS should protect producer social media posts
about unfair integrator treatment, as well as producer communications
with relevant third parties, such as lawyers and legal aid
organizations, veterinarians and others doing work related to animal
welfare, producer advocacy organizations, and the media.
Several commenters said AMS should introduce this provision in a
new Sec. 201.304(b)(2)(ii), with other commenters providing the
following variations on recommended regulatory text:
(ii) A covered producer takes an action through a non-
governmental third party that causes the producer's grievances
against a regulated entity or a group of regulated entities to be
known.
and
(ii) A covered producer communicates with a reporter, private
investigator, public interest organization, or the general public
through traditional media or social media with respect to any
matters related to livestock, meats, meat food products, livestock
products in unmanufactured form, or live poultry; so long as such
communication does not expose a trade secret a regulated entity has
reasonably and clearly identified in writing as a sensitive and
confidential trade secret. A regulated entity's claim that any
communicated information is a sensitive and confidential trade
secret is not reasonable if the information is publicly available,
shared by the regulated entity to any third party that is authorized
to disseminate the information, or exposes standard industry
practices common
[[Page 16149]]
among more than one regulated entity in the relevant market.
AMS Response: AMS takes note of the commenters' recommendations of
expanded protections for activities related to communication and
cooperation. AMS believes that the commentators' concerns are largely
addressed in the rule, which protects lawful communications with
government agencies or other persons for the purpose of improving the
production or marketing of livestock or poultry, exploring a possible
business relationship, or supporting proceedings under the Act against
a regulated entity, among other protected activities. The regulatory
text provides broad coverage for these activities in Sec.
201.304(b)(2)(iv) through (vi), without limitation. These
communications are protected because they enhance producers' ability to
receive protection under existing laws, improve the production process,
and facilitate enforcement of contracts in ensuring producers receive
their bargain for exchange. Communications unrelated to those purposes
are outside the scope of this regulation.
Whether social media communications are covered will depend on the
protected activity in question and the particulars of the social media
forum in question. Whether a public post by a covered producer about
treatment by a regulated entity that the covered producer asserts to be
in violation of the Act or is otherwise harmful to the producer may
depend on the facts and circumstances of the post. For example, to the
extent that the producer is testifying to Congress or courts regarding
unfair treatment and the social media post simply refers to the
testimony or describes the same material, then, for example, such a
post would likely be protected, depending on the full scope of the
facts and circumstances.
Similarly, if the social media post is part of an effort to share
information with other producers for the improvement of production or
marketing or is part of an effort to form an association or engage in
cooperative activities, that would likely be protected under this rule
as well since the rule is agnostic as to the form of the communications
between producers. However, AMS notes that the activities protected
under this rule are covered to the extent that these activities are not
otherwise prohibited by Federal, State, or Tribal law. For example, the
rule does not provide an exemption from defamation laws.
Nor does this rule attempt to preempt freedoms of the press.
Whether a communication with a reporter or public investigation
organization is covered will depend upon the facts and circumstances.
The inquiry would need to balance the important role that freedom of
the press plays in maintaining market integrity with legitimate
expectations by a regulated entity of good faith behavior by a producer
under a contract. Relevant questions include whether the communication
was part of a factual effort to assist the reporter in understanding
and reporting on asserted violations of law and regulation and whether
the producer provided any confidential business information to the
investigator or otherwise exposed the regulated entity to commercial
risk or reputational damage unrelated to the violation in question.
Also potentially relevant, in some circumstances, may be whether the
producer has exhausted other avenues for resolving any dispute and also
the extent to which the regulated entity has a reputation recognized in
the market for retaliation which would otherwise place the producer in
fear of asserting rights even with the presence of this rule.
The rule does not provide unlimited license for producers to damage
the reputation of regulated entities. A social media post principally
functioning as a threatening or coercive public communication is
unlikely to be covered, absent other extenuating facts and
circumstances. AMS underscores that the rule is intended to facilitate
lawful communication and the exercise of lawful economic rights by
covered producers, and the promotion of competitive markets and markets
with integrity. That goal is most effectively served by enabling
producers to exercise contractual and legal freedoms, communicate with
government, other producers, and competitor firms for the purposes set
forth in this rule. Therefore, AMS makes no changes to the rule in
response to these comments.
vii. Sufficiency of Proposed Anti-Retaliation Provision's Protection
Regardless of Covered Producer's Type of Business Organization
AMS requested comment on whether the proposed anti-retaliation
provision provides sufficient protection for all types of covered
producer business organizations.
Comment: An agricultural advocacy organization indicated that this
provision provides sufficient protection regardless of the covered
producer's type of business organization.
AMS Response: AMS made no changes in response to this comment.
viii. Extension of Protections for Exploring a Business Relationship to
Such Activities With any Person, Rather Than Solely Regulated Entities
AMS requested comments on whether protections for exploring a
business relationship with a regulated entity are sufficient, or
whether such protections should extend to exploring business
relationships with any person, in addition to regulated entities.
Comment: Several organizations asked AMS to broaden these
protections to include communications and negotiations with any entity
for the purpose of exploring a business relationship or alternative
business model. According to these commenters, producers may want to
explore alternative uses for industry livestock or poultry-raising
infrastructure or add an additional type of agriculture to their
operation. Several commenters said that while they recognize that
producers who transition outside of the industry would no longer be
covered under the Act or subject to many of the retaliatory actions
covered by the proposed rule, they believe extending this protection is
necessary so producers can fully explore all potential business
opportunities without worrying about punishment if they do decide to
retain their current business relationship.
Several commenters recommended the following revisions to Sec.
201.304(b)(2)(v):
(v) A covered producer communicates or negotiates with a
regulated entity, other commercial entity, or relevant consultant
for the purpose of exploring a business relationship or alternative
use or application of their property.
AMS Response: The purpose of the provision is to preserve and
promote the competitive position of the covered producer, and as such
to ensure that the covered producer is not discouraged from seeking
competitive alternatives by a regulated entity's retaliation. Paragraph
(b)(2)(v) protects a covered producer's ability to communicate,
negotiate, or contract with a regulated entity, another covered
producer, another commercial entity, or consultant, for the purposes of
exploring or entering into a business relationship. The Act is intended
to ensure maximal competitive flexibility for covered producers. It may
be the case that producers wish to explore a business opportunity by
communicating, negotiating, or contracting with a consultant about
forming a cooperative or, with a commercial intermediary such as an
exchange or auction, or with another covered producer or commercial
entity that may not yet be
[[Page 16150]]
a regulated entity but intends to engage in meat or poultry processing.
It may also be the case that producers wish to negotiate with other
covered producers for the purpose of jointly investing in a business
venture such as a slaughter facility. Accordingly, AMS has amended the
regulation to indicate that the final rule provides protection for a
covered producer who communicates, negotiates, or contracts with a
regulated entity, another commercial entity, another covered producer,
or a relevant consultant, for the purpose of exploring a business
relationship. AMS concludes that a consultant either works to benefit
another commercial entity or works to benefit the covered producer, and
so would be covered by the provision.
ix. Include Catch-All Clause in Proposed List of Regulatory Actions To
Cover Offering of Less Favorable Contract Terms
AMS requested comment on whether the proposed list of retaliatory
actions should include a catch-all clause, such as ``offering contract
terms that are less favorable than those generally or ordinarily
offered.''
Comment: Several organizations indicated support for a catch-all
provision. The commenters said they would be in favor of prohibiting
the retaliatory offering of less favorable contract terms as AMS
suggested in the preamble to the proposed rule. Commenters said this
addition would recognize the importance of contracts as a retaliatory
weapon because of their effect on producers' financial well-being and
would avoid a potential loophole for the proposed rule's prohibition on
retaliatory termination or non-renewal of contracts and refusals to
deal. One commenter suggested that AMS include a new provision saying
``offering unfavorable contract terms that otherwise affect reprisal''
or ``offering contract terms that are less favorable than those
generally or ordinarily offered'' is a prohibited action. However,
several commenters recommended that AMS also introduce a second,
broader catch-all provision to ensure that regulated entities cannot
simply formulate new ways to retaliate against producers for engaging
in protected activities. These commenters suggested that AMS add the
following regulatory text to Sec. 201.304(b)(3) to achieve both aims:
(v) Offering unfavorable contract terms in contract formation,
contract modification, or contract renewal that affect reprisal.
(vi) Any other action that adversely impacts a covered
producer's financial or reputational interests or may result in
diminished contract performance with the regulated entity.
Unfavorable contract terms include, but are not limited to: price
terms, including any base or formula price; formulas used for premiums
or discounts related to grade, yield, quality, or specific
characteristics of the animals or meat; the duration of the commitment
to purchase or to contract for the production of animals;
transportation requirements; delivery location requirements; delivery
date and time requirements; terms related to who determines date of
delivery; the required number of animals to be delivered; layout
periods in production contracts; financing, risk-sharing, and profit-
sharing; or terms related to the companies' provision of inputs or
services, grower compensation, or capital investment requirements under
production contracts.
AMS Response: AMS elected not to introduce a provision prohibiting
the ``offering of contract terms that are less favorable than those
generally or ordinarily offered'' to its list of prohibited retaliatory
actions as requested by a commenter because retaliation is principally
focused on protecting producers from adverse actions by regulated
entities in which they already have establish or recurring contractual
relationships. The list of adverse actions in paragraph (b)(3) was
designed to provide examples of the most common forms of retaliation as
discrimination addressed by this rule. However, the proposed rule was
intended and drafted broadly so as to ensure producers can engage in
protected activities at all times and with all regulated entities in
the marketplace. As described in Section V--Changes from the Proposed
Rule, the final rule provides more specificity. Yet the final rule
would still protect a producer against adverse treatment by a regulated
entity which may be seeking to chill those activities across the
marketplace--such as forming a producer association or asserting rights
under the Act with other regulated entities--through the clarification
that other actions that a reasonable covered producers would find
materially adverse.
Additionally, AMS accepts the commenters' critique that the
proposed regulatory text was insufficiently specific to provide clarity
regarding when regulated entities could and could not take adverse
actions against covered producers. In particular, AMS is concerned that
the proposed contours regarding refusals to deal and non-renewals offer
regulated entities too great a latitude to engage in retaliation,
because a regulated entity could, in theory, satisfy the proposed rule
by simply offering highly unfavorable terms to the covered producer--
which it could not do if the agency prohibited ``offering of contract
terms that are less favorable than those generally or ordinarily
offered.'' That is not, however, the intent of the regulation. Rather,
it is to ensure that covered producers, in whatever circumstance they
enjoy, do not suffer retaliation for effectuating their rights under
the Act.
Accordingly, in the final rule, AMS has amended the provision to
add several clarifying details. First, the final rule clarifies that
requiring modifications or only offering to renew contracts on terms
less favorable than those enjoyed by the covered producer is a
violation where it occurs because the covered producer engaged in
protected activities. This provision covers any adverse change to the
covered producer's terms to provide maximum flexibility to the covered
producer to exercise protected rights regardless of the particular
circumstances. Second, the final rule clarifies that a refusal to deal
with covered producers would be triggered where the regulated entity
fails to offer terms generally or ordinarily offered to other similarly
situated covered producers. This provision does not guarantee the
covered producer the most favorable contract terms in the market, but
simply those that the covered producer would generally or ordinarily
offer to other similarly situated covered producers that had not
engaged in protected activities, which could include the situation
previously enjoyed by the covered producer prior to having engaged in
the protected activity. Such a provision is necessary because covered
producers may enter or exit the market at different times, and during
that period may engage in protected activities for which a regulated
entity may attempt to retaliate. Together, AMS believes that these
modifications cover the most common circumstances that covered
producers may encounter in their business dealings in which regulated
entities may attempt to exact retaliation.
AMS is not including the level of detail sought by some commenters
regarding the specific form of retaliation. This rule is intended to
provide protections for adverse actions against a covered producer
based upon the protected activity (including threats intended to chill
engaging in that activity). Any inquiry should focus on those bases,
rather than on the particular form of the discriminatory harm. AMS
recognizes that unfavorable
[[Page 16151]]
contractual terms can cover a wide range of elements of a contractual
relationship, such as prices, formulas, premiums or discounts,
transportation provisions, delivery dates, duration, the required
number of animals, arrangements such as financing, investment
requirements or incentives, and other contractual specifications, among
other terms and conditions. Such unfavorable terms may have direct
financial impacts but may also have indirect financial impacts, such as
reputational impacts which adversely affect the covered producer's
ability to conduct business in the marketplace. Providing further
detail in the regulatory text is not necessary to enforce the rule. It
is not practical to name all the different ways a malicious actor could
find to retaliate. The rule is intended to capture as fully as possible
the difference between a serious contract offer and an offer that has
the practical intent to retaliate.
Additionally, AMS confirms that when a regulated entity claims that
modification or renewal of a contract on less favorable terms is common
with similarly situated producers for reasons unrelated to any exercise
of protected activities, AMS will not automatically consider the less
favorable modification or renewal a violation of this particular rule.
AMS will, however, review modification and renewal and will carefully
examine the regulated entity's justifications. Even outside of
retaliation, unilateral modification of existing contracts has been a
violation of the Act. The Act considers it an unfair and deceptive
practice to modify an existing contract to either extend the time for
payment or reduce the full price agreed upon at delivery. Moreover,
contract modification has been a deceptive practice where the terms
offered publicly were privately disavowed.
x. Include Other Contract Terms That Could Affect Reprisal
AMS requested comment on whether other contract terms should be
included as part of including a non-exhaustive list of contract terms
that could affect reprisal.
Comment: An organization said AMS should provide examples of
adverse actions that could constitute retaliation to help regulated
entities comply with the Act. The commenter said that, for example,
adverse actions for speaking out might include negative performance
reviews; denial of bonuses; harassment or assault; reduced input
quality; or increased scrutiny. The commenter said the proposed rule
should cover adverse actions in contract terms such as impacts on price
terms; formulas used for premiums or discounts related to grade or
other characteristics of the animals or meat; duration of commitment to
purchase or contract for the production of animals; transportation or
delivery requirements; or terms related to companies' provision of
inputs or services, grower compensation, or capital investment
requirements under production contracts.
AMS Response: AMS recognizes that unfavorable contractual terms can
cover a wide range of elements of a contractual relationship, such as
prices, formulas, premiums or discounts, transportation provisions,
delivery dates, duration, the required number of animals, arrangements
such as financing, investment requirements or incentives, and other
contractual specifications, among other terms and conditions. Such
unfavorable terms may have direct financial impacts but may also have
indirect financial impacts, such as reputational impacts which
adversely affect the covered producer's ability to conduct business in
the marketplace. In the final rule, AMS has added paragraph (b)(3)(iv)
to address any other adverse action that a reasonable covered producer
would find materially adverse. This is intended to focus on material
harms to covered producers, including threats, based on the protected
activities. However, AMS is not including the level of detail sought by
some commenters regarding the specific forms of retaliation, because
providing further detail in the regulatory text is not necessary to
enforce the rule. There are too many possibilities to encompass every
possible retaliatory action in a single rulemaking. The Agency prefers
the general prohibitions because their simplicity reaches a broad array
of unlawful retaliatory activities, including the ones the commenter
raises.
xi. Specific Challenges or Burdens Regulated Entities Might Face in
Complying With Anti-Retaliation Provisions of Proposed Rule
AMS requested comment on what challenges or burdens regulated
entities may face in complying with the proposed rule's anti-
retaliation provisions.
Comment: Multiple industry groups argued the retaliation provisions
are overly broad and vague, leading to compliance uncertainties and the
threat of litigation.
A cattle industry trade association said that AMS's decision to
allow violations of the proposed rule's retaliation provisions without
demonstrating harm to competition, along with ambiguous definitions
letting a wide range of parties qualify as potential complainants, puts
the cattle industry in danger of a huge wave of lawsuits that could
thwart innovation. A swine industry trade association said the
prohibited forms of retaliation listed in Sec. 201.304(b)(3) include a
broad range of activities that a regulated entity may have legitimate
business reasons to carry out. According to the commenter, these
prohibitions would restrict the rights of regulated entities to freely
deal and require them to treat every producer the same, putting the
proposed rule in conflict with the Act and with antitrust law. A
poultry industry trade association and several live poultry dealers
said that the list of activities that constitute retaliation is not
exhaustive, so regulated entities have no way to know what activities
they must avoid to comply with the rule.
AMS Response: In this final rule, AMS has made a number of changes,
outlined above in Section V--Changes from the Proposed Rule, to provide
additional clarity, specificity, and certainty to market participants.
These include switching prohibited conduct in Sec. 201.304(b)(3) from
an exemplary list to a specific list of covered items. AMS rejects the
general assertion that the provisions on retaliation are vague,
ambiguous, or non-exhaustive. To the contrary, the final rule sets
forth specific activities that are protected (Sec. 201.304(b)(2)) and
specific conduct (Sec. 201.304(b)(3)) that would constitute
retaliation if it were done because of the producer engaging the
protected activities. As described above under Section V--Changes from
the Proposed Rule, these included a range of further clarifications to
the specific conduct. Notably, the inexhaustive list under paragraph
(b)(3) has been refined, with paragraph (b)(3)(v) added to limit the
list to any other adverse action that a reasonable covered producer
would find materially adverse.
The activities protected by this final rule each constitute an
exercise of basic freedoms necessary and essential to maintain a free
and competitive market--freedoms such as exercising contractual and
legal rights, seeking recourse through governmental channels, forming
cooperatives or associations relating to the business of livestock and
poultry, and being a witness in court. Most regulated entities assert
that retaliation for engaging in these types of activities is not a
common practice in the industry. AMS finds that factually questionable,
given the level of complaints and concerns expressed by producers over
the years, including
[[Page 16152]]
experience in response to producers' participation in hearings on
competition by USDA and the DOJ in 2010. But to the extent that
regulated entities stand by that position, then there should be little
risk to regulated entities from litigation on the grounds of the
activities protected in this rule. Regardless, AMS can identify no
competitive benefits to adverse actions against covered producers for
engaging in the activities protected by this final rule and can
identify no genuine risks to contractual freedoms or ability to
legitimately innovate from the activities protected by this final rule.
AMS has further responded to the question of the costs and risks of
litigation below.
Comment: A swine industry trade association said that the
retaliation provisions provide no guidance on legitimate business
reasons to engage in the activities deemed as retaliatory conduct or on
whose shoulders the burden of proving that a regulated entity's conduct
was ``because of'' the producer's activity rather than based on a
legitimate reason. A poultry industry trade association and several
live poultry dealers said the proposed rule also does not clarify how
to establish that a live poultry dealer, and the specific employees
involved in grower contracting, knew that a grower had engaged in one
of the protected activities.
AMS Response: AMS has not identified any competitive benefits to
adverse actions against covered producers for their having engaged in
any of the protected activities set forth in this final rule.
Accordingly, AMS has not provided any exemptions to the prohibition on
retaliation against covered producers. If a regulated entity claims it
has taken an adverse action against a covered producer for reasons
unrelated to the producer's exercise of rights protected by this final
rule, it becomes a factual question of proof. The agency has the burden
of showing that the regulated entity violated the rule by taking
covered adverse actions against a producer or grower wholly or in part
because of the producer's or grower's exercise of a protected right
under the rule. Any such determination will turn heavily on the
particular facts and circumstances of any claim. This factual
determination is not a question of whether a legitimate business reason
existed to engage in the retaliation; rather it is a question of
whether a violation occurred at all. In some cases, it may be possible
that the regulated entity, including in the form of its agent
interacting with the covered producer, is genuinely not aware of the
protected activity by the covered producer (including not having
constructive knowledge, being willfully blind, or grossly negligent in
its affairs), the adverse action would not constitute a violation. AMS
does not expect, and indeed does not encourage, the regulated entity to
engage in any monitoring activities to attempt to make itself aware of
when covered producers may be engaging in these activities. In fact,
the purpose of the rule is the opposite, and were AMS to identify a
regulated entity engaging in any such monitoring program, it would
likely view such activities as being in violation of this regulation
owing to their likely effect of intimidating producers.
Comment: A swine industry trade association said the proposed rule
would allow producers who engage in common conduct, such as joining a
cooperative or asserting their rights under a contract, to claim that a
regulated entity engaged in retaliation by terminating a contract or
giving differential treatment to a producer. A poultry industry trade
association and several live poultry dealers said the retaliation
provisions create a presumption that all grower protected activities
are legitimate, which could open the door to strategically planned
actions by poor performing growers designed to trigger these
protections and would lead to especially severe risks if a grower has
committed animal welfare violations.
AMS Response: AMS rejects the assertion that the rule would permit
or encourage gaming by producers to avoid accountability for poor
performance or violations of animal welfare guidelines. This final rule
clearly specifies that the adverse action must be taken based on the
producer participating in such protected activities. The mere
coincidence, or correlation, between a producer joining an association
or reporting to the government and then experiencing an adverse action
is not enough for a violation. There must be evidence showing the
adverse action taken by a regulated entity was in response to the
producer engaging in a protected activity for a violation to be exist.
Additionally, AMS rejects the comment that the regulated entity
would face a burden because it would not know which protected
activities the producer has engaged in. The purpose of the rule is for
the regulated entity to not adversely treat producers based on their
participation in protected activities.
Comment: A poultry industry trade association and several live
poultry dealers said the proposed rule also does not provide clarity
regarding cooperative activity: live poultry dealers would still need
to select which specific growers to contract with, choose where to
place birds, and evaluate and approve housing and other grow-out
specifications even if growers form cooperatives, but the proposed rule
does not provide guidance on whether a regulated entity making these
decisions might be considered to be engaging in retaliation.
AMS Response: A cooperative is a well understood legal status under
the Co-Operative Marketing Associations (Capper-Volstead) Act of 1922
(Pub. L. 67-146) and protected by the Agricultural Fair Practice Act of
1967, which the proposed and final rule have both referenced.
Generally, a cooperative is an organization established by individuals
to provide themselves with goods and services or to produce and dispose
of the products of their labor. The property of a cooperative,
including the means of production and distribution, are typically owned
in common. The final rule covers activities inherent in the planning
and organization of a cooperative.
AMS also rejects the comment that live poultry dealers would still
need to determine how to treat particular growers when dealing with a
cooperative. Cooperatives are independent entities, and the live
poultry dealer would enter in a contract with the cooperative as a
whole, rather than with any individual grower. The terms of the general
contract would govern the relationship between the live poultry dealer
and the cooperative. Generally, a cooperative is an organization
established by individuals to provide themselves with goods and
services or to produce and dispose of the products of their labor. The
property of a cooperative, including the means of production and
distribution, are typically owned in common. This rule prohibits live
poultry dealers from discrimination against a cooperative because it is
a cooperative or from retaliating against producers for forming a
cooperative. Because a cooperative is an entity, a regulated entity
cannot assert that they are dealing with a cooperative but then limit
the agreement to individuals.
Comment: A poultry industry trade association and several live
poultry dealers urged AMS to introduce exceptions to the proposed
rule's protection of information sharing activities under Sec.
201.304(b)(2)(iv) and (v) that would cover confidential or proprietary
information, saying that the
[[Page 16153]]
unauthorized release of confidential business information can harm
businesses substantially and irreparably and therefore companies act
legitimately in exercising their contractual rights to protect this
information.
AMS Response: This rule will not create exceptions to existing laws
governing the sharing of information between members of associations
and cooperatives. Information sharing by associations remains governed
by the Federal antitrust laws and other relevant laws. Certain conduct
by cooperatives is exempt from the Federal antitrust laws. This rule
does not change whether these activities are lawful and protected, or
prohibited, under Federal law. AMS makes no changes in response to this
comment.
xii. Other Comments on Retaliation
Comment: A whistleblower advocacy organization suggested several
changes to expand the proposed rule's coverage. First, it recommended
AMS extend the proposed rule's anti-retaliation protection to all
natural or legal persons who provide information they reasonably
believe is evidence of a violation of the Act or who refuse to take
action they reasonably believe would violate the Act. According to the
commenter, protected persons should include, but not be limited to,
employees of meatpackers and integrators reporting violations of the
Act; employees, contractors, and subcontractors of protected farmers or
ranchers; and associates and relatives of protected persons or
entities. Second, the commenter said that AMS should clarify language
in the proposed rule stating that it does not protect farmers and
ranchers acting in contravention of the Act from retaliation. According
to the commenter, the final rule should exclude from protection only
individuals acting without express or implied direction from the
covered entity or its agent, and who deliberately and willfully cause a
violation of any requirement relating to any violation or alleged
violation under the Act. The commenter said this clarification would
ensure that live poultry dealers cannot use this provision to attack
farmers under broiler production contracts who engage in
whistleblowing. According to this commenter, these contractors are
subject to extreme corporate control that denies them the right to act
under their own agency, so it would not be fair to exclude them from
the protections against retaliation based on actions they could not
control.
This commenter also said that, because farmers are often unfamiliar
with protections that apply to their exposure of industry wrongdoing,
USDA must make efforts to share information about producer rights and
company responsibilities at the beginning of the contractual
relationship as well as throughout the engagement. The commenter
suggested that AMS host educational programming about rights under the
Act and develop language-appropriate educational material. The
commenter urged USDA and DOJ to continue to offer anonymous protected
disclosures through their joint portal and be transparent about
subsequent regulatory and enforcement activity, saying most producers
prefer to make reports anonymously or through another party to avoid
retaliation.
AMS Response: In this rule, AMS is principally focused on providing
robust protections for covered producers participating in the market.
Accordingly, AMS has not amended the regulatory text to extend the
rule's coverage to all natural or legal persons who provide information
regarding perceived violations of the Act or who refuse to take action
they believe would violate the Act. AMS has, however, revised the
regulatory text of Sec. 201.304(b)(2)(i) to extend the coverage from a
covered producer's communication ``with a government agency'' to
communication ``with a government entity or official'' and from
``petitions for redress of grievances before a court, legislature, or
government agency'' to ``petitioning a government entity or official
for redress of grievances.'' AMS believes that this change ensures that
protected communications may occur with any of the three branches of
the Federal government and with individual government officials,
including committees or members of a legislature. The regulation
applies equally to communications with all levels of government--
Federal, State, and local--with respect to the matters indicated.
Furthermore, AMS is sympathetic to and broadly in agreement with
the commenter's perspective that covered producers should not be
required to understand the precise contours of the Act to exert their
protected activity rights, and that they should be enjoyed heightened
protection when acting at the express or implied direction of a
regulated entity. Regulated entities have no motive to purposefully
induce producers to commit unlawful acts. If a regulated entity induces
criminal activity, irrespective of retaliation, this inducement may be
deceptive within the meaning of the Act.
AMS appreciates the commenter's advocacy regarding the need for
continuing USDA-sponsored education regarding producer rights and
company responsibilities under the Act. AMS is taking steps to increase
producer education and outreach, including, for example, establishing
the farmerfairness.gov portal to facilitate ease of access for
submitting complaints. AMS intends to expand education and outreach
regarding this rule and other regulatory requirements.
F. Recordkeeping (Sec. 201.304(c))
AMS proposed a recordkeeping requirement that records related to
compliance with this rule be kept for a period of five years from the
date of record creation. These records include policies and procedures,
staff training materials, materials informing covered producers about
reporting mechanisms and protections, compliance testing, board of
directors' oversight materials, and records about the nature of
complaints received relevant to prejudice and retaliation. AMS stated
the purpose of this proposal was to reduce the threat of retaliation
and to enhance AMS's ability to investigate and secure enforcement
against undue prejudice and unjust discrimination.
i. Appropriateness of Proposed Regulation's Recordkeeping Obligations
To Permit AMS To Monitor Regulated Entities for Compliance
AMS requested comment on whether the proposed recordkeeping
obligations were appropriate to allow AMS to monitor regulated entities
for compliance.
Comment: A group of State attorneys general and several
organizations generally supported the proposed recordkeeping
obligations in order to enhance compliance by regulated entities and
enhance AMS's ability to monitor them for discriminatory treatment.
Other commenters supported the proposed recordkeeping requirements,
but suggested AMS should require regulated entities to maintain
additional specific records. A cattle industry trade association said
AMS should require retention of any records that include specific terms
(including prices paid) of purchase agreements or contracts, as well as
any methodologies used to calculate premiums or discounts paid to
producers. This commenter argued that such records would enable AMS to
evaluate differential treatment. An agricultural advocacy organization
made a similar suggestion for regulated entities to maintain income/
payment formulas and pre-contract discussions with producers as part of
their recordkeeping obligations.
[[Page 16154]]
AMS Response: AMS takes note of the commenters' support for the
usefulness of the provisions. With respect to the request that AMS
revise the rule to identify specific records that regulated entities
must retain, AMS notes that the regulation as proposed provides
flexibility for a regulated entity to retain any records relevant to
its compliance with Sec. 201.304(c), including records not
specifically referenced in the regulation. Under sec. 401 of the Act,
regulated entities are already required to maintain the accounts,
records, and memoranda necessary to fully and correctly disclose all
transactions involved in their business. USDA's implementing
regulations can be found at 9 CFR 201.94, 201.95, and 203.4. Existing
regulations under part 201 require regulated entities to give the
Secretary ``any information concerning the business . . .'' (Sec.
201.94) and provide authorized representatives of the Secretary access
to their place of business to examine records pertaining to the
business (Sec. 201.95). Section 203.4 regulates the types of records
that must be kept by regulated entities and the timelines for disposal
of these records. As part of its enforcement capabilities under sec.
401 of the Act, AMS can inspect the records of regulated entities to
review detailed information related to purchases and ensure that
regulated entities are in compliance. Because these records are already
required under existing law, AMS made no further changes in response to
the comments.
Comment: A poultry industry trade association argued that the
proposed recordkeeping regulation--as written--is not appropriate
because it is vague and does not make clear that it only requires
integrators to maintain records relevant to proposed Sec. 201.304(a)
and (b). The trade association contended that the rule should make
explicit that, if a regulated entity does not maintain records relevant
to those respective proposals, no recordkeeping is required. The
commenter also recommended exempting privileged communications or
attorney work product from the recordkeeping requirement.
AMS Response: AMS disagrees with the commenter's view that the
regulation as proposed does not make clear that regulated entities are
only required to maintain records relevant to proposed Sec. 201.304(a)
and (b): the regulation as proposed specifically stated that a
regulated entity ``shall retain all records relevant to its compliance
with paragraphs (a) and (b) of this section.'' Further, AMS does not
believe it necessary to specify that certain records do not need to be
retained if they are irrelevant because the regulatory text states
explicitly that the recordkeeping requirement applies only to records
relevant to a regulated entity's compliance with this section. Under
the Act and existing PSD regulations, regulated entities are required
to keep records pertaining to their business. To comply with the
proposed regulation, a regulated entity must retain all records
relevant to its compliance with Sec. 201.304(a) and (b) for no less
than five years from the date of record creation. Lastly, AMS does not
believe that adding an exemption for privileged communication, such as
attorney work product, is necessary because attorney work product is
already protected from disclosure under current law. Therefore, AMS
makes no changes to the rule in response to this comment.
ii. Requirements for Regulated Entities To Produce and Maintain
Specific Policies, Compliance Practices, or Disclosures To Help Ensure
Compliance With Undue Prejudice and Anti-Retaliation Provisions
AMS requested comment on whether the proposal should require
regulated entities to produce and maintain their specific policies and
procedures, compliance practices or certifications, or disclosures to
ensure compliance with the undue prejudices and provisions and anti-
retaliation provisions in the proposed rule.
Comment: Several commenters expressed concern that the proposed
recordkeeping requirement would not be sufficient to ensure compliance.
One organization argued that AMS should require regulated entities to
proactively identify and record the basis of differential treatment
(e.g., differences in prices paid) among producers. An academic or
research institution concurred, suggesting that any differential
treatment in price or contract terms should be justified by regulated
entities in their records.
An agricultural and environmental organization proposed regulated
entities should be subject to an Annual Compliance Report to AMS that
requires a detailed list of all their transactions. This list would
include, specifically: (1) an anonymized list of producers the
regulated entity did business with; (2) terms offered to producer
during contract negotiations; (3) terms entered with producer and
whether these terms differ with similarly situated producers; (4)
prices paid to producers and methodology for the price; (5) whether
AMAs were used; and 6) accounts of all instances of the regulated
entity's refusal to deal with a producer and justification for the
refusal. The commenter argued that it will be difficult for producers
or AMS to prove violations of proposed Sec. 201.304(a) without these
detailed disclosures.
An agricultural advocacy organization proposed requiring regulated
entities to report to AMS the contract terms and payments made to
producers, as well as producer demographic information necessary to
determine which producers are market vulnerable individuals. The
commenter argued this was necessary to put the burden of enforcement of
the new rule on AMS and regulated entities rather than covered
producers. This commenter also suggested requiring regulated entities
to use a uniform recordkeeping system that tracks and reports
``relevant data'' to allow AMS to monitor for potential differential
treatment or discrimination. This commenter likened the proposed system
to the Home Mortgage Disclosure Act, which allows regulators to use
data from regulated entities to ensure compliance with fair housing
laws.
AMS Response: AMS is making no changes to the rule as proposed
based on this comment. AMS believes that the regulation as proposed
permits flexibility for regulated entities to determine which records
best demonstrate compliance with Sec. 201.304. Such an approach is
appropriate, given that this rule regulates the poultry, cattle, and
swine industries, and that regulated entities vary in size and in the
nature of their business operations. Regulated entities may have an
existing recordkeeping system in place that is suited to their
industry, size, or business operation. The proposed regulation's
flexibility regarding the types of records that must be kept will
ensure that the array of regulated entities covered by this rule can
choose the method of compliance most relevant to their circumstances;
the proposed regulation's specification that a regulated entity must
retain all records relevant to their compliance with Sec. 201.304(a)
and (b) will aid in PSD's enforcement of paragraphs (a) and (b). As
noted above, under sec. 401 of the Act, AMS is authorized to conduct
compliance inspections, which may include examination of information
related to differences in purchases and prices. AMS also has the power
under sec. 6 of the FTC Act to require reports from corporations on a
case-by-case basis. The additional reporting requirements suggested by
commenters are outside the scope of this rulemaking, but AMS reserves
the right to consider those approaches in future rulemakings.
Comment: A poultry industry trade association and several live
poultry dealers said AMS should identify
[[Page 16155]]
specific records that need to be kept or generated, arguing that
without specific guidance regulated entities will be left guessing
which records are relevant to its compliance obligations.
AMS Response: As noted in the response above, this rule regulates a
wide array of entities. Regulated entities may have an existing
recordkeeping system in place that is suited to their industry, size,
or business operation. Also as noted above, existing regulations and
the Act require regulated entities to keep records of their business
operations, subject to AMS compliance investigations. The regulation as
proposed provides the flexibility for regulated entities to keep the
types of records they deem appropriate to demonstrate their compliance
with Sec. 201.304, rather than requiring all regulated entities to
keep the same set of records that may not be relevant to how they run
their businesses. Paragraph (c)(2) provides a non-exhaustive list of
examples of the types of records that may be relevant for a regulated
entity to demonstrate compliance with Sec. 201.304(a) and (b). AMS is
making no changes to the rule as proposed based on this comment.
iii. Specific Challenges or Burdens Regulated Entities Might Face in
Complying With Recordkeeping Duties of Proposed Rule
AMS sought comment on what specific challenges regulated entities
may face in complying with the recordkeeping duties of the proposed
rule.
Comment: A poultry industry trade association and several live
poultry dealers said that the proposed recordkeeping rule was overly
broad, such that regulated entities would need to document and maintain
every document related to interactions with producers (such as emails,
visits, or notes from calls or meetings). The commenters raised
concerns that this obligation would impose an overwhelming
administrative burden and exorbitant compliance costs on regulated
entities, which would be compounded by the 5-year record maintenance
requirement. They suggested reducing the requirement period to two
years. An agricultural association shared these concerns, in particular
around the possibility that communications with any person about
potentially entering into a contract may be deemed relevant under the
rule and that, as such communications could be directed at any
employee, a regulated entity could have to maintain records of all
communications with its employees for a period of five years. This
commenter said, if USDA interprets the recordkeeping requirements in
this broad manner, would impose a particular burden on smaller entities
subject to the recordkeeping requirement since these entities lack the
administrative or IT infrastructure necessary to comply. A legal
foundation also posited that the recordkeeping proposal would impose
significant costs on regulated entities and--to reduce their burden--
urged AMS to impose a warrant requirement before requiring disclosure
of records.
AMS Response: AMS is making no changes to the regulation as
proposed. The recordkeeping requirement in this rule is not new. PSD
currently has recordkeeping authority through the Act and its existing
regulations, including sec. 401 of the Act, and 9 CFR 201.94, 201.95,
and 203.4. Further, AMS subject matter experts--economists and
supervisors with years of experience in AMS's PSD conducting
inspections and compliance reviews--have estimated the recordkeeping
costs associated with this rule to be relatively low. They have
estimated that recordkeeping costs would be correlated with the size of
the regulated entity, with the assumption that the hour burden would be
highest for the largest entities. Therefore, at the highest end of the
spectrum, AMS has estimated that annual recordkeeping compliance costs
for the largest regulated entities would average of 4 hours of
administrative assistant time and 1.5 hours of time each for managers,
attorneys, and information technology staff in the first year.
Thereafter, for the largest entities, annual recordkeeping compliance
costs would average 3 hours per year of administrative assistant time,
1.5 hours per year of manager and attorney time, and 1.00 hour of time
from information technology staff. As stated previously, AMS estimates
that the hour burden would decrease proportionate to the size of the
entity. AMS also notes that some firms might not have any records to
store, while other firms may already store relevant records and may
have no new costs associated with this rule. It also notes that the
list of suggested records in Sec. 201.304(c)(2) is illustrative and
that regulated entities are not required to document and maintain all
of these records. Therefore, AMS estimates that the compliance costs
associated with this rule will be relatively low and, as these costs
are likely to vary in proportion to the size of the regulated entity,
smaller entities are unlikely to face particular burdens. The objective
of the recordkeeping requirement is to support USDA monitoring efforts
as well as to preserve the flexibility of allowing regulated entities
to decide how best to comply with the rule. It is incumbent upon
regulated entities to decide which records are relevant for rule
compliance.
AMS is also declining to revise the regulation to limit the record
retention requirement to two years. AMS believes that requiring that
records be retained for five years from their creation date will enable
the agency to monitor the evolution of compliance practices over time
in this area and will ensure that records are available for what may be
complex evidentiary cases. AMS will not be adding a warrant requirement
to the rule at this time because the Agency already has jurisdiction
under the Act to request documents concerning a regulated entity's
business and therefore no warrant is required to do so under governing
law.\194\
---------------------------------------------------------------------------
\194\ Section 201.94 of the regulations requires regulated
entities to give the Secretary ``any information concerning the
business . . .'' Section 201.95 of the regulations requires that
regulated entities provide authorized representatives of the
Secretary access to their plaice of business to examine records
pertaining to the business.
---------------------------------------------------------------------------
iv. Ways in Which Recordkeeping Duties Differ From Existing Policies,
Procedures, and Practices of Regulated Entities
AMS requested comment on how the proposed recordkeeping duties may
differ from the current policies, procedures, or practices of regulated
entities.
Comment: A poultry industry trade association and several live
poultry dealers argued that the proposal to include board of directors
and other corporate governance materials as a matter of routine
compliance with the Act is not typical of compliance records
maintenance. The commenters suggested that these materials would not be
helpful in demonstrating violations of the proposed rule, and their
inclusion may be an attempt to create liability for executives or board
members for everyday regulatory requirements.
AMS Response: AMS is making no changes to the rule as proposed
based on this comment. The rule does not require regulated entities to
maintain board of directors' materials. These materials are referenced
in the rule as an example of the types of records that may be relevant
for a regulated entity to demonstrate that it has complied with Sec.
201.304(a) and (b). Therefore, regulated entities are not required to
retain these materials. However, AMS notes that the conduct of
executives and board members is a critical component in establishing a
corporate culture of
[[Page 16156]]
compliance. As noted previously, a culture of compliance is a critical
tool for preventing legal and regulatory violations and a first step
toward more inclusive market practices.
G. Deceptive Practices (Sec. 201.306)
AMS proposed to prohibit regulated entities from participating in
several types of deceptive practices with respect to livestock, meats,
meat food products, livestock products in unmanufactured form, or live
poultry. These relate to contract formation, performance, termination,
and refusal.
i. Accuracy and Adequacy of Proposed Regulations in Identifying
Recurrent Deceptive Practices in Livestock and Poultry Industries
AMS requested comment on whether the proposed regulations
accurately and adequately identify recurrent deceptive practices in the
livestock and poultry industries, as well as whether any areas of
deception may be missing.
Comment: Commenters including a group of State attorneys general,
several organizations, and an academic institution indicated support
for the deceptive practices provisions, with one commenter saying the
provisions would clarify the duties of regulated entities to engage in
honesty and market integrity.
Two agricultural advocacy organizations recommended that, in
addition to the four broad prohibitions on behavior enumerated under
proposed Sec. 201.306, AMS should provide a non-exhaustive list of
prohibited conduct known to harm producers, saying this measure would
provide clear guardrails and foster quicker termination of abusive
practices against producers. These commenters also said the deception
provisions of the proposed rule fall well within AMS's authority under
the Act, noting that Congress gave USDA broad powers under the Act with
the intention of halting unfair trade practices against producers
before producers suffer actual harm.
AMS Response: AMS is making no changes to the rule as proposed. AMS
appreciates the views expressed by commenters but believes specifying
the duties of regulated entities to engage honestly and itemizing
prohibited deceptive practices adds unnecessary complexity. Firstly,
specific guidance as to what constitutes deceptive practices can be
taken from existing regulations in 9 CFR part 201, such as: Sec. Sec.
201.49 and 201.71 (requiring honesty in weighing); Sec. 201.53
(requiring honesty in representation of market conditions or prices);
Sec. 201.98 (requiring honesty in collection of fees); Sec. 201.67
(prohibiting deception regarding the nature of packer and selling
agency business relationships); and Sec. 201.217 (requiring
transparency regarding breach of contract determinations). Secondly, in
the event deception occurs in ways actionable under sec. 202(a) of the
Act, yet that violation is not specifically covered by this rule, AMS
will look to the legislative history and case law of the Act to guide
its handling of these matters. For example, obvious falsehoods, such as
false weighing and false accounting have always been considered
deceptive practices under sec. 202(a) of the Act. Therefore, AMS
believes it is not necessary to itemize such practices in this
particular section. Lastly, AMS underscores that this rule is intended
to provide a broad array of coverage regarding the general
circumstances that encourage the provision of false or misleading
information. Facts and circumstances are unique to every case and may
vary significantly; therefore, AMS has determined to retain the four
broad prohibitions on behavior under Sec. 201.306 as initially
proposed.
Comment: A poultry industry trade association said all actions
prohibited under proposed Sec. 201.306 are already addressed in sec.
202(a) of the Act, which prohibits regulated entities from engaging in
unfair, unjustly discriminatory, or deceptive practices or devices.
AMS Response: AMS is making no changes to the rule as proposed
based on this comment. AMS agrees that the prohibitions established by
this rule are well within the scope of sec. 202(a) of the Act. This
rule is designed to help producers better understand what behavior
constitutes a violation of sec. 202(a). Based on complaints and
comments from stakeholders over the years, as well as in response to
the proposed rule, AMS is aware that deceptive practices continue to
harm producers and market integrity. Thus, AMS has determined it
necessary to codify in its regulations deceptive practices prohibited
under sec. 202(a) of the Act to better ensure that producers benefit
from the protections intended by the passage of the Act.
ii. Specific Deceptive Practices
AMS proposed prohibiting regulated entities from:
Making or modifying a contract by employing a pretext, a
false or misleading statement, or an omission of a material fact
necessary to make a statement not false or misleading (Sec.
201.306(b)).
Performing under or enforcing a contract by employing a
pretext, false or misleading statement, or omission of material fact
necessary to make a statement not false or misleading (Sec.
201.306(c)).
Terminating a contract or taking any other adverse action
against a covered producer by employing a pretext, false or misleading
statement, or omission of material fact necessary to make a statement
not false or misleading (Sec. 201.306(d)).
Providing false or misleading information to a covered
producer or association of covered producers concerning a refusal to
contract (Sec. 201.306(e)).
Comment: An agricultural advocacy organization suggested the final
rule's explanatory text should clarify that deceptive practices related
to contract formation also include the making of false or misleading
statements to prospective producers on the benefits of a contractual
relationship with a regulated entity. The commenter said that this
clarification would, for example, better address circumstances such as
representatives of live poultry dealers who make verbal claims to
prospective growers about benefits not reflected in the actual contract
the grower later receives to sign.
AMS Response: AMS is not making the specific changes to proposed
Sec. 201.306(b) requested in this comment but is making changes to
this paragraph to clarify the range of deceptive conduct prohibited
during contract formation. AMS agrees with the commenter regarding the
harm of false statements in contract formation. AMS formulated Sec.
201.306(b) specifically to address the making of false statements in
contract formation. The revised regulation states that not only is a
regulated entity prohibited from employing a ``false or misleading
statement'' but it also may not omit ``material information necessary
to make a statement not false or misleading.'' Therefore, AMS believes
the regulation encompasses the protection against misleading statements
requested by the commenter. AMS will address the specific circumstances
raised by the commenter via other rulemakings.
Comment: An agricultural advocacy organization pointed out a
potential discrepancy, saying the range of deceptive behavior in
contract formation, performance, and termination covered in Sec.
201.306(b) through (d) of the proposed rule as drafted appears narrower
than that contemplated in the proposed rule's preamble. The commenter
noted that the preamble said USDA generally approaches deceptive
practices from the perspective of a reasonable party
[[Page 16157]]
receiving them and asks whether they would affect the conduct or
decision of a reasonable recipient of these practices and asserts that
the Act reaches beyond common-law fraud to affirmatively require honest
dealing and truthfulness in the marketplace.\195\ The commenter said
that, if AMS intended the description in the preamble to encompass a
broader range of deceptive behavior than that in the proposed rule's
current language, it should broaden the language in Sec. 201.306(b)
through (d) of the proposed rule to prohibit any practices likely to
mislead a covered producer, acting reasonably under the circumstances,
to the producer's detriment.
---------------------------------------------------------------------------
\195\ 87 FR 60010, 60032, 60034, October 3, 2022.
---------------------------------------------------------------------------
AMS Response: There is not a contradiction or discrepancy between
the preamble and the proposed regulation. The preamble discusses
deception more generally, providing background on AMS's approach to
implementing the prohibition on deceptive practices and its legal
authority to do so under sec. 202(a) of the Act. The regulatory text is
designed to provide example prohibited deceptions under the Act. It is
not designed to enumerate every circumstance that may be a prohibited
deceptive practice under the Act. There are circumstances where a
deceptive practice could be covered under sec. 202(a)'s prohibition on
deceptive practices even if that practice is not expressly addressed by
this final rule. AMS chose not to provide an exhaustive coverage of
every possible circumstance that could be a deceptive practice because
such an effort would be unwieldly as a matter of rulemaking and likely
offer little benefit to producers in terms of making the protections of
the Act concrete and understandable. Such an effort would require such
breadth of coverage and flexibility in application as to effectively
replicate the interpretive process that is needed to analyze deceptive
practices under the Act, which may vary significantly depending on the
facts and circumstances of each case. In this rule, AMS has instead
chosen to strike a balance, and is offering clear protection for a
broad range of commonly encountered circumstances. AMS notes that the
regulatory text in paragraphs (b) through (d) does include a
prohibition on employing a ``false or misleading statement.''
Therefore, AMS is making no changes to the regulation as proposed.
Comment: Agricultural advocacy organizations urged AMS to expand
and clarify the proposed rule's prohibition on deceptive conduct during
contract refusal, saying regulated entities can use this tactic to
manipulate producers, as they may do with contract termination. The
commenters gave the example of a dominant buyer who only wants to
purchase cattle from producers locked into AMAs, rather than those
selling on a negotiated cash market, so it can pay lower than fair
market value. If this buyer simply tells producers on the open cash
market that it does not need their cattle, this statement may not
necessarily be false or misleading, but it would be a pretextual
justification for refusing to deal with them. A cattle industry trade
association also urged AMS to ban the practice of refusing to buy a
producer's cattle in the negotiated cash market unless the producer
agrees to enter a forward contract, saying this practice is so
widespread that it is common knowledge among cattle producers that
packers who say they do not need their cattle are tacitly providing
them with an ultimatum.
Several commenters recommended the following amended regulatory
text, with changes in bold:
``(e) Contract refusal. A regulated entity may not rely on a
pretext or provide false or misleading information to a covered
producer or association of covered producers concerning a refusal to
contract.''
AMS Response: AMS has designed the prohibition on deceptive
practices in refusal to contract differently than the prohibition for
other circumstances because the relationship between a regulated entity
and a covered producer differs in this circumstance. During contract
formation, performance, or termination, there is a high degree of
reliance by the covered producer on the regulated entity, owing to the
existence of the contract. In a refusal-to-contract circumstance,
however, the reliance is limited principally to the denial of the
opportunity to transact. In general, regulated entities may refuse to
contract with a covered producer for any reason or no reason at all,
unless the reason is impermissible under the Act. This final rule's
prohibition on deception seeks to ensure that any reasons provided by
the regulated entity to the producer are truthful and not misleading.
Failure to provide such truthfulness is deceptive because, given the
high levels of vertical integration and horizonal concentration,
producers lack marketing options and thus heavily depend on regulated
entities for market integrity and, ultimately, the information needed
to compete effectively. Producers are harmed when they cannot evaluate
their competitive opportunities in an honest, objective manner. While
the USDA Extension Service and other third parties may assist producers
in appreciating their competitive strengths and weaknesses, ultimately
the signals sent by packers are critical for competitive opportunities.
The final rule does not include ``pretext'' or ``omission of
material fact necessary to make a statement not false or misleading''
in this refusal to contract provision because refusals to contract may
occur for any number of reasons, and regulated entities may not always
be in a position to reveal the reason for a refusal to contract. There
may be economic, social, community, or even simply polite reasons for
offering an incomplete, if not untruthful, reason for a refusal to
contract. As long as a regulated entity is not providing false or
misleading information to a covered producer or omitting material
information, it will not run afoul of Sec. 201.306(e).
AMS appreciates the commenter's concerns regarding the use of
forward contracts. However, including a specific prohibition regarding
this practice was not under consideration in the proposal. With this
rulemaking, AMS is implementing regulations to provide a broad array of
coverage against deceptive practices during various stages of the
contracting process. Deceptive acts in contract refusal will be
determined on a case-by-case basis based on the facts and circumstances
of each individual case. In the example raised by the commenter, were a
packer to refuse to purchase cattle in the cash market and state that
its plant has acquired all the cattle it needs, the packer would not
run afoul of the final rule if that statement was true. However, were
the packer to make such a statement but would be willing--or attempt--
to purchase the cattle under a different marketing arrangement, that
would suggest that the information provided was false or misleading and
the packer would run afoul of the final rule. If the cattle were of a
quality or type that the packer does not want and the packer has
already acquired all the cattle it needs for a given week, the packer
could state that it is full without telling the covered producer its
real reason for refusing to purchase cattle--again, as long as the
statement provided is truthful.
Accordingly, AMS is not making any changes to the regulation as
proposed in response to these comments.
iii. Recurrent Deceptive Practices Not Adequately Addressed by Proposed
Regulations
AMS asked whether there were recurrent deceptive practices not
[[Page 16158]]
adequately addressed by the proposed regulations.
Comment: Several organizations recommended AMS add the clause ``but
is not limited to'' to Sec. 201.306(a) to provide flexibility
regarding other deceptive actions that may arise.
AMS Response: AMS is not adopting the recommendation. ``Not limited
to'' language is unnecessary, as paragraphs (b) through (e) of this
section are not stated as being exhaustive. This regulation is not
designed to, and should not be read to, create an exclusive or
exhaustive set of instances of deceptive practices. This rulemaking is
intended to provide guidance to covered producers for how to effectuate
their rights under the Act by implementing regulations that provide a
broad array of coverage against deceptive practices during various
stages of the contracting process. Future rulemaking or enforcement
actions would not be restricted to the conduct identified in Sec.
201.306 when dealing with deception, as the Act's coverage is broader
than this final rule.
Comment: An agricultural advocacy organization recommended that AMS
address common cattle contracting practices that enable regulated
entities to consolidate their power, expand their profit margins, and
shift their risks to producers, particularly those practices
facilitated by increased use of AMAs. The commenter asserted AMAs,
which are typically contracts for future delivery of cattle where the
price paid at time of delivery is tied to a contemporaneous price such
as that in the ``spot'' cash market for cattle, give packers ample
opportunity to offload the risks of changes in the spot market onto
producers by manipulating the prices they pay them at delivery. The
commenter cited several ways in which the prevalence of AMAs shapes the
market to packers' advantage. According to the commenter, animals under
AMAs contribute, along with those directly owned by packers, to a large
``captive supply'' of cattle for packers, which gives these regulated
entities substantial control over the cash price of beef. In addition,
the commenter said lack of participation in spot markets means they
provide less reliable price signals for AMAs, allowing packers to
easily conduct limited spot market sales at low prices, in turn
lowering the prices they pay producers at time of delivery.
The commenter argued that many of these packer practices relating
to AMAs are deceptive because they can induce producers to enter into
contracts in which they do not fully appreciate the extent to which
packers control the applicable risks. At a minimum, the commenter urged
AMS to clarify that the proposed rule's ban on deceptive practices
extends to packer manipulation of spot market prices to lower the price
paid to independent producers at time of delivery. The commenter also
stressed that it would prefer AMS to introduce a comprehensive
prohibition of deceptive practices associated with AMAs to avoid
placing the burden of identifying manipulation on individual producers.
Specifically, the commenter recommended that AMS require forward
livestock contracts to include a firm and predictable base price, so
packers have no room to manipulate prices, citing the recent Cargill
case under which DOJ alleged that contracts executed by major poultry
processor defendants under the tournament system violated the Act. The
final judgment agreed to by the parties and entered by the Court
requires that the defendant processors pay contract poultry growers a
firm and predictable base price.\196\ The commenter also suggested AMS
consider banning packer-owned cattle as well as captive supply
arrangements that use formula or basis price forward contracts.
---------------------------------------------------------------------------
\196\ See U.S. v Cargill Meat Solutions Corp., et al. at https://www.justice.gov/d9/2023-11/418169.pdf.
---------------------------------------------------------------------------
AMS Response: AMS is aware that concerns exist around forward
cattle contracts and AMAs, especially those linked to thin cash
markets. AMS is not addressing in this rulemaking whether AMAs are
inherently deceptive. Therefore, AMS will not include a blanket
prohibition on such contracting in this rule.
Likewise, AMS has determined it will not add the commenter's
suggested ban on packer-owned cattle and captive supply arrangements
that use formula or basis price forward contracts. AMS believes more
analysis is needed to ensure such intervention is appropriate.
Comment: An agricultural advocacy organization recommended that AMS
add a provision to Sec. 201.306 establishing a standard for contract
completeness and providing that use of contracts that do not meet these
minimum standards constitutes an unlawful deceptive practice under the
Act. The commenter argued this measure would help producers operating
in monopolistic regional markets, saying integrators often take
advantage of the lack of buyer-side competition by unilaterally
dictating base prices, providing deceptive earnings claims, offering
incomplete and one-sided contracts leaving out key terms such as the
number of flocks a poultry grower can expect to receive, and coercing
producers into taking on additional debt to upgrade their facilities.
The commenter recommended that the proposed rule specify that complete
contracts include the expectation that contracts clearly state a
minimum price or rate of pay for products or services rendered; a
detailed disclosure of potential expected capital investments necessary
for a continued contractual relationship; and a minimum commitment of
contract years, annual animal placements, and stocking density
sufficient for the producer to maintain any contractually expected debt
payments at the minimum guaranteed price or payment rate. The commenter
also suggested AMS clarify that it would be unlawful retaliation for an
integrator to coerce, intimidate, or break contract with a producer
based on the producer's unwillingness to implement integrator-desired
upgrades not previously detailed in a complete contract, as long as the
producer's infrastructure is legally compliant and in good working
order.
AMS Response: AMS understands that in highly concentrated buyer
markets, producers may have limited control over contract terms due to
the limited availability of buyers; however, AMS will not be
establishing minimum standards for contract completeness via this
rulemaking. This rule is intended to address broad areas of specific
concern, not exhaustively identify all deceptive practices that could
violate sec. 202(a) of the Act. Deceptive acts in contracting will be
determined on a case-by-case basis based on the facts and circumstances
of each individual case. Similarly, AMS will not be amending the
regulations prohibiting retaliation (Sec. 201.304(b)) to implement the
commenter's specific circumstance regarding unwillingness to implement
upgrades not previously detailed in a complete contract. This comment
is outside the scope of this rulemaking and AMS is making no changes to
the rule based on this comment.
Comment: Agricultural advocacy organizations asked AMS to include a
new paragraph enumerating a non-exhaustive list of prohibited conduct,
saying this addition would clarify that the Act explicitly prohibits
certain conduct known to harm producers and market integrity. The
commenters further said AMS should include any other specific types of
harmful conduct producers currently face and stress that all other
conduct known to harm producers or market integrity is prohibited even
if not directly listed. The commenters provided the following
[[Page 16159]]
recommended regulatory text to incorporate these suggested changes:
(f) Specific deceptive practices prohibited.\197\ In addition to
any other conduct prohibited by subsections (b) through (e), a
regulated entity may not engage in the following conduct during
contract formation, performance, or termination or when refusing to
contract:
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\197\ The commenters noted that, if AMS adopts this addition, it
must also revise Sec. 201.306(a) to include paragraph (f): ``A
regulated entity may not engage in the specific deceptive practices
prohibited in paragraphs (b) through (f) of this section.''
---------------------------------------------------------------------------
(1) Demanding capital investments as a condition of contract
renewal if such capital investment demands were not previously
agreed to in writing between the covered producer and regulated
entity.
(2) Demanding capital investments by a covered producer without
commensurate and enforceable obligations on the part of the
regulated entity that will reasonably allow the covered producer to
recover the demanded capital costs plus a reasonable return.
(3) Refusing to deal because the livestock producer is selling
livestock on the cash market rather than through a contract
arrangement and the livestock is otherwise marketable.
(4) Failing to provide a guaranteed base pay in Alternative
Marketing Agreements, production contracts, or other similar
arrangements.
(5) Inequitably distributing inputs such as animal placements,
feed, veterinary care, or other inputs controlled by a regulated
entity that can impact a covered producers' performance or
compensation.
(6) Shifting environmental compliance costs or responsibilities
exclusively to a covered producer when the regulated entity
exercises substantial operational control, through contract or
otherwise, over the producer through an ownership interest in the
livestock or poultry, land or other capital, or control of a covered
producers' activities, inputs, management and waste management
practices, or capital investments.
AMS Response: AMS is making no changes to the rule based on this
comment. The commenters' proposed specific prohibitions are outside the
scope of the deceptive practices AMS intended to address in this rule.
Comment: Agricultural advocacy organizations suggested AMS look to
the poultry transparency proposed rule \198\ and the advance notice of
proposed rulemaking regarding fairness and related concerns in poultry
grower tournament systems,\199\ saying AMS should ensure that the
deceptive practices identified in these rulemakings, such as unfounded
claims about potential earnings made to prospective contract growers,
lack of transparency in explaining tournament results, and inconsistent
input quality, are also incorporated into this rule.
---------------------------------------------------------------------------
\198\ Agricultural Marketing Service, ``Transparency in Poultry
Grower Contracting and Tournaments,'' Proposed Rule (87 FR 34980,
June 8, 2022), available at https://www.federalregister.gov/documents/2022/06/08/2022-11997/transparency-in-poultry-grower-contracting-and-tournaments.
\199\ Agricultural Marketing Service, ``Poultry Growing
Tournament Systems: Fairness and Related Concerns,'' Request for
Comments (87 FR 34814, June 8, 2022), available at https://www.federalregister.gov/documents/2022/06/08/2022-11998/poultry-growing-tournament-systems-fairness-and-related-concerns.
---------------------------------------------------------------------------
AMS Response: AMS is making no changes to the rule based on this
comment. This final rule seeks to provide a broad set of protections
for all producers. Other rules that AMS may propose or finalize,
including rules relating to poultry grower ranking systems, are
separate and distinct.
iv. Approach to Governance and Structuring of Deception and Employing
False or Misleading Statements
AMS requested comment on whether deception in contract refusal
should be governed by the categorial approach as proposed, or whether
it should be governed by a single statement setting out one standard
for contract formation, performance, and termination. It also requested
comment on whether it should structure deception around prohibiting the
deceptive pretext, statement, or omission, rather than prohibiting the
contractual activity based on the deceptive statement or omission as
proposed. In addition, it requested comment on whether the prohibitions
on ``employing'' certain false or misleading statements, pretexts, and
omissions in the formation, operation, etc., of a contract
appropriately capture the importance or effect of the misleading
statement, such as its material or relevance to the producer or the
formation, operation, etc., of the contract. Alternatively, it asked
whether it should prohibit a regulated entity from employing any
pretext, false or misleading statement, or omission of material facts
necessary to make a statement not false or misleading, in connection
with making, enforcing, or cancelling a contract. AMS also asked if
there was a better way to approach the issue, such as using elements or
defenses.
Comment: An agricultural advocacy organization said the categorical
approach to governance in the rule as proposed is appropriate because
itemizing the likely deceptive actions more effectively draws attention
to the various deceptive actions potentially used by regulated
entities. This commenter indicated that either approach to structuring
would be effective but said the structure as proposed would better make
current producers and prospective aware of the types of potential
deception they may encounter. It also indicated support for the
approach to employing of false or misleading statements, pretexts, or
omissions AMS took in the proposed rule.
AMS Response: AMS takes note of the commenter's support for the
usefulness of the provisions. AMS made no changes to the rule in
response to this comment; however, as discussed in Section V--Changes
from the Proposed Rule, AMS made several changes to the verbiage of
Sec. 201.306(b) through (d), including removing the word ``pretext''
and replacing the phrase ``omission of material fact'' with ``omission
of material information.''
v. Other Elements To Explicitly Consider in Rule on Deception
AMS requested comment on whether there are other elements, such as
the reasonableness of the recipient, that it should explicitly consider
in a rule on deception.
Comment: An agricultural advocacy organization said AMS should
consider whether the contract language was clear and written in a
language the producer understands when evaluating if a regulated entity
used deceptive practices. The commenter also said the proposed rule on
transparency in tournament systems addressed disclosure-related issues
that AMS should consider in establishing when contract terms should be
considered deceptive.
AMS Response: Whether the contract language was clear and written
in a language the producer understands would be part of any evaluation
to determine whether a statement (including any omission of material
information) was false or misleading and that determination would be
dependent on the particular facts and circumstances of the contract.
This rule is intended to cover not only the poultry industry, but the
swine and cattle industries. As such, it focuses on general
circumstances that may give rise to the provision of false or
misleading information. Therefore, AMS is making no changes to the rule
based on this comment.
vi. Specific Challenges or Burdens Regulated Entities Might Face in
Complying With Deceptive Practices Provisions of Proposed Rule
AMS requested comment on specific challenges or burdens regulated
entities might face in complying with the deceptive practices
provisions of the
[[Page 16160]]
proposed rule and how they differ from existing policies, procedures,
and practices of regulated entities.
Comment: A poultry industry trade association and several live
poultry dealers said the deceptive practices provisions of the proposed
rule would discourage legitimate adverse actions by companies, making
the system less efficient overall. First, the commenters said AMS does
not provide guidance on how it defines ``pretext'' or how a regulated
entity would demonstrate that an explanation is not pretextual, which
raises uncertainties in terms of compliance and may dissuade companies
from providing detailed explanations to producers to avoid the
potential for second-guessing on motive. The commenters also said the
proposed rule is unclear about whether regulated entities seeking to
avoid a potential omission of material fact need to mention every
business reason that contributed to a decision even if other factors
were more relevant. In addition, the commenters said the proposed
deception provision makes it more challenging to terminate
relationships with contractors who perform poorly or mistreat animals,
giving regulated entities incentive to keep these contracts in place
rather than risk lawsuits over whether any communications leading up to
the termination were deceptive and resulted in fewer opportunities for
new entrants to the poultry industry.
A swine industry trade association said the deceptive practices
provisions would likely lead to costly litigation because the rule is
overly broad and vague in its description of prohibited conduct. For
example, according to the commenter, the proposed rule does not provide
any definition or guidance on what constitutes a ``material'' fact,
which is deceptive if omitted, and its ban on deceptive practices with
respect to ``any matter'' related to livestock, meats, or live poultry
does not clearly establish the scope of conduct at issue. In addition,
the commenter said much of Sec. 201.306 is unnecessary because other
laws already sufficiently restrict the conduct at issue.
AMS Response: Section 201.306 is designed to address deceptive
practices in the marketplace by establishing four categories in the
contracting process where deceptive practices commonly occur. The aim
is to promote a marketplace that is free from the type of injury the
Act was designed to prevent. Such a framework is necessarily broad, as
the commenters noted, however, this framework is not intended to, and
should not, cripple regulated entities' decision-making or the system
overall.
AMS must help ensure that regulated entities are truthful in their
dealings with producers. Under these rules, AMS would seek to uncover
the real motive for a regulated entity's treatment of a producer with
whom they are forming or have a contractual relationship. AMS is
including a prohibition against false or misleading statements, or
omission of material information necessary to make a statement not
false or misleading (in paragraphs (b) through (d)) to protect
producers from conduct that employs deceit to disguise a regulated
entity's genuine motive. Over the years, producers have reported
concerns regarding their inability to understand and appreciate the
real reasons why regulated entities take certain actions against them,
in particular with respect to certain actions such as reduced chick
placement or contract termination. For example, producers have asserted
that sometimes a regulated entity will suddenly enforce certain parts
of a contract in a stricter manner--such as animal welfare guidelines--
even though the regulated entity had earlier found the producer's
conduct under the contract acceptable. Producers assert that this is an
example of a form of retaliation for actions by the producer or a
deceptive practice to accommodate unrelated economic decision-making.
Producers need to understand the real reasons for regulated entities'
decision-making both to protect themselves from specific inappropriate
adverse actions (such as undue prejudice or retaliation) and to be able
to compete more effectively in a concentrated marketplace. If they
cannot learn the real reasons why certain actions are taken against
them, they cannot plan or mitigate the risks they may face. Therefore,
AMS believes it is crucial to establish a regulatory framework
prohibiting deceptive practices in contracting. AMS believes such a
framework should provide broad, non-exhaustive prohibitions to provide
better coverage for producers against deceptive practices in various
stages of the contracting process. AMS may refine this framework via
future rulemakings if the need arises.
With respect to the commenters' view that AMS does not provide
guidance on how it defines ``pretext'' or how a regulated entity would
demonstrate that an explanation is not pretextual, AMS adopted
clarifying language by withdrawing its use of ``pretext'' and relying
on the prohibition against employing a ``false or misleading
statement.''
With respect to the commenters' critiques regarding the materiality
standard, under the FTC's Policy Statement on Deception, ``material''
refers to information that would affect a consumer's--in this case,
producer's--conduct or decision-making, from the perspective of a
producer acting reasonably under the circumstances. Act precedent may
not require AMS to follow FTC's precedent in all circumstances, but AMS
has designed the rule to satisfy the approach set forth in the FTC
Policy Statement on Deception in this set of deceptive practice
prohibitions. AMS is not seeking to establish a ``but for'' standard;
however, the materiality of the information is already embedded in the
regulated entity's act of ``employing'' the omission on which the
covered producer has relied on in the contracting activity under Sec.
201.306. Commenters also expressed concern about Sec. 201.306's
prohibition against the omission of material facts, questioning whether
compliance would require that regulated entities mention every business
reason that contributed to a decision even if other factors were more
relevant. AMS notes that proposed Sec. 201.306(b) through (d)
specified that the prohibition applies to the ``omission of material
fact necessary to make a statement not false or misleading.'' If one of
the factors that contributed to a regulated entity's business decision
was not material or relevant, then the omission of that information
would be unlikely to make a statement false or misleading from the
perspective of a producer acting reasonably under the circumstances.
AMS therefore made no changes to the proposed regulations in response
to this comment; however, AMS notes that as discussed in Section V--
Changes from the Proposed Rule, AMS made several changes to the
verbiage of Sec. 201.306(b) through (d), including replacing the
phrase ``omission of material fact'' with ``omission of material
information.''
In response to commenters' concerns regarding the potential for
increased litigation, AMS acknowledges that the provisions of Sec.
201.306 could result in additional litigation because the regulations
could provide producers new hope for relief from deceptive conduct in
the contracting process. However, as discussed in more detail in this
rule's Regulatory Impact Analysis in Section VIII.B., AMS does not
expect large increases or decreases in litigation from this rule.
Though commenters expressed concern that this regulation will lead to
costly litigation because it is too broad and vague, AMS notes that in
this final rule the Agency has provided additional clarity on the
meaning of ``material'' in these
[[Page 16161]]
regulations and removed use of the word pretext. AMS also rejects the
commenter's assertion that the rule is overly broad and vague in its
ban on deceptive practices with respect to ``any matter'' related to
livestock, meats, or live poultry because this assertion is inaccurate.
This regulation does not ban any deceptive practice related livestock,
meats, or live poultry: paragraph (a) establishes that the scope of
Sec. 201.306 is prohibiting deceptive practices that occur in specific
stages of the contracting process. These stages are then delineated in
paragraphs (b) through (e). AMS notes, however, that it has removed the
words ``any matter'' from Sec. 201.306(a).
With respect to the commenter's view that Sec. 201.306 is
unnecessary, AMS disagrees. AMS believes that, while USDA regulations
prohibiting specific deceptive practices already exist, a regulatory
framework prohibiting deception during the contracting process is
necessary because this will provide much-needed certainty and
predictability to the interpretation of this section of the Act.
vii. Specific Recordkeeping Provisions Relating to Deceptive Practices
AMS requested comment on whether it should propose specific
recordkeeping provisions relating to deceptive practices and what such
practices should include.
Comment: An agricultural advocacy organization recommended that AMS
introduce a recordkeeping requirement related to deceptive practices to
help it enforce these practices. Another agricultural advocacy
organization suggested AMS require regulated entities to provide
examples of contract terms as well as procedures related to tournament
settlements and input quality, saying this requirement would help it
identify deceptive practices.
AMS Response: In response to commenters' suggestions, AMS notes
that regulated entities are already required to maintain records
pertaining to their business activities (see 9 CFR 201.95). In light of
existing law, a specific recordkeeping requirement covering every
statement or interaction that could amount to deception is not
appropriate as it could be expensive and burdensome, while yielding
little benefit in terms of usable, searchable information. AMS will
monitor regulated entities' practices to evaluate whether additional
requirements are necessary. AMS further notes that should specific
problems emerge, heightened recordkeeping could be a requirement
arising out of enforcement actions or adopted in future rulemaking.
AMS is not adopting the commenter's suggestion regarding examples
of contract terms and procedures related to tournament settlements and
input quality because they are outside the scope of this rule. AMS made
no further changes in response to the comments.
viii. Requirement That All Contracts be in Writing
AMS requested comment on whether all contracts with respect to
livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry should be in writing.
Comment: Agricultural advocacy organizations said AMS should
require all contracts to be in writing because doing so is necessary
for enforcing the Act. These commenters said AMS should also require
regulated entities to make all claims to prospective producers in
writing to deter false or misleading statements designed to encourage
signing of a contract.
A plant worker indicated support for requiring all contracts to be
in writing, while noting that some benefits would be limited. According
to the commenter, introducing this type of requirement would help
producers by providing a record of the transaction and an increase in
transparency. However, the commenter also said such a requirement would
be less likely to address packer pressure on producers to use formula
market arrangements to incentivize cattle quality if the packers
present these arrangements as take-it-or-leave-it offers, although it
would at least help create an environment that is transparent about
material terms. The commenter also said that many jurisdictions may
already require contracts to be in writing to satisfy the statute of
frauds, especially if they cover multiple years, thus making a
provision requiring written contracts potentially redundant in some
cases.
AMS Response: AMS appreciates the commenters' views on the value of
written contracts and agrees that written contracts have significant
benefits for reducing deceptive practices and encouraging market
integrity. Written contracts provide both parties clearer understanding
of their positions and the opportunity for regulators to review and
evaluate the functioning of the market. However, AMS also recognizes
that it is a longstanding trade practice in the agricultural sector for
many parties to negotiate and assent to contract terms orally, which
holds the same weight under the law as a written contract. USDA has
pursued many cases based on the violation of unwritten terms, and this
will not change. Requiring that all contracts be in writing would more
significantly affect cattle markets, as more of those markets remain
cash-negotiated. Contract formation regarding the purchase and sale of
livestock often occurs over the phone and quickly. Requiring written
contracts would impede the ability of parties to conduct business
expeditiously, which is often necessary in fluctuating commodity
markets, especially for perishable products like meat. Vertically
integrated contract growing arrangements, which are nearly universal in
poultry and widespread in hogs, are more characterized by written
contracts already. In this rule, AMS is choosing not to adopt a
requirement for written contracts or claims in all circumstances. While
AMS believes that written contracts are a good practice, especially in
light of changes in technology (like email and electronic signatures),
AMS believes additional study and consideration is needed and is
deferring for future consideration whether a mandate is appropriate.
ix. Treatment of Failure To Continue To Buy in Cash Market Following
Regular Pattern or Practice of Such Buying
AMS requested comment on whether a failure to continue to buy in
the cash market, following a regular or dependable pattern or practice
of such buying, should be treated for the purposes of this proposed
rule as more similar to termination of a contract, rather than as
refusal to deal.
Comment: An agricultural advocacy organization said it agreed with
AMS that a decision or action on the part of a regulated entity to stop
buying on the cash market is more analogous to a contract termination
than a refusal to deal but notes that these decisions or actions also
share key features with the latter. The commenter provided the example
of a packer who refuses to buy cattle in the cash market from a covered
producer who regularly sells on the cash market unless the producer
agrees to enter a forward contract with a packer; this act would
constitute both refusal to deal and termination of a contract, and
would also be a form of prohibited retaliation.
AMS Response: AMS agrees that a circumstance where a packer refuses
to buy cattle in the cash market from a covered producer who regularly
sells on the cash market to the regulated entity is analogous to a
contract termination, as past court decisions have recognized a
remedial duty under the Act to a make purchases in certain
circumstances.\200\
[[Page 16162]]
AMS did not make any revisions to Sec. 201.306 in response to this
comment; however, AMS is clarifying in Sec. 201.304(b)(3)(iv) of this
final rule that refusing to deal with a covered producer refers to
refusing to deal on terms generally or ordinarily offered to similarly
situated covered producers, which would include the producer's prior
status quo. This would address the case where a producer has a prior
track record of regular sales to the packer but is cut off. AMS also
added Sec. 201.304(b)(3)(vi) to further clarify that harm to a
producer on the basis of protected activities is intended broadly to
capture materially adverse retaliatory action that a packer may take
against a producer.
---------------------------------------------------------------------------
\200\ Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir.
1968).
---------------------------------------------------------------------------
H. Severability (Sec. 201.390)
AMS proposed adding a new provision to 9 CFR part 201 of the
Packers and Stockyards regulations ensuring that if any provision--or
applicability of any provision--of subpart O was declared invalid, the
validity of the other provisions of subpart O would be unaffected. AMS
noted this is to provide a reviewing court some guidance on the
Agency's position on how the rule is intended to function.
Comment: An agricultural advocacy organization indicated support
for the severability provision, saying that, in the event of successful
court challenges to specific provisions of the proposed rule, it would
help ensure that the protections in the rest of the rule remain.
AMS Response: AMS agrees that a severability clause is appropriate
because the undue prejudice, retaliation, and deception sections of
this rule can be enforced as stand-alone provisions. They are not
interdependent, therefore the exclusion of one does not disqualify any
of the others. For this reason, as discussed in more detail in Section
VI.F--Provisions of the Final Rule, Severability, AMS has included
under Sec. 201.390 a severability clause in its final rule.
I. Effective and Compliance Dates
Comment: An industry company said AMS should consider what amount
of time is necessary to implement changes resulting from its new rules,
and recommended it provide one effective date for all regulatory
changes required by updates to the Act.
AMS Response: AMS agrees with commenters that the final rule should
provide a clear effective date for implementation. The AMS Act final
rule ``Undue and Unreasonable Preferences and Advantages Under the
Packers and Stockyards Act'' was published on December 11, 2020, and
became effective on January 11, 2021, providing a 30-day period. AMS
believes that this rule presents a similar scope of rulemaking
coverage, relating to basic principles that regulated entities
themselves have acknowledged they already comply with. However, in
response to requests from commenters for additional time, AMS will give
60 days, which the Agency feels provides adequate time for regulated
entities to become compliant with this rule given the low cost and
minimal process changes required to do so. Accordingly, within 60 days
of publication in the Federal Register, regulated entities are expected
to comply with all components of new subpart O.
J. Regulatory Notices & Analysis & Executive Order Determinations
i. Costs and Benefits of Proposed Rule
Pursuant to the requirements of Executive Order 12866, AMS
conducted a cost-benefit analysis of the proposed rulemaking by
considering three regulatory alternatives: (1) maintaining the status
quo and not implementing the proposed rulemaking, (2) issuing the
proposed rulemaking, or (3) issuing the proposed rulemaking but
exempting small businesses from compliance with the recordkeeping
requirement.
a. Costs of Proposed Rule
Comment: Several live poultry dealers and trade associations took
issue with the accuracy of cost estimates in the proposed rulemaking. A
poultry industry trade association and several live poultry dealers
contended that the Agency's first-year estimate of $504 per live
poultry dealer to comply with the proposed rule is a drastic
underestimate. They argued that the costs of physical filing cabinets
to maintain the requisite paperwork alone would exceed the estimated
first-year cost, and that recordkeeping and computer systems to
digitally maintain records would be more costly. The commenters also
contended that the AMS cost estimates overlooked significant labor
costs that would be required to comply with the new rules, including
legal services.
AMS Response: AMS disagrees with commenters' assertions regarding
the accuracy of its cost estimates. AMS subject matter experts
calculated the estimated compliance and recordkeeping costs associated
with this rule. These experts are economists and supervisors in AMS's
PSD with many years of experience conducting investigations and
compliance reviews. AMS stands behind their estimates. AMS believes
that the costs associated with this rule will be minimal: the first-
year total cost is estimated to be $586,000, or 0.0002 percent of
revenues, given that total sales of beef, pork, and broiler chicken was
approximately $294.5 billion in 2022.\201\ This figure encompasses an
estimate of the total value of the time required to review and learn
the rule, review live poultry dealers' and packers' procurement
policies and production contracts, make any necessary changes to ensure
compliance with the new regulations, and maintain records to
demonstrate compliance practices. AMS estimates that the total cost for
each succeeding year would be $298,000, or 0.0001 percent of revenues.
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\201\ Total meat and poultry processing industry revenues.
Source: https://www.ibisworld.com/industry-statistics/market-size/
meat-beef-poultry-processing-united-states/
#:~:text=The%20market%20size%2C%20measured%20by,industry%20increased%
200.2%25%20in%202022.
---------------------------------------------------------------------------
With respect to commenters' assertion that AMS has neglected to
account for labor costs, including legal services, AMS notes that in
the proposed rule's Paperwork Reduction Act analysis, AMS provided a
compliance cost breakdown for the hours required of attorneys, as well
as administrative assistants, managers, and information technology
staff. AMS does not expect large increases or decreases in litigation
costs, and thus regulated entity legal services. The clarity provided
by the rule encourages regulated entities to proactively avoid
prejudicial, discriminatory, and deceptive practices that could
otherwise lead to costly litigation. Likewise, the rule could also
provide producers hope for relief from the courts for perceived
prejudicial, discriminatory, and deceptive practices, which could, in
turn, increase litigation but would return benefits to producers in
reduced harms. In response to commenters' concerns regarding the
costliness of the rule's recordkeeping requirements, AMS argues that
the recordkeeping requirements were crafted to provide flexibility for
regulated entities. The rule does not prescribe the manner in which
records must be stored. If a regulated entity finds the cost of filing
cabinets prohibitive, the entity may choose whichever means of file
retention is most cost effective, including currently available
computer filing systems, which most companies maintain in the normal
course of business. Additionally, the rule provides regulated entities
leeway to determine which records they choose to maintain. Because this
rule applies to regulated entities across a
[[Page 16163]]
variety of industries and of varying sizes, AMS did not prescribe a set
of records each entity must retain, regardless of their relevance to a
particular entity's circumstances. Some firms might not have any
records to store. Others may already store relevant records and may
have no new costs. Therefore, the rule saves regulated entities from
the burden of maintaining records irrelevant to their circumstances.
Accordingly, AMS makes no changes to the rule in response to these
comments.
Comment: Many industry companies and trade associations argued that
the cost estimates put forward in the proposed rule ignore significant
litigation costs that would be inevitable under the proposed
regulations. A cattle industry trade association disagreed with AMS's
cost analysis that the rule could plausibly reduce litigation costs
``if companies come into compliance without any enforcement action.''
The trade association argued that the rule contains vague standards and
eliminates the requirement that a plaintiff must show competitive harm,
both of which would lead to a proliferation of litigation. It asserted
that the threat of litigation would cause packers to reduce their legal
risk exposure by standardizing their contracts with producers, which
could be costly for producers who benefit from contracts tailored to
their individual needs or conditions (e.g., cattle weight targets based
on geographic location and regional feedstuffs availability). Finally,
it noted that AMS itself acknowledged that GIPSA declined finalizing
the agency's proposed rule in 2016--the Farmer Fair Practices Rule--
because it contained ambiguous terms that would increase litigation
between regulated entities and producers.
A live poultry dealer echoed this concern, citing USDA's
acknowledgement in the previously proposed 2016 Farmer Fair Practice
Rule that rolling back the harm to competition requirement would
``inevitably lead to more litigation in the livestock and poultry
industries.'' \202\ The dealer also said that if the proposed rule is
implemented, the company would no longer have incentive to contract
with individuals due to litigation risk and would need to rely more
heavily on company-owned farms to raise its poultry. It argued that the
result would be decreased grower competition and thus decreased grower
pay, resulting in another unmeasured cost of the proposed rule.
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\202\ Org. for Competitive Mkts. v. Dep't of Agriculture, 912
F.3d 455, 459 (8th Cir. 2018) (quoting 82 FR 48594, 48597 (Oct. 18,
2018)).
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An industry trade association suggested that millions of dollars
per year would be required to litigate, define, and refine the terms of
the new rule due to ambiguity. It said that frivolous litigation that
misunderstands or capitalizes on vagueness in the rule would add
significant litigation costs. The trade association estimated the cost
of compliance with the new rule (including anticipated litigation) to
be more than $100 million to the industry. It cited independent
economic analyses of previous AMS rulemakings on similar topics that
estimated economic impact costs exceeding $1 billion,\203\ arguing that
AMS significantly underestimates cost estimates in the new proposed
rule.
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\203\ Scope of Sec. Sec. 202(a) and (b) of the Packers and
Stockyards Act, 81 FR 92566, 92576, December 20, 2016 (discussing
cost estimates prepared by Thomas Elam and Informa Economics).
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AMS Response: Litigation is possible following the passage of any
rule. The threat of such litigation does not preclude AMS from
fulfilling its mandate to administer the Act. AMS believes that
discriminatory, retaliatory, and deceptive practices only serve to
exclude qualified producers from the market. Even if such conduct
impacts a single producer, it can reasonably be inferred that, if
unchecked, such conduct will proliferate and negatively impact other
producers and the market. Therefore, it is the opinion of the Agency
that such conduct must be stopped in its incipiency, or it will likely
cause widespread harm.
In response to commenters' complaint that AMS has overlooked
significant litigation costs that would be inevitable under the
proposed regulations, AMS does not expect large increases or decreases
in litigation costs. The clarity provided by the rule encourages
regulated entities to proactively avoid prejudicial, discriminatory,
and deceptive practices that could otherwise lead to costly litigation.
This effect would lead to a decrease in litigation costs. Likewise, the
rule could also provide producers hope for relief from the courts for
perceived prejudicial, discriminatory, and deceptive practices, which
could, in turn, increase litigation costs but would return benefits to
producers in reduced harms. AMS is uncertain as to which effect will
dominate and to what extent and, therefore, does not estimate
litigation costs in this analysis.
With respect to the comments regarding compliance costs for the
2016 Farmer Fair Practice Rule, commentors discussed that a trade
association estimated the cost of compliance with rule (including
anticipated litigation) to be more than $100 million to the industry. A
commentor also noted that an independent economic analyses of previous
AMS rulemakings on similar topics that estimated economic impact costs
exceeding $1 billion. The 2016 Farmer Fair Practice Rule was a very
different proposed rule with a much wider scope than this final rule,
and AMS does not consider a comparison of the 2016 Farmer Fair Practice
Rule and this final rule to be an accurate comparison. The costs of
this final rule are much smaller than the estimated costs of the 2016
Farmer Fair Practice Rule. GIPSA estimates the average litigation cost
of the 2016 Farmer Fair Practice Rule to be less than $9 million in the
first year. Given the scope of this final rule is smaller than the 2016
Farmer Fair Practice Rule, AMS expects litigation to be smaller. This,
combined with the offsetting effects of the increases and decreases in
litigation, leads AMS to not consider adding litigation costs to the
rule.
The assertion that packers will be forced to standardize all
contracts to ensure conformity with the rule is without basis.
Standardizing contracts may be one way to ensure fair treatment of
producers, however, this rule in no way mandates such a response from
packers. Similarly, AMS disagrees with the assertion that fear of
litigation would remove any incentive to contract with individual
poultry growers. The aim of the rule is to discourage abuses of power
in the marketplace to allow qualified producers to participate freely
in the market and receive full value for their efforts. Reliance on
individuals to raise poultry evolved as an economically advantageous
way for integrators to bring poultry to the market. AMS does not
believe that a greater focus on ensuring honest dealing and honest
decision-making is incompatible with this model. Further, AMS disagrees
with the assumption that a regulated entity would need to abstain from
contracting with individuals to ensure that they are not abusing their
market power by operating in prejudicial, retaliatory, or deceptive
ways.
With respect to the comments regarding rules previously published
by GIPSA, AMS notes that GIPSA's withdrawal of its 2016 rules was
justified in part due to the rules' lack of clarity regarding
prohibited behavior and the agency's perception that such ambiguity
would increase litigation costs. This rule differs from the GIPSA rules
by more clearly and specifically laying out the types of conduct that
will
[[Page 16164]]
be prohibited. Additionally, much has changed since the withdrawal of
GIPSA's 2016 rules. In 2017, GIPSA merged with AMS. AMS now administers
regulations under the Act and undertook this rulemaking to meet its
statutory mandate. Also, in the years since the GIPSA rules were
withdrawn, USDA has continued to receive complaints from producers
regarding undue prejudice and unfair, unjustly discriminatory, and
deceptive practices. When Congress, in April 2022, held hearings to
discuss such concerns regarding the cattle and poultry markets, the
hearings were marked by the absence of producers who chose to avoid
public testimony for fear of retribution.\204\ Meanwhile, the market
remains highly concentrated and vertically integrated, which enables
market power abuses and unjust distortions of the competitive landscape
and makes any harms from them more significant. Smaller producers are
unable to freely compete and receive fair value for their goods because
in highly concentrated markets they often have no option but to do
business with regulated entities which, in AMS's experience, have
caused producers to experience unjust and adverse treatment. AMS has
not been able to effectively address these complaints, partly because
of the lack of clarity regarding its regulations under the Act and the
ability for individuals to bring cases based on specific instances of
harm. Therefore, it is now the Agency's belief that the potential costs
of increased litigation are outweighed by the benefits to the market as
a whole.
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\204\ See House Chair David Scott D-GA, Opening remarks, U.S.
House, Committee on Agriculture, ``An Examination of Price
Discrepancies, Transparency, and Alleged Unfair Practices in Cattle
Markets,'' April 27, 2022, (14 min: 24 sec), available at https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk. See also U.S. Senate Committee on
Agriculture, Nutrition, and Forestry, ``Legislative hearing to
review S. 4030, the Cattle Price Discovery and Transparency Act of
2022, and S. 3870, the Meat and Poultry Special Investigator Act of
2022,'' April 26, 2022, (1 hour 39 min), available at https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022
(Described fear of retaliation in livestock and poultry markets).
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With respect to the ``vague standards'' giving rise to increased
litigation specifically, AMS has taken note and addressed clarity in
this rule.
Further, AMS will review the facts and circumstances of each case
and the regulated entity's justifications for any alleged adverse
treatment to determine whether the regulated entity has violated this
rule. AMS is making no changes to the rule in response to these
comments.
Comment: A plant worker argued that--given the modest cost
estimates AMS provided for regulated entities to administratively
comply with the recordkeeping requirements ($231-$485 for first-year
costs and less in succeeding years) of proposed Sec. 201.304(c)--
consideration of the third regulatory alternative put forth by AMS was
unnecessary. The commenter reasoned that because over 95 percent of
packers reporting to AMS are small businesses, exempting such a large
part of the industry would not be conducive to creating a uniform
standard of recordkeeping and reducing deceptive practices across the
industry.
AMS Response: AMS agrees with the commenter that the third
regulatory alternative was not the best option. AMS opted to proceed
under regulatory alternative two, the proposed alternative. AMS chose
to publish its legal and economic analysis regarding the third
alternative to provide better transparency to the public regarding the
Agency's decision-making process. AMS is making no changes to the rule
in response to this comment.
AMS chose final Sec. Sec. 201.304 and 201.306 over the Small
Business Exemption Alternative because AMS wishes to prevent the kind
of undue prejudices and unjust discrimination described in the rule.
AMS believes that keeping relevant records will help promote compliance
with this rule, that all packers, live poultry dealers, and swine
contractors cannot purchase livestock or enter into contracts for
growing services with the kind of undue prejudices and unjust
discrimination described in the rule. All packers, live poultry
dealers, and swine contractors cannot purchase livestock or enter into
contracts for growing services with the kind of undue prejudices and
unjust discrimination described in the rule.
b. Other Comments on the Cost-Benefit Analysis
Comment: An agricultural advocacy organization contended that AMS
should clarify the role of litigation costs in its cost-benefit
analysis. It argued that litigation resulting from proposed rulemaking
should not be treated purely as a cost, since (1) changes in behavior
by regulated entities to reduce violations of the Act and (2)
compensatory awards to market participants that suffer from violations
of the Act both result in benefits that AMS should weigh in calculating
the net costs of the proposed regulation. The association said that the
Act relies in part on private litigation to keep livestock markets
competitive, and while AMS is right to be cognizant of litigation costs
by providing clear and unambiguous language to forestall unnecessary
legal proceedings, litigation in general should not be treated solely
as an ancillary cost without considering the benefits it confers.
AMS Response: AMS is making no changes to the rule in response to
this comment. Rulemaking procedure regarding the calculation of costs
and benefits requires the inclusion of specific costs. The benefits of
litigation are harder to quantify, and thus were not specifically
included in the proposed rule. However, AMS agrees with commenter that
there are benefits of litigation in that producers will be better able
to protect themselves from undue prejudice, retaliation, and deception,
and thus that litigation does not result solely in negative costs. By
adding private rights of action to the Act as recently as 1987,
Congress has expressly recognized that private litigation, or the
threat thereof, is a force that shapes conduct for the protection of
producers. To the extent that the threat of private litigation
pressures regulated entities into compliance and keeps their conduct
fair, litigation risks can serve to ensure this rule's full potential
is realized.
K. Comments on Legal Authority or Other Legal Issues
i. Statutory Authority Under the Act
Comment: Several live poultry dealers, an industry company,
industry associations, a legal foundation, and an individual argued the
proposed rule exceeds AMS's authority because it unlawfully seeks to
transform the Act from an antitrust statute into a civil rights law
despite Congress's clear intention to address the type of harm to
producers covered by the proposed rule via other statutory schemes
rather than under the auspices of the Act. They argued that, if these
laws still do not cover certain types of mistreatment producers may
face, the correct course of action is for Congress to revise these
statutes or pass new ones, not for AMS to attempt to address them via
the Act. For example, a cattle industry trade association noted that 42
U.S.C. 1981 already prohibits racial discrimination in private
contracting in cases where the contractor cannot show harm to
competition. The cattle industry trade association contended that,
because Congress has never sought to expand the protections of section
1981 to other protected categories, AMS lacks authority to use the Act
to effectively do
[[Page 16165]]
so in the absence of enabling legislation. This commenter also noted
that multiple other USDA statutes explicitly refer to socially
disadvantaged groups and socially disadvantaged farmers or ranchers,
saying the lack of such references in the Act itself indicates that
Congress did not intend for issues relating to exclusion or
disadvantage of covered producers to fall within its scope. A swine
industry trade association said proposed Sec. 201.304(a) of the
proposed rule covers conduct already prohibited by the Act itself as
well as by other antitrust and anti-discrimination laws, such as the
Civil Rights Act of 1964, the Agricultural Fair Practices act, and the
Robinson-Patman Act. Industry trade associations and companies said
other statutes such as the Agricultural Fair Practices Act, the Capper-
Volstead Act, and laws protecting farmers from retaliation if they act
as witnesses in a Federal investigation already prohibit retaliation
against essentially all covered activities under proposed Sec.
201.304(b).
AMS Response: Consistent with the Act, this rule protects inclusive
competition and market integrity, and is designed to ensure that fair
and competitive conditions prevail in livestock and poultry markets.
While this rule may in some ways resemble certain civil rights laws, it
is distinct as it draws its authority from the Act, which sets forth a
general prohibition on unjust discrimination and undue prejudice that
is broader than civil rights statutes that focus solely on
discrimination on account of a protected status. AMS believes that
discrimination on the basis of an individual's characteristics--in
particular, the bases (as set forth in Sec. 201.304(a)) of race,
color, religion, national origin, sex (including sexual orientation and
gender identity), disability, or marital status, or age, and the
producer's status as a cooperative)--has no place in the market for
livestock and poultry. Prejudices, disadvantages, inhibitions on market
access, or otherwise adverse actions against covered producers on these
bases must fundamentally be viewed as unjust forms of discrimination,
lest the word unjust be unmoored from its plain meaning. Moreover, this
rule addresses the unique and often difficult-to-prove discriminatory
conduct that has long existed in the agricultural sector. Demographic
information is seldom recorded in agricultural transactions; therefore,
it is difficult to quantify discrimination. However, as the preamble
set forth, agricultural markets are not representative of the
population as a whole, for reasons in part arising from a well-
established track record of unjust discrimination from USDA itself.
Unjust discrimination on the bases set forth in this rule does not stem
solely from USDA's actions, rather it was widespread across society.
Discrimination and prejudice have not been eliminated from society, and
heightened steps are appropriate to prevent unjust discrimination from
coloring public or private decision-making. Such clarity is especially
important in today's highly concentrated agricultural markets, with few
minority participants, as the lack of competition means that failure of
inclusion for all farmers gives rise to a competitive harm under the
Act.
AMS recognizes that section 1981 of the Civil Rights Act
establishes that certain rights are to be guaranteed, and these rights
are to be protected against impairment by nongovernment and state
discrimination. This rule addresses prohibited conduct specifically in
the agricultural sector and is not superseded by section 1981. By
expressly stating prohibited conduct that is violative of the Act, this
rule seeks to allow AMS to better enforce the Act. AMS acknowledges
that multiple USDA-administered statutes explicitly refer to socially
disadvantaged groups and socially disadvantaged farmers or ranchers but
underscores that AMS has replaced the definition of ``market vulnerable
individual'' (which was more closely aligned with the formulations
under those laws) with a simpler set of prohibited bases. And for the
reasons described above, AMS's interpretation of the Act is faithful to
its text and purposes. AMS notes that comments indicated that the Act
in fact does prohibit the conduct set forth in this rule, in which case
the rule will function to clarify and explicate already prohibited
conduct.
AMS notes commenters' argument that Sec. 201.304(a) covers similar
conduct as the Civil Rights Act of 1964, the Agricultural Fair
Practices Act (AFPA), and the Robinson-Patman Act. However, the fact
that such conduct is prohibited under those statutes does not mean that
it is not also prohibited by the P&S Act, which is broader in scope
than other antitrust laws.\205\ AMS believes it is appropriate to
provide clarity regarding application of the Act because AMS has the
authority to enforce the Act (and the AFPA), and not the Civil Rights
Act of 1964 or the Robinson-Patman Act, with respect to livestock and
poultry. The Act provides supplemental and parallel coverage to the
AFPA, making its application appropriate and valuable to livestock
producers and poultry growers who have, over the years, found it
challenging to earn the full value of their animals in their dealings
with packers and live poultry dealers.
---------------------------------------------------------------------------
\205\ H.R. Rep. 67-77, at 2 (1921); see also Swift & Co. v.
United States, 308 F.2d 849, 853 (7th Cir. 1962) (``The legislative
history showed Congress understood the sections of the [P&S Act]
under consideration were broader in scope than antecedent
legislation such as the Sherman Antitrust Act, sec. 2 of the Clayton
Act, 15 U.S.C. 13, sec. 5 of the Federal Trade Commission Act, 15
U.S.C. 45 and sec. 3 of the Interstate Commerce Act, 49 U.S.C.
3.'').
---------------------------------------------------------------------------
Similarly, AMS disagrees with commenters' argument that Sec.
201.304(b), which prohibits retaliation, is unnecessary because these
protections are already afforded by the AFPA, the Capper-Volstead Act,
and other laws which specifically protect farmers from retaliation for
acting as a witness in a Federal investigation. USDA has continually
received complaints from producers regarding retaliatory practices.
Therefore, AMS concludes that promulgating these rules under the
authority of the Act is necessary to address these concerns.
Therefore, AMS makes no changes to the rule as proposed in response
to these comments.
Comment: A legal foundation and a cattle industry trade association
claimed AMS's decision to broadly restrict discrimination against
``market vulnerable'' individuals exceeds its statutory authority. One
commenter said this decision, and its likely result of leaving courts
to flesh out the vague definition to determine whom the proposed rule
should protect, is inconsistent with Congress's longstanding and
repeated choices to ban discrimination using an approach based on
protected classifications. Another commenter said AMS acts beyond its
authority in proposing a broad definition of ``market vulnerable''
individuals because its goal in taking such an approach is to ensure
that the rule can address prejudice based on categories such as sexual
orientation or gender identity. According to the commenter, AMS cannot
redefine the meaning of the key terms ``undue prejudice'' and ``unjust
discrimination'' under the Act to include protections based on these
categories because the Congress that enacted the Act in 1921 would not
have contemplated such protections. The commenter further critiqued
AMS's citation of Bostock v. Clayton County \206\ to support its
approach. According to the commenter, Bostock, which establishes that
discriminating against an individual for being lesbian, gay,
transgender, or
[[Page 16166]]
queer, constitutes discrimination on the basis of sex or gender
prejudices, is in fact limited to an employment context and does not
apply to contract arrangements.
---------------------------------------------------------------------------
\206\ 140 S. Ct. 1731, 1741 (2020).
---------------------------------------------------------------------------
AMS Response: AMS accepts the comment that it would be burdensome
for the courts to flesh out the vague definition of ``market vulnerable
individual'' to determine who the proposed rule should protect and that
the approach is inconsistent with Congress's longstanding and repeated
choices to ban unjust discrimination using an approach based on
protected classifications. Accordingly, AMS is adopting specific
prohibited bases in this final rule.
AMS rejects the commenter's view that it is beyond the authority of
the Act for AMS to address prejudice based on categories, such as
sexual orientation or gender identity, because the Congress that
enacted the Act in 1921 would not have contemplated such protections.
The Act specifically addressed ``unjust discrimination'' and ``undue
prejudice'' and left it to the Secretary to set out the scope of
equitable terms such as ``unjust'' and ``undue,'' as well as
``unfair.'' \207\ Moreover, ECOA prohibitions on discrimination in the
extension of credit--which includes many of the protected bases covered
by this final rule, including sex, shall be enforced under the P&S Act.
Therefore, a violation of ECOA (if committed by a regulated entity) is
also violation of the P&S Act.\208\ It is widely accepted, following
Bostock v. Clayton Cnty \209\ and other cases, that the term ``sex''
covers sexual orientation and gender identity and the categorization as
such is not limited to employment law.\210\ Moreover, since 2014, USDA
has prohibited discrimination on those bases in all of USDA's Conducted
Programs.\211\
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\207\ 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.''
\208\ 15 U.S.C. 1691c(a)(5).
\209\ 140 S. Ct. 1731, 1741 (2020).
\210\ https://www.consumerfinance.gov/about-us/newsroom/cfpb-clarifies-discrimination-by-lenders-on-basis-of-sexual-orientation-and-gender-identity-is-illegal/.
\211\ https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture.
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Comment: Industry trade associations said proposed Sec. 201.304(a)
inappropriately fails to incorporate the requirement from section
202(b) of the Act that a prejudice or disadvantage be ``undue or
unreasonable'' to constitute a violation. The commenters said this
provision would go against precedent which has concluded that the Act,
as well as the broader antitrust regime, allows actions such as refusal
to deal or non-renewal of a contract when conducted reasonably. One
commenter said AMS exceeds its authority in omitting this statutory
requirement from the proposed rule.
AMS Response: Under Act precedent, the Secretary is authorized to
determine whether discriminatory conduct is ``undue'' or
``unreasonable.'' \212\ The Secretary has in the past interpreted
similar provisions governing stockyards to include prohibitions on
discrimination on similar bases.\213\ Moreover, multiple precedents
interpret the unfair practices provisions of sec. 5 of the FTC Act to
incorporate discrimination on race, sex, and similar prohibited
bases.\214\ The ICA's provisions barring unjust discrimination too,
have been interpreted to bar discrimination on the protected
bases.\215\ Therefore, this rule is within the Secretary's authority
under secs. 202(a) and (b) of the Act. Under Act precedent, whether
discriminatory conduct amounts to being ``undue'' or ``unreasonable''
is a determination that the statute provides broad discretion to the
Secretary to determine. Advantages are not a component of this rule
instead the rule focuses on prohibiting conduct that disadvantages
producers based on characteristics unrelated to the quality of their
products or services.
---------------------------------------------------------------------------
\212\ Mahon v. Stowers, 416 U.S. 100, 112 (1974)). Section 407
of the Act (7 U.S.C. 228) also provides that the Secretary ``may
make such rules, regulations, and orders as may be necessary to
carry out the provisions of this Act.''
\213\ Statement of General Policy Under the Packers and
Stockyards Act published by the Secretary of Agriculture in 1968
(Statement of General Policy) (9 CFR 203.12(f)).
\214\ See Federal Trade Commission v. Passport Automotive Group,
Inc., No. 8:22-cv-02670 (D. Md. filed Oct. 18, 2022) (Settlement
resulting from FTC allegations that Passport's discriminatory
conduct, including charging Black and Latino customers interest-rate
markups not tied to creditworthiness, violated the ``unfairness''
prong of Section 5 of the FTC Act); Michael Kades, ``Protecting
Livestock Producers and Chicken Growers,'' Washington Center for
Equitable Growth (May 5, 2022), available at Protecting livestock
producers and chicken growers--Equitable Growth.
\215\ See 7 U.S.C. 193. Cf. Mitchell v. United States, 313 U.S.
80, 94 (1941)).
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Comment: Multiple industry companies and associations, another
organization, and an individual contended that AMS unlawfully rejected
precedent by asserting that discriminatory conduct can violate secs.
202(a) or (b) of the Act without demonstrating injury, or likelihood of
injury, to competition. The commenters cited legislative history and
judicial precedent to argue that the Act is fundamentally an antitrust
statute and is thus bound by the key antitrust principle of preventing
harm to competition. Commenters said Congress's main concern in
enacting the Act was preventing harm to competition from meatpacker
monopolies and that, in drafting the Act, Congress used the basic
blueprint of the Sherman Act and other existing antitrust statutes,
which distinguish between fair competition and undesirable predatory
competition. Commenters said interpreting secs. 202(a) and (b) to
require plaintiffs to prove actual or likely harm to competition thus
promotes the Act's main purpose of protecting healthy competition in
the meatpacking industry. Commenters also cited numerous court cases
holding that the Act requires a showing of injury to competition,
including rulings spanning eight circuits.\216\ The commenters argued
AMS's approach would open the door to baseless litigation and increased
costs to industry. A commenter argued that, in the absence of the harm-
to-competition standard, courts will use a range of inconsistent means
to establish violations of the Act, meaning individual cases will more
likely require judicial resolution despite AMS's claim that its
proposed approach will reduce litigation.
---------------------------------------------------------------------------
\216\ Terry v. Tyson Farms, Inc., 604 F.3d 272, 276-79 (6th Cir.
2010); Wheeler v. Pilgrim's Pride Corp., 591 F.3d 355 (5th Cir.
2009) (en banc); Been v. O.K. Indus., Inc., 495 F.3d 1217, 1230
(10th Cir. 2007); Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272,
1280 (11th Cir. 2005), cert. denied, 547 U.S. 1040 (2006); London v.
Fieldale Farms Corp., 410 F.3d 1295, 1303 (11th Cir.), cert. denied,
546 U.S. 1034 (2005); IBP, Inc. v. Glickman, 187 F.3d 974, 977 (8th
Cir. 1999); Philson v. Goldsboro Milling Co., 1998 WL 709324 at *4-5
(4th Cir., Oct. 5, 1998); Jackson v. Swift Eckrich, Inc., 53 F.3d
1452, 1458 (8th Cir. 1995); Farrow v. United States Dep't of Agric.,
760 F.2d 211, 215 (8th Cir. 1985); De Jong, 618 F.2d at 1336-37;
Pac. Trading Co. v. Wilson & Co., 547 F.2d 367, 369-70 (7th Cir.
1976); see also Armour & Co., 402 F.2d 712.
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AMS Response: Congress designed the Act to provide broader
protections than existing antitrust laws such as the Clayton and
Sherman Acts due to specific challenges in agricultural markets.\217\
The existence of the Act is proof that existing antitrust laws were not
sufficient in protecting livestock producers and ensuring fair
agricultural markets. It is well established that, to meet the needs of
livestock producers more effectively, the Act provides broader
protections than existing antitrust laws. The statutory text, case law,
and legislative history make plain that the Act's protections extend
beyond
[[Page 16167]]
antitrust laws.\218\ Accordingly, it has been the Agency's longstanding
position that because the Act addresses more and different types of
harmful conduct than antitrust laws, a showing of competitive injury is
not required to establish violations of secs. 202(a) and 202(b). Market
abuses such as deception, unjust discrimination, and retaliation are
illegal per se under the act. Addressing the harmful conduct this rule
aims to prevent is squarely within the authority of the Secretary and
accords with Congressional intent.\219\ Moreover, the Secretary,
exercising broad authority to define the scope of secs. 202(a) and (b),
has determined that the prohibited practices are likely to exclude
producers from the market, thereby lessening competition and causing
widespread marketplace harm if not addressed in their incipiency,
before competitive injury has occurred.
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\217\ See In re Pilgrim's Pride, 728 F.3d 457, 460 (5th Cir.
2013) Been, 495 F.3d at 1231 Swift & Co. v. US, 393 F.3d 247, 253
(7th Cir. 1968) Swift & Co. v. United States, 308 F.3d 849, 853 (7th
Cir. 1962).
\218\ See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir.
1961); Bowman v. USDA, 363 F.2d 81, 85 (5th Cir. 1966), Swift, 393
F.3d at 253.
\219\ Title 9, part 201 of the Code of Federal Regulations
(CFR). Section 407 of the P&S 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.
---------------------------------------------------------------------------
Commenters cite several circuit court decisions that required a
showing of harm to competition or a likely harm to competition
establish a violation of sec. 202. These cases involved private claims
and do not control the Agency's statutory authority to promulgate
regulations. AMS is within its statutory authority to promulgate rules
that ``assure fair competition and fair-trade practices, to safeguard
farmers and ranchers . . . to protect consumers . . . and to protect
members of the livestock, meat, and poultry industries from unfair,
deceptive, unjustly discriminatory and monopolistic practices. . . .''
Congress granted the Secretary broad authority to determine the scope
of coverage of terms such as ``unjust discrimination'' and ``undue
prejudice'' or ``unreasonable disadvantage'' under secs. 202(a) and (b)
of the Act.
This rule aims to prevent market exclusion of producers who have
been subjected to unjust discrimination on a prohibited basis or based
on engaging in a protected activity, and to snuff out those harms at
their incipiency. Based on its knowledge of the industry, AMS has
determined that undue and unreasonable prejudice and unjust
discrimination on the prohibited bases and the protected activities
identified in the rule amount to conduct that negatively effects these
markets, and therefore AMS is establishing these regulations to address
that conduct at its incipiency, when it occurs against a single
individual.
Additionally, deceptive conduct violative of the Act has routinely
been enforced on an individual basis absent a required showing of any
particularized harm to competition since the very first administrative
actions brought by the Department. Deceptive conduct often takes the
form of unfair contract formation, enforcement, and termination and
therefore most frequently occurs on an individual basis. To require a
showing of harm to competition to prove deception violations under the
Act would be contrary to longstanding enforcement standards and is
adverse to the intent of the Act to protect farmers and ranchers from
deception. Furthermore, the assertion from commenters that this rule
will result in costly ``baseless'' litigation is contrary to the
findings of AMS. AMS has determined that this rule will not increase
litigation significantly due to the assertion by regulated entities,
through their comments, that they do not engage in the conduct this
rule aims to prohibit.
Comment: Several advocacy organizations and a cattle industry trade
association supported AMS's position that prohibited conduct under the
Act need not lead to market-wide harm to competition, with some urging
AMS to explicitly state that a showing of such harm is not required
under the proposed rule. An agricultural and environmental organization
cited E.O. 14036 on Promoting Competition in the American Economy,\220\
which called for a rule explicitly stating individuals should be able
to prevail under the Act without proving market-wide harm. This
commenter argued AMS needs to explicitly state its position to stop
judicial confusion in the face of a Federal circuit court split on the
competitive-harm issue. The commenter said that, since the proposed
rule contains multiple references to both USDA's position on market-
wide harm to competition and E.O. 14036's explicit direction to
incorporate this position into a final rule, amending the rule to
clearly adopt this position would be a logical outgrowth of the
proposed rule.
---------------------------------------------------------------------------
\220\ 86 FR 36987, July 9, 2021.
---------------------------------------------------------------------------
An agricultural advocacy organization contended the text,
structure, and legislative history of the Act indicate that it
prohibits discrimination based on market-vulnerable and protected-class
status, giving AMS the legal authority to promulgate regulations based
on this interpretation. The commenter argued the Act's prohibition of
differential treatment on an ``unjust,'' ``undue,'' or ``unreasonable''
basis encompasses all forms of discrimination based on a producer's
market vulnerability or protected classification because it includes
all actions that adversely differentiate between producers without a
legitimate basis. The commenter said that, in using such words in the
Act, Congress clearly intended to invoke national values and policies
related to fairness and equal treatment, including equal protection
jurisprudence as it existed during enactment. According to the
commenter, this jurisprudence was understood to prohibit essentially
unjust or arbitrary discrimination between persons or corporations ``in
a similar situation or condition.'' \221\
---------------------------------------------------------------------------
\221\ See 14 Fletcher Cyc. L. Corps. section 6716 (2022). See
also, e.g., Holden v. Hardy, 169 U.S. 366, 383 (1898)); Yick Wo, 118
U.S. 356, 373-74; (1886); San Bernardino Cnty. v. S. Pac. R. Co.,
118 U.S. 417, 422-23 (1886) (Field, J., concurring); Barbier v.
Connolly, 113 U.S. 27, 31 (1884); C.R. Cases, 109 U.S. 3, 25 (1883);
In re State Freight Tax, 82 U.S. 232, 263 (1872).
---------------------------------------------------------------------------
The commenter next looked at secs. 202(a) and (b) of the Act in the
context of the statutory scheme, contrasting their broad reach with the
more limited scope of secs. 202(c) through (f), which specifically
target business practices with anticompetitive effects, and arguing
this difference implies Congress intended for these first two sections
to apply more expansively. This commenter further claimed, if unfair,
discriminatory, prejudicial, or deceptive conduct always required proof
of market-wide competitive injury, these paragraphs would be
superfluous because paragraph (e), which prohibits ``any course of
business'' or ``any act'' for the purpose or with the effect of causing
competitive injury, would always apply. The commenter said this broad
interpretation of secs. 202(a) and (b) to include discrimination based
on protected-class or market-vulnerable status easily advances the
Act's statutory purpose of ensuring fair competition and trade
practices in livestock markets, noting that this type of discrimination
reduces output and prevents efficient resource allocation by
restricting certain producers' ability to enter and participate in
markets. The commenter also said legislators enacting the Act sought to
broadly address imbalances between buyers and sellers of livestock,
referring in detail to the Act's legislative history for evidence that
Congress intended for it to have an expansive scope, including coverage
of a wide range of unfair and unjust practices.
The commenter also argued that the prohibitions in secs. 202(a) and
(b) do not merely include intentionally
[[Page 16168]]
discriminatory actions but also extend to actions with a disparate
impact on covered producers based on their protected-class or market-
vulnerable status. To support this position, the commenter noted that
sec. 202(a) prohibits regulated entities from engaging in practices or
using devices that are ``unjustly discriminatory,'' rather than simply
prohibiting them from actively discriminating, and that sec. 202(b)
prohibits regulated entities from ``subject[ing]'' persons or
localities to undue or unreasonable prejudices or disadvantages,
arguing that both provisions specifically use language intended to
encompass non-intentional actions.
The commenter further argued that AMS holds authority to interpret
the meaning of sec. 202 and identify practices that violate its
prohibitions. The commenter said Congress modeled USDA's role under the
Act on that of the Federal Trade Commission under the FTC Act,
envisioning an authority with broad jurisdiction and power. According
to the commenter, Congress even went beyond the FTC Act model in one
respect in its grant of authority to USDA, with sec. 407 of the Act
giving USDA unequivocal authority to promulgate rules as needed to
carry out its provisions. The commenter also said many court decisions
have given strong deference to USDA determinations on whether a
practice violates the Act, relying on reasoning that the facts of
individual cases determine the meaning of the Act's operative terms,
and that USDA is responsible for efficiently regulating market agencies
and packers. Finally, the commenter argued ``Chevron deference'' \222\
applies to USDA interpretations of the Act regarding differential
treatment because these interpretations would be promulgated pursuant
to express delegation of rulemaking authority as given in sec. 407,
fill in the gaps Congress left in sec. 202, reflect a permissible
construction of the statutory text that aligns with the statute's
purpose, and take advantage of USDA expertise regarding the details of
livestock production and marketing.
---------------------------------------------------------------------------
\222\ Chevron U.S.A., Inc. v. Natural Resources Defense Council,
Inc., 468 U.S. 837 (1984).
---------------------------------------------------------------------------
One commenter recommended the following proposed regulatory text
language to explicitly state violations of the proposed rule require no
showing of competitive harm:
Sec. 201.308 No Requirement to Cause Market-Wide Harm
Where a regulated entity commits conduct prohibited by Subpart
201.302-201.306, such conduct violates Sec. Sec. 202(a) and (b) of
the Act whether or not market-wide harm to competition results. The
unfair, unjustly discriminatory, or deceptive treatment of one
covered producer, the giving to one covered producer of an undue or
unreasonable preference or advantage, or the subjection of one
covered producer to an undue or unreasonable prejudice or
disadvantage in any respect violates the Act.
AMS Response: AMS notes and appreciates the comments, but made no
further changes in response to the comments.
AMS acknowledges the commentors' comments around a showing of harm
to competition. The meaning of competition or harm to competition must
be broader than its meaning under the antitrust laws.\223\ USDA
maintains that this consistently held position is based on the
language, structure, purpose, and legislative history of the Act, and
USDA continues to adhere to this longstanding position, notwithstanding
the disagreement of some courts as to the relationship between harm to
competition and violations under the Act. Discrimination and undue
prejudice on the bases set forth in this final rule are both
essentially unjust and undue as forms of unacceptable personal
discrimination under the Act (drawing on similar precedent from the ICA
and from P&S Act implementation in stockyards), and also subvert normal
market forces, undermine market integrity, and deprive producers of the
true value of their products and services. AMS has not incorporated the
suggested Sec. 201.308 provisions because the rule itself prohibits
discrimination against an individual producer on the prohibited bases
or protected activities. The proposed rule elaborated on the regulatory
text, stating ``[t]his proposed regulation sets forth specific
prohibitions on prejudicial or discriminatory acts or practices against
individuals that are sufficient to demonstrate violation of the Act
without the need to further establish broad-based, market-wide
prejudicial or discriminatory outcomes or harms.'' \224\ AMS's position
is that under the Act even a single instance of discriminatory or
prejudicial conduct may violate the Act.\225\ The Act prohibits
``essentially unjust'' discrimination and undue prejudice, which AMS
has determined the provisions of this final rule to address. Moreover,
discrimination on prohibited bases and retaliation on the basis of
protected activities in livestock and poultry markets leads to economic
inefficiency, and has no procompetitive justification. Undue prejudices
or disadvantages and discriminatory practices in a concentrated
livestock or poultry market inflict economic harm through a distortion
of market signals such as a distortion of market prices and exclusion
of market participants, which, in turn, can lead to disinvestments in
the livestock and poultry markets and a misallocation of scarce
resources. Deception deprives the seller of the benefits of the market,
as competitors of the initial deceiving regulated entity may be induced
to likewise engage in such practices. When market abuses become
widespread, market success becomes less based on productive efficiency
or quality and more on who can engage in the most abuses, leading to
allocative inefficiencies and loss of social welfare.
---------------------------------------------------------------------------
\223\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862; Peter Carstensen, The Packers and Stockyards Act: A History of
Failure to Date, CPI Antitrust Journal 2-7 (April 2010) (``Congress
sought to ensure that the practices of buyers and sellers in
livestock (and later poultry) markets were fair, reasonable, and
transparent. This goal can best be described as market facilitating
regulation.''); Michael C. Stumo & Douglas J. O'Brien, ``Antitrust
Unfairness vs. Equitable Unfairness in Farmer/Meat Packer
Relationships,'' 8 Drake J. Agric. L. 91 (2003); Michael Kades,
``Protecting livestock producers and chicken growers,'' Washington
Center for Equitable Growth (May 2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf.
\224\ 87 FR 60018.
\225\ Extensively discussed in Michael Kades, ``Protecting
livestock producers and chicken growers,'' Washington Center for
Equitable Growth (May 2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf, among other
articles referenced above.
---------------------------------------------------------------------------
Comment: Commenters representing industry perspectives said
proposed Sec. 201.306 on deceptive practices is outside the scope of
the Act because it would require all tort or contract disputes under
the Act to be addressed in Federal courts rather than as State matters.
According to the commenters, Congress would have explicitly said so if
it intended to give AMS wide-ranging authority to regulate the
specifics of livestock industry contracts and business practices
regardless of their effect on competition. According to commenters,
further evidence that Congress did not intend to give the agency such
authority includes its previous rejections of other proposals to expand
the Act to cover contractual matters traditionally covered under State
law, with Federal courts likewise holding that the Act does not cover
these circumstances.
A cattle industry trade association said this provision also
exceeds the scope of the Act because AMS's contention that deception
does not
[[Page 16169]]
require proof of a particularized intent contradicts the plain text of
the statute as it would have been interpreted at enactment. According
to the commenter, Congress at this time would have understood
meatpacker conduct only to be deceptive when committed with the intent
to deceive a producer. The commenter further stated that AMS's
arguments that deceptive practices under sec. 202 of the Act do not
necessarily require intent to deceive--based on analogy to developments
in the law of deceptive marketing--do not provide sufficient support
for its position. An organization asserted that the proposed rule
attempts to undercut Federal court rulings, such as Jackson v. Swift
Eckrich, Inc.,\226\ which hold that the Act is not intended to
undermine traditional freedom-of-contract principles by exposing
producers to Federal liability if they refuse to enter into certain
contracts or exercise basic contract rights.
---------------------------------------------------------------------------
\226\ 53 F.3d 1452, 1458 (8th Cir. 1995).
---------------------------------------------------------------------------
AMS Response: This rule does not require all tort or contract
disputes under the Act to be addressed in Federal courts rather than as
State matters. It only addresses the specific prohibited conduct
covered by the rule. Moreover, in secs. 202(a) and (b), Congress gave
broad authority to the Secretary to establish the scope of Federal
protections governing transactions in livestock and poultry, given the
interstate nature of the industry.
The Act does not require proof of a particularized intent to
deceive.\227\ This rule does not inhibit freedom to contract by
exposing producers to liability if they refuse to enter into a
contract.\228\ It addresses undue prejudice, retaliation, and deception
which may occur at various stages of the contracting process, including
the stage when a refusal to deal may amount to discrimination on the
bases of prohibited categories specified in the final rule or a
deceptive practice when distorted owing to an untrue statement.
Therefore, this rule does not contradict the holding in Jackson v.
Swift Eckrich, Inc. Accordingly, AMS made no changes to the rule in
response to these comments.
---------------------------------------------------------------------------
\227\ See Parchman v. U.S. Dep't of Agric., 852 F.2d 858, 864
(6th Cir. 1988).
\228\ Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir.
1968).
---------------------------------------------------------------------------
Comment: Cattle industry trade associations argued the proposed
rule also represents an inappropriate attempt to regulate commercial
feed yards under the Act, saying AMS improperly cites Solomon Valley
Feedlot Inc. v. Butz \229\--a case holding that feed yards are not
regulated entities under the Act--to support its reference to surety
bonds as one means to protect farmers and consumers from unfair
practices under the Act. According to the commenters, AMS's citation in
this context suggests commercial feed yards are required to post bonds
despite the case holding that they are not regulated entities and thus
do not need to do so. A commenter further said this inaccurate
citation, combined with the proposed rule's overbroad definition of
``livestock producer,'' suggests AMS is trying to regulate feed yards
under the Act despite both Congressional intent and judicial precedent
supporting their exclusion.
---------------------------------------------------------------------------
\229\ 550 F. 2d 717 (10th Cir. 1977).
---------------------------------------------------------------------------
AMS Response: AMS respectfully considers these comments to be
outside the scope of this rulemaking. To be clear, AMS does not intend
to refute the court's holding in Solomon Valley that feedlots are
unregulated. Nor does the rule make any attempt to define ``regulated
entities'' to include feedlots.
This final rule prohibits regulated entities from engaging in
deceptive practices. Regulated entities include packers, swine
contractors, and live poultry dealers. The rule protects feedlots as
livestock producers from undue prejudice, retaliation, and deception.
AMS sees no reason for the commenter's argument that the definition of
livestock producers should exclude feedlots, except to the extent that
the feedlot is acting as a dealer under the Act. This rule does not
attempt to regulate the behavior of livestock dealers or feedlots in
any capacity. The Solomon Valley decision, which shows it is a
deceptive practice for a regulated entity to fail to maintain a bond,
was cited in the proposed rule to provide an example of what the court
has found constitutes a deceptive practice.
ii. Congressional Direction
Comment: Live poultry dealers and poultry industry trade
associations said Congressional authority for AMS to issue the proposed
rule has expired because the agency did not promulgate it within the
deadline set by the 2008 Farm Bill. A commenter said this Farm Bill
included language asking GIPSA, the agency formerly in charge of
implementing the Act, to promulgate new regulations dealing with
several sections of the Act. The commenter noted that section 11006 of
the 2008 Farm Bill tasked AMS with writing new regulations establishing
criteria to determine four issues, including whether an undue or
unreasonable preference or advantage has occurred in violation of the
Act. Section 11006 included a timeline, requiring AMS to promulgate
these new regulations no later than two years after the Farm Bill's May
22, 2008, enactment. However, AMS did not publish the proposed rule for
comment until October 3, 2022, nearly 12 years after the Farm Bill
deadline expired. According to the commenter, finalizing the proposed
rule would therefore unconstitutionally exceed the scope of Congress's
grant of authority to USDA.
Likewise, a meat industry trade association argued that Congress
referred to issues relating to socially disadvantaged farmers and
ranchers in other parts of the 2008 Farm Bill but failed to do so in
the context of its direction for rulemaking under the Act; therefore,
it is reasonable to assume Congress did not seek to address such topics
under the Act.
AMS Response: AMS respectfully considers these comments to be
outside the scope of this rule. The 2008 Farm Bill's directive that
GIPSA promulgate rulemaking pertaining to the Act does not restrict
USDA's and AMS's authority to conduct this rulemaking and thus
effectuate the purposes of the Act.
Further, as noted earlier, Executive Order 14036 directs the
Secretary to address unfair treatment of farmers and improve conditions
of competition in their markets by considering rulemaking to address,
among other things, certain market abuses and anticompetitive practices
in the livestock, poultry, and related markets, including unjustly
discriminatory, unduly prejudicial, and deceptive practices--in
particular retaliation. This final rule is responsive to the Executive
Order.
Comment: A cattle industry trade association and a live poultry
dealer argued that, in addition to taking advantage of an expired grant
of authority, the proposed rule also extends beyond the scope of the
original Congressional authority to amend the Act. Commenters said
issues not covered under the Farm Bill grant include the introduction
of a vague and ambiguous definition of ``market vulnerable
individual;'' a determination that proof of anticompetitive harm is no
longer necessary to prevail under secs. 202(a) or (b) of the Act; and
regulation of deceptive practices and of recordkeeping.
AMS Response: As stated by Congress, the purpose of the Act is ``to
assure fair competition and fair trade practices, to safeguard farmers
and ranchers . . . to protect consumers . . .
[[Page 16170]]
and to protect members of the livestock, meat, and poultry industries
from unfair, deceptive, unjustly discriminatory and monopolistic
practices. . . .'' This regulation bans behavior that is unjustly
discriminatory, unreasonably prejudicial and disadvantageous, and
deceptive. AMS has addressed the other matters raised by the commenter
in previous comment responses.
Comment: Multiple industry commenters argued that the proposed rule
triggers the major questions doctrine under West Virginia v. EPA, under
which an agency lacks authority to take politically or economically
significant regulatory actions without ``clear congressional
authorization.'' \230\ Commenters said the Supreme Court has indicated
particular concern where an agency fundamentally changes the regulatory
scheme under a statute, seeks to adopt a rule Congress has clearly and
repeatedly declined to enact, or claims broad authority for which there
is a lack of historical precedent, arguing that the proposed rule
raises all three of these issues.\231\ Commenters argued that the Act
has long been understood to be grounded in antitrust principles and has
never in its hundred-year history been used to broadly address the kind
of discriminatory conduct covered in the proposed rule. The commenters
further claim that the proposed rule's treatment of the Act as an
antidiscrimination statute also unprecedently extends past the scope of
other such laws by targeting discrimination against independent
contractors rather than employees.\232\ They also note that, in
addition to declining to apply the Act as an antidiscrimination
statute, Congress has also declined to adopt any general prohibitions
on discrimination in contracting extending beyond the ban on racial
discrimination in 42 U.S.C. 1981. The commenters stressed that it would
be the role of Congress, not AMS, to decide to apply the Act like an
antidiscrimination statute. According to the commenters, specific
aspects of the proposed rule that trigger this doctrine include the
elimination of the harm-to-competition standard, the creation of a
definition of ``market vulnerable individuals,'' the identification of
conduct constituting deceptive conduct, and the 5-year document
retention mandate for regulated entities.
---------------------------------------------------------------------------
\230\ West Virginia v. EPA, 142 S. Ct. 2587, 2613-14 (2022).
\231\ Id. at 2612, 2610; NFIB v. OSHA, 142 S. Ct. 661, 666
(2022) (per curiam).
\232\ 42 U.S.C. 2000e-2; E.E.O.C., Coverage, https://www.eeoc.gov/employers/coverage.cfm (last visited Jan. 1, 2023); see
also Health Care Workers and the Americans with Disabilities Act,
https://www.eeoc.gov/laws/guidance/health-care-workers-and-
americans-disabilitiesact#:~:text=While%20the%20ADA's%20protections%2
0apply,does%20not%20cover%20independent20contractors (last visited
Jan. 1, 2023) (``While the ADA's protections apply to applicants and
employees, the statute does not cover independent contractors.'');
29 U.S.C. 623; E.E.O.C., Coverage, https://www.eeoc.gov/employers/
coverage-
0#:~:text=People%20who%20are%20not%20employed,by%20the%20anti%2Ddiscr
imination%20laws (last visited Jan. 1, 2023) (``People who are not
employed by the employer, such as independent contractors, are not
covered by the antidiscrimination laws.'').
---------------------------------------------------------------------------
AMS Response: As discussed in the preamble to this final rule,
Congress enacted the Act after many years of concern about farmers and
ranchers being cheated and mistreated. In the Act, Congress gave the
Secretary broad authority to regulate the meatpacking industry.
Congress believed that existing antitrust and market regulatory laws,
including the Sherman Act and Federal Trade Commission Act, did not
sufficiently protect farmers and ranchers. In the Act, Congress gave
the Secretary broad authority to regulate the meatpacking industry. The
House of Representatives' report on the Act stated that it was 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.'' \233\ The Conference Report on
the Act stated that: ``Congress intends to exercise, in the bill, the
fullest control of the packers and stockyards which the Constitution
permits. . . .'' \234\ Congress considered this a power beyond the
authority that of the FTC and the Interstate Commerce Commission.
---------------------------------------------------------------------------
\233\ House Report No. 67-77, at 2 (1921).
\234\ House Report No. 67-324, at 3 (1921).
---------------------------------------------------------------------------
This rule's interpretations of unjust discrimination, undue and
unreasonable prejudice, and retaliation are consistent with
longstanding approaches to protecting producers under the Act, are
consistent with interpretations of similar provisions of sec. 5 of the
FTC Act and the ICA, and mirror congressional policy as reflected in
ECOA. Moreover, Congress as recently as 2008 directed USDA to conduct
rulemakings on sec. 202, which led to the 2020 Rule discussed above on
undue preferences. The 2020 Rule wrestles with questions of undue
prejudices which this final rule settles. Deception similarly follows a
long line of cases and rules covering deceptive practices under the
Act. Regarding issues raised by commenters around the major question
doctrine, this rule does not address political matters, nor does it
focus on fixing purely economic harms. This rule aims to increase
protections for producers by clarifying that secs. 202 (a) and (b) of
the Act prohibit discriminatory, retaliatory, and deceptive conduct by
regulated entities.
iii. Legal Justification
Comment: Live poultry dealers and industry associations argued that
the administrative record for the proposed rule fails to support a
rulemaking. Commenters contended AMS has failed to identify any actual
harmful conduct that would justify the proposed rule. Several
commenters criticized specific aspects of the record, saying the court
cases providing examples of alleged violations of the Act seem to be
``opportunistically selected'' and inaccurately cited, while the
discussions of previous rulemaking efforts, many of which were
withdrawn after Congressional objection, do not provide legitimacy. The
commenters said, rather than basing its justification on facts, AMS
instead acted arbitrarily and capriciously in supporting it with
unverifiable anecdotal evidence and anonymous sources. A cattle
industry trade association said that the proposed rule is too reliant
on unexplained anecdotal evidence and suggested AMS has compounded this
problem by encouraging commenters to respond anonymously.
A commenter said AMS aggravates these issues by inviting more
anonymous feedback in its request for comment on the proposed rule,
making it difficult to assess commenters' credibility, encouraging more
false or unverifiable anecdotes, and further weakening the evidentiary
foundation of the eventual final rule. The commenter urged AMS to
reopen the comment period after clarifying that it will not give
anonymous anecdotes disproportionate weight. Another commenter said, as
AMS explicitly left racially discriminatory practices off its list of
criteria for finding undue or unreasonable preferences under the Act in
promulgating the final rule codified at 9 CFR 201.211,\235\ it must
explain its rationale for reversing its position to determine that the
Act now covers protected-class discrimination.
---------------------------------------------------------------------------
\235\ See 85 FR 79779.
---------------------------------------------------------------------------
AMS Response: AMS disagrees with commenters' argument that the
administrative record for the proposed rule fails to support this
rulemaking. 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.'' Under the APA, an
Agency may conduct rulemaking to
[[Page 16171]]
revise prior positions if it can show that there are ``good reasons''
for the change and that the ``new policy is permissible under the
statute.'' \236\ AMS gathered evidence from livestock producer and
poultry grower testimonies, Congressional testimonies, DOJ and USDA
public workshops, case law, and economic data. AMS has gathered
economic data on disparities between white farmers and ranchers and
other racial and ethnic groups. This data is presented in Figure 5 and
highlights the need for this rulemaking to provide fair access to
markets for all producers. Preliminary empirical results indicate that
there are some systemic differences in prices received across ethnic/
racial groups after accounting for regional fixed effects and marketing
variables. Relative to White producers, historically underserved Black
and American Indian groups receive lower cattle prices; Black groups
receive lower contract broiler prices, and Black and American Indian
groups receive lower hog prices.\237\
---------------------------------------------------------------------------
\236\ FCC v. Fox Television Stations, 556 U.S. 502, 514 (2009).
\237\ ``Competition and Discrimination--is there is a
relationship between livestock prices received and whether the
grower is in a historically underserved group?'' 2023 AAEA Annual
Meeting, Washington, DC, July 23-July 25, 2023.
---------------------------------------------------------------------------
The provisions in this rule are basic, fundamental protections
against discrimination on prohibited bases as authorized by the Act and
as consistent with congressional policy. The prohibition on retaliation
protects the ability for producers to communicate with governmental
entities, associate, cooperate, and compete. The prohibitions on
deception are equally basic. These basic and fundamental provisions are
justified with the record presented. Decades of complaints by
producers, include public hearings with the Department of Justice, have
catalogued how vertical integration and market concentration have left
producers unable to avoid adverse treatment that tends to exclude them
from the marketplace, including retaliation preventing them from even
reporting these concerns to governmental authorities. The result has
been producers unable to bargain effectively in the marketplace or
fully obtain the benefits of their livestock production and poultry
grow out services. Regulated entities consistently assert they do not
engage in such practices; if so, then the burdens from adopting this
rule are low.
AMS is not reopening the comment period for this rule. Consistent
with the Administrative Procedure Act, all interested persons had an
opportunity to comment and the agency has considered all relevant
matter received through the public comment process.
AMS does not agree that it has reversed its position with respect
to the rationale underpinning the rule promulgating Sec. 201.211. This
final rule addresses undue and unreasonable prejudices and
disadvantages and unjust discrimination. Conversely, the rule
implementing Sec. 201.211 addressed undue and unreasonable preferences
and advantages. AMS may return to the question of undue and
unreasonable preferences and advantages in future rulemaking but does
not have at this time any further information to offer with respect to
how AMS would or would not apply the Act's prohibition on undue or
unreasonable preferences or advantages. AMS is not making any further
changes in response to this comment.
Comment: A cattle industry association said AMS has provided no
meaningful evidence of discrimination on grounds other than race,
saying evidence of the latter is unnecessary because racial
discrimination in private contracting is already prohibited. According
to the commenter, AMS also has provided no evidence that would justify
its proposal to establish a broad market vulnerable producer approach
to discrimination. This commenter also criticized AMS's citation of
disparities in farm size and income along racial and ethnic lines. It
said the agency confuses correlation and causation by arguing that
smaller minority-owned farms necessarily have a harder time competing
because of race discrimination when it has merely shown that minority-
owned farms tend to be smaller and that any smaller farms tend to face
competitive disadvantages compared to larger ones.
AMS Response: The existence of the continued correlation suggests
the continued persistence of problems, and accordingly the need for
additional clarity regarding the enforcement of the Act. To the extent
that the activities covered are already prohibited, then the clarity
provided by this rule should place no new burdens on industry with
respect to compliance. Additionally, AMS has adopted in its final rule
a list of prohibited bases for undue and unreasonable prejudice and
disadvantages instead of using the term ``market vulnerable,''
therefore addressing commenters' concerns around the term's broadness.
Recent research conducted by the USDA's Office of the Chief
Economist and presented at the American Association for Agricultural
Economics \238\ suggests that certain ethnic or racial groups may be
suffering currently from discrimination by packers in the establishment
and/or performance of livestock and poultry contracts. Qualitatively,
the research found consistent differences in prices received for
livestock (cattle and hogs) and broiler products across ethnic or
racial groups after controlling for variables such as farm size,
regional differences, type of marketing contract or channel, organic
certification status, distance to closest packer, and size of closest
packer. Limitations of the study include that it is unable to control
for all animal characteristics and cannot separate disparate economic
outcomes arising from current racial discrimination from disparate
economic outcomes due to historical discrimination.
---------------------------------------------------------------------------
\238\ Breneman, V., Cooper, J. Nemec Boeme, R. and Kohl, M.
``Competition and Discrimination--is there is a relationship between
livestock prices received and whether the grower is in a
historically underserved group?'' 2023 AAEA Annual Meeting,
Washington, DC, July 23-July 25.
---------------------------------------------------------------------------
Comment: A cattle industry association said the proposed rule is
arbitrary and capricious because AMS has yet to release several related
proposals dealing with rulemakings under the Act. The commenter notes
that sec. 553(c) of the Administrative Procedure Act requires agencies
to give interested parties a ``reasonable'' and ``meaningful''
opportunity to participate in the rulemaking, then argues that AMS's
failure to disclose how this proposed rule will fit in with other
related rules addressing poultry and livestock contractors under the
Act does not meet this standard because it does not give parties a
chance to respond to the rulemaking actions as a whole.
AMS Response: That previous rulemaking efforts, such as those
published in 2016, tied multiple rulemakings together with respect to
certain assumptions in their cost-benefit analysis is not dispositive
on how this set of rulemakings--which are entirely different and
unconnected to the 2016 effort--should be designed or presented for
public comment. This final rule is a logical outgrowth of the rule as
proposed and does not in any way depend upon what AMS may or may not
propose or finalize in any other rules. AMS made no changes to the rule
based on this comment.
Comment: A meat industry trade association expressed concern
because AMS stated in the preamble to the proposed rule that
retaliation may include activities other than those listed in the
proposal. The commenter said the statement in the preamble, which says
[[Page 16172]]
the proposed rule is ``designed to prohibit all such actions with an
adverse impact on a covered producer,'' \239\ conflicts with another
statement in the preamble regarding Sec. 201.304(b), which says the
proposed regulations are ``narrowly tailored, requiring the adverse
action to be linked to specific protected activities,'' \240\ making
the rule arbitrary and capricious in failing to give useful guidance on
permissible activities.
---------------------------------------------------------------------------
\239\ 87 FR 60026, October 3, 2022.
\240\ Id. at 60024.
---------------------------------------------------------------------------
AMS Response: The commenter confuses the design of the rule. The
specific protected activities set forth under Sec. 201.304(b)(1) and
(2) are narrowly tailored and limited to those delineated. In contrast,
the forms of adverse conduct, as set forth in 201.304(b)(3), are
inherently broader and more flexible. Additionally, the final rule
provides greater specificity with respect to forms of adverse conduct,
which are now delineated specifically and are no longer subject to
open-ended addition.
Therefore, AMS will not make changes to the final rule in response
to this comment.
iv. Vagueness
Comment: Commenters argued that multiple provisions of the proposed
rule are so vague and open-ended they thwart processors' ability to
determine how it may apply to their conduct. According to the
commenters, these provisions raise issues under the Fifth Amendment's
Due Process Clause, which requires rules of law to define unlawful
conduct with enough specificity to let interested parties understand
what conduct is prohibited and to prevent arbitrary or discriminatory
application of the rule.\241\
---------------------------------------------------------------------------
\241\ See Skilling v. United States, 130 S. Ct. 2896, 2927-28
(2010).
---------------------------------------------------------------------------
Live poultry dealers and a poultry industry trade association said
the proposed rule is unconstitutionally vague because it includes a
number of poorly defined or undefined terms for which failure to comply
would result in a regulatory violation. The commenters said it provides
only examples of behavior that would constitute a prohibited
``prejudice or disadvantage'' or ``retaliation,'' rather than spelling
out definitive lists or definitions that regulated entities can use to
comply with the proposed rule. The commenters highlighted other terms
raising vagueness issues, such as ``generally or ordinarily offered,''
``differential contract performance or enforcement,'' and ``tak[ing] an
adverse action.'' These commenters said the rule also fails to spell
out other concepts essential for identifying unlawful conduct, such as
what would constitute a prohibited pretext or a legitimate explanation,
how the recordkeeping requirements would be triggered, or what records
must be kept. Commenters emphasized clear definitions are critical for
companies to know what is and is not allowed under the rule.
AMS Response: The Due Process Clause under the Fifth Amendment
requires legal matters to be resolved according to established rules
and principles. AMS has adequately described the type of conduct
prohibited under this rule by expressly stating that prejudices on
specified prohibited bases constitutes a violation under the Act. These
prohibited bases expressly draw from ECOA and apply to the Act and are
explained in this rule with the specificity required to give notice to
interested parties as to what conduct is prohibited. Moreover, changes
in this final rule more clearly delineate prohibited bases of
discrimination in Sec. 201.304(a)(1), prohibited prejudicial conduct
under Sec. 201.304(a)(2), prohibited retaliatory conduct under Sec.
201.304(b)(3), and more. Concerns of vagueness are addressed by AMS
further explaining terms in the final rule with the specificity needed
to thwart claims of unconstitutional government action. The final rule
also provides two new specific exceptions that address commenters'
concerns regarding the proposed rule not including exceptions.
Furthermore, as explained in response to earlier comments, the
recordkeeping requirement is clear and specific in its explanation in
requiring regulated entities to keep certain records pertaining to
their business practices relating to activities subject to the
jurisdiction of the Act.
The terms used in this rule are intended to follow their plain
language meaning, as applied to the livestock and poultry industries
and within the legal framework regulating these industries. The
following discussion demonstrates how these terms support the rule's
prohibitions against undue prejudice, deception, and retaliation and in
fact are quite specific.
``Retaliation'' is set forth in paragraph (b)(3) and encompasses
actions taken by regulated entities against covered producers such as
contract termination, refusal to renew a contract, offering of more
unfavorable contract terms than those generally or ordinarily offered,
refusal to deal, interference with third-party contracts, and
modification of contracts on less favorable terms than those previously
enjoyed in response to the producer's participation in a protective
activity. What constitutes retaliation is clearly defined in the rule,
and likewise the rule clearly lays out protected activities against
which retaliation is prohibited.
In this rule, ``generally or ordinarily offered'' terms are terms
most producers would qualify for when contracting with a regulated
entity. Whether terms are ``generally or ordinarily offered'' is an
inquiry regarding specific facts and circumstances. Each case may vary
by regulated entity and even for any given regulated entity may vary
based on how the regulated entity would normally deal in the
circumstances presented by the producer in question. However,
``generally or ordinarily'' does not apply to special contract terms
that some regulated entities may use with certain producers, whether to
receive particular quality attributes or services or for other reasons
that are not discrimination on prohibited bases. The purpose of the
rule is to ensure that a covered producer is not denied contract terms
on the basis of a protected class that an ``ordinary'' similarly
situated producer could receive from the regulated entity.
``Performing under or forcing a contract differently than with
similarly situated producers'' refers to situations where a regulated
entity operates in such a way that it denies a grower the full benefits
to which it is entitled under its contract with the regulated entity. A
poultry grower may seek to enforce a production contract term that
gives the grower the right to receive appropriate feed for the grower's
flocks on a timely basis in the event the grower regularly or at
critical times experiences insufficient, delayed, or inappropriate
feed. If a regulated entity threatens to terminate a grower's contract
in response to the grower's efforts to enforce a particular contract
term (a protected activity), this retaliatory conduct would violate the
Act. AMS notes that this violation would be separate from any violation
of contract law that may also exist. Another example is selective
information disclosures. These often take the form of a regulated
entity withholding materially relevant information from one covered
producer that the regulated entity generally or ordinarily provides to
other covered producers. In these instances, information-deprived
producers will have an incomplete picture of their business
relationships with regulated entities, and therefore will operate at an
unreasonable disadvantage relative to producers who receive the
pertinent information.
[[Page 16173]]
Furthermore, this rule not only protects covered producers from such
conduct in the form of retaliation. If a regulated entity engages in
differential contract enforcement on the bases of a producer's
protected class, this would constitute discriminatory conduct in
violation of Sec. 201.304(a) of this regulation.
``Tak[ing] an adverse action'' encompasses a range of prejudicial,
deceptive, or retaliatory actions that unjustly inhibit market access
such as prejudice, disadvantage, retaliation, deception, or any action
that inhibits market access to producers. A range of actions taken by
producers on legitimate business grounds can be adverse to producer
welfare. However, in the context of this rule, adverse actions are
those actions taken by regulated entities against producers that either
unfairly discriminate against producers on the basis of a protected
class, deceive producers, or represent retaliation against producers
for engaging in protected activities such as lawful communications,
assertion of contract rights, associational participation, or
participating as a witness in any proceeding under the Act.
v. Other Legal Issues
Comment: A cattle industry trade association said the requirement
to demonstrate harm to competition is crucial within its industry
because packers differentiate cattle values using an array of different
factors including production method, animal handling requirements, and
program enrollment, meaning that seemingly similar lots of cattle may
be valued substantially differently. The commenter expressed concern
that the results of individual adjudications taking place under sec.
202 of the Act without the threshold of a competitive-injury
requirement would vary significantly, diminishing innovation and
product differentiation, confusing market participants, and ultimately
harming both producers and consumers. A poultry industry trade
association said that, if AMS seeks to establish circumstances in which
conduct can violate secs. 202(a) and (b) without a showing of
competitive injury, a separate standalone rulemaking would be more
suitable than inclusion in the proposed rule.
AMS Response: This final rule solely addresses the prohibited
conduct it covers--undue prejudice on prohibited bases, retaliation as
unjust discrimination for engaging in protected activities, and certain
forms of deception. It does not, beyond the specific prohibitions,
interfere with the manner in which packers differentiate cattle values
using an array of different factors including production method, animal
handling requirements, and program enrollment, meaning that seemingly
similar lots of cattle may be valued substantially differently.
Individual adjudications with respect to the conduct covered by this
proposed rule are essential to effectuate the prohibitions set forth in
this rule, so as to eliminate in their incipiency occurrences of undue
prejudice on prohibited bases and retaliation on protected
activities.\242\ The Act empowers the Secretary to make the
determinations around what conduct is unreasonable and undue prejudices
and disadvantages and unjust discrimination. It is also well-
established that deception is a prohibition that can be enforced on the
bases of each individual occurrence.
---------------------------------------------------------------------------
\242\ Bowman v. United States Dep't of Agric., 363 F.2d 81, 85
(5th Cir. 1966)
---------------------------------------------------------------------------
Moreover, even where relevant, the meaning of competition or harm
to competition must be broader than its meaning under the antitrust
laws.\243\ USDA has previously explained that this consistently held
position is based on the language, structure, purpose, and legislative
history of the Act, and USDA continues to adhere to this longstanding
position, despite the disagreement of some courts as to the
relationship between harm to competition and violations under the Act.
See Scope of Sections 202(a) and (b) of the Packers and Stockyards Act,
82 FR 48596 (Oct. 18, 2017), (reaffirming that ``USDA has adhered to
this interpretation of the P&S Act for decades'' and rejecting comments
that this interpretation is not the USDA's longstanding position).
Regardless, even if a showing of harm to competition were required for
an undue prejudice or discrimination claim, the discriminatory
practices prohibited in this rule would meet such a requirement.
Discrimination and undue prejudice have no value or place in a
competitive market, and in fact can lead to inefficiencies as personal
characteristics, not production factors influence contracting
decisions. Ultimately, the conduct at issue is squarely within the
purposes of the Act. Where conduct ``prevents an honest give and take
in the market,'' it ``deprives market participants of the benefits of
competition'' and ``impedes . . . a well-functioning market.'' In its
report on the 1958 amendments to the Act, the U.S. House of
Representatives explained that the statute promotes both ``fair
competition and fair trade'' and is designed to guard ``against
[producers] receiving less than the true market value of their
livestock.'' Discrimination and undue prejudice on the bases set forth
in this final rule are both essentially unjust and undue as forms of
unacceptable personal discrimination under the Act (drawing on similar
precedent from the ICA and from P&S Act implementation in stockyards),
and also subvert normal market forces, undermine market integrity, and
deprive producers of the true value of their products and services.
---------------------------------------------------------------------------
\243\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862; Peter Carstensen, The Packers and Stockyards Act: A History of
Failure to Date, CPI Antitrust Journal 2-7 (April 2010) (``Congress
sought to ensure that the practices of buyers and sellers in
livestock (and later poultry) markets were fair, reasonable, and
transparent. This goal can best be described as market facilitating
regulation.''); Michael C. Stumo & Douglas J. O'Brien, ``Antitrust
Unfairness vs. Equitable Unfairness in Farmer/Meat Packer
Relationships,'' 8 Drake J. Agric. L. 91 (2003); Michael Kades,
``Protecting livestock producers and chicken growers,'' Washington
Center for Equitable Growth (May 2022), https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf.
---------------------------------------------------------------------------
Comment: A legal foundation said the introduction of a
recordkeeping requirement for processors may violate the due process
clause by imposing unreasonable burdens on them and may exceed the
limits of Federal enumerated powers under the Constitution. The
commenter said that, although the Supreme Court upheld a recordkeeping
requirement for banks against a due process challenge, the ruling was
specific to entities receiving public funds and does not apply to
regulated entities under the proposed rule. The commenter also
contended such recordkeeping requirements generally lead to warrantless
searches of businesses, and that these types of searches are only
authorized for pervasively regulated, inherently hazardous industries,
which likely does not apply to the meat or poultry industries.
AMS Response: AMS has authority under the Act to regulate certain
entities and to promulgate rulemaking accordingly. The inclusion of a
recordkeeping requirements serves the legitimate purpose to ensure
compliance with this rule. Recordkeeping is regularly a component of
rulemaking to ensure compliance and allow the regulating agency to
better monitor impacts of the Rule. Regulated entities are already
subject to a range of oversight by AMS subject to the longstanding
application of the Act. Indeed, the Act already requires recordkeeping
that fully and completely discloses the transactions by regulated
entities of their poultry growing arrangements and transactions in
[[Page 16174]]
livestock, meat, live poultry, etc.\244\ The recordkeeping addressed by
this rule is to keep records already kept, and is within the scope of
AMS's authority under the Act.\245\
---------------------------------------------------------------------------
\244\ Section 401 of the Act requires regulated entities to keep
``such accounts, records, and memoranda as fully and correctly
disclose all transactions involved in his business . . .'' Section
201.94 of the regulations requires regulated entities to give the
Secretary ``any information concerning the business . . .'' Section
201.95 of the regulations requires that regulated entities provide
authorized representatives of the Secretary access to their plaice
of business to examine records pertaining to the business. Section
203.4 of the regulations is a Statement of General Policy regarding
disposition of records by regulated entities that records be
retained for a period of two full years. We have interpreted this to
mean that records should be maintained for the current year to date,
plus the prior two full years (Jan-Dec). This regulation also
provides that longer retention periods may be required upon notice
by the Administrator.
\245\ Id.
---------------------------------------------------------------------------
Comment: A cattle industry trade association said AMS failed to
clarify the causation standards for proving a violation of its new
discrimination rule. The commenter suggested AMS should confirm that
the default causation rule under tort law applies, meaning a violation
would require impermissible discrimination to be the but-for cause of a
packer's contracting decision.
AMS Response: Although pervasive unjust discrimination has in the
past kept outstanding producers from achieving their potential, AMS
recognizes that adverse actions against producers commonly have several
elements mixed in, some of which may include the discrimination or
retaliation covered by this rule. AMS has set forth a standard
causation standard: ``because'' and ``on the basis of.'' Further cause
will be determined in the specific facts and circumstances of any
enforcement matter. Those facts will determine whether AMS brings any
particular matters and AMS expects unjust discrimination and
retaliation to be the principal, or at least substantial, part of any
decision by the regulated entity. Moreover, AMS is choosing not to
require ``sole'' causation because doing so would undermine the
effectiveness of the rule and encourage after-the-fact revisions of
causation. Rather, AMS believes that regulated entities should have a
heightened duty to eliminate unjust discrimination on the protected
basis and retaliation for engaging in protected activities. To do so,
boards of directors and chief executive officers may wish to establish
clear corporate policies, adopt procedures to provide for heightened
managerial supervision for circumstances where a close call may arise,
and implement training across the corporate structure. ``Tone at the
top'' should direct employees such that undue prejudice and retaliation
are not acceptable forms of conduct, and when close calls arise, the
regulated entity has taken every step reasonably possible to ensure
that its conduct is focused solely on the merits of the producer's
performance and the other competitive factors that the regulated entity
must take into account when running its business. AMS made no changes
to the final rule based on this comment.
L. Other Comments Related to the Proposed Rule
Comment: A cattle industry trade association said that AMS has not
yet made available its proposal for an additional related rule
concerning section 202 of the Act, which must be considered alongside
the current proposal. A meat industry trade association likewise cited
AMS's anticipation of a ``suite of major actions [. . .] to create
fairer marketplaces for poultry, livestock and hog producers'' and
argued that AMS should withdraw the current proposal until the entire
suite of proposals can be submitted holistically. Live poultry dealers
and industry companies, a poultry industry trade association, and a
swine industry trade association concurred that piecemeal updates to
the Act would create challenges and confusion for regulated entities
and producers. They suggested updating regulations collectively at one
time.
AMS Response: AMS made no changes to the proposed regulations based
on this comment. AMS appreciates the comments regarding the desire to
view the rules holistically. However, AMS is under no obligation to
make all potential rules available to the public simultaneously,
regardless of their potential connection to components of this
rulemaking. AMS is addressing issues in the livestock and poultry
sector through its statutorily defined authority to administer the Act.
Federal agencies commonly use separate rulemakings to address specific
issues under their regulatory authority. As stated elsewhere, the
authority or effect of this rule does not in any way depend upon the
proposal or adoption of any other rules, proposed or not yet proposed.
Accordingly, AMS made no changes based on this comment.
Comment: A cattle industry trade association noted that the
proposed rule's preamble implied a strong relationship between
concentration in the meatpacking industry and declining use of
negotiated cash trades, with the further implication that the use of
AMAs in place of cash trades has negatively impacted the market and
rural economies. The commenter said that AMAs are not germane to the
proposed rule and requested information on whether AMS intends the
proposed rule to limit the ability of cattle producers to use AMAs. It
argued that AMAs are critical to funding production of more sustainable
and climate-friendly cattle production. In defense of AMAs, the trade
association cited a 2021 Texas A&M study finding that AMAs do not
change underlying supply-and-demand fundamentals and so do not create
market power \246\ and a 2007 GIPSA Livestock and Meat Marketing Study
finding a negative effect on producer and consumer surplus measures in
response to reducing AMA use.\247\ Another cattle industry trade
association agreed that AMAs benefit producers and cautioned against
any attempts to standardize agreements between producers and regulated
entities through new rules.
---------------------------------------------------------------------------
\246\ Fischer, Bart, L., Joe L. Outlaw, and David P. Anderson,
eds. The U.S. Beef Supply Chain: Issues and Challenges. Texas A&M
University (June 2021) available at https://www.afpc.tamu.edu/research/publications/710/cattle.pdf.
\247\ GIPSA Livestock and Meat Marketing Study, Vol. 1, ES-8
(January 2007).
---------------------------------------------------------------------------
AMS Response: AMS acknowledges the commenters' concerns over the
relationship between this rulemaking and the use of AMAs in the cattle
industry. According to some in the industry, the growth of these
vertical contracting relationships in the context of highly
concentrated markets has led to concerns that firms have greater
control over producers and thus have more ability to abuse their market
power, impede producer choices, exclude some market participants, and
coerce producers unwittingly into inefficient farm decisions. This rule
prohibits prejudices on certain protected bases that tend to exclude or
disadvantage covered producers in those markets; identifies retaliatory
practices that interfere with lawful communications, assertion of
rights, and associational participation, among other protected
activities, as unjust discrimination prohibited by the law; and
identifies deceptive practices that violate the Act with respect to
contract formation, contract performance, contract termination, and
contract refusal. AMS sees no manner in which this regulation affects
the general existence or use of AMAs. Therefore, AMS has made no
changes to the regulations in response to this comment.
Comment: An industry company rejected any implication that food
companies are withholding critical business information from producers
[[Page 16175]]
and argued that producers are already provided critical information
required to make informed business decisions. It suggested that, in
lieu of new rules to require greater information disclosure, AMS should
consider dedicated producer education resources or outreach programs to
raise producer awareness.
AMS Response: AMS appreciates this commenter's suggestion to
further educate producers and will take this under consideration as
additional support AMS may offer to producers. This rulemaking action
clarifies that if regulated entities make omission of material
information necessary to make a statement or representation not false
or misleading (as defined in the rule) against a covered producer, such
conduct amounts to deception and is a violation of the Act. The
codification of these regulations stems from existing law that aims to
prohibit deception in Act-regulated markets. The new regulations do not
create any specific disclosure of information requirements. To the
extent that regulated entities identify the need to provide additional
information to producers, the facts and circumstances of the
transaction will determine whether the information is in violation of
the rule. AMS agrees that producer education and outreach are valuable
to protecting producers and effectuating the purpose of the Act and
intends to conduct more of such activities in the immediate term. AMS
is making no changes to the regulations as proposed in response to this
comment.
VIII. Regulatory Analysis
A. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. chapter 35), an agency may not conduct or sponsor, and a person
is not required to respond to, a collection of information unless it
displays a currently valid Office of Management and Budget (OMB)
control number. This final rule includes a new collection of
information contained in new Sec. 201.304(c), ``Recordkeeping of
compliance practices.'' The proposed rule requested comment on the
estimated recordkeeping burden. All comments received on this
information collection are summarized and included in the final request
for OMB approval. Under the final rule, there are no new regulatory
text changes that would change the proposed rule costs and benefits
analyses. The burden estimates under the final rule are updated to
reflect the most recent data available, updates in regulated entity
wages, and the number of regulated entities. The estimated burden for
the recordkeeping requirement imposed by this final rule is as follows:
OMB Number: 0581-NEW.
Expiration Date of Approval: This is a NEW collection.
Type of Request: Approval of a New Information Collection.
Abstract: Section 201.304(c) will require live poultry dealers,
swine contractors, and packers to retain all relevant records relating
to their compliance with Sec. 201.304(a) and (b) for no less than five
years. This recordkeeping requirement is necessary to evaluate
compliance with Sec. 201.304(a) and (b) and to facilitate
investigations and enforcements based on producer and grower
complaints. This recordkeeping requirement will bolster AMS's ability
to review the records of regulated entities during compliance reviews
and investigations based on complaints of undue prejudices, unjust
discrimination, and retaliation in the livestock and poultry industries
in accordance with the purposes of the Act. Costs of recordkeeping
include maintaining and updating records by regulated entities and will
be discussed and quantified below.
Live Poultry Dealer, Swine Contractor, and Packer Recordkeeping Costs
Estimate of Burden: The burden for maintaining records for this
information collection is estimated to average 4.25 hours per
respondent in the first year, and 3.50 hours annually thereafter.
Respondents: Live poultry dealers, swine contractors, and packers.
Estimated Number of Respondents: 1,030.
Estimated Total Annual Burden on Respondents: 4,377 hours in the
first year and 3,605 hours annually thereafter.
Information Collection and Recordkeeping Costs of Sec. 201.304(c):
Costs to comply with the recordkeeping are likely relatively low. This
rule extends the disposal date of most records, if already kept, from 2
years to five years to promote efficient USDA monitoring efforts. For
some records, the current disposal date is 1 year, which could be
extended to five years under this rule if they are deemed relevant to
showing compliance with this rule. Costs of recordkeeping include
regulated entities maintaining and updating compliance records they
already keep. From the perspective of the regulated entity,
recordkeeping is a direct cost. Some smaller regulated entities that
currently do not maintain records may voluntarily decide to develop
formal policies, procedures, training, etc., to comply with the rule
and will then have records to maintain.
AMS expects the recordkeeping costs will be comprised of the time
required by regulated entities to store and maintain records they
already keep. AMS expects that the costs will be relatively small
because some packers, live poultry dealers, and swine contractors may
currently have few records concerning policies and procedures, staff
training materials, materials informing covered producers regarding
reporting mechanisms and protections, compliance testing, board of
directors' oversight materials, and the number and nature of complaints
received related to unduly prejudicial and unjustly discriminatory
treatment. Some firms might not have any records to store. Others
already store the records and may have no new costs.
The amount of time required to keep records was estimated 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 the May 2022
U.S. Bureau of Labor Statistics (BLS) Occupational Employment and Wage
Statistics for the time values in this analysis.\248\ BLS estimated an
average hourly wage for general and operations managers in animal
slaughtering and processing to be $61.24. The average hourly wage for
lawyers in food manufacturing was $103.81. In applying the cost
estimates, AMS marked-up the wages by 41.79 percent to account for
fringe benefits.
---------------------------------------------------------------------------
\248\ Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage Statistics, available
at https://www.bls.gov/oes/special-requests/oesm22all.zip (accessed
7/14/2023). Featured OES Searchable Databases: U.S. Bureau of Labor
Statistics (bls.gov) (accessed July 2023).
---------------------------------------------------------------------------
AMS expects that recordkeeping costs will be correlated with the
size of the firms. AMS ranked packers, live poultry dealers, and swine
contractors by size and grouped them into quartiles, estimating more
recordkeeping time for the largest entities in the first quartile than
for the smallest entities in the fourth quartile. The first quartile
contains the largest 25 percent of entities, and the fourth quartile
contains the smallest 25 percent of entities. AMS estimated that Sec.
201.304(c) will require an average of 4.00 hours of administrative
assistant time, 1.50 hours of time each from managers, attorneys, and
information technology staff for packers, live poultry dealers, and
swine contractors in the first quartile to setup and maintain the
required records in the
[[Page 16176]]
first year. AMS expects the packers, live poultry dealers, and swine
contractors in the second quartile will require an average of 2.00
hours of administrative assistant time, 0.75 hours of time each from
managers, attorneys, and information technology staff for first year
costs. The third quartile will require 1.33 hours of administrative
assistant time, 0.50 hours of time each from managers, attorneys, and
information technology staff for first year costs, and the fourth
quartile will require 0.67 hours of administrative assistant time, 0.25
hours of time each from managers, attorneys, and information technology
staff.
AMS also expects that packers, live poultry dealers, and swine
contractors will incur continuing recordkeeping costs in each
successive year. AMS estimated that Sec. 201.304(c) will require an
average of 3.00 hours of administrative assistant time, 1.50 hours of
time each from managers, attorneys, and 1.00 hour of time from
information technology staff for packers, live poultry dealers, and
swine contractors in the first quartile to setup and maintain the
required records in each succeeding year. AMS expects that packers,
live poultry dealers, and swine contractors in the second quartile will
require an average of 1.50 hours of administrative assistant time, 0.75
hours of time each from managers, attorneys, and 0.50 hours of time
from information technology staff in each succeeding year. The third
quartile will require 1.00 hour of administrative assistant time, 0.50
hours of time each from managers, attorneys, and 0.33 hours of time
from information technology staff in each succeeding year, and the
fourth quartile will require 0.50 hours of administrative assistant
time, 0.25 hours of time each from managers, and attorneys, and 0.17
hours from information technology staff.
Estimated first-year costs for recordkeeping requirements in Sec.
201.304(c) totaled $30,000 for live poultry dealers,\249\ $193,000 for
swine contractors,\250\ and $122,000 for packers.\251\ Estimated yearly
continuing costs for recordkeeping requirements in Sec. 201.304(c)
totaled $26,000 for live poultry dealers,\252\ $166,000 for swine
contractors,\253\ and $106,000 for packers.\254\
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\249\ 90 live poultry dealers x ($44.51 per hour admin. cost x
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25
hours)) + ($93.68 information tech cost x (1.5 hours + .75 hours +
.5 hours + .25 hours))/4 = $30,132.
\250\ 575 swine contractors x ($44.51 per hour admin. cost x (4
hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
($93.68 information tech cost x (1.5 hours + .75 hours + .5 hours +
.25 hours))/4 = $192,507.
\251\ 365 packers x ($44.51 per hour admin. cost x (4 hours + 2
hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger cost x
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($93.68
information tech cost x (1.5 hours + .75 hours + .5 hours + .25
hours))/4 = $122,200.
\252\ 90 live poultry dealers x ($44.51 per hour admin. cost x
(3 hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25
hours)) + $93.68 information tech cost x (1 hours + .5 hours + .33
hours + .17 hours))/4 = $26,021.
\253\ 575 swine contractors x ($44.51 per hour admin. cost x (3
hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
$93.68 information tech cost x (1 hours + .5 hours + .33 hours + .17
hours))/4 = $166,244.
\254\ 365 packers x ($44.51 per hour admin. cost x (3 hours +
1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger cost x
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + $93.68
information tech cost x (1 hours + .5 hours + .33 hours + .17
hours))/4 = $105,529.
---------------------------------------------------------------------------
Breaking out costs by market, AMS expects recordkeeping
requirements in Sec. 201.304(c) to cost beef packers $58,000 in the
first year and $50,000 in each following year. Section 201.304(c) will
cost lamb packers $23,000 in the first year and $20,000 in successive
years. Section 201.304(c) will cost pork packers $42,000, and it will
cost swine contractors $193,000 for a total of $235,000 in the first
year. Section 201.304(c) will cost swine contractors $166,000 in
successive years, and it will cost pork packers $36,000 for a total of
$202,000 in successive years.
B. Executive Orders 12866, 13563, and 14094; Regulatory Impact
Analysis; and the Regulatory Flexibility Act
AMS prepared this assessment in compliance with the requirements of
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 E.O. 12866 as amended by E.O. 14094 and, therefore, has
been reviewed by OMB. As a required part of the regulatory process, AMS
prepared an economic analysis of the costs and benefits of Sec. Sec.
201.302, 201.304, 201.306, and 201.390.
This Regulatory Impact Analysis (RIA) presents an assessment of the
anticipated benefits and costs from the rule including an assessment of
regulatory alternatives: the status quo, the preferred alternative, and
the small business exemption alternative. The Regulatory Flexibility
Analysis (RFA) evaluates the effect of the rule on small businesses.
This regulatory filing is comprised of definitions in Sec.
201.302, specific prohibited discriminatory and unduly prejudicial
practices in Sec. 201.304, specific prohibited deceptive practices in
Sec. 201.306, and a statement of severability among the provisions in
Sec. 201.390. The definitions in Sec. 201.302 of a covered producer,
livestock producer, and regulated entity will apply to Sec. Sec.
201.304 and 201.306, and the regulatory impacts of the definitions are
captured in the regulatory impacts of Sec. Sec. 201.304 and 201.306,
which are highlighted in this analysis.
The statement of severability in Sec. 201.390 has no quantified
regulatory impact, as it only serves to ensure that if any provision of
Sec. Sec. 201.302, 201.304, or 201.306 is declared invalid or the
applicability to any person or circumstance is invalid, the remainder
of the provisions will remain valid.
Under the final rule, there are no new regulatory text changes that
would change the proposed rule costs and benefits of the regulatory
analyses. The new information collection and recordkeeping requirements
under the final rule are updated to reflect only the most recent data
available, updates in regulated entity wages and number of regulated
entities.
The Need for the Rule: Market Failure in Livestock and Poultry Markets
This section describes the need for the regulatory action, and how
the regulatory action will meet this need. The structure of the
livestock and poultry industries sets the stage for unjustly
discriminatory and deceitful conduct by regulated entities. This rule
aims to benefit covered producers by protecting their rights from these
market harms. This regulatory action addresses market failure in the
livestock and
[[Page 16177]]
poultry industries. This section will show how high levels of
concentration, the prevalence of vertical contracting, asymmetry of
information and the hold-up problem together create an environment
facilitating abusive conduct that this rule addresses and defines the
need for this rule. Discriminatory practices are the exclusionary or
adverse treatment which market concentration and vertical contracting
makes possible and hard to avoid on the basis of a covered producer's
race, or other protected basis, and on the basis of actions that
prejudice, disadvantage, inhibit market access, or are otherwise
adverse compared to terms generally or ordinarily offered to similarly
situation covered producers. This rule focuses on prohibiting regulated
entities from wrongfully excluding producers from markets or denying
those producers the full value of their products or services in those
markets. It will then be shown how the livestock and poultry market
structures help define the distribution of this rule's costs and
benefits.
The Need for the Rule: Prevalence of Concentration and Contracting in
Cattle, Hog, and Poultry Industries
The rise of concentration and vertical contracts in livestock and
poultry markets has increasingly created an environment that enables
packers, swine contractors, and live poultry dealers to unjustly
exclude many producers from, and otherwise undermine their economic
opportunities in, the marketplace. This adverse treatment is a cost, or
economic harm, to covered producers born from market exclusion and
associated high search costs of finding alternative markets in
concentrated markets coordinated with vertical contracts.
Concentration in these markets has intensified over the past
several decades and continues today. Concentration ratios are one
metric to track the increasing share of slaughter of livestock and
poultry in U.S. attributed to fewer packers and poultry integrators.
Table 1 in the Background section shows the level of concentration in
the livestock and poultry slaughtering industries for 1980-2020 using
four-firm Concentration Ratios (CR4). The CR4 for steers and heifers
was 36 percent in 1980 and rose to 81 percent in 2020. That is, in
2020, the top four beef packers slaughtered 81 percent of the nation's
steers and heifers. The CR4 for hogs was 32 percent in 1980 and rose to
64 in 2020, and the CR4 was 32 percent in 1980 for broilers and rose to
53 percent in 2020.\255\
---------------------------------------------------------------------------
\255\ Sheep and turkeys exhibit similar increases in
concentration between 1980 and 2020.
---------------------------------------------------------------------------
The data in Table 1 are estimates of CR4s at the national level;
however, in practice, the relevant economic markets for livestock and
poultry may be regional or local, where concentration may be higher
than those at the national level. This is because of limits on how far
live animals can be safely and efficiently transported. In particular,
regional concentration is often higher than national concentration for
hogs.\256\ Similarly, based on AMS's experience conducting
investigations and monitoring cattle markets, there are often only one
or two cattle buyers in many local geographic markets, and very few
sellers have the option of selling fed cattle to more than three or
four packers. Likewise, even though poultry markets are the least
concentrated of the four markets described above as measured by their
national CR4s, relevant markets for poultry growing services are more
localized than markets for fed cattle or hogs, and local concentration
in poultry markets is often greater than the national concentration
level. Thus, the current environment is one where producers have little
choice in whom they do business with, resulting in an unequal
distribution of bargaining power between parties. MacDonald and Key
found that about one quarter of contract growers reported that there
was just one live poultry dealer in their area, defined by a roughly
34-mile radius from their farm; another quarter reported two; another
quarter reported three; and the rest reported four or more.\257\ Table
2 in the Background section \258\ highlights this issue by using the
Herfindahl-Hirschman Index (HHI) to show the limited ability of poultry
growers to switch to different integrators. Similar to a CR4, HHI is an
indicator of market concentration, with the index increasing as market
shares across firms (packers) become more unequal or the number of
these firms decrease. Markets with HHIs above 2,500 are considered
highly concentrated. Table 2 presented earlier from MacDonald showed
that 88.4 percent of growers face an integrator HHI of at least 2,500.
As stated earlier, the data suggest that most contract broiler growers
in the U.S. are thus in markets where the sellers have the potential
for market power advantage. Livestock producers face similar market
vulnerabilities as shown here for poultry growers given that livestock
producers also face regional market concentration that is more
concentrated than national data would indicate.
---------------------------------------------------------------------------
\256\ Wise, T.A., S.E. Trist. ``Buyer Power in U.S. Hog Markets:
A Critical Review of the Literature,'' Tufts University, Global
Development and Environment Institute (GDAE) Working Paper No. 10-
04, August 2010, available at https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl (last accessed 8/9/2022).
\257\ MacDonald, James M. ``Technology, Organization, and
Financial Performance in U.S. Broiler Production,'' EIB-126, U.S.
Department of Agriculture, Economic Research Service, June 2014. (In
the 2011 Agricultural Resource Management Survey (ARMS), the mean
distance from a grower to the integrator's processing plant was 34
miles, and 90 percent of all birds were produced on farms within 60
miles of the plant.)
\258\ MacDonald, James M., and Nigel Key. ``Market power in
poultry production contracting? Evidence from a farm survey.''
Journal of Agricultural and Applied Economics 44, no. 4 (2012): 477-
490.
---------------------------------------------------------------------------
Market concentration and the use of vertical contracts are
interrelated; as such, growing, production, and marketing contracts
feature prominently in the livestock and poultry industries. As
outlined above, several provisions in Sec. Sec. 201.304 and 201.306
will affect the process of contract formation, performance,
termination, and any other action that a reasonable covered producer
would find materially adverse for livestock, poultry, and meat grown or
marketed.
The type of contracting varies among cattle, hogs, and poultry.
Broilers, the largest segment of poultry, are almost exclusively grown
under production contracts, in which the live poultry dealers, a
regulated entity, own the birds and provide poultry growers with feed
and medication to raise and care for the birds until they reach the
desired market size. Poultry growers provide the housing, the skill and
labor, water, electricity, fuel, and provide for waste removal. Fed
cattle marketing contracts typically take the form of marketing
agreements. Hog production falls between these two extremes.
As shown in Table 5 below, over 96 percent of all broilers and over
42 percent of all hogs are grown under contractual arrangements.
Similar to poultry contracts, swine contractors typically own the
slaughter hogs and sell the finished hogs to pork packers. The swine
contractors typically provide feed and medication to the swine
production contract growers who own the growing facilities and provide
growing services. The following table shows that the percentage of
contract growing arrangements by species has remained relatively stable
between 2007 and 2017.
[[Page 16178]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.012
Other types of contracts include marketing agreements and forward
contracts. Under marketing agreements and forward contracts, producers
and packers agree to terms on a future sale and purchase of livestock.
These types of agreements and contracts are commonly referred to as
AMAs. Pricing mechanisms vary across AMAs. Some AMAs rely on a reported
spot, or negotiated, market price or exchange-based futures price for
at least one aspect of its price, while others involve complicated
pricing formulas with premiums and discounts based on carcass merits.
The livestock producer and packer agree on a pricing mechanism under
AMAs, but usually not on a specific price.
---------------------------------------------------------------------------
\259\ Agricultural Census, 2012 and 2017, available at https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf (last accessed 8/9/2022).
---------------------------------------------------------------------------
AMS reports the number of cattle sold to packers under formula,
forward contract, and negotiated pricing mechanisms. Table 6
illustrates the prevalence of contracting in the marketing of fed
cattle. Formula pricing methods and forward contracts are two forms of
AMA contracts. Thus, the first two columns in the following table are
cattle marketed under contract and the third column represents the spot
market, or negotiated market, for fed cattle including negotiated grid.
The data in the below table show that the AMA contracting of cattle has
increased since 2010. Approximately 55 percent of fed cattle were
marketed under contracts in 2010 (formula and forward contracts in the
below table). By 2021, the percentage of fed cattle marketed to packers
under AMA contracts had increased to just over 72 percent. These data
also show the declines in the percentage of cattle sold on the spot
market, or negotiated trades, from 46 in 2010 to 28 in 2021.
[GRAPHIC] [TIFF OMITTED] TR06MR24.013
As previously discussed, and illustrated in Table 5 above, over 40
percent of hogs are grown under production contracts. These hogs are
then sold by swine contractors to packers. The percentage of hogs sold
under marketing contracts or produced by packers has increased to over
98 percent in 2020 (other marketing agreements and formula sales in the
table below). The spot market, or negotiated trades, for hogs has
declined from 5.2 percent in 2010 to 1.5 percent in 2020. As these data
demonstrate, almost all hogs are marketed to packers under some type of
marketing contract.
---------------------------------------------------------------------------
\260\ U.S. Department of Agriculture, Agricultural Marketing
Service, available at: https://mpr.datamart.ams.usda.gov/
menu.do?path=Products\Cattle\Weekly%20Cattle (last accessed Aug.
2022).
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[[Page 16179]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.014
The Need for the Rule: Structural Issues in the Cattle, Hog, and
Poultry Industries
---------------------------------------------------------------------------
\261\ U.S. Department of Agriculture, Agricultural Marketing
Service, available at: https://mpr.datamart.ams.usda.gov/
menu.do?path=\Products (Last accessed Aug. 2022).
\262\ Includes Packer Owned and Packer Sold, and Other Purchase
Arrangements.
\263\ Includes Swine Pork Market Formula, and Other Market
Formula.
---------------------------------------------------------------------------
The livestock and poultry industries are characterized by a high
volume of growing, production, and marketing contracts. When coupled
with high levels of market concentration, this market environment can
make it easier for regulated entities to engage in undue prejudice and
unjust discrimination, retaliation, and deception and make the harms to
producers greater from those abuses.
Despite various policy and public concerns, contracting, growing,
production, and marketing contracts can offer certain benefits to the
contracting parties. Properly tailored, benefits can include helping
farmers, livestock producers, and processors manage price and
production risks, elicit the production of products with specific
quality attributes by tying prices to those attributes, and facilitate
the smooth flow of commodities to processing plants. Such attributes
may encourage certain efficiencies in use of farm and processing
capacities. Quality-related attributes and standards can incentivize
farmers to deliver products that consumers desire and produce products
in ways that reduce processing costs.\264\
---------------------------------------------------------------------------
\264\ RTI International, 2007, GIPSA Livestock and Meat
Marketing Study, Prepared for USDA, GIPSA; Stephen R. Koontz,
``Another Look at Alternative Marketing Arrangement Use by the
Cattle and Beef Industry,'' in Bart Fischer et al, ``The U.S. Beef
Supply Chain: Issues and Challenges Proceedings of a Workshop on
Cattle Markets,''.
---------------------------------------------------------------------------
There are, however, trade-offs with the use of these contracts. In
concentrated industries, like the cattle, hog, and poultry industries,
where market power is present, these types of contracts may result in
increased opportunities for undue prejudices and unjust discrimination,
retaliation, and deception, among other concerns, which cause
inefficiencies in the markets for livestock, poultry, and meat.\265\
Heightened market concentration implies that livestock producers and
poultry growers face fewer marketing and contract options compared to
less concentrated markets. Livestock producers and poultry growers may
find themselves in a take-it-or-leave it situation when a new or
renewal contract is presented due to a limited number of packers and
live poultry dealers with which to contract. Thus, livestock producers
and poultry dealers entering into new, or renewal contracts may be
taken advantage of through discriminatory, deceptive, or retaliatory
practices.
---------------------------------------------------------------------------
\265\ Nathan H. Miller, et al., ``Buyer Power in the Beef
Packing Industry: An Update on Research in Progress,'' April 13,
2022, available at https://www.nathanhmiller.org/cattlemarkets.pdf.
---------------------------------------------------------------------------
Livestock and poultry contracts may lead to unjust, prejudicial,
and retaliatory practices. For example, a contract that limits a
poultry grower's services to a single integrator, even if the contract
provides for fair compensation to the grower, still leaves the grower
subject to risks. The grower faces the risk that the contractor may
require additional capital investments or the contractor may impose
lower returns at the time of contract renewal--leveraging its market
power given the grower's limited options.\266\ Some poultry make
substantial long-term capital investments as part of livestock or
poultry production contracts, including land, poultry or hog houses,
and equipment. Those investments may bind the grower to a single
contractor or integrator, furthering the indebtedness and exacerbating
an imbalance of power.
---------------------------------------------------------------------------
\266\ See Vukina and Leegomonchai, ``Oligopsony Power, Asset
Specificity, and Hold-Up: Evidence from The Broiler Industry,''
American Journal of Agricultural Economics, 88(3): 589-605 (August
2006).
---------------------------------------------------------------------------
In the poultry industry, limited integrator choice may accentuate
contract risks. The data in Table 2 above show that 52 percent of
broiler growers, who account for 56 percent of total production, report
having only one or two integrators in their local areas. Even where
multiple integrators are present, there are high costs to switching,
owing to the differences in technical specifications that integrators
require. The growers likely need to invest in new equipment and learn
to apply different operational techniques due to different breeds,
target weights, and grow-out cycles.
A 2006 survey indicated that growers with access to a single
integrator received seven to eight percent less
[[Page 16180]]
compensation, on average, than farmers located in areas with four or
more integrators.\267\ If live poultry dealers already possess some
market power to reduce prices for poultry growing services, some
contracts can extend that power by raising the costs of entry for new
competitors or allowing for price discrimination.\268\
---------------------------------------------------------------------------
\267\ MacDonald, J. and N. Key. ``Market Power in Poultry
Production Contracting? Evidence from a Farm Survey.'' Journal of
Agricultural and Applied Economics. 44(4) (November 2012): 477-490.
\268\ See, e.g., Williamson, Oliver E. ``Markets and
Hierarchies: Analysis and Antitrust Implications,'' New York: The
Free Press (1975); Edlin, Aaron S. & Stefan Reichelstein (1996)
``Holdups, Standard Breach Remedies, and Optimal Investment,'' The
American Economic Review 86(3): 478-501 (June 1996).
---------------------------------------------------------------------------
In 2013, production contracts covered $58 billion in agricultural
production, 83 percent of which was poultry and hog contracts.\269\
Most hogs are produced and marketed under production and marketing
contracts. Open market negotiated trade represented nine percent of
total trades for hogs in 2008 and dropped to two percent in 2020.\270\
In effect, the only production or marketing choice for a hog producer
is to enter a contract.
---------------------------------------------------------------------------
\269\ MacDonald, J.M. ``Trends in Agricultural Contracts.''
Choices. 2015. Quarter 3. Available at https://www.choicesmagazine.org/choices-magazine/theme-articles/current-issues-in-agricultural-contracts/trends-in-agricultural-contracts,
accessed 9-19-22.
\270\ USDA, AMS, FTPP, Packers and Stockyards Division. Packer
Annual Reports, 2021 and 2012. Available at https://www.ams.usda.gov/reports/psd-annual-reports, accessed 9-19-22.
---------------------------------------------------------------------------
In the cattle sector, cow-calf operations incur a significant
investment in breeding stock and typically sell steers and heifers once
a year. Access to competitive markets, absent from unjust
discrimination, undue prejudice, and retaliation, is important to the
economic livelihood of the market. Reduced marketing options--fewer
options to sell on the spot market, or lack of access to contracts--can
leave producers susceptible to unfair trade practices. Spot market
trades, or negotiated trades, as opposed to marketing agreements or
contracts, for fed cattle accounted for 51 percent of all trades in
2008 and fell to 29 percent in 2022.\271\
---------------------------------------------------------------------------
\271\ USDA, AMS, FTPP, Packers and Stockyards Division. Packer
Annual Reports, 2021 and 2022 pending, and 2012. Available at
https://www.ams.usda.gov/reports/psd-annual-reports, accessed 9-19-
22.
---------------------------------------------------------------------------
One indication of potential market power is industry
concentration.\272\ Market concentration facilitates the exclusionary
and adverse treatment observed in discriminatory practices. The data in
Table 1 are estimates of national four-firm concentration ratios at the
national level, but the relevant economic markets for livestock and
poultry may be regional or local, and concentration in the relevant
market may be higher than the national level. For example, while
poultry markets may appear to be the least concentrated in terms of the
four-firm concentration ratios presented above, relevant economic
markets for poultry growing services are more localized than markets
for fed cattle or hogs, and local concentration in poultry markets is
often greater than in hog and other livestock markets. The data
presented earlier in Table 2 highlights this issue by showing the
limited ability a poultry grower has to switch to a different
integrator. As a result, national concentration may not demonstrate
accurately the options poultry growers in a particular region face.
---------------------------------------------------------------------------
\272\ For additional discussion see MacDonald, J.M. 2016
``Concentration, contracting, and competition policy in U.S.
agribusiness,'' Competition Law Review, No. 1-2016: 3-8.
---------------------------------------------------------------------------
The levels of industry concentration shown in Tables 1 and 2 may
contribute to oligopolistic market power and asymmetric information.
The result is that the contracts bargained between the parties may
leave livestock producers, swine production contract growers, and
poultry growers vulnerable to anticompetitive conduct such as undue
prejudice and unjust discrimination, retaliation, and deception.
The Need for the Rule: Asymmetric Information
There is asymmetry in the information available to livestock
producers and livestock and poultry growers as compared to the packers,
swine contractors, and live poultry dealers with whom they contract.
The larger packers, swine contractors, and live poultry dealers
generally have more information (costs of production, input quality,
and consumer demand, for example) that is useful in contracting than
the smaller livestock producers and livestock and poultry growers. This
asymmetry of information can lead to deceptive practices by regulated
entities with superior information in contract formation, performance,
termination, or refusal by employing a false or misleading statement,
or omission of material information necessary to make a statement not
false or misleading. A 2023 AMS rule, Transparency in Poultry Grower
Contracting and Tournaments, directly aims to address this asymmetric
information in the poultry industry by adding disclosures and
information that live poultry dealers engaged in the production of
broilers must furnish to poultry growers with whom dealers make poultry
growing arrangements.\273\ There remains a wide range of circumstances
where information asymmetry is present in the livestock and poultry
markets, which would be addressed in whole or in part by this final
rule. Additionally, the information this rule provides can help
producers know if they are treated unfairly.
---------------------------------------------------------------------------
\273\ Transparency in Poultry Grower Contracting and
Tournaments. A Rule by the Agricultural Marketing Service on 11/28/
2023. https://www.federalregister.gov/documents/2023/11/28/2023-24922/transparency-in-poultry-grower-contracting-and-tournaments.
---------------------------------------------------------------------------
Some marketing contracts for fed cattle, for example, use various
plant averages in the calculation for the base price of the cattle in
the marketing contract. Only the packer has the information about the
plant averages and producers cannot independently verify the
information. Similar issues exist in hog marketing contracts. For
contracts based on the pork cutout, the hog packer has more information
about the direct retail pork demand and hence pork cutout prices than
hog sellers.
Live poultry dealers hold information on how individual poultry
growers perform under a variety of contracts. The average number of
contracts for the live poultry dealers filing annual reports with AMS
in 2020 was 251. The largest live poultry dealers contracted with
several thousand growers.\274\
---------------------------------------------------------------------------
\274\ All live poultry dealers are required to annually file
Packers and Stockyards Division (PSD) form 3002 ``Annual Report of
Live Poultry Dealers,'' OMB control number 0581-0308. The annual
report form is available to public on the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------
Most growers producing poultry under production contracts are paid
under a poultry grower ranking or ``tournament'' pay system. Under
tournament systems, the contract between the poultry grower and the
company for whom the grower raises poultry for slaughter pays the
grower based on a grouping, ranking, or comparison of poultry growers
delivering poultry to the same company during a specified period.
Generally, live poultry dealers provide most of the inputs to all the
growers in each poultry tournament used to determine grower pay. In
these tournaments, the live poultry dealers have information about the
quality of the inputs, while each grower only knows what he or she can
observe. A grower may not be able to evaluate the inputs it received
such as chicks and feed, and he or she almost certainly will not know
about the inputs received by other growers. A live poultry dealer also
has historical information concerning growers' production and income
under many
[[Page 16181]]
different circumstances for all the growers with which the dealer
contracts, while an individual grower, like most other producers, only
has information concerning his or her own production and income.
Prohibiting deception may serve to reduce the negative impacts from
asymmetric information. Prohibiting retaliation against producers or
growers because they joined a cooperative or grower association
organization, shared information to improve their production or growing
practices with a regulated entity, another covered producer, or with a
commercial entity, communicated with the government, or asserted any of
the rights granted under the Act should lead to reducing the
information asymmetry between regulated entities and producers.
The Need for the Rule: Hold-Up Problem
Hold-up is another problem that is particularly acute in service
contracts between poultry growers and live poultry dealers. The
economic concept of a hold-up problem refers to a situation in which
two parties may be unable to cooperate efficiently due to incomplete or
asymmetric information and the inability to write, enforce, or commit
to contracts. Once a party becomes locked into a transaction,
especially as a result of making a transaction-specific investment,
they become vulnerable to exploitation by the other party. This may
involve one party to a contract opportunistically deviating from
expectations of the other party or failing to live up to previously
agreed upon terms.
In the poultry industry, hold-up occurs when a poultry grower makes
an investment, such as in poultry housing, and becomes dependent upon
the growing arrangement to repay the investment. Hold-up is less common
for hog and cattle producers, so the discussion here is limited to
poultry growing to highlight this risk to poultry growers. Substantial
gaps exist between the periods of time covered by the contract and the
mortgage on poultry housing, creating uncertainty around whether
growers will be able to repay their debt and recoup their investments,
introducing the potential for hold-up into the contracting process. If
the integrator takes advantage of the grower's dependence, for example,
by delaying delivery of chicks that the grower depends upon to make
payments on investments, it would be holding up the grower. The aim of
the economic hold-up may be to coerce the grower into accepting
conditions that benefit the integrator at the expense of the grower.
For example, refusing to supply chicks until a contract amendment with
unfavorable conditions is signed.
This is of concern in poultry production contracts because the
capital investment requirements related to growing chickens are
significant and highly specialized (that is, they have little value
outside of growing chickens). As a result, growers entering the market
are tied to growing chickens to pay off the financing of the capital
investment. Growers have reported that they must accept unfavorable
contract terms or endure unfavorable treatment during a contract--
including inappropriate limits on their ability to form associations,
assert their rights under the law or contract (such as viewing the
weighing of broilers), communicate with government entities, and seek
alternative business relationships--because they are tied to production
to pay off lenders and they have few, if any, alternative integrators
with whom they can contract. Hog producers, which invest heavily in
production facilities, may face similar risks.
Long term, this behavior may result in underinvestment in
production, which is inefficient. Alternatively, if growers make a
significant investment because they do not anticipate hold-up, but then
it does occur, then growers may be required to spend too much on
investments. The resulting over-investment in capital by those growers
facing hold-up is also inefficient. The hold-up problem is a
manifestation of both market power and asymmetric information.
Summary Need for the Rule: Contracting, Industry Structure, and Market
Failure
As described previously, the organization and structure of poultry
and livestock markets is characterized by regional market power;
substantial investment in production capital that is specific to a
single production purpose; and, in the poultry industry, nearly
universal use of production contracts, and widespread use of marketing
contracts in the cattle industry, while less so, for hogs. These
conditions create the potential for market failures. Asymmetric
information and imperfect competition are concerns in livestock and
poultry markets. economically incomplete contracts and hold-up are of
particular concern in poultry markets and can exacerbate the risk of
undue prejudice and unjust discrimination, retaliation, and deception
in poultry and livestock markets.
By setting forth specific prohibitions on unduly prejudicial and
unjustly discriminatory and deceptive practices, the rule will
reinforce producers' existing rights to gather and share information,
while reducing the fear of retaliation and interference in the
contracting process. The prohibitions in the rule will also continue to
support, and possibly promote more efficient and equitable information
access, reduce the hold-up problem, reduce retaliation, discourage
false and misleading statements, and increase communication,
cooperation, and retention of legal rights. The prohibitions specified
in Sec. Sec. 201.304 and 201.306 will ultimately assist in mitigating
the impacts of imperfect competition.
Cost-Benefit Analysis of Sec. Sec. 201.304 and 201.306
Regulatory Alternatives Considered
Executive Order 12866 requires an assessment of costs and benefits
of potentially effective and reasonably feasible alternatives to the
planned regulations and an explanation of why the planned regulatory
action is preferable to the potential alternatives.\275\ AMS considered
three regulatory alternatives. The first alternative that AMS
considered is to maintain the status quo and not propose Sec. Sec.
201.304 and 201.306. The second alternative that AMS considered is to
issue Sec. Sec. 201.304 and 201.306 as presented in this rule.\276\
This second alternative is AMS's preferred alternative as will be
explained below. The third alternative that AMS considered is proposing
Sec. Sec. 201.304 and 201.306, but exempting small businesses, as
defined by the Small Business Administration (SBA), from having to
comply with the recordkeeping requirement of Sec. 201.304(c).
---------------------------------------------------------------------------
\275\ See sec. 6(a)(3)(C), E.O. 12866.
\276\ This final rule includes Sec. 201.302, which defines a
covered producer, livestock producer, and regulated entity. These
definitions will apply to final Sec. Sec. 201.304 and 201.306. The
definitions final in Sec. 201.302 are captured in the regulatory
impacts of final Sec. Sec. 201.304 and 201.306. The final rule also
includes Sec. 201.390 which states all provisions are severable in
case any provision is declared invalid.
---------------------------------------------------------------------------
Regulatory Alternative 1: Status Quo Alternative
If Sec. Sec. 201.304 and 201.306 are never promulgated, there are
no marginal costs and marginal benefits as industry participants will
not alter their conduct. From a cost standpoint, this Status Quo
Alternative is the least-cost alternative compared to the other two
alternatives. This alternative also has no marginal benefits. Since
there are no changes from the status quo under this
[[Page 16182]]
regulatory alternative, it will serve as the baseline against which to
measure the other two alternatives.
Final Rule
As discussed above, final Sec. 201.304 prohibits undue prejudice,
unjust discrimination, and retaliation by regulated entities and adds a
requirement for regulated entities to maintain records that they
already keep, for up to a period of five years, related to its
compliance with final Sec. 201.304. Section 201.306 will prohibit
deceptive practices by regulated entities in contract formation,
performance, or termination by employing a false or misleading
statement, or omission of material information necessary to make a
statement not false or misleading. Additionally, a regulated entity may
not refuse a contract by providing false or misleading information to a
covered producer or associations of covered producers.
Final Rule: Benefits
Reductions in prejudicial, discriminatory, retaliatory, and
deceptive practices by packers, swine contractors, and live poultry
dealers will benefit society. These types of conduct are inefficient,
and often difficult to quantify for prejudicial, discriminatory,
retaliatory, and deceptive practices are not necessarily written into
contracts but in contract offers, preparation and enforcement.
Production contracts need not change to realize benefits in this rule.
The amount of benefits that depends on the extent to which the rule
reduces prejudicial, discriminatory, retaliatory, and deceptive
practices. That, in turn, is bounded by the degree to which any of
these types of activities are occurring in the baseline. If the
reductions are small, the benefits will be small. The greater the
reductions, the greater the potential benefits. USDA's long-standing
policy has been that the Act prohibits the type of conduct that final
Sec. Sec. 201.304 and 201.306 addresses.
Final Sec. Sec. 201.304 and 201.306 add specificity to what
constitutes undue prejudices, unjustly discriminatory practices,
retaliation, and deception. The size of the benefits is difficult to
quantify as it depends on the amount of undue prejudice, unjust
discrimination and deception that will be avoided due to added
specificity provided by the rule. The added benefits to the industry
from final Sec. Sec. 201.304 and 201.306 over the Status Quo occur
when packers, swine contractors, and live poultry dealers alter their
conduct to reduce instances of deceptive, prejudicial, and
discriminatory practices, including retaliation. The potential benefits
include protecting producer and grower rights, improved corporate
culture, improved information, fewer deceptive practices, among others.
The more undue prejudice, unjust discrimination, retaliation, and
deception that will be avoided, the larger the benefits. AMS is unable
to quantify the benefits and will present a qualitative discussion of
the types of potential benefits that accrue from reductions in undue
prejudice, unjust discrimination, retaliation, and deception.
Benefits: Protecting Producer and Grower Rights
A key purpose of specifying certain prohibitions on unduly
prejudicial, discriminatory, and deceptive practices, including those
in final Sec. Sec. 201.304 and 201.306, is to protect livestock
producers, swine contractors and poultry growers' rights under the Act.
Final Sec. Sec. 201.304 and 201.306 will also help protect producers
from unfair and deceptive practices stemming from market power
imbalances such as undue prejudice, unjust discrimination, retaliation,
and deception by using false or misleading statements in contracting by
packers and live poultry dealers. The benefits of prohibiting
prejudicial, discriminatory, and deceptive practices, will accrue not
only to the market's covered producers and cooperative producers who
have been subjected to the prohibited practices, but also to those for
whom the rule's deterrence effects will protect from future potential
abuses.
Benefits: Addressing Imperfect Information
Several provisions in the final rule will enhance the protection of
the rights of producers to lawfully communicate and to associate with
others to explore business relationships and improve production
practices and in the marketing of livestock, poultry, and meat. These
provisions will benefit producers by encouraging the use of their
currently existing legal rights that will solidify and enhance their
access to information. This in turn will help address information
asymmetry and thus help producers make better business decisions,
enhance their competitiveness, reduce the hold-up problem, and promote
innovation and economic efficiency in the industry.
The final rule will help close this information gap by protecting
the rights of producers to form associations and communicate freely
with one another, and to communicate with other regulated entities for
the purpose of exploring a business relationship. This will benefit
producers by improving their ability to strengthen the returns to their
livestock and poultry investments, by enhancing the bargaining power of
supplier groups if they elect to organize in such a way.
This rule will prohibit retaliation against covered producers due
to their communicating, negotiating, or contracting with other covered
producers, a commercial entity, consultant, or regulated entities,
which could increase the important decision-making information
available to producers. Improved safeguarding of protected activities
may enable the producer to improve business decision-making and manage
risk, including potentially acquiring external insurance and risk-
management products. In addition, facilitating producers' ability to
gain more and better information will help correct information
asymmetry and improve transparency and completeness in contracts.
More information will also reduce the risks associated with hold-up
as discussed above. By protecting rights to freely communicate and
associate, this rule will facilitate communication across the industry
that may help disseminate information regarding new innovations and
best practices within the industry. These types of provisions that
could provide producers with access to more and better information
should promote innovation and economic efficiency in the industry.
The final rule may also serve to reduce the risk of violating sec.
202(a) of the Act because it will provide clarification to the
livestock, and poultry industries as to the discriminatory and
deceptive practices that will be prohibited under that section of the
Act. Less risk through the clarification provided in the final rule
will likely foster fairness in contracting by providing explicit
protections for livestock producers, swine production contract growers,
and poultry growers.
Benefits: Prohibiting Deceptive Practices
Final Sec. 201.306 specifies prohibited practices that will be
considered deceptive, and thus in violation of sec. 202(a) of the Act.
Though USDA already protects producers from deceptive practices, the
rule will explicitly protect suppliers from deception by packers and
live poultry dealers by employing a false and misleading statement, or
omission of material information necessary to make a statement not
false or misleading in contracting. Prohibited deceptions, including
false statements or omissions, can prevent or mislead producers,
sellers, or buyers from making informed decisions and thus
[[Page 16183]]
represents a market inefficiency. The provisions in final Sec. Sec.
201.304 and 201.306 will help give producers confidence that the
information provided by processors is reliable, which will help them to
make better and more informed business decisions and manage risk.
Other Benefits
While some of these protections already benefit individual
producers, ensuring they cover the full marketplace and can be enforced
individually adds to the integrity and fairness of livestock and
poultry contracting. Specifying these protections may bring additional
benefits above the Status Quo Alternative.
Production and marketing contracting has many benefits in the
livestock and poultry industries. The final rule can further enhance
the documented benefits of contracting by prohibiting unduly
prejudicial, discriminatory, and deceptive practices. Livestock
producers often have few choices of packers to which they sell, and
poultry growers often have few choices in the live poultry dealers for
which they raise poultry. The limited alternatives cause fear among
producers that certain actions they might undertake, such as
communication with government or other regulated entities to pursue
business relationships, association with certain groups, or making
lawful public complaints about the packers, swine contractors, or live
poultry dealers might result in harmful retaliations. AMS intends the
final rule to promote integrity to the marketplace by enhancing the
protection of the rights of the producers and alleviating those fears.
The literature and data on these topics are not sufficient to allow
AMS to estimate the magnitude of the inefficiencies that the final rule
may correct above the Status Quo Alternative, nor the degree to which
the additional producer and grower protections will address
inefficiencies. Though AMS is unable to quantify the benefits of the
regulation, this analysis has explained the types of benefits that will
be derived from reductions in undue prejudice, unjust discrimination,
retaliation, and deception. If the reductions are small, the benefits
will be small. The greater the reductions, the greater the potential
benefits.
Final Rule: Costs
The final rule will not impose any restrictions on numbers or types
of production or marketing contracts that can be utilized, use of AMAs,
poultry tournaments, or base price mechanisms in contracts for packers,
swine contractors, and live poultry dealers. Instead, the final rule
clarifies the prohibited unduly prejudicial, unjustly discriminatory,
and deceptive practices that AMS considers violations of sections
202(a) and (b) of the Act. The final rule will require packers, live
poultry dealers, and swine contractors to discontinue any prejudicial,
unjustly discriminatory, or deceptive practices, if any are occurring.
The practices prohibited by Sec. Sec. 201.304 and 201.306 are the kind
of practices that do not benefit society as a whole, but there is
uncertainty about the extent of net costs to regulated entities of
preventing them since they are based on behaviors and are not expressly
written into contracts. In other words, Sec. Sec. 201.304 and 201.306
result in uncertain-in-magnitude indirect costs resulting from
adjustments by the livestock and poultry industries to reduce their use
of AMAs, poultry tournaments, and pricing mechanisms, with the
possibility of a number of changes to existing marketing or production
contracts.
Though the magnitude of indirect costs is uncertain, AMS has
constructed a scenario that indicates the magnitude is likely below an
established dollar value benchmark. The following scenario illustrates
why it is extremely unlikely that the rule's indirect costs will exceed
the Unfunded Mandates Reform Act's (UMRA) cost compliance threshold of
$170 million annually, a benchmark used to assess this rule's effects
on the private sector.\277\ If some cattle contracts are altered to
come into compliance with the rule, and cattle prices to some producers
are increased, AMS expects that the packers will offer, at most, the
average price paid for cattle. Looking just at cattle, the weighted
average difference between the minimum and average liveweight prices
paid for cattle over the last nine years in four cattle regions
reported by AMS Market News is $1.31 per cwt ($.01/lb.).\278\ If AMS
assumes that the entire difference between the minimum and average
prices paid was due to unlawful discrimination, deception, and
retaliation, this will require 13 billion pounds of liveweight cattle
to meet the $170 million threshold.\279\ This assumption does not
account for any price differences for cattle related to quality of the
animal. Taking the 2022 average liveweight per head for all cattle of
1,369 lbs. per head,\280\ this means that 9.5 million head of cattle in
one year would have to face conduct this rule aims to prohibit to equal
$170 million in costs in that year.\281\ This number accounts for 28
percent of all cattle slaughtered in 2022.\282\ Based on AMS's
knowledge of the livestock industry, it is not expected that the number
of cattle affected by unlawful discrimination, retaliation, or
deception reaches this level. This fact, combined with the unrealistic
assumption that any price deduction below the average price does not
account for quality differences and is wholly the result of
discrimination, retaliation, and deception, points to a conclusion that
this rule will have limited impacts, and not exceed the UMRA threshold.
---------------------------------------------------------------------------
\277\ Title II of the Unfunded Mandates Reform Act of 1995
(UMRA, Pub. L. 104-4) requires Federal agencies to assess the
effects of their regulatory actions on State, local, and Tribal
Governments and on the private sector. Agencies generally must
prepare a written statement, including cost benefits analysis, for
proposed and final rules with ``Federal mandates'' that may result
in expenditures of $100 million or more (adjusted for inflation) in
any 1 year for State, local or Tribal governments, in the aggregate,
or to the private sector. Congressional Research Service. Updated
February 23, 2021. Unfunded Mandates Reform Act: History, Impact,
and Issues. Accessed at https://crsreports.congress.gov/product/pdf/R/R40957/109 on 02/08/2024.
\278\ Data for negotiated steers and heifers, across all Choice
cattle, four cattle regions, 2015-2023. Sources: U.S. Department of
Agriculture, Agricultural Marketing Service. Texas-Oklahoma-New
Mexico Weekly Direct Slaughter Cattle--Negotiated Purchases
(LM_CT156), Kansas Weekly Direct Slaughter Cattle--Negotiated
Purchases (LM_CT157), Nebraska Weekly Direct Slaughter cattle--
Negotiated Purchases (LM_CT158), and Iowa/Minnesota Weekly Weighted
Average Cattle Report--Negotiated (LM_CT167).
\279\ 13 billion lbs. = UMRA $170 million threshold divided by
$0.01 per lb. (difference between the minimum and average liveweight
prices paid for cattle over the last nine years in eight cattle
markets is $1.31 per cwt ($.01/lb.)).
\280\ U.S. Department of Agriculture, National Agricultural
Statistical Service. April 2023. Livestock Slaughter 2022 Summary.
Accessed at https://downloads.usda.library.cornell.edu/usda-esmis/files/r207tp32d/8p58qs65g/g445dv089/lsan0423.pdf on 02/08/2024.
\281\ 9.5 million head of cattle = 13 million lbs. of cattle
divided by 1,369 lbs. per head.
\282\ 28 percent = (9,479,254 head divided by 34,300,00 head
annual slaughter) multiplied by 100.
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Litigation Costs
AMS expects Sec. Sec. 201.304 and 201.306 to reduce litigation
costs due to increased compliance with the rule associated with the
clarity provided by the rule as to the conduct that violates the Act,
but also to increase litigation as this rule allows producers to find
relief in courts. AMS is uncertain as to which of these offsetting
effects will dominate and to what extent. The final rule clarifies the
prohibited unduly prejudicial, discriminatory, and deceptive practices
that will violate section 202(a) of the Act. The clarification could
result in a reduction in litigation costs if companies come
[[Page 16184]]
into compliance without any enforcement action. These regulations
encourage regulated entities to proactively avoid prejudicial,
discriminatory, and deceptive practices that could otherwise lead to
costly litigation. Further, some firms may develop policies and
procedures to comply with the recordkeeping requirements. This effect
could reduce litigation and thus result in reduced litigation costs for
regulated entities.
However, there are several provisions in Sec. 201.304 that could
result in additional litigation. AMS has received formal and informal
complaints against packers, swine contractors, and live poultry dealers
for retaliation for belonging to various producer and grower
associations, contacting AMS to file a complaint, asserting legal
rights, and contacting a competing regulated entity to pursue a
contractual relationship. Similarly, there are several provisions in
Sec. 201.306 that could result in additional litigation, including
refusals by regulated entities to enter into or renegotiate contracts
and contract terminations by producers. The clarity of the practices
that AMS considers to be discriminatory and deceptive in Sec. Sec.
201.304 and 201.306 could offer producers new hope for relief from
courts for undue prejudicial, discriminatory, and deceptive practices
by regulated entities. This effect could result in increased
litigation.
As stated above, AMS is uncertain as to which effect will dominate
and to what extent. AMS does not estimate litigation costs in this
analysis.
Direct Costs of the Final Rule
AMS expects Sec. Sec. 201.304 and 201.306 will result in direct
administrative and recordkeeping costs to the industry. AMS expects
that packers, swine contractors, and live poultry dealers will incur
direct administrative costs of learning the rule and then reviewing
and, if necessary, revising marketing and production contracts to
ensure compliance with Sec. Sec. 201.304 and 201.306. Regulated
entities will also incur recordkeeping costs from keeping the records
they already maintain for up to five years as required under Sec.
201.304. The expected total costs of Sec. Sec. 201.304 and 201.306
will be the direct administrative costs and recordkeeping costs of that
regulatory alternative. The direct administrative costs and
recordkeeping costs will be estimated below.
Direct Administrative Costs of the Final Rule
AMS expects that Sec. Sec. 201.304 and 201.306 will prompt
packers, live poultry dealers, and swine contractors to first review
and learn the rule and then review their procurement policies and
production contracts and make any necessary changes to ensure
compliance with the new regulations. Expected costs are estimated as
the total value of the time required to review and learn the rule and
then review and, if necessary, revise procurement and production
contracts.
AMS expects the direct administrative costs of complying with
Sec. Sec. 201.304 and 201.306 will be relatively small.
The certain types of benefits outlined above will be in proportion
to the extent to which the rule reduces prejudicial, discriminatory,
retaliatory, and deceptive practices. The USDA policy has long held
that several of the provisions in Sec. Sec. 201.304 and 201.306 or
similar provisions were violations of the Act, although the position
has not been established in regulations. Consequently, AMS expects
packers, live poultry dealers, and swine contractors to make changes to
relatively few contracts.
The direct costs of the rule are low because the discriminatory,
retaliatory, and deceptive behavior which the rule seeks to mitigate
are not overtly written into the terms of the contracts between
regulated entities and producers. They are behaviors or conduct in
which some regulated entities engage, for example by not offering
contracts to some producers due to discrimination and retaliation or by
offering less favorable contract terms due to discrimination,
retaliation, and deception. If the rule results in less discriminatory,
retaliatory, or deceptive behavior by regulated entities, the costs of
offering a contract to a producer or grower that was previously denied
a contract or amending the terms of a less favorable contract to an
impacted producer or grower will be of uncertain. Given that the
behavior that the rule seeks to mitigate is not overtly written into
contracts and is behavior during the contract offering process, the
potential costs of mitigating the behavior are uncertain. The more that
discriminatory, retaliatory, and deceptive behavior is mitigated
because of the rule, the greater the benefits. AMS does not expect any
changes in types of production and marketing contracts offered. AMS
expects the same types of contracts to be offered, but with more
equitable performance under the contracts by regulated entities across
producers, fewer producers denied or terminated from contracts, and
better clarity regarding contractual expectations. AMS also expects
more contracts to be offered to producers who may not previously have
been offered a contract due to discrimination, for example. Given its
professional expertise based on regulating the industry and
investigating complaints of the prohibited behaviors, AMS does not
believe that the discriminatory, retaliatory, and deceptive behavior
addressed by this rule is written into contract terms frequently enough
to warrant changes to very many contracts.
Although the amount of indirect costs is uncertain, AMS expects any
indirect costs will likely range from marginal to modest. As shown
above, AMS acknowledges that some regulated entities may offer higher
prices to some livestock producers and growers when they come into
compliance with this rule. This could shift livestock and poultry
prices offered to some producers and growers toward the true value of
their livestock or poultry that would prevail in a more competitive
market and away from the artificially low prices offered through the
abuse of market power by engaging in deception, discrimination, or
retaliation. This would reduce the cost to society due to the market
inefficiency (dead weight loss) created by discriminatory, retaliatory,
and deceptive practices by some regulated entities. This shift in
prices offered to some producers and growers toward their true value
would result, in some instances, in a transfer of excess profits
(profits that exceed those that would be earned in a more competitive
market) from regulated entities to some growers and producers. This
transfer from regulated entities to some producers and growers could
occur. AMS cannot quantify the extent to which the behavior this rule
aims to prohibit occurs in the industry or the extent of any harm that
would be avoided by regulated entities' cessation of the behavior under
the clearer limitations set by this rule. AMS notes that regulated
entities, in their comments to the proposed rule, asserted that the
occurrence of the practices addressed in the rule are not widespread.
Assuming this is true, the indirect costs will be marginal. AMS,
however, has noted the behaviors have been sufficiently widespread to
warrant the intervention provided by this final rule.
Estimates of the amount of time required to review and learn the
rule and to review and revise contracts and keep records 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. In May
2022, BLS released
[[Page 16185]]
Occupational Employment and Wage Statistics that AMS used for the time
values in this analysis.\283\ BLS estimated an average hourly wage for
general and operations managers in animal slaughtering and processing
to be $61.24. The average hourly wage for lawyers in food manufacturing
was $103.81. In applying the cost estimates, AMS marked up the wages by
41.79 percent to account for fringe benefits.\284\
---------------------------------------------------------------------------
\283\ Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage Statistics, available
https://www.bls.gov/oes/special-requests/oesm22all.zip (accessed 7/
14/2023).
\284\ Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage Statistics, available
https://www.bls.gov/oes/special-requests/oesm22all.zip (accessed 7/
14/2023).
---------------------------------------------------------------------------
AMS expects that each packer, swine contractor, and live poultry
dealer will spend one hour of legal time and one hour of management
time to review and learn the rule and then, if necessary, revise
production and marketing contracts to ensure compliance with the rule.
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.
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. One
hundred ninety-six were pork packers, and 139 were lamb, sheep, or goat
packers.\285\ 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, 112 packers slaughtered both beef and pork, and 66
slaughtered beef, pork, and lamb.
---------------------------------------------------------------------------
\285\ 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 expects that packers processing more than one species of
livestock will not incur additional costs for each species. That is,
AMS expects that each packer will require one hour of attorney's time
and one hour of management time regardless of how many species of
livestock it processes. To allocate costs across (1) beef, (2) pork,
and (3) lamb processors, AMS allocated one-third of the costs to each
of (1) beef, (2) pork, and (3) lamb for packers that processed all
three species. For packers processing any two, AMS allocated one half
the costs to each.
AMS estimated that all live poultry dealers that are regulated
under the final rule will require one hour of an attorney's time
costing the industry $13,000 \286\ and one hour of management time
costing the industry $8,000 \287\ for learning the rule, reviewing, and
adjusting contracts. The total costs for learning, reviewing, and
adjusting contracts will be $21,000 \288\ for live poultry dealers.
---------------------------------------------------------------------------
\286\ 90 live poultry dealers x $147.19 per hour x 1 hour =
$13,247.
\287\ 90 live poultry dealers x $86.83 per hour x 1 hour =
$7,815.
\288\ $13,247 + $7,815 = $21,062.
---------------------------------------------------------------------------
AMS expects that packers will require an estimated one hour of an
attorney's time and one hour of management time costing the industry
$85,000. AMS estimates the total costs will be $40,000 for beef packers
and $16,000 for lamb packers to learn and review the rule and adjust
contracts.\289\ Pork packers' share of the packers' costs will be
$29,000. AMS also expects that rule will cost all 575 swine contractors
an hour of an attorney's time and one hour of management time costing a
total of $135,000 across all swine contractors.\290\ Combining costs to
pork packers with costs to swine contractors arrives at a total cost of
$164,000 for hog and pork markets.
---------------------------------------------------------------------------
\289\ 365 x ($147.19 per hour x 1 hour + $86.83 per hour x 1
hour) = $85,417.
\290\ 575 x ($147.19 per hour x 1 hour + $86.83 per hour x 1
hour) = $134,562.
---------------------------------------------------------------------------
Direct Recordkeeping Costs for the Final Rule
Costs to comply with the recordkeeping requirements are likely
relatively low. Section 201.304(c) requires specific records that, if
the regulated entity maintains, should be kept for a period of five
years, including policies and procedures, staff training materials,
materials informing covered producers regarding reporting mechanisms
and protections, compliance testing, board of directors' oversight
materials, and any records of the number and nature of unduly
prejudicial or unjustly discriminatory-based complaints received.
Costs of recordkeeping include regulated entities maintaining and
updating compliance records and are considered a direct cost. Some
smaller regulated entities that currently don't maintain records may
voluntarily decide to develop formal policies, procedures, training,
etc. to comply with the rule and will then have records to maintain.
AMS expects the recordkeeping costs will comprise the time required
by regulated entities to store and maintain records they already keep.
AMS expects that the costs will be relatively small because many
packers, live poultry dealers, and swine contractors may currently have
few records concerning policies and procedures, staff training
materials, materials informing covered producers regarding reporting
mechanisms and protections, compliance testing, and board of directors'
oversight materials related to prejudicial treatment. Some smaller
firms might not have any records to store. Others already store the
records and may have no new costs.
AMS estimated that recordkeeping time for larger entities will be
greater than for smaller entities, and thus estimated costs by
quartiles, from largest entities to smallest. AMS estimated that Sec.
201.304(c) will require packers, live poultry dealers, and swine
contractors in each quartile an average 4.00 hours, 2.00 hours, 1.33
hours, and 0.67 hours of administrative time for the first, second,
third, and fourth quartiles, respectively. Additionally, AMS estimated
that the hours required of managers, attorneys, and information
technology staff each will average 1.50 hours, 0.75 hours, 0.50 hours,
and 0.25 hours for the first, second, third, and fourth quartiles,
respectively.
AMS also expects that packers, live poultry dealers, and swine
contractors will incur continuing recordkeeping costs in each
successive year. AMS estimated that Sec. 201.304(c) will require an
average of 3.00 hours, 1.50 hours, 1.00 hour, and 0.50 hour of
administrative assistant time; 1.50 hours, 0.75 hour, 0.50 hour, and
0.25 hour of time each from managers and attorneys; and 1.00 hour, 0.50
hour, 0.33 hour, and 0.17 hour of time from information technology
staff for packers, live poultry dealers, and swine contractors in the
first, second, third, and fourth quartiles, respectively, to setup and
maintain the required records in each succeeding year.
Estimated first-year costs for recordkeeping requirements in Sec.
201.304(c) totaled $30,000 for live poultry dealers,\291\ $193,000 for
swine
[[Page 16186]]
contractors,\292\ and $122,000 for packers.\293\ Estimated yearly
continuing costs for recordkeeping requirements in Sec. 201.304(c)
totaled $26,000 for live poultry dealers,\294\ $166,000 for swine
contractors,\295\ and $106,000 for packers.\296\
---------------------------------------------------------------------------
\291\ 90 live poultry dealers x (($44.51 per hour admin. Cost x
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25
hours)) + ($93.68 information tech cost x (1.5 hours + .75 hours +
.5 hours + .25 hours)))/4 = $30,132.
\292\ 575 swine contractors x (($44.51 per hour admin. cost x (4
hours + 2 hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
($93.68 information tech cost x (1.5 hours + .75 hours + .5 hours +
.25 hours)))/4 = $192,507.
\293\ 365 packers x (($44.51 per hour admin. cost x (4 hours + 2
hours + 1.33 hours + .67 hours)) + ($86.83 per hour manger cost x
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($93.68
information tech cost x (1.5 hours + .75 hours + .5 hours + .25
hours)))/4 = $122,200.
\294\ 90 live poultry dealers x (($44.51 per hour admin. cost x
(3 hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
($147.19 legal cost x (1.5 hours + .75 hours + .5 hours + .25
hours)) + $93.68 information tech cost x (1 hours + .5 hours + .33
hours + .17 hours)))/4 = $26,021.
\295\ 575 swine contractors x (($44.51 per hour admin. Cost x (3
hours + 1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) +
$93.68 information tech cost x (1 hours + .5 hours + .33 hours + .17
hours)))/4 = $166,244.
\296\ 365 packers x (($44.51 per hour admin. cost x (3 hours +
1.5 hours + 1 hours + .5 hours)) + ($86.83 per hour manger cost x
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($147.19 legal
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + $93.68
information tech cost x (1 hours + .5 hours + .33 hours + .17
hours)))/4 = $105,529.
---------------------------------------------------------------------------
Breaking out costs by market, AMS expects recordkeeping
requirements in Sec. 201.304(c) to cost beef packers $58,000 in the
first year and $50,000 in each following year. Section 201.304(c) will
cost lamb packers $23,000 in the first year and $20,000 in successive
years. Section 201.304(c) will cost pork packers $42,000, and it will
cost swine contractors $193,000 for a total of $235,000 in the first
year. Section 201.304(c) will cost swine contractors $166,000 in
successive years, and it will cost pork packers $36,000 for a total
$202,000.
Total Direct Administrative & Recordkeeping Costs for the Final Rule
Table 8 below summarizes combined expected administrative and
recordkeeping costs for regulated entities in the first year and in
succeeding years. AMS expects that administrative and recordkeeping
costs associated with Sec. Sec. 201.304 and 201.306 will cost each
packer, swine contractor, and live poultry dealer an average $569 in
the first year and an average $289 in each succeeding year. First-year
costs will total $51,000 for live poultry dealers, $327,000 for swine
contractors, and $208,000 for packers. Costs in successive years will
be due to recordkeeping requirements and will total $26,000 for live
poultry dealers, $166,000 for swine contractors, and $105,000 for
packers annually.
[GRAPHIC] [TIFF OMITTED] TR06MR24.015
[[Page 16187]]
The total direct administrative and recordkeeping costs are
estimated to be $586,000 in the first year. Estimated first year total
direct administrative and recordkeeping costs for the cattle and beef
industry, hogs and pork, lamb, and poultry industries rounded to the
nearest thousand dollars are listed in the following table.
[GRAPHIC] [TIFF OMITTED] TR06MR24.016
Final Rule: Ten-Year Total Direct Administrative and Recordkeeping
Costs
Expected administrative and recordkeeping costs of Sec. Sec.
201.304 and 201.306 for each year from 2023 through 2032 appear in the
table below. Based on the analysis, AMS expects the ten-year total
direct administrative and recordkeeping costs of Sec. Sec. 201.304 and
201.306 to be $3.3 million.
[GRAPHIC] [TIFF OMITTED] TR06MR24.017
Final Rule: Present Value of Ten-Year Total Direct Administrative and
Recordkeeping Costs
Costs to be incurred in the future are lower than the same costs to
be incurred today. This is because the money that will be used to pay
the costs in the future can be invested today and earn a return on
investment until the period in which the cost is incurred. After the
cost has been incurred, the earned returns will still be available.
To account for the time value of money, the administrative costs to
be incurred in the future are discounted back to today's dollars using
a discount rate. The sum of all costs discounted back to the present is
called the present value (PV) of total costs. AMS relied on both a
three percent and seven percent discount rate as discussed in Circular
A-4.\297\
---------------------------------------------------------------------------
\297\ Circular A-4. September 17, 2003, available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/. Note: OMB
issued an updated Circular A-4 on November 9, 2023. AMS developed
its analysis for this final rule using the 2003 Circular A-4
guidance. The 2023 guidance is effective March 1, 2024, and applies
to draft final rules submitted to OMB's Office of Information and
Regulatory Affairs after December 31, 2024. The 2023 guidance is
available at https://www.whitehouse.gov/wp-content/uploads/2023/11/CircularA-4.pdf.
---------------------------------------------------------------------------
[[Page 16188]]
AMS calculated the PV of the ten-year total direct administrative
and recordkeeping costs of the regulations using a three percent and
seven percent discount rate. The PVs appear in Table 11.
[GRAPHIC] [TIFF OMITTED] TR06MR24.018
AMS expects the PV of the ten-year total administrative and
recordkeeping costs of Sec. Sec. 201.304 and 201.306 to be $2.8
million at a three percent discount rate and $2.4 million at a seven
percent discount rate.
Final Rule: Annualized PV of Ten-Year Total Direct Administrative and
Recordkeeping Costs
AMS then annualized the PV of the ten-year total administrative and
recordkeeping costs (referred to as annualized costs) of Sec. Sec.
201.304 and 201.306 using both a three percent and seven percent
discount rate as required by Circular A-4 and the results appear in
Table 12.\298\
---------------------------------------------------------------------------
\298\ Circular A-4. September 17, 2003, available at https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/.
[GRAPHIC] [TIFF OMITTED] TR06MR24.019
AMS expects the annualized ten-year administrative and
recordkeeping costs of final Sec. Sec. 201.304 and 201.306 to be
$331,000 at a three percent discount rate and $336,000 at a seven
percent discount rate.
Cost-Benefit Comparison of the Final Rule
The expected costs of this rule are very small relative to the size
of the industry; and expected benefits are expected to be proportional
to reductions in conduct this rule addresses. Combined sales of beef,
pork, and broiler chicken in the U.S. for 2022 were approximately
$294.5 billion.\299\ As discussed above, the total cost of Sec. Sec.
201.304 and 201.306 in the first year is estimated to be $586,000, or
0.0002 percent of revenues. A reduction in prejudicial, discriminatory,
retaliatory, and deceptive practices will lead to benefits that will be
directly related to the reductions in these practices. If the
reductions are small, the benefits will be small. The greater the
reductions, the greater the benefits. AMS expects that the costs and
benefits to society from the rule will be very small in relation to the
total value of industry production, leading to negligible indirect
effects on industry supply and demand, including price and quantity
effects.
---------------------------------------------------------------------------
\299\ Total meat and poultry processing industry revenues.
Source: https://www.ibisworld.com/industry-statistics/market-size/
meat-beef-poultry-processing-united-states/
#:~:text=The%20market%20size%2C%20measured%20by,industry%20increased%
200.2%25%20in%202022.
---------------------------------------------------------------------------
Regulatory Alternative 3: Small Business Exemption Alternative
The third regulatory alternative that AMS considered is issuing
Sec. Sec. 201.304 and 201.306, but exempting small businesses, as
defined by the SBA, from compliance with the recordkeeping requirement
of Sec. 201.304(c).\300\ All other provisions of Sec. Sec. 201.304
and 201.306 will still apply to small businesses. Most packers are
small businesses under the SBA definition. Of the 365 packers reporting
to AMS, 348 are small businesses. Two hundred fifty-three beef packers
and 183 pork packers are small businesses. All 139 lamb packers are
small businesses. Packers include multi-species packers. One hundred
eight swine contractors are small businesses. There are 55 small
poultry dealers.
---------------------------------------------------------------------------
\300\ See, ``Stay legally compliant (sba.gov),'' available at
https://www.sba.gov/business-guide/manage-your-business/stay-legally-compliant (Last accessed 8/9/2022).
---------------------------------------------------------------------------
Regulatory Alternative 3: Total Costs of the Small Business Exemption
Alternative
Table 13 summarizes combined expected administrative and
recordkeeping costs for regulated entities in the first year and in
succeeding years. AMS expects that administrative and recordkeeping
costs associated with a small business exemption alternative will cost
each live poultry dealer, swine contractor, and packer an average of
$448, $548, and $265, respectively, in the first year. AMS expects
costs to average $185, $271, and $27 for live poultry dealers, swine
contractors, and packers, respectively, in each succeeding year. First-
year costs will total $40,000 for live poultry dealers, $315,000 for
swine contractors, and $97,000 for packers.
[[Page 16189]]
Costs in successive years will be due to recordkeeping requirements and
will total $17,000 for live poultry dealers, $156,000 for swine
contractors, and $10,000 for packers annually. The total direct
administrative and recordkeeping costs are estimated to be $452,000 in
the first year.
[GRAPHIC] [TIFF OMITTED] TR06MR24.020
As discussed above, AMS considers the total costs from Sec. Sec.
201.304 and 201.306 to be increased direct administrative and
recordkeeping costs with no indirect costs from adjustments by the
cattle, hog, and poultry industries to reduce their use of AMAs, change
to pricing mechanisms or poultry tournaments, and no substantial
changes to existing marketing, or growing or production contracts. AMS
estimated the costs to small business from the direct administrative
costs of Sec. Sec. 201.304 and 201.306 but excluded the recordkeeping
costs of Sec. 201.304(c) in this alternative option.
AMS estimated the costs to small business to be the value of the
time for management, attorneys, administrative staff, and information
technology staff to review the rule and the firms' practices
determining compliance with the direct administrative costs of
Sec. Sec. 201.304 and 201.306. AMS estimated costs for the Small
Business Exemption Alternative similarly to the final rule. The only
difference is the recordkeeping costs of Sec. 201.304(c) attributable
to small business are not included in the costs for the Small Business
Exemption Alternative. The estimates appear in Table 14. Costs for the
final rule are also shown for convenience.
[[Page 16190]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.021
AMS estimates that Sec. Sec. 201.304 and 201.306, with the small
business exemption, will result in $427,000 in direct total costs in
the cattle, hog, lamb, and poultry industries in the first full year
following implementation and $182,000 each year in ongoing costs. AMS
expects the ten-year total costs of Sec. 201.304 and 201.306 with a
small business exemption to be $2.1 million. Exempting small business
will save approximately $159,000 in the first year and $1.1 million
over ten years.
Regulatory Alternative 3: PV of Total Costs of the Small Business
Exemption Alternative
AMS calculated the PV of the ten-year total costs of the Small
Business Exemption Alternative using both a three percent and seven
percent discount rate and the PVs appear in the following table. Costs
for the final rule are also shown for convenience.
[GRAPHIC] [TIFF OMITTED] TR06MR24.022
AMS expects the PV of the ten-year total costs of Sec. Sec.
201.304 and 201.306 with a small business exemption to be $1.8 million
at a three percent discount rate and $1.5 million at a seven percent
discount rate.
Regulatory Alternative 3: Annualized Costs of the Small Business
Exemption Alternative
AMS then annualized the PV of the ten-year total costs of
Sec. Sec. 201.304 and 201.306 with a small business exemption using
both a three percent and seven percent discount rate and the results
appear in Table 16. The final rule is also shown for convenience.
[GRAPHIC] [TIFF OMITTED] TR06MR24.023
[[Page 16191]]
AMS expects the annualized costs of Sec. Sec. 201.304 and 201.306
with a small business exemption to be $210,000 at a three percent
discount rate and $215,000 at a seven percent discount rate.
Cost-Benefit Comparison of Regulatory Alternatives
The status quo alternative has zero marginal costs. AMS compared
the annualized costs of the final rule to the annualized costs of the
Small Business Exemption Alternative by subtracting the annualized
costs of the Small Business Exemption Alternative from those of the
final rule and the results appear in Table 17.
[GRAPHIC] [TIFF OMITTED] TR06MR24.024
The annualized costs of the Small Business Exemption Alternative
are $121,000 less expensive using a three percent discount rate and
$121,000 less expensive using a seven percent discount rate. As is the
case with costs, the benefits will be highest for the final rule
because the full benefits will be received by all livestock producers
and poultry growers, not just those doing business with large packers,
swine contractors and live poultry dealers.
Though the Small Business Exemption Alternative will save
approximately $121,000 on an annualized basis, AMS chose final
Sec. Sec. 201.304 and 201.306 over the Small Business Exemption
Alternative because AMS wishes to prevent broadly the kind of undue
prejudices and unjust discrimination described in the rule. AMS
believes that keeping relevant records will help promote compliance
with this rule, that all packers, live poultry dealers, and swine
contractors cannot purchase livestock or enter into contracts for
growing services with the kind of undue prejudices and unjust
discrimination described in the rule.
AMS considered all three regulatory alternatives and believes that
the final rule is the best alternative, as it benefits all livestock
producers, swine production contract growers, and poultry growers,
regardless of the size of the packer, swine contractor, or live poultry
dealer with which they contract above the Status Quo Alternative.
Regulatory Flexibility Analysis
As part of the regulatory process, a Regulatory Flexibility
Analysis (RFA) is conducted in order to evaluate the effects of this
rule on small businesses. Under the final rule, there are no new
regulatory text changes that would change the proposed rule costs and
benefits of the regulatory analyses.
The SBA defines small businesses by their North American Industry
Classification System Codes (NAICS).\301\ 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.
---------------------------------------------------------------------------
\301\ 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 https://www.sba.gov/article/2018/feb/27/sba-issues-final-rule-adopt-naics-2017-small-business-size-standards.
---------------------------------------------------------------------------
AMS maintains data on live poultry dealers from the annual reports
these firms file with AMS. Currently, 90 live poultry dealers will be
subject to the regulation. Fifty-five of the live poultry dealers will
be small businesses according to the SBA standard.
AMS records identified 365 packers that file annual reports or are
due to file with PSD for their 2021 fiscal year. Two hundred sixty-one
were beef packers. One hundred ninety-six were pork packers, and 139
were lamb or goat packers. Many firms slaughtered more than one species
of livestock. For instance, 112 packers slaughtered both beef and pork.
Most packers will be small businesses, although large packers are
responsible for most meat production. Three hundred forty-eight packers
will be small businesses. Two hundred fifty-three beef packers and 183
pork packers were small businesses. All 139 lamb and goat packers were
small businesses.
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 2017 USDA Census of Agriculture indicated that there
were 575 swine contractors in 2017. 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 467 swine contractors
that sold 5,000 head of hogs or more were large businesses, and the 108
contractors that sold less than 5,000 head were small businesses.
AMS estimated the costs in two parts. First, AMS expects that each
packer, swine contractor, and live poultry dealer will review and learn
the new rule and, if necessary, revise production and marketing
contracts to ensure compliance with the new rule. Second, AMS expects
that packers, live poultry dealers, and swine contractors will have
additional costs associated with the new recordkeeping requirements in
Sec. 201.304(c).
AMS estimated that costs for reviewing and learning the final rule
to small live poultry dealers, small packers, and small swine
contractors will consist of one hour of a manager's time and one hour
of a lawyer's time to review the requirements of Sec. Sec. 201.304 and
201.306. Expected first-year costs will be $234 \302\ for each live
poultry dealer, each swine contractor, and each packer. This will
amount to a total $13,000 for the 55 live poultry dealers, $81,000 for
the 348 packers, and $25,000 for the 108 swine contractors.
---------------------------------------------------------------------------
\302\ $147.19 per hour x 1 hour of an attorney's time + $86.83
per hour x 1 hour of a manager's time = $234.
---------------------------------------------------------------------------
Concerning the recordkeeping requirements in final Sec.
201.304(c), AMS expects the cost will be comprised of the time required
to store and maintain records already kept. AMS expects that the costs
will be relatively small
[[Page 16192]]
because packers, live poultry dealers, and swine contractors will
likely have few records concerning policies and procedures, staff
training materials, materials informing covered producers regarding
reporting mechanisms and protections, compliance testing, and board of
directors' oversight materials related to prejudicial treatment. Many
firms might not have any records to maintain. Others already maintain
the records and have no new costs.
AMS expects that recordkeeping costs will be correlated with the
size of the firms. AMS ranked packers, live poultry dealers, and swine
contractors by size and grouped them into quartiles, estimating more
recordkeeping time for larger entities than for the smaller entities.
AMS estimated that Sec. 201.304(c) will require an average of 4.00
hours of administrative assistant time, 1.50 hours of time each from
managers, attorneys, and information technology staff for packers, live
poultry dealers, and swine contractors in the first quartile,
containing the largest entities, to setup and maintain the required
records in the first year. AMS expects the packers, live poultry
dealers, and swine contractors in the second quartile will require an
average of 2.00 hours of administrative assistant time, 0.75 hours of
time each from managers, attorneys, and information technology staff
for first year costs. The third quartile will require 1.33 hours of
administrative assistant time, 0.50 hours of time each from managers,
attorneys, and information technology staff for first year costs, and
the fourth quartile, containing the smallest entities, will require
0.67 hours of administrative assistant time, 0.25 hours of time each
from managers, attorneys, and information technology staff.
AMS also expects that packers, live poultry dealers, and swine
contractors will incur continuing costs in each successive year. AMS
estimated that Sec. 201.304(c) will require an average of 3.00 hours
of administrative assistant time, 1.50 hours of time each from managers
and attorneys, and 1.00 hour of time from information technology staff
for packers, live poultry dealers, and swine contractors in the first
quartile to setup and maintain the required records in each succeeding
year. AMS expects the packers, live poultry dealers, and swine
contractors in the second quartile will require an average of 1.50
hours of administrative assistant time, 0.75 hours of time each from
managers and attorneys, and 0.50 hours of time from information
technology staff in each succeeding year. The third quartile will
require 1.00 hour of administrative assistant time, 0.50 hours of time
each from managers and attorneys, and 0.33 hours of time from
information technology staff in each succeeding year, and the fourth
quartile will require 0.50 hours of administrative assistant time, 0.25
hours of time each from managers and attorneys, and 0.17 hours from
information technology staff.
Estimated first-year costs for recordkeeping requirements in final
Sec. 201.304(c) totaled $11,000 for live poultry dealers,\303\ $12,000
for swine contractors,\304\ and $111,000 for packers.\305\ Estimated
yearly continuing costs for recordkeeping requirements in Sec.
201.304(c) totaled $9,000 for live poultry dealers,\306\ $10,000 for
swine contractors,\307\ and $96,000 for packers.\308\
---------------------------------------------------------------------------
\303\ 10 live poultry dealers x ($44.51 per hour admin. cost x 2
hours + $86.83 per hour manger cost x .75 + $147.19 legal cost x .75
hours + $93.68 information tech cost x .75 hours) + 45 live poultry
dealers x ($44.51 per hour admin. cost x (1.33 hours + .67 hours) +
$86.83 per hour manger cost x (.5 hours + .25 hours) + $147.19 legal
cost x (.5 hours + .25 hours) + $93.68 information tech cost x (.5
hours + .25 hours))/2 = $10,881.
\304\ 108 swine contractors x ($44.51 per hour admin. cost x .67
hours + $86.83 per hour manger cost x .25 hours + $147.19 legal cost
x .25 hours + $93.68 information tech cost x .25 hours) = $12,053.
\305\ 74.25 packers x ($44.51 per hour admin. cost x 2 hours +
$86.83 per hour manger cost x .75 hours + $147.19 legal cost x .75
hours + $93.68 information tech cost x .75 hours + 273.75 packers x
($44.51 per hour admin. cost x (2 hours + 1.33 hours + .67 hours) +
$86.83 per hour manger cost x (.75 hours + .5 hours + .25 hours) +
$147.19 legal cost x (.75 hours + .5 hours + .25 hours) + $93.68
information tech cost x (.75 hours + .5 hours + .25 hours))/3 =
$110,817.
\306\ 10 live poultry dealers x ($44.51 per hour admin. cost x
1.5 hours + $86.83 per hour manger cost x .75 + $147.19 legal cost x
.75 hours + $93.68 information tech cost x .50 hours) + 45 live
poultry dealers x ($44.51 per hour admin. cost x (1 hours + .5
hours) + $86.83 per hour manger cost x (.5 hours + .25 hours) +
$147.19 legal cost x (.5 hours + .25 hours) + $93.68 information
tech cost x (.33 hours + .17 hours))/2 = $9,396.
\307\ 108 swine contractors x ($44.51 per hour admin. cost x .5
hours + $86.83 per hour manger cost x .25 hours + $147.19 legal cost
x .25 hours + $93.68 information tech cost x .17 hours) = $10,408.
\308\ 74.25 packers x ($44.51 per hour admin. cost x 3 hours +
$86.83 per hour manger cost x 1.5 hours + $147.19 legal cost x 1.5
hours + $93.68 information tech cost x 1 hours + 273.75 packers x
($44.51 per hour admin. cost x (1.5 hours + 1 hours + .5 hours) +
$86.83 per hour manger cost x (.75 hours + .5 hours + .25 hours) +
$147.19 legal cost x (.75 hours + .5 hours + .25 hours) + $93.68
information tech cost x (.5 hours + .33 hours + .17 hours))/3 =
$110,817.
---------------------------------------------------------------------------
Total expected first year costs for small businesses, including one
time reviewing costs and recordkeeping costs will be $192,000 for
packers, $37,000 for swine contractors, and $24,000 for live poultry
dealers. The table below lists expected costs for small businesses
subject to Sec. Sec. 201.304 and 201.306. AMS expects marginal costs
to total $255,000 in the first year. Ten-year costs annualized at three
percent will be $107,000 for packers, $13,000 for swine contractors,
and $11,000 for live poultry dealers. Total ten-year costs annualized
at three percent will be expected to be $131,000.
The table below shows that ten-year costs annualized at seven
percent will be $109,000 for packers, $14,000 for swine contractors,
and $11,000 for live poultry dealers. Total ten-year costs annualized
at seven percent will be expected to be $134,000.
[[Page 16193]]
[GRAPHIC] [TIFF OMITTED] TR06MR24.025
Live poultry dealers annually file reports with AMS that list each
firm's net sales. Packers that purchase more than $500,000 annually in
livestock also file annual reports that list net sales. While packers
that annually slaughter less than $500,000 in livestock also file
annual reports with AMS, in order to reduce the reporting requirements
for small packers, they are not required to provide annual net sales.
Data from the annual reports enables AMS to compare average net
sales for small pork packers, beef packers, and live poultry dealers to
the expected costs of Sec. Sec. 201.304 and 201.306 in the table
below. A shortcoming in the comparison is that net sales for smallest
packers, those that purchase less than $500,000 in livestock, are not
included in the average.
Swine contractors are not required to file annual reports with AMS,
and similar net sales data are not available for swine contractors.
Census of Agriculture's data have the number of head sold by size
classes for farms that sold their own hogs and pigs in 2017 and that
identified themselves as contractors or integrators, but not the value
of sales nor the number of head sold from the farms of the contracted
production. To estimate average revenue per establishment, AMS used the
estimated average value per head for sales of all swine operations and
the production values for firms in the Agriculture Census size classes
for swine contractors.
Table 19 compares the average per entity first-year costs of final
Sec. Sec. 201.304 and 201.306 to the average revenue per establishment
for all regulated small businesses. First-year costs are appropriate
for a threshold analysis because all the costs will occur in the first
year. First-year costs per regulated entity are considerably higher
than annualized costs, and any ratio of annualized costs to revenues
will be less than a ratio of first-year costs to revenues.
[GRAPHIC] [TIFF OMITTED] TR06MR24.026
[[Page 16194]]
Average first-year costs as a percent of revenues are small. It is
highest for swine contractors because average revenues for swine
contractors are considerably smaller than average revenues for packers
and live poultry dealers. At 0.0711 percent, the average first-year
cost is small compared to revenue.
Average net sales for packers listed in Table 18 have the problem
of excluding the smallest packers, and consequently the averages are
biased toward being too large. However, first-year cost as a percent of
net sales is 0.0007 percent. Estimated first year cost for each packer
is $552. These are relatively small numbers. If average net sales for
each packer were only one hundredth of the amount listed in Table 19,
estimated average first-year costs will be less than 0.1 percent of net
sales.
AMS has limited data on revenues for the smallest packers and live
poultry dealers. One hundred eleven packers submitted shortened annual
reports to AMS because they purchased less than $500,000 in livestock.
For the largest of these small packers, annual revenues are likely
close to $500,000 and expected costs will be about 0.07 percent.
RFA Small Business Exemption Alternative: Recordkeeping Exemption
AMS also considered a Small Business Exemption Alternative to final
Sec. Sec. 201.304 and 201.306. The Small Business Exemption
Alternative will be the same as the final Sec. Sec. 201.304 and
201.306 in all respects with the exception that none of the
recordkeeping requirements in Sec. 201.304(c) will apply to small
businesses. This Small Business Exemption Alternative will cost small
packers, swine contractors, and live poultry dealers less than
Sec. Sec. 201.304 and 201.306 will cost. Recordkeeping costs comprised
the largest share of the costs associated with Sec. Sec. 201.304 and
201.306.
Although the Small Business Exemption Alternative will not require
small businesses to keep any additional records, small businesses will
still be required to comply with all the other provisions of Sec. Sec.
201.304 and 201.306. AMS expects that small live poultry dealers, small
packers, and small swine contractors will need to review the new rule
and determine whether the rule will require any changes to their
procurement contracts or other business practices and make the
necessary changes. AMS estimated that costs will consist of one hour of
a manager's time and one hour of a lawyer's time to review the
requirements of final Sec. Sec. 201.304 and 201.306. This amounts to
expected first-year costs of $234 \309\ for each live poultry dealer,
each swine contractor, and each packer that qualifies as a small
business. All costs will occur in the first year.
---------------------------------------------------------------------------
\309\ $147.19 per hour x 1 hour of an attorney's time + $86.83
per hour x 1 hour of a manager's time = $234.
---------------------------------------------------------------------------
The table below lists expected costs for small businesses subject
to the Small Business Exemption Alternative. AMS expects marginal costs
to total $120,000 in the first year. The Small Business Exemption
Alternative is expected to cost $81,000, $25,000, and $13,000 in the
first year for packers, swine contractors, and live poultry dealers,
respectively.
[GRAPHIC] [TIFF OMITTED] TR06MR24.027
[[Page 16195]]
Ten-year costs annualized at three percent will be $9,000 for
packers, $3,000 for swine contractors, and $1,000 for live poultry
dealers. This amounts to $27 for each live poultry dealer, swine
contractor, and packer. Total ten-year costs annualized at three
percent will be expected to be $14,000.
Ten-year costs annualized at seven percent will be $11,000 for
packers, $3,000 for swine contractors, and $2,000 for live poultry
dealers. This amounts to $31 for each live poultry dealer, swine
contractor, and packer. Total ten-year costs annualized at seven
percent will be expected to be $16,000.
The table below compares the average per entity first-year costs of
the Small Business Exemption Alternative to the average revenue for
each regulated small business. First-year costs are appropriate for a
threshold analysis because all the costs associated with the
alternative will occur in the first year.
[GRAPHIC] [TIFF OMITTED] TR06MR24.028
Average first-year costs as a percent of revenues are small.
Similar to Sec. Sec. 201.304 and 201.306, relative costs are highest
for swine contractors because average revenues for swine contractors
are considerably smaller than average revenues for packers and live
poultry dealers. At 0.0482 percent, the first-year cost to swine
contractors is small compared to revenue.
Average net sales for packers listed in Table 20 have the same
problem as the net sales figures in Table 18. They exclude the smallest
packers, and consequently the averages are biased toward being too
large. However, first-year cost as a percent of net sales for packers
purchasing more than $500,000 per year is 0.0002 percent. Estimated
first year cost for each packer is $234. Costs will be less than 0.1
percent of revenues for any packer with revenue greater than $23,400.
Even for the smallest packer that AMS regulates, $234 will not likely
have a significant economic impact.
Comparison of Alternatives
Expected costs for small businesses under final Sec. Sec. 201.304
and 201.306 will be more than double the expected costs for small
businesses under a Small Business Exemption Alternative. The cost
difference is due to recordkeeping requirements. First-year costs will
be $159,000 more for final Sec. Sec. 201.304 and 201.306 than the
Small Business Exemption Alternative.\310\ While all the costs
associated with the Small Business Exemption Alternative occur in the
first year, small businesses will continue to incur recordkeeping costs
associated with final Sec. Sec. 201.304 and 201.306 into the future.
Estimated costs annualized at seven percent are $121,000 higher for
final Sec. Sec. 201.304 and 201.306 than for the Small Business
Exemption Alternative.
---------------------------------------------------------------------------
\310\ $586,000-$427,000 = $159,000 (Table 15).
---------------------------------------------------------------------------
With either the Small Business Exemption Alternative or the final
rule, AMS expects the costs per entity to be relatively small. The
number of regulated entities that could experience a cost increase is
substantial. Most regulated packers and live poultry dealers are small
businesses. However, AMS expects that few small businesses will
experience significant costs. For all three groups of regulated
entities: packers, live poultry dealers, and swine contractors, average
first year costs are expected to amount to less than 0.1 percent of
annual revenue for either of the alternatives. AMS expects that any
additional costs to small packers, live poultry dealers, and swine
contractors from this rulemaking will not change their ability to
continue operations or place any small businesses at a competitive
disadvantage.
AMS chose final Sec. Sec. 201.304 and 201.306 over the Small
Business Exemption Alternative because AMS wishes to prevent the kind
of undue prejudices and unjust discrimination described in the rule.
AMS believes that keeping relevant records serves as constant reminder
to all packers, live poultry dealers, and swine contractors that they
cannot practice undue prejudice on the basis of protected bases and
protected actions; retaliate on the basis of protected activities or
actions; or deceive on the basis of contract formation, performance,
termination, or refusal.
Final Sec. Sec. 201.304 and 201.306 are not expected to have a
significant economic impact on a substantial number of small business
entities as defined in the Regulatory Flexibility Act (5 U.S.C. 601 et
seq.).
C. Executive Order 13175--Consultation and Coordination With Indian
Tribal Governments
E.O. 13175 requires Federal agencies to consult with Tribes on a
government-to-government basis on policies that have Tribal
implications, including regulations, legislative comments or proposed
legislation, and other policy statements or actions that have
substantial direct effects on one or more Indian Tribes, on the
relationship between the Federal Government and Indian Tribes or the
distribution of power and responsibilities between the Federal
Government and Indian Tribes.
Three commenters including the Cherokee Nation, the Coalition of
Large Tribes (COLT), and an academic commenter who is the executive
[[Page 16196]]
director of the Indigenous Food and Agriculture Initiative (IFAI) at
the University of Arkansas School of Law, responded to USDA's January
19, 2023, Tribal consultation seeking input on the proposed rule on
Inclusive Competition and Market Integrity Under the Act. All three
commenters gave context about Tribal participation in the meat and
livestock industry and contended that the proposed rule should not
apply to Tribes and Tribal entities.
Comment: A commenter stated that the proposed rule's provisions
targeting unjust discrimination could inadvertently ban practices
designed to enable Tribal enterprises to serve their own community,
such as laws requiring businesses to provide contracting and employment
preferences to Tribal members. According to the commenter, these
practices could arguably be interpreted under the proposed rule as
``offering contract terms that are less favorable than those generally
or ordinarily offered'' or ``differential contract performance or
enforcement'' which are ``based upon the covered producer's status as a
market vulnerable individual.'' According to the commenter, the
regulation's language, as proposed, and the lack of exceptions provided
could have a chilling effect on the traditional animal husbandry
practices of Tribes regardless of a Tribal business's likelihood of
prevailing under a legal challenge.
AMS Response: In its final rule, AMS has included a limited list of
legitimate business justifications including an exception to the rule's
prohibition on unjust discrimination for Tribes fulfilling their
governmental function of serving their members. In doing so, AMS in
this rule recognizes longstanding practice around Tribal entities,
acting in their governmental capacities, in preferencing their own
Tribal members and their descendants in the purchase and sale of
livestock. Additionally, AMS has changed its approach from the proposed
rule to no longer use the term ``Market Vulnerable'' to define to whom
the rule offers protections. In shifting to the specific terms
identified, the final rule provides greater certainty that Tribal
members will be protected against discriminatory practices they may
encounter in the marketplace.
Comment: A Tribal commenter stated that Tribal producers may be
hesitant to report discriminatory practices, stating that the long
history of governmental indifference to, or even complicity in, unjust
discrimination against their communities' factors into a fear of
retaliation. The commenter noted Tribal producers have also reported
that they are not sure where to report violations of the Act,
suggesting USDA should consider establishing a streamlined process for
reporting issues under the Act and make concerted efforts to inform
producers of their rights.
AMS Response: Through expressly prohibiting discriminatory and
retaliatory conduct in this rulemaking, AMS aims to address the
commenters concern that ``a long history of governmental indifference
to, or even complicity in, discrimination against their communities'
factors into a fear of retaliation.'' AMS has an online portal designed
to receive complaints that may amount to violations under the Act and
will direct Tribal producers to this portal as well as educating them
as to other methods of reporting potential violations. Furthermore, AMS
will consult with the USDA Office of Tribal Relations (OTR) and
recommend educational outreach to ensure Tribal producers understand
how to report a violation.
Comment: All three commenters urged AMS not to apply the proposed
rule to Tribes and Tribal entities. The commenters said Tribes are
sovereign governments that retain authority to make their own laws and
be ruled by them, unless expressly abrogated. Commenters cited the
Supreme Court's holding in Vermont Agency of Natural Resources v.
United States ex rel. Stevens that statutory use of the term ``person''
does not include sovereign entities unless there is an ``affirmative
showing of statutory intent to the contrary,'' arguing that Tribes do
not fall within any of these categories.\311\ Commenters said the
omission of Tribes from the ``person'' definition also excludes them
from being defined as ``packers'' under the Act, as it defines packers
as ``any person engaged in'' the packing activities enumerated in the
definition.
---------------------------------------------------------------------------
\311\ See Vermont Agency of Natural Resources v. United States
ex rel. Stevens, 529 U.S. 765 (2000).
---------------------------------------------------------------------------
AMS Response: In this final rule, AMS excludes Tribes that are
fulfilling their governmental function of serving their members from
the rule's prohibition on unjust discrimination. In doing so, AMS
recognizes the longstanding practice of Tribal entities, acting in
their governmental capacities, in preferencing their own Tribal members
and their descendants in the purchase and sale of livestock. AMS
believes that these changes are sufficient to address the immediate
policy concerns underlying the comments in relation to this final rule
and that any further changes would be outside the scope of this rule.
Comment: Commenters stated that ``complying with unnecessary and
burdensome federal regulations will hinder our small Tribal
agricultural operations that already operate on very thin margins.''
Arguing that given the small size of packing operations on Tribal land,
they may lack the resources or financial ability to comply with
recordkeeping and other regulatory requirements the rule imposes. A
commenter stated that ``record keeping, and other regulatory
obligations are always more burdensome to small businesses that lack
the legal and compliance departments of a large corporation, and
isolated rural locations often struggle to hire and retain adequate
office staff.''
AMS Response: The economic costs of preventing undue prejudice,
unjust discrimination, retaliation, and deception are minor in
comparison to the benefit such protections will ensure for farmers and
ranchers, including Tribal members. Many businesses already keep
records for business purposes, therefore adding hardly any additional
costs associated with compliance with this rule. Furthermore, Tribal
commenters state that discrimination and retaliation are commonplace in
Indian country and that these harms greatly hinder the success of
Tribal producers. This rule aims to address those issues directly. AMS
notes that the final rule excludes Tribes fulfilling their governmental
function of serving their members from the rule's prohibition on unjust
discrimination and that any further changes would be outside the scope
of this rule.
Comment: Commenters stated that under Federal jurisprudence,
sovereign immunity extends to business activities conducted off Tribal
lands. Commenters contend that the U.S. Supreme Court has determined in
Oklahoma Tax Commission v. Citizen Band Potawatomi Indian Tribe of
Oklahoma, 498 U.S. 505 (1991) decision, that Tribes in their commercial
activity with other entities are covered under the umbrella of the
Tribes' sovereignty and even when Tribes entered into activities,
executed off-reservation, they still enjoy sovereign immunity Kiowa
Tribe of Oklahoma v. Manufacturing Technologies, 523 U.S. 751 (1998).
See Garcia v. San Antonio Metro. Transit Auth., 469 U.S. 528, 546-47
(1985).
AMS Response: AMS notes that the final rule excludes Tribes
fulfilling their governmental function of serving its members from the
rule's prohibition on unjust discrimination. Any further changes would
be outside the scope of this rule.
[[Page 16197]]
Comment: A commenter suggests that if adopted and applied to Tribal
entities, the rule would have an adverse effect to its intent. Stating
that if the intent of the proposed rule is to decrease market
concentration and increase market access, adding additional regulatory
burdens on small scale meat packing plants will make it more difficult
for these small operations to enter, and maintain presence in, the
market.
AMS Response: The overarching objective of this rule is to improve
market integrity and inclusive competition, and to decrease the
undesirable conduct that is facilitated by concentration in
agricultural markets. This rule aims to address three specific types of
conduct that harm competition: undue prejudice and unjust
discrimination, retaliation, and deception. As explained in the RIA/
RFA, any regulatory burdens created from enforcing the Act in this
regard will be minimal in comparison to the benefits of protecting
producers from this harmful conduct. AMS notes that the final rule
excludes Tribes fulfilling their governmental function of serving their
members from the rule's prohibition on unjust discrimination and that
any further changes would be outside the scope of this rule.
D. Civil Rights Impact Statement
Objective and Purpose AMS is issuing this final rule to revise the
regulations that effectuate the Act. AMS is adopting these regulations
under the Act's provisions prohibiting undue prejudice, unjust
discrimination, and deception to establish clearer, more effective
standards to govern the modern marketplace and to better protect,
through compliance and enforcement, individually harmed producers. AMS
is concerned that the current regulations do not adequately address
many unduly prejudicial, unjustly discriminatory, retaliatory, and
deceptive practices, which are exacerbated by the environment created
through increased horizontal concentration and vertical contracting.
Who Is Impacted--The effects of this new regulation will fall on
packers, swine contractors and live poultry dealers. AMS will cite
regulated entities initiating actions or conduct. AMS believes creating
an undue prejudice is a violation of section 202(b) of the Act. This is
particularly true for those purchasing livestock on a carcass grade,
carcass weight, or carcass grade and weight basis, under marketing
agreements and production contracts. Swine contractors obtaining swine
under swine production contracts and live poultry dealers acquiring
poultry through poultry growing arrangements will also feel the impacts
of the new regulation.
Beneficiaries--The primary beneficiaries of Sec. Sec. 201.304 and
201.306 will include farmers, feedlot owners, swine production contract
growers, and poultry growers. These producers and growers are those
most likely to be harmed by undue prejudices, unjust discrimination,
retaliation, and deception resulting from the actions or conduct of
firms subject to the Act. Identifying criteria for recognizing what
actions or conduct may create undue prejudices, discrimination,
retaliation, and deception will help lower the number of instances and
severity of the harm done by these types of actions or conduct.
The Civil Rights Impact Analysis found that Asian, and Native
Hawaiians or Other Pacific Islanders are disproportionately impacted by
this rule. Other impacted producers, including Men, Women, Hispanics,
Whites, Black/African Americans, and American Indians, are not
disproportionately impacted by this rule.
Impacts on Regulated Entities--AMS estimated the direct and
indirect costs of regulation over a period of 10 years, from 2023
through 2032. AMS expects the direct costs to be comprised of
administrative and litigation costs, largely borne by regulated
entities.
Impacts on Protected Groups--Protected groups will see minimal, if
any, direct or indirect costs because of the implementation or
enforcement of the new regulations. Although the required analysis
indicates a disproportionate impact for Asian, and Native Hawaiians or
Other Pacific Islanders, because the new regulations impact all
industry participants equally, no individual or group would likely be
adversely impacted.
AMS has considered the potential civil rights implications of this
final rule on members of protected groups to ensure that no person or
group will be adversely or disproportionately at risk or discriminated
against on the basis of race, color, national origin, gender, religion,
age, disability, sexual orientation, marital or family status, or
protected genetic information.
Tribal Implications--Executive Order 13175 requires Federal
agencies to consult with American Indian Tribes on a government-to-
government basis on policies that have Tribal implications. This
includes regulations, legislative comments or proposed legislation, and
other policy statements or actions. Consultation is required when such
policies have substantial direct effects on one or more Indian Tribes,
on the relationship between the Federal Government and Indian Tribes,
or the distribution of power and responsibilities between the Federal
Government and Indian Tribes.
AMS has determined that this final rule does not have substantial
direct effects on one or more Tribes that would require consultation.
If a Tribe requests consultation, AMS will work with USDA's Office of
Tribal Relations to ensure meaningful consultation is provided where
changes, additions, and modifications identified herein are not
expressly mandated by Congress. AMS will also conduct outreach to
ensure that Tribes and Tribal members are aware of the requirements and
benefits under this final rule.
Positive Impacts--This final rule affirms the importance of a clear
and direct regulatory framework that prohibits deception, retaliation,
undue prejudice, and unjust discrimination, thus protecting producers
in the marketplace. The rational decision-making and robust competition
so critical to economic success can most effectively occur in a market
free of such practices.
To ensure the potential disparately impacted groups identified
above receive the full measure of the positive impacts of this new
regulation, AMS will provide addition outreach actions directed toward
these groups.
E. Executive Order 12988--Civil Justice Reform
This rule has been reviewed under Executive Order 12988. This rule
is not intended to have retroactive effect. This rule would not preempt
State or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rulemaking. There are no
administrative procedures that must be exhausted prior to any judicial
challenge to the provisions of this rule. Nothing in this rule is
intended to interfere with a person's right to enforce liability
against any person subject to the Act under authority granted in
section 308 of the Act.
F. E-Government Act
USDA is committed to complying with the E-Government Act by
promoting the use of the internet and other information technologies to
provide increased opportunities for citizen access to Government
information and services, and for other purposes.
G. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L.
[[Page 16198]]
104-4) requires Federal agencies to assess the effects of their
regulatory actions on State, local, and Tribal Governments and on the
private sector. Agencies generally must prepare a written statement,
including cost benefits analysis, for proposed and final rules with
``Federal mandates'' that may result in expenditures of $100 million or
more (adjusted for inflation) in any 1 year for State, local or Tribal
governments, in the aggregate, or to the private sector. UMRA generally
requires agencies to consider alternatives and adopt the more cost
effective or least burdensome alternative that achieves the objectives
of the rule. This rule contains no Federal mandates, as defined in
title II of UMRA, for State, local, or Tribal Governments, and it does
not contain a mandate for the private sector that would likely result
in compliance costs of $100 million or more (adjusted annually for
inflation) in at least one year. Therefore, this rule is not subject to
the requirements of sections 202 and 205 of UMRA.
AMS expects that the direct costs of this final rule will be 0.0002
percent of industry revenues in the first year of the rule, or
$586,000. Indirect costs would have to be nearly 300 times \312\ the
expected direct costs to meet the compliance cost threshold of $170
million or more in a single year ($100 million in 1994 dollars adjusted
for inflation as of 2021),\313\ which AMS has no basis to expect, given
its professional expertise gained by regulating the industry and
regularly communicating with regulated entities, growers, and
producers. Indeed, to reach that threshold, discrimination,
retaliation, and deception would have to occur at a prevalence that
would have to touch more than 28 percent of all cattle slaughtered in
the United States in 2022 and account for the entirety of the
difference in prices between the minimum and average liveweight price
paid for cattle at the five regional cattle markets over the last 9
years. Extending that analysis to poultry and hogs would not change the
conclusion. If anything, it would be even harder to meet the UMRA
threshold because almost universal use of the tournament system in the
poultry industry means higher compensation to certain growers is
unlikely to increase compensation for growers in aggregate. Each
tournament has a fixed total compensation pool, with growers ranked
relative to other members of their respective tournament and
compensated accordingly.
---------------------------------------------------------------------------
\312\ $170 million UMRA threshold divided by $586,000 (first-
year direct costs) multiplied by 100 = 290.
\313\ Congressional Research Service. Updated February 23, 2021.
Unfunded Mandates Reform Act: History, Impact, and Issues. Accessed
at https://crsreports.congress.gov/product/pdf/R/R40957/109on02/08/2024.
---------------------------------------------------------------------------
In addition, AMS takes note of the exemption from UMRA for rules
enforcing Constitutional rights of individuals or establishing or
enforcing a statutory right that prohibits discrimination on the basis
of age, race, color, religion, sex, national origin, handicap, or
disability. (2 U.S.C. 1503) Provisions of this rule enforce the Act's
prohibition against unjust discrimination and undue prejudice to
prohibit adverse treatment on the basis of race, color, religion,
national origin (including ethnicity), sex (including sexual
orientation and gender identity, as well as pregnancy), disability,
marital status, or age. The rule also prohibits retaliatory and adverse
actions that interfere with lawful communications, assertion of rights,
associational participation, and other protected activities.
H. Congressional Review Act
Pursuant to Subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act, 5
U.S.C. 801 et seq.), OMB's Office of Information and Regulatory Affairs
has determined that this final rule does not meet the criteria set
forth in 5 U.S.C. 804(2).
List of Subjects in 9 CFR Part 201
Confidential business information, Reporting and recordkeeping
requirements, Stockyards, Surety bonds, Trade practices.
For the reasons set forth in the preamble, AMS amends 9 CFR part
201 as follows:
PART 201--ADMINISTERING THE PACKERS AND STOCKYARDS ACT
0
1. The authority citation for part 201 continues to read as follows:
Authority: 7 U.S.C. 181-229c.
0
2. Add subpart O, consisting of Sec. Sec. 201.300 through 201.390, to
read as follows:
Subpart O--Competition and Market Integrity
Sec.
201.300-201.301 [Reserved]
201.302 Definitions.
201.303 [Reserved]
201.304 Undue prejudices or disadvantages and unjust discriminatory
practices.
201.305 [Reserved]
201.306 Deceptive practices.
201.307-201.308 [Reserved]
201.389 [Reserved]
201.390 Severability.
Subpart O--Competition and Market Integrity
Sec. Sec. 201.300-201.301 [Reserved]
Sec. 201.302 Definitions.
For purposes of this subpart, the following definitions apply:
Covered producer means a livestock producer as defined in this
section or a swine production contract grower or poultry grower as
defined in section 2(a) of the Act (7 U.S.C. 182(8), (14)).
Livestock producer means any person, except an employee of the
livestock owner, engaged in the raising of and caring for livestock.
Regulated entity means a swine contractor or live poultry dealer as
defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a packer as
defined in section 201 of the Act (7 U.S.C. 191).
Sec. 201.303 [Reserved]
Sec. 201.304 Undue prejudices or disadvantages and unjust
discriminatory practices.
(a) Prohibited bases. (1) Except as provided in paragraph (a)(3) of
this section, a regulated entity may not prejudice, disadvantage,
inhibit market access, or otherwise take an adverse action against a
covered producer with respect to livestock, meats, meat food products,
livestock products in unmanufactured form, or live poultry based upon
the following characteristics:
(i) On the basis of the covered producer's race, color, religion,
national origin, sex (including sexual orientation and gender
identity), disability, marital status, or age.
(ii) On the basis of the covered producer's status as a
cooperative.
(2) Actions that prejudice, disadvantage, inhibit market access, or
are otherwise adverse under paragraph (a)(1) of this section are as
follows:
(i) Offering contract terms that are less favorable than those
generally or ordinarily offered to similarly situated covered
producers.
(ii) Refusing to deal with a covered producer on terms generally or
ordinarily offered to similarly situated covered producers.
(iii) Performing under or enforcing a contract differently than
with similarly situated covered producers.
(iv) Requiring a contract modification or renewal on terms less
favorable than similarly situated covered producers.
(v) Terminating or not renewing a contract.
(vi) Any other action that a reasonable covered producer would find
materially adverse.
(3) The following actions by a regulated entity do not prejudice,
[[Page 16199]]
disadvantage, inhibit market access, or constitute adverse action under
paragraph (a)(1) of this section:
(i) Fulfilling a religious commitment relating to livestock, meats,
meat food products, livestock products in unmanufactured form, or live
poultry.
(ii) A Federally recognized Tribe, including its wholly or
majority-owned entities, corporations, or Tribal organizations,
performing its Tribal governmental functions.
(b) Retaliation prohibited. (1) A regulated entity may not
retaliate or otherwise take an adverse action against a covered
producer based upon the covered producer's participation in an activity
described in paragraph (b)(2) of this section.
(2) The following activities by covered producers are protected
under paragraph (b)(1) of this section unless otherwise prohibited by
Federal, Tribal, or State law, including antitrust laws:
(i) Communicating with a government entity or official or
petitioning a government entity or official for redress of grievances
with respect to livestock, meats, meat food products, livestock
products in unmanufactured form, or live poultry.
(ii) Refusing a request of the regulated entity to engage in a
communication with a government entity or official that is not required
by law.
(iii) Asserting the right to form or join, or to refuse to form or
join, a producer or grower association or organization, or cooperative
or to collectively process, prepare for market, handle, or market
livestock or poultry.
(iv) Communicating or cooperating with a person for the purposes of
improving production or marketing of livestock or poultry.
(v) Communicating, negotiating, or contracting with a regulated
entity, another covered producer, or with a commercial entity or
consultant, for the purpose of exploring or entering into a business
relationship.
(vi) Supporting or participating as a witness in any proceeding
under the Act, or any proceeding that relates to an alleged violation
of any law by a regulated entity.
(vii) Asserting any of the rights granted under Act or this part,
or asserting contract rights.
(3) The following actions are considered retaliation or an
otherwise adverse action under paragraph (b)(1) of this section:
(i) Terminating or not renewing a contract.
(ii) Performing under or enforcing a contract differently than with
similarly situated covered producers.
(iii) Requiring a contract modification or a renewal on terms less
favorable than similarly situated covered producers.
(iv) Refusing to deal with a covered producer on terms generally or
ordinarily offered to similarly situated covered producers.
(v) Interfering in a farm real estate transaction or a contract
with third parties.
(vi) Any other action that a reasonable covered producer would find
materially adverse.
(c) Recordkeeping of compliance practices. (1) The regulated entity
shall retain all records relevant to its compliance with paragraphs (a)
and (b) of this section for no less than 5 years from the date of
record creation.
(2) Relevant records to paragraph (c)(1) of this section may
include: policies and procedures, staff training materials, materials
informing covered producers regarding reporting mechanisms and
protections, compliance testing, board of directors' oversight
materials, and the number and nature of complaints received relevant to
this section.
Sec. 201.305 [Reserved]
Sec. 201.306 Deceptive practices.
(a) Prohibited practices. A regulated entity may not engage in the
deceptive practices in paragraphs (b) through (e) of this section with
respect to livestock, meats, meat food products, livestock products in
unmanufactured form, or live poultry.
(b) Contract formation. A regulated entity may not make or modify a
contract with a covered producer by employing a false or misleading
statement, or omission of material information necessary to make a
statement not false or misleading.
(c) Contract performance. A regulated entity may not perform under
or enforce a contract with a covered producer by employing a false or
misleading statement, or omission of material information necessary to
make a statement not false or misleading.
(d) Contract termination. A regulated entity may not terminate a
contract with a covered producer by employing a false or misleading
statement, or omission of material information necessary to make a
statement not false or misleading.
(e) Contract refusal. A regulated entity may not provide false or
misleading information to a covered producer or association of covered
producers concerning a refusal to contract.
Sec. Sec. 201.307--201.308 [Reserved]
Sec. 201.389 [Reserved]
Sec. 201.390 Severability.
If any provision of this subpart, or any component of any
provision, is declared invalid or the applicability thereof to any
person or circumstances is held invalid, it is the Agricultural
Marketing Service's intention that the validity of the remainder of
this subpart or the applicability thereof to other persons or
circumstances shall not be affected thereby with the remaining
provision, or component of any provision, to continue in effect.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2024-04419 Filed 3-5-24; 8:45 am]
BILLING CODE 3410-02-P
