Fair and Competitive Livestock and Poultry Markets, 53886-53911 [2024-14042]

Download as PDF 53886 Proposed Rules Federal Register Vol. 89, No. 125 Friday, June 28, 2024 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. DEPARTMENT OF AGRICULTURE Agricultural Marketing Service 9 CFR Part 201 [Doc. No. AMS–FTPP–21–0046] RIN 0581–AE04 Fair and Competitive Livestock and Poultry Markets Agricultural Marketing Service, Department of Agriculture. ACTION: Proposed rule. AGENCY: The United States Department of Agriculture’s (USDA or Department) Agricultural Marketing Service (AMS) proposes to amend the regulations under the Packers and Stockyards Act of 1921 (the P&S Act or the Act) to clarify the unfair practices that the P&S Act prohibits. The proposed rule would define unfair practices as conduct that harms market participants and conduct that harms the market. Combined, these comprehensively define the contours of ‘‘unfair practices’’ under the P&S Act. The purpose of this proposed rule is to promote fair and competitive markets in the livestock, meats, poultry, and live poultry markets. DATES: Comments must be received by August 27, 2024. ADDRESSES: Comments must be submitted through the Federal erulemaking portal at https:// www.regulations.gov and should reference the document number and the date and page number of this issue of the Federal Register. AMS strongly prefers comments be submitted electronically. However, written comments may be submitted (i.e., postmarked) via mail to Docket No. AMS–FTPP–21–0046, S. Brett Offutt, Chief Legal Officer, Packers and Stockyards Division, USDA, AMS, FTPP; Room 2097–S, Mail Stop 3601, 1400 Independence Ave. SW, Washington, DC 20250–3601. All comments submitted in response to this proposed rule will be included in the record and will be made available to the khammond on DSKJM1Z7X2PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 public. Please be advised that the identity of individuals or entities submitting comments will be made public on the internet at the address provided above. Parties who wish to comment anonymously may do so by entering ‘‘N/A’’ in the fields that would identify the commenter. Pursuant to 5 U.S.C. 553(b)(4), a plain language summary of this proposed rule is available on https:// www.regulations.gov in the docket for this rulemaking. 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; Phone: (202) 690–4355; or email: S.Brett.Offutt@usda.gov. SUPPLEMENTARY INFORMATION: Table of Contents I. Authority II. Purpose of This Rulemaking A. Unfair Practices and Prior Rulemakings B. Statutory Language of the Act C. Legislative History of the Act D. Court Decisions III. The Proposed Rule A. Proposed § 201.308(a) and (b) B. Evaluation of Potential Injury to Market Participants C. Proposed § 201.308(c) and (d) D. Evaluation of Potential Injury to the Market E. Contracts F. Protected Parties IV. Severability V. Request for Comments VI. Regulatory Analysis A. Paperwork Reduction Act B. Executive Orders 12866, 13563, and 14094 C. Regulatory Impact Analysis D. Regulatory Flexibility Analysis E. Executive Order 13175—Consultation and Coordination With Indian Tribal Governments F. Executive Order 12988—Civil Justice Reform G. Civil Rights Impact Analysis H. E-Government Act I. Unfunded Mandates Reform Act I. Authority 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.’’ The Secretary has delegated the responsibility for administering the P&S Act to AMS. Within AMS, the Packers and PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 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 Code of Federal Regulations (CFR). Based on the authority Congress delegated to the Secretary to administer the P&S Act, AMS is proposing this rule to amend 9 CFR part 201 to specify the practices that are unfair and in violation of the P&S Act. Prior to this rulemaking, the decisions of USDA’s Judicial Officer,1 acting for the Secretary, have comprised the bulk of USDA’s interpretation of the meaning of ‘‘unfair’’ under the P&S Act, and the Judicial Officer’s final decisions have the same force as regulation.2 Those decisions make clear that ‘‘harm to competition can be proven by showing harm to competitors; . . . the Packers and Stockyards Act does not require that the person harmed be a direct competitor of the person causing the harm, viz., it would be a violation of the Packers and Stockyards Act if it were shown that a packer caused harm, which the Packers and Stockyards Act is designed to prevent . . . .’’ 3 Although, the Federal courts have not expressly rejected the Judicial Officer’s overall interpretation of the Packers and Stockyards Act, courts have inconsistently applied the Judicial Officer’s decisions. As a result, AMS proposes this regulation to provide a clear interpretation and promote consistency and predictability in its application of the law. 1 The position of Judicial Officer was established pursuant to the Act of April 4, 1940 (7 U.S.C. 450c– 450g); Reorganization Plan No. 2 of 1953, 18 FR 3219 (1953), reprinted in 5 U.S.C. app. at 1490 (1994); and sec. 212(a)(1) of the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(a)(1)). 2 See, e.g., City of Arlington, Tex. v. F.C.C., 668 F.3d 229, 240 (5th Cir. 2012), aff’d, 569 U.S. 290 (2013) (‘‘It is well-established that agencies can choose to announce new rules through adjudication rather than rulemaking.’’ (citing NLRB v. Bell Aerospace Co., 416 U.S. 267, 294 (1974))); Mobil Exploration & Producing N. Am., Inc. v. FERC, 881 F.2d 193, 198 (5th Cir.1989); see also Sec. & Exch. Comm’n v. Chenery Corp., 332 U.S. 194, 207 (1947) (‘‘The scope of our review of an administrative order wherein a new principle is announced and applied is no different from that which pertains to ordinary administrative action.’’). 3 In re: IBP, Inc., 57 Agric. Dec. 1353 (U.S.D.A. July 31, 1998). E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS II. Purpose of This Rulemaking Congress enacted the P&S Act, 7 U.S.C. 181 et seq., to promote fairness, reasonableness, and transparency in the livestock, meat, and poultry marketplace by prohibiting practices contrary to these goals. Enacted in 1921 ‘‘to comprehensively regulate packers, stockyards, marketing agents and dealers,’’ 4 the Act, among other things, prohibits actions that hinder integrity and competition in the livestock, meat, and poultry markets. Section 202(a) of the Act states that it is unlawful for any packer, swine contractor, or live poultry dealer to ‘‘[e]ngage in or use any unfair, unjustly discriminatory, or deceptive practice or device.’’ 5 Congress granted rulemaking and enforcement authority to USDA to ensure that appropriate competitive and fair trade and market protections are afforded to those participating in agricultural activities pertaining to livestock, meat, and poultry.6 To date, USDA has largely left these determinations to a case-by-case analysis. Court decisions interpreting this statute, however, have not been consistent with respect to the evidence needed to establish, and the legal standard that applies to, unlawful unfair practices under section 202(a) of the Act, particularly as to whether competitive injury is a requirement and what the term ‘‘unfair practice or device’’ means. This proposed rule, therefore, seeks to clarify what falls under the scope of unfair practice or device. From the plain language of the text, section 202 of the Act is broader than the antitrust laws and does not necessarily require harm to competition as that term is understood under the antitrust laws. The term ‘‘unfair’’ applies to conduct that harms the market (anticompetitive harm) and conduct that harms market participants (market abuse), similar to section 5 of 4 Hays Livestock Comm’n Co. v. Maly Livestock Comm’n Co., 498 F.2d 925, 927 (10th Cir. 1974). 5 7 U.S.C. 192(a). 6 See section 407 (7 U.S.C. 228(a)): ‘‘The Secretary may make such rules, regulations, and orders as may be necessary to carry out the provisions of this chapter. . .’’. Congress understood it was giving the Secretary ‘‘the power to prevent packers, stockyards, companies, and all persons in the stockyards from engaging in unfair, unjustly discriminatory or deceptive practices or devices.’’ Report of the House Committee on Agriculture, H.R. Rep. No. 77 67th Congress, 1st session at pg. 2 (May 18, 1921). When amending the statute in 1987, this authority with respect to live poultry dealers was explained: ‘‘the Packers and Stockyards Administration will retain jurisdiction as the act currently provides. These transactions include things like weighing practices and contract compliance.’’ 133 Cong. Rec. H9000–02, 133 Cong. Rec. H9000–02, H9002, 1987 WL 850252. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 the Federal Trade Commission Act, which prohibits both unfair methods of competition and unfair and deceptive acts or practices. Based on the text of section 202, legislative history, and both agency and judicial decisions, this proposed rule defines the term unfair. Those definitions draw on longstanding understandings of the term unfair both under the Act as well as the related Federal Trade Commission Act. The proposed rule also clarifies that the statute addresses conduct in its incipiency, does not require proof of actual harm, nor does it require proof of predatory intent. USDA recognizes that some courts have recently required proof of competitive injury before finding that conduct is unfair. Those courts were not offered an alternative definition for unfair, which this rulemaking would propose. A competitive injury requirement cannot be imposed in a way that abrogates part of a statute. To the degree requiring a ‘‘competitive injury’’ precludes finding conduct is unfair when it satisfies criteria in the proposed rule, such a requirement would unduly limit the reach of section 202(a) and is improper. Moreover, the statute and P&S Act case law make plain that competitive injury under the P&S Act is broader than harm to competition under the antitrust laws. To the extent that ‘‘competitive injury’’ is shorthand for the scope of harm section 202 reaches, competitive injury as understood under the P&S Act should include both harms to the market and harms to market participants as defined in the proposed rule. A. Unfair Practices and Prior Rulemakings Section 202(a) of the Act prohibits any unfair practice or device. The Act does not, however, specify what those practices and devices are, and in section 228(a), Congress has granted to the Secretary the authority to interpret and apply the Act to effectuate its purposes. Under the Act, this authority includes complete supervisory and regulatory power, which includes, inter alia, ‘‘the power to prevent packers . . . from engaging in unfair, unjustly discriminatory or deceptive practices or devices.’’ 7 USDA has consistently viewed the Act as prohibiting both market abuses (unfair trade practices) and competitively unfair conduct or unreasonable acts and practices (including anticompetitive conduct) owing to the adverse impact both have on the fair functioning of the marketplace and the importance of 7 H.R. PO 00000 Rep. no. 67–77 at 2 (1921). Frm 00002 Fmt 4702 Sfmt 4702 53887 ensuring that producers can obtain the full value of their livestock and poultry despite economic power imbalances.8 The Department has consistently interpreted unfair practices—and thus applied the Act—to protect producer welfare and advance fair-trade practices in the livestock, meat, and poultry industries. The Department’s policy on unfair practices has not changed throughout the course of its enforcement of the Act. In 2010, the Department issued a proposed rule that was never finalized (‘‘2010 proposed rule’’). The 2010 proposed rule was broader in scope than this proposed rule. It addressed undue or unreasonable preference or advantage; undue or unreasonable prejudice or disadvantage; criteria related to reasonable notice of a suspension of the delivery of birds under a poultry growing arrangement; when a requirement of additional capital investments over the life of a poultry growing arrangement or swine production contract constitutes a violation of the P&S Act; and whether a packer, swine contractor or live poultry dealer has provided a reasonable period of time for a grower or a swine producer to remedy a breach of contract that could lead to termination of the growing arrangement or production contract (75 FR 35338; June 22, 2010). As it relates to the scope of this proposed rulemaking, the preamble to the 2010 proposed rule stated that ‘‘Section 202(a) of the P&S Act prohibits ‘any unfair, unjustly discriminatory, or deceptive practice.’ ’’ The preamble also stated that ‘‘USDA has consistently taken the position that, in some cases, a violation of section 202(a) or (b) can be proven without proof of predatory intent, competitive injury, or likelihood of injury.’’ 9 But the USDA ‘‘always understood that an act or practice’s effect on competition can be relevant and, in certain circumstances, even dispositive[.]’’ The proposed regulation attempted to define competition, and proposed a series of specific violations of the Act including: ‘‘Any act that causes competitive injury 8 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ chapter 3, Washington Center for Equitable Growth, May 5, 2022, https:// equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/. (The report provides the following acknowledgement: ‘‘A U.S. Department of Agriculture-Washington Center for Equitable Growth cooperative agreement supported the research and writing of this report. The findings and conclusions in this report are those of the author and should not be construed to represent any official U.S. Department of Agriculture or U.S. government determination or policy.’’). 9 75 FR 35338, 35340 (June 22, 2010). E:\FR\FM\28JNP1.SGM 28JNP1 53888 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS or creates a likelihood of competitive injury.’’ The 2010 proposed rule was never finalized due to a series of appropriations riders from fiscal years 2012 through 2015 that prevented the Department from working on rules related to the subjects covered in the 2010 proposed rule. In 2016, the Department issued an interim final rule that, in relevant part, addressed the scope of section 202(a) and (b) of the P&S Act (‘‘2016 IFR’’). The 2016 IFR published what had been issued as the 2010 proposed rule with slight modifications. However, the 2016 IFR reiterated ‘‘USDA has consistently taken the position that, in some cases, a violation of section 202(a) or (b) can be proven without proof of predatory intent, competitive injury, or likelihood of competitive injury.’’ (81 FR 92556, 92567; December 20, 2016). The 2016 IFR preamble also stated that ‘‘USDA has always understood that an act or practice’s effect on competition can be relevant and, in certain circumstances, even dispositive with respect to whether an act or practice violates sections 202(a) and/or (b).’’ The 2016 IFR did not define competition or describe when harm to competition would not be required. In 2017, following a change in administration, finalization of the 2016 IFR was delayed, and ultimately withdrawn (82 FR 48594; October 18, 2017). The 2016 IFR was withdrawn on the grounds that USDA believed that specific rule would not have effectively addressed court decisions in several U.S. Courts of Appeals, that the courts would not have deferred to it, and that the ‘‘good cause’’ justification for dispensing with notice and comment was inadequate. At that time, the Department further determined that ‘‘[p]rotracted litigation to both interpret this regulation and defend it serves neither the interests of the livestock and poultry industries nor GIPSA.’’ 10 The 2017 withdrawal did not alter the longstanding position of USDA articulated in the 2010 proposed rule and again in the 2016 IFR.11 Nor did the 10 Scope of section 202(a) and (b) of the Packers and Stockyards Act, 82 FR 48594, 48597 (Oct. 18, 2017). 11 82 FR 48594, 48596 (Oct. 18, 2017) (‘‘The purpose of the IFR was to clarify that conduct or actions may violate 7 U.S.C. 192(a) and (b) without adversely affecting, or having a likelihood of adversely affecting, competition. This reiterated USDA’s longstanding interpretation that not all violations of the P&S Act require a showing of harm or likely harm to competition. Contrary to comments that GIPSA failed to show that USDA’s interpretation was longstanding, USDA has adhered to this interpretation of the P&S Act for decades. DOJ has filed amicus briefs with several Federal VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 withdrawal announce a policy against regulation in general. The current proposed rule is less about a judicial debate over competitive injury and instead would establish a more workable standard for USDA to consistently apply in its own administrative hearings and investigations, which in turn would provide a standard that the public can more easily understand. And the current rule is being issued through notice and comment. Thus, AMS does not believe that the same concerns that prompted withdrawal of the 2016 IFR apply to this proposal. In sum, it has always been USDA’s position that it is not necessary in every case to demonstrate competitive injury in order to show a violation of section 202(a). But USDA has also consistently recognized that any act or practice that harms or is likely to harm competition also violates the statute.12 This proposed rule provides a basis for the public to understand precisely how USDA would apply the statute to both categories of harms. B. Statutory Language of the Act The P&S Act’s language and structure support USDA’s longstanding position on section 202(a) and (b), as well as USDA’s position on the Act’s legislative history and purposes. Congress drafted section 202(a) to reach a range of unfair practices and devices, such as anticompetitive practices, market abuses, or other distortions of the competitive process.13 Congress proscribed ‘‘unfair’’ practices without limitation, using terms like section 202’s proscription of ‘‘deceptive’’ and ‘‘unjust’’ conduct commonly understood then and now to encompass more than conduct causing competitive injury.14 appellate courts arguing against the need to show the likelihood of competitive harm for all violations of 7 U.S.C. 192(a) and (b).’’ (footnotes omitted)). 12 See id. at 92568. 13 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ chapter 3, Washington Center for Equitable Growth, May 5, 2022, https://equitablegrowth.org/research-paper/ protecting-livestock-producers-and-chickengrowers/. quoting, inter alia, Herbert Hovenkamp, ‘‘Does the Packers and Stockyards Act Require Antitrust Harm?’’ (Philadelphia: Faculty Scholarship at Penn Law, 2011), available at https:// scholarship.law.upenn.edu/faculty_scholarship/ 1862. 14 When the P&S Act was enacted, Webster’s New International Dictionary defined ‘‘unfair’’ as ‘‘[n]ot fair in act or character; disingenuous; using or involving trick or artifice; dishonest; unjust; inequitable’’ (2d. definition); ‘‘unjust’’ as ‘‘[c]haracterized by injustice; contrary to justice and right; wrongful’’; ‘‘undue’’ as ‘‘[n]ot right; not lawful or legal; violating legal or equitable rights; improper’’ (2d. definition); and ‘‘unreasonable’’ as ‘‘[n]ot conformable to reason; irrational’’ or ‘‘immoderate; exorbitant.’’ Webster’s New International Dictionary 578, 2237, 2238, 2245, PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 Congress confirmed this plain meaning by amending the P&S Act to add specific instances of conduct prohibited as unfair that do not involve any inherent likelihood of competitive injury.15 Unlike with other provisions of section 202, Congress chose not to limit section 202(a) and (b) to specific types of competitive injuries identified in other sections of the Act.16 While section 202(c) through (f) include provisions that address particular competitive injuries—such as where a practice has the tendency, effect, or purpose of ‘‘creating a monopoly’’ or ‘‘restraining commerce’’—those limitations are absent from section 202(a) and (b).17 This difference confirms that section 202(a) and (b) do not require a showing of competitive injury for such conduct.18 Moreover, Congress has amended the P&S Act to confirm the Department’s longstanding view that there are specific instances of conduct that are prohibited as ‘‘unfair’’ that do not involve any inherent likelihood of competitive injury.19 In 1976, Congress confirmed that failing to pay, when due, for livestock and meats was an ‘‘unfair practice’’ under the P&S Act, and it did not require any harm to competition to be a violation of section 202(a). The prevailing interpretation of section 312 of the P&S Act, which uses similar language, further confirms USDA’s interpretation of section 202(a). 2248 (1st ed. 1917). This is the same understanding of the terms today. 15 See sections 409, 410. 16 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ chapter 3, Washington Center for Equitable Growth, May 5, 2022, https://equitablegrowth.org/research-paper/ protecting-livestock-producers-and-chickengrowers/, quoting, inter alia, Herbert Hovenkamp, ‘‘Does the Packers and Stockyards Act Require Antitrust Harm?’’ (Philadelphia: Faculty Scholarship at Penn Law, 2011), available at https:// scholarship.law.upenn.edu/faculty_scholarship/ 1862. 17 More specifically, subsection (c) reaches certain sales that apportion supply ‘‘if such apportionment has the tendency or effect of restraining commerce or of creating a monopoly.’’ Subsection (d) reaches sales and other transfers wherein parties ‘‘receive from or for any other person, any article for the purpose or with the effect of manipulating or controlling prices, or of creating a monopoly in the acquisition of, buying, selling, or dealing in, any article, or of restraining commerce. Subsection (e) reaches a course of business or any act with ‘‘the purpose or with the effect of manipulating. or controlling prices, or of creating a monopoly in the acquisition of, buying, selling, or dealing in, any article, or of restraining commerce.’’ 18 Department of Homeland Sec. v. MacLean, 135 S. Ct. 913, 919 (2015), citing Russello v. United States, 464 U.S. 16, 23 (1983): ‘‘Congress generally acts intentionally when it uses particular language in one section of a statute but omits it in another.’’ 19 See, e.g., secs. 409 and 410 of the P&S Act. E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS Courts have recognized that the proper analysis under this provision depends on ‘‘the facts of each case,’’ 20 and that these sections may apply in the absence of competitive injury.21 Furthermore, even with respect to subsections of the Act that do focus on competitive harm, the text of those subsections indicates that competitive harm under the P&S Act goes beyond the types of competitive injuries cognizable under Federal antitrust laws.22 For example, section 202(d) through (f) unambiguously apply to market injuries that the antitrust laws often do not reach—such as price manipulation, where a single-firm practice ‘‘manipulat[es] or control[s] price’’ or otherwise restrains trade, irrespective of conspiracy. These prohibitions in the relevant subsections are each embedded within ‘‘or’’ clauses that otherwise cover prohibitions that are squarely about anticompetitive conduct cognizable under Federal antitrust laws. Further, section 202(a) and (b) must cover conduct not covered by section 202(d) through (f) or section 202(a) and (b) would be superfluous. The presence of all of these provisions in the P&S Act shows, at a minimum, the regulatory scheme for fair competition under the P&S Act is broader than competitive injury under the Federal antitrust laws and at least as broad as section 5 of the Federal Trade Commission Act.23 And, when compared to antitrust statutes, the P&S Act, like section 5 of the Federal Trade Commission Act (FTC Act), covers incipient threats to competition and potential injuries to market participants. In addition, the P&S Act’s remedial purposes prohibit incipient violations of the P&S Act even if the practice has no potential anti-competitive or impact on markets at all.24 20 Capitol Packing Company v. United States, 350 F.2d 67, 76 (10th Cir. 1965); see also Spencer Livestock Comm’n Co. v. USDA, 1988. 21 Spencer Livestock Comm’n Co. v. USDA, 841 F.2d 1451, 1454 (9th Cir. 1988): section 312 covers ‘‘a deceptive practice, whether or not it harmed consumers or competitors.’’ 22 In particular see the FTC Act (15 U.S.C. 41 et seq.), Sherman Antitrust Act (15 U.S.C. 1 et seq.), and the Clayton Antitrust Act (15 U.S.C. 12 et seq.). 23 See Fed. Trade Comm’n, Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022) (discussing competitive injuries cognizable under section 5 of the FTC Act that are not cognizable under the Sherman or Clayton Act); Been v. O.K. Indus., Inc., 495 F.3d 1217, 1241 (10th Cir. 2007) (Hartz, J. concurring) (‘‘[I]t would be somewhat surprising if ‘unfair practices’ under the PSA had a narrower meaning than ‘unfair methods of competition’ in the FTCA.’’). 24 See, e.g., Bowman v. United States Dep’t of Agric., 363 F.2d 81, 85 (5th Cir. 1966) (finding the Department’s insolvency standard was not an abuse VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 In short, section 202(a) covers unfair conduct beyond harm to competition, and where harm to competition is relevant, the P&S Act is broader than the antitrust laws. C. Legislative History of the Act The legislative history and purposes of the P&S Act also support USDA’s interpretation of section 202(a) with regard to the role of competitive injury. As the Supreme Court has stated, when interpreting a statute, a provision ‘‘must take meaning from its historical setting.’’ 25 The genesis of the P&S Act predates its enactment by several decades.26 On May 16, 1888, the U.S. Senate authorized an investigation ‘‘to determine whether there exists or has existed any combination . . . on the part of those engaged in buying and shipping meat products, by reason of which the prices of beef and beef cattle have been so controlled or affected as to diminish the price paid the producer without lessening the cost of meat to the consumer.’’ 27 In 1902, a bill of equity was filed by the United States to enjoin the alleged conspiracy as a violation of the antitrust laws. In 1903, an injunction was issued, which was sustained by the U.S. Supreme Court.28 The dominance and unfair or unreasonable anticompetitive conduct of the packers continued; on February 7, 1917, President Wilson directed the Federal Trade Commission (FTC) to investigate and report the facts with respect to the packing industry.29 The FTC meat industry investigation found that, in 1916, the Big Five 30 (the five largest meatpackers) controlled the processing of 82 percent of cattle, 79 percent of calves, 87 percent of sheep, and 63 percent of swine in the U.S.31 The Big Five also controlled an interlocking network of feed mills, stockyards, and transportation infrastructure that supported the industry. As extensively documented in an FTC report, those five packers used their market power to engage in a range of discretion because it helps to prevent the unfair practice of late payment). 25 United States v. Henning, 344 U.S. 66, 72 (1952). 26 10 N. Harl, Agricultural Law sec. 71.4. (1987), 71–4. 27 61 Cong. Rec. 2614. 28 Swift & Co. v. United States, 196 U.S. 375 (1905). 29 Stafford v. Wallace, 258 U.S. 495 (1922). 30 The highly concentrated meatpacking industry of the early 20th century was controlled by the industry’s ‘‘Big Five’’ operators of Armour, Cudahy, Morris, Swift, and Wilson. 31 ‘‘Annual Report for 1918,’’ FTC, p. 23, https:// www.ftc.gov/sites/default/files/documents/reports_ annual/annual-report-1918/ar1918_0.pdf. PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 53889 of practices to further entrench their dominance of the meat industry.32 The FTC report documented a number of complaints by producers that the U.S. Supreme Court summarized in the synopsis of the case upholding the constitutionality of the P&S Act, including excessive charges by stockyards for hay and other facilities, the duplication of commissions by commission men and dealers, and fraudulent reporting of livestock being crippled in transit, in addition to suppression of competition through collusion.33 Following the FTC’s report, and before the passage of the signed a consent decree in 1920.34 The decree enjoined the packers from pursuing combinations to monopolize the purchase and control the price of livestock and the sale and distribution of meat products, and from being involved in other food sectors.35 In this way, the decree sought to break the industry up vertically, underscoring the broad approach of the P&S Act. After the consent decree, the Senate and House of Representatives held extensive hearings on several bills to address problems related to concentration and market domination in the meat industry, one of which, H.R. 6320, eventually became the P&S Act of 1921.36 The House of Representatives’ report on the P&S Act stated, ‘‘A careful study of the bill, will . . . convince one that it and existing laws, give the Secretary of Agriculture complete inquisitorial, visitorial, supervisory, and regulatory power over the packers, stockyards and all activities connected therewith; that it is 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.’’ 37 The Conference Report on the P&S Act stated that: ‘‘Congress intends to exercise, in the bill, the fullest control of the packers and stockyards which the Constitution permits . . .’’.38 It was emphasized by Representative Samuel T. Rayburn (later Speaker of the House of Representatives) that although Congress ‘‘gave the Federal Trade 32 Id. 33 Stafford at 501–502. States v. Swift & Co., Equity No. 37623 (Sup. Ct. of D.C. 1920); United States v. Swift & Co., 286 U.S. 106 (1932). 35 Id. at 399; see, generally, Michael C. Stumo & Douglas J. O’Brien, ‘‘Antitrust Unfairness vs. Equitable Unfairness in Farmer/meat Packer Relationships,’’ 8 Drake J. Agric. L. 91 (2003). 36 See 10 N. Harl, Agricultural Law sec. 71.2. (1987). 37 House Report No. 67–77, at 2 (1921). 38 House Report No. 67–324, at 3 (1921). 34 United E:\FR\FM\28JNP1.SGM 28JNP1 53890 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS Commission wide powers’’ to prohibit unfair methods of competition, the authority of the Commission at that time was not as broad as that given to ‘‘the Secretary of Agriculture under this bill,’’ which became the P&S Act.39 Congress subsequently made clear, through further legislative developments, that its goals for the statute extended beyond the prohibition of anticompetitive conduct in the manner of the antitrust laws. For instance, in a 1935 amendment adding live poultry dealers to the coverage of section 202(a) and (b), Congress amended the text to specify that ‘‘[t]he handling of the great volume of live poultry . . . is attendant with various unfair, deceptive, and fraudulent practices and devices, resulting in the producers sustaining sundry losses and receiving prices far below the reasonable value of their live poultry . . . ’’ 40 Similarly, the House Committee Report regarding 1958 amendments identified ‘‘[t]he primary purpose’’ of the P&S Act as ‘‘assur[ing] fair competition and fair trade practices’’ and ‘‘safeguard[ing] farmers . . . against receiving less than the true market value of their livestock.’’ 41 In accordance with this legislative history, courts and commentators have, over a span exceeding 70 years, recognized that although the purposes of the P&S Act include proscribing anticompetitive conduct, they are not limited solely to conduct that injures competition as understood in the antitrust laws.42 Indeed, for these seven decades, USDA has regularly maintained and enforced a wide range of fair trade rules and principles including prompt payment, standardized weights and measures, sufficient bonding and solvency, prohibitions on commercial bribery, and more. These rules and enforcement mandates play important roles in protecting market participants from abuse, and to that end, they proscribe conduct that USDA has also viewed as 39 61 Cong. Rec. 1806. When the P&S Act was passed, the FTC was authorized to prohibit only unfair methods of competition. Congress later gave the FTC additional authority to police unfair and deceptive acts or practices. See infra notes 53–57. 40 Public Law 74–272, 49 Stat. 648, 648 (1935). 41 H.R. Rep. No. 85–1048 (1957), reprinted in 1958 U.S.C.C.A.N. 5212, 5213 (emphasis added); see also, e.g., id. at 5213 (further observing that protection extends to ‘‘unfair, deceptive, unjustly discriminatory’’ practices by ‘‘small’’ companies in addition to ‘‘monopolistic practices.’’). 42 See, e.g., Stafford, 258 U.S. at 513–14; Spencer Livestock, 841 F.2d 1451, 1455 (9th Cir. 1988); United States v. Perdue Farms, Inc., 680 F.2d 277, 280 (2d Cir. 1982); Bruhn’s Freezer Meats of Chi., Inc. v. United States Dep’t of Agric., 438 F.2d 1332, 1336–37 (8th Cir. 1971); Bowman v. USDA, 363 F.2d 81, 85 (5th Cir. 1966); United States v. Donahue Bros., 59 F.2d 1019, 1023 (8th Cir. 1932). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 distorting the competitive process within the livestock, meat, and poultry markets.43 To that end, proscribing abuses of market participants is integral to any effort to understand ‘‘harm to competition’’ under the P&S Act itself.44 Nor is the statutory history of the P&S Act monolithic: it was used as a pattern for other laws as well, notably changes to the FTC Act. When Congress passed the FTC Act in 1914, the statute prohibited only unfair methods of competition, which was a then-new term of art with a broad scope.45 In 1937, the Supreme Court in FTC v. Raladam Co. gave a narrowing interpretation, holding that the FTC’s unfairness authority was limited to conduct causing competitive injury.46 Congress disapproved of this interpretation, and in 1938 it passed the Wheeler-Lea Act,47 which clarified the expansiveness of the FTC’s unfairness authority by specifying that it covers acts or practices that injure consumers, regardless of whether the acts or practices may also injure competition. Notably, the Wheeler-Lea Act was modeled on the P&S Act, specifically section 202(a)’s prohibition on unfair practices that injure producers. When the FTC proposed the Wheeler-Lea Act, the FTC pointed to the P&S Act as the precedent for its text.48 If it were not enough that the FTC succeeded—that it persuaded Congress to pass the Wheeler-Lea Act by relying on the P&S Act as precedent for prohibiting unfair practices without a competitive injury requirement—the 17 years of P&S enforcement prior to the Wheeler-Lea Act are especially telling. During the 43 See, e.g., In re: Central California Livestock, Inc. d/b/a Machlin Meat Packing Company, 15 Agric. Dec. 97, 110 (1956). 44 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022, https:// equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/. 45 American Airlines, Inc. v. North American Airlines, Inc., 351 U.S. 79, 85 (1956); Fed. Trade Comm’n v. Motion Picture Advertising Service Co., 344 U.S. 392, 394–95 (1953); Fed. Trade Comm’n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 (1934). 46 FTC v. Raladam Co., 283 U.S. 643, 649 (1931). The Supreme Court later relaxed this holding. FTC v. Raladam Co., 316 U.S. 149 (1942). See Luke Herrine, ‘‘The Folklore of Unfairness,’’ 96 N.Y.U. L. Rev. 431, 465–66, 470–71 (2021). 47 The Wheeler-Lea Act, ch. 49 sec. 2, 52 Stat. 111 (1938); Stephanie W. Kanwit, 1 Fed. Trade Comm’n. sec. 3:5 (2023–2024). 48 Charles Wesley Dunn, Wheeler-Lea Act: A Statement of its Legislative Record 411, 418 (1938) (testimony of Ewin Davis, Chair, FTC). The FTC did, however, propose an expansion of its authority to include ‘‘unfair acts in commerce’’ in 1919, before the P&S Act was proposed. High Cost of Living as Affected by Trust and Monopolies, Hearings Before the H. Comm. on the Judiciary, 66th Cong., 1st Sess. 25–26 (1919). PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 period from 1921 to 1938, the Secretary frequently found unfairness violations under section 202 that would not have been ‘‘unfair methods of competition’’ under the narrowing gloss the Supreme Court applied in Raladam—and that Congress subsequently rejected by passing the Wheeler-Lea Act. The design of the P&S Act’s text, and the legislative history, thus clearly reflect Congressional intent that the Act’s unfairness authority extend beyond unfair methods of competition.49 The Act ‘‘was framed in language designed to permit the fullest control of packers and stockyards which the Constitution permits, and its coverage was to encompass the complete chain of commerce and give the Secretary of Agriculture complete regulatory power over packers and all activities connected therewith.’’ 50 It was hailed as a ‘‘far-reaching measure and extend[ing] further than any previous law into the regulation of private business.’’ 51 If the existing antitrust laws and the consent decree signed by the Big Five packers had been sufficient to protect market participants from unfair practices, Congress would not have passed the P&S Act. The P&S Act’s legislative history demonstrates Congress intended the Act to cover a broader range of conduct than is covered by the Sherman Act and Clayton Act. Congress intended to regulate practices that would violate those two antitrust laws and practices that would be unfair under the FTC Act, as well as the ‘‘special mischiefs and injuries inherent in livestock and poultry traffic.’’ 52 Particularities in the market structure and operation of the livestock, meat, and poultry industries compelled Congress to create a statute specific to them; to regulate fair trade practices among livestock and poultry producers, stockyards, meat packers, swine contractors, and live poultry dealers; and to ensure equal access to 49 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022, https:// equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/. 50 Bruhn’s Freezer Meats of Chicago, Inc. v. USDA, 438 F.2d 1332, 1339 (8th Cir. 1971), citing H.R. Rep. No. 67–324 (1921); H.R. Rep. No. 67–77 (1921). 51 61 Cong. Rec. 1801 (1921), statement of Rep. Haugen; see also Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 1961): ‘‘The legislative history shows Congress understood the sections of the [Act] under consideration were broader in scope than the antecedent legislation,’’’ citing 61 Cong. Rec. 1805 (1921). 52 See Spencer Livestock Comm’n Co. v. USDA, 841 F.2d 1451, 1455 (9th Cir. 1988); Armour & Co. v. United States, 402 F.2d 712 (7th Cir. 1968). E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS markets.53 In these industries, a handful of firms owning a small number of capital-intensive slaughter and meat processing plants exercised substantial market power over thousands of producers spread across rural communities.54 These conditions continue today and are even more important in light of increased industry concentration. For example, in 2019 the four-firm concentration ratio (the combined market share of the four largest firms in the industry) was as follows: 53% for broiler chickens, 55% for turkeys, 67% for hogs, and 85% for fed cattle.55 These concentrated industries procure their poultry and livestock for processing from a large number of unconcentrated farms engaged in livestock and poultry production, including 14,144 farms raising broilers under contract, 47,510 farms that sold hogs and pigs, and 25,783 farms with cattle on feed in 2022.56 Further, as held by the U.S. Court of Appeals for the Ninth Circuit, the Act was intended to ‘‘assure fair competition and fair trade practices in livestock marketing.’’ 57 ‘‘Fair competition’’ is consistent with the view of the P&S Act as a device for protecting against not only Sherman and Clayton Act violations but also other unfair methods of competition that tend to negatively affect market conditions, embodied for example in the prohibitions in 202(d) and (e) of the Act.58 However, ‘‘fair trade practices’’ has a different connotation, going beyond practices that cause (or tend to cause) competitive injury to include practices that harm market participants, specifically producers, as well as other regulated entities and consumers. This 53 Live Poultry Dealers were added to the Packers and Stockyards Act in 1935 by 49 Stat. 648 (August 14, 1935), and most recently modified in 1987 by 101 Stat. 917, Public Law 100–173 (November 23, 1987). Swine Contractors were added by amendment in 2002, 116 Stat. 134, Public Law 107– 171 (May 13, 2002). 54 The imbalance of market power and size between producers, growers, and concentrated processors is discussed in 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. https://doi.org/10.32747/ 2023.8054022.ers. 55 Industry concentration is discussed in more detail below in the Regulatory Impact Analysis section; additional four-firm concentration data is provided in table 1 of that section. 56 USDA, National Agricultural Statistics Service, ‘‘2022 Census of Agriculture: United States Summary and State Data,’’ issued February 2024, tables 38, 24, and 71. 57 Spencer Livestock Comm’n Co. v. USDA, 841 F.2d 1451, 1455 (9th Cir. 1988), citing H.R. Rep. No. 1048, 85th Cong., 2d Sess., reprinted in 1958 U.S. Code Cong. & Admin. News 5212, 5213. 58 7 U.S.C. 192. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 term invokes a standard of equitable unfairness, which does not implicate market conditions, competition, efficiency, or consumer welfare.59 USDA has long viewed keeping a marketplace free from abusive conduct for participants as part and parcel of maintaining a fair competitive landscape even if the unfair practice is directed at only a few individuals or firms. To the extent that violations of P&S Act section 202(a) require a showing of ‘‘harm to competition’’ under the P&S Act, that would necessarily have to cover both competitively unfair conduct and market abuses. D. Court Decisions Courts for decades have made it clear that section 202 of the P&S Act reaches beyond the antitrust laws.60 That is consistent with USDA’s approach to enforcement since the earliest days of the Act. As discussed extensively in section III.A. below, USDA has enforced the Act to prohibit a wide range of unfair practices that harm individual market participants.61 59 See Michael C. Stumo & Douglas J. O’Brien, ‘‘Antitrust Unfairness vs. Equitable Unfairness in Farmer/meat Packer Relationships,’’ 8 Drake J. Agric. L. 91 (2003); see, also Swift & Co. v. United States, 308 F.2d 849, 853 (7th Cir. 1962) (noting that the petitioner claimed that the P&S Act would be violated if its practice was ‘‘contrary to good morals because characterized by deception, fraud, had faith or oppression[.]’’). See also interpretations of unfair practices in various Federal and State contexts, such as the recent guidance by the U.S. Department of Transportation 85 FR 78707 (2020). Other commentary concurs. See Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022, https://equitablegrowth.org/researchpaper/protecting-livestock-producers-and-chickengrowers/; Peter C. Carstensen, ‘‘The Packers and Stockyards Act: A History of Failure to Date,’’ The CPI Antitrust Journal (2) (2010), available at https:// www.competitionpolicyinternational.com/assets/ Uploads/CarstensenAPR-2.pdf; Herbert Hovenkamp, ‘‘Does the Packers and Stockyards Act Require Antitrust Harm?’’ (Philadelphia: Faculty Scholarship at Penn Law, 2011), available at https:// scholarship.law.upenn.edu/faculty_scholarship/ 1862. 60 See, e.g., In re Pilgrim’s Pride, 728 F.3d 457, 460 (5th Cir. 2013): ‘‘violations of the PSA are not strictly limited to the traditional antitrust realms of price-fixing conspiracies and monopolization’’; Swift & Co. v. US, 393 F.3d 247, 253 (7th Cir. 1968): section 202’s prohibitions ‘‘are broader and more far-reaching than the Sherman Act or even section 5 of the Federal Trade Commission Act’’; Swift & Co. v. US, 308 F.3d 849, 853 (7th Cir. 1962): section 202 is ‘‘broader in scope than antecedent legislation such as [the Sherman Act, section 2 of the Clayton Act, section 5 of the FTC Act, and section 3 of the Interstate Commerce Act]’’. 61 See, e.g., Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022; https:// equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/; Peter C. Carstensen, ‘‘The Packers and Stockyards Act: A History of Failure to Date,’’ The CPI Antitrust Journal (2) (2010), available at https:// PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 53891 AMS has observed that rising market concentration and the growth of vertical contracting in the late 1990s and early 2000s—including insufficient USDA enforcement of the Act—led to increased private actions under the P&S Act.62 Starting in the 1970s, Congress expanded the Act to authorize private rights of action in Federal court, which could be filed with respect to livestock starting in 1976, and with respect to poultry starting in 1987.63 By the late 1990s and early 2000s, the Federal courts faced private cases making claims based on alleged unfair practices. In the majority of these cases the Federal courts did not rely upon the opinions of USDA’s Judicial Officer, and have come to conflicting conclusions about how to interpret section 202(a) and (b) of the Act.64 And indeed, notably commencing in 2005 with the Eleventh Circuit’s decision in Pickett v. Tyson Fresh Meats, Inc., a handful of Circuits have held that private litigants could establish conduct is ‘‘unfair’’ in violation of section 202(a) only with evidence that the behavior caused competitive injury as a marketwide harm.65 The courts incorporating a competitive injury requirement point to the P&S Act’s ‘‘antitrust origins,’’ although those courts also readily acknowledge that the P&S Act is broader than the antitrust laws. Courts that apply a standard with a competitive-injury component, however, are far from unanimous in their interpretation of the P&S Act’s prohibitions, generally, and of competitive injury, specifically. The www.competitionpolicyinternational.com/assets/ Uploads/CarstensenAPR-2.pdf; see also Herbert Hovenkamp, ‘‘Does the Packers and Stockyards Act Require Antitrust Harm?’’ (Philadelphia: Faculty Scholarship at Penn Law, 2011), available at https:// scholarship.law.upenn.edu/faculty_scholarship/ 1862. 62 Peter C. Carstensen, ‘‘The Packers & Stockyards Act: A History of Failure to Date,’’ The CPI Antitrust Journal (April 2010), available at https:// www.competitionpolicyinternational.com/assets/ Uploads/CarstensenAPR-2.pdf; see also, generally, Leonard, Christopher, ‘‘The Meat Racket’’ (2014); see also, e.g., C. Robert Taylor, ‘‘Legal and Economic Issues with the Courts’ Rulings in Pickett v. Tyson Fresh Meats, Inc., a Buyer Power Case,’’ American Antitrust Institute Working Paper No. 07– 08, Feb. 2007, available at https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1103635 (last accessed April 2024). See, e.g., IBP, Inc. v. Glickman, 187 F.3d 974, 978 (8th Cir. 1999). 63 Sec. 308, 7 U.S.C. 209; Sept. 13, 1976, 90 Stat. 1250, Public Law 94–410; Nov. 23, 1987, 101 Stat. 918, Public Law 100–173. 64 See, generally, John Shively, ‘‘Competition Under the Packers and Stockyards Act: What Now?’’ 15 Drake J. Agric. L. 419 (Fall 2010). 65 Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355 (5th Cir. 2009) (en banc); Been v. O.K. Industries, Inc., 495 F.3d 1217 (10th Cir. 2007); London v. Fieldale Farms Corp., 410 F.3d 1295 (11th Cir. 2005); Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272 (11th Cir. 2005). E:\FR\FM\28JNP1.SGM 28JNP1 53892 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS Tenth Circuit has required competitive injury for unfairness but not deception claims, while the Fifth and Sixth Circuit appear to require ‘‘competitive injury’’ even for deception claims. Similarly, although the Tenth Circuit in Been v. O.K. Industries, Inc. adopted the competitive injury requirement, it had previously found violations of section 202 for failure to pay (Hays Livestock), market agent’s loan to packer, which was a conflict of interest, (Capitol Livestock), and failing to disclose a change in grading system (Excel).66 Some decisions seemingly apply a higher standard than what the antitrust laws require. In Pickett, after a jury found that Tyson’s vertical supply restrictions adversely affected competition by artificially reducing Tyson’s purchase price for cattle, the court required the plaintiff to further rebut Tyson’s claimed countervailing justifications in order to establish harm to competition. In London v. Fieldale Farms Corp., the court invoked a Sherman Act standard in holding that a plaintiff must show that the defendant’s unfair, discriminatory, or deceptive practice adversely affects or is likely to adversely affect competition,67 but the case also quoted with approval Armour& Co. v. United States,68 which held that a violation of section 5 of the FTC Act—which is broader than the Sherman Act—would be sufficient. As discussed below, section 5 reaches conduct that does not violate the Sherman Act, and liability under section 5 does not depend on demonstrable anticompetitive effects or proof of the defendant’s market power. The Act reaches practices ‘‘not merely in their fruition, but also in their incipiency’’ if they ‘‘could lead to trade restraints and practices deemed undesirable’’ and also ‘‘conduct which, although not a violation of the letter of the antitrust laws, is close to a violation or is contrary to their spirit.’’ 69 In Been, the court similarly required that the plaintiffs show that the ‘‘specific practices have the effect of injuring competition or are likely to do so,’’ but 66 Even some decisions that have required competitive injury define it more broadly than what might be required to establish antitrust injury. See e.g., Wheeler, 591 F.3d at 370 n.5 (Jones, J., concurring) (regulation needed ‘‘to curb practices that resulted in producers receiving far below the reasonable value of their live poultry’’); id. at 370 (‘‘the PSA was intended to prevent the abuse of monopoly’’); Been, 495 F.3d at 1234 (manipulation of prices constitutes competitive injury). 67 London v. Fieldale Farms Corp., 410 F.3d 1295, 1303 (11th Cir. 2005). 68 Armour & Co. v. United States, 402 F.2d 712 (7th Cir. 1968). 69 E.I. du Pont de Nemours v. Fed. Trade Comm’n (Ethyl), 729 F.2d 128, 136–37 (2d Cir. 1984). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 then it went further, requiring more than courts ordinarily require to prove even a Sherman Act violation. In Been, plaintiffs had to show the practices resulted in both lower prices for producers and higher prices for retail consumers.70 Finally, Wheeler v. Pilgrim’s Pride Corp. held that ‘‘an anticompetitive effect is necessary’’ to prove a violation of section 202(a) of the P&S Act, despite citing with approval Farrow v. U.S. Dep’t of Agr.,71 where the court held that harm to competition merely ‘‘can be found’’ sufficient to demonstrate violation of the P&S Act. Moreover, the courts’ varying interpretations of section 202(a)— including those that have required competitive injury—apply inconsistent legal standards to the evidence. Or, as it has been observed: ‘‘courts’ application of the harm-to-competition test is inconsistent with their own antitrust rules that they claim to be applying.’’ 72 Simply, ‘‘harm to competition’’ fails even its basic function as the judicial stand-in for well-articulated contours of a prohibition on unfair practices. At the same time, other courts have either explicitly rejected a competitive injury requirement or have found violations without addressing the impact on competition.73 Disagreement among the courts over the need for competitive injury and what the term means makes enforcement difficult and has created a legal patchwork in which different rules apply depending on the presiding circuit. The lack of consistent legal standards has adversely affected the Department’s ability to maintain fair and competitive livestock and poultry markets and ensure producers can obtain the full value of their products and services. Livestock and poultry industries are inherently interstate activities, with activities, services, and trading regularly occurring across multiple states and in regional and national markets. Much like the FTC’s policy statements have defined its national approaches to unfair practices and unfair methods of competition, a 70 Been v. O.K. Industries, Inc., 495 F.3d 1217, 1232 (10th Cir. 2007). Also, there seems to be no consideration of the fact that price manipulation is an express violation of section 202(d) and 202(e) of the P&S Act. 71 760 F.2d 211, 214 (8th Cir. 1985). 72 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022, https:// equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/. 73 See, e.g., M & M Poultry v. Pilgrim’s Pride Corp., No. 2:15–CV–32, 2015 WL 13841400, at *8 (N.D.W. Va. Oct. 26, 2015); Triple R Ranch, LLC v. Pilgrim’s Pride Corp., 456 F. Supp. 3d 775, 778 (N.D.W. Va. 2019); Hedrick v. S. Bonaccurso & Sons, Inc., 466 F. Supp. 1025, 1031 (E.D. Pa. 1978). PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 workable rule governing how the prohibitions on unfair practices will operate and be enforced is important for providing clarity to market participants and for AMS to effectuate its nationwide statutory obligation to ensure fair and competitive livestock, meat, and poultry markets, and ensure livestock producers and poultry growers can secure the full value for their products and services.74 The cases mentioned above all applied different standards despite all claiming to have derived their standards from the Act and the caselaw. These opinions gave little or no guidance on the practices that would satisfy their standards. Moreover, in the cases adopting a competitive injury requirement, the litigants did not offer an affirmative definition of ‘‘unfair’’ like the criteria in the proposed rule. Those courts never addressed whether ‘‘unfair’’ applies to harms typically treated as unfair practices under the FTC Act. This ambiguity and inconsistency across judicial interpretations of the statute impedes enforcement of the Act under section 202(a) because to date neither the Department nor the public have had appropriate clarity on the meaning of ‘‘unfair’’ under the P&S Act. Further, to the extent courts have limited application of the P&S Act’s protections against unfair practices to anticompetitive or unfair conduct that causes competitive injury, those courts’ decisions are contrary to both the legislative text and Congressional intent. For over a decade, USDA has received repeated calls from the public to address these court decisions which frustrate the purposes of the Act,75 although USDA 74 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022; https:// equitablegrowth.org/research-paper/protectinglivestock-producers-and-chicken-growers/. 75 See, e.g., Farm Action et al., ‘‘Letter to Bruce Summers,’’ April 5, 2022, available at https://farm action.us/wp-content/uploads/2022/04/Letter-reUnfair-Practices-in-Violation-of-the-Packers-andStockyards-Act.pdf and https://farmaction.us/2022/ 04/07/dear-usda-issue-the-packers-and-stockyardsrules-now/ (last accessed April 2024); Sarah Carden, ‘‘The Fall of Antitrust, the Rise of Corporate Power: Impacts of Market Concentration on Farmers and Ranchers,’’ Farm Action, March 2022, available at https://farmaction.us/wp-content/uploads/2022/04/ P-S-Act-Report-for-ABA-Farm-Action.pdf; Hon. Keith Ellison, et al., ‘‘Letter to Hon. Tom Vilsack,’’ December 21, 2021, on file at USDA, referenced in Hon. Thomas Vilsack, ‘‘Letter to State Attorneys General Ellison, Hill, and Colleagues,’’ Sept. 26, 2022, available at https://www.usda.gov/media/ press-releases/2023/07/19/usda-launches-historicpartnership-bipartisan-state-attorneys and https:// www.usda.gov/media/press-releases/2023/07/19/ usda-launches-historic-partnership-bipartisanstate-attorneys (last accessed April 2024); Claire Kelloway and Sarah Miller, ‘‘Food and Power: Addressing Monopolization in America’s Food System,’’ Open Markets Institute, Sept. 21, 2021 E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS also notes that some industry groups have generally opposed changes to the existing regulatory landscape.76 Consistent with Executive Order 14036, this proposed rule would, however, make those changes.77 Specifically, it would provide regulatory clarity in the face of these conflicting interpretations so as to more fully and effectively enforce section 202(a)’s prohibition on unfair practices. To do so, it proposes to establish clearer tests and frameworks with which to apply section 202(a)’s prohibition on unfair practices, provide guidance to those hearing enforcement cases as to what unfairness means, and, in circumstances when competition is relevant, provide a framework for assessing the impact of a practice on the competitive updated version, at 12, available at https:// www.openmarketsinstitute.org/publications/foodpower-addressing-monopolization-americas-foodsystem (last accessed April 2024); see also John Shively, ‘‘Competition Under the Packers and Stockyards Act: What Now?’’ 15 Drake J. Agric. L. 419 (Fall 2010); C. Robert Taylor, ‘‘Legal and Economic Issues with the Courts’ Rulings in Pickett v. Tyson Fresh Meats, Inc., a Buyer Power Case,’’ American Antitrust Institute Working Paper No. 07– 08, Feb. 2007, available at https://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1103635 (last accessed April 2024); United States Department of Justice, United States Department of Agriculture, (May 2010), Public Workshops Exploring Competition in Agriculture, https://www.justice.gov/archives/atr/ events/public-workshops-agriculture-and-antitrustenforcement-issues-our-21st-century-economy-10 (‘‘As a state regulator, when I enforce my state’s unfair or deceptive practices act on behalf of consumers, I don’t have to demonstrate that that deceptive act injured every consumer in the state. I only have to demonstrate that one consumer. I think what we do owe our—we owe our producers at least as much as we owe the individual consumers of our respective states and a fair reading of 202(a) shouldn’t require the rancher to demonstrate harm to everyone.’’ ‘‘The only way to protect the cash market is to halt the growth of captive supplies and possibly even roll back practice. As it should be, the language of Section 2(a) and (b) of the Packers & Stockyards Act does not require the finding of harm to the industry. . . How is it that if I strong-arm someone out in the hall I could be put in jail, but if a—but to receive just and due compensation for my hard work and efforts, I have to prove that there is an injury to the industry and not just to myself? That’s a pretty ridiculous test to overcome.’’ ‘‘Now, I understand the Packers and Stockers Act is being undermined by this proof to harm to competition. When they’re cheating all of these farmers out here, they’re getting a monetary advantage in the market. . . And that’s the excuse that the Federal judges say that we—you know, that we can’t have this law enforced’’). 76 See, e.g., North American Meat Institute Issue Statement on President Biden’s Executive Order & USDA’s Proposed Changes to Packers & Stockyards Rules, July 9, 2021, available at https://www.meat institute.org/press/north-american-meat-instituteissues-statement-president-bidens-executive-orderusdas (last accessed April 2024). 77 Executive Order No. 14036 ‘‘Promoting Competition in the American Economy,’’ July 2021, available at https://www.whitehouse.gov/briefingroom/presidential-actions/2021/07/09/executiveorder-on-promoting-competition-in-the-americaneconomy/. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 environment. USDA intends with this proposed rule to provide clearer standards for the Department, courts, and private parties to use in understanding what conduct the P&S Act prohibits. III. The Proposed Rule In this proposed rulemaking, AMS proposes separate comprehensive rules intended to protect both market participants and the market from harm.78 In the very first docket under the P&S Act in 1922, the Secretary stated: ‘‘It is not the purpose of the Act to destroy business, but to require the observance of the public’s interests in the conduct of business by conforming to standards laid down in the law.’’ 79 In other words, the Act is broader than an antitrust law; it is a comprehensive regulation of the poultry and livestock industry that enforces norms of fair behavior for the public benefit. Thus, since passage of the Act, the Department has taken the position that section 202(a) could be violated if a challenged practice injures the market to the detriment of the public interest, or if it injures market participants without any specific harm to the market. Often, in the Department’s view, a challenged practice could cause both kinds of injuries in unison. For example, a supply broker was found to have engaged in both an unfair and deceptive practice in agreeing to provide a hidden ‘‘kickback’’ that affords unduly preferential treatment to a powerful retailer at the expense of rival retailers. Indeed, the practice was unfair both in the sense that it specifically injured the rival retailers, who were forced to pay discriminatorily higher broker fees, and in the sense that it harmed competition because the hidden competitive advantage bestowed upon the powerful retailer tampered with the competitive process for procuring supply.80 This 78 Although using different terms, this understanding is consistent with the consensus academic literature. See, e.g., Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ Washington Center for Equitable Growth, May 5, 2022, https://equitablegrowth.org/researchpaper/protecting-livestock-producers-and-chickengrowers/; Peter C. Carstensen, ‘‘The Packers and Stockyards Act: A History of Failure to Date,’’ The CPI Antitrust Journal (2) (2010), available at https:// www.competitionpolicyinternational.com/assets/ Uploads/CarstensenAPR-2.pdf; Herbert Hovenkamp, ‘‘Does the Packers and Stockyards Act Require Antitrust Harm?’’ (Philadelphia: Faculty Scholarship at Penn Law, 2011), available at https:// scholarship.law.upenn.edu/faculty_scholarship/ 1862. 79 Kansas City Live Stock Exchange v. Armour and Company and Fowler Packing Company, Docket No. 1 (August 30, 1922). 80 Trunz Pork Stores v. Wallace, 70 F.2d 688 (2d Cir. 1934). PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 53893 comprehensive analytical approach, which the Secretary applied in cases as diverse as failure to pay in full 81 and price cutting,82 never required the Secretary to draw distinctions between unfair conduct that injures producers, unfair conduct that injures competition, or unfair conduct that caused both kinds of injury. But in analyzing these cases the Judicial Officer determined harm to an individual or harm to competition in each separate administrative case rather than a specific ‘‘test’’ or ‘‘rule.’’ In building the analytical framework for this proposed rule, USDA considered, in addition to the forgoing, the contemporaneous statutory history of section 5 of the FTC Act, which bans both unfair methods of competition and unfair or deceptive acts or practices. While Congress never limited the scope of the P&S Act’s ‘‘unfair practices’’ to ‘‘unfair methods of competition,’’ the first FTC Act was purportedly so limited. The amendments to the FTC Act in 1938 reflected Congress’s intent to make the scope of the FTC Act more aligned with the P&S Act’s broader scope. A standard should be consistent and consistently applied, so this proposed rule would explain the P&S Act in terms more widely understood. USDA has found the framework of the FTC Act and the FTC’s policy statements useful in understanding the past century of USDA’s administrative and Federal caselaw. Thus, for this proposed rule, USDA employs an analytical structure similar to that presently used by the FTC and proposes two analyses. First, proposed § 201.308(a) and (b) would protect against injuries to market participants from unfair practices. Second, proposed § 201.308(c) and (d) would protect the market from unfair practices. When the Secretary considers whether an injurious practice rises to the level of an unfair practice, either or both approaches may be relied on. Although the proposed tests are distinct, in the context of the P&S Act, they are not mutually exclusive. Just as it has always been true that an unfair practice can be simultaneously injurious to individual market participants and to market conditions more generally, an unfair practice under this proposed rule may be unfair to an individual market participant (under proposed 81 De Jong Packing Co. v. U.S. Dep’t of Agric., 618 F.2d 1329, 1337 (9th Cir. 1980): agreeing that failing to pay for condemned cattle within one business day following sale was an ‘‘unfair practice’’. The violations in this case occurred in 1972 and 1974. Id. at 1333. 82 See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 1961). E:\FR\FM\28JNP1.SGM 28JNP1 53894 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules § 201.308(a)), to markets (under proposed § 201.308(c)), or unfair under each proposed test. Thus, based on the statutory language, administrative case law, and Federal case law, this proposed regulation clarifies that unfair acts under the P&S Act apply to harms to market participants and harms to the market. The scope of section 202(a) is similar to section 5 of the FTC Act, which prohibits both unfair and deceptive acts or practices and unfair methods of competition. Further, the operative definition of harm to market participants (substantial harm, not reasonably unavoidable, and not outweighed by benefits) is analogous to the codified definition of unfairness under the FTC Act. The operative definition for harm to the market is analogous to the principles the FTC has adopted in that context (collusive, coercive, predatory, restrictive, deceitful or exclusionary method of competition that may negatively affect competitive conditions). A. Proposed § 201.308(a) and (b) USDA proposes the addition of § 201.308(a) and (b) as a comprehensive rule for unfair practices with respect to market participants. The proposed test under § 201.308(a) for whether a practice unfairly injures market participants is similar to the FTC’s test for consumer protection injuries. Under the FTC Act, an unfair practice is an act or practice that ‘‘causes or is likely to cause substantial injury to consumers that is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.’’ 83 Harm to competition is not part of the test. Although section 202(a) of the P&S Act’s authority precedes the FTC’s 1980 policy statement and subsequent Congressional amendments to the FTC Act, the FTC’s current approach offers useful pillars around which to anchor P&S case law that has developed over the years.84 83 15 U.S.C. 45(n). Michael Kades, then of Washington Center for Equitable Growth, reaching a similar conclusion in ‘‘Protecting Livestock Producers and Chicken Growers,’’ chapter 3, Washington Center for Equitable Growth, May 5, 2022, https://equitable growth.org/research-paper/protecting-livestockproducers-and-chicken-growers/; see also, Peter C. Carstensen, ‘‘The Packers and Stockyards Act: A History of Failure to Date,’’ The CPI Antitrust Journal (2) (2010), available at https:// www.competitionpolicyinternational.com/assets/ Uploads/CarstensenAPR–2.pdf; see also Herbert Hovenkamp, ‘‘Does the Packers and Stockyards Act Require Antitrust Harm?’’ (Philadelphia: Faculty Scholarship at Penn Law, 2011), available at https:// scholarship.law.upenn.edu/faculty_scholarship/ 1862. khammond on DSKJM1Z7X2PROD with PROPOSALS 84 See VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 USDA thus proposes under § 201.308(a) that a practice is unfair if the practice (1) causes or is likely to cause substantial injury to one or more market participants, which (2) the participant or participants cannot reasonably avoid, and which (3) the regulated entity that has engaged in the act cannot justify by establishing countervailing benefits to the market participant or participants or to competition in the market that outweighs the substantial injury or likelihood of substantial injury. Application of these three elements, when combined, explain the outcome of a great many of the cases brought under the P&S Act, and provide a clear and workable standard for adjudicating many kinds of unfairness claims. The simplest example that illustrates the principles underlying these proposed provisions is the failure to pay for meat,85 live poultry,86 or livestock.87 First, it causes a substantial injury to the seller or grower. When a seller or grower delivers product to a regulated entity and the entity arbitrarily refuses to pay, the seller or grower loses the value of the product, and they lose the opportunity to use the capital from selling their product to grow more food, invest in their farm, or process more products. Second, they cannot avoid this breach of contract. Instead, they must either engage in costly litigation or 85 In Re: Rotches Pork Packers, Inc. & David A. Rotches., 46 Agric. Dec. 573, 579 (1987). 86 In Re: Empire Kosher Poultry, Inc., No. P & S Docket No. D–10–0109, 2010 WL 7088565, at *6 (U.S.D.A. July 20, 2010), aff’d Empire Kosher Poultry, Inc. v. U.S. Dep’t of Agric., 475 F. App’x 438, 444 (3d Cir. 2012). 87 Courts that examine the history of the P&S Act often overlook that failure to pay in full was an ‘‘unfair practice’’ under the Act for many decades before Congress clarified that delay of a single payment for livestock was an unfair ‘‘practice’’ under the P&S Act in 1976. For example, in In re: Eastern Meats, Inc., 21 Agric. Dec. 134, 141, (1962), the Judicial Officer found ‘‘without a doubt’’ failing to timely pay the full amount agreed for a single shipment of meat was ‘‘an unfair and deceptive practice and device’’ and cited administrative cases. And, in In Re: Mid-W. Veal Distributors, d/b/a Nagle Packing Co., & Milton Nagle, 43 Agric. Dec. 1124, 1138 (U.S.D.A. July 13, 1984) USDA’s Judicial Officer noted it had been held consistently in cases arising under both title II and title III of the P&S Act that failure to pay, when due, for livestock constitutes a violation of sections 202(a) and 312(a) of the P&S Act., citing In re Rosenthal, 36 Agric. Dec. 210 (1976); In re San Jose Valley Veal, Inc., 34 Agric. Dec. 966 (1975); In re Sebastopal Meat Company, Inc., 28 Agric. Dec. 435, (1969), aff’d, 440 F.2d 983 (9th Cir. 1971); In re Nolan E. Poovey, Jr., 27 Agric. Dec. 1512 (1968); In re Joe Doctorman & Son, Inc., 28 Agric. Dec. 840 (1969); In re S.M. Jamison, 28 Agric. Dec. 581 (1969); In re Neil Harlan, 25 Agric. Dec. 5 (1966); In re Royce Lehman Moore, 26 Agric. Dec. 230 (1967); In re Augustin Brothers Co, 27 Agric. Dec. 350 (1968); In re R.J. & C.W. Fletcher, Inc., 23 Agric. Dec. 1400 (1964); In re Rosenthal Packing Co., 19 Agric. Dec. 971 (1960); In re Harry Thomas, 35 Agric. Dec. 490 (1976). PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 settle for less than they are owed. Finally, there is no benefit to the market for the purchaser to fail to pay for the product they received. If this practice is adopted by all purchasers, the sellers become increasingly less efficient as trust fails and less livestock, meat, and poultry is produced. Thus, even if the seller or grower is eventually paid, and suffers no loss of business, the regulated entity’s failure to pay when due can still cause substantial, unavoidable market injury. That is, in the aggregate, even a small delay suffered by many producers produces a substantial harm. Similar principles have guided the Secretary’s interpretation for the entire history of the Act. In the 1956 decision in In re: Central California Livestock, Inc. d/b/a Machlin Meat Packing Company, the Judicial Officer held that accord and satisfaction could not be a defense to the failure to pay for livestock because a refusal to abide by contract terms that occurs after the livestock is slaughtered leaves the seller or grower with no other remedy than to sue. If a refusal to pay is not based upon a bona fide dispute, but rather is a deliberate policy of contract noncompliance, then it is ‘‘obvious that by the activities in issue the respondent engaged in or used an unfair practice’’ in violation of section 202(a) of the Act.88 And ‘‘[n]ot only was it unfair to the sellers but it was unfair competitively with respect to other packers.’’ 89 Even in 1956 those principles were not a new application of section 202(a). In 1937, USDA Secretary Wallace found that discounting the agreed upon price for a defect (so-called oily hogs) undiscoverable until after slaughter rather than as a condition of the contract was an ‘‘unfair, unjustly discriminatory, and deceptive practice’’ in violation of section 202(a) of the Act.90 Congress drafted the Act to provide every participant in the industry due consideration, and honest, transparent, and equitable treatment. Accordingly, dishonest, hidden, and inequitable practices that injure market participants, like mis-weighing, are unfair because the producer or grower suffers a substantial injury that they cannot avoid. For example, a producer delivers their product for the regulated entity to establish the grade, weight, and payment. The producer’s loss of physical control of the animal is 88 In re: Central California Livestock, Inc. d/b/a Machlin Meat Packing Company, 15 Agric. Dec. 97, 110 (1956). 89 Id. 90 Secretary of Agriculture v. Scala Packing Company, Inc., Bureau of Animal Industry Docket No. 581 (January 7, 1937). E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS inherent in a failure-to-pay or a misweighing case, illustrating the unavoidability of the injury. Some elements of the dangers of unavoidable injuries have informed prior rulemaking. For example, when USDA required packers to pay on actual hot weights—the weight before the carcass is cooled to storage temperatures—in 1968, USDA noted that allowing packers to set shrinkage amounts for a projected weight after refrigeration (a cold weight) was an unfair and deceptive practice: ‘‘In these instances, the packer decides what shrinkage factor he will use. . . The farmer is not in a position to bargain freely on the basis of a full understanding of the contract terms which are within the control of the packer and can only accept or reject the bid offered by the packer.’’ 91 Market participants are often at the mercy of regulated entities, who often pay based on factors that the livestock seller or poultry grower is unable to personally witness or negotiate, thus making their injury from the use of variable cold weights or shrinkage unavoidable. Even absent an express rule, the principles maintaining that unjustified practices that produce unavoidable injury violate section 202(a) of the Act have been, and still are, applied in ‘‘unfair practices’’ cases.92 The final factor in the proposed regulation at § 201.308(a) is that the conduct does not violate section 202(a) of the Act if regulated entities prove that countervailing benefits to producers, growers, or to competition outweigh the harm. In practice, the question is whether the regulated entity can show benefits of the alleged unfair conduct outweigh the injury or likely injury. The proposed rule allows the consideration of not only harm to the 91 Purchase of Livestock by Packers on a Carcass Grade, Carcass Weight, or Carcass Grade and Weight Basis, 33 FR 2760, 2761 (Feb. 9, 1968). 92 E.g. In Re: Excel Corp., No. P. & S. Docket No. 99–0010, 2003 WL 205562, at *31 (U.S.D.A. Jan. 30, 2003) (finding that producers were likely injured by Respondent’s failure to notify hog producers of its undetectable change in lean formula, and regardless, the practice impeded competition); In Re: Stull Meats, Inc., 49 Agric. Dec. 309, 329 (U.S.D.A. Feb. 15, 1990) (finding in a commercial bribery case that ‘‘the type of violations alleged and proven in this case are not only unfair to the firm being overcharged for its purchases . . . but also to the competitors . . . who are not in a position to gain entry . . . unless they are willing to make the same illegal inducements to its agent’’); c.f. In Re: Cedar Vale Sale Barn, Inc., Doyle Hawkins & Jerry Mullins., 52 Agric. Dec. 546, 554 (1993) (check kiting poses a great risk to the sellers of livestock); In Re: Great Am. Veal, Inc. A Corp., & Thomas Burke, an Individual, 48 Agric. Dec. 183, 198 (U.S.D.A. Jan. 19, 1989) (holding that dissipating the statutory trust ‘‘enacted to protect livestock sellers’’ was unfair). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 market, but also likely harm to Congressional policy goals concerning the structure of agricultural markets over and against possible countervailing benefits to other producers or the market.93 Congressional policy goals have included, for example, supporting new, beginning, and military veteran producers.94 Balancing allegedly unfair conduct against countervailing benefits is not a new consideration for the Secretary. For example, when examining the allegedly unfair and discriminatory preferences given to one group of sellers over others in In re: IBP, Inc. (57 Agric. Dec. 1353 (U.S.D.A. July 31, 1998)), the Department considered whether right of first refusal of the contract terms was ‘‘worth extra payment’’ and whether the contract was profitable for both the buyers and the sellers of livestock. Preferences for lengthening extra delivery times justified higher payments (even if higher payment was not proven), and so concluded that the practice was not unduly discriminatory.95 Accordingly, when examining the practice, ‘‘actual competition carried on in good faith by normally fair methods not ‘heretofore regarded as opposed to good morals because characterized by deception, bad faith, fraud, or oppression[’] . . . is a fact which must be given substantial weight . . . .’’ 96 Unfair practices under section 202 is not only a matter of unfair market conditions; the intention and results of the unfair acts and practices are relevant.97 For example, if a company intends to act to monopolize, even if the intended mechanism would not achieve it, the practice would be unfair. Moreover, some practices have no benefit, even if unintentional: mis93 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ chapter 4, Washington Center for Equitable Growth, May 5, 2022, https://equitablegrowth.org/research-paper/ protecting-livestock-producers-and-chickengrowers/. 94 See, e.g., ‘‘How to Start a Farm: Beginning Farmers and Ranchers,’’ available at https:// www.farmers.gov/your-business/beginning-farmers (last accessed April 2024); Congressional Research Service, ‘‘Farm Bill Primer: Beginning and Underserved Producers,’’ May 2022, available at https://crsreports.congress.gov/product/pdf/IF/ IF12096/2. 95 The Judicial Officer also considered the specific right of first refusal a practice that was likely to harm competition in violation of section 202 of the P&S Act. While the 8th Circuit agreed with the legal statements of the Judicial Officer— specifically that the Act prevents likely harm to competition—the court disagreed with the factual conclusions and reversed. IBP, Inc. v. Glickman, 187 F.3d 974, 978 (8th Cir. 1999). 96 Swift & Co. v. Wallace, 105 F.2d 848, 856 (7th Cir. 1939). 97 See Armour & Co. v. United States, 402 F.2d 712, 717 (7th Cir. 1968). PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 53895 weighing, failing to pay when due for livestock or meats, failure to maintain a bond, and insolvency. B. Evaluation of Potential Injury to Market Participants To date, no court has disagreed with the principle that the P&S Act not only reaches practices that directly injure, such as failures to pay and changes to the terms of payment without notice, but also acts that are likely to cause injury. Congress designed the Act to prevent actual monetary loss 98 and those practices are ‘‘unfair’’ even though they require no evidentiary showing of completed injury. Even courts that have adopted the competitive injury standard have affirmed that the Act does not require actual harm. The Fifth Circuit stated, the ‘‘Act is designed to ‘. . . prevent potential injury by stopping unlawful practices in their incipiency. Proof of a particular injury is not required.’ ’’ 99 Those potential injuries may be any injury the Act was designed to prevent, including financial loss to sellers.100 Therefore, the Department has taken the view that some practices must be stopped before they harm market participants.101 For example, a packer operating while insolvent or without a bond can present a great risk of potential harm to the livestock sellers who may find that their livestock is being used to finance a packer’s operations.102 If the undercapitalized packer fails, even with the rights of a floating trust, livestock sellers are vulnerable to protracted litigation and non-payment. The livestock seller’s ability to participate in the market would be imperiled, the magnitude of potential injury would be great, and without prior knowledge of the insolvency, the seller’s ability to freely 98 See In re: Arizona Livestock Auction, Inc., 55 Agric. Dec. 1121 (U.S.D.A. Nov. 21, 1996) (finding that the purpose of title III of the Act was ‘‘to protect the producer or seller from monetary loss’’). 99 Bowman v. United States Dep’t of Agric., 363 F.2d 81, 85 (5th Cir. 1966) (finding the Department’s insolvency standard was not an abuse of discretion). 100 Id. 101 See In Re: Corn State Meat Co., Inc.; Terrance P. (Terry) Prince, Jr. & James L. Wiggs., 45 Agric. Dec. 995, 1023 (U.S.D.A. May 8, 1986); c.f. In Re: Danny Cobb & Crockett Livestock Sales Co., Inc., 48 Agric. Dec. 234, 234 (U.S.D.A. Feb. 13, 1989) (finding bonds protect against incipient violations); In Re: Paul Rodman & David Rodman, 47 Agric. Dec. 885, 903–04 (U.S.D.A. May 27, 1988) (finding there is a duty to prevent all unlawful acts under the P&S Act, including the potential losses from failing to maintain a custodial account). 102 For an example of how under-capitalization can force producers to finance the operation of a livestock buyer, see Van Wyk v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978). E:\FR\FM\28JNP1.SGM 28JNP1 53896 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules exercise decision-making would be undermined. As another example, an exclusive agreement between packers and livestock dealers not to bid against one another might severely restrict the ability of other livestock sellers to participate in the market, because packers would not accept offers from other livestock dealers or from sellers directly.103 The agreement is an unfair practice, among other reasons, because it injures sellers by restricting them from making offers and thus tends to subvert market forces. Proposed § 201.308(a) recognizes that although a specific injury has not occurred, the potential for injury is so great that the Secretary must stop the practice in advance.104 Proposed § 201.308(b) is intended to explain those instances where likely or potential harms to producers rise to violations of the P&S Act, and so this rulemaking sets out factors or criteria that attempt to cover that broad scope. Thus, the Secretary retains the statutory authority to identify and regulate unfair practices or devices in a manner not predicted by this proposed rule, either through subsequent rulemaking or in particular enforcement matters. First, proposed § 201.308(b)(1) includes consideration of the extent to which the practice may impede or restrict the ability to participate in a market, interfere with the free exercise of decision-making by market participants, tend to subvert the operation of competitive market forces, deny a covered producer the full value of their products or services, or violate traditional doctrines of law or equity. This is not entirely dissimilar from comment (g) in the Restatement (Third) of Unfair Competition, which noted that unfair practices are not merely a matter of antitrust harms: khammond on DSKJM1Z7X2PROD with PROPOSALS Courts continue to evaluate competitive practices against generalized standards of fairness and social utility . . . . An act or practice is likely to be judged unfair only if it substantially interferes with the ability of others to compete on the merits of their products or otherwise conflicts with accepted principles of public policy recognized by statute or common law. 105 103 See 9 CFR 201.70; Swift & Co. v. United States, 393 F.2d 247 (7th Cir. 1968). 104 A similar analysis would be if a group of packers conspire to force stockyards to sell on the basis of a ‘‘subject’’ sales terms—that is, granting the packer the right to refuse to honor the purchase after a delivery inspection at the packing plant rather than on the basis of an ‘‘as is’’ sales term— then that behavior is likely to interfere with the free exercise of decision making by market participants. See De Jong Packing Co. v. U.S. Dep’t of Agric., 618 F.2d 1329, 1337 (9th Cir. 1980). 105 Restatement (Third) of Unfair Competition section 1 (1995). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 Thus, proposed § 201.308(b)(1) provides standards to evaluate when a practice under § 201.308(a) is likely to cause a substantial injury. Second, proposed § 201.308(b)(2) provides a clarification of ‘‘substantial injury’’ by considering the magnitude of a likely injury that the Secretary must halt: an injury may be substantial if it causes significant harm to one market participant or if it imposes a small harm to many market participants. AMS does not propose to eliminate from regulatory oversight those injuries that the Department has deemed in past cases as substantial. A single failure to pay, for even a relatively small amount of money, is sufficiently substantial for USDA to bring administrative action against a regulated entity, and to be a basis for an order of the Secretary to cease and desist. Notably, an injury that does not harm a market participant is not a violation of the Act.106 Third, in proposed § 201.308(b)(3) AMS proposes considering the extent to which the producer would have to take unreasonable steps to avoid injury. An injury is not reasonably avoidable solely because the practice has been disclosed. A market participant is also not required to take unreasonable steps, such as exiting the market or making unreasonable additional investments or efforts, to avoid the harm. The harder it is for market participants to escape the injury, the more likely the harm would be to occur and the more likely that it would not be reasonably avoidable. Again, returning to failure to pay, it would be unreasonable for a livestock seller to cease selling livestock on the open market to prevent themselves from being victims of a breach of contract or to ask them to accept revised contract terms after delivery of the livestock. To determine otherwise would undermine the regulatory purpose, which is to give the producers of livestock, and the growers of poultry, the opportunity to receive the fair value of their participation in the market. Nor would it benefit consumers to encourage producers to leave the market or accept substandard payment terms that would discourage appropriate market participation. C. Proposed § 201.308(c) and (d) AMS proposes § 201.308(c) and (d) as a comprehensive rule with respect to markets. Unfair practices are not only those that injure producers, but also those that 106 See In Re: Arizona Livestock Auction, Inc., 55 Agric. Dec. 1121 (1996) (finding that injury to a cow did not result in any injury the Act was designed to prevent). PO 00000 Frm 00011 Fmt 4702 Sfmt 4702 may negatively impact competition because they injure or tend to injure competition or competitive market conditions. AMS takes the position in this proposed rulemaking that harmful methods of competition under the P&S Act are similar to the practices that the FTC and the courts have long recognized as either anticompetitive or unfair: collusive, coercive, predatory, restrictive, deceitful or exclusionary methods of competition that may negatively affect competitive conditions. Congress intended the prohibitions in section 202(a) (and, also, section 312(a)) of the P&S Act to go further than the prohibition in section 5 of the FTC Act against ‘‘unfair methods of competition.’’ 107 Not only did the P&S Act address deceptive practices before the FTC Act did so, but it also includes many prohibitions that the FTC Act does not. In that breadth, there has been no real dispute that the P&S Act should prohibit at least as much as the FTC Act itself.108 Thus, as the Ninth Circuit explained, ‘‘section 202(a) should be read liberally enough to encompass the types of anti-competitive practices properly deemed ‘unfair’ by the Federal Trade Commission.’’ 109 The FTC has long prosecuted collusive, coercive, predatory, restrictive, deceitful or exclusionary actions that tend to negatively affect competitive conditions as unfair methods of competition.110 Moreover, USDA has regularly cited FTC precedent in interpreting the P&S Act.111 As the Ninth Circuit has noted, ‘‘While sec. 202 of the Packers and Stockyards Act may have been made broader than antecedent antitrust legislation in order to achieve its 107 61 Cong. Rec. 1805–06. v. O.K. Indus., Inc., 495 F.3d 1217, 1241 (10th Cir. 2007) (Hartz, J. concurring) (‘‘[I]t would be somewhat surprising if ‘unfair practices’ under the PSA had a narrower meaning than ‘unfair methods of competition’ in the FTCA.’’). 109 Armour and Company v. United States, 402 F.2d 712 (7th Cir. 1968). 110 E.I. du Pont de Nemours & Co. v. F.T.C., 729 F.2d 128, 137 (2d Cir. 1984) (citing examples: FTC v. Texaco, Inc., 393 U.S. 223, 89 S.Ct. 429, 21 L.Ed.2d 394 (1968); Atlantic Refining Co. v. FTC, 381 U.S. 357, 85 S.Ct. 1498, 14 L.Ed.2d 443 (1965); FTC v. Brown Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966); FTC v. Beech-Nut Packing Co., 257 U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307 (1922), FTC v. National Lead Co., 352 U.S. 419, 77 S.Ct. 502, 1 L.Ed.2d 438 (1957), FTC v. Cement Institute, 333 U.S. 683, 68 S.Ct. 793, 92 L.Ed. 1010 (1948), Sugar Institute, Inc. v. United States, 297 U.S. 553, 56 S.Ct. 1629, 80 L.Ed. 859 (1935), FTC v. R.F. Keppel & Bro., Inc., 291 U.S. 304, 54 S.Ct. 423, 78 L.Ed. 814 (1934), FTC v. Motion Picture Advertising Service Co., 344 U.S. 392, 73 S.Ct. 361, 97 L.Ed. 426 (1953)). 111 Armour & Co. v. United States, 402 F.2d 712, 722 (7th Cir. 1968); see also In Re: Ozark Cnty. Cattle Co., Inc., et. al., 49 Agric. Dec. 336 (1990); In Re: Corn State Meat Co., Inc.; et. al., 45 Agric. Dec. 995, 1012 (1986). 108 Been E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS remedial purpose, it nonetheless incorporates the basic antitrust blueprint of the Sherman Act and other pre-existing antitrust legislation such as the Clayton Act and the [Federal] Trade Commission Act.’’ 112 Thus, AMS proposes § 201.308(c) to capture at least conduct that would violate the antitrust laws, conduct that would constitute an unfair method of competition under the FTC Act, and conduct that courts or administrative officers have held violates the P&S Act’s unfairness prohibition. Practices that do violate the antitrust laws therefore are within the umbra of this rulemaking. So too is ‘‘conduct which, although not a violation of the letter of the antitrust laws, is close to a violation or is contrary to their spirit,’’ 113 and practices that ‘‘not merely in their fruition, but also in their incipiency . . . could lead to . . . trade restraints and practices deemed undesirable.’’ Conduct falls within proposed § 201.308(c) if it harms competition or has the tendency to negatively affect competitive conditions, impairs market participants’ ability to compete, or reduces the likelihood of potential or nascent competition, notwithstanding that it may or may not yet have done so. If the practice is analyzed similarly to an antitrust violation, the Secretary will, where appropriate, consider any buyeror seller-side anticompetitive effect on price (including the price paid to producers), output, quality, choice, innovation, bargaining power in the market for services or products, the imposition or presence of entry barriers, the imposition or presence of information asymmetries, the entrenching or extending of a dominant position, or the distortion of the competitive process, among other anticompetitive or competitively unfair effects.114 In some cases, it is not necessary to measure the effect on competitive conditions expressly because the conduct, is a per se violation, or otherwise on its face tends to distort, impair, or frustrate the competitive process, including of price discovery. Moreover, section 202 of the P&S Act prohibits unfair competition in its incipiency, consistent with the FTC Act and the Clayton Act. 112 De Jong Packing Co. v. U.S. Dep’t of Agric., 618 F.2d 1329, 1335 (9th Cir. 1980). 113 Ethyl, 729 F.2d at 136–37. 114 See, generally, Merger Guidelines, (2023), U.S. Department of Justice and Federal Trade Commission, https://www.ftc.gov/system/files/ftc_ gov/pdf/2023_merger_guidelines_final_ 12.18.2023.pdf; FTC, Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 D. Evaluation of Potential Injury to the Market Because the courts have been clear that behavior that is likely to harm competition violates the P&S Act, AMS proposes standards with respect to injuries that are likely to harm the market. Like other statutes, such as the FTC Act and the Clayton Act, the P&S Act prohibits competition harms in their incipiency.115 The antitrust laws recognize a wide range of harms, which this proposed rule would fully encompass.116 Because the Act is intended to protect the market from harm and protect producers and consumers from unfair practices, there does not need to be any proof that any harm to the market has yet occurred: only that the threat the Act is designed to prevent is likely. Accordingly, AMS proposes standards in § 201.308(d) for the Secretary to consider when examining practices that likely pose a threat to the competitiveness of markets. These standards include (1) the extent to which the practice impedes or restricts the ability to participate in a market; tends to subvert the operation of competitive market forces; interferes with the free exercise of decisionmaking by market participants; violates traditional doctrines of law or equity; or has indicia of oppressiveness, such as evidence of anticompetitive intent or purpose or absence of an independent legitimate business reason for the conduct; and (2) the extent to which the practice tends to foreclose or impair the opportunities of market participants, reduces competition between rivals, limits choice, distorts or impedes the process of competition, or denies a market participant the full value of their products or services. Thus, proposed § 201.308(d) addresses harms that are likely to threaten markets, including ‘‘acts and practices which, when full blown would violate the Sherman Act and the Clayton Act.’’ 117 These include several practices 115 Daniels v. United States, 242 F.2d 39, 42 (7th Cir. 1957) (‘‘It is the duty of a regulatory agency to prevent potential injury by stopping unlawful practices in their incipiency. Proof of a particular injury is not required.’’). 116 See, generally, Merger Guidelines, (2023), U.S. Department of Justice and Federal Trade Commission, https://www.ftc.gov/system/files/ftc_ gov/pdf/2023_merger_guidelines_final_ 12.18.2023.pdf; FTC, Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022). 117 Fed. Trade Comm’n v. Motion Picture Advertising Service Co., 344 U.S. 392, 394–95 (1953) (noting that ‘‘Congress advisedly left the concept [of unfair methods of competition] flexible . . . [and] designed it to supplement and bolster the Sherman Act and the Clayton Act[,] [so as] to stop . . . acts and practices [in their incipiency] which, PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 53897 that have been directly found to constitute incipiency violations by the Federal courts or in FTC administrative proceedings, which the FTC details in full in its policy statement regarding the scope of unfair methods of competition under section 5 of the FTC Act.118 The Secretary may also consider violations of other laws and equity. Thus, when considering harm to markets, the proposed rule allows the consideration of harm that is cognizable under laws that further policy goals concerning the structure of agricultural markets.119 The proposed rule recognizes that regulatory enforcement may take into account policies such as increasing market diversity through new, beginning, and military veteran producers,120 and increasing supply chain resiliency including through investing in new and expanded meat and poultry processing.121 Moreover, USDA’s when full blown, would violate those Acts[,] . . . as well as to condemn as ‘ ‘‘unfair methods of competition’’ ’ existing violations of them’’); Fed. Trade Comm’n v. Cement Institute, 333 U.S. 683, 708 (1948) (holding that conduct that falls short of violating the Sherman Act may violate section 5); Fed. Trade Comm’n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 (1934) (finding that unfair methods of competition not limited to those ‘‘which are forbidden at common law or which are likely to grow into violations of the Sherman Act’’); c.f. Brown Shoe Co. v. United States, 370 U.S. 294, 346 (1962) (finding section 7 of the Clayton Act also reflects the ‘‘mandate of Congress that tendencies toward concentration in industry are to be curbed in their incipiency’’). 118 FTC, Policy Statement Regarding the Scope of Unfair Methods of Competition Under sec. 5 of the FTC Act, 9 (Nov. 10, 2022). See, e.g., Yamaha Motor Co. v. Fed. Trade Comm’n, 657 F.2d 971 (8th Cir. 1981), cert. denied, 456 U.S. 915 (1982) (side agreements collateral to an anticompetitive jointventure agreement); In re Delta/AirTran Baggage Fee Antitrust Litig., 245 F.Supp. 2d 1343, 1369–70 (N.D. Ga. 2017), aff’d sub nom., Siegel v. Delta Air Lines, Inc., 714 F. App’x 986 (11th Cir. 2018), and cert. denied, 139 S. Ct. 827 (2019) (invitations to collude); The Vons Co., FTC Complaints and Order, 1987–1993 Transfer Binder, Trade Reg. Rep. (CCH) ¶ 23,200 (Aug. 7, 1992) (series of small acquisitions, none of which were illegal individually). 119 Michael Kades, ‘‘Protecting Livestock Producers and Chicken Growers,’’ chapter 4, Washington Center for Equitable Growth, May 5, 2022, https://equitablegrowth.org/research-paper/ protecting-livestock-producers-and-chickengrowers/. 120 See, e.g., ‘‘How to Start a Farm: Beginning Farmers and Ranchers,’’ available at https:// www.farmers.gov/your-business/beginning-farmers (last accessed April 2024); Congressional Research Service, ‘‘Farm Bill Primer: Beginning and Underserved Producers,’’ May 2022, available at https://crsreports.congress.gov/product/pdf/IF/ IF12096/2. 121 See, e.g., ‘‘Agricultural Competition: A Plan in Support of Fair and Competitive Markets,’’ USDA’s Report to the White House Competition Council, May 2022 (last accessed June 2022), available at https://www.ams.usda.gov/sites/default/files/ media/USDAPlan_EO_COMPETITION.pdf; ‘‘USDA Agri-Food Supply Chain Assessment: Program and Policy Options for Strengthening Resilience,’’ available at https://www.ams.usda.gov/supply- E:\FR\FM\28JNP1.SGM Continued 28JNP1 53898 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS Judicial Officer has explained that section 202(a) of the P&S Act includes within its scope every trade practice which is an ‘‘unfair method of competition’’ under section 5 of the FTC Act or is otherwise prohibited by the Clayton Act or the Robinson-Patman Act.122 Among the factors the Secretary may consider when halting a practice prior to harm occurring are whether the practice offends public policy because it has indicia of oppressiveness, such as evidence of anticompetitive intent or purpose, or absence of an independent legitimate business reason for the conduct. This factor addresses a particular danger that Congress recognized when it wrote the P&S Act: abuse of the imbalance of power, and the creation of vertical relationships that would stifle competition. Congress expected the Secretary to address the power that the dominant, vertically-integrated packers and stockyards could exert in preventing a distant and less capitalized farmer or rancher from asserting their rights. This is the heart of oppressive conduct and is part of the market structure Congress expected the Secretary to regulate. Moreover, this proposal extends to horizontal, vertical, and other market relationships because, historically, the Department has found that practices like certain vertical and horizontal information sharing are likely to harm competition, and therefore unfair practices prohibited by the P&S Act.123 USDA regulations under the P&S Act (in part to address concerns relating to market agencies as regulated under title III of the Act) have also prohibited certain forms of vertical integration, common or interlocking ownership, financing, or management relationships owing to conflict of interest and impacts on market integrity and market access.124 To be clear, under section 202(a) of the P&S Act, if a practice is taken in chain (last accessed June 2024); ‘‘Competition and Meat Supply Chain Investments: Highlighted Comments from the Request for Information (RFI),’’ available at https://www.usda.gov/sites/default/ files/documents/Competition-RFI-Anecdotes010322.pdf (last accessed June 2024); FACT SHEET: The Biden-Harris Action Plan for a Fairer, More Competitive, and More Resilient Meat and Poultry Supply Chain, available at https:// www.whitehouse.gov/briefing-room/statementsreleases/2022/01/03/fact-sheet-the-biden-harrisaction-plan-for-a-fairer-more-competitive-andmore-resilient-meat-and-poultry-supply-chain/ (last accessed June 2024). 122 In Re: ITT Cont’l Baking Co., 44 Agric. Dec. 748, 772 (1985); see also Stumo & O’Brien, Antitrust Unfairness, 8 Drake J. Agric. L. at 111. 123 See 9 CFR 201.69 and 201.70. 124 See 9 CFR 201.67. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 good faith by normally fair methods, and not characterized by deception, bad faith, fraud, or oppression, then the practice is less likely to be unfair.125 Accordingly, proposed § 201.308(d) provides that the Secretary may assess the extent to which the practice is collusive, coercive, predatory, restrictive, deceitful, or exclusionary and presents incipient threats to competition in determining whether the conduct tends to negatively impact competition by adversely affecting competitive market conditions. E. Contracts This rulemaking has no particular prohibition with respect to contracts. A breach of contract, however, is unfair under section 202 if it meets the criteria of proposed § 201.308(a) or (c). For decades the Department found, without controversy, that breaches of contract could result in harm to nonbreaching parties to the agreement or to the market or to both under the Act.126 To account for this, under proposed § 201.308(b) and (d) the Secretary may consider traditional doctrines of law and equity in determining whether there is any harm the Act was designed to prevent. Traditional common-law doctrines are fundamentally designed to ensure fairness in the functioning of the marketplace and support the normal and fair operation of market forces. In short, fair enforcement of contract, bans against unconscionable conduct, and prohibitions against deception, make a fair market work. Academics have rightly pointed out that violations of the P&S Act include practices that offend public policy as established ‘‘by statutes, the common law, or otherwise—whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness.’’ 127 The Department’s position is that included in this set of practices are breaches of contract that are of regulatory concern. Recently, there are some courts that have claimed that Congress could not have intended breaches of contract to be violations of the P&S Act.128 Read to an unlimited extent, that conclusion would be contrary to the plain language of the statute. Congress intended unfair practices to include breaches of 125 C.f. Swift & Co. v. Wallace, 105 F.2d 848, 856 (7th Cir. 1939). 126 See In re: Central California Livestock, at 110. As explained above, cases like Central California Livestock are typical of the Department’s findings with respect to harms to competition. 127 Stumo & O’Brien, Antitrust Unfairness at 111. 128 See, e.g., Been v. O.K. Indus., Inc., 495 F.3d 1217, 1229 (10th Cir. 2007). PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 contract, not only with the passage of the Act in 1921, but also with the passage of section 409 in 1976 and section 410 in 1987. By specifically prohibiting failures to make prompt payment under contract, Congress included among unfair practices the simplest form of a contractual breach. As a matter of statutory construction, under section 312(a) of the Act it is unlawful for livestock dealers and market agencies to engage in any ‘‘unjust, unjustly discriminatory, or deceptive practice or device’’; section 309 of the Act gives any injured person the right to proceed in an administrative reparation hearing before the Secretary against a market agency or livestock dealer. Breach of contract is the basis for the overwhelming majority of reparations cases, as Congress intended. USDA concluded that some breaches of contract violated the Act many decades prior to the Congressional passage of section 409; administrative findings that failure to pay was a violation of the Act were some of the earliest administrative decisions. The Department issued its first regulatory prohibition against late payment for livestock in 1964.129 As the Department has held with respect to allegations of the breach of the duty of good faith in the operation of contract which led to underpayment: [A] violation of the payment requirements in 7 U.S.C. 228b–1(a) is also a prohibited ‘‘unfair practice’’ under 7 U.S.C. 192 . . . . The Packers and Stockyards Act contains no requirement that injury to competition or likelihood of injury to competition must be shown in order to prove a violation of 7 U.S.C. 228b–1(a); however, 7 U.S.C. 228b– 1(b) specifically provides that a violation of 7 U.S.C. 228b–1(a) shall be considered an ‘‘unfair practice’’ under the Packers and Stockyards Act. Thus, a violation of 7 U.S.C. 228b–1(a) is a prohibited ‘‘unfair practice’’ under 7 U.S.C. 192 without regard to whether injury to competition or likelihood of injury to competition is shown.130 This rulemaking is not intended to change the Department’s position on the Act’s remedial purposes to protect market participants from unfair and deceptive practices. In general, refusal to honor contracts drives honest businesses from competition because competitors cannot compete in a market where the buyer with greater capital can capture the supply without paying for it, modify contract terms after delivery, or delay payment indefinitely to extract concessions from sellers. These proposed regulations, therefore, match USDA’s ability to order packers and 129 29 FR 1796, Feb. 6, 1964. Re: Tyson Farms, Inc., 71 Agric. Dec. 1160, 1164 (2012). 130 In E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules swine contractors to cease these breaches of contract and penalize packers and swine contractors to deter these behaviors and to protect the public from these harms.131 To be clear, this proposal would not make every commercial dispute into a P&S Act matter. Rather, this regulation proposes a specific framework under which claims—including ones involving a breach of contract—of unfair practices under the P&S Act would be analyzed. F. Protected Parties This proposed rule does not limit its protection against unfair conduct by regulated entities to enumerated individuals, like producers or consumers, because the Act protects anyone that suffers a violation of the P&S Act. Section 202(a) of the Act bans unfair practices in the entire market for livestock, meats, meat food products, livestock products in unmanufactured form, and live poultry. Further, P&S Act section 308(a) holds all regulated entities liable for any consequential damages to the persons injured: ‘‘[i]f any person subject to this chapter violates any of the provisions of this chapter . . . he shall be liable to the person or persons injured thereby for the full amount of damages sustained in consequence of such violation.’’ 132 The Secretary has brought administrative cases under section 202(a) based on the full spectrum of market behaviors that have injured its participants. This has included practices that injured livestock sellers, livestock dealers, market agencies, stockyards, live poultry dealers, packers, retailers, and consumers.133 Thus, this proposed rule is intended to capture everyone that Congress intended to protect, which includes any person injured by a violation of section 202(a). IV. Severability This proposed regulation contains four provisions; the inclusion of each is intended to clarify the P&S Act, and khammond on DSKJM1Z7X2PROD with PROPOSALS 131 See section 203 of the P&S Act, which grants the Secretary the authority to order respondents to cease and desist and pay civil penalties (7 U.S.C. 193). 132 7 U.S.C. 209. 133 In re: Larry W. Peterman, d/b/a Meat Masters., 42 Agric. Dec. 1848, 1868 (1983) (injury to individual consumers); In re: ITT Cont’l Baking Co., 44 Agric. Dec. 748, 772 (1985) (injury to competitors, packers and the retailer); In re: Excel Corp., No. P. & S. Docket No. 99–0010., 2003 WL 205562 U.S.D.A. Jan. 30, 2003) (injury to producers); In Re: Empire Kosher Poultry, Inc., No. P & S Docket No. D–10–0109, 2010 WL 7088565 (U.S.D.A. July 20, 2010), aff’d Empire Kosher Poultry, Inc. v. United States Dep’t of Agric., 475 F. App’x 438, 444 (3d Cir. 2012) (injury to consumers). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 thus strengthen the Act’s protections against unfair treatment in agricultural markets. The proposed regulation provides guidance to market participants, regulated entities, presiding courts and USDA when determining whether specific conduct is unfair under section 202(a) of the P&S Act. Although each proposed provision serves to further these effects, the benefits this proposed rule seeks to provide would not be negated by the exclusion of one or more of its provisions as finalized. For example, proposed § 201.308(a), ‘‘Unfair practices with respect to market participants,’’ would still function without proposed § 201.308(c), ‘‘Unfair practices with respect to markets,’’ and vice versa. The clarifying provisions of proposed § 201.308(b) and (d) are also severable. While AMS included all the provisions to clarify the term ‘‘unfair’’ under the Act, the purpose of the regulation is not lost if a court severs a provision of the rule as finalized. The remaining provisions would still function sensibly and inform the interpretation of the Act. V. Request for Comments AMS invites comments on this proposed rule. Comments submitted on or before August 27, 2024 will be considered. Comments should reference Docket No. AMS–FTPP–21–0046 and the date and page number of this issue of the Federal Register. AMS seeks comment on the following subjects: 1. Do the two tests described in this proposed rule appropriately guide enforcement of ‘‘unfair practices’’ under section 202(a) of the P&S Act? 2. What modifications to the proposed rule would be appropriate to meet the goals of the P&S Act? 3. Are the factors described in the proposed rule to contextualize the two tests appropriate? If not, are certain factors more appropriate to one or the other test? 4. What other relevant factors may be considered in addition to or instead of the current factors? 5. Should the Department add regulatory text to define legitimate business justifications? If so, who should bear the burden of proof and what constitutes a cognizable justification? 6. Should the rulemaking consider: (a) whether the method of competition is so facially unfair that business justifications should not be entertained; (b) whether the party claiming a business justification must show that the asserted justification for the method of competition is legally cognizable, non-pretextual, and narrowly tailored to PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 53899 bring about a benefit while limiting the harm to the competitive process and to market participants; or (c) whether the party claiming a justification must show that the claimed benefit occurs in the same market where harm is alleged? 7. Does the proposed rule appropriately define what behavior is ‘‘reasonably avoidable’’? Should this language be delineated more precisely or more broadly or in other ways, and if so, how? 8. Should AMS provide additional guidance around incipient harms to the market, and if so, should AMS draw from Clayton Act standards,134 such as whether the effect ‘‘may be substantially to lessen competition, or to tend to create a monopoly.’’ 135 9. What benefits would this proposed rule provide for producers or other persons? 10. What burdens would this proposed rule create for regulated entities? 11. What is your preferred way to measure countervailing benefits? 12. Should some things be categorically excluded from consideration as countervailing benefits, such as cross-market balancing? 13. How would you describe conduct that is oppressive? 14. How would this proposed rule affect competitive conditions in the livestock and poultry industries? 15. Should the proposed rule treat private causes of action differently from violations of section 202(a) of the Act when enforced by the Federal Government, and if so, how? 16. Would this proposed rule have any other effects on the market or market participants? If so, in what ways should they be addressed? Comments can be submitted by either of the following methods: Federal eRulemaking Portal: Go to https://www.regulations.gov. Enter AMS–FTPP–21–0046 in the Search field. Select the Documents tab, then 134 15 U.S.C. 18. e.g., Phila. Nat’l Bank, 374 U.S. at 363 (1963) (Stating that a merger resulting in a market share of 30% still ‘‘presents a threat’’ and causes ‘‘undue concentration’’). United States v. First Nat’l Bank of Lexington, 376 U.S. 665 (1964) (Stating that ‘‘the elimination of significant competition between [merging parties]’’ violates Section 1 of the Sherman Act: ‘‘It [can be] enough that the two . . . compete[ ]. That their competition [is] not insubstantial and that the combination [would] put an end to it’’). Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 229–30 (1993) (Stating that ‘‘excessive concentration[ ] and the oligopolistic price coordination it portends may be the injury to competition the Act prohibits’’). Marine Bancorporation, 418 U.S. at 623–624 (Suggesting that acquisition of ‘‘perceived potential competition may substantially lessen competition or tend to create a monopoly’’). 135 See, E:\FR\FM\28JNP1.SGM 28JNP1 53900 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules select the Comment button in the list of documents. Postal Mail/Commercial Delivery: Send your comment to Docket No. AMS–FTPP–21–0046, S. Brett Offutt, Chief Legal Officer, Packers and Stockyards Division, USDA, AMS, FTPP; Room 2097–S, Mail Stop 3601, 1400 Independence Ave. SW, Washington, DC 20250–3601. VI. Regulatory Analysis A. Paperwork Reduction Act Proposed § 201.308 defines how AMS evaluates unfair acts or practices and unfair methods of competition under section 202(a) the P&S Act. Proposed § 201.308 does not impose any information collection or recordkeeping requirements on any regulated entity or member of the public. Accordingly, approval by the Office of Management and Budget (OMB) is not required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3501–3520. B. Executive Orders 12866, 13563, and 14094 AMS is issuing this proposed rule in conformance with 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 Executive Order 12866 and, therefore, has been accordingly reviewed by the OMB. As a required part of the regulatory process, AMS prepared an economic analysis of the costs and benefits of proposed § 201.308. C. Regulatory Impact Analysis AMS proposes to establish § 201.308 to define how AMS evaluates unfair acts or practices and unfair methods of competition under section 202(a) the P&S Act. The term ‘‘unfair’’ has caused confusion and contention in the industry and in courts, and this rulemaking is intended mitigate both. Paragraph (a) of proposed § 201.308 defines an unfair act or practice as one that causes or will likely cause substantial injury to a market participant, which the market participant could not reasonably avoid but is not justified by countervailing benefits to market participants or competition. Paragraph (b) includes factors the Secretary of Agriculture may consider in evaluating whether an unfair act or practice is likely to cause substantial injury. Factors include the extent to which an act or practice impedes or restricts the ability to participate in the market, the extent to which an act or practice subverts competitive market forces, the size of any potential injury, and the extent to which the act or practice interferes with free decision making. Paragraph (c) of proposed § 201.308 defines an unfair practice with respect to markets as a practice that is collusive, coercive, predatory, restrictive, deceitful, or exclusionary method of competition that may negatively affect competitive conditions. AMS intends for proposed § 201.308 to be consistent with the way USDA has interpreted section 202(a) of the Act for decades. The preamble for this rulemaking explains how USDA has defined ‘‘unfair’’ in past actions and how those actions are consistent with the interpretation of ‘‘unfair’’ in proposed § 201.308. Concerning USDA’s interpretation and enforcement of ‘‘unfair’’ in section 202(a) of the Act, AMS does not expect proposed § 201.308 to change USDA’s position on enforcement of section 202(a). Proposed § 201.308 is made of two parts. Paragraphs (a) and (b) of proposed § 201.308 concern unfair practices with respect to market participants. Paragraphs (c) and (d) concern unfair practices with respect to markets. The two parts have some similarities, and some overlapping protections. Neither part requires that proof of completed or market wide harm to competition to find a violation of the Act. This is consistent with USDA’s longstanding interpretation and enforcement of the Act, but it is not consistent with all Federal court decisions. Proposed § 201.308 addresses unfairness. Unfairness is not an economic term, and it is not among the market failures that OMB has defined in Circular A–4. Some of the factors in proposed § 201.308 are intended to limit the exercise market power. But proposed § 201.308 also regulates practices unrelated to market power. Exercise of market power has long been a problem in the meat packing industry. From the 1880s to 1920, a series of investigations found the largest meat packers controlling prices through a variety of methods. Those findings were much of the reason that Congress passed the Act in 1921.136 Market power in livestock, meat, and poultry markets has not gone away. Academic and government sponsored research has consistently found that meat packers have some measure of market power, especially as livestock buyers. Livestock and poultry markets are characterized by atomistic livestock producers and poultry growers numbering in the tens of thousands that deal with a much smaller number of downstream packers and poultry processors that may possess some oligopsonistic characteristics. Table 1 below lists four-firm concentration ratios for fed cattle, hogs, chickens, and turkeys for 2010 through 2019. The concentration ratios were relatively stable over this period. The fed cattle industry has been the most concentrated with four firms controlling between 83 and 85 percent for the entire period. TABLE 1—FOUR-FIRM CONCENTRATION RATIO IN LIVESTOCK AND POULTRY SLAUGHTER * Fed cattle (%) khammond on DSKJM1Z7X2PROD with PROPOSALS Year 2010 2011 2012 2013 2014 2015 ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. 136 Azzam, Azzadine and Anderson, Dale. May 1996. ‘‘Assessing Competition in Meatpacking, VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 Hogs (%) 85 85 85 85 83 85 Economic History, Theory, and Evidence.’’ USDA, PO 00000 Frm 00015 Fmt 4702 Sfmt 4702 Chickens (%) 65 64 64 64 62 66 Turkeys (%) 51 52 51 54 51 51 GIPSA. https://www.gipsa.usda.gov/psp/ publication/con_tech%20report/rr96-6.pdf. E:\FR\FM\28JNP1.SGM 28JNP1 56 55 53 53 58 57 53901 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules TABLE 1—FOUR-FIRM CONCENTRATION RATIO IN LIVESTOCK AND POULTRY SLAUGHTER *—Continued Fed cattle (%) Year 2016 2017 2018 2019 ................................................................................................................. ................................................................................................................. ................................................................................................................. ................................................................................................................. Hogs (%) 84 83 84 85 Chickens (%) 66 66 70 67 Turkeys (%) 50 51 54 53 57 53 55 55 khammond on DSKJM1Z7X2PROD with PROPOSALS * U.S. Department of Agriculture, AMS Packers and Stockyards annual reports. Available at https://www.ams.usda.gov/reports/psd-annual-reports (last accessed 8/9/2022). The nature of livestock production compounds the market power problems. When livestock, are ready for slaughter, whether they are cattle, hogs, or lambs, they must go to the packer within a few weeks, or the quality starts to decrease. As the quality of the livestock fades, producers pay the costs of continuing to feed livestock while the value decreases. As a result, livestock producers are relatively determined sellers who have a limited capacity to wait for market conditions to change. Market power in livestock, meat, and poultry markets is a continuing problem that USDA has regulated through the Act since the 1920s. USDA has consistently established the rules and regulations necessary to maintain fair and competitive markets, including protecting producers from marketplace abuses and injuries they could not avoid. One example is § 201.70, which requires packers to conduct their livestock buying operations independently and in competition with other packers.137 Proposed § 201.308 is another step in the ongoing regulation of competition in the livestock, meat, and poultry markets. Proposed § 201.308 is designed to mitigate market power and the implications of market power especially on producers. It would also address fair trade practices in the marketplace generally. Unlike many of the regulations under the Act, proposed § 201.308 does not place any specific requirements on packers, live poultry dealers, or swine contractors. Instead, it is a method of evaluating acts, practices, and methods of competition to determine if they are violations of the Act. Proposed § 201.308 would be a new regulation, and USDA has not articulated the factors in proposed § 201.308 in enforcing violations of the Act in the past. USDA has asserted that a violation of the Federal antitrust laws may also violate the Packers and Stockyards Act but that the Packers and Stockyards Act’s prohibition on unfair practices incorporates trade practices beyond 137 Source: 24 FR 3183, Apr. 24, 1959. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 those covered by the Federal antitrust laws. AMS expects that proposed § 201.308 will improve its enforcement of the Act and make livestock, meat, and poultry markets more competitive. Regulatory Alternatives Considered Executive Order 12866 requires an assessment of costs and benefits of potentially effective and reasonably feasible regulatory alternatives and an explanation of why the planned regulatory action is preferable to the potential alternatives. Including proposed § 201.308, AMS considered four regulatory alternatives. The first alternative that AMS considered is to maintain the status quo and not propose the new rule. The second alternative that AMS considered is to propose § 201.308 as presented in this rulemaking. This second alternative is AMS’s preferred alternative as will be explained below. The third alternative that AMS considered is limiting the scope of proposed § 201.308 to contain only paragraphs (a) and (b) that concern unfair acts and practices of the currently proposed § 201.308. In other words, this limited scope alternative would limit the scope of the proposed regulation by eliminating paragraphs (c) and (d) which prohibit unfair practices with respect to markets. AMS considered a fourth alternative of issuing a statement of general policy rather than a new regulation, but AMS chose to propose a regulation because it expects that a regulation will be more effective. Proceeding by regulation also affords all market participants an opportunity to give input on the proposed regulation. AMS did not estimate costs and benefits for a statement of general policy, but AMS estimated costs and benefits for proposed § 201.308 and for the limited scope alternative. The proposed rule and the limited scope alternative have some similarities but proposed § 201.308 is more comprehensive. It would restrict unfair practices with respect to markets and individual market participants while the limited scope alternative would only PO 00000 Frm 00016 Fmt 4702 Sfmt 4702 restrict unfair practices with respect to market participants. For either proposed § 201.308 or the limited scope alternative, AMS was not able to estimate indirect costs or indirect benefits that might accrue from the proposed rule. AMS was able to estimate direct costs associated with proposed § 201.308 and the limited scope alternative. Those costs are largely comprised of regulated entities reviewing their own practices for compliance with the new regulation. The cost of reviewing practices is expected to be similar whether regulated entities review for compliance with proposed § 201.308 or the limited scope alternative. AMS does not expect that regulated packers, live poultry dealers, or swine contracts will need to make costly immediate changes in their current practices as a result of the proposed rule’s implementation because the proposed rule serves as a framework for agency analysis and enforcement to address problematic practices as they may arise, rather than as a mandate to ameliorate specifically identified practices at present. With similar direct costs and uncertain indirect costs, AMS prefers the more comprehensive proposed § 201.308 over the limited scope alternative. It is more consistent with the administration’s policy goals and more consistent with policies of other Federal agencies, such as the Federal Trade Commission. Proposed Rule: Benefits AMS expects that proposed § 201.308 will improve its regulation of livestock, meat, and poultry markets, making the markets more competitive and fairer. Applying a quantified dollar value to the improvement would be a difficult task. Because proposed § 201.308 is a method of evaluating acts, practices, and methods of competition, the value of any improvements would depend on many unknown factors. AMS expects that benefits of proposed § 201.308 would accrue to livestock producers, poultry growers, and consumers. To the extent that predatory practices are prevented, E:\FR\FM\28JNP1.SGM 28JNP1 53902 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules smaller packers, live poultry dealers, or swine contractors may benefit. Economic models of market power involve a deadweight loss to society as well transfers from producers, consumers, or both to the firms exerting market power. To the extent that proposed § 201.308 reduces acts, practices, and unfair methods that limit competition, society will benefit from the reduction in the deadweight loss, which is a loss to society due to a misallocation of resources. Livestock producers, poultry growers, consumers, competing packers, or all four might benefit from a reduction in the deadweight loss. Competition models also have a transfer component, in which income is transferred to firms exerting market power. As an example of potential benefits from improving competition, AMS estimated economic gains in losses for a range of hypothetical changes in market power in cattle and beef markets. Estimated gains are not available for the other livestock, meat, and poultry markets. These values are not estimates of benefits of proposed § 201.308. They are only examples that indicate possible benefits of improving competitive conditions. Table 2 presents the economic changes in packer market power for cattle associated with changing level of market competition, where baseline price and quantity information are for 2023 and are from USDA’s November 2023 edition of World Agricultural Supply and Demand Estimates.138 The khammond on DSKJM1Z7X2PROD with PROPOSALS 138 Source: USDA, ‘‘World Agricultural Supply and Demand Estimates,’’ WASDE–642, November 9, 2023. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 economic model to estimate the economic impacts is from Hadechek, Ma, and Sexton as are all the model parameters except for the WASDE data.139 The model assumes buyer and seller market power parameters falling in the range of 0 to 1. While these are not tied to a particular form of competition, a value of 0.15 would be what the Department of Justice and FTC regard as moderate firm concentration under their joint their 2023 Merger Guidelines and 0.30 would be well into the range that it considers as highly concentrated.140 The value of 0.15 corresponds to a Hirschman-Herfindahl index (HHI) of approximately 1,500, and 0.3 corresponds to HHI value of approximately 2,500 to 3,300, which is well above the value of 1,800 that is considered highly concentrated market in the 2023 Merger Guidelines.141 While the intent of this proposed rule is to lower incidence of practices that are harmful to competition, one cannot discount the possibility that litigation spurred by the proposed rule could deter entry or cause firms to leave the market and hinder innovative or even practices that make the market more competitive or more efficient. The analysis in the table below holds seller market power fixed at 0.15 and has output under packer market power parameters of 0.15 in section A and 0.30 in section B. In both sections, results are 139 Hadachek, Jeffrey, Meilin Ma, and Richard J. Sexton. 2023. ‘‘Market Structure and Resilience of Food Supply Chains under Extreme Events.’’ American Journal of Agricultural Economics 1–24. https://doi.org/10.1111/ajae.12393. 140 Ibid. 141 Ibid. PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 provided for 1 and 3 percent decreases in the market power parameter for the beef packer. A 3 percent change in market power is likely on the high side given that USDA does not expect that packers, live poultry dealers or swine contractors will make large changes as a result of proposed § 201.308. With the assumed decreases and base levels of market power, production increases, retail prices decrease, and the producers’ price of cattle increases with a decrease in market power. With a decrease in market power, gross returns to cattle producers increase and processor variable profits (i.e., not including fixed costs) decrease. Total market benefits (the producer plus consumer surplus line) increase with a decrease in market power. When the packer market power parameter decreases by 3 percent, deadweight loss decreases $26 million and $54 million when the buyer market power parameter is 0.15 and 0.30, respectively. To put some perspective of the size of the deadweight loss changes relative to the market value of cattle sold for slaughter, even their largest changes in table 2 are 0.18 percent the size of the forecasted value of cattle production for 2023 from USDA’s November 2023 World Agricultural Supply and Demand Estimate.142 Note that while the percent change in market power are in the same in parts A and B of the table, the economic impacts are larger in part B as the baseline level of market power is higher in there. 142 USDA, ‘‘World Agricultural Supply and Demand Estimates,’’ WASDE–642, November 9, 2023. E:\FR\FM\28JNP1.SGM 28JNP1 53903 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules TABLE 2—EXAMPLE OF ECONOMIC IMPACTS OF CHANGING MARKET POWER IN CATTLE AND BEEF MARKETS Three percent decrease in market power Market response One percent decrease in market power A. Base buyer power parameter = 0.15 Base seller power parameter = 0.15 Change Change Change Change Change Change Change Change Change Change in in in in in in in in in in seller market power ........................................................................................................................... production .......................................................................................................................................... retail price .......................................................................................................................................... farm price ........................................................................................................................................... producer plus consumer surplus ....................................................................................................... deadweight loss (million $) ................................................................................................................ producer gross revenue (million $) .................................................................................................... producer gross revenue ..................................................................................................................... packer variable profits (million $) ....................................................................................................... packer variable profits ........................................................................................................................ 0.00% 0.09% ¥0.09% 0.09% 0.17% ¥$26 $55 0.18% ¥$66 ¥0.13% 0.00% 0.03% ¥0.03% 0.03% 0.06% ¥$9 $18 0.06% ¥$22 ¥0.04% 0.00% 0.18% ¥0.16% 0.18% 0.32% ¥$54 $106 0.4% ¥$120 ¥0.24% 0.00% 0.06% ¥0.05% 0.06% 0.11% ¥$18 $35 0.1% ¥$40 ¥0.08% B. Base buyer power parameter = 0.30 Base seller power parameter = 0.15 Change Change Change Change Change Change Change Change Change Change in in in in in in in in in in seller market power ........................................................................................................................... production .......................................................................................................................................... retail price .......................................................................................................................................... farm price ........................................................................................................................................... producer plus consumer surplus ....................................................................................................... deadweight loss (million $) ................................................................................................................ producer gross revenue (million $) .................................................................................................... producer gross revenue ..................................................................................................................... packer variable profits (million $) ....................................................................................................... packer variable profits ........................................................................................................................ Proposed § 201.208 would apply to all livestock, meat, and poultry industries, including hogs and pork, sheep and lamb, and poultry. Although AMS is only providing an example for cattle and beef markets, AMS would also expect benefits from a more competitive market in each of the livestock, meat, and poultry industries. Sizes of the changes would be different due to differences in size and structure of other livestock, meat, and poultry markets, but potentially much larger than the expected direct costs associated to § 201.308. khammond on DSKJM1Z7X2PROD with PROPOSALS Proposed Rule: Costs Direct Administrative Costs of the Proposed Rule AMS is not able to make quantified estimates of indirect costs or benefits associated with proposed § 201.308. However, AMS is able to estimate direct costs associated with proposed § 201.308. AMS expects that packers, swine contractors, and live poultry dealers will incur direct administrative costs of reviewing and learning the proposed rule, assessing any impacts on their business operations, and then reviewing marketing and production contracts to ensure compliance with proposed § 201.308. Direct administrative costs are estimated below for (1) firm level costs to learn and review the proposed rule and assess any impacts on their business operations; and (2) in contract level costs to review VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 production and marketing contracts to ensure compliance with the proposed rule. AMS expects that the firm level and contract level costs are one-time costs to be incurred the first year the rule would be effective and that these costs will not be recurring costs. These estimates do not include any costs or benefits associated with changes in practices resulting from either firm level or contract level reviews. Direct Firm Level Administrative Costs of the Proposed Rule AMS expects that proposed § 201.308 will prompt packers, live poultry dealers, and swine contractors to incur one-time costs to first review and learn the rule and then assess any impacts on their business operations. Firm level costs are estimated as the total value of the time required to review and learn the proposed rule and to assess any impacts on their business operations. AMS expects the direct administrative costs of complying with proposed § 201.308 will be relatively small. Proposed § 201.308 is consistent with long held USDA policy, although the position has not yet been established in regulations. Consequently, AMS expects packers, live poultry dealers, and swine contractors to make relatively few changes to their business operations and production and marketing contracts. AMS estimated firm level administrative costs by identifying the regulated entity staff that will be PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 involved in reviewing and learning the proposed rule, assessing any impacts on their business operations, estimating the respective time requirement for each regulated entity profession, and obtaining estimates of hourly costs for each profession. AMS expects most of the time at the firm level will come from meetings with company executives, their assistants, and legal staff to review the proposed rule and assess any impacts on their business operations. At the contract level, most firms maintain their production and marketing contracts in an electronic format and IT staff will be needed to provide access to all contracts in the contract review process. Managers, assistants, and legal staff will then review the contracts to ensure compliance with the proposed rule. Multiplying estimated hours required by estimated hourly costs will yield total costs by profession, which is then summed across professions to obtain total firm level administrative costs. Firm level and contract level estimates of the amount of time required to review and learn the proposed rule, assess impacts on business operation, and to review contracts 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. AMS used data from the Bureau of Labor Statistics (BLS) Occupational E:\FR\FM\28JNP1.SGM 28JNP1 53904 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules Employment and Wage Statistics, released in May 2022, for the time values in this analysis.143 BLS estimated an average hourly wage for an administrative assistant salary in animal slaughtering and processing at $20.64 per hour. The average hourly wage for managers in animal slaughtering and processing is $61.24 per hour. The average hourly wage for IT system managers in animal slaughtering and processing is $66.07 per hour. The average hourly wage for lawyers in food manufacturing is $103.81 per hour. In applying the cost estimates, AMS marked-up the wages by 41.79 percent 144 to account for fringe benefits. For firm level costs, AMS expects that on average, each poultry dealer, beef packer, pork packer, and swine contractor will spend 20 hours of administrative assistant time, 40 hours of management time, 5 hours of IT systems manager time, and 40 hours of legal time to learn the proposed rule and assess any impacts on their business operations. For firm level costs, AMS estimated the number of regulated entities impacted, that is, the number of live poultry dealers, livestock packers, and swine contractors, from information PSD receives in its required forms. 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. Livestock 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, 196 were pork packers, and 139 were lamb, sheep, or goat packers.145 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, 345 packers slaughtered both beef and pork. AMS estimated that on average, live poultry dealers that are regulated under the proposed rule will require 20 hours of administrative time at $29.27 per hour costing the industry $53,000 146; 40 hours of management time at $86.83 per hour costing the industry $313,000 147; 5 hours of IT systems managers’ time at $93.68 per hour costing the industry $42,000 148; and 40 hours of an attorney’s time at $147.19 per hour costing the industry $530,000 149 for learning and reviewing the proposed rule and assessing any impacts on their business operations. The total cost for poultry dealers to learn and review the proposed rule is estimated to be $937,000.150 AMS utilized similar calculations to estimate the costs to packers and swine contractors, as shown in the table below. The estimated total costs will be $2.72 million 151 for beef packers, $8.93 million 152 for pork packers and swine contractors, and $1.45 million 153 for lamb packers. The cost to pork packers is an expected $2.04 million and $6.88 million to swine contractors. Total firm level costs across all entities totals $13.13 million. TABLE 3—FIRM LEVEL, CONTRACT LEVEL AND TOTAL ADMINISTRATIVE COSTS IN THE PROPOSED § 201.308 ($ MILLIONS)—PREFERRED ALTERNATIVE Live poultry dealers Cost Firm Level Administrative Costs ................................................ Contract Level Administrative Costs .......................................... Total Administrative Costs in 2025 ............................................ 10-year PV at 3 percent ............................................................ 10-year PV at 7 percent ............................................................ Annualized costs at 3 percent ................................................... Annualized costs at 7 percent ................................................... $0.94 4.11 5.05 4.90 4.72 0.57 0.67 Beef packers Pork packers and swine contractors $2.72 0.20 2.92 2.83 2.73 0.33 0.39 $8.93 1.79 10.72 10.41 10.02 1.22 1.43 Lamb packers * $1.45 0.00 1.45 1.41 1.35 0.16 0.19 Total cost ** $14.03 6.11 20.14 19.55 18.82 2.29 2.68 khammond on DSKJM1Z7X2PROD with PROPOSALS * Lamb contracts are structured differently and not counted here. ** Column and rows may not sum to total due to rounding. 143 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). 144 U.S. Bureau of Labor Statistics, Employer Costs for Employee Compensation—March 2023, released June 16, 2023, USDL–23–1305, table 1, p. 4. https://www.bls.gov/news.release/pdf/ecec.pdf (accessed 7/14/2023). 145 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. 146 90 live poultry dealers × $29.27 per hour × 20 hours = $52,686. 147 90 live poultry dealers × $86.83 per hour × 40 hours = $312,588. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 148 90 live poultry dealers × $93.68 per hour × 5 hours = $42,156. 149 90 live poultry dealers × $147.19 per hour × 40 hours = $529,884. 150 Firm level cost for live poultry dealers is the sum of costs across professions: $52,686 (administrative assistants) + $312,588 (managers) + $42,156 (IT system managers) + $529,884 (attorneys). 151 Firm level cost for beef packers: (261 beef packers × $29.27 per hour for administrative assistants × 20 hours) + (261 beef packers × $86.83 per hour for managers × 40 hours) + (261 beef packers × $93.68 per hour for IT specialists × 5 hours) + (261 beef packers $147.19 per hour attorney time × 40 hours). 152 Total firm level cost to pork markets: $2,041,262 (pork packers) + $6,884,051 (swine contractors) = $8,925,312. Firm level cost for pork packers: (196 pork packers × $29.27 per hour for PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 administrative assistants × 20 hours) + (196 pork packers × $86.83 per hour for managers × 40 hours) + (196 pork packers × $93.68 per hour for IT specialists × 5 hours) + (196 pork packers $147.19 per hour attorney time × 40 hours). Firm level cost for swine contractors: (661 swine contractors × $29.27 per hour for administrative assistants × 20 hours) + (661 swine contractors × $86.83 per hour for managers × 40 hours) + (661 swine contractors × $93.68 per hour for IT specialists × 5 hours) + (661 swine contractors × $147.19 per hour attorney time × 40 hours). 153 Firm level cost for lamb packers: (139 lamb packers × $29.27 per hour for administrative assistants × 20 hours) + (139 lamb packers × $86.83 per hour for managers × 40 hours) + (139 lamb packers × $93.68 per hour for IT specialists × 5 hours) + (139 lamb packers $147.19 per hour attorney time × 40 hours). E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules khammond on DSKJM1Z7X2PROD with PROPOSALS Direct Contract Level Administrative Costs of the Proposed Rule Preferred Alternative This section estimates the costs associated with reviewing production and marketing contracts to ensure compliance with proposed § 201.308, after learning and reviewing the proposed rule and assessing any business impacts. The total cost to review contracts is estimated by multiplying the number of contracts in each industry by the estimated hours for regulated entity professionals to review the contracts and by the hourly cost of each profession. AMS estimated that there are 23,047 broiler grower agreements, 8,094 swine production agreements,154 1,960 hog marketing agreements,155 and 1,116 feedlot agreements.156 AMS does not estimate sheep production or marketing agreements because they are structured differently than contracts for other species and would not need to be reviewed under this proposed rule. The time requirement by each regulated entity professional to review production and marketing contracts would be less than the time requirement in learning and reviewing the proposed rule assessing any business impacts. AMS estimates that it will take 0.5 hours each for administrative assistants, managers, IT system managers, and attorneys to review the production and marketing contracts in the respective livestock and poultry industries. The table above shows that the contract level administrative costs of reviewing the contracts are $4.11 million for poultry dealers,157 $199,000 for beef packers,158 $350,000 for pork packers,159 and $1.44 million for swine 154 USDA, National Agricultural Statistics Service, ‘‘2022 Census of Agriculture: United States Summary and State Data,’’ issued February 2024, table 24. 155 An estimated 10 marketing agreements per pork packing plant × 196 pork packers. 156 1,829 feedlots over 1,000 head (2022 Census of Agriculture, table 13) × an estimated 61% (the number of feedlots utilizing formula pricing). 157 Total contract level costs for poultry dealers, $4,113,544 = (23,047 poultry dealer contracts × $29.27 per hour for administrative assistants × 0.50 hours) + (23,047 poultry dealer contracts × $86.83 per hour for managers × 0.50 hours) + (23,047 poultry dealer contracts × $93.68 per hour for IT specialists × 0.50 hours) + (23,047 poultry dealer contracts × $147.19 per hour attorney time × 0.50 hours). 158 Total contract level costs for beef packers, $199,134 = (1,116 beef packer contracts × $29.27 per hour for administrative assistants × 0.50 hours) + (1,116 beef packer contracts × $86.83 per hour for managers × 0.50 hours) + (1,116 beef packer contracts × $93.68 per hour for IT specialists × 0.50 hours) + (1,099 beef packer contracts × $147.19 per hour attorney time × 0.50 hours). 159 Total contract level costs for pork packers, $349,833 = (1,960 pork packer contracts × $29.27 VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 contractors.160 Lamb contracts are structured differently from other species’ contracts, are mainly fixedprice contracts, and are not expected to be reviewed under this proposed rule. The total administrative cost of reviewing contracts is $6.11 million.161 Direct Firm Level and Contract Level Administrative Costs of the Proposed Rule Preferred Alternative Total administrative industry costs are presented in the table above. The description of estimated firm level and contract level administrative costs were presented above. AMS expects that producers will not face any costs from the proposed rule. Firm level costs to learn the proposed rule and assess any impacts on business operations are estimated to be $14.03 million and the contract level costs to review production and marketing contracts are estimated to be $6.11 million, for a total estimated administrative cost of $20.14 million in the proposed rule. AMS expects that the firm level and contract level costs which comprise the total administrative industry costs are onetime costs to be incurred the first year the proposed rule would be effective and that these costs will not be recurring costs. Litigation Costs—Preferred Alternative AMS believes that proposed § 201.308 may possibly reduce litigation due to the clarity provided by the proposed rule as to the unfair practices with respect to market participants and markets that violate the Act. However, the proposed rule possibly increases litigation to the extent that AMS or producers are better able to identify unfair practices and thus may be more likely to seek relief in courts. AMS is uncertain as to which of these offsetting effects will dominate and to what extent. Therefore, AMS does not estimate litigation costs in this analysis. per hour for administrative assistants × 0.50 hours) + (1,960 pork packer contracts × $86.83 per hour for managers × 0.50 hours) + (1,960 pork packer contracts × $93.68 per hour for IT specialists × 0.50 hours) + (1,960 pork packer contracts × $147.19 per hour attorney time × 0.50 hours). 160 Total contract level costs for swine contractor, $1,440,660 = (8,094 swine contractors contracts × $29.27 per hour for administrative assistants × 0.50 hours) + (8,094 swine contractors contracts × $86.83 per hour for managers × 0.50 hours) + (8,094 swine contractors contracts × $93.68 per hour for IT specialists × 0.50 hours) + (8,094 swine contractors contracts × $147.19 per hour attorney time × 0.50 hours). 161 Total contract level costs, $6,107,170 = $4,113,544 million for poultry dealers + $199,134 for beef packers + $349,833 for pork packers + $1,440,660 for swine contractors. PO 00000 Frm 00020 Fmt 4702 Sfmt 4702 53905 Indirect Costs AMS is unable to quantify any costs or benefits that would arise from changing business practices due to proposed § 201.308. If AMS’s enforcement of proposed § 201.308 has the effect of improving competitive conditions in the markets, then the changing market conditions would likely result in a reduction in welfare for packers and live poultry dealers and an increase for producers and consumers. These would be costs to packers and live poultry dealers, and would be offset by gains for consumers, growers, and producers. Changing competitive conditions could have production efficiency effects, which may or may not be larger than market power effects,162 e.g., decreasing market power could result in more smaller packers with higher production costs per unit. Hence, a full accounting of net benefits would involve analysis of demand and supply changes. Costs and Benefits of the Limited Scope Alternative The alternative is the same as the preferred alternative, with the exception that the alternative would limit the scope of the proposed rule to § 201.308(a) and (b). Section 201.308(c) and (d) from the preferred alternative would not be part of the limited scope alternative. Proposed § 201.308(a) protects market participants from the type of unjustified acts or practices that produce unavoidable injury that cannot be justified by countervailing benefits to producers or to competition. Proposed § 201.308(b) provides criteria under which likely injuries must be halted before actual injury occurs. Proposed § 201.308(a) defines unfair practices as those that injure market participants, while § 201.308(c) defines unfair practices as those that result in harms to the market. Both sections of the preferred alternative define ‘‘unfair’’ from slightly different vantage points. Combining these provisions results in a more comprehensive definition of the term ‘‘unfair.’’ While AMS believes the inclusion of both provisions fully define the meaning and applicability of the term ‘‘unfair’’ under the Act, AMS considered a regulatory alternative of severing § 201.308(a) and (b) from 162 U.S. General Accountability Office, ‘‘U.S. Agriculture: Retail Food Prices Grew Faster Than the Prices Farmers Received for Agricultural Commodities, but Economic Research Has Not Established That Concentration Has Affected These Trends,’’ GAO–09–746R, June 2009. E:\FR\FM\28JNP1.SGM 28JNP1 53906 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules § 201.308(c) and (d) and eliminating § 201.308(c) and (d) as a viable regulatory alternative. A rule of that kind meets many of the policy goals for this rulemaking. What this regulatory alternative does not do is to define unfair practices as those that result in harm to the market. Thus, this regulatory alternative provides is less comprehensive compared to the preferred alternative. In terms of the costs of complying with the limited scope alternative, the costs are similar, but slightly smaller than the preferred alternative. AMS expects that regulated entities will still need to spend time understanding the limited scope alternative, its impacts on its business operations, and will still need to review all contracts to ensure compliance with the proposed rule. Given the amount of overlap in defining the term ‘‘unfair’’ in the preferred alternative, AMS expects that regulated entities will need to spend 90 percent of the time to review the limited scope alternative, assess the impact of its businesses, and review contracts for compliance with the alternative rule. AMS expects that under the limited scope alternative live poultry dealers, packers and swine contractors expend 90 percent of the time in firm level administrative costs in learning and reviewing the alternative rule and assessing any impacts on their business operations, and 90 percent of the time in reviewing contracts. The time requirement for administrative assistants is expected to be 18 hours, 36 hours for managers, 4.5 hours for IT systems support and 36 hours for attorneys. The time requirement of reviewing production and marketing contracts is expected to be 0.45 hours for each profession. It is expected that the respective regulated entities reviewing the rule and assessing business impacts will be the same as in the preferred alternative, and their respective hourly compensation will remain the same as in the preferred alternative. The number of live poultry dealers, packers and swine contractors will also remain the same as in the preferred alternative. The estimated firm level costs will be $0.84 million for poultry dealers,163 $2.45 million for beef packers,164 and $8.03 million for pork packers and swine contractors,165 and $1.30 million for lamb packers.166 The firm level cost for pork packers is $1.84 million and $6.20 million for swine contractors. Total firm level costs across all entities total $12.63 million.167 TABLE 4—FIRM LEVEL, CONTRACT LEVEL AND TOTAL DIRECT COSTS FOR PROPOSED § 201.308 ($ MILLIONS)—LIMITED SCOPE ALTERNATIVE Live poultry dealers Costs Firm level administrative costs .................................................. Contract level administrative costs ............................................ Total administrative costs in 2025 ............................................. 10-year PV at 3 percent ............................................................ 10-year PV at 7 percent ............................................................ Annualized costs at 3 percent ................................................... Annualized costs at 7 percent ................................................... $0.84 3.70 4.55 4.41 4.25 0.52 0.60 Beef packers Pork packers and swine contractors $2.45 0.18 2.63 2.55 2.45 0.30 0.35 $8.03 1.62 9.65 9.37 9.02 1.10 1.28 Lamb packers * Total costs ** $1.30 0.00 1.30 1.26 1.22 0.15 0.17 $12.63 5.50 18.12 17.59 16.94 2.06 2.41 khammond on DSKJM1Z7X2PROD with PROPOSALS * Lamb contracts are structured differently and thus not included here. ** Rows may not sum to Total Costs due to rounding. The contract level administrative costs are also presented in the table above. AMS estimated that it will cost poultry dealers $3.70 million,168 $0.18 million for beef packers,169 $1.62 million for pork packers and swine contractors,170 and no cost to lamb packers. It is expected that lamb packers will not incur a contract level administrative cost because production and marketing contracts are structured differently, and it is not expected that the contracts will be reviewed. The contract level cost for pork packers is $315,000 and $1.30 million for swine contractors. The total contract level administrative cost is expected to be $5.50 million.171 As shown in the table above, the 10year PV costs at three percent for the proposed limited scope alternative is expected to be $17.59 million. The total cost to the poultry industry is expected to be $4.55 million, $2.62 million for beef packers, $9.65 million for pork packers and swine contractors, and $1.3 million for the lamb packers. The 10year PV costs at seven percent for the proposed limited scope alternative is expected to be $16.94 million. The benefits of the limited scope alternative are similar to the benefits of the preferred alternative, since both alternatives provide a definition of ‘‘unfair’’ acts and practices and may lead to more competitive livestock, meat, and poultry markets. AMS prefers to propose the alternative of § 201.308(a) through (d) because it offers a more comprehensive guide to market participants than the limited scope alternative. 163 Poultry dealer firm level costs: $47,417 (administrative assistants) + $281,329 (managers) + $37,940 (IT support) + $476,896 (legal). 164 Beef packer firm level costs: $137,510 (administrative assistants) + $815,855 (managers) + $110,027 (IT support) + $1,382,997 (legal). 165 Pork packer firm level costs: $103,265 (administrative assistants) + $612,672 (managers) + $82,626 (IT support) + $1,038,573 (legal). Swine contractor firm level costs: $348,254 (administrative assistants) + $2,066,207 (managers) + $278,651 (IT support) + $3,502,533 (legal). 166 Lamb packer firm level costs: $73,234 (administrative assistants) + $434,497 (managers) + $58,597 (IT support) + $736,539 (legal). 167 Total firm level costs: $0.84 million (poultry dealers) + $2.45 million (beef packers) + $8.03 million (pork packers and swine contractors) + $1.30 (lamb packers) = $11.82 million (total). 168 Poultry dealer contract level costs: $303,564 (administrative assistants) + $900,527 (managers) + $971,569 (IT support) + $1,526,530 (legal). 169 Beef packer contract level costs: $14,695 (administrative assistants) + $43,594 (managers) + $47,033 (IT support) + $73,898 (legal). 170 Pork packer firm level costs: $25,816 (administrative assistants) + $76,584 (managers) + $82,626 (IT support) + $129,822 (legal). Swine contractor firm level costs: $106,610 (administrative assistants) + $316,261 (managers) + $341,211 (IT support) + $536,110 (legal). 171 Total contract level costs: $3.70 million (poultry dealers) + $0.18 million (beef packers) + $1.62 million (pork packers and swine contractors) = $5.50 million (total). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 PO 00000 Frm 00021 Fmt 4702 Sfmt 4702 D. Regulatory Flexibility Analysis AMS proposes to establish § 201.308 to define how AMS evaluates unfair acts or practices and unfair methods of competition under section 202(a) the E:\FR\FM\28JNP1.SGM 28JNP1 khammond on DSKJM1Z7X2PROD with PROPOSALS Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules P&S Act. The term ‘‘unfair’’ has caused confusion and contention in the industry and in courts, and this rulemaking is intended mitigate both. Proposed § 201.308 is made of four parts. Paragraphs (a) and (b) of proposed § 201.308 concern unfair acts or practices with respect to market participants. Paragraphs (c) and (d) concern unfair practices with respect to markets. Parts of both of these provisions relate to the likely harms the Act was designed to prevent; paragraph (b) helps define paragraph (a), and paragraph (d) helps define paragraph (c). No part, however, requires that proof of harm to competition to find a violation of the Act. This is consistent with USDA’s interpretation and enforcement of the Act, but it is not consistent with all Federal court decisions. Paragraph (a) of proposed § 201.308 defines an unfair act or practice as one that causes or will likely cause substantial injury to a market participant, which the market participant could not reasonably avoid and which the regulated entity that has engaged in the act cannot justify by establishing countervailing benefits to market participants or competition. Paragraph (b) includes factors the Secretary of Agriculture may consider when evaluating whether an unfair act or practice is likely to cause substantial injury. Factors include the extent to which an act or practice impedes or restricts the ability to participate in the market, the extent to which an act or practice subverts competitive market forces, the size any potential injury, and the extent to which the act or practice interferes with free decision making. Paragraph (c) of proposed § 201.308 defines an unfair practice with respect to markets as a practice that is collusive, coercive, predatory, restrictive, deceitful, or exclusionary and that may negatively affect competitive conditions. AMS intends for proposed § 201.308 to be consistent with the way USDA has interpreted section 202(a) of the Act for decades. The preamble for this rulemaking explains how USDA has defined ‘‘unfair’’ in past actions and how those actions are consistent with the interpretation of ‘‘unfair’’ in proposed § 201.308. Concerning USDA’s interpretation and enforcement of ‘‘unfair’’ in section 202(a) of the Act, AMS does not expect proposed § 201.308 to change USDA’s position on enforcement of section 202(a). Addressing the exercise of market power is one purpose of proposed § 201.308, although it potentially addresses other issues concerning ‘‘unfairness’’ under the Act as well. VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 Market power has been a problem in the meat packing industry since the invention of refrigerated rail cars enabled Chicago packers to process western livestock and ship the carcasses east at costs lower than eastern packers could achieve. From the 1880s to 1920, a series of investigations found the largest meat packers controlling prices through a variety of methods. Those findings were much of the reason that Congress passed the Act in 1921.172 Market power in livestock, meat, and poultry markets is a continuing problem that USDA has regulated through the Act since the 1920s. USDA has consistently established the rules and regulations necessary to maintain fair and competitive markets, including protecting producers from marketplace abuses and harms they could not avoid. One example is § 201.70, which requires packers to conduct their livestock buying operations independently and in competition with other packers.173 Proposed § 201.308 is another step in the ongoing regulation of competition in the livestock, meat, and poultry markets. Proposed § 201.308 is designed to mitigate market power and the implications of market power especially on producers. It would also address fair trade practices in the marketplace generally. Unlike many of the regulations under the Act, proposed § 201.308 does not place any specific requirements on packers, live poultry dealers, or swine contractors. Instead, it provides a framework for evaluating acts, practices, and methods of competition to determine if they are violations of the Act. Proposed § 201.308 would be a new regulation, and USDA has not articulated the factors in proposed § 201.308 as such in enforcing violations of the Act in the past. However, the preamble to the rulemaking explains that past enforcement actions under the Act have been consistent with the factors in proposed § 201.308. While proposed § 201.308 is consistent with actions that USDA has taken in the past, it is less clear what different acts or practices may violate proposed § 201.308 that USDA would not have been considered violations without the proposed rule. USDA has asserted that a violation of the Federal antitrust laws may also violate the Packers and Stockyards Act, but that the Packers and Stockyards Act’s prohibition on unfair practices 172 Azzam, Azzadine and Anderson, Dale, May 1996, ‘‘Assessing Competition in Meatpacking, Economic History, Theory, and Evidence,’’ USDA, GIPSA, https://www.gipsa.usda.gov/psp/ publication/con_tech%20report/rr96-6.pdf. 173 Source: 24 FR 3183, Apr. 24, 1959. PO 00000 Frm 00022 Fmt 4702 Sfmt 4702 53907 incorporates trade practices beyond those covered by the Federal antitrust laws. AMS expects that proposed § 201.308 will improve its enforcement of the Act and make livestock, meat, and poultry markets fairer and more competitive. AMS estimated administrative costs of proposed § 201.308 in two parts, firm level and contract level. In firm level costs, AMS expects that each small packer, swine contractor, and live poultry dealer would need to review and learn the proposed rule and to assess any impacts on their business operations. In contract level costs, AMS expects that small entities would review production and marketing contracts to ensure compliance with the proposed rule. Defining Small Businesses The SBA defines small businesses by their North American Industry Classification System Codes (NAICS).174 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 would be subject to the regulation. Fifty-five of the live poultry dealers will be small businesses according to the SBA standard. Most packers will be small businesses, although large packers are responsible for most meat production. According to the SBA standard, there are 255 small beef packers, 185 small pork packers, and 139 small lamb packers. All lamb packers are considered small. 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 2022 United States Department of Agriculture (USDA) Census of Agriculture 175 indicated that there were 174 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. 175 USDA, National Agricultural Statistics Service, ‘‘2022 Census of Agriculture: United States Summary and State Data,’’ issued February 2024, table 24. E:\FR\FM\28JNP1.SGM 28JNP1 53908 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules 661 swine contractors in 2022. 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 461 swine contractors that sold 5,000 head of hogs or more were large businesses, and the 194 contractors that sold less than 5,000 head were small businesses. Direct Firm Administrative Costs of the Proposed Rule to Small Businesses As shown in the table below, the firm level cost for small poultry dealers is $573,000,176 $2.66 million for small beef packers,177 $1.93 million for small pork packers,178 $1.12 million for small swine contractors,179 and $1.45 million for small lamb packers. The total firm level cost for small firms from the proposed rule is $7.73 million.180 TABLE 5—TOTAL ADMINISTRATIVE COSTS IN THE PROPOSED § 201.308 TO SMALL BUSINESSES Live poultry dealer Cost Firm Level Administrative Costs ................................................ Contract Level Administrative Costs .......................................... Total Administrative Costs in 2025 ............................................ 10-year PV at 3 percent ............................................................ 10-year PV at 7 percent ............................................................ Annualized costs at 3 percent ................................................... Annualized costs at 7 percent ................................................... 573,000 131,000 704,000 683,000 658,000 80,000 94,000 Beef packer 2,656,000 35,000 2,690,000 2,612,000 2,514,000 306,000 358,000 Pork packer and swine contractor 3,062,003 168,000 3,230,000 3,136,000 3,019,000 368,000 430,000 Lamb packer * 1,448,000 0 1,448,000 1,405,000 1,353,000 165,000 193,000 Total cost ** 7,738,000 334,000 8,072,000 7,837,000 7,544,000 919,000 1,074,000 * Lamb contracts are structured differently and not counted here. ** Rows may not sum to Total Costs due to rounding. AMS estimated the small business contract level costs by estimating small businesses’ share (the market share) of all businesses contract level costs. The percent of poultry growing arrangements held by small businesses is 3.2 percent, the percent of production contracts held by small swine contractors is 8.9 percent, the portion of hog marketing agreements with small firms is 11.3 percent, and the percent of cattle feedlot agreements with small businesses is 17.4 percent. Contract level administrative costs are not estimated for lamb packers because these contracts are structured differently than for other species, and lamb packers are not expected to revise contracts under the proposed rule. Contract level costs for small poultry dealers are $131,000,181 $35,000 for small beef packers,182 $40,000 for small pork packers,183 and $127,000 for small swine contractors.184 The total contract level costs for small firms from the proposed rule are $334,000.185 The following table compares the average per entity first-year costs of proposed § 201.308 to the average revenue per establishment for all regulated small businesses. First-year costs are appropriate for a threshold analysis because all expected costs occur in the first year. TABLE 6—COMPARISON OF AVERAGE COSTS PER ENTITY TO AVERAGE REVENUES PER ENTITY FOR SMALL BUSINESSES Poultry dealers Cost khammond on DSKJM1Z7X2PROD with PROPOSALS First year costs .................................................................................. 10-year PV—3.00% ........................................................................... 10-year PV—7.00% ........................................................................... Annualized—3.00% ............................................................................ Annualized—7.00% ............................................................................ Average net sales .............................................................................. First year cost as % of net sales ....................................................... Annualized—7.00% as % of net sales .............................................. $13,000 $12,000 $12,000 $1,000 $2,000 52,888,000 0.02% 0.00% Beef packers $11,000 $10,000 $10,000 $1,000 $1,000 80,173,000 0.01% 0.00% Pork packers $11,000 $11,000 $10,000 $1,000 $1,000 36,781,000 0.03% 0.00% Swine contractors $13,000 $13,000 $12,000 $1,000 $2,000 486,000 2.66% 0.35% Lamb packers $10,000 $10,000 $10,000 $1,000 $1,000 23,623,000 0.04% 0.01% Average first-year costs as a percent of revenues are small, ranging from 0.01 percent for beef packers to 2.66 percent for swine contractors. Costs are highest for swine contractors because average revenues for swine contractors are considerably smaller than average revenues for packers and live poultry dealers. AMS considered an alternative to proposed § 201.308. The alternative would be the same as the preferred alternative, with the exception that the alternative would limit the scope of the rule to § 201.308(a) and (b). Section 201.308(c) and (d) from the proposed rule would not be part of the alternative. AMS expects that the direct costs associated with this limited scope alternative will be similar to the costs associated with the currently proposed 176 Firm level cost for poultry growing arrangements with small firms = 3.2 percent × $937,314. 177 Firm level cost for small beef packers = 17.4 percent × $2,718,211. 178 Firm level cost for small pork packers = 11.3 percent × $2,041,262. 179 Firm level cost for small swine contractors = 8.9 percent × $5,988,395. 180 Total firm level costs across small firms in livestock and poultry industries, $7,738,048 = $572,803 (live poultry dealer) + $2,655,723 (beef packer) + $1,926,701 (pork packer) + $1,135,191 (swine contractors) + $1,447,629 (lamb packer). 181 Contract level cost for poultry growing arrangements with small firms = 3.2 percent × $4,113,544. 182 Contract level cost for small beef packers = 17.4 percent × $196,098. 183 Contract level cost for small pork packers = 11.3 percent × $349,833. 184 Contract level cost for small swine contractors = 8.9 percent × $1,527,298. 185 Total contract level costs across small firms in livestock and poultry industries, $334,001 = $131,186 (poultry dealers) + $34,180 (beef packer) + $39,531 (pork packers) + $135,929 (swine contractors). VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 Alternative Regulation PO 00000 Frm 00023 Fmt 4702 Sfmt 4702 E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules § 201.308. AMS also expects that regulated packers, live poultry dealers, and swine contractors would need to review their business practices and their marketing and production contracts with livestock producers as well as their production contracts with live poultry dealers. They might be able to spend a little less time on this review because there would only be about half as much new regulation to learn and comprehend. AMS still expects that regulated packers, live poultry dealers, and swine contractors would need still need to spend about 90 percent of the time to review the alternative as they needed to review the proposed regulation. All of the direct administrative costs were due to the time required for regulation packers, live poultry dealers, and swine contractors to review the regulation. As a consequence, AMS’s estimate of the administrative costs for the alternative are 90 percent of the costs for proposed rule. The table below is as summary of expected direct cost associated with this limited scope alternative. Direct costs associated with the limited scope alternative are not much 53909 different than the direct costs associated with proposed § 201.308. Similarly, to the proposed rule, all costs occur in the first year. Also like the proposed rule, costs are not likely significant for packers or live poultry dealers. However, for swine contractors, costs are expected to be more than 2 percent of net sales for the first year the alternative would be effective. For each of the remaining years, cost to swine contractors would not likely be significant. TABLE 7—COMPARISON OF AVERAGE COSTS PER ENTITY TO AVERAGE REVENUES PER ENTITY FOR SMALL BUSINESSES— LIMITED SCOPE ALTERNATIVE Poultry processor Cost khammond on DSKJM1Z7X2PROD with PROPOSALS First year costs .................................................................................. 10-year PV—3.00% ........................................................................... 10-year PV—7.00% ........................................................................... Annualized—3.00% ............................................................................ Annualized—7.00% ............................................................................ Average net sales .............................................................................. First year cost as % of net sales ....................................................... Annualized—7.00% as % of net sales .............................................. AMS prefers to propose the alternative of § 201.308(a) through (d) because it offers more comprehensive protection to livestock producers and contract growers than the limited scope alternative. Direct costs to regulated entities would likely be smaller with the limited scope alternative, but they would not be much smaller. AMS was not able to quantify indirect costs or benefits associated with proposed § 201.308 or with the limited scope alternative. To the extent that either alternative would improve the competitive environment in livestock, meat, or poultry markets, the regulation would likely result in reduced welfare to meat packers, and live poultry dealers and increased welfare to livestock producers and contract growers. Even small improvements in the market could cause benefits that are much larger than the direct costs estimated for either proposed § 201.308 or the limited scope alternative. The proposed rule may have the effect of reducing deadweight losses. To the extent that packers, live poultry dealers, or swine contractors transfer surpluses to growers and producers due to improved competition caused by proposed § 201.308 or the alternative, AMS will consider the regulation a success. Small businesses are typically not associated with market power or practices that restrict competition, but VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 $12,000 $11,000 $11,000 $1,000 $2,000 52,888,000 0.02% 0.00% Beef packer $9,000 $9,000 $9,000 $1,000 $1,000 80,173,000 0.01% 0.00% in small markets the largest firms can be small businesses. In the lamb industry, for example, the largest packer is a small business. AMS expects that the direct costs associated with proposed § 201.308 would be significant for a substantial number of swine contractors. AMS was not able to quantify costs associated with changes to the level of competition in the regulated markets, but changes could result in significant costs to substantial numbers of packers, live poultry dealers, and swine contractors. However, these costs, which are actually transfers in surplus, are the intended purpose of the regulation. AMS acknowledges that individual businesses may have relevant data to supplement our analysis. AMS encourages small stakeholders to submit any relevant comments and data during the comment period. E. Executive Order 13175—Consultation and Coordination With Indian Tribal Governments Executive Order 13175 requires Federal agencies to consult with 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 PO 00000 Frm 00024 Fmt 4702 Sfmt 4702 Pork packer $10,000 $9,000 $9,000 $1,000 $1,000 36,781,000 0.03% 0.00% Swine contractors $12,000 $11,000 $11,000 $1,000 $2,000 486,000 2.37% 0.31% Sheep, lamb, and goat packer $9,000 $9,000 $9,000 $1,000 $1,000 23,623,000 0.04% 0.01% 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. The following is a summary of activity to date. AMS engaged in a Tribal Consultation in conjunction with a previous proposed rule also under the Act (‘‘Inclusive Competition and Market Integrity Under the Packers and Stockyards Act,’’ 87 FR 60010) on January 19, 2023, in person in Tulsa, Oklahoma, and virtually. AMS received multiple Tribal comments from that Consultation, many of which were specific to and considered in that rulemaking. In that consultation, Tribes raised legal concerns with respect to the jurisdiction of the AMS enforcement of the P&S Act. Tribes commented that the P&S Act does not apply to Tribes and Tribal entities. Those comments raise a legal issue of statutory interpretation, but these concerns are not directly implicated by this proposed rule. Additionally, the proposed rule would provide a framework for AMS analysis of unfair practices and does not mandate specific changes to particularly identified practices. Therefore, other than the legal issue AMS does not find that this rulemaking carries substantial direct Tribal implications. AMS recognizes and supports the Secretary’s desire to incorporate Tribal E:\FR\FM\28JNP1.SGM 28JNP1 53910 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules and Indigenous perspectives, remove barriers, and encourage Tribal selfdetermination principles in USDA programs, including hearing and understanding Tribal views on legal authorities and cost implications as facts and circumstances develop. If a Tribe requests additional consultation, AMS will work with USDA’s Office of Tribal Relations to ensure meaningful consultation is provided in accordance with Executive Order 13175. khammond on DSKJM1Z7X2PROD with PROPOSALS F. Executive Order 12988—Civil Justice Reform This proposed rule has been reviewed under Executive Order 12988—Civil Justice Reform. This proposed rule is not intended to have a retroactive effect. If adopted, this proposed rule would not preempt any 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 rulemaking. G. Civil Rights Impact Analysis AMS has considered the potential civil rights implications of this proposed rule on members of protected groups to ensure that no person or group would 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. This proposed rule does not contain any requirements related to eligibility, benefits, or services that would have the purpose or effect of excluding, limiting, or otherwise disadvantaging any individual, group, or class of persons on one or more prohibited bases. In its review, AMS conducted a Civil Rights Impact Analysis, which resulted in a finding that Asian, and Native Hawaiians or Other Pacific Islanders could be disproportionately impacted by this proposed rule, insofar as fewer farmers in those groups participate in livestock and poultry production than would be expected by their representation among U.S. farmers in general and, therefore, are less likely to benefit from the enhanced protections provided by this proposed rule. Other impacted farmers, including men, women, Hispanics, Whites, Black/ African Americans, and American Indians would not be disproportionately impacted by this proposed rule. The effects of this proposed regulation would fall on slaughtering packers, swine contractors and live poultry VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 dealers. The primary beneficiaries of proposed § 201.308 would include farmers, feedlot owners, swine production contract growers, and poultry growers. These producers and growers are those most likely harmed by unfair and deceptive practices resulting from the actions or conduct of firms subject to the P&S Act. Protected groups would see minimal, if any, direct or indirect costs because of the implementation or enforcement of the new regulation. Although the required analysis indicates a disproportionate impact for Asian, and Native Hawaiians or Other Pacific Islanders, because the new regulation would impact all industry participants equally, no individual or group would likely be adversely impacted. H. 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. I. Unfunded Mandates Reform Act 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 of State, local, and Tribal governments, or 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 rulemaking. This proposed rule contains no Federal mandates, as defined in title II of UMRA, for State, local, and Tribal governments, or the private sector. Therefore, this proposed rule is not subject to the requirements of sections 202 and 205 of UMRA. 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 proposes to amend 9 CFR part 201 as follows: PO 00000 Frm 00025 Fmt 4702 Sfmt 4702 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 § 201.308 to read as follows: § 201.308 Unfair practices and devices. (a) Unfair practices with respect to market participants. An act by a regulated entity with respect to one or more market participants is an unfair practice for the purposes of section 202(a) of the Packers and Stockyards Act, 1921 as amended and supplemented (7 U.S.C. 192(a)) if the act causes or is likely to cause substantial injury to one or more market participants, which the participant or participants cannot reasonably avoid, and which the regulated entity that has engaged in the act cannot justify by establishing countervailing benefits to the market participant or participants or to competition in the market that outweighs the substantial injury or likelihood of substantial injury. (b) Standards with respect to market participants. When assessing whether a practice under paragraph (a) of this section causes or is likely to cause substantial injury, and therefore the Secretary must halt the practice, the Secretary may consider: (1) The extent to which the practice may impede or restrict the ability to participate in a market, interfere with the free exercise of decision-making by market participants, tend to subvert the operation of competitive market forces, deny a covered producer the full value of their products or services, or violates traditional doctrines of law or equity. (2) The potential magnitude of the injury. An injury may be substantial if it causes significant harm to one market participant or if it imposes a small harm to many market participants. (3) The extent to which the producer would have to take unreasonable steps to avoid injury. An injury is not reasonably avoidable solely because the practice has been disclosed. A market participant is not required to take unreasonable steps, such as exiting the market or making unreasonable additional investments or efforts, to avoid the harm. (c) Unfair practices with respect to markets. A practice is unfair for the purposes of section 202(a) of the Packers Stockyards Act, 1921, as amended and supplemented (7 U.S.C. 192(a)) if it is a collusive, coercive, predatory, restrictive, deceitful or exclusionary method of competition that may negatively affect competitive conditions. E:\FR\FM\28JNP1.SGM 28JNP1 Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / Proposed Rules (d) Standards with respect to markets. When assessing whether a practice poses or is likely to pose a threat to markets under paragraph (c) of this section, and therefore the Secretary must halt the practice, the Secretary may consider the following: (1) The extent to which the practice impedes or restricts the ability to participate in a market, tends to subvert the operation of competitive market forces, interferes with the free exercise of decision-making by market participants, violates traditional doctrines of law or equity, or has indicia of oppressiveness, such as evidence of anticompetitive intent or purpose, or absence of an independent legitimate business reason for the conduct. (2) The extent to which the practice tends to foreclose or impair the opportunities of market participants, reduces competition between rivals, limits choice, distorts or impedes the process of competition, or denies a market participant the full value of their products or services. Melissa Bailey, Associate Administrator, Agricultural Marketing Service. [FR Doc. 2024–14042 Filed 6–27–24; 8:45 am] BILLING CODE P DEPARTMENT OF TRANSPORTATION Federal Aviation Administration 14 CFR Part 39 [Docket No. FAA–2024–1695; Project Identifier AD–2023–00783–E] RIN 2120–AA64 Airworthiness Directives; Lycoming Engines Federal Aviation Administration (FAA), DOT. ACTION: Notice of proposed rulemaking (NPRM). AGENCY: The FAA proposes to adopt a new airworthiness directive (AD) for Lycoming Engines (Lycoming) model engines that have a certain connecting rod assemblies installed. This proposed AD was prompted by several reports of connecting rod failures, which resulted in uncontained engine failure and inflight shutdowns (IFSDs). This proposed AD would require repetitive oil inspections for bronze metal particulates and, if found, additional inspections of the connecting rod bushings for damage, proper fit, movement, and wear, and replacement if necessary. As terminating action to the connecting rod bushing inspections, khammond on DSKJM1Z7X2PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 16:06 Jun 27, 2024 Jkt 262001 this proposed AD would require replacement of the connecting rod bushings with parts eligible for installation. The FAA is proposing this AD to address the unsafe condition on these products. DATES: The FAA must receive comments on this proposed AD by August 12, 2024. You may send comments, using the procedures found in 14 CFR 11.43 and 11.45, by any of the following methods: • Federal eRulemaking Portal: Go to regulations.gov. Follow the instructions for submitting comments. • Fax: (202) 493–2251. • Mail: U.S. Department of Transportation, Docket Operations, M– 30, West Building Ground Floor, Room W12–140, 1200 New Jersey Avenue SE, Washington, DC 20590. • Hand Delivery: Deliver to Mail address above between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. AD Docket: You may examine the AD docket at regulations.gov under Docket No. FAA–2024–1695; or in person at Docket Operations between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. The AD docket contains this NPRM, any comments received, and other information. The street address for Docket Operations is listed above. ADDRESSES: Material Incorporated by Reference • For service information, contact Lycoming Engines, 652 Oliver Street, Williamsport, PA 17701; phone: (800) 258–3279; website: lycoming.com/ contact/knowledge-base/publications. • You may view this service information at the FAA, Airworthiness Products Section, Operational Safety Branch, 1200 District Avenue, Burlington, MA 01803. For information on the availability of this material at the FAA, call (817) 222–5110. FOR FURTHER INFORMATION CONTACT: James Delisio, Aviation Safety Engineer, FAA, 1701 Columbia Avenue, College Park, GA 30337; phone: (516) 228–7321; email: james.delisio@faa.gov. SUPPLEMENTARY INFORMATION: Comments Invited The FAA invites you to send any written relevant data, views, or arguments about this proposal. Send your comments to an address listed under ADDRESSES. Include ‘‘Docket No. FAA–2024–1695; Project Identifier AD– 2023–00783–E’’ at the beginning of your comments. The most helpful comments reference a specific portion of the proposal, explain the reason for any PO 00000 Frm 00026 Fmt 4702 Sfmt 4702 53911 recommended change, and include supporting data. The FAA will consider all comments received by the closing date and may amend this proposal because of those comments. Except for Confidential Business Information (CBI) as described in the following paragraph, and other information as described in 14 CFR 11.35, the FAA will post all comments received, without change, to regulations.gov, including any personal information you provide. The agency will also post a report summarizing each substantive verbal contact received about this NPRM. Confidential Business Information CBI is commercial or financial information that is both customarily and actually treated as private by its owner. Under the Freedom of Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public disclosure. If your comments responsive to this NPRM contain commercial or financial information that is customarily treated as private, that you actually treat as private, and that is relevant or responsive to this NPRM, it is important that you clearly designate the submitted comments as CBI. Please mark each page of your submission containing CBI as ‘‘PROPIN.’’ The FAA will treat such marked submissions as confidential under the FOIA, and they will not be placed in the public docket of this NPRM. Submissions containing CBI should be sent to James Delisio, Aviation Safety Engineer, FAA, 1701 Columbia Avenue, College Park, GA 30337. Any commentary that the FAA receives which is not specifically designated as CBI will be placed in the public docket for this rulemaking. Background The FAA received five reports of uncontained engine failures and IFSDs due to failed connecting rods on various models of Lycoming reciprocating engines that were overhauled or repaired using any replacement part listed in Table 2 of Lycoming Mandatory Service Bulletin (MSB) No. 632B, dated August 4, 2017 (MSB 632B), which was shipped from Lycoming during the dates listed in Table 2 of MSB 632B. As a result, the FAA issued AD 2017–16–11, Amendment 39–18988 (82 FR 37296, August 10, 2017) (AD 2017–16–11), which required an inspection of connecting rods and replacement of affected connecting rod small end bushings. Since the FAA issued AD 2017–16– 11, a manufacturer investigation determined that affected connecting rod small end bushings may be installed on E:\FR\FM\28JNP1.SGM 28JNP1

Agencies

[Federal Register Volume 89, Number 125 (Friday, June 28, 2024)]
[Proposed Rules]
[Pages 53886-53911]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-14042]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 89, No. 125 / Friday, June 28, 2024 / 
Proposed Rules

[[Page 53886]]



DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-21-0046]
RIN 0581-AE04


Fair and Competitive Livestock and Poultry Markets

AGENCY: Agricultural Marketing Service, Department of Agriculture.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The United States Department of Agriculture's (USDA or 
Department) Agricultural Marketing Service (AMS) proposes to amend the 
regulations under the Packers and Stockyards Act of 1921 (the P&S Act 
or the Act) to clarify the unfair practices that the P&S Act prohibits. 
The proposed rule would define unfair practices as conduct that harms 
market participants and conduct that harms the market. Combined, these 
comprehensively define the contours of ``unfair practices'' under the 
P&S Act. The purpose of this proposed rule is to promote fair and 
competitive markets in the livestock, meats, poultry, and live poultry 
markets.

DATES: Comments must be received by August 27, 2024.

ADDRESSES: Comments must be submitted through the Federal e-rulemaking 
portal at https://www.regulations.gov and should reference the document 
number and the date and page number of this issue of the Federal 
Register. AMS strongly prefers comments be submitted electronically. 
However, written comments may be submitted (i.e., postmarked) via mail 
to Docket No. AMS-FTPP-21-0046, S. Brett Offutt, Chief Legal Officer, 
Packers and Stockyards Division, USDA, AMS, FTPP; Room 2097-S, Mail 
Stop 3601, 1400 Independence Ave. SW, Washington, DC 20250-3601. All 
comments submitted in response to this proposed rule will be included 
in the record and will be made available to the public. Please be 
advised that the identity of individuals or entities submitting 
comments will be made public on the internet at the address provided 
above. Parties who wish to comment anonymously may do so by entering 
``N/A'' in the fields that would identify the commenter. Pursuant to 5 
U.S.C. 553(b)(4), a plain language summary of this proposed rule is 
available on https://www.regulations.gov in the docket for this 
rulemaking.

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; 
Phone: (202) 690-4355; or email: [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Authority
II. Purpose of This Rulemaking
    A. Unfair Practices and Prior Rulemakings
    B. Statutory Language of the Act
    C. Legislative History of the Act
    D. Court Decisions
III. The Proposed Rule
    A. Proposed Sec.  201.308(a) and (b)
    B. Evaluation of Potential Injury to Market Participants
    C. Proposed Sec.  201.308(c) and (d)
    D. Evaluation of Potential Injury to the Market
    E. Contracts
    F. Protected Parties
IV. Severability
V. Request for Comments
VI. Regulatory Analysis
    A. Paperwork Reduction Act
    B. Executive Orders 12866, 13563, and 14094
    C. Regulatory Impact Analysis
    D. Regulatory Flexibility Analysis
    E. Executive Order 13175--Consultation and Coordination With 
Indian Tribal Governments
    F. Executive Order 12988--Civil Justice Reform
    G. Civil Rights Impact Analysis
    H. E-Government Act
    I. Unfunded Mandates Reform Act

I. Authority

    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.'' The Secretary has delegated the 
responsibility for administering the P&S 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 Code of Federal Regulations (CFR). Based on the 
authority Congress delegated to the Secretary to administer the P&S 
Act, AMS is proposing this rule to amend 9 CFR part 201 to specify the 
practices that are unfair and in violation of the P&S Act.
    Prior to this rulemaking, the decisions of USDA's Judicial 
Officer,\1\ acting for the Secretary, have comprised the bulk of USDA's 
interpretation of the meaning of ``unfair'' under the P&S Act, and the 
Judicial Officer's final decisions have the same force as 
regulation.\2\ Those decisions make clear that ``harm to competition 
can be proven by showing harm to competitors; . . . the Packers and 
Stockyards Act does not require that the person harmed be a direct 
competitor of the person causing the harm, viz., it would be a 
violation of the Packers and Stockyards Act if it were shown that a 
packer caused harm, which the Packers and Stockyards Act is designed to 
prevent . . . .'' \3\ Although, the Federal courts have not expressly 
rejected the Judicial Officer's overall interpretation of the Packers 
and Stockyards Act, courts have inconsistently applied the Judicial 
Officer's decisions. As a result, AMS proposes this regulation to 
provide a clear interpretation and promote consistency and 
predictability in its application of the law.
---------------------------------------------------------------------------

    \1\ The position of Judicial Officer was established pursuant to 
the Act of April 4, 1940 (7 U.S.C. 450c-450g); Reorganization Plan 
No. 2 of 1953, 18 FR 3219 (1953), reprinted in 5 U.S.C. app. at 1490 
(1994); and sec. 212(a)(1) of the Department of Agriculture 
Reorganization Act of 1994 (7 U.S.C. 6912(a)(1)).
    \2\ See, e.g., City of Arlington, Tex. v. F.C.C., 668 F.3d 229, 
240 (5th Cir. 2012), aff'd, 569 U.S. 290 (2013) (``It is well-
established that agencies can choose to announce new rules through 
adjudication rather than rulemaking.'' (citing NLRB v. Bell 
Aerospace Co., 416 U.S. 267, 294 (1974))); Mobil Exploration & 
Producing N. Am., Inc. v. FERC, 881 F.2d 193, 198 (5th Cir.1989); 
see also Sec. & Exch. Comm'n v. Chenery Corp., 332 U.S. 194, 207 
(1947) (``The scope of our review of an administrative order wherein 
a new principle is announced and applied is no different from that 
which pertains to ordinary administrative action.'').
    \3\ In re: IBP, Inc., 57 Agric. Dec. 1353 (U.S.D.A. July 31, 
1998).

---------------------------------------------------------------------------

[[Page 53887]]

II. Purpose of This Rulemaking

    Congress enacted the P&S Act, 7 U.S.C. 181 et seq., to promote 
fairness, reasonableness, and transparency in the livestock, meat, and 
poultry marketplace by prohibiting practices contrary to these goals. 
Enacted in 1921 ``to comprehensively regulate packers, stockyards, 
marketing agents and dealers,'' \4\ the Act, among other things, 
prohibits actions that hinder integrity and competition in the 
livestock, meat, and poultry markets. Section 202(a) of the Act states 
that it is unlawful for any packer, swine contractor, or live poultry 
dealer to ``[e]ngage in or use any unfair, unjustly discriminatory, or 
deceptive practice or device.'' \5\
---------------------------------------------------------------------------

    \4\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498 
F.2d 925, 927 (10th Cir. 1974).
    \5\ 7 U.S.C. 192(a).
---------------------------------------------------------------------------

    Congress granted rulemaking and enforcement authority to USDA to 
ensure that appropriate competitive and fair trade and market 
protections are afforded to those participating in agricultural 
activities pertaining to livestock, meat, and poultry.\6\ To date, USDA 
has largely left these determinations to a case-by-case analysis. Court 
decisions interpreting this statute, however, have not been consistent 
with respect to the evidence needed to establish, and the legal 
standard that applies to, unlawful unfair practices under section 
202(a) of the Act, particularly as to whether competitive injury is a 
requirement and what the term ``unfair practice or device'' means. This 
proposed rule, therefore, seeks to clarify what falls under the scope 
of unfair practice or device.
---------------------------------------------------------------------------

    \6\ See section 407 (7 U.S.C. 228(a)): ``The Secretary may make 
such rules, regulations, and orders as may be necessary to carry out 
the provisions of this chapter. . .''. Congress understood it was 
giving the Secretary ``the power to prevent packers, stockyards, 
companies, and all persons in the stockyards from engaging in 
unfair, unjustly discriminatory or deceptive practices or devices.'' 
Report of the House Committee on Agriculture, H.R. Rep. No. 77 67th 
Congress, 1st session at pg. 2 (May 18, 1921). When amending the 
statute in 1987, this authority with respect to live poultry dealers 
was explained: ``the Packers and Stockyards Administration will 
retain jurisdiction as the act currently provides. These 
transactions include things like weighing practices and contract 
compliance.'' 133 Cong. Rec. H9000-02, 133 Cong. Rec. H9000-02, 
H9002, 1987 WL 850252.
---------------------------------------------------------------------------

    From the plain language of the text, section 202 of the Act is 
broader than the antitrust laws and does not necessarily require harm 
to competition as that term is understood under the antitrust laws. The 
term ``unfair'' applies to conduct that harms the market 
(anticompetitive harm) and conduct that harms market participants 
(market abuse), similar to section 5 of the Federal Trade Commission 
Act, which prohibits both unfair methods of competition and unfair and 
deceptive acts or practices. Based on the text of section 202, 
legislative history, and both agency and judicial decisions, this 
proposed rule defines the term unfair. Those definitions draw on 
longstanding understandings of the term unfair both under the Act as 
well as the related Federal Trade Commission Act. The proposed rule 
also clarifies that the statute addresses conduct in its incipiency, 
does not require proof of actual harm, nor does it require proof of 
predatory intent.
    USDA recognizes that some courts have recently required proof of 
competitive injury before finding that conduct is unfair. Those courts 
were not offered an alternative definition for unfair, which this 
rulemaking would propose. A competitive injury requirement cannot be 
imposed in a way that abrogates part of a statute. To the degree 
requiring a ``competitive injury'' precludes finding conduct is unfair 
when it satisfies criteria in the proposed rule, such a requirement 
would unduly limit the reach of section 202(a) and is improper. 
Moreover, the statute and P&S Act case law make plain that competitive 
injury under the P&S Act is broader than harm to competition under the 
antitrust laws. To the extent that ``competitive injury'' is shorthand 
for the scope of harm section 202 reaches, competitive injury as 
understood under the P&S Act should include both harms to the market 
and harms to market participants as defined in the proposed rule.

A. Unfair Practices and Prior Rulemakings

    Section 202(a) of the Act prohibits any unfair practice or device. 
The Act does not, however, specify what those practices and devices 
are, and in section 228(a), Congress has granted to the Secretary the 
authority to interpret and apply the Act to effectuate its purposes. 
Under the Act, this authority includes complete supervisory and 
regulatory power, which includes, inter alia, ``the power to prevent 
packers . . . from engaging in unfair, unjustly discriminatory or 
deceptive practices or devices.'' \7\ USDA has consistently viewed the 
Act as prohibiting both market abuses (unfair trade practices) and 
competitively unfair conduct or unreasonable acts and practices 
(including anticompetitive conduct) owing to the adverse impact both 
have on the fair functioning of the marketplace and the importance of 
ensuring that producers can obtain the full value of their livestock 
and poultry despite economic power imbalances.\8\
---------------------------------------------------------------------------

    \7\ H.R. Rep. no. 67-77 at 2 (1921).
    \8\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' chapter 3, Washington Center for Equitable Growth, May 5, 
2022, https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/. (The report provides the 
following acknowledgement: ``A U.S. Department of Agriculture-
Washington Center for Equitable Growth cooperative agreement 
supported the research and writing of this report. The findings and 
conclusions in this report are those of the author and should not be 
construed to represent any official U.S. Department of Agriculture 
or U.S. government determination or policy.'').
---------------------------------------------------------------------------

    The Department has consistently interpreted unfair practices--and 
thus applied the Act--to protect producer welfare and advance fair-
trade practices in the livestock, meat, and poultry industries. The 
Department's policy on unfair practices has not changed throughout the 
course of its enforcement of the Act.
    In 2010, the Department issued a proposed rule that was never 
finalized (``2010 proposed rule''). The 2010 proposed rule was broader 
in scope than this proposed rule. It addressed undue or unreasonable 
preference or advantage; undue or unreasonable prejudice or 
disadvantage; criteria related to reasonable notice of a suspension of 
the delivery of birds under a poultry growing arrangement; when a 
requirement of additional capital investments over the life of a 
poultry growing arrangement or swine production contract constitutes a 
violation of the P&S Act; and whether a packer, swine contractor or 
live poultry dealer has provided a reasonable period of time for a 
grower or a swine producer to remedy a breach of contract that could 
lead to termination of the growing arrangement or production contract 
(75 FR 35338; June 22, 2010). As it relates to the scope of this 
proposed rulemaking, the preamble to the 2010 proposed rule stated that 
``Section 202(a) of the P&S Act prohibits `any unfair, unjustly 
discriminatory, or deceptive practice.' '' The preamble also stated 
that ``USDA has consistently taken the position that, in some cases, a 
violation of section 202(a) or (b) can be proven without proof of 
predatory intent, competitive injury, or likelihood of injury.'' \9\ 
But the USDA ``always understood that an act or practice's effect on 
competition can be relevant and, in certain circumstances, even 
dispositive[.]'' The proposed regulation attempted to define 
competition, and proposed a series of specific violations of the Act 
including: ``Any act that causes competitive injury

[[Page 53888]]

or creates a likelihood of competitive injury.''
---------------------------------------------------------------------------

    \9\ 75 FR 35338, 35340 (June 22, 2010).
---------------------------------------------------------------------------

    The 2010 proposed rule was never finalized due to a series of 
appropriations riders from fiscal years 2012 through 2015 that 
prevented the Department from working on rules related to the subjects 
covered in the 2010 proposed rule.
    In 2016, the Department issued an interim final rule that, in 
relevant part, addressed the scope of section 202(a) and (b) of the P&S 
Act (``2016 IFR''). The 2016 IFR published what had been issued as the 
2010 proposed rule with slight modifications. However, the 2016 IFR 
reiterated ``USDA has consistently taken the position that, in some 
cases, a violation of section 202(a) or (b) can be proven without proof 
of predatory intent, competitive injury, or likelihood of competitive 
injury.'' (81 FR 92556, 92567; December 20, 2016). The 2016 IFR 
preamble also stated that ``USDA has always understood that an act or 
practice's effect on competition can be relevant and, in certain 
circumstances, even dispositive with respect to whether an act or 
practice violates sections 202(a) and/or (b).'' The 2016 IFR did not 
define competition or describe when harm to competition would not be 
required.
    In 2017, following a change in administration, finalization of the 
2016 IFR was delayed, and ultimately withdrawn (82 FR 48594; October 
18, 2017). The 2016 IFR was withdrawn on the grounds that USDA believed 
that specific rule would not have effectively addressed court decisions 
in several U.S. Courts of Appeals, that the courts would not have 
deferred to it, and that the ``good cause'' justification for 
dispensing with notice and comment was inadequate. At that time, the 
Department further determined that ``[p]rotracted litigation to both 
interpret this regulation and defend it serves neither the interests of 
the livestock and poultry industries nor GIPSA.'' \10\ The 2017 
withdrawal did not alter the longstanding position of USDA articulated 
in the 2010 proposed rule and again in the 2016 IFR.\11\ Nor did the 
withdrawal announce a policy against regulation in general.
---------------------------------------------------------------------------

    \10\ Scope of section 202(a) and (b) of the Packers and 
Stockyards Act, 82 FR 48594, 48597 (Oct. 18, 2017).
    \11\ 82 FR 48594, 48596 (Oct. 18, 2017) (``The purpose of the 
IFR was to clarify that conduct or actions may violate 7 U.S.C. 
192(a) and (b) without adversely affecting, or having a likelihood 
of adversely affecting, competition. This reiterated USDA's 
longstanding interpretation that not all violations of the P&S Act 
require a showing of harm or likely harm to competition. Contrary to 
comments that GIPSA failed to show that USDA's interpretation was 
longstanding, USDA has adhered to this interpretation of the P&S Act 
for decades. DOJ has filed amicus briefs with several Federal 
appellate courts arguing against the need to show the likelihood of 
competitive harm for all violations of 7 U.S.C. 192(a) and (b).'' 
(footnotes omitted)).
---------------------------------------------------------------------------

    The current proposed rule is less about a judicial debate over 
competitive injury and instead would establish a more workable standard 
for USDA to consistently apply in its own administrative hearings and 
investigations, which in turn would provide a standard that the public 
can more easily understand. And the current rule is being issued 
through notice and comment. Thus, AMS does not believe that the same 
concerns that prompted withdrawal of the 2016 IFR apply to this 
proposal.
    In sum, it has always been USDA's position that it is not necessary 
in every case to demonstrate competitive injury in order to show a 
violation of section 202(a). But USDA has also consistently recognized 
that any act or practice that harms or is likely to harm competition 
also violates the statute.\12\ This proposed rule provides a basis for 
the public to understand precisely how USDA would apply the statute to 
both categories of harms.
---------------------------------------------------------------------------

    \12\ See id. at 92568.
---------------------------------------------------------------------------

B. Statutory Language of the Act

    The P&S Act's language and structure support USDA's longstanding 
position on section 202(a) and (b), as well as USDA's position on the 
Act's legislative history and purposes. Congress drafted section 202(a) 
to reach a range of unfair practices and devices, such as 
anticompetitive practices, market abuses, or other distortions of the 
competitive process.\13\ Congress proscribed ``unfair'' practices 
without limitation, using terms like section 202's proscription of 
``deceptive'' and ``unjust'' conduct commonly understood then and now 
to encompass more than conduct causing competitive injury.\14\ Congress 
confirmed this plain meaning by amending the P&S Act to add specific 
instances of conduct prohibited as unfair that do not involve any 
inherent likelihood of competitive injury.\15\
---------------------------------------------------------------------------

    \13\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' chapter 3, Washington Center for Equitable Growth, May 5, 
2022, https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/. quoting, inter alia, 
Herbert Hovenkamp, ``Does the Packers and Stockyards Act Require 
Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn Law, 
2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
    \14\ When the P&S Act was enacted, Webster's New International 
Dictionary defined ``unfair'' as ``[n]ot fair in act or character; 
disingenuous; using or involving trick or artifice; dishonest; 
unjust; inequitable'' (2d. definition); ``unjust'' as 
``[c]haracterized by injustice; contrary to justice and right; 
wrongful''; ``undue'' as ``[n]ot right; not lawful or legal; 
violating legal or equitable rights; improper'' (2d. definition); 
and ``unreasonable'' as ``[n]ot conformable to reason; irrational'' 
or ``immoderate; exorbitant.'' Webster's New International 
Dictionary 578, 2237, 2238, 2245, 2248 (1st ed. 1917). This is the 
same understanding of the terms today.
    \15\ See sections 409, 410.
---------------------------------------------------------------------------

    Unlike with other provisions of section 202, Congress chose not to 
limit section 202(a) and (b) to specific types of competitive injuries 
identified in other sections of the Act.\16\ While section 202(c) 
through (f) include provisions that address particular competitive 
injuries--such as where a practice has the tendency, effect, or purpose 
of ``creating a monopoly'' or ``restraining commerce''--those 
limitations are absent from section 202(a) and (b).\17\ This difference 
confirms that section 202(a) and (b) do not require a showing of 
competitive injury for such conduct.\18\
---------------------------------------------------------------------------

    \16\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' chapter 3, Washington Center for Equitable Growth, May 5, 
2022, https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/, quoting, inter alia, 
Herbert Hovenkamp, ``Does the Packers and Stockyards Act Require 
Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn Law, 
2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
    \17\ More specifically, subsection (c) reaches certain sales 
that apportion supply ``if such apportionment has the tendency or 
effect of restraining commerce or of creating a monopoly.'' 
Subsection (d) reaches sales and other transfers wherein parties 
``receive from or for any other person, any article for the purpose 
or with the effect of manipulating or controlling prices, or of 
creating a monopoly in the acquisition of, buying, selling, or 
dealing in, any article, or of restraining commerce. Subsection (e) 
reaches a course of business or any act with ``the purpose or with 
the effect of manipulating. or controlling prices, or of creating a 
monopoly in the acquisition of, buying, selling, or dealing in, any 
article, or of restraining commerce.''
    \18\ Department of Homeland Sec. v. MacLean, 135 S. Ct. 913, 919 
(2015), citing Russello v. United States, 464 U.S. 16, 23 (1983): 
``Congress generally acts intentionally when it uses particular 
language in one section of a statute but omits it in another.''
---------------------------------------------------------------------------

    Moreover, Congress has amended the P&S Act to confirm the 
Department's longstanding view that there are specific instances of 
conduct that are prohibited as ``unfair'' that do not involve any 
inherent likelihood of competitive injury.\19\ In 1976, Congress 
confirmed that failing to pay, when due, for livestock and meats was an 
``unfair practice'' under the P&S Act, and it did not require any harm 
to competition to be a violation of section 202(a).
---------------------------------------------------------------------------

    \19\ See, e.g., secs. 409 and 410 of the P&S Act.
---------------------------------------------------------------------------

    The prevailing interpretation of section 312 of the P&S Act, which 
uses similar language, further confirms USDA's interpretation of 
section 202(a).

[[Page 53889]]

Courts have recognized that the proper analysis under this provision 
depends on ``the facts of each case,'' \20\ and that these sections may 
apply in the absence of competitive injury.\21\
---------------------------------------------------------------------------

    \20\ Capitol Packing Company v. United States, 350 F.2d 67, 76 
(10th Cir. 1965); see also Spencer Livestock Comm'n Co. v. USDA, 
1988.
    \21\ Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 1454 
(9th Cir. 1988): section 312 covers ``a deceptive practice, whether 
or not it harmed consumers or competitors.''
---------------------------------------------------------------------------

    Furthermore, even with respect to subsections of the Act that do 
focus on competitive harm, the text of those subsections indicates that 
competitive harm under the P&S Act goes beyond the types of competitive 
injuries cognizable under Federal antitrust laws.\22\ For example, 
section 202(d) through (f) unambiguously apply to market injuries that 
the antitrust laws often do not reach--such as price manipulation, 
where a single-firm practice ``manipulat[es] or control[s] price'' or 
otherwise restrains trade, irrespective of conspiracy. These 
prohibitions in the relevant subsections are each embedded within 
``or'' clauses that otherwise cover prohibitions that are squarely 
about anticompetitive conduct cognizable under Federal antitrust laws. 
Further, section 202(a) and (b) must cover conduct not covered by 
section 202(d) through (f) or section 202(a) and (b) would be 
superfluous. The presence of all of these provisions in the P&S Act 
shows, at a minimum, the regulatory scheme for fair competition under 
the P&S Act is broader than competitive injury under the Federal 
antitrust laws and at least as broad as section 5 of the Federal Trade 
Commission Act.\23\ And, when compared to antitrust statutes, the P&S 
Act, like section 5 of the Federal Trade Commission Act (FTC Act), 
covers incipient threats to competition and potential injuries to 
market participants. In addition, the P&S Act's remedial purposes 
prohibit incipient violations of the P&S Act even if the practice has 
no potential anti-competitive or impact on markets at all.\24\
---------------------------------------------------------------------------

    \22\ In particular see the FTC Act (15 U.S.C. 41 et seq.), 
Sherman Antitrust Act (15 U.S.C. 1 et seq.), and the Clayton 
Antitrust Act (15 U.S.C. 12 et seq.).
    \23\ See Fed. Trade Comm'n, Policy Statement Regarding the Scope 
of Unfair Methods of Competition Under Section 5 of the FTC Act, 9 
(Nov. 10, 2022) (discussing competitive injuries cognizable under 
section 5 of the FTC Act that are not cognizable under the Sherman 
or Clayton Act); Been v. O.K. Indus., Inc., 495 F.3d 1217, 1241 
(10th Cir. 2007) (Hartz, J. concurring) (``[I]t would be somewhat 
surprising if `unfair practices' under the PSA had a narrower 
meaning than `unfair methods of competition' in the FTCA.'').
    \24\ See, e.g., Bowman v. United States Dep't of Agric., 363 
F.2d 81, 85 (5th Cir. 1966) (finding the Department's insolvency 
standard was not an abuse of discretion because it helps to prevent 
the unfair practice of late payment).
---------------------------------------------------------------------------

    In short, section 202(a) covers unfair conduct beyond harm to 
competition, and where harm to competition is relevant, the P&S Act is 
broader than the antitrust laws.

C. Legislative History of the Act

    The legislative history and purposes of the P&S Act also support 
USDA's interpretation of section 202(a) with regard to the role of 
competitive injury. As the Supreme Court has stated, when interpreting 
a statute, a provision ``must take meaning from its historical 
setting.'' \25\
---------------------------------------------------------------------------

    \25\ United States v. Henning, 344 U.S. 66, 72 (1952).
---------------------------------------------------------------------------

    The genesis of the P&S Act predates its enactment by several 
decades.\26\ On May 16, 1888, the U.S. Senate authorized an 
investigation ``to determine whether there exists or has existed any 
combination . . . on the part of those engaged in buying and shipping 
meat products, by reason of which the prices of beef and beef cattle 
have been so controlled or affected as to diminish the price paid the 
producer without lessening the cost of meat to the consumer.'' \27\ In 
1902, a bill of equity was filed by the United States to enjoin the 
alleged conspiracy as a violation of the antitrust laws. In 1903, an 
injunction was issued, which was sustained by the U.S. Supreme 
Court.\28\ The dominance and unfair or unreasonable anticompetitive 
conduct of the packers continued; on February 7, 1917, President Wilson 
directed the Federal Trade Commission (FTC) to investigate and report 
the facts with respect to the packing industry.\29\
---------------------------------------------------------------------------

    \26\ 10 N. Harl, Agricultural Law sec. 71.4. (1987), 71-4.
    \27\ 61 Cong. Rec. 2614.
    \28\ Swift & Co. v. United States, 196 U.S. 375 (1905).
    \29\ Stafford v. Wallace, 258 U.S. 495 (1922).
---------------------------------------------------------------------------

    The FTC meat industry investigation found that, in 1916, the Big 
Five \30\ (the five largest meatpackers) controlled the processing of 
82 percent of cattle, 79 percent of calves, 87 percent of sheep, and 63 
percent of swine in the U.S.\31\ The Big Five also controlled an 
interlocking network of feed mills, stockyards, and transportation 
infrastructure that supported the industry. As extensively documented 
in an FTC report, those five packers used their market power to engage 
in a range of practices to further entrench their dominance of the meat 
industry.\32\ The FTC report documented a number of complaints by 
producers that the U.S. Supreme Court summarized in the synopsis of the 
case upholding the constitutionality of the P&S Act, including 
excessive charges by stockyards for hay and other facilities, the 
duplication of commissions by commission men and dealers, and 
fraudulent reporting of livestock being crippled in transit, in 
addition to suppression of competition through collusion.\33\
---------------------------------------------------------------------------

    \30\ The highly concentrated meatpacking industry of the early 
20th century was controlled by the industry's ``Big Five'' operators 
of Armour, Cudahy, Morris, Swift, and Wilson.
    \31\ ``Annual Report for 1918,'' FTC, p. 23, https://www.ftc.gov/sites/default/files/documents/reports_annual/annual-report-1918/ar1918_0.pdf.
    \32\ Id.
    \33\ Stafford at 501-502.
---------------------------------------------------------------------------

    Following the FTC's report, and before the passage of the signed a 
consent decree in 1920.\34\ The decree enjoined the packers from 
pursuing combinations to monopolize the purchase and control the price 
of livestock and the sale and distribution of meat products, and from 
being involved in other food sectors.\35\ In this way, the decree 
sought to break the industry up vertically, underscoring the broad 
approach of the P&S Act.
---------------------------------------------------------------------------

    \34\ United States v. Swift & Co., Equity No. 37623 (Sup. Ct. of 
D.C. 1920); United States v. Swift & Co., 286 U.S. 106 (1932).
    \35\ Id. at 399; see, generally, Michael C. Stumo & Douglas J. 
O'Brien, ``Antitrust Unfairness vs. Equitable Unfairness in Farmer/
meat Packer Relationships,'' 8 Drake J. Agric. L. 91 (2003).
---------------------------------------------------------------------------

    After the consent decree, the Senate and House of Representatives 
held extensive hearings on several bills to address problems related to 
concentration and market domination in the meat industry, one of which, 
H.R. 6320, eventually became the P&S Act of 1921.\36\
---------------------------------------------------------------------------

    \36\ See 10 N. Harl, Agricultural Law sec. 71.2. (1987).
---------------------------------------------------------------------------

    The House of Representatives' report on the P&S Act stated, ``A 
careful study of the bill, will . . . convince one that it and existing 
laws, give the Secretary of Agriculture complete inquisitorial, 
visitorial, supervisory, and regulatory power over the packers, 
stockyards and all activities connected therewith; that it is 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.'' \37\ The Conference Report on the P&S Act 
stated that: ``Congress intends to exercise, in the bill, the fullest 
control of the packers and stockyards which the Constitution permits . 
. .''.\38\
---------------------------------------------------------------------------

    \37\ House Report No. 67-77, at 2 (1921).
    \38\ House Report No. 67-324, at 3 (1921).
---------------------------------------------------------------------------

    It was emphasized by Representative Samuel T. Rayburn (later 
Speaker of the House of Representatives) that although Congress ``gave 
the Federal Trade

[[Page 53890]]

Commission wide powers'' to prohibit unfair methods of competition, the 
authority of the Commission at that time was not as broad as that given 
to ``the Secretary of Agriculture under this bill,'' which became the 
P&S Act.\39\
---------------------------------------------------------------------------

    \39\ 61 Cong. Rec. 1806. When the P&S Act was passed, the FTC 
was authorized to prohibit only unfair methods of competition. 
Congress later gave the FTC additional authority to police unfair 
and deceptive acts or practices. See infra notes 53-57.
---------------------------------------------------------------------------

    Congress subsequently made clear, through further legislative 
developments, that its goals for the statute extended beyond the 
prohibition of anticompetitive conduct in the manner of the antitrust 
laws. For instance, in a 1935 amendment adding live poultry dealers to 
the coverage of section 202(a) and (b), Congress amended the text to 
specify that ``[t]he handling of the great volume of live poultry . . . 
is attendant with various unfair, deceptive, and fraudulent practices 
and devices, resulting in the producers sustaining sundry losses and 
receiving prices far below the reasonable value of their live poultry . 
. . '' \40\ Similarly, the House Committee Report regarding 1958 
amendments identified ``[t]he primary purpose'' of the P&S Act as 
``assur[ing] fair competition and fair trade practices'' and 
``safeguard[ing] farmers . . . against receiving less than the true 
market value of their livestock.'' \41\ In accordance with this 
legislative history, courts and commentators have, over a span 
exceeding 70 years, recognized that although the purposes of the P&S 
Act include proscribing anticompetitive conduct, they are not limited 
solely to conduct that injures competition as understood in the 
antitrust laws.\42\ Indeed, for these seven decades, USDA has regularly 
maintained and enforced a wide range of fair trade rules and principles 
including prompt payment, standardized weights and measures, sufficient 
bonding and solvency, prohibitions on commercial bribery, and more. 
These rules and enforcement mandates play important roles in protecting 
market participants from abuse, and to that end, they proscribe conduct 
that USDA has also viewed as distorting the competitive process within 
the livestock, meat, and poultry markets.\43\ To that end, proscribing 
abuses of market participants is integral to any effort to understand 
``harm to competition'' under the P&S Act itself.\44\
---------------------------------------------------------------------------

    \40\ Public Law 74-272, 49 Stat. 648, 648 (1935).
    \41\ H.R. Rep. No. 85-1048 (1957), reprinted in 1958 
U.S.C.C.A.N. 5212, 5213 (emphasis added); see also, e.g., id. at 
5213 (further observing that protection extends to ``unfair, 
deceptive, unjustly discriminatory'' practices by ``small'' 
companies in addition to ``monopolistic practices.'').
    \42\ See, e.g., Stafford, 258 U.S. at 513-14; Spencer Livestock, 
841 F.2d 1451, 1455 (9th Cir. 1988); United States v. Perdue Farms, 
Inc., 680 F.2d 277, 280 (2d Cir. 1982); Bruhn's Freezer Meats of 
Chi., Inc. v. United States Dep't of Agric., 438 F.2d 1332, 1336-37 
(8th Cir. 1971); Bowman v. USDA, 363 F.2d 81, 85 (5th Cir. 1966); 
United States v. Donahue Bros., 59 F.2d 1019, 1023 (8th Cir. 1932).
    \43\ See, e.g., In re: Central California Livestock, Inc. d/b/a 
Machlin Meat Packing Company, 15 Agric. Dec. 97, 110 (1956).
    \44\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth, May 5, 2022, 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------

    Nor is the statutory history of the P&S Act monolithic: it was used 
as a pattern for other laws as well, notably changes to the FTC Act. 
When Congress passed the FTC Act in 1914, the statute prohibited only 
unfair methods of competition, which was a then-new term of art with a 
broad scope.\45\ In 1937, the Supreme Court in FTC v. Raladam Co. gave 
a narrowing interpretation, holding that the FTC's unfairness authority 
was limited to conduct causing competitive injury.\46\ Congress 
disapproved of this interpretation, and in 1938 it passed the Wheeler-
Lea Act,\47\ which clarified the expansiveness of the FTC's unfairness 
authority by specifying that it covers acts or practices that injure 
consumers, regardless of whether the acts or practices may also injure 
competition.
---------------------------------------------------------------------------

    \45\ American Airlines, Inc. v. North American Airlines, Inc., 
351 U.S. 79, 85 (1956); Fed. Trade Comm'n v. Motion Picture 
Advertising Service Co., 344 U.S. 392, 394-95 (1953); Fed. Trade 
Comm'n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 (1934).
    \46\ FTC v. Raladam Co., 283 U.S. 643, 649 (1931). The Supreme 
Court later relaxed this holding. FTC v. Raladam Co., 316 U.S. 149 
(1942). See Luke Herrine, ``The Folklore of Unfairness,'' 96 N.Y.U. 
L. Rev. 431, 465-66, 470-71 (2021).
    \47\ The Wheeler-Lea Act, ch. 49 sec. 2, 52 Stat. 111 (1938); 
Stephanie W. Kanwit, 1 Fed. Trade Comm'n. sec. 3:5 (2023-2024).
---------------------------------------------------------------------------

    Notably, the Wheeler-Lea Act was modeled on the P&S Act, 
specifically section 202(a)'s prohibition on unfair practices that 
injure producers. When the FTC proposed the Wheeler-Lea Act, the FTC 
pointed to the P&S Act as the precedent for its text.\48\ If it were 
not enough that the FTC succeeded--that it persuaded Congress to pass 
the Wheeler-Lea Act by relying on the P&S Act as precedent for 
prohibiting unfair practices without a competitive injury requirement--
the 17 years of P&S enforcement prior to the Wheeler-Lea Act are 
especially telling. During the period from 1921 to 1938, the Secretary 
frequently found unfairness violations under section 202 that would not 
have been ``unfair methods of competition'' under the narrowing gloss 
the Supreme Court applied in Raladam--and that Congress subsequently 
rejected by passing the Wheeler-Lea Act.
---------------------------------------------------------------------------

    \48\ Charles Wesley Dunn, Wheeler-Lea Act: A Statement of its 
Legislative Record 411, 418 (1938) (testimony of Ewin Davis, Chair, 
FTC). The FTC did, however, propose an expansion of its authority to 
include ``unfair acts in commerce'' in 1919, before the P&S Act was 
proposed. High Cost of Living as Affected by Trust and Monopolies, 
Hearings Before the H. Comm. on the Judiciary, 66th Cong., 1st Sess. 
25-26 (1919).
---------------------------------------------------------------------------

    The design of the P&S Act's text, and the legislative history, thus 
clearly reflect Congressional intent that the Act's unfairness 
authority extend beyond unfair methods of competition.\49\ The Act 
``was framed in language designed to permit the fullest control of 
packers and stockyards which the Constitution permits, and its coverage 
was to encompass the complete chain of commerce and give the Secretary 
of Agriculture complete regulatory power over packers and all 
activities connected therewith.'' \50\ It was hailed as a ``far-
reaching measure and extend[ing] further than any previous law into the 
regulation of private business.'' \51\ If the existing antitrust laws 
and the consent decree signed by the Big Five packers had been 
sufficient to protect market participants from unfair practices, 
Congress would not have passed the P&S Act.
---------------------------------------------------------------------------

    \49\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth, May 5, 2022, 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
    \50\ Bruhn's Freezer Meats of Chicago, Inc. v. USDA, 438 F.2d 
1332, 1339 (8th Cir. 1971), citing H.R. Rep. No. 67-324 (1921); H.R. 
Rep. No. 67-77 (1921).
    \51\ 61 Cong. Rec. 1801 (1921), statement of Rep. Haugen; see 
also Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 1961): 
``The legislative history shows Congress understood the sections of 
the [Act] under consideration were broader in scope than the 
antecedent legislation,''' citing 61 Cong. Rec. 1805 (1921).
---------------------------------------------------------------------------

    The P&S Act's legislative history demonstrates Congress intended 
the Act to cover a broader range of conduct than is covered by the 
Sherman Act and Clayton Act. Congress intended to regulate practices 
that would violate those two antitrust laws and practices that would be 
unfair under the FTC Act, as well as the ``special mischiefs and 
injuries inherent in livestock and poultry traffic.'' \52\ 
Particularities in the market structure and operation of the livestock, 
meat, and poultry industries compelled Congress to create a statute 
specific to them; to regulate fair trade practices among livestock and 
poultry producers, stockyards, meat packers, swine contractors, and 
live poultry dealers; and to ensure equal access to

[[Page 53891]]

markets.\53\ In these industries, a handful of firms owning a small 
number of capital-intensive slaughter and meat processing plants 
exercised substantial market power over thousands of producers spread 
across rural communities.\54\ These conditions continue today and are 
even more important in light of increased industry concentration. For 
example, in 2019 the four-firm concentration ratio (the combined market 
share of the four largest firms in the industry) was as follows: 53% 
for broiler chickens, 55% for turkeys, 67% for hogs, and 85% for fed 
cattle.\55\ These concentrated industries procure their poultry and 
livestock for processing from a large number of unconcentrated farms 
engaged in livestock and poultry production, including 14,144 farms 
raising broilers under contract, 47,510 farms that sold hogs and pigs, 
and 25,783 farms with cattle on feed in 2022.\56\
---------------------------------------------------------------------------

    \52\ See Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 
1455 (9th Cir. 1988); Armour & Co. v. United States, 402 F.2d 712 
(7th Cir. 1968).
    \53\ Live Poultry Dealers were added to the Packers and 
Stockyards Act in 1935 by 49 Stat. 648 (August 14, 1935), and most 
recently modified in 1987 by 101 Stat. 917, Public Law 100-173 
(November 23, 1987). Swine Contractors were added by amendment in 
2002, 116 Stat. 134, Public Law 107-171 (May 13, 2002).
    \54\ The imbalance of market power and size between producers, 
growers, and concentrated processors is discussed in 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. https://doi.org/10.32747/2023.8054022.ers.
    \55\ Industry concentration is discussed in more detail below in 
the Regulatory Impact Analysis section; additional four-firm 
concentration data is provided in table 1 of that section.
    \56\ USDA, National Agricultural Statistics Service, ``2022 
Census of Agriculture: United States Summary and State Data,'' 
issued February 2024, tables 38, 24, and 71.
---------------------------------------------------------------------------

    Further, as held by the U.S. Court of Appeals for the Ninth 
Circuit, the Act was intended to ``assure fair competition and fair 
trade practices in livestock marketing.'' \57\ ``Fair competition'' is 
consistent with the view of the P&S Act as a device for protecting 
against not only Sherman and Clayton Act violations but also other 
unfair methods of competition that tend to negatively affect market 
conditions, embodied for example in the prohibitions in 202(d) and (e) 
of the Act.\58\ However, ``fair trade practices'' has a different 
connotation, going beyond practices that cause (or tend to cause) 
competitive injury to include practices that harm market participants, 
specifically producers, as well as other regulated entities and 
consumers. This term invokes a standard of equitable unfairness, which 
does not implicate market conditions, competition, efficiency, or 
consumer welfare.\59\ USDA has long viewed keeping a marketplace free 
from abusive conduct for participants as part and parcel of maintaining 
a fair competitive landscape even if the unfair practice is directed at 
only a few individuals or firms. To the extent that violations of P&S 
Act section 202(a) require a showing of ``harm to competition'' under 
the P&S Act, that would necessarily have to cover both competitively 
unfair conduct and market abuses.
---------------------------------------------------------------------------

    \57\ Spencer Livestock Comm'n Co. v. USDA, 841 F.2d 1451, 1455 
(9th Cir. 1988), citing H.R. Rep. No. 1048, 85th Cong., 2d Sess., 
reprinted in 1958 U.S. Code Cong. & Admin. News 5212, 5213.
    \58\ 7 U.S.C. 192.
    \59\ See Michael C. Stumo & Douglas J. O'Brien, ``Antitrust 
Unfairness vs. Equitable Unfairness in Farmer/meat Packer 
Relationships,'' 8 Drake J. Agric. L. 91 (2003); see, also Swift & 
Co. v. United States, 308 F.2d 849, 853 (7th Cir. 1962) (noting that 
the petitioner claimed that the P&S Act would be violated if its 
practice was ``contrary to good morals because characterized by 
deception, fraud, had faith or oppression[.]''). See also 
interpretations of unfair practices in various Federal and State 
contexts, such as the recent guidance by the U.S. Department of 
Transportation 85 FR 78707 (2020). Other commentary concurs. See 
Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth, May 5, 2022, 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/; Peter C. Carstensen, ``The Packers 
and Stockyards Act: A History of Failure to Date,'' The CPI 
Antitrust Journal (2) (2010), available at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn 
Law, 2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
---------------------------------------------------------------------------

D. Court Decisions

    Courts for decades have made it clear that section 202 of the P&S 
Act reaches beyond the antitrust laws.\60\ That is consistent with 
USDA's approach to enforcement since the earliest days of the Act. As 
discussed extensively in section III.A. below, USDA has enforced the 
Act to prohibit a wide range of unfair practices that harm individual 
market participants.\61\
---------------------------------------------------------------------------

    \60\ See, e.g., In re Pilgrim's Pride, 728 F.3d 457, 460 (5th 
Cir. 2013): ``violations of the PSA are not strictly limited to the 
traditional antitrust realms of price-fixing conspiracies and 
monopolization''; Swift & Co. v. US, 393 F.3d 247, 253 (7th Cir. 
1968): section 202's prohibitions ``are broader and more far-
reaching than the Sherman Act or even section 5 of the Federal Trade 
Commission Act''; Swift & Co. v. US, 308 F.3d 849, 853 (7th Cir. 
1962): section 202 is ``broader in scope than antecedent legislation 
such as [the Sherman Act, section 2 of the Clayton Act, section 5 of 
the FTC Act, and section 3 of the Interstate Commerce Act]''.
    \61\ See, e.g., Michael Kades, ``Protecting Livestock Producers 
and Chicken Growers,'' Washington Center for Equitable Growth, May 
5, 2022; https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/; Peter C. Carstensen, ``The 
Packers and Stockyards Act: A History of Failure to Date,'' The CPI 
Antitrust Journal (2) (2010), available at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; see also Herbert Hovenkamp, ``Does the Packers and Stockyards 
Act Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at 
Penn Law, 2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
---------------------------------------------------------------------------

    AMS has observed that rising market concentration and the growth of 
vertical contracting in the late 1990s and early 2000s--including 
insufficient USDA enforcement of the Act--led to increased private 
actions under the P&S Act.\62\ Starting in the 1970s, Congress expanded 
the Act to authorize private rights of action in Federal court, which 
could be filed with respect to livestock starting in 1976, and with 
respect to poultry starting in 1987.\63\ By the late 1990s and early 
2000s, the Federal courts faced private cases making claims based on 
alleged unfair practices. In the majority of these cases the Federal 
courts did not rely upon the opinions of USDA's Judicial Officer, and 
have come to conflicting conclusions about how to interpret section 
202(a) and (b) of the Act.\64\ And indeed, notably commencing in 2005 
with the Eleventh Circuit's decision in Pickett v. Tyson Fresh Meats, 
Inc., a handful of Circuits have held that private litigants could 
establish conduct is ``unfair'' in violation of section 202(a) only 
with evidence that the behavior caused competitive injury as a 
marketwide harm.\65\ The courts incorporating a competitive injury 
requirement point to the P&S Act's ``antitrust origins,'' although 
those courts also readily acknowledge that the P&S Act is broader than 
the antitrust laws.
---------------------------------------------------------------------------

    \62\ Peter C. Carstensen, ``The Packers & Stockyards Act: A 
History of Failure to Date,'' The CPI Antitrust Journal (April 
2010), available at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; see also, generally, Leonard, 
Christopher, ``The Meat Racket'' (2014); see also, e.g., C. Robert 
Taylor, ``Legal and Economic Issues with the Courts' Rulings in 
Pickett v. Tyson Fresh Meats, Inc., a Buyer Power Case,'' American 
Antitrust Institute Working Paper No. 07-08, Feb. 2007, available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103635 (last 
accessed April 2024). See, e.g., IBP, Inc. v. Glickman, 187 F.3d 
974, 978 (8th Cir. 1999).
    \63\ Sec. 308, 7 U.S.C. 209; Sept. 13, 1976, 90 Stat. 1250, 
Public Law 94-410; Nov. 23, 1987, 101 Stat. 918, Public Law 100-173.
    \64\ See, generally, John Shively, ``Competition Under the 
Packers and Stockyards Act: What Now?'' 15 Drake J. Agric. L. 419 
(Fall 2010).
    \65\ Wheeler v. Pilgrim's Pride Corp., 591 F.3d 355 (5th Cir. 
2009) (en banc); Been v. O.K. Industries, Inc., 495 F.3d 1217 (10th 
Cir. 2007); London v. Fieldale Farms Corp., 410 F.3d 1295 (11th Cir. 
2005); Pickett v. Tyson Fresh Meats, Inc., 420 F.3d 1272 (11th Cir. 
2005).
---------------------------------------------------------------------------

    Courts that apply a standard with a competitive-injury component, 
however, are far from unanimous in their interpretation of the P&S 
Act's prohibitions, generally, and of competitive injury, specifically. 
The

[[Page 53892]]

Tenth Circuit has required competitive injury for unfairness but not 
deception claims, while the Fifth and Sixth Circuit appear to require 
``competitive injury'' even for deception claims. Similarly, although 
the Tenth Circuit in Been v. O.K. Industries, Inc. adopted the 
competitive injury requirement, it had previously found violations of 
section 202 for failure to pay (Hays Livestock), market agent's loan to 
packer, which was a conflict of interest, (Capitol Livestock), and 
failing to disclose a change in grading system (Excel).\66\
---------------------------------------------------------------------------

    \66\ Even some decisions that have required competitive injury 
define it more broadly than what might be required to establish 
antitrust injury. See e.g., Wheeler, 591 F.3d at 370 n.5 (Jones, J., 
concurring) (regulation needed ``to curb practices that resulted in 
producers receiving far below the reasonable value of their live 
poultry''); id. at 370 (``the PSA was intended to prevent the abuse 
of monopoly''); Been, 495 F.3d at 1234 (manipulation of prices 
constitutes competitive injury).
---------------------------------------------------------------------------

    Some decisions seemingly apply a higher standard than what the 
antitrust laws require. In Pickett, after a jury found that Tyson's 
vertical supply restrictions adversely affected competition by 
artificially reducing Tyson's purchase price for cattle, the court 
required the plaintiff to further rebut Tyson's claimed countervailing 
justifications in order to establish harm to competition. In London v. 
Fieldale Farms Corp., the court invoked a Sherman Act standard in 
holding that a plaintiff must show that the defendant's unfair, 
discriminatory, or deceptive practice adversely affects or is likely to 
adversely affect competition,\67\ but the case also quoted with 
approval Armour& Co. v. United States,\68\ which held that a violation 
of section 5 of the FTC Act--which is broader than the Sherman Act--
would be sufficient. As discussed below, section 5 reaches conduct that 
does not violate the Sherman Act, and liability under section 5 does 
not depend on demonstrable anticompetitive effects or proof of the 
defendant's market power. The Act reaches practices ``not merely in 
their fruition, but also in their incipiency'' if they ``could lead to 
trade restraints and practices deemed undesirable'' and also ``conduct 
which, although not a violation of the letter of the antitrust laws, is 
close to a violation or is contrary to their spirit.'' \69\ In Been, 
the court similarly required that the plaintiffs show that the 
``specific practices have the effect of injuring competition or are 
likely to do so,'' but then it went further, requiring more than courts 
ordinarily require to prove even a Sherman Act violation. In Been, 
plaintiffs had to show the practices resulted in both lower prices for 
producers and higher prices for retail consumers.\70\ Finally, Wheeler 
v. Pilgrim's Pride Corp. held that ``an anti-competitive effect is 
necessary'' to prove a violation of section 202(a) of the P&S Act, 
despite citing with approval Farrow v. U.S. Dep't of Agr.,\71\ where 
the court held that harm to competition merely ``can be found'' 
sufficient to demonstrate violation of the P&S Act. Moreover, the 
courts' varying interpretations of section 202(a)--including those that 
have required competitive injury--apply inconsistent legal standards to 
the evidence. Or, as it has been observed: ``courts' application of the 
harm-to-competition test is inconsistent with their own antitrust rules 
that they claim to be applying.'' \72\ Simply, ``harm to competition'' 
fails even its basic function as the judicial stand-in for well-
articulated contours of a prohibition on unfair practices.
---------------------------------------------------------------------------

    \67\ London v. Fieldale Farms Corp., 410 F.3d 1295, 1303 (11th 
Cir. 2005).
    \68\ Armour & Co. v. United States, 402 F.2d 712 (7th Cir. 
1968).
    \69\ E.I. du Pont de Nemours v. Fed. Trade Comm'n (Ethyl), 729 
F.2d 128, 136-37 (2d Cir. 1984).
    \70\ Been v. O.K. Industries, Inc., 495 F.3d 1217, 1232 (10th 
Cir. 2007). Also, there seems to be no consideration of the fact 
that price manipulation is an express violation of section 202(d) 
and 202(e) of the P&S Act.
    \71\ 760 F.2d 211, 214 (8th Cir. 1985).
    \72\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth, May 5, 2022, 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------

    At the same time, other courts have either explicitly rejected a 
competitive injury requirement or have found violations without 
addressing the impact on competition.\73\ Disagreement among the courts 
over the need for competitive injury and what the term means makes 
enforcement difficult and has created a legal patchwork in which 
different rules apply depending on the presiding circuit. The lack of 
consistent legal standards has adversely affected the Department's 
ability to maintain fair and competitive livestock and poultry markets 
and ensure producers can obtain the full value of their products and 
services. Livestock and poultry industries are inherently interstate 
activities, with activities, services, and trading regularly occurring 
across multiple states and in regional and national markets. Much like 
the FTC's policy statements have defined its national approaches to 
unfair practices and unfair methods of competition, a workable rule 
governing how the prohibitions on unfair practices will operate and be 
enforced is important for providing clarity to market participants and 
for AMS to effectuate its nationwide statutory obligation to ensure 
fair and competitive livestock, meat, and poultry markets, and ensure 
livestock producers and poultry growers can secure the full value for 
their products and services.\74\
---------------------------------------------------------------------------

    \73\ See, e.g., M & M Poultry v. Pilgrim's Pride Corp., No. 
2:15-CV-32, 2015 WL 13841400, at *8 (N.D.W. Va. Oct. 26, 2015); 
Triple R Ranch, LLC v. Pilgrim's Pride Corp., 456 F. Supp. 3d 775, 
778 (N.D.W. Va. 2019); Hedrick v. S. Bonaccurso & Sons, Inc., 466 F. 
Supp. 1025, 1031 (E.D. Pa. 1978).
    \74\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth, May 5, 2022; 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------

    The cases mentioned above all applied different standards despite 
all claiming to have derived their standards from the Act and the 
caselaw. These opinions gave little or no guidance on the practices 
that would satisfy their standards. Moreover, in the cases adopting a 
competitive injury requirement, the litigants did not offer an 
affirmative definition of ``unfair'' like the criteria in the proposed 
rule. Those courts never addressed whether ``unfair'' applies to harms 
typically treated as unfair practices under the FTC Act.
    This ambiguity and inconsistency across judicial interpretations of 
the statute impedes enforcement of the Act under section 202(a) because 
to date neither the Department nor the public have had appropriate 
clarity on the meaning of ``unfair'' under the P&S Act. Further, to the 
extent courts have limited application of the P&S Act's protections 
against unfair practices to anticompetitive or unfair conduct that 
causes competitive injury, those courts' decisions are contrary to both 
the legislative text and Congressional intent.
    For over a decade, USDA has received repeated calls from the public 
to address these court decisions which frustrate the purposes of the 
Act,\75\ although USDA

[[Page 53893]]

also notes that some industry groups have generally opposed changes to 
the existing regulatory landscape.\76\
---------------------------------------------------------------------------

    \75\ See, e.g., Farm Action et al., ``Letter to Bruce Summers,'' 
April 5, 2022, available at https://farmaction.us/wp-content/uploads/2022/04/Letter-re-Unfair-Practices-in-Violation-of-the-Packers-and-Stockyards-Act.pdf and https://farmaction.us/2022/04/07/dear-usda-issue-the-packers-and-stockyards-rules-now/ (last accessed 
April 2024); Sarah Carden, ``The Fall of Antitrust, the Rise of 
Corporate Power: Impacts of Market Concentration on Farmers and 
Ranchers,'' Farm Action, March 2022, available at https://farmaction.us/wp-content/uploads/2022/04/P-S-Act-Report-for-ABA-Farm-Action.pdf; Hon. Keith Ellison, et al., ``Letter to Hon. Tom 
Vilsack,'' December 21, 2021, on file at USDA, referenced in Hon. 
Thomas Vilsack, ``Letter to State Attorneys General Ellison, Hill, 
and Colleagues,'' Sept. 26, 2022, available at https://www.usda.gov/media/press-releases/2023/07/19/usda-launches-historic-partnership-bipartisan-state-attorneys and https://www.usda.gov/media/press-releases/2023/07/19/usda-launches-historic-partnership-bipartisan-state-attorneys (last accessed April 2024); Claire Kelloway and 
Sarah Miller, ``Food and Power: Addressing Monopolization in 
America's Food System,'' Open Markets Institute, Sept. 21, 2021 
updated version, at 12, available at https://www.openmarketsinstitute.org/publications/food-power-addressing-monopolization-americas-food-system (last accessed April 2024); see 
also John Shively, ``Competition Under the Packers and Stockyards 
Act: What Now?'' 15 Drake J. Agric. L. 419 (Fall 2010); C. Robert 
Taylor, ``Legal and Economic Issues with the Courts' Rulings in 
Pickett v. Tyson Fresh Meats, Inc., a Buyer Power Case,'' American 
Antitrust Institute Working Paper No. 07-08, Feb. 2007, available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1103635 (last 
accessed April 2024); United States Department of Justice, United 
States Department of Agriculture, (May 2010), Public Workshops 
Exploring Competition in Agriculture, https://www.justice.gov/archives/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10 (``As a state 
regulator, when I enforce my state's unfair or deceptive practices 
act on behalf of consumers, I don't have to demonstrate that that 
deceptive act injured every consumer in the state. I only have to 
demonstrate that one consumer. I think what we do owe our--we owe 
our producers at least as much as we owe the individual consumers of 
our respective states and a fair reading of 202(a) shouldn't require 
the rancher to demonstrate harm to everyone.'' ``The only way to 
protect the cash market is to halt the growth of captive supplies 
and possibly even roll back practice. As it should be, the language 
of Section 2(a) and (b) of the Packers & Stockyards Act does not 
require the finding of harm to the industry. . . How is it that if I 
strong-arm someone out in the hall I could be put in jail, but if 
a--but to receive just and due compensation for my hard work and 
efforts, I have to prove that there is an injury to the industry and 
not just to myself? That's a pretty ridiculous test to overcome.'' 
``Now, I understand the Packers and Stockers Act is being undermined 
by this proof to harm to competition. When they're cheating all of 
these farmers out here, they're getting a monetary advantage in the 
market. . . And that's the excuse that the Federal judges say that 
we--you know, that we can't have this law enforced'').
    \76\ See, e.g., North American Meat Institute Issue Statement on 
President Biden's Executive Order & USDA's Proposed Changes to 
Packers & Stockyards Rules, July 9, 2021, available at https://www.meatinstitute.org/press/north-american-meat-institute-issues-statement-president-bidens-executive-order-usdas (last accessed 
April 2024).
---------------------------------------------------------------------------

    Consistent with Executive Order 14036, this proposed rule would, 
however, make those changes.\77\ Specifically, it would provide 
regulatory clarity in the face of these conflicting interpretations so 
as to more fully and effectively enforce section 202(a)'s prohibition 
on unfair practices. To do so, it proposes to establish clearer tests 
and frameworks with which to apply section 202(a)'s prohibition on 
unfair practices, provide guidance to those hearing enforcement cases 
as to what unfairness means, and, in circumstances when competition is 
relevant, provide a framework for assessing the impact of a practice on 
the competitive environment. USDA intends with this proposed rule to 
provide clearer standards for the Department, courts, and private 
parties to use in understanding what conduct the P&S Act prohibits.
---------------------------------------------------------------------------

    \77\ Executive Order No. 14036 ``Promoting Competition in the 
American Economy,'' July 2021, available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.
---------------------------------------------------------------------------

III. The Proposed Rule

    In this proposed rulemaking, AMS proposes separate comprehensive 
rules intended to protect both market participants and the market from 
harm.\78\ In the very first docket under the P&S Act in 1922, the 
Secretary stated: ``It is not the purpose of the Act to destroy 
business, but to require the observance of the public's interests in 
the conduct of business by conforming to standards laid down in the 
law.'' \79\ In other words, the Act is broader than an antitrust law; 
it is a comprehensive regulation of the poultry and livestock industry 
that enforces norms of fair behavior for the public benefit. Thus, 
since passage of the Act, the Department has taken the position that 
section 202(a) could be violated if a challenged practice injures the 
market to the detriment of the public interest, or if it injures market 
participants without any specific harm to the market. Often, in the 
Department's view, a challenged practice could cause both kinds of 
injuries in unison.
---------------------------------------------------------------------------

    \78\ Although using different terms, this understanding is 
consistent with the consensus academic literature. See, e.g., 
Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth, May 5, 2022, 
https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/; Peter C. Carstensen, ``The Packers 
and Stockyards Act: A History of Failure to Date,'' The CPI 
Antitrust Journal (2) (2010), available at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (Philadelphia: Faculty Scholarship at Penn 
Law, 2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
    \79\ Kansas City Live Stock Exchange v. Armour and Company and 
Fowler Packing Company, Docket No. 1 (August 30, 1922).
---------------------------------------------------------------------------

    For example, a supply broker was found to have engaged in both an 
unfair and deceptive practice in agreeing to provide a hidden 
``kickback'' that affords unduly preferential treatment to a powerful 
retailer at the expense of rival retailers. Indeed, the practice was 
unfair both in the sense that it specifically injured the rival 
retailers, who were forced to pay discriminatorily higher broker fees, 
and in the sense that it harmed competition because the hidden 
competitive advantage bestowed upon the powerful retailer tampered with 
the competitive process for procuring supply.\80\ This comprehensive 
analytical approach, which the Secretary applied in cases as diverse as 
failure to pay in full \81\ and price cutting,\82\ never required the 
Secretary to draw distinctions between unfair conduct that injures 
producers, unfair conduct that injures competition, or unfair conduct 
that caused both kinds of injury. But in analyzing these cases the 
Judicial Officer determined harm to an individual or harm to 
competition in each separate administrative case rather than a specific 
``test'' or ``rule.''
---------------------------------------------------------------------------

    \80\ Trunz Pork Stores v. Wallace, 70 F.2d 688 (2d Cir. 1934).
    \81\ De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329, 
1337 (9th Cir. 1980): agreeing that failing to pay for condemned 
cattle within one business day following sale was an ``unfair 
practice''. The violations in this case occurred in 1972 and 1974. 
Id. at 1333.
    \82\ See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 
1961).
---------------------------------------------------------------------------

    In building the analytical framework for this proposed rule, USDA 
considered, in addition to the forgoing, the contemporaneous statutory 
history of section 5 of the FTC Act, which bans both unfair methods of 
competition and unfair or deceptive acts or practices. While Congress 
never limited the scope of the P&S Act's ``unfair practices'' to 
``unfair methods of competition,'' the first FTC Act was purportedly so 
limited. The amendments to the FTC Act in 1938 reflected Congress's 
intent to make the scope of the FTC Act more aligned with the P&S Act's 
broader scope.
    A standard should be consistent and consistently applied, so this 
proposed rule would explain the P&S Act in terms more widely 
understood. USDA has found the framework of the FTC Act and the FTC's 
policy statements useful in understanding the past century of USDA's 
administrative and Federal caselaw.
    Thus, for this proposed rule, USDA employs an analytical structure 
similar to that presently used by the FTC and proposes two analyses. 
First, proposed Sec.  201.308(a) and (b) would protect against injuries 
to market participants from unfair practices. Second, proposed Sec.  
201.308(c) and (d) would protect the market from unfair practices. When 
the Secretary considers whether an injurious practice rises to the 
level of an unfair practice, either or both approaches may be relied 
on.
    Although the proposed tests are distinct, in the context of the P&S 
Act, they are not mutually exclusive. Just as it has always been true 
that an unfair practice can be simultaneously injurious to individual 
market participants and to market conditions more generally, an unfair 
practice under this proposed rule may be unfair to an individual market 
participant (under proposed

[[Page 53894]]

Sec.  201.308(a)), to markets (under proposed Sec.  201.308(c)), or 
unfair under each proposed test.
    Thus, based on the statutory language, administrative case law, and 
Federal case law, this proposed regulation clarifies that unfair acts 
under the P&S Act apply to harms to market participants and harms to 
the market. The scope of section 202(a) is similar to section 5 of the 
FTC Act, which prohibits both unfair and deceptive acts or practices 
and unfair methods of competition. Further, the operative definition of 
harm to market participants (substantial harm, not reasonably 
unavoidable, and not outweighed by benefits) is analogous to the 
codified definition of unfairness under the FTC Act. The operative 
definition for harm to the market is analogous to the principles the 
FTC has adopted in that context (collusive, coercive, predatory, 
restrictive, deceitful or exclusionary method of competition that may 
negatively affect competitive conditions).

A. Proposed Sec.  201.308(a) and (b)

    USDA proposes the addition of Sec.  201.308(a) and (b) as a 
comprehensive rule for unfair practices with respect to market 
participants.
    The proposed test under Sec.  201.308(a) for whether a practice 
unfairly injures market participants is similar to the FTC's test for 
consumer protection injuries. Under the FTC Act, an unfair practice is 
an act or practice that ``causes or is likely to cause substantial 
injury to consumers that is not reasonably avoidable by consumers 
themselves and not outweighed by countervailing benefits to consumers 
or to competition.'' \83\ Harm to competition is not part of the test. 
Although section 202(a) of the P&S Act's authority precedes the FTC's 
1980 policy statement and subsequent Congressional amendments to the 
FTC Act, the FTC's current approach offers useful pillars around which 
to anchor P&S case law that has developed over the years.\84\
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 45(n).
    \84\ See Michael Kades, then of Washington Center for Equitable 
Growth, reaching a similar conclusion in ``Protecting Livestock 
Producers and Chicken Growers,'' chapter 3, Washington Center for 
Equitable Growth, May 5, 2022, https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/; see also, 
Peter C. Carstensen, ``The Packers and Stockyards Act: A History of 
Failure to Date,'' The CPI Antitrust Journal (2) (2010), available 
at https://www.competitionpolicyinternational.com/assets/Uploads/CarstensenAPR-2.pdf; see also Herbert Hovenkamp, ``Does the Packers 
and Stockyards Act Require Antitrust Harm?'' (Philadelphia: Faculty 
Scholarship at Penn Law, 2011), available at https://scholarship.law.upenn.edu/faculty_scholarship/1862.
---------------------------------------------------------------------------

    USDA thus proposes under Sec.  201.308(a) that a practice is unfair 
if the practice (1) causes or is likely to cause substantial injury to 
one or more market participants, which (2) the participant or 
participants cannot reasonably avoid, and which (3) the regulated 
entity that has engaged in the act cannot justify by establishing 
countervailing benefits to the market participant or participants or to 
competition in the market that outweighs the substantial injury or 
likelihood of substantial injury. Application of these three elements, 
when combined, explain the outcome of a great many of the cases brought 
under the P&S Act, and provide a clear and workable standard for 
adjudicating many kinds of unfairness claims.
    The simplest example that illustrates the principles underlying 
these proposed provisions is the failure to pay for meat,\85\ live 
poultry,\86\ or livestock.\87\ First, it causes a substantial injury to 
the seller or grower. When a seller or grower delivers product to a 
regulated entity and the entity arbitrarily refuses to pay, the seller 
or grower loses the value of the product, and they lose the opportunity 
to use the capital from selling their product to grow more food, invest 
in their farm, or process more products. Second, they cannot avoid this 
breach of contract. Instead, they must either engage in costly 
litigation or settle for less than they are owed. Finally, there is no 
benefit to the market for the purchaser to fail to pay for the product 
they received. If this practice is adopted by all purchasers, the 
sellers become increasingly less efficient as trust fails and less 
livestock, meat, and poultry is produced. Thus, even if the seller or 
grower is eventually paid, and suffers no loss of business, the 
regulated entity's failure to pay when due can still cause substantial, 
unavoidable market injury. That is, in the aggregate, even a small 
delay suffered by many producers produces a substantial harm.
---------------------------------------------------------------------------

    \85\ In Re: Rotches Pork Packers, Inc. & David A. Rotches., 46 
Agric. Dec. 573, 579 (1987).
    \86\ In Re: Empire Kosher Poultry, Inc., No. P & S Docket No. D-
10-0109, 2010 WL 7088565, at *6 (U.S.D.A. July 20, 2010), aff'd 
Empire Kosher Poultry, Inc. v. U.S. Dep't of Agric., 475 F. App'x 
438, 444 (3d Cir. 2012).
    \87\ Courts that examine the history of the P&S Act often 
overlook that failure to pay in full was an ``unfair practice'' 
under the Act for many decades before Congress clarified that delay 
of a single payment for livestock was an unfair ``practice'' under 
the P&S Act in 1976. For example, in In re: Eastern Meats, Inc., 21 
Agric. Dec. 134, 141, (1962), the Judicial Officer found ``without a 
doubt'' failing to timely pay the full amount agreed for a single 
shipment of meat was ``an unfair and deceptive practice and device'' 
and cited administrative cases. And, in In Re: Mid-W. Veal 
Distributors, d/b/a Nagle Packing Co., & Milton Nagle, 43 Agric. 
Dec. 1124, 1138 (U.S.D.A. July 13, 1984) USDA's Judicial Officer 
noted it had been held consistently in cases arising under both 
title II and title III of the P&S Act that failure to pay, when due, 
for livestock constitutes a violation of sections 202(a) and 312(a) 
of the P&S Act., citing In re Rosenthal, 36 Agric. Dec. 210 (1976); 
In re San Jose Valley Veal, Inc., 34 Agric. Dec. 966 (1975); In re 
Sebastopal Meat Company, Inc., 28 Agric. Dec. 435, (1969), aff'd, 
440 F.2d 983 (9th Cir. 1971); In re Nolan E. Poovey, Jr., 27 Agric. 
Dec. 1512 (1968); In re Joe Doctorman & Son, Inc., 28 Agric. Dec. 
840 (1969); In re S.M. Jamison, 28 Agric. Dec. 581 (1969); In re 
Neil Harlan, 25 Agric. Dec. 5 (1966); In re Royce Lehman Moore, 26 
Agric. Dec. 230 (1967); In re Augustin Brothers Co, 27 Agric. Dec. 
350 (1968); In re R.J. & C.W. Fletcher, Inc., 23 Agric. Dec. 1400 
(1964); In re Rosenthal Packing Co., 19 Agric. Dec. 971 (1960); In 
re Harry Thomas, 35 Agric. Dec. 490 (1976).
---------------------------------------------------------------------------

    Similar principles have guided the Secretary's interpretation for 
the entire history of the Act. In the 1956 decision in In re: Central 
California Livestock, Inc. d/b/a Machlin Meat Packing Company, the 
Judicial Officer held that accord and satisfaction could not be a 
defense to the failure to pay for livestock because a refusal to abide 
by contract terms that occurs after the livestock is slaughtered leaves 
the seller or grower with no other remedy than to sue. If a refusal to 
pay is not based upon a bona fide dispute, but rather is a deliberate 
policy of contract noncompliance, then it is ``obvious that by the 
activities in issue the respondent engaged in or used an unfair 
practice'' in violation of section 202(a) of the Act.\88\ And ``[n]ot 
only was it unfair to the sellers but it was unfair competitively with 
respect to other packers.'' \89\
---------------------------------------------------------------------------

    \88\ In re: Central California Livestock, Inc. d/b/a Machlin 
Meat Packing Company, 15 Agric. Dec. 97, 110 (1956).
    \89\ Id.
---------------------------------------------------------------------------

    Even in 1956 those principles were not a new application of section 
202(a). In 1937, USDA Secretary Wallace found that discounting the 
agreed upon price for a defect (so-called oily hogs) undiscoverable 
until after slaughter rather than as a condition of the contract was an 
``unfair, unjustly discriminatory, and deceptive practice'' in 
violation of section 202(a) of the Act.\90\
---------------------------------------------------------------------------

    \90\ Secretary of Agriculture v. Scala Packing Company, Inc., 
Bureau of Animal Industry Docket No. 581 (January 7, 1937).
---------------------------------------------------------------------------

    Congress drafted the Act to provide every participant in the 
industry due consideration, and honest, transparent, and equitable 
treatment. Accordingly, dishonest, hidden, and inequitable practices 
that injure market participants, like mis-weighing, are unfair because 
the producer or grower suffers a substantial injury that they cannot 
avoid. For example, a producer delivers their product for the regulated 
entity to establish the grade, weight, and payment. The producer's loss 
of physical control of the animal is

[[Page 53895]]

inherent in a failure-to-pay or a mis-weighing case, illustrating the 
unavoidability of the injury.
    Some elements of the dangers of unavoidable injuries have informed 
prior rulemaking. For example, when USDA required packers to pay on 
actual hot weights--the weight before the carcass is cooled to storage 
temperatures--in 1968, USDA noted that allowing packers to set 
shrinkage amounts for a projected weight after refrigeration (a cold 
weight) was an unfair and deceptive practice: ``In these instances, the 
packer decides what shrinkage factor he will use. . . The farmer is not 
in a position to bargain freely on the basis of a full understanding of 
the contract terms which are within the control of the packer and can 
only accept or reject the bid offered by the packer.'' \91\ Market 
participants are often at the mercy of regulated entities, who often 
pay based on factors that the livestock seller or poultry grower is 
unable to personally witness or negotiate, thus making their injury 
from the use of variable cold weights or shrinkage unavoidable.
---------------------------------------------------------------------------

    \91\ Purchase of Livestock by Packers on a Carcass Grade, 
Carcass Weight, or Carcass Grade and Weight Basis, 33 FR 2760, 2761 
(Feb. 9, 1968).
---------------------------------------------------------------------------

    Even absent an express rule, the principles maintaining that 
unjustified practices that produce unavoidable injury violate section 
202(a) of the Act have been, and still are, applied in ``unfair 
practices'' cases.\92\
---------------------------------------------------------------------------

    \92\ E.g. In Re: Excel Corp., No. P. & S. Docket No. 99-0010, 
2003 WL 205562, at *31 (U.S.D.A. Jan. 30, 2003) (finding that 
producers were likely injured by Respondent's failure to notify hog 
producers of its undetectable change in lean formula, and 
regardless, the practice impeded competition); In Re: Stull Meats, 
Inc., 49 Agric. Dec. 309, 329 (U.S.D.A. Feb. 15, 1990) (finding in a 
commercial bribery case that ``the type of violations alleged and 
proven in this case are not only unfair to the firm being 
overcharged for its purchases . . . but also to the competitors . . 
. who are not in a position to gain entry . . . unless they are 
willing to make the same illegal inducements to its agent''); c.f. 
In Re: Cedar Vale Sale Barn, Inc., Doyle Hawkins & Jerry Mullins., 
52 Agric. Dec. 546, 554 (1993) (check kiting poses a great risk to 
the sellers of livestock); In Re: Great Am. Veal, Inc. A Corp., & 
Thomas Burke, an Individual, 48 Agric. Dec. 183, 198 (U.S.D.A. Jan. 
19, 1989) (holding that dissipating the statutory trust ``enacted to 
protect livestock sellers'' was unfair).
---------------------------------------------------------------------------

    The final factor in the proposed regulation at Sec.  201.308(a) is 
that the conduct does not violate section 202(a) of the Act if 
regulated entities prove that countervailing benefits to producers, 
growers, or to competition outweigh the harm. In practice, the question 
is whether the regulated entity can show benefits of the alleged unfair 
conduct outweigh the injury or likely injury.
    The proposed rule allows the consideration of not only harm to the 
market, but also likely harm to Congressional policy goals concerning 
the structure of agricultural markets over and against possible 
countervailing benefits to other producers or the market.\93\ 
Congressional policy goals have included, for example, supporting new, 
beginning, and military veteran producers.\94\
---------------------------------------------------------------------------

    \93\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' chapter 4, Washington Center for Equitable Growth, May 5, 
2022, https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
    \94\ See, e.g., ``How to Start a Farm: Beginning Farmers and 
Ranchers,'' available at https://www.farmers.gov/your-business/beginning-farmers (last accessed April 2024); Congressional Research 
Service, ``Farm Bill Primer: Beginning and Underserved Producers,'' 
May 2022, available at https://crsreports.congress.gov/product/pdf/IF/IF12096/2.
---------------------------------------------------------------------------

    Balancing allegedly unfair conduct against countervailing benefits 
is not a new consideration for the Secretary. For example, when 
examining the allegedly unfair and discriminatory preferences given to 
one group of sellers over others in In re: IBP, Inc. (57 Agric. Dec. 
1353 (U.S.D.A. July 31, 1998)), the Department considered whether right 
of first refusal of the contract terms was ``worth extra payment'' and 
whether the contract was profitable for both the buyers and the sellers 
of livestock. Preferences for lengthening extra delivery times 
justified higher payments (even if higher payment was not proven), and 
so concluded that the practice was not unduly discriminatory.\95\
---------------------------------------------------------------------------

    \95\ The Judicial Officer also considered the specific right of 
first refusal a practice that was likely to harm competition in 
violation of section 202 of the P&S Act. While the 8th Circuit 
agreed with the legal statements of the Judicial Officer--
specifically that the Act prevents likely harm to competition--the 
court disagreed with the factual conclusions and reversed. IBP, Inc. 
v. Glickman, 187 F.3d 974, 978 (8th Cir. 1999).
---------------------------------------------------------------------------

    Accordingly, when examining the practice, ``actual competition 
carried on in good faith by normally fair methods not `heretofore 
regarded as opposed to good morals because characterized by deception, 
bad faith, fraud, or oppression['] . . . is a fact which must be given 
substantial weight . . . .'' \96\ Unfair practices under section 202 is 
not only a matter of unfair market conditions; the intention and 
results of the unfair acts and practices are relevant.\97\ For example, 
if a company intends to act to monopolize, even if the intended 
mechanism would not achieve it, the practice would be unfair. Moreover, 
some practices have no benefit, even if unintentional: mis-weighing, 
failing to pay when due for livestock or meats, failure to maintain a 
bond, and insolvency.
---------------------------------------------------------------------------

    \96\ Swift & Co. v. Wallace, 105 F.2d 848, 856 (7th Cir. 1939).
    \97\ See Armour & Co. v. United States, 402 F.2d 712, 717 (7th 
Cir. 1968).
---------------------------------------------------------------------------

B. Evaluation of Potential Injury to Market Participants

    To date, no court has disagreed with the principle that the P&S Act 
not only reaches practices that directly injure, such as failures to 
pay and changes to the terms of payment without notice, but also acts 
that are likely to cause injury. Congress designed the Act to prevent 
actual monetary loss \98\ and those practices are ``unfair'' even 
though they require no evidentiary showing of completed injury. Even 
courts that have adopted the competitive injury standard have affirmed 
that the Act does not require actual harm. The Fifth Circuit stated, 
the ``Act is designed to `. . . prevent potential injury by stopping 
unlawful practices in their incipiency. Proof of a particular injury is 
not required.' '' \99\ Those potential injuries may be any injury the 
Act was designed to prevent, including financial loss to sellers.\100\
---------------------------------------------------------------------------

    \98\ See In re: Arizona Livestock Auction, Inc., 55 Agric. Dec. 
1121 (U.S.D.A. Nov. 21, 1996) (finding that the purpose of title III 
of the Act was ``to protect the producer or seller from monetary 
loss'').
    \99\ Bowman v. United States Dep't of Agric., 363 F.2d 81, 85 
(5th Cir. 1966) (finding the Department's insolvency standard was 
not an abuse of discretion).
    \100\ Id.
---------------------------------------------------------------------------

    Therefore, the Department has taken the view that some practices 
must be stopped before they harm market participants.\101\ For example, 
a packer operating while insolvent or without a bond can present a 
great risk of potential harm to the livestock sellers who may find that 
their livestock is being used to finance a packer's operations.\102\ If 
the undercapitalized packer fails, even with the rights of a floating 
trust, livestock sellers are vulnerable to protracted litigation and 
non-payment. The livestock seller's ability to participate in the 
market would be imperiled, the magnitude of potential injury would be 
great, and without prior knowledge of the insolvency, the seller's 
ability to freely

[[Page 53896]]

exercise decision-making would be undermined.
---------------------------------------------------------------------------

    \101\ See In Re: Corn State Meat Co., Inc.; Terrance P. (Terry) 
Prince, Jr. & James L. Wiggs., 45 Agric. Dec. 995, 1023 (U.S.D.A. 
May 8, 1986); c.f. In Re: Danny Cobb & Crockett Livestock Sales Co., 
Inc., 48 Agric. Dec. 234, 234 (U.S.D.A. Feb. 13, 1989) (finding 
bonds protect against incipient violations); In Re: Paul Rodman & 
David Rodman, 47 Agric. Dec. 885, 903-04 (U.S.D.A. May 27, 1988) 
(finding there is a duty to prevent all unlawful acts under the P&S 
Act, including the potential losses from failing to maintain a 
custodial account).
    \102\ For an example of how under-capitalization can force 
producers to finance the operation of a livestock buyer, see Van Wyk 
v. Bergland, 570 F.2d 701, 704 (8th Cir. 1978).
---------------------------------------------------------------------------

    As another example, an exclusive agreement between packers and 
livestock dealers not to bid against one another might severely 
restrict the ability of other livestock sellers to participate in the 
market, because packers would not accept offers from other livestock 
dealers or from sellers directly.\103\ The agreement is an unfair 
practice, among other reasons, because it injures sellers by 
restricting them from making offers and thus tends to subvert market 
forces. Proposed Sec.  201.308(a) recognizes that although a specific 
injury has not occurred, the potential for injury is so great that the 
Secretary must stop the practice in advance.\104\
---------------------------------------------------------------------------

    \103\ See 9 CFR 201.70; Swift & Co. v. United States, 393 F.2d 
247 (7th Cir. 1968).
    \104\ A similar analysis would be if a group of packers conspire 
to force stockyards to sell on the basis of a ``subject'' sales 
terms--that is, granting the packer the right to refuse to honor the 
purchase after a delivery inspection at the packing plant rather 
than on the basis of an ``as is'' sales term--then that behavior is 
likely to interfere with the free exercise of decision making by 
market participants. See De Jong Packing Co. v. U.S. Dep't of 
Agric., 618 F.2d 1329, 1337 (9th Cir. 1980).
---------------------------------------------------------------------------

    Proposed Sec.  201.308(b) is intended to explain those instances 
where likely or potential harms to producers rise to violations of the 
P&S Act, and so this rulemaking sets out factors or criteria that 
attempt to cover that broad scope. Thus, the Secretary retains the 
statutory authority to identify and regulate unfair practices or 
devices in a manner not predicted by this proposed rule, either through 
subsequent rulemaking or in particular enforcement matters.
    First, proposed Sec.  201.308(b)(1) includes consideration of the 
extent to which the practice may impede or restrict the ability to 
participate in a market, interfere with the free exercise of decision-
making by market participants, tend to subvert the operation of 
competitive market forces, deny a covered producer the full value of 
their products or services, or violate traditional doctrines of law or 
equity.
    This is not entirely dissimilar from comment (g) in the Restatement 
(Third) of Unfair Competition, which noted that unfair practices are 
not merely a matter of antitrust harms:

    Courts continue to evaluate competitive practices against 
generalized standards of fairness and social utility . . . . An act 
or practice is likely to be judged unfair only if it substantially 
interferes with the ability of others to compete on the merits of 
their products or otherwise conflicts with accepted principles of 
public policy recognized by statute or common law. \105\

    \105\ Restatement (Third) of Unfair Competition section 1 
(1995).

    Thus, proposed Sec.  201.308(b)(1) provides standards to evaluate 
when a practice under Sec.  201.308(a) is likely to cause a substantial 
injury.
    Second, proposed Sec.  201.308(b)(2) provides a clarification of 
``substantial injury'' by considering the magnitude of a likely injury 
that the Secretary must halt: an injury may be substantial if it causes 
significant harm to one market participant or if it imposes a small 
harm to many market participants. AMS does not propose to eliminate 
from regulatory oversight those injuries that the Department has deemed 
in past cases as substantial. A single failure to pay, for even a 
relatively small amount of money, is sufficiently substantial for USDA 
to bring administrative action against a regulated entity, and to be a 
basis for an order of the Secretary to cease and desist. Notably, an 
injury that does not harm a market participant is not a violation of 
the Act.\106\
---------------------------------------------------------------------------

    \106\ See In Re: Arizona Livestock Auction, Inc., 55 Agric. Dec. 
1121 (1996) (finding that injury to a cow did not result in any 
injury the Act was designed to prevent).
---------------------------------------------------------------------------

    Third, in proposed Sec.  201.308(b)(3) AMS proposes considering the 
extent to which the producer would have to take unreasonable steps to 
avoid injury. An injury is not reasonably avoidable solely because the 
practice has been disclosed. A market participant is also not required 
to take unreasonable steps, such as exiting the market or making 
unreasonable additional investments or efforts, to avoid the harm. The 
harder it is for market participants to escape the injury, the more 
likely the harm would be to occur and the more likely that it would not 
be reasonably avoidable.
    Again, returning to failure to pay, it would be unreasonable for a 
livestock seller to cease selling livestock on the open market to 
prevent themselves from being victims of a breach of contract or to ask 
them to accept revised contract terms after delivery of the livestock. 
To determine otherwise would undermine the regulatory purpose, which is 
to give the producers of livestock, and the growers of poultry, the 
opportunity to receive the fair value of their participation in the 
market. Nor would it benefit consumers to encourage producers to leave 
the market or accept substandard payment terms that would discourage 
appropriate market participation.

C. Proposed Sec.  201.308(c) and (d)

    AMS proposes Sec.  201.308(c) and (d) as a comprehensive rule with 
respect to markets.
    Unfair practices are not only those that injure producers, but also 
those that may negatively impact competition because they injure or 
tend to injure competition or competitive market conditions. AMS takes 
the position in this proposed rulemaking that harmful methods of 
competition under the P&S Act are similar to the practices that the FTC 
and the courts have long recognized as either anticompetitive or 
unfair: collusive, coercive, predatory, restrictive, deceitful or 
exclusionary methods of competition that may negatively affect 
competitive conditions.
    Congress intended the prohibitions in section 202(a) (and, also, 
section 312(a)) of the P&S Act to go further than the prohibition in 
section 5 of the FTC Act against ``unfair methods of competition.'' 
\107\ Not only did the P&S Act address deceptive practices before the 
FTC Act did so, but it also includes many prohibitions that the FTC Act 
does not. In that breadth, there has been no real dispute that the P&S 
Act should prohibit at least as much as the FTC Act itself.\108\ Thus, 
as the Ninth Circuit explained, ``section 202(a) should be read 
liberally enough to encompass the types of anti-competitive practices 
properly deemed `unfair' by the Federal Trade Commission.'' \109\ The 
FTC has long prosecuted collusive, coercive, predatory, restrictive, 
deceitful or exclusionary actions that tend to negatively affect 
competitive conditions as unfair methods of competition.\110\ Moreover, 
USDA has regularly cited FTC precedent in interpreting the P&S 
Act.\111\ As the Ninth Circuit has noted, ``While sec. 202 of the 
Packers and Stockyards Act may have been made broader than antecedent 
antitrust legislation in order to achieve its

[[Page 53897]]

remedial purpose, it nonetheless incorporates the basic antitrust 
blueprint of the Sherman Act and other pre-existing antitrust 
legislation such as the Clayton Act and the [Federal] Trade Commission 
Act.'' \112\
---------------------------------------------------------------------------

    \107\ 61 Cong. Rec. 1805-06.
    \108\ Been v. O.K. Indus., Inc., 495 F.3d 1217, 1241 (10th Cir. 
2007) (Hartz, J. concurring) (``[I]t would be somewhat surprising if 
`unfair practices' under the PSA had a narrower meaning than `unfair 
methods of competition' in the FTCA.'').
    \109\ Armour and Company v. United States, 402 F.2d 712 (7th 
Cir. 1968).
    \110\ E.I. du Pont de Nemours & Co. v. F.T.C., 729 F.2d 128, 137 
(2d Cir. 1984) (citing examples: FTC v. Texaco, Inc., 393 U.S. 223, 
89 S.Ct. 429, 21 L.Ed.2d 394 (1968); Atlantic Refining Co. v. FTC, 
381 U.S. 357, 85 S.Ct. 1498, 14 L.Ed.2d 443 (1965); FTC v. Brown 
Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966); FTC v. 
Beech-Nut Packing Co., 257 U.S. 441, 42 S.Ct. 150, 66 L.Ed. 307 
(1922), FTC v. National Lead Co., 352 U.S. 419, 77 S.Ct. 502, 1 
L.Ed.2d 438 (1957), FTC v. Cement Institute, 333 U.S. 683, 68 S.Ct. 
793, 92 L.Ed. 1010 (1948), Sugar Institute, Inc. v. United States, 
297 U.S. 553, 56 S.Ct. 1629, 80 L.Ed. 859 (1935), FTC v. R.F. Keppel 
& Bro., Inc., 291 U.S. 304, 54 S.Ct. 423, 78 L.Ed. 814 (1934), FTC 
v. Motion Picture Advertising Service Co., 344 U.S. 392, 73 S.Ct. 
361, 97 L.Ed. 426 (1953)).
    \111\ Armour & Co. v. United States, 402 F.2d 712, 722 (7th Cir. 
1968); see also In Re: Ozark Cnty. Cattle Co., Inc., et. al., 49 
Agric. Dec. 336 (1990); In Re: Corn State Meat Co., Inc.; et. al., 
45 Agric. Dec. 995, 1012 (1986).
    \112\ De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 
1329, 1335 (9th Cir. 1980).
---------------------------------------------------------------------------

    Thus, AMS proposes Sec.  201.308(c) to capture at least conduct 
that would violate the antitrust laws, conduct that would constitute an 
unfair method of competition under the FTC Act, and conduct that courts 
or administrative officers have held violates the P&S Act's unfairness 
prohibition. Practices that do violate the antitrust laws therefore are 
within the umbra of this rulemaking. So too is ``conduct which, 
although not a violation of the letter of the antitrust laws, is close 
to a violation or is contrary to their spirit,'' \113\ and practices 
that ``not merely in their fruition, but also in their incipiency . . . 
could lead to . . . trade restraints and practices deemed 
undesirable.''
---------------------------------------------------------------------------

    \113\ Ethyl, 729 F.2d at 136-37.
---------------------------------------------------------------------------

    Conduct falls within proposed Sec.  201.308(c) if it harms 
competition or has the tendency to negatively affect competitive 
conditions, impairs market participants' ability to compete, or reduces 
the likelihood of potential or nascent competition, notwithstanding 
that it may or may not yet have done so. If the practice is analyzed 
similarly to an antitrust violation, the Secretary will, where 
appropriate, consider any buyer- or seller-side anticompetitive effect 
on price (including the price paid to producers), output, quality, 
choice, innovation, bargaining power in the market for services or 
products, the imposition or presence of entry barriers, the imposition 
or presence of information asymmetries, the entrenching or extending of 
a dominant position, or the distortion of the competitive process, 
among other anticompetitive or competitively unfair effects.\114\ In 
some cases, it is not necessary to measure the effect on competitive 
conditions expressly because the conduct, is a per se violation, or 
otherwise on its face tends to distort, impair, or frustrate the 
competitive process, including of price discovery. Moreover, section 
202 of the P&S Act prohibits unfair competition in its incipiency, 
consistent with the FTC Act and the Clayton Act.
---------------------------------------------------------------------------

    \114\ See, generally, Merger Guidelines, (2023), U.S. Department 
of Justice and Federal Trade Commission, https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf; FTC, 
Policy Statement Regarding the Scope of Unfair Methods of 
Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022).
---------------------------------------------------------------------------

D. Evaluation of Potential Injury to the Market

    Because the courts have been clear that behavior that is likely to 
harm competition violates the P&S Act, AMS proposes standards with 
respect to injuries that are likely to harm the market. Like other 
statutes, such as the FTC Act and the Clayton Act, the P&S Act 
prohibits competition harms in their incipiency.\115\ The antitrust 
laws recognize a wide range of harms, which this proposed rule would 
fully encompass.\116\ Because the Act is intended to protect the market 
from harm and protect producers and consumers from unfair practices, 
there does not need to be any proof that any harm to the market has yet 
occurred: only that the threat the Act is designed to prevent is 
likely.
---------------------------------------------------------------------------

    \115\ Daniels v. United States, 242 F.2d 39, 42 (7th Cir. 1957) 
(``It is the duty of a regulatory agency to prevent potential injury 
by stopping unlawful practices in their incipiency. Proof of a 
particular injury is not required.'').
    \116\ See, generally, Merger Guidelines, (2023), U.S. Department 
of Justice and Federal Trade Commission, https://www.ftc.gov/system/files/ftc_gov/pdf/2023_merger_guidelines_final_12.18.2023.pdf; FTC, 
Policy Statement Regarding the Scope of Unfair Methods of 
Competition Under Section 5 of the FTC Act, 9 (Nov. 10, 2022).
---------------------------------------------------------------------------

    Accordingly, AMS proposes standards in Sec.  201.308(d) for the 
Secretary to consider when examining practices that likely pose a 
threat to the competitiveness of markets. These standards include (1) 
the extent to which the practice impedes or restricts the ability to 
participate in a market; tends to subvert the operation of competitive 
market forces; interferes with the free exercise of decision-making by 
market participants; violates traditional doctrines of law or equity; 
or has indicia of oppressiveness, such as evidence of anticompetitive 
intent or purpose or absence of an independent legitimate business 
reason for the conduct; and (2) the extent to which the practice tends 
to foreclose or impair the opportunities of market participants, 
reduces competition between rivals, limits choice, distorts or impedes 
the process of competition, or denies a market participant the full 
value of their products or services.
    Thus, proposed Sec.  201.308(d) addresses harms that are likely to 
threaten markets, including ``acts and practices which, when full blown 
would violate the Sherman Act and the Clayton Act.'' \117\ These 
include several practices that have been directly found to constitute 
incipiency violations by the Federal courts or in FTC administrative 
proceedings, which the FTC details in full in its policy statement 
regarding the scope of unfair methods of competition under section 5 of 
the FTC Act.\118\ The Secretary may also consider violations of other 
laws and equity. Thus, when considering harm to markets, the proposed 
rule allows the consideration of harm that is cognizable under laws 
that further policy goals concerning the structure of agricultural 
markets.\119\ The proposed rule recognizes that regulatory enforcement 
may take into account policies such as increasing market diversity 
through new, beginning, and military veteran producers,\120\ and 
increasing supply chain resiliency including through investing in new 
and expanded meat and poultry processing.\121\ Moreover, USDA's

[[Page 53898]]

Judicial Officer has explained that section 202(a) of the P&S Act 
includes within its scope every trade practice which is an ``unfair 
method of competition'' under section 5 of the FTC Act or is otherwise 
prohibited by the Clayton Act or the Robinson-Patman Act.\122\
---------------------------------------------------------------------------

    \117\ Fed. Trade Comm'n v. Motion Picture Advertising Service 
Co., 344 U.S. 392, 394-95 (1953) (noting that ``Congress advisedly 
left the concept [of unfair methods of competition] flexible . . . 
[and] designed it to supplement and bolster the Sherman Act and the 
Clayton Act[,] [so as] to stop . . . acts and practices [in their 
incipiency] which, when full blown, would violate those Acts[,] . . 
. as well as to condemn as ` ``unfair methods of competition'' ' 
existing violations of them''); Fed. Trade Comm'n v. Cement 
Institute, 333 U.S. 683, 708 (1948) (holding that conduct that falls 
short of violating the Sherman Act may violate section 5); Fed. 
Trade Comm'n v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310 (1934) 
(finding that unfair methods of competition not limited to those 
``which are forbidden at common law or which are likely to grow into 
violations of the Sherman Act''); c.f. Brown Shoe Co. v. United 
States, 370 U.S. 294, 346 (1962) (finding section 7 of the Clayton 
Act also reflects the ``mandate of Congress that tendencies toward 
concentration in industry are to be curbed in their incipiency'').
    \118\ FTC, Policy Statement Regarding the Scope of Unfair 
Methods of Competition Under sec. 5 of the FTC Act, 9 (Nov. 10, 
2022). See, e.g., Yamaha Motor Co. v. Fed. Trade Comm'n, 657 F.2d 
971 (8th Cir. 1981), cert. denied, 456 U.S. 915 (1982) (side 
agreements collateral to an anticompetitive joint-venture 
agreement); In re Delta/AirTran Baggage Fee Antitrust Litig., 245 
F.Supp. 2d 1343, 1369-70 (N.D. Ga. 2017), aff'd sub nom., Siegel v. 
Delta Air Lines, Inc., 714 F. App'x 986 (11th Cir. 2018), and cert. 
denied, 139 S. Ct. 827 (2019) (invitations to collude); The Vons 
Co., FTC Complaints and Order, 1987-1993 Transfer Binder, Trade Reg. 
Rep. (CCH) ] 23,200 (Aug. 7, 1992) (series of small acquisitions, 
none of which were illegal individually).
    \119\ Michael Kades, ``Protecting Livestock Producers and 
Chicken Growers,'' chapter 4, Washington Center for Equitable 
Growth, May 5, 2022, https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
    \120\ See, e.g., ``How to Start a Farm: Beginning Farmers and 
Ranchers,'' available at https://www.farmers.gov/your-business/beginning-farmers (last accessed April 2024); Congressional Research 
Service, ``Farm Bill Primer: Beginning and Underserved Producers,'' 
May 2022, available at https://crsreports.congress.gov/product/pdf/IF/IF12096/2.
    \121\ See, e.g., ``Agricultural Competition: A Plan in Support 
of Fair and Competitive Markets,'' USDA's Report to the White House 
Competition Council, May 2022 (last accessed June 2022), available 
at https://www.ams.usda.gov/sites/default/files/media/USDAPlan_EO_COMPETITION.pdf; ``USDA Agri-Food Supply Chain 
Assessment: Program and Policy Options for Strengthening 
Resilience,'' available at https://www.ams.usda.gov/supply-chain 
(last accessed June 2024); ``Competition and Meat Supply Chain 
Investments: Highlighted Comments from the Request for Information 
(RFI),'' available at https://www.usda.gov/sites/default/files/documents/Competition-RFI-Anecdotes-010322.pdf (last accessed June 
2024); FACT SHEET: The Biden-Harris Action Plan for a Fairer, More 
Competitive, and More Resilient Meat and Poultry Supply Chain, 
available at https://www.whitehouse.gov/briefing-room/statements-releases/2022/01/03/fact-sheet-the-biden-harris-action-plan-for-a-fairer-more-competitive-and-more-resilient-meat-and-poultry-supply-chain/ (last accessed June 2024).
    \122\ In Re: ITT Cont'l Baking Co., 44 Agric. Dec. 748, 772 
(1985); see also Stumo & O'Brien, Antitrust Unfairness, 8 Drake J. 
Agric. L. at 111.
---------------------------------------------------------------------------

    Among the factors the Secretary may consider when halting a 
practice prior to harm occurring are whether the practice offends 
public policy because it has indicia of oppressiveness, such as 
evidence of anticompetitive intent or purpose, or absence of an 
independent legitimate business reason for the conduct.
    This factor addresses a particular danger that Congress recognized 
when it wrote the P&S Act: abuse of the imbalance of power, and the 
creation of vertical relationships that would stifle competition. 
Congress expected the Secretary to address the power that the dominant, 
vertically-integrated packers and stockyards could exert in preventing 
a distant and less capitalized farmer or rancher from asserting their 
rights. This is the heart of oppressive conduct and is part of the 
market structure Congress expected the Secretary to regulate.
    Moreover, this proposal extends to horizontal, vertical, and other 
market relationships because, historically, the Department has found 
that practices like certain vertical and horizontal information sharing 
are likely to harm competition, and therefore unfair practices 
prohibited by the P&S Act.\123\ USDA regulations under the P&S Act (in 
part to address concerns relating to market agencies as regulated under 
title III of the Act) have also prohibited certain forms of vertical 
integration, common or interlocking ownership, financing, or management 
relationships owing to conflict of interest and impacts on market 
integrity and market access.\124\
---------------------------------------------------------------------------

    \123\ See 9 CFR 201.69 and 201.70.
    \124\ See 9 CFR 201.67.
---------------------------------------------------------------------------

    To be clear, under section 202(a) of the P&S Act, if a practice is 
taken in good faith by normally fair methods, and not characterized by 
deception, bad faith, fraud, or oppression, then the practice is less 
likely to be unfair.\125\ Accordingly, proposed Sec.  201.308(d) 
provides that the Secretary may assess the extent to which the practice 
is collusive, coercive, predatory, restrictive, deceitful, or 
exclusionary and presents incipient threats to competition in 
determining whether the conduct tends to negatively impact competition 
by adversely affecting competitive market conditions.
---------------------------------------------------------------------------

    \125\ C.f. Swift & Co. v. Wallace, 105 F.2d 848, 856 (7th Cir. 
1939).
---------------------------------------------------------------------------

E. Contracts

    This rulemaking has no particular prohibition with respect to 
contracts. A breach of contract, however, is unfair under section 202 
if it meets the criteria of proposed Sec.  201.308(a) or (c). For 
decades the Department found, without controversy, that breaches of 
contract could result in harm to nonbreaching parties to the agreement 
or to the market or to both under the Act.\126\
---------------------------------------------------------------------------

    \126\ See In re: Central California Livestock, at 110. As 
explained above, cases like Central California Livestock are typical 
of the Department's findings with respect to harms to competition.
---------------------------------------------------------------------------

    To account for this, under proposed Sec.  201.308(b) and (d) the 
Secretary may consider traditional doctrines of law and equity in 
determining whether there is any harm the Act was designed to prevent. 
Traditional common-law doctrines are fundamentally designed to ensure 
fairness in the functioning of the marketplace and support the normal 
and fair operation of market forces. In short, fair enforcement of 
contract, bans against unconscionable conduct, and prohibitions against 
deception, make a fair market work. Academics have rightly pointed out 
that violations of the P&S Act include practices that offend public 
policy as established ``by statutes, the common law, or otherwise--
whether, in other words, it is within at least the penumbra of some 
common-law, statutory, or other established concept of unfairness.'' 
\127\
---------------------------------------------------------------------------

    \127\ Stumo & O'Brien, Antitrust Unfairness at 111.
---------------------------------------------------------------------------

    The Department's position is that included in this set of practices 
are breaches of contract that are of regulatory concern. Recently, 
there are some courts that have claimed that Congress could not have 
intended breaches of contract to be violations of the P&S Act.\128\ 
Read to an unlimited extent, that conclusion would be contrary to the 
plain language of the statute. Congress intended unfair practices to 
include breaches of contract, not only with the passage of the Act in 
1921, but also with the passage of section 409 in 1976 and section 410 
in 1987. By specifically prohibiting failures to make prompt payment 
under contract, Congress included among unfair practices the simplest 
form of a contractual breach.
---------------------------------------------------------------------------

    \128\ See, e.g., Been v. O.K. Indus., Inc., 495 F.3d 1217, 1229 
(10th Cir. 2007).
---------------------------------------------------------------------------

    As a matter of statutory construction, under section 312(a) of the 
Act it is unlawful for livestock dealers and market agencies to engage 
in any ``unjust, unjustly discriminatory, or deceptive practice or 
device''; section 309 of the Act gives any injured person the right to 
proceed in an administrative reparation hearing before the Secretary 
against a market agency or livestock dealer. Breach of contract is the 
basis for the overwhelming majority of reparations cases, as Congress 
intended.
    USDA concluded that some breaches of contract violated the Act many 
decades prior to the Congressional passage of section 409; 
administrative findings that failure to pay was a violation of the Act 
were some of the earliest administrative decisions. The Department 
issued its first regulatory prohibition against late payment for 
livestock in 1964.\129\ As the Department has held with respect to 
allegations of the breach of the duty of good faith in the operation of 
contract which led to underpayment:
---------------------------------------------------------------------------

    \129\ 29 FR 1796, Feb. 6, 1964.

    [A] violation of the payment requirements in 7 U.S.C. 228b-1(a) 
is also a prohibited ``unfair practice'' under 7 U.S.C. 192 . . . . 
The Packers and Stockyards Act contains no requirement that injury 
to competition or likelihood of injury to competition must be shown 
in order to prove a violation of 7 U.S.C. 228b-1(a); however, 7 
U.S.C. 228b-1(b) specifically provides that a violation of 7 U.S.C. 
228b-1(a) shall be considered an ``unfair practice'' under the 
Packers and Stockyards Act. Thus, a violation of 7 U.S.C. 228b-1(a) 
is a prohibited ``unfair practice'' under 7 U.S.C. 192 without 
regard to whether injury to competition or likelihood of injury to 
competition is shown.\130\
---------------------------------------------------------------------------

    \130\ In Re: Tyson Farms, Inc., 71 Agric. Dec. 1160, 1164 
(2012).
---------------------------------------------------------------------------

    This rulemaking is not intended to change the Department's position 
on the Act's remedial purposes to protect market participants from 
unfair and deceptive practices. In general, refusal to honor contracts 
drives honest businesses from competition because competitors cannot 
compete in a market where the buyer with greater capital can capture 
the supply without paying for it, modify contract terms after delivery, 
or delay payment indefinitely to extract concessions from sellers. 
These proposed regulations, therefore, match USDA's ability to order 
packers and

[[Page 53899]]

swine contractors to cease these breaches of contract and penalize 
packers and swine contractors to deter these behaviors and to protect 
the public from these harms.\131\
---------------------------------------------------------------------------

    \131\ See section 203 of the P&S Act, which grants the Secretary 
the authority to order respondents to cease and desist and pay civil 
penalties (7 U.S.C. 193).
---------------------------------------------------------------------------

    To be clear, this proposal would not make every commercial dispute 
into a P&S Act matter. Rather, this regulation proposes a specific 
framework under which claims--including ones involving a breach of 
contract--of unfair practices under the P&S Act would be analyzed.

F. Protected Parties

    This proposed rule does not limit its protection against unfair 
conduct by regulated entities to enumerated individuals, like producers 
or consumers, because the Act protects anyone that suffers a violation 
of the P&S Act. Section 202(a) of the Act bans unfair practices in the 
entire market for livestock, meats, meat food products, livestock 
products in unmanufactured form, and live poultry. Further, P&S Act 
section 308(a) holds all regulated entities liable for any 
consequential damages to the persons injured: ``[i]f any person subject 
to this chapter violates any of the provisions of this chapter . . . he 
shall be liable to the person or persons injured thereby for the full 
amount of damages sustained in consequence of such violation.'' \132\
---------------------------------------------------------------------------

    \132\ 7 U.S.C. 209.
---------------------------------------------------------------------------

    The Secretary has brought administrative cases under section 202(a) 
based on the full spectrum of market behaviors that have injured its 
participants. This has included practices that injured livestock 
sellers, livestock dealers, market agencies, stockyards, live poultry 
dealers, packers, retailers, and consumers.\133\
---------------------------------------------------------------------------

    \133\ In re: Larry W. Peterman, d/b/a Meat Masters., 42 Agric. 
Dec. 1848, 1868 (1983) (injury to individual consumers); In re: ITT 
Cont'l Baking Co., 44 Agric. Dec. 748, 772 (1985) (injury to 
competitors, packers and the retailer); In re: Excel Corp., No. P. & 
S. Docket No. 99-0010., 2003 WL 205562 U.S.D.A. Jan. 30, 2003) 
(injury to producers); In Re: Empire Kosher Poultry, Inc., No. P & S 
Docket No. D-10-0109, 2010 WL 7088565 (U.S.D.A. July 20, 2010), 
aff'd Empire Kosher Poultry, Inc. v. United States Dep't of Agric., 
475 F. App'x 438, 444 (3d Cir. 2012) (injury to consumers).
---------------------------------------------------------------------------

    Thus, this proposed rule is intended to capture everyone that 
Congress intended to protect, which includes any person injured by a 
violation of section 202(a).

IV. Severability

    This proposed regulation contains four provisions; the inclusion of 
each is intended to clarify the P&S Act, and thus strengthen the Act's 
protections against unfair treatment in agricultural markets. The 
proposed regulation provides guidance to market participants, regulated 
entities, presiding courts and USDA when determining whether specific 
conduct is unfair under section 202(a) of the P&S Act. Although each 
proposed provision serves to further these effects, the benefits this 
proposed rule seeks to provide would not be negated by the exclusion of 
one or more of its provisions as finalized.
    For example, proposed Sec.  201.308(a), ``Unfair practices with 
respect to market participants,'' would still function without proposed 
Sec.  201.308(c), ``Unfair practices with respect to markets,'' and 
vice versa. The clarifying provisions of proposed Sec.  201.308(b) and 
(d) are also severable. While AMS included all the provisions to 
clarify the term ``unfair'' under the Act, the purpose of the 
regulation is not lost if a court severs a provision of the rule as 
finalized. The remaining provisions would still function sensibly and 
inform the interpretation of the Act.

V. Request for Comments

    AMS invites comments on this proposed rule. Comments submitted on 
or before August 27, 2024 will be considered. Comments should reference 
Docket No. AMS-FTPP-21-0046 and the date and page number of this issue 
of the Federal Register. AMS seeks comment on the following subjects:
    1. Do the two tests described in this proposed rule appropriately 
guide enforcement of ``unfair practices'' under section 202(a) of the 
P&S Act?
    2. What modifications to the proposed rule would be appropriate to 
meet the goals of the P&S Act?
    3. Are the factors described in the proposed rule to contextualize 
the two tests appropriate? If not, are certain factors more appropriate 
to one or the other test?
    4. What other relevant factors may be considered in addition to or 
instead of the current factors?
    5. Should the Department add regulatory text to define legitimate 
business justifications? If so, who should bear the burden of proof and 
what constitutes a cognizable justification?
    6. Should the rulemaking consider: (a) whether the method of 
competition is so facially unfair that business justifications should 
not be entertained; (b) whether the party claiming a business 
justification must show that the asserted justification for the method 
of competition is legally cognizable, non-pretextual, and narrowly 
tailored to bring about a benefit while limiting the harm to the 
competitive process and to market participants; or (c) whether the 
party claiming a justification must show that the claimed benefit 
occurs in the same market where harm is alleged?
    7. Does the proposed rule appropriately define what behavior is 
``reasonably avoidable''? Should this language be delineated more 
precisely or more broadly or in other ways, and if so, how?
    8. Should AMS provide additional guidance around incipient harms to 
the market, and if so, should AMS draw from Clayton Act standards,\134\ 
such as whether the effect ``may be substantially to lessen 
competition, or to tend to create a monopoly.'' \135\
---------------------------------------------------------------------------

    \134\ 15 U.S.C. 18.
    \135\ See, e.g., Phila. Nat'l Bank, 374 U.S. at 363 (1963) 
(Stating that a merger resulting in a market share of 30% still 
``presents a threat'' and causes ``undue concentration''). United 
States v. First Nat'l Bank of Lexington, 376 U.S. 665 (1964) 
(Stating that ``the elimination of significant competition between 
[merging parties]'' violates Section 1 of the Sherman Act: ``It [can 
be] enough that the two . . . compete[ ]. That their competition 
[is] not insubstantial and that the combination [would] put an end 
to it''). Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 
U.S. 209, 229-30 (1993) (Stating that ``excessive concentration[ ] 
and the oligopolistic price coordination it portends may be the 
injury to competition the Act prohibits''). Marine Bancorporation, 
418 U.S. at 623-624 (Suggesting that acquisition of ``perceived 
potential competition may substantially lessen competition or tend 
to create a monopoly'').
---------------------------------------------------------------------------

    9. What benefits would this proposed rule provide for producers or 
other persons?
    10. What burdens would this proposed rule create for regulated 
entities?
    11. What is your preferred way to measure countervailing benefits?
    12. Should some things be categorically excluded from consideration 
as countervailing benefits, such as cross-market balancing?
    13. How would you describe conduct that is oppressive?
    14. How would this proposed rule affect competitive conditions in 
the livestock and poultry industries?
    15. Should the proposed rule treat private causes of action 
differently from violations of section 202(a) of the Act when enforced 
by the Federal Government, and if so, how?
    16. Would this proposed rule have any other effects on the market 
or market participants? If so, in what ways should they be addressed?
    Comments can be submitted by either of the following methods:
    Federal eRulemaking Portal: Go to https://www.regulations.gov. 
Enter AMS-FTPP-21-0046 in the Search field. Select the Documents tab, 
then

[[Page 53900]]

select the Comment button in the list of documents.
    Postal Mail/Commercial Delivery: Send your comment to Docket No. 
AMS-FTPP-21-0046, S. Brett Offutt, Chief Legal Officer, Packers and 
Stockyards Division, USDA, AMS, FTPP; Room 2097-S, Mail Stop 3601, 1400 
Independence Ave. SW, Washington, DC 20250-3601.

VI. Regulatory Analysis

A. Paperwork Reduction Act

    Proposed Sec.  201.308 defines how AMS evaluates unfair acts or 
practices and unfair methods of competition under section 202(a) the 
P&S Act. Proposed Sec.  201.308 does not impose any information 
collection or recordkeeping requirements on any regulated entity or 
member of the public. Accordingly, approval by the Office of Management 
and Budget (OMB) is not required by the Paperwork Reduction Act of 
1995, 44 U.S.C. 3501-3520.

B. Executive Orders 12866, 13563, and 14094

    AMS is issuing this proposed rule in conformance with 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 Executive Order 12866 and, therefore, has been accordingly 
reviewed by the OMB. As a required part of the regulatory process, AMS 
prepared an economic analysis of the costs and benefits of proposed 
Sec.  201.308.

C. Regulatory Impact Analysis

    AMS proposes to establish Sec.  201.308 to define how AMS evaluates 
unfair acts or practices and unfair methods of competition under 
section 202(a) the P&S Act. The term ``unfair'' has caused confusion 
and contention in the industry and in courts, and this rulemaking is 
intended mitigate both.
    Paragraph (a) of proposed Sec.  201.308 defines an unfair act or 
practice as one that causes or will likely cause substantial injury to 
a market participant, which the market participant could not reasonably 
avoid but is not justified by countervailing benefits to market 
participants or competition. Paragraph (b) includes factors the 
Secretary of Agriculture may consider in evaluating whether an unfair 
act or practice is likely to cause substantial injury. Factors include 
the extent to which an act or practice impedes or restricts the ability 
to participate in the market, the extent to which an act or practice 
subverts competitive market forces, the size of any potential injury, 
and the extent to which the act or practice interferes with free 
decision making.
    Paragraph (c) of proposed Sec.  201.308 defines an unfair practice 
with respect to markets as a practice that is collusive, coercive, 
predatory, restrictive, deceitful, or exclusionary method of 
competition that may negatively affect competitive conditions.
    AMS intends for proposed Sec.  201.308 to be consistent with the 
way USDA has interpreted section 202(a) of the Act for decades. The 
preamble for this rulemaking explains how USDA has defined ``unfair'' 
in past actions and how those actions are consistent with the 
interpretation of ``unfair'' in proposed Sec.  201.308. Concerning 
USDA's interpretation and enforcement of ``unfair'' in section 202(a) 
of the Act, AMS does not expect proposed Sec.  201.308 to change USDA's 
position on enforcement of section 202(a).
    Proposed Sec.  201.308 is made of two parts. Paragraphs (a) and (b) 
of proposed Sec.  201.308 concern unfair practices with respect to 
market participants. Paragraphs (c) and (d) concern unfair practices 
with respect to markets. The two parts have some similarities, and some 
overlapping protections. Neither part requires that proof of completed 
or market wide harm to competition to find a violation of the Act. This 
is consistent with USDA's longstanding interpretation and enforcement 
of the Act, but it is not consistent with all Federal court decisions.
    Proposed Sec.  201.308 addresses unfairness. Unfairness is not an 
economic term, and it is not among the market failures that OMB has 
defined in Circular A-4. Some of the factors in proposed Sec.  201.308 
are intended to limit the exercise market power. But proposed Sec.  
201.308 also regulates practices unrelated to market power.
    Exercise of market power has long been a problem in the meat 
packing industry. From the 1880s to 1920, a series of investigations 
found the largest meat packers controlling prices through a variety of 
methods. Those findings were much of the reason that Congress passed 
the Act in 1921.\136\
---------------------------------------------------------------------------

    \136\ Azzam, Azzadine and Anderson, Dale. May 1996. ``Assessing 
Competition in Meatpacking, Economic History, Theory, and 
Evidence.'' USDA, GIPSA. https://www.gipsa.usda.gov/psp/publication/con_tech%20report/rr96-6.pdf.
---------------------------------------------------------------------------

    Market power in livestock, meat, and poultry markets has not gone 
away. Academic and government sponsored research has consistently found 
that meat packers have some measure of market power, especially as 
livestock buyers. Livestock and poultry markets are characterized by 
atomistic livestock producers and poultry growers numbering in the tens 
of thousands that deal with a much smaller number of downstream packers 
and poultry processors that may possess some oligopsonistic 
characteristics. Table 1 below lists four-firm concentration ratios for 
fed cattle, hogs, chickens, and turkeys for 2010 through 2019. The 
concentration ratios were relatively stable over this period. The fed 
cattle industry has been the most concentrated with four firms 
controlling between 83 and 85 percent for the entire period.

                   Table 1--Four-Firm Concentration Ratio in Livestock and Poultry Slaughter *
----------------------------------------------------------------------------------------------------------------
                      Year                        Fed cattle (%)     Hogs (%)      Chickens (%)     Turkeys (%)
----------------------------------------------------------------------------------------------------------------
2010............................................              85              65              51              56
2011............................................              85              64              52              55
2012............................................              85              64              51              53
2013............................................              85              64              54              53
2014............................................              83              62              51              58
2015............................................              85              66              51              57

[[Page 53901]]

 
2016............................................              84              66              50              57
2017............................................              83              66              51              53
2018............................................              84              70              54              55
2019............................................              85              67              53              55
----------------------------------------------------------------------------------------------------------------
* U.S. Department of Agriculture, AMS Packers and Stockyards annual reports. Available at https://www.ams.usda.gov/reports/psd-annual-reports (last accessed 8/9/2022).

    The nature of livestock production compounds the market power 
problems. When livestock, are ready for slaughter, whether they are 
cattle, hogs, or lambs, they must go to the packer within a few weeks, 
or the quality starts to decrease. As the quality of the livestock 
fades, producers pay the costs of continuing to feed livestock while 
the value decreases. As a result, livestock producers are relatively 
determined sellers who have a limited capacity to wait for market 
conditions to change.
    Market power in livestock, meat, and poultry markets is a 
continuing problem that USDA has regulated through the Act since the 
1920s. USDA has consistently established the rules and regulations 
necessary to maintain fair and competitive markets, including 
protecting producers from marketplace abuses and injuries they could 
not avoid. One example is Sec.  201.70, which requires packers to 
conduct their livestock buying operations independently and in 
competition with other packers.\137\ Proposed Sec.  201.308 is another 
step in the ongoing regulation of competition in the livestock, meat, 
and poultry markets. Proposed Sec.  201.308 is designed to mitigate 
market power and the implications of market power especially on 
producers. It would also address fair trade practices in the 
marketplace generally. Unlike many of the regulations under the Act, 
proposed Sec.  201.308 does not place any specific requirements on 
packers, live poultry dealers, or swine contractors.
---------------------------------------------------------------------------

    \137\ Source: 24 FR 3183, Apr. 24, 1959.
---------------------------------------------------------------------------

    Instead, it is a method of evaluating acts, practices, and methods 
of competition to determine if they are violations of the Act. Proposed 
Sec.  201.308 would be a new regulation, and USDA has not articulated 
the factors in proposed Sec.  201.308 in enforcing violations of the 
Act in the past.
    USDA has asserted that a violation of the Federal antitrust laws 
may also violate the Packers and Stockyards Act but that the Packers 
and Stockyards Act's prohibition on unfair practices incorporates trade 
practices beyond those covered by the Federal antitrust laws. AMS 
expects that proposed Sec.  201.308 will improve its enforcement of the 
Act and make livestock, meat, and poultry markets more competitive.
Regulatory Alternatives Considered
    Executive Order 12866 requires an assessment of costs and benefits 
of potentially effective and reasonably feasible regulatory 
alternatives and an explanation of why the planned regulatory action is 
preferable to the potential alternatives. Including proposed Sec.  
201.308, AMS considered four regulatory alternatives. The first 
alternative that AMS considered is to maintain the status quo and not 
propose the new rule. The second alternative that AMS considered is to 
propose Sec.  201.308 as presented in this rulemaking. This second 
alternative is AMS's preferred alternative as will be explained below.
    The third alternative that AMS considered is limiting the scope of 
proposed Sec.  201.308 to contain only paragraphs (a) and (b) that 
concern unfair acts and practices of the currently proposed Sec.  
201.308. In other words, this limited scope alternative would limit the 
scope of the proposed regulation by eliminating paragraphs (c) and (d) 
which prohibit unfair practices with respect to markets.
    AMS considered a fourth alternative of issuing a statement of 
general policy rather than a new regulation, but AMS chose to propose a 
regulation because it expects that a regulation will be more effective. 
Proceeding by regulation also affords all market participants an 
opportunity to give input on the proposed regulation. AMS did not 
estimate costs and benefits for a statement of general policy, but AMS 
estimated costs and benefits for proposed Sec.  201.308 and for the 
limited scope alternative.
    The proposed rule and the limited scope alternative have some 
similarities but proposed Sec.  201.308 is more comprehensive. It would 
restrict unfair practices with respect to markets and individual market 
participants while the limited scope alternative would only restrict 
unfair practices with respect to market participants.
    For either proposed Sec.  201.308 or the limited scope alternative, 
AMS was not able to estimate indirect costs or indirect benefits that 
might accrue from the proposed rule. AMS was able to estimate direct 
costs associated with proposed Sec.  201.308 and the limited scope 
alternative. Those costs are largely comprised of regulated entities 
reviewing their own practices for compliance with the new regulation. 
The cost of reviewing practices is expected to be similar whether 
regulated entities review for compliance with proposed Sec.  201.308 or 
the limited scope alternative. AMS does not expect that regulated 
packers, live poultry dealers, or swine contracts will need to make 
costly immediate changes in their current practices as a result of the 
proposed rule's implementation because the proposed rule serves as a 
framework for agency analysis and enforcement to address problematic 
practices as they may arise, rather than as a mandate to ameliorate 
specifically identified practices at present.
    With similar direct costs and uncertain indirect costs, AMS prefers 
the more comprehensive proposed Sec.  201.308 over the limited scope 
alternative. It is more consistent with the administration's policy 
goals and more consistent with policies of other Federal agencies, such 
as the Federal Trade Commission.
Proposed Rule: Benefits
    AMS expects that proposed Sec.  201.308 will improve its regulation 
of livestock, meat, and poultry markets, making the markets more 
competitive and fairer. Applying a quantified dollar value to the 
improvement would be a difficult task. Because proposed Sec.  201.308 
is a method of evaluating acts, practices, and methods of competition, 
the value of any improvements would depend on many unknown factors.
    AMS expects that benefits of proposed Sec.  201.308 would accrue to 
livestock producers, poultry growers, and consumers. To the extent that 
predatory practices are prevented,

[[Page 53902]]

smaller packers, live poultry dealers, or swine contractors may 
benefit. Economic models of market power involve a deadweight loss to 
society as well transfers from producers, consumers, or both to the 
firms exerting market power. To the extent that proposed Sec.  201.308 
reduces acts, practices, and unfair methods that limit competition, 
society will benefit from the reduction in the deadweight loss, which 
is a loss to society due to a misallocation of resources. Livestock 
producers, poultry growers, consumers, competing packers, or all four 
might benefit from a reduction in the deadweight loss. Competition 
models also have a transfer component, in which income is transferred 
to firms exerting market power.
    As an example of potential benefits from improving competition, AMS 
estimated economic gains in losses for a range of hypothetical changes 
in market power in cattle and beef markets. Estimated gains are not 
available for the other livestock, meat, and poultry markets. These 
values are not estimates of benefits of proposed Sec.  201.308. They 
are only examples that indicate possible benefits of improving 
competitive conditions.
    Table 2 presents the economic changes in packer market power for 
cattle associated with changing level of market competition, where 
baseline price and quantity information are for 2023 and are from 
USDA's November 2023 edition of World Agricultural Supply and Demand 
Estimates.\138\ The economic model to estimate the economic impacts is 
from Hadechek, Ma, and Sexton as are all the model parameters except 
for the WASDE data.\139\ The model assumes buyer and seller market 
power parameters falling in the range of 0 to 1. While these are not 
tied to a particular form of competition, a value of 0.15 would be what 
the Department of Justice and FTC regard as moderate firm concentration 
under their joint their 2023 Merger Guidelines and 0.30 would be well 
into the range that it considers as highly concentrated.\140\ The value 
of 0.15 corresponds to a Hirschman-Herfindahl index (HHI) of 
approximately 1,500, and 0.3 corresponds to HHI value of approximately 
2,500 to 3,300, which is well above the value of 1,800 that is 
considered highly concentrated market in the 2023 Merger 
Guidelines.\141\ While the intent of this proposed rule is to lower 
incidence of practices that are harmful to competition, one cannot 
discount the possibility that litigation spurred by the proposed rule 
could deter entry or cause firms to leave the market and hinder 
innovative or even practices that make the market more competitive or 
more efficient.
---------------------------------------------------------------------------

    \138\ Source: USDA, ``World Agricultural Supply and Demand 
Estimates,'' WASDE-642, November 9, 2023.
    \139\ Hadachek, Jeffrey, Meilin Ma, and Richard J. Sexton. 2023. 
``Market Structure and Resilience of Food Supply Chains under 
Extreme Events.'' American Journal of Agricultural Economics 1-24. 
https://doi.org/10.1111/ajae.12393.
    \140\ Ibid.
    \141\ Ibid.
---------------------------------------------------------------------------

    The analysis in the table below holds seller market power fixed at 
0.15 and has output under packer market power parameters of 0.15 in 
section A and 0.30 in section B. In both sections, results are provided 
for 1 and 3 percent decreases in the market power parameter for the 
beef packer. A 3 percent change in market power is likely on the high 
side given that USDA does not expect that packers, live poultry dealers 
or swine contractors will make large changes as a result of proposed 
Sec.  201.308. With the assumed decreases and base levels of market 
power, production increases, retail prices decrease, and the producers' 
price of cattle increases with a decrease in market power. With a 
decrease in market power, gross returns to cattle producers increase 
and processor variable profits (i.e., not including fixed costs) 
decrease. Total market benefits (the producer plus consumer surplus 
line) increase with a decrease in market power. When the packer market 
power parameter decreases by 3 percent, deadweight loss decreases $26 
million and $54 million when the buyer market power parameter is 0.15 
and 0.30, respectively.
    To put some perspective of the size of the deadweight loss changes 
relative to the market value of cattle sold for slaughter, even their 
largest changes in table 2 are 0.18 percent the size of the forecasted 
value of cattle production for 2023 from USDA's November 2023 World 
Agricultural Supply and Demand Estimate.\142\ Note that while the 
percent change in market power are in the same in parts A and B of the 
table, the economic impacts are larger in part B as the baseline level 
of market power is higher in there.
---------------------------------------------------------------------------

    \142\ USDA, ``World Agricultural Supply and Demand Estimates,'' 
WASDE-642, November 9, 2023.

[[Page 53903]]



 Table 2--Example of Economic Impacts of Changing Market Power in Cattle
                            and Beef Markets
------------------------------------------------------------------------
                                         Three percent     One percent
            Market response               decrease in      decrease in
                                          market power     market power
------------------------------------------------------------------------
 A. Base buyer power parameter = 0.15 Base seller power parameter = 0.15
------------------------------------------------------------------------
Change in seller market power.........            0.00%            0.00%
Change in production..................            0.09%            0.03%
Change in retail price................           -0.09%           -0.03%
Change in farm price..................            0.09%            0.03%
Change in producer plus consumer                  0.17%            0.06%
 surplus..............................
Change in deadweight loss (million $).             -$26              -$9
Change in producer gross revenue                    $55              $18
 (million $)..........................
Change in producer gross revenue......            0.18%            0.06%
Change in packer variable profits                  -$66             -$22
 (million $)..........................
Change in packer variable profits.....           -0.13%           -0.04%
------------------------------------------------------------------------
 B. Base buyer power parameter = 0.30 Base seller power parameter = 0.15
------------------------------------------------------------------------
Change in seller market power.........            0.00%            0.00%
Change in production..................            0.18%            0.06%
Change in retail price................           -0.16%           -0.05%
Change in farm price..................            0.18%            0.06%
Change in producer plus consumer                  0.32%            0.11%
 surplus..............................
Change in deadweight loss (million $).             -$54             -$18
Change in producer gross revenue                   $106              $35
 (million $)..........................
Change in producer gross revenue......             0.4%             0.1%
Change in packer variable profits                 -$120             -$40
 (million $)..........................
Change in packer variable profits.....           -0.24%           -0.08%
------------------------------------------------------------------------

    Proposed Sec.  201.208 would apply to all livestock, meat, and 
poultry industries, including hogs and pork, sheep and lamb, and 
poultry. Although AMS is only providing an example for cattle and beef 
markets, AMS would also expect benefits from a more competitive market 
in each of the livestock, meat, and poultry industries. Sizes of the 
changes would be different due to differences in size and structure of 
other livestock, meat, and poultry markets, but potentially much larger 
than the expected direct costs associated to Sec.  201.308.
Proposed Rule: Costs
Direct Administrative Costs of the Proposed Rule
    AMS is not able to make quantified estimates of indirect costs or 
benefits associated with proposed Sec.  201.308. However, AMS is able 
to estimate direct costs associated with proposed Sec.  201.308. AMS 
expects that packers, swine contractors, and live poultry dealers will 
incur direct administrative costs of reviewing and learning the 
proposed rule, assessing any impacts on their business operations, and 
then reviewing marketing and production contracts to ensure compliance 
with proposed Sec.  201.308. Direct administrative costs are estimated 
below for (1) firm level costs to learn and review the proposed rule 
and assess any impacts on their business operations; and (2) in 
contract level costs to review production and marketing contracts to 
ensure compliance with the proposed rule. AMS expects that the firm 
level and contract level costs are one-time costs to be incurred the 
first year the rule would be effective and that these costs will not be 
recurring costs. These estimates do not include any costs or benefits 
associated with changes in practices resulting from either firm level 
or contract level reviews.
Direct Firm Level Administrative Costs of the Proposed Rule
    AMS expects that proposed Sec.  201.308 will prompt packers, live 
poultry dealers, and swine contractors to incur one-time costs to first 
review and learn the rule and then assess any impacts on their business 
operations. Firm level costs are estimated as the total value of the 
time required to review and learn the proposed rule and to assess any 
impacts on their business operations.
    AMS expects the direct administrative costs of complying with 
proposed Sec.  201.308 will be relatively small. Proposed Sec.  201.308 
is consistent with long held USDA policy, although the position has not 
yet been established in regulations. Consequently, AMS expects packers, 
live poultry dealers, and swine contractors to make relatively few 
changes to their business operations and production and marketing 
contracts.
    AMS estimated firm level administrative costs by identifying the 
regulated entity staff that will be involved in reviewing and learning 
the proposed rule, assessing any impacts on their business operations, 
estimating the respective time requirement for each regulated entity 
profession, and obtaining estimates of hourly costs for each 
profession. AMS expects most of the time at the firm level will come 
from meetings with company executives, their assistants, and legal 
staff to review the proposed rule and assess any impacts on their 
business operations. At the contract level, most firms maintain their 
production and marketing contracts in an electronic format and IT staff 
will be needed to provide access to all contracts in the contract 
review process. Managers, assistants, and legal staff will then review 
the contracts to ensure compliance with the proposed rule. Multiplying 
estimated hours required by estimated hourly costs will yield total 
costs by profession, which is then summed across professions to obtain 
total firm level administrative costs.
    Firm level and contract level estimates of the amount of time 
required to review and learn the proposed rule, assess impacts on 
business operation, and to review contracts 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. AMS used data from the 
Bureau of Labor Statistics (BLS) Occupational

[[Page 53904]]

Employment and Wage Statistics, released in May 2022, for the time 
values in this analysis.\143\ BLS estimated an average hourly wage for 
an administrative assistant salary in animal slaughtering and 
processing at $20.64 per hour. The average hourly wage for managers in 
animal slaughtering and processing is $61.24 per hour. The average 
hourly wage for IT system managers in animal slaughtering and 
processing is $66.07 per hour. The average hourly wage for lawyers in 
food manufacturing is $103.81 per hour. In applying the cost estimates, 
AMS marked-up the wages by 41.79 percent \144\ to account for fringe 
benefits.
---------------------------------------------------------------------------

    \143\ 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).
    \144\ U.S. Bureau of Labor Statistics, Employer Costs for 
Employee Compensation--March 2023, released June 16, 2023, USDL-23-
1305, table 1, p. 4. https://www.bls.gov/news.release/pdf/ecec.pdf 
(accessed 7/14/2023).
---------------------------------------------------------------------------

    For firm level costs, AMS expects that on average, each poultry 
dealer, beef packer, pork packer, and swine contractor will spend 20 
hours of administrative assistant time, 40 hours of management time, 5 
hours of IT systems manager time, and 40 hours of legal time to learn 
the proposed rule and assess any impacts on their business operations.
    For firm level costs, AMS estimated the number of regulated 
entities impacted, that is, the number of live poultry dealers, 
livestock packers, and swine contractors, from information PSD receives 
in its required forms. 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. Livestock 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, 196 were 
pork packers, and 139 were lamb, sheep, or goat packers.\145\ 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, 345 
packers slaughtered both beef and pork.
---------------------------------------------------------------------------

    \145\ 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 estimated that on average, live poultry dealers that are 
regulated under the proposed rule will require 20 hours of 
administrative time at $29.27 per hour costing the industry $53,000 
\146\; 40 hours of management time at $86.83 per hour costing the 
industry $313,000 \147\; 5 hours of IT systems managers' time at $93.68 
per hour costing the industry $42,000 \148\; and 40 hours of an 
attorney's time at $147.19 per hour costing the industry $530,000 \149\ 
for learning and reviewing the proposed rule and assessing any impacts 
on their business operations. The total cost for poultry dealers to 
learn and review the proposed rule is estimated to be $937,000.\150\
---------------------------------------------------------------------------

    \146\ 90 live poultry dealers x $29.27 per hour x 20 hours = 
$52,686.
    \147\ 90 live poultry dealers x $86.83 per hour x 40 hours = 
$312,588.
    \148\ 90 live poultry dealers x $93.68 per hour x 5 hours = 
$42,156.
    \149\ 90 live poultry dealers x $147.19 per hour x 40 hours = 
$529,884.
    \150\ Firm level cost for live poultry dealers is the sum of 
costs across professions: $52,686 (administrative assistants) + 
$312,588 (managers) + $42,156 (IT system managers) + $529,884 
(attorneys).
---------------------------------------------------------------------------

    AMS utilized similar calculations to estimate the costs to packers 
and swine contractors, as shown in the table below. The estimated total 
costs will be $2.72 million \151\ for beef packers, $8.93 million \152\ 
for pork packers and swine contractors, and $1.45 million \153\ for 
lamb packers. The cost to pork packers is an expected $2.04 million and 
$6.88 million to swine contractors. Total firm level costs across all 
entities totals $13.13 million.
---------------------------------------------------------------------------

    \151\ Firm level cost for beef packers: (261 beef packers x 
$29.27 per hour for administrative assistants x 20 hours) + (261 
beef packers x $86.83 per hour for managers x 40 hours) + (261 beef 
packers x $93.68 per hour for IT specialists x 5 hours) + (261 beef 
packers $147.19 per hour attorney time x 40 hours).
    \152\ Total firm level cost to pork markets: $2,041,262 (pork 
packers) + $6,884,051 (swine contractors) = $8,925,312. Firm level 
cost for pork packers: (196 pork packers x $29.27 per hour for 
administrative assistants x 20 hours) + (196 pork packers x $86.83 
per hour for managers x 40 hours) + (196 pork packers x $93.68 per 
hour for IT specialists x 5 hours) + (196 pork packers $147.19 per 
hour attorney time x 40 hours). Firm level cost for swine 
contractors: (661 swine contractors x $29.27 per hour for 
administrative assistants x 20 hours) + (661 swine contractors x 
$86.83 per hour for managers x 40 hours) + (661 swine contractors x 
$93.68 per hour for IT specialists x 5 hours) + (661 swine 
contractors x $147.19 per hour attorney time x 40 hours).
    \153\ Firm level cost for lamb packers: (139 lamb packers x 
$29.27 per hour for administrative assistants x 20 hours) + (139 
lamb packers x $86.83 per hour for managers x 40 hours) + (139 lamb 
packers x $93.68 per hour for IT specialists x 5 hours) + (139 lamb 
packers $147.19 per hour attorney time x 40 hours).

Table 3--Firm Level, Contract Level and Total Administrative Costs in the Proposed Sec.   201.308 ($ Millions)--
                                              Preferred Alternative
----------------------------------------------------------------------------------------------------------------
                                                                     Pork packers
                 Cost                   Live poultry       Beef        and swine        Lamb      Total cost **
                                           dealers       packers      contractors    packers *
----------------------------------------------------------------------------------------------------------------
Firm Level Administrative Costs......           $0.94        $2.72           $8.93        $1.45           $14.03
Contract Level Administrative Costs..            4.11         0.20            1.79         0.00             6.11
Total Administrative Costs in 2025...            5.05         2.92           10.72         1.45            20.14
10-year PV at 3 percent..............            4.90         2.83           10.41         1.41            19.55
10-year PV at 7 percent..............            4.72         2.73           10.02         1.35            18.82
Annualized costs at 3 percent........            0.57         0.33            1.22         0.16             2.29
Annualized costs at 7 percent........            0.67         0.39            1.43         0.19             2.68
----------------------------------------------------------------------------------------------------------------
* Lamb contracts are structured differently and not counted here.
** Column and rows may not sum to total due to rounding.


[[Page 53905]]

Direct Contract Level Administrative Costs of the Proposed Rule 
Preferred Alternative
    This section estimates the costs associated with reviewing 
production and marketing contracts to ensure compliance with proposed 
Sec.  201.308, after learning and reviewing the proposed rule and 
assessing any business impacts. The total cost to review contracts is 
estimated by multiplying the number of contracts in each industry by 
the estimated hours for regulated entity professionals to review the 
contracts and by the hourly cost of each profession.
    AMS estimated that there are 23,047 broiler grower agreements, 
8,094 swine production agreements,\154\ 1,960 hog marketing 
agreements,\155\ and 1,116 feedlot agreements.\156\ AMS does not 
estimate sheep production or marketing agreements because they are 
structured differently than contracts for other species and would not 
need to be reviewed under this proposed rule.
---------------------------------------------------------------------------

    \154\ USDA, National Agricultural Statistics Service, ``2022 
Census of Agriculture: United States Summary and State Data,'' 
issued February 2024, table 24.
    \155\ An estimated 10 marketing agreements per pork packing 
plant x 196 pork packers.
    \156\ 1,829 feedlots over 1,000 head (2022 Census of 
Agriculture, table 13) x an estimated 61% (the number of feedlots 
utilizing formula pricing).
---------------------------------------------------------------------------

    The time requirement by each regulated entity professional to 
review production and marketing contracts would be less than the time 
requirement in learning and reviewing the proposed rule assessing any 
business impacts. AMS estimates that it will take 0.5 hours each for 
administrative assistants, managers, IT system managers, and attorneys 
to review the production and marketing contracts in the respective 
livestock and poultry industries.
    The table above shows that the contract level administrative costs 
of reviewing the contracts are $4.11 million for poultry dealers,\157\ 
$199,000 for beef packers,\158\ $350,000 for pork packers,\159\ and 
$1.44 million for swine contractors.\160\ Lamb contracts are structured 
differently from other species' contracts, are mainly fixed-price 
contracts, and are not expected to be reviewed under this proposed 
rule. The total administrative cost of reviewing contracts is $6.11 
million.\161\
---------------------------------------------------------------------------

    \157\ Total contract level costs for poultry dealers, $4,113,544 
= (23,047 poultry dealer contracts x $29.27 per hour for 
administrative assistants x 0.50 hours) + (23,047 poultry dealer 
contracts x $86.83 per hour for managers x 0.50 hours) + (23,047 
poultry dealer contracts x $93.68 per hour for IT specialists x 0.50 
hours) + (23,047 poultry dealer contracts x $147.19 per hour 
attorney time x 0.50 hours).
    \158\ Total contract level costs for beef packers, $199,134 = 
(1,116 beef packer contracts x $29.27 per hour for administrative 
assistants x 0.50 hours) + (1,116 beef packer contracts x $86.83 per 
hour for managers x 0.50 hours) + (1,116 beef packer contracts x 
$93.68 per hour for IT specialists x 0.50 hours) + (1,099 beef 
packer contracts x $147.19 per hour attorney time x 0.50 hours).
    \159\ Total contract level costs for pork packers, $349,833 = 
(1,960 pork packer contracts x $29.27 per hour for administrative 
assistants x 0.50 hours) + (1,960 pork packer contracts x $86.83 per 
hour for managers x 0.50 hours) + (1,960 pork packer contracts x 
$93.68 per hour for IT specialists x 0.50 hours) + (1,960 pork 
packer contracts x $147.19 per hour attorney time x 0.50 hours).
    \160\ Total contract level costs for swine contractor, 
$1,440,660 = (8,094 swine contractors contracts x $29.27 per hour 
for administrative assistants x 0.50 hours) + (8,094 swine 
contractors contracts x $86.83 per hour for managers x 0.50 hours) + 
(8,094 swine contractors contracts x $93.68 per hour for IT 
specialists x 0.50 hours) + (8,094 swine contractors contracts x 
$147.19 per hour attorney time x 0.50 hours).
    \161\ Total contract level costs, $6,107,170 = $4,113,544 
million for poultry dealers + $199,134 for beef packers + $349,833 
for pork packers + $1,440,660 for swine contractors.
---------------------------------------------------------------------------

Direct Firm Level and Contract Level Administrative Costs of the 
Proposed Rule Preferred Alternative
    Total administrative industry costs are presented in the table 
above. The description of estimated firm level and contract level 
administrative costs were presented above. AMS expects that producers 
will not face any costs from the proposed rule. Firm level costs to 
learn the proposed rule and assess any impacts on business operations 
are estimated to be $14.03 million and the contract level costs to 
review production and marketing contracts are estimated to be $6.11 
million, for a total estimated administrative cost of $20.14 million in 
the proposed rule. AMS expects that the firm level and contract level 
costs which comprise the total administrative industry costs are one-
time costs to be incurred the first year the proposed rule would be 
effective and that these costs will not be recurring costs.
Litigation Costs--Preferred Alternative
    AMS believes that proposed Sec.  201.308 may possibly reduce 
litigation due to the clarity provided by the proposed rule as to the 
unfair practices with respect to market participants and markets that 
violate the Act. However, the proposed rule possibly increases 
litigation to the extent that AMS or producers are better able to 
identify unfair practices and thus may be more likely to seek relief in 
courts. AMS is uncertain as to which of these offsetting effects will 
dominate and to what extent. Therefore, AMS does not estimate 
litigation costs in this analysis.
Indirect Costs
    AMS is unable to quantify any costs or benefits that would arise 
from changing business practices due to proposed Sec.  201.308. If 
AMS's enforcement of proposed Sec.  201.308 has the effect of improving 
competitive conditions in the markets, then the changing market 
conditions would likely result in a reduction in welfare for packers 
and live poultry dealers and an increase for producers and consumers. 
These would be costs to packers and live poultry dealers, and would be 
offset by gains for consumers, growers, and producers.
    Changing competitive conditions could have production efficiency 
effects, which may or may not be larger than market power effects,\162\ 
e.g., decreasing market power could result in more smaller packers with 
higher production costs per unit. Hence, a full accounting of net 
benefits would involve analysis of demand and supply changes.
---------------------------------------------------------------------------

    \162\ U.S. General Accountability Office, ``U.S. Agriculture: 
Retail Food Prices Grew Faster Than the Prices Farmers Received for 
Agricultural Commodities, but Economic Research Has Not Established 
That Concentration Has Affected These Trends,'' GAO-09-746R, June 
2009.
---------------------------------------------------------------------------

Costs and Benefits of the Limited Scope Alternative
    The alternative is the same as the preferred alternative, with the 
exception that the alternative would limit the scope of the proposed 
rule to Sec.  201.308(a) and (b). Section 201.308(c) and (d) from the 
preferred alternative would not be part of the limited scope 
alternative.
    Proposed Sec.  201.308(a) protects market participants from the 
type of unjustified acts or practices that produce unavoidable injury 
that cannot be justified by countervailing benefits to producers or to 
competition. Proposed Sec.  201.308(b) provides criteria under which 
likely injuries must be halted before actual injury occurs.
    Proposed Sec.  201.308(a) defines unfair practices as those that 
injure market participants, while Sec.  201.308(c) defines unfair 
practices as those that result in harms to the market. Both sections of 
the preferred alternative define ``unfair'' from slightly different 
vantage points. Combining these provisions results in a more 
comprehensive definition of the term ``unfair.''
    While AMS believes the inclusion of both provisions fully define 
the meaning and applicability of the term ``unfair'' under the Act, AMS 
considered a regulatory alternative of severing Sec.  201.308(a) and 
(b) from

[[Page 53906]]

Sec.  201.308(c) and (d) and eliminating Sec.  201.308(c) and (d) as a 
viable regulatory alternative. A rule of that kind meets many of the 
policy goals for this rulemaking. What this regulatory alternative does 
not do is to define unfair practices as those that result in harm to 
the market. Thus, this regulatory alternative provides is less 
comprehensive compared to the preferred alternative.
    In terms of the costs of complying with the limited scope 
alternative, the costs are similar, but slightly smaller than the 
preferred alternative. AMS expects that regulated entities will still 
need to spend time understanding the limited scope alternative, its 
impacts on its business operations, and will still need to review all 
contracts to ensure compliance with the proposed rule. Given the amount 
of overlap in defining the term ``unfair'' in the preferred 
alternative, AMS expects that regulated entities will need to spend 90 
percent of the time to review the limited scope alternative, assess the 
impact of its businesses, and review contracts for compliance with the 
alternative rule.
    AMS expects that under the limited scope alternative live poultry 
dealers, packers and swine contractors expend 90 percent of the time in 
firm level administrative costs in learning and reviewing the 
alternative rule and assessing any impacts on their business 
operations, and 90 percent of the time in reviewing contracts. The time 
requirement for administrative assistants is expected to be 18 hours, 
36 hours for managers, 4.5 hours for IT systems support and 36 hours 
for attorneys. The time requirement of reviewing production and 
marketing contracts is expected to be 0.45 hours for each profession. 
It is expected that the respective regulated entities reviewing the 
rule and assessing business impacts will be the same as in the 
preferred alternative, and their respective hourly compensation will 
remain the same as in the preferred alternative. The number of live 
poultry dealers, packers and swine contractors will also remain the 
same as in the preferred alternative.
    The estimated firm level costs will be $0.84 million for poultry 
dealers,\163\ $2.45 million for beef packers,\164\ and $8.03 million 
for pork packers and swine contractors,\165\ and $1.30 million for lamb 
packers.\166\ The firm level cost for pork packers is $1.84 million and 
$6.20 million for swine contractors. Total firm level costs across all 
entities total $12.63 million.\167\
---------------------------------------------------------------------------

    \163\ Poultry dealer firm level costs: $47,417 (administrative 
assistants) + $281,329 (managers) + $37,940 (IT support) + $476,896 
(legal).
    \164\ Beef packer firm level costs: $137,510 (administrative 
assistants) + $815,855 (managers) + $110,027 (IT support) + 
$1,382,997 (legal).
    \165\ Pork packer firm level costs: $103,265 (administrative 
assistants) + $612,672 (managers) + $82,626 (IT support) + 
$1,038,573 (legal). Swine contractor firm level costs: $348,254 
(administrative assistants) + $2,066,207 (managers) + $278,651 (IT 
support) + $3,502,533 (legal).
    \166\ Lamb packer firm level costs: $73,234 (administrative 
assistants) + $434,497 (managers) + $58,597 (IT support) + $736,539 
(legal).
    \167\ Total firm level costs: $0.84 million (poultry dealers) + 
$2.45 million (beef packers) + $8.03 million (pork packers and swine 
contractors) + $1.30 (lamb packers) = $11.82 million (total).

  Table 4--Firm Level, Contract Level and Total Direct Costs for Proposed Sec.   201.308 ($ Millions)--Limited
                                                Scope Alternative
----------------------------------------------------------------------------------------------------------------
                                                                     Pork packers
                Costs                   Live poultry       Beef        and swine        Lamb      Total costs **
                                           dealers       packers      contractors    packers *
----------------------------------------------------------------------------------------------------------------
Firm level administrative costs......           $0.84        $2.45           $8.03        $1.30           $12.63
Contract level administrative costs..            3.70         0.18            1.62         0.00             5.50
Total administrative costs in 2025...            4.55         2.63            9.65         1.30            18.12
10-year PV at 3 percent..............            4.41         2.55            9.37         1.26            17.59
10-year PV at 7 percent..............            4.25         2.45            9.02         1.22            16.94
Annualized costs at 3 percent........            0.52         0.30            1.10         0.15             2.06
Annualized costs at 7 percent........            0.60         0.35            1.28         0.17             2.41
----------------------------------------------------------------------------------------------------------------
* Lamb contracts are structured differently and thus not included here.
** Rows may not sum to Total Costs due to rounding.

    The contract level administrative costs are also presented in the 
table above. AMS estimated that it will cost poultry dealers $3.70 
million,\168\ $0.18 million for beef packers,\169\ $1.62 million for 
pork packers and swine contractors,\170\ and no cost to lamb packers. 
It is expected that lamb packers will not incur a contract level 
administrative cost because production and marketing contracts are 
structured differently, and it is not expected that the contracts will 
be reviewed. The contract level cost for pork packers is $315,000 and 
$1.30 million for swine contractors. The total contract level 
administrative cost is expected to be $5.50 million.\171\
---------------------------------------------------------------------------

    \168\ Poultry dealer contract level costs: $303,564 
(administrative assistants) + $900,527 (managers) + $971,569 (IT 
support) + $1,526,530 (legal).
    \169\ Beef packer contract level costs: $14,695 (administrative 
assistants) + $43,594 (managers) + $47,033 (IT support) + $73,898 
(legal).
    \170\ Pork packer firm level costs: $25,816 (administrative 
assistants) + $76,584 (managers) + $82,626 (IT support) + $129,822 
(legal). Swine contractor firm level costs: $106,610 (administrative 
assistants) + $316,261 (managers) + $341,211 (IT support) + $536,110 
(legal).
    \171\ Total contract level costs: $3.70 million (poultry 
dealers) + $0.18 million (beef packers) + $1.62 million (pork 
packers and swine contractors) = $5.50 million (total).
---------------------------------------------------------------------------

    As shown in the table above, the 10-year PV costs at three percent 
for the proposed limited scope alternative is expected to be $17.59 
million. The total cost to the poultry industry is expected to be $4.55 
million, $2.62 million for beef packers, $9.65 million for pork packers 
and swine contractors, and $1.3 million for the lamb packers. The 10-
year PV costs at seven percent for the proposed limited scope 
alternative is expected to be $16.94 million.
    The benefits of the limited scope alternative are similar to the 
benefits of the preferred alternative, since both alternatives provide 
a definition of ``unfair'' acts and practices and may lead to more 
competitive livestock, meat, and poultry markets. AMS prefers to 
propose the alternative of Sec.  201.308(a) through (d) because it 
offers a more comprehensive guide to market participants than the 
limited scope alternative.

D. Regulatory Flexibility Analysis

    AMS proposes to establish Sec.  201.308 to define how AMS evaluates 
unfair acts or practices and unfair methods of competition under 
section 202(a) the

[[Page 53907]]

P&S Act. The term ``unfair'' has caused confusion and contention in the 
industry and in courts, and this rulemaking is intended mitigate both.
    Proposed Sec.  201.308 is made of four parts. Paragraphs (a) and 
(b) of proposed Sec.  201.308 concern unfair acts or practices with 
respect to market participants. Paragraphs (c) and (d) concern unfair 
practices with respect to markets. Parts of both of these provisions 
relate to the likely harms the Act was designed to prevent; paragraph 
(b) helps define paragraph (a), and paragraph (d) helps define 
paragraph (c). No part, however, requires that proof of harm to 
competition to find a violation of the Act. This is consistent with 
USDA's interpretation and enforcement of the Act, but it is not 
consistent with all Federal court decisions.
    Paragraph (a) of proposed Sec.  201.308 defines an unfair act or 
practice as one that causes or will likely cause substantial injury to 
a market participant, which the market participant could not reasonably 
avoid and which the regulated entity that has engaged in the act cannot 
justify by establishing countervailing benefits to market participants 
or competition. Paragraph (b) includes factors the Secretary of 
Agriculture may consider when evaluating whether an unfair act or 
practice is likely to cause substantial injury. Factors include the 
extent to which an act or practice impedes or restricts the ability to 
participate in the market, the extent to which an act or practice 
subverts competitive market forces, the size any potential injury, and 
the extent to which the act or practice interferes with free decision 
making.
    Paragraph (c) of proposed Sec.  201.308 defines an unfair practice 
with respect to markets as a practice that is collusive, coercive, 
predatory, restrictive, deceitful, or exclusionary and that may 
negatively affect competitive conditions.
    AMS intends for proposed Sec.  201.308 to be consistent with the 
way USDA has interpreted section 202(a) of the Act for decades. The 
preamble for this rulemaking explains how USDA has defined ``unfair'' 
in past actions and how those actions are consistent with the 
interpretation of ``unfair'' in proposed Sec.  201.308. Concerning 
USDA's interpretation and enforcement of ``unfair'' in section 202(a) 
of the Act, AMS does not expect proposed Sec.  201.308 to change USDA's 
position on enforcement of section 202(a).
    Addressing the exercise of market power is one purpose of proposed 
Sec.  201.308, although it potentially addresses other issues 
concerning ``unfairness'' under the Act as well. Market power has been 
a problem in the meat packing industry since the invention of 
refrigerated rail cars enabled Chicago packers to process western 
livestock and ship the carcasses east at costs lower than eastern 
packers could achieve. From the 1880s to 1920, a series of 
investigations found the largest meat packers controlling prices 
through a variety of methods. Those findings were much of the reason 
that Congress passed the Act in 1921.\172\
---------------------------------------------------------------------------

    \172\ Azzam, Azzadine and Anderson, Dale, May 1996, ``Assessing 
Competition in Meatpacking, Economic History, Theory, and 
Evidence,'' USDA, GIPSA, https://www.gipsa.usda.gov/psp/publication/con_tech%20report/rr96-6.pdf.
---------------------------------------------------------------------------

    Market power in livestock, meat, and poultry markets is a 
continuing problem that USDA has regulated through the Act since the 
1920s. USDA has consistently established the rules and regulations 
necessary to maintain fair and competitive markets, including 
protecting producers from marketplace abuses and harms they could not 
avoid. One example is Sec.  201.70, which requires packers to conduct 
their livestock buying operations independently and in competition with 
other packers.\173\ Proposed Sec.  201.308 is another step in the 
ongoing regulation of competition in the livestock, meat, and poultry 
markets. Proposed Sec.  201.308 is designed to mitigate market power 
and the implications of market power especially on producers. It would 
also address fair trade practices in the marketplace generally. Unlike 
many of the regulations under the Act, proposed Sec.  201.308 does not 
place any specific requirements on packers, live poultry dealers, or 
swine contractors.
---------------------------------------------------------------------------

    \173\ Source: 24 FR 3183, Apr. 24, 1959.
---------------------------------------------------------------------------

    Instead, it provides a framework for evaluating acts, practices, 
and methods of competition to determine if they are violations of the 
Act. Proposed Sec.  201.308 would be a new regulation, and USDA has not 
articulated the factors in proposed Sec.  201.308 as such in enforcing 
violations of the Act in the past. However, the preamble to the 
rulemaking explains that past enforcement actions under the Act have 
been consistent with the factors in proposed Sec.  201.308.
    While proposed Sec.  201.308 is consistent with actions that USDA 
has taken in the past, it is less clear what different acts or 
practices may violate proposed Sec.  201.308 that USDA would not have 
been considered violations without the proposed rule. USDA has asserted 
that a violation of the Federal antitrust laws may also violate the 
Packers and Stockyards Act, but that the Packers and Stockyards Act's 
prohibition on unfair practices incorporates trade practices beyond 
those covered by the Federal antitrust laws. AMS expects that proposed 
Sec.  201.308 will improve its enforcement of the Act and make 
livestock, meat, and poultry markets fairer and more competitive. AMS 
estimated administrative costs of proposed Sec.  201.308 in two parts, 
firm level and contract level. In firm level costs, AMS expects that 
each small packer, swine contractor, and live poultry dealer would need 
to review and learn the proposed rule and to assess any impacts on 
their business operations. In contract level costs, AMS expects that 
small entities would review production and marketing contracts to 
ensure compliance with the proposed rule.
Defining Small Businesses
    The SBA defines small businesses by their North American Industry 
Classification System Codes (NAICS).\174\ 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.
---------------------------------------------------------------------------

    \174\ 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 would be 
subject to the regulation. Fifty-five of the live poultry dealers will 
be small businesses according to the SBA standard.
    Most packers will be small businesses, although large packers are 
responsible for most meat production. According to the SBA standard, 
there are 255 small beef packers, 185 small pork packers, and 139 small 
lamb packers. All lamb packers are considered small.
    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 2022 United States Department of Agriculture (USDA) 
Census of Agriculture \175\ indicated that there were

[[Page 53908]]

661 swine contractors in 2022. 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 461 swine contractors 
that sold 5,000 head of hogs or more were large businesses, and the 194 
contractors that sold less than 5,000 head were small businesses.
---------------------------------------------------------------------------

    \175\ USDA, National Agricultural Statistics Service, ``2022 
Census of Agriculture: United States Summary and State Data,'' 
issued February 2024, table 24.
---------------------------------------------------------------------------

Direct Firm Administrative Costs of the Proposed Rule to Small 
Businesses
    As shown in the table below, the firm level cost for small poultry 
dealers is $573,000,\176\ $2.66 million for small beef packers,\177\ 
$1.93 million for small pork packers,\178\ $1.12 million for small 
swine contractors,\179\ and $1.45 million for small lamb packers. The 
total firm level cost for small firms from the proposed rule is $7.73 
million.\180\
---------------------------------------------------------------------------

    \176\ Firm level cost for poultry growing arrangements with 
small firms = 3.2 percent x $937,314.
    \177\ Firm level cost for small beef packers = 17.4 percent x 
$2,718,211.
    \178\ Firm level cost for small pork packers = 11.3 percent x 
$2,041,262.
    \179\ Firm level cost for small swine contractors = 8.9 percent 
x $5,988,395.
    \180\ Total firm level costs across small firms in livestock and 
poultry industries, $7,738,048 = $572,803 (live poultry dealer) + 
$2,655,723 (beef packer) + $1,926,701 (pork packer) + $1,135,191 
(swine contractors) + $1,447,629 (lamb packer).

             Table 5--Total Administrative Costs in the Proposed Sec.   201.308 to Small Businesses
----------------------------------------------------------------------------------------------------------------
                                                                      Pork packer
                 Cost                   Live poultry   Beef packer     and swine    Lamb packer   Total cost **
                                           dealer                     contractor         *
----------------------------------------------------------------------------------------------------------------
Firm Level Administrative Costs......         573,000    2,656,000       3,062,003    1,448,000        7,738,000
Contract Level Administrative Costs..         131,000       35,000         168,000            0          334,000
Total Administrative Costs in 2025...         704,000    2,690,000       3,230,000    1,448,000        8,072,000
10-year PV at 3 percent..............         683,000    2,612,000       3,136,000    1,405,000        7,837,000
10-year PV at 7 percent..............         658,000    2,514,000       3,019,000    1,353,000        7,544,000
Annualized costs at 3 percent........          80,000      306,000         368,000      165,000          919,000
Annualized costs at 7 percent........          94,000      358,000         430,000      193,000        1,074,000
----------------------------------------------------------------------------------------------------------------
* Lamb contracts are structured differently and not counted here.
** Rows may not sum to Total Costs due to rounding.

    AMS estimated the small business contract level costs by estimating 
small businesses' share (the market share) of all businesses contract 
level costs. The percent of poultry growing arrangements held by small 
businesses is 3.2 percent, the percent of production contracts held by 
small swine contractors is 8.9 percent, the portion of hog marketing 
agreements with small firms is 11.3 percent, and the percent of cattle 
feedlot agreements with small businesses is 17.4 percent. Contract 
level administrative costs are not estimated for lamb packers because 
these contracts are structured differently than for other species, and 
lamb packers are not expected to revise contracts under the proposed 
rule.
    Contract level costs for small poultry dealers are $131,000,\181\ 
$35,000 for small beef packers,\182\ $40,000 for small pork 
packers,\183\ and $127,000 for small swine contractors.\184\ The total 
contract level costs for small firms from the proposed rule are 
$334,000.\185\
---------------------------------------------------------------------------

    \181\ Contract level cost for poultry growing arrangements with 
small firms = 3.2 percent x $4,113,544.
    \182\ Contract level cost for small beef packers = 17.4 percent 
x $196,098.
    \183\ Contract level cost for small pork packers = 11.3 percent 
x $349,833.
    \184\ Contract level cost for small swine contractors = 8.9 
percent x $1,527,298.
    \185\ Total contract level costs across small firms in livestock 
and poultry industries, $334,001 = $131,186 (poultry dealers) + 
$34,180 (beef packer) + $39,531 (pork packers) + $135,929 (swine 
contractors).
---------------------------------------------------------------------------

    The following table compares the average per entity first-year 
costs of proposed Sec.  201.308 to the average revenue per 
establishment for all regulated small businesses. First-year costs are 
appropriate for a threshold analysis because all expected costs occur 
in the first year.

       Table 6--Comparison of Average Costs per Entity to Average Revenues per Entity for Small Businesses
----------------------------------------------------------------------------------------------------------------
                                               Poultry        Beef         Pork         Swine
                    Cost                       dealers      packers      packers     contractors   Lamb packers
----------------------------------------------------------------------------------------------------------------
First year costs...........................      $13,000      $11,000      $11,000       $13,000         $10,000
10-year PV--3.00%..........................      $12,000      $10,000      $11,000       $13,000         $10,000
10-year PV--7.00%..........................      $12,000      $10,000      $10,000       $12,000         $10,000
Annualized--3.00%..........................       $1,000       $1,000       $1,000        $1,000          $1,000
Annualized--7.00%..........................       $2,000       $1,000       $1,000        $2,000          $1,000
Average net sales..........................   52,888,000   80,173,000   36,781,000       486,000      23,623,000
First year cost as % of net sales..........        0.02%        0.01%        0.03%         2.66%           0.04%
Annualized--7.00% as % of net sales........        0.00%        0.00%        0.00%         0.35%           0.01%
----------------------------------------------------------------------------------------------------------------

    Average first-year costs as a percent of revenues are small, 
ranging from 0.01 percent for beef packers to 2.66 percent for swine 
contractors. Costs are highest for swine contractors because average 
revenues for swine contractors are considerably smaller than average 
revenues for packers and live poultry dealers.
Alternative Regulation
    AMS considered an alternative to proposed Sec.  201.308. The 
alternative would be the same as the preferred alternative, with the 
exception that the alternative would limit the scope of the rule to 
Sec.  201.308(a) and (b). Section 201.308(c) and (d) from the proposed 
rule would not be part of the alternative. AMS expects that the direct 
costs associated with this limited scope alternative will be similar to 
the costs associated with the currently proposed

[[Page 53909]]

Sec.  201.308. AMS also expects that regulated packers, live poultry 
dealers, and swine contractors would need to review their business 
practices and their marketing and production contracts with livestock 
producers as well as their production contracts with live poultry 
dealers. They might be able to spend a little less time on this review 
because there would only be about half as much new regulation to learn 
and comprehend.
    AMS still expects that regulated packers, live poultry dealers, and 
swine contractors would need still need to spend about 90 percent of 
the time to review the alternative as they needed to review the 
proposed regulation. All of the direct administrative costs were due to 
the time required for regulation packers, live poultry dealers, and 
swine contractors to review the regulation. As a consequence, AMS's 
estimate of the administrative costs for the alternative are 90 percent 
of the costs for proposed rule. The table below is as summary of 
expected direct cost associated with this limited scope alternative.
    Direct costs associated with the limited scope alternative are not 
much different than the direct costs associated with proposed Sec.  
201.308. Similarly, to the proposed rule, all costs occur in the first 
year. Also like the proposed rule, costs are not likely significant for 
packers or live poultry dealers. However, for swine contractors, costs 
are expected to be more than 2 percent of net sales for the first year 
the alternative would be effective. For each of the remaining years, 
cost to swine contractors would not likely be significant.

  Table 7--Comparison of Average Costs per Entity to Average Revenues per Entity for Small Businesses--Limited
                                                Scope Alternative
----------------------------------------------------------------------------------------------------------------
                                                                                                   Sheep, lamb,
                    Cost                       Poultry    Beef packer  Pork packer      Swine        and goat
                                              processor                              contractors      packer
----------------------------------------------------------------------------------------------------------------
First year costs...........................      $12,000       $9,000      $10,000       $12,000          $9,000
10-year PV--3.00%..........................      $11,000       $9,000       $9,000       $11,000          $9,000
10-year PV--7.00%..........................      $11,000       $9,000       $9,000       $11,000          $9,000
Annualized--3.00%..........................       $1,000       $1,000       $1,000        $1,000          $1,000
Annualized--7.00%..........................       $2,000       $1,000       $1,000        $2,000          $1,000
Average net sales..........................   52,888,000   80,173,000   36,781,000       486,000      23,623,000
First year cost as % of net sales..........        0.02%        0.01%        0.03%         2.37%           0.04%
Annualized--7.00% as % of net sales........        0.00%        0.00%        0.00%         0.31%           0.01%
----------------------------------------------------------------------------------------------------------------

    AMS prefers to propose the alternative of Sec.  201.308(a) through 
(d) because it offers more comprehensive protection to livestock 
producers and contract growers than the limited scope alternative. 
Direct costs to regulated entities would likely be smaller with the 
limited scope alternative, but they would not be much smaller.
    AMS was not able to quantify indirect costs or benefits associated 
with proposed Sec.  201.308 or with the limited scope alternative. To 
the extent that either alternative would improve the competitive 
environment in livestock, meat, or poultry markets, the regulation 
would likely result in reduced welfare to meat packers, and live 
poultry dealers and increased welfare to livestock producers and 
contract growers. Even small improvements in the market could cause 
benefits that are much larger than the direct costs estimated for 
either proposed Sec.  201.308 or the limited scope alternative.
    The proposed rule may have the effect of reducing deadweight 
losses. To the extent that packers, live poultry dealers, or swine 
contractors transfer surpluses to growers and producers due to improved 
competition caused by proposed Sec.  201.308 or the alternative, AMS 
will consider the regulation a success.
    Small businesses are typically not associated with market power or 
practices that restrict competition, but in small markets the largest 
firms can be small businesses. In the lamb industry, for example, the 
largest packer is a small business.
    AMS expects that the direct costs associated with proposed Sec.  
201.308 would be significant for a substantial number of swine 
contractors. AMS was not able to quantify costs associated with changes 
to the level of competition in the regulated markets, but changes could 
result in significant costs to substantial numbers of packers, live 
poultry dealers, and swine contractors. However, these costs, which are 
actually transfers in surplus, are the intended purpose of the 
regulation. AMS acknowledges that individual businesses may have 
relevant data to supplement our analysis. AMS encourages small 
stakeholders to submit any relevant comments and data during the 
comment period.

E. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    Executive Order 13175 requires Federal agencies to consult with 
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. The 
following is a summary of activity to date.
    AMS engaged in a Tribal Consultation in conjunction with a previous 
proposed rule also under the Act (``Inclusive Competition and Market 
Integrity Under the Packers and Stockyards Act,'' 87 FR 60010) on 
January 19, 2023, in person in Tulsa, Oklahoma, and virtually. AMS 
received multiple Tribal comments from that Consultation, many of which 
were specific to and considered in that rulemaking. In that 
consultation, Tribes raised legal concerns with respect to the 
jurisdiction of the AMS enforcement of the P&S Act. Tribes commented 
that the P&S Act does not apply to Tribes and Tribal entities. Those 
comments raise a legal issue of statutory interpretation, but these 
concerns are not directly implicated by this proposed rule. 
Additionally, the proposed rule would provide a framework for AMS 
analysis of unfair practices and does not mandate specific changes to 
particularly identified practices. Therefore, other than the legal 
issue AMS does not find that this rulemaking carries substantial direct 
Tribal implications.
    AMS recognizes and supports the Secretary's desire to incorporate 
Tribal

[[Page 53910]]

and Indigenous perspectives, remove barriers, and encourage Tribal 
self-determination principles in USDA programs, including hearing and 
understanding Tribal views on legal authorities and cost implications 
as facts and circumstances develop. If a Tribe requests additional 
consultation, AMS will work with USDA's Office of Tribal Relations to 
ensure meaningful consultation is provided in accordance with Executive 
Order 13175.

F. Executive Order 12988--Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988--
Civil Justice Reform. This proposed rule is not intended to have a 
retroactive effect. If adopted, this proposed rule would not preempt 
any 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 rulemaking.

G. Civil Rights Impact Analysis

    AMS has considered the potential civil rights implications of this 
proposed rule on members of protected groups to ensure that no person 
or group would 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. This proposed rule 
does not contain any requirements related to eligibility, benefits, or 
services that would have the purpose or effect of excluding, limiting, 
or otherwise disadvantaging any individual, group, or class of persons 
on one or more prohibited bases.
    In its review, AMS conducted a Civil Rights Impact Analysis, which 
resulted in a finding that Asian, and Native Hawaiians or Other Pacific 
Islanders could be disproportionately impacted by this proposed rule, 
insofar as fewer farmers in those groups participate in livestock and 
poultry production than would be expected by their representation among 
U.S. farmers in general and, therefore, are less likely to benefit from 
the enhanced protections provided by this proposed rule. Other impacted 
farmers, including men, women, Hispanics, Whites, Black/African 
Americans, and American Indians would not be disproportionately 
impacted by this proposed rule.
    The effects of this proposed regulation would fall on slaughtering 
packers, swine contractors and live poultry dealers. The primary 
beneficiaries of proposed Sec.  201.308 would include farmers, feedlot 
owners, swine production contract growers, and poultry growers. These 
producers and growers are those most likely harmed by unfair and 
deceptive practices resulting from the actions or conduct of firms 
subject to the P&S Act.
    Protected groups would see minimal, if any, direct or indirect 
costs because of the implementation or enforcement of the new 
regulation. Although the required analysis indicates a disproportionate 
impact for Asian, and Native Hawaiians or Other Pacific Islanders, 
because the new regulation would impact all industry participants 
equally, no individual or group would likely be adversely impacted.

H. 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.

I. Unfunded Mandates Reform Act

    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 of State, local, and Tribal governments, or 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 rulemaking. This proposed rule contains no Federal mandates, as 
defined in title II of UMRA, for State, local, and Tribal governments, 
or the private sector. Therefore, this proposed rule is not subject to 
the requirements of sections 202 and 205 of UMRA.

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 proposes to amend 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 Sec.  201.308 to read as follows:


Sec.  201.308   Unfair practices and devices.

    (a) Unfair practices with respect to market participants. An act by 
a regulated entity with respect to one or more market participants is 
an unfair practice for the purposes of section 202(a) of the Packers 
and Stockyards Act, 1921 as amended and supplemented (7 U.S.C. 192(a)) 
if the act causes or is likely to cause substantial injury to one or 
more market participants, which the participant or participants cannot 
reasonably avoid, and which the regulated entity that has engaged in 
the act cannot justify by establishing countervailing benefits to the 
market participant or participants or to competition in the market that 
outweighs the substantial injury or likelihood of substantial injury.
    (b) Standards with respect to market participants. When assessing 
whether a practice under paragraph (a) of this section causes or is 
likely to cause substantial injury, and therefore the Secretary must 
halt the practice, the Secretary may consider:
    (1) The extent to which the practice may impede or restrict the 
ability to participate in a market, interfere with the free exercise of 
decision-making by market participants, tend to subvert the operation 
of competitive market forces, deny a covered producer the full value of 
their products or services, or violates traditional doctrines of law or 
equity.
    (2) The potential magnitude of the injury. An injury may be 
substantial if it causes significant harm to one market participant or 
if it imposes a small harm to many market participants.
    (3) The extent to which the producer would have to take 
unreasonable steps to avoid injury. An injury is not reasonably 
avoidable solely because the practice has been disclosed. A market 
participant is not required to take unreasonable steps, such as exiting 
the market or making unreasonable additional investments or efforts, to 
avoid the harm.
    (c) Unfair practices with respect to markets. A practice is unfair 
for the purposes of section 202(a) of the Packers Stockyards Act, 1921, 
as amended and supplemented (7 U.S.C. 192(a)) if it is a collusive, 
coercive, predatory, restrictive, deceitful or exclusionary method of 
competition that may negatively affect competitive conditions.

[[Page 53911]]

    (d) Standards with respect to markets. When assessing whether a 
practice poses or is likely to pose a threat to markets under paragraph 
(c) of this section, and therefore the Secretary must halt the 
practice, the Secretary may consider the following:
    (1) The extent to which the practice impedes or restricts the 
ability to participate in a market, tends to subvert the operation of 
competitive market forces, interferes with the free exercise of 
decision-making by market participants, violates traditional doctrines 
of law or equity, or has indicia of oppressiveness, such as evidence of 
anticompetitive intent or purpose, or absence of an independent 
legitimate business reason for the conduct.
    (2) The extent to which the practice tends to foreclose or impair 
the opportunities of market participants, reduces competition between 
rivals, limits choice, distorts or impedes the process of competition, 
or denies a market participant the full value of their products or 
services.

Melissa Bailey,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2024-14042 Filed 6-27-24; 8:45 am]
BILLING CODE P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.