Poultry Grower Payment Systems and Capital Improvement Systems, 5146-5218 [2025-00508]
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Federal Register / Vol. 90, No. 10 / Thursday, January 16, 2025 / Rules and Regulations
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS–FTPP–22–0046]
RIN 0581–AE18
Poultry Grower Payment Systems and
Capital Improvement Systems
Agricultural Marketing Service,
U.S. Department of Agriculture.
ACTION: Final rule.
AGENCY:
This final rule by the United
States Department of Agriculture’s
(USDA or the Department) Agricultural
Marketing Service (AMS or the Agency)
amends the Agency’s regulations under
the Packers and Stockyards Act, 1921
(P&S Act or Act). The Act protects fair
trade, financial integrity, and
competitive markets for poultry. The
final rule prohibits certain payment
practices under poultry grower ranking
systems (commonly known as
tournaments) in contract poultry
production for broiler chickens, requires
live poultry dealers (LPDs) to adopt
policies and procedures for operating a
fair ranking system for broiler growers,
and requires LPDs to provide certain
information to broiler growers when the
LPD requests or requires the grower to
make additional capital investments.
These regulations will increase
transparency and address deception and
unfairness in broiler grower payments,
tournament operations, and capital
improvement systems.
DATES: This rule is effective July 1,
2026.
SUMMARY:
S.
Brett Offutt, Chief Legal Officer/Policy
Advisor, Packers and Stockyards
Division, USDA AMS Fair Trade
Practices Program, 1400 Independence
Ave. SW, Washington, DC 20250;
phone: (202) 690–4355; or email:
s.brett.offutt@usda.gov.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
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Table of Contents
I. Executive Summary
II. Background
III. Summary of the Proposed Rule and
Changes in the Final Rule
IV. Provisions of the Final Rule
V. Comment Analysis
VI. Regulatory Analysis
I. Executive Summary
The current broiler chicken industry
is highly susceptible to both unfairness
and deception. Within the last 40 years,
the poultry industry has become highly
integrated, with most LPDs operating as
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‘‘integrators’’ who frequently own or
control all segments of the production
process except growout. The growout
stage of the production process consists
of growers raising young poultry to
harvest size under poultry growing
arrangements (contracts). To pay the
grower, most LPDs, which will also be
referred to as ‘‘integrators’’ throughout
this rule, use a relative performance or
poultry grower ranking system,
commonly known as a tournament.
Under the tournament system, poultry
growers compete against one another to
determine payment for their services. As
discussed throughout this rule, growers
cannot reasonably avoid certain
practices that cause them harm.
Additionally, growers lack access to
certain information, which inhibits their
ability to meaningfully understand,
negotiate, and enforce poultry growing
contracts with LPDs, including in
relation to capital investments that LPDs
request.
The Packers and Stockyards Act,
1921, as amended (P&S Act or the Act)
(7 U.S.C. 181 et seq.), authorizes USDA
to issue regulations and orders to
prohibit unfair and deceptive practices
by LPDs.
In a June 8, 2022, advance notice of
proposed rulemaking (ANPR), AMS
sought comments and information to
inform policy development and future
rulemaking regarding the use of poultry
grower ranking systems (87 FR 34814,
June 8, 2022)). Commenters expressed
both support and concern about the use
of tournaments in poultry production,
with the majority expressing support.
Other commenters, especially advocacy
associations, objected to the current
tournament payment system, stating
that tournament systems do not fulfill
the integrators’ claimed purposes and
that the tournament payment systems
exemplify the manipulative and unjust
practices that Congress designed the Act
to prevent. These commenters cited
integrators’ arbitrary, unjust, or punitive
distribution of inputs and production
variables, potentially punitive
manipulation of the group composition,
and penalties for small deviations below
average performance. Some of these
ANPR commenters also stated that the
rulemaking could help address
bargaining power imbalances for
growers by providing proper
enforcement, minimum base pay, and
other provisions.
Trade organizations commented on
the ways input variability affects pay
and that LPDs lack incentives to take
action to reduce unpredictability in
grower inputs and pay outcomes. AMS
has observed that monitoring and
intervention to remedy unpredictability
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requires an LPD to expend effort and
incur cost, and that the LPD does not
directly benefit from the increased
fairness to growers. Without an explicit
prohibition on unfair variability, LPDs
lack compelling incentives to operate
their tournament system contracts fairly.
Comments in response to the ANPR,
other available data and information,
and AMS’s Packers and Stockyards
Division’s (PSD) expertise provided the
basis for a proposed rulemaking.
On June 10, 2024, AMS published the
proposed rule, Poultry Grower Payment
Systems and Capital Improvement
Systems, in the Federal Register (89 FR
49002). In response to the proposed
rule, AMS posted 755 comments, some
with multiple signatories, over a 60-day
comment period. Comments were
submitted by a variety of stakeholders,
including farmers’ coalitions,
government entities, advocacy
organizations, industry trade
organizations, processors, producers,
and other individual interested parties.
Stakeholders commented on the
proposed rule, as well as several
specific questions containing alternate
proposals. The proposed rule covered,
among other things, rate of
compensation for growers, transition
and implementation costs, the proposed
duty of fair comparison, and reasonable
recoupment for required additional
capital investments. Farmers’ coalitions,
advocacy associations, government
entities, and unaffiliated individual
commenters broadly supported the
proposed rule, while the regulated trade
organizations and LPDs opposed the
proposed rule. Live poultry growers
both supported and opposed the
proposed rule. Many growers who
support the rule raised concerns of
unfairness within the tournament
system, including that pay rates are
influenced by factors outside growers’
control, that growers are forced to make
new capital investments that have poor
to nonexistent return while putting
growers in more debt, and that growers
must compete against fellow growers in
an unfair manner. Those growers who
opposed the proposed rule felt that the
tournament system does a good job of
rewarding effort, and that the rule
would upset this system by shifting
money away from high-performing
growers and by reducing overall bird
quality. However, several growers that
opposed the rule expressed concern that
LPDs force growers to make additional
capital investments that do not produce
an economic return for the grower.
Section 407(a) of the P&S Act (7
U.S.C. 228(a)) authorizes the Secretary
of Agriculture (the Secretary) to make
rules and regulations as necessary to
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carry out the provisions of the Act (7
U.S.C. 181 et seq.), and the Secretary
has delegated the responsibility for
administering the Act to AMS. See 7
CFR 2.22(a)(3)(iii) (delegating authority
to administer the Act from the Secretary
to the Under Secretary for Marketing
and Regulatory Programs); 7 CFR
2.79(a)(17) (in turn, delegating authority
to administer the Act from the Under
Secretary to the Administrator,
Agriculture Marketing Service). Under
this authority, AMS issues this rule to
carry out the provisions of section 407
of the Act, as well as provisions of
sections 202(a) (7 U.S.C. 192(a)) (which
prohibits ‘‘any unfair, unjustly
discriminatory, or deceptive practice or
device’’), 401 (7 U.S.C. 221) (which
requires an LPD to ‘‘keep such accounts,
records, and memoranda as fully and
correctly disclose all transactions
involved in his business’’), and 410 (7
U.S.C. 228b) (which bans the failure to
pay ‘‘the full amount due [to the]
poultry grower on account of such
poultry’’).
In this final rule, AMS amends 9 CFR
part 201, subpart N, by adding several
new provisions, including: § 201.106
regarding LPD responsibilities for the
design of broiler grower compensation
arrangements; § 201.110 regarding the
fair operation of broiler grower ranking
systems; § 201.112 regarding disclosure
requirements for LPDs when requesting
additional capital investments from
broiler growers; and § 201.290 regarding
severability. In particular, the Agency is:
• Prohibiting LPDs from discounting
or reducing a grower’s rate of
compensation as disclosed in the broiler
growing arrangement based on the
grower’s grouping, ranking, or
comparison to others (§ 201.106(a)).
• Establishing that it is a presumptive
violation of the Act when aggregate
gross annual payments based upon a
grouping, ranking, or comparison of
growers exceeds 25 percent of total
gross payments to growers in a complex
on an annual-calendar year basis
(§ 201.106(b)).
• For each of the three calendar years
following the publication date of the
above-referenced provisions, requiring
LPDs to submit certain documentation
to the Secretary when any contract
modification or renewal subject to the
prohibition on discounts results in a
decrease in the prior annual-calendar
year’s complex-wide average gross
payment to the grower (§ 201.106(c)).
• Establishing a duty of fair
comparison that requires LPDs to design
and operate their broiler grower ranking
system to provide a fair comparison
among growers, with particular
attention to certain factors in the
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methods of comparison, including the
distribution of inputs and flock
production practices, the time period of
the comparison, the conditions and
circumstances for the comparison, the
reasonableness of efforts to resolve
disputes, and how the LPD will
compensate growers when the LPD
cannot conduct a fair comparison
(§ 201.110(a)).
• Requiring LPDs to establish and
maintain written documentation of their
processes for the design and operation
of a broiler grower ranking system that
is consistent with the duty of fair
comparison and to retain all relevant
written records for five years
(§ 201.110(b)).
• Requiring LPDs to provide growers
with a Capital Improvement Disclosure
Document when an LPD requests that a
grower make an additional capital
investment and requiring that LPDs
make reasonable efforts to assist the
grower in translating the document, as
well as ensure that the grower is aware
of their right to request translation
assistance (§ 201.112).
• Introducing a severability clause
that specifies that it is USDA’s intent
that the provisions in subpart N remain
in effect even if any provision or
component of any provision is deemed
unenforceable (§ 201.290).
II. Background
A. Vertical Integration and Market
Power
Today, the broiler chicken industry is
highly vertically integrated. That is, a
single entity owns or controls nearly all
the steps of production and distribution,
with the only partial exception being
the growout stage, during which broiler
growers raise chicks on their farms to
slaughter weight. The USDA National
Agricultural Statistics Service’s (NASS)
Census of Agriculture (Agricultural
Census) reported that 96.2 percent of
broilers were raised and delivered under
production contracts between LPDs and
independent farmers, or broiler
growers.1 Under a production contract,
the LPD provides the grower chicks,
feed, and veterinary treatment services,
which the grower uses to grow out the
flock. The LPD maintains ownership of
the chickens throughout the production
process. The grower provides the
poultry growing facility, flock
management, labor, and utilities
1 USDA, NASS, 2022 Census of Agriculture:
United States Summary and State Data, volume1,
part 51, issued February 2024 pp. 51 and 411.
https://www.nass.usda.gov/Publications/AgCensus/
2022/Full_Report/Volume_1,_Chapter_1_US/
usv1.pdf.
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required during flock growout.2 At the
end of growout, the LPD collects and
weighs the mature poultry and pays the
broiler grower for their services.
To grow broiler chickens on a
commercial scale, a grower must make
a substantial initial investment in
housing. Over time, LPDs may request
or require that growers make additional
capital investments to upgrade housing
and equipment, which are intended to
improve efficiency or respond to
customer preferences (e.g., relating to
the use of antibiotics or other animalraising concerns) during the contracting
relationship. Growers generally finance
these long-term assets against much
shorter-term production contracts.3 This
exposes growers to financial risk and
uncertainty around debt repayment and
the recoupment of their investments.
For example, compared to other
commodity producers, broiler growers
registered among the highest share of
farms in extreme financial stress,
measured as carrying a term debt
coverage ratio less than one and a debtto-asset ratio greater than 55 percent.4
Growers are thus dependent on LPDs—
who control most aspects of a grower’s
production—to recoup their substantial
initial and continuing investments.5
Growers also currently receive little to
no information about the purpose,
process, and outcomes expected around
such investments.
Currently, most LPDs operate with the
benefit of substantial market power and
bargaining power in local markets to
purchase grower services. Broiler
grower operations must be close
(usually less than 50 miles) to an LPD’s
2 Growout period is defined as the period of time
between placement of poultry at a grower’s facility
and the harvest or delivery of such animals for
slaughter, during which the feeding and care of
such poultry are under the control of the grower.
3 MacDonald, James M. ‘‘Financial Risks and
Incomes in Contract Broiler Production.’’ Amber
Waves August 04, 2014. https://www.ers.usda.gov/
amber-waves/2014/august/financial-risks-andincomes-in-contract-broiler-production/ (last
accessed 12/13/2023).
4 Nigel Key, Christopher Burns, and Greg Lyons,
‘‘Financial Conditions in the U.S. Agricultural
Sector: Historical Comparisons,’’ EIB–211, U.S.
Department of Agriculture, Economic Research
Service (2019), https://www.ers.usda.gov/webdocs/
publications/95238/eib-211.pdf?v=4876.5 (In 2017,
compared to other commodity categories
considered, poultry farms showed the greatest share
of farms in extreme financial stress—around four
times that of larger-scale general livestock and
specialty crop, fruit, nut, and vegetable producers
and twice that of large-scale grain and oilseed
producers. Moreover, the percentage of poultry
farmers in extreme financial stress has been
increasing since 2006).
5 For a discussion the difficulty in adapting of
broiler grow houses for other purposes see Tom
Vukina and Porametr Leegomonchai. ‘‘Oligopsony
Power, Asset Specificity, and Hold-Up: Evidence
from the Broiler Industry.’’ American Journal of
Agricultural Economics 88 (2006).
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feed mills, hatcheries, and processing
plants due to the costs of transporting
feed to the grower’s farm and the costs
(including death loss) associated with
transporting finished chickens from the
grower’s farm to the processing plant.
This results in poultry production that
is often localized and regionally
concentrated. Most growers have few
LPDs in their area with whom they can
contract. Even where multiple LPDs are
present, there can be significant costs
associated with switching to a different
LPD, including adjustments for
differences in technical specifications
that LPDs may require. To switch LPDs,
a grower may need to invest in new
equipment and learn to apply different
operational techniques for different
breeds, target weights, and growout
programs. Facility-specific investments
may inhibit the ability of growers to
switch to a competing LPD where
different facility specifications are
required. Growers have recently
complained of at least one LPD
penalizing growers that are trying to
switch to an LPD’s competition. AMS
referred the complaint to the
Department of Justice for enforcement
under the Packers and Stockyards Act.
The Department secured a consent
decree that stopped the conduct,
prohibited its recurrence, and
compensated the harmed growers.6
Owing to the vertical integration in
the system, LPDs exercise substantial
control over growers’ operations
through the provision of inputs, control
over production practices, their
tournament settlement and comparison
practices, and their level of performance
in relation to communication and
dispute resolution. In this rule, AMS
uses the term ‘‘inputs’’ to mean
resources supplied by LPDs, such as
chicks or feed. Inputs often vary among
growers, which impacts the growers’
flock performance, thereby unfairly
skewing relative performance measures.
Likewise, LPDs determine production
practices on growers’ farms, and those
production practices affect growers’ pay.
AMS uses the term ‘‘production
practices’’ to refer to features of the onfarm production process that are
determined by the LPD, such as density
of bird placement (number of chicks
delivered or placed with a grower per
6 Final Judgment, United States v. Koch Foods,
Inc., No. 23–cv–15813, Dkt. No. 23 (N.D. III. Feb.
12, 2024). See also, Zimmerman, Sarah,
‘‘Department of Justice, ‘‘Justice Department Files
Lawsuit and Proposed Consent Decree to Prohibit
Koch Foods from Imposing Unfair and
Anticompetitive Termination Penalties in Contracts
with Chicken Growers,’’ https://www.justice.gov/
opa/pr/justice-department-files-lawsuit-andproposed-consent-decree-prohibit-koch-foodsimposing.
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square foot of broiler housing), age at
harvest, and weight at harvest. These
practices greatly impact grower
compensation. If LPDs fail to apply
production practices evenly across
grower participants in tournaments, that
unevenness also unfairly skews relative
performance measures.
Additionally, information asymmetry
in poultry contracting arrangements
contributes to market inefficiencies and
unfair and deceptive practices.
Asymmetric information occurs when
one party to a contract has more critical
information than the other party.
Information asymmetry leads to market
failure in the broiler production
industry as growers lack the information
needed to make informed business
decisions, whereas LPDs know what
each grower makes. This increases
LPDs’ to set contractual terms in ways
that benefit themselves, while the
grower lacks the information needed to
effectively negotiate compensation for
the provision of growout services or to
make a comparison and switch to a
competitor that offers more competitive
terms. Another feature of this
information asymmetry is that while
LPDs know the amounts they have fixed
for grower compensation, growers do
not know this amount, which can span
a wide range. Similarly, LPDs know the
distribution of inputs as well as which
growers may be grouped together for
settlement in the complex, while
growers cannot easily track that
information. Exploiting this information
asymmetry, LPDs can adjust down
compensation in ways that are difficult
for growers to know or competitively
discipline the LPD, e.g., by switching
out. As highlighted by grower comments
and based on AMS’s experience in
evaluating grower concerns in this area,
without an accurate projection of
purposes, processes, and outcomes
related to capital improvement
programs, growers cannot accurately
and effectively evaluate their allocation
of resources to cover necessary
expenses 7 or engage in rational
decision-making around whether to
pursue (or resist) additional capital
investments to improve and protect
their own financial interests.
Additionally, having widely variable
income prevents growers from knowing
which elements under their control they
7 For example, a grower without an accurate
projection of future income may forgo making an
expenditure that costs less long-term, e.g., making
a bundled purchase for two pieces of equipment at
a reduced per-unit price. Instead, if they don’t know
if they can afford a future purchase, they purchase
the minimum amount—one piece of equipment at
a time at a higher unit price—to sustain operations
short-term.
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can adjust, and how to adjust them, to
correspondingly increase compensation.
This can cause growers to futilely
expend extraneous resources that do not
yield proportionate increases in
performance and compensation.8
Information asymmetry also facilitates
abusive practices, whereas the provision
of information would help growers and
AMS identify and halt those practices
sooner. Disclosure is not an absolute
defense. Acts or practices can be unfair
or deceptive and violate section 202(a)
of the Act even if they have been
disclosed.
LPDs often use incomplete contracts
in broiler production. When a contract
is incomplete, the LPD interprets
material terms in their favor as the
grower lacks the ability to require a
fairer interpretation. Contracts are
incomplete when key terms basic to its
functioning are vague or missing.
Incomplete contracts magnify risks with
respect to the performance of the other
contractual party, leading to other
potential inefficiencies. For example,
broiler production contracts regularly
disclaim LPD responsibility for input
quality or usability. Nor do they provide
enforceable detail around LPD
management of tournament operations,
including tournament groupings or
dispute resolution expectations.
Moreover, the complexity of such pay
systems makes it difficult for growers to
fully understand the potential range of
payments they are likely to receive or
the ways in which LPD performance or
nonperformance may affect that pay,
preventing them from properly
8 Numerous commenters described how they
would make all of the upgrades recommended by
the LPD technician and inexplicably place last
compared to other growers: ‘‘Six months of down
time spent installing several more thousands of
dollars of equipment. We’ve grown two flocks since
then and have failed to make enough money to even
pay the bank each time. We’ve had to take out a
loan to even survive our day-to-day life and are
behind on all farm bills. We do everything the
company tells us, but when we finish in the
negative, were given all kinds of reasons for why
our birds weren’t good enough. When speaking
with other farmers and techs from other companies,
we’re told that our weight and feed conversions are
good, but a couple of farms seem to continuously
have unexplained successful numbers. Basically,
were losing money that goes to pay the ones at the
top. On one flock, 12 farms were pitted against each
other. Two farms performed at a level so high that
isn’t believable, and three farms performed below
the bottom level we can be paid at. The integrator
took the bottom three farms out of the tournament
calculation and compared the remaining farms
without them. How fair is it that they drop the
bottom farms, but not the top ones? This resulted
in the farms that were close to average being pushed
down and making less money because the average
was raised considerably with the highflyers
included and the bottom places excluded. The
company tells us that this helps us, but it doesn’t.
We’ve made the decision to sell because we can’t
continue to put our children through this’’).
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evaluating the fairness of the contract
before signing. Preventing LPDs from
injuring producers using these contracts
is among the purposes of the Act.9
Contracts may be viewed as complete,
with no material gaps, if the contract
terms include the substantive legal,
practical, and economic promises,
obligations, and contingencies needed
to operate in a poultry growing
arrangement. These terms should be
verifiable and legally enforceable.
Finally, contracts that require
investments in contract-specific assets
give rise to the hold-up problem. The
economic concept of hold-up refers to a
situation in which one or both parties to
a transaction must make investments in
such contract-specific assets, and the
two parties may be unable to cooperate
efficiently due to incomplete or
asymmetric information and the
inability to write, enforce, or commit to
contracts. Once a party becomes locked
into a transaction by making a
transaction-specific investment, they
lose bargaining leverage and become
vulnerable to exploitation by the other
party. Hold-ups occur in broiler
production due to market failures
associated with incomplete grower
information, contract-specific
investments, market power, relative
capital leverage, as well as insufficient
enforcement of law intended to
maintain market integrity and prevent
market abuses—including unfair
breaches of contract. Growers are
commonly unable to exercise contract
rights to remedy LPD performance
failures owing to the risk of hold-up and
to the necessity of timely remedies
when dealing with living birds.
Examples from grower complaints
include failure to correct improper or
insufficient feed delivery, the delivery
of successive inputs that are lower
performing, or tournament groupings
that are suspect.
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B. Tournament Practices
Since the 1990s, the broiler industry
overwhelmingly uses the tournament
system to compensate growers. As
9 See, e.g., Luke Herrine, ‘‘Cutthroat Business,’’ U.
of Alabama Legal Studies Research Paper
Forthcoming, Aug. 2024, available at https://
papers.ssrn.com/sol3/papers.cfm?abstract_
id=4936628; Michael Kades, ‘‘Protecting livestock
producers and chicken growers,’’ Washington
Center for Equitable Growth (May 2022); 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.
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discussed above, under a tournament
system the contract between the broiler
grower and the LPD provides for
payment to the grower based on a
grouping, ranking, or comparison of
broiler growers delivering broilers to the
same company during a specified period
(usually one week). AMS will refer to
this as a settlement group. Under a
typical tournament system, the broiler
grower receives a fixed payment per
pound of broilers produced, that LPDs
often call a ‘‘base pay rate,’’ plus a
calculation adjustment that is supposed
to be based on how efficiently,
compared to other growers, the grower
used the resources provided by the LPD
to produce each pound of broilers
(informally referred to as a performance
adjustment).10 LPDs typically calculate
the performance adjustment primarily
by comparing the feed conversion ratio
(i.e., the quantity of feed consumed by
the flock divided by the weight of the
flock delivered) to the average ratio of
all growers in the tournament settlement
group. Broiler growers whose feed
conversion ratio is less than the average
ratio for that tournament settlement
group receive a bonus above the base
pay rate, while those whose costs are
above the average incur a discount from
the base pay rate.
LPDs benefit from the tournament
system in several ways. The tournament
system provides LPDs control and
certainty over total grower
compensation as a group. For each
tournament, the LPD knows and sets the
total compensation that will be paid per
pound of broilers produced by the
group. In other words, the LPD is never
concerned about paying an excess bonus
for an individual flock because the LPD
allocates the pool of payments among
growers through performance
adjustments for growers relative to the
floating average performance (i.e., in
today’s system, amounts above, or
deductions from, the base pay rate).
LPDs (and growers, as discussed below)
also get the benefit of utilizing a floating
average (relative to external shocks,
such as weather, as noted below) to
incentivize performance. However, the
tournament system comes at a cost to
growers: that of seeing payment for the
services they provide reduced for
reasons outside of their control yet
within the control of the LPD. This
outcome is magnified by the fact that
growers cannot easily switch over to a
10 There is some inconsistency in the use of
payment terms across broiler contracts at different
companies or complexes. Most grower contracts
define the term base pay rate as it is described in
this paragraph. However, some contracts instead
use the term base pay when referring to a fixed
amount plus the performance adjustment.
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competitor LPD—even if the competitor
LPD offers more attractive
compensation—due to the high barriers
to switching imposed partly by LPDs.11
LPDs have long claimed that
tournaments systems reward growers
financially for their experience, skill,
effort, and investments in up-to-date
and efficient housing and equipment.12
The extent to which the tournament
actually incentivizes additional grower
effort and expenditure of resources, and
whether those efforts and expenditures
were necessary and fair to growers,
depends on a range of factors, including
the magnitude of the tournament but, in
some circumstances, also the design of
the housing specification (e.g., the use
of automation and other technology),
the type of bird being raised (e.g., some
require special efforts), the availability
of other payment incentives, and the
absence of arbitrary distortions in the
allocation of payments, among other
factors. In theory, provided that all
growers in a tournament grouping were
treated materially the same and the
variables within the tournament
grouping were within the control of the
growers, a tournament system could
insulate growers to some degree against
external shocks that affect all growers in
the grouping. This is because, in this
scenario, performance is based on an
average that floats and adjusts to the
particular external circumstances that
all growers in the pool experienced
during the period.13 In reality, the
11 See, e.g., ‘‘Settlement Administrator Angeion
Group Announces Proposed Settlement In Broiler
Grow-Out Services Class Action,’’ PR Newswire
(2024), https://www.prnewswire.com/news-releases/
settlement-administrator-angeion-groupannounces-proposed-settlement-in-broiler-growout-services-class-action-302252706.html (In 2024,
some of the largest LPDs agreed to settle grower
claims that the LPDs conspired with rivals to
suppress pay by agreeing not to hire growers from
each other. Multiple commenters also described the
difficulty in switching.); 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/publicworkshops-agriculture-and-antitrust-enforcementissues-our-21st-century-economy-10.
12 See, e.g., ‘‘How the Tournament System
Works,’’ National Chicken Council (informing
farmers that: ‘‘1 All farmers are provided the same
quality of chicks, the same feed, and access to
veterinary care. 2 Farmers who invest in more
advanced facilities, as well as use the best
management practices will likely produce higher
quality chickens more efficiently. 3 Farmers receive
a base pay (per their contract) and potentially a
bonus, based on the health and quantity of the flock
(tournament system).’’); available at https://
www.chickencheck.in/faq/tournament-system/ (last
accessed May 22, 2024).
13 Knoeber and Thurman show that tournaments
shift most of the risks of broiler production from
broiler growers to LPDs relative to a fixed payment
system. See Knoeber, C.R. and W.N Thurman.
‘‘ ‘Don’t Count Your Chickens . . .’: Risk and Risk
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tournament system does not sufficiently
protect from external shock. A range of
shocks and factors external to the
growers—some of which are within the
control of the LPD—still adversely affect
the overall weight of the broilers in a
tournament and thereby reduce the
compensation for all participating
growers.
AMS has concluded that several
widely adopted aspects of LPDs’
operations are unfair, deceptive, or both.
First, without a clearly stated base pay
rate, LPDs deceive growers regarding
their actual minimum pay. The
complexity and unpredictability of
LPDs’ current operation of tournaments
makes it difficult for growers to clearly
understand before entering into a
contract the minimum amount they
could actually receive under the
contract.14 For example, base pay can
be, but is not commonly, a guaranteed
minimum pay.15 Second, if performance
pay—particularly performance pay that
is based on comparisons with other
growers—is substantial relative to total
compensation, the arbitrary lottery-like
aspects in a tournament system
operation will, in most circumstances,
undermine its effectiveness as a
compensation scheme because
compensation outcomes will not reflect
the effort or performance of growers,
and is unfair and deceptive. Third,
arbitrary or unjustly discriminatory
distribution of inputs, production
practices, tournament groupings, or
communications and dispute
resolution—as key aspects of LPD
performance under the contract—also
can create a system in which
compensation does not reflect the effort
or performance of growers, deprives
growers of the full amount due for their
performance, and is unfair. These
provisions are meant to be
complementary and mutually
reinforcing. AMS explains each of these
concerns in greater detail below, under
section IV., ‘‘Provisions of the Final
Rule.’’
As noted above, many broiler growers
operate in regions with just one to two
LPDs.16 The local competitive
conditions result in higher-risk, lowerpaying grower contracts that commonly
subject the grower to arbitrary and
unfair payment; in particular, these
contracts do not guarantee growers an
adequate minimum base pay rate, flock
placements and stocking densities, or
length of contract in relation to the loan
obligations commonly necessary to
engage in broiler growing. Because LPDs
control the distribution of inputs and
assignment of production practices,
growers repeatedly tell AMS that they
experience unfair and deceptive
operation of the contract. The typical
tournament contract introduces levels of
complexity and uncertainty for growers
in the calculation of their compensation
and in evaluating growers’ return on
investments so as to render the payment
system unfair and deceptive.
Furthermore, under that payment
system, growers are commonly unable
to discover unscrupulous conduct by
LPDs, compare offers from competing
LPDs, and plan and manage their
businesses effectively. LPDs also say
growers will operate ‘‘independently’’—
i.e., their individual effort will produce
commensurate higher compensation—
though in practice their comparisonbased compensation pay is heavily
dependent on the LPD’s inputs and
comparison method, close supervision,
responsiveness, and the performance of
others in their LPD-determined
settlement group.
AMS concludes that the ‘‘incentive
system’’ in its current form does not
excuse the unfair and deceptive
operation of tournament systems
because factors outside of the grower’s
control impact performance. Without
adequate regulation under the current
system, LPDs fail to provide fair
compensation for the grower’s effort and
deceive the grower regarding
tournament operation and pay.
Shifting in the Broiler Industry,’’ American Journal
of Agricultural Economics 77 (August 1995) p. 486–
496.
14 United States v. Cargill Meat Solutions Corp.,
1:22–cv–01821–ELH (D. Md. July 25, 2022) (WayneSanderson), pars. 153–56, available at https://
www.justice.gov/media/1238931/dl?inline; AMS–
FTPP–22–0046–0913 (‘‘As a third-generation
contract poultry farmer, this is one of the most
unstable times I have witnessed or heard about with
the growers in the majority. For many years we
have been paid based on the tournament system,
and for several years I viewed it to be fair, but no
longer. Currently, we as growers compete against
each other on a weekly basis to see who has the best
cost. The list used to be really tight on what cost
of top versus bottom grower, but in our complex
alone, that is no longer the case. The top grower is
making a healthy check, while those below average
are not making enough to cover the cost of
production and overhead. It is no longer the ones
that put in the effort of hard work that are
successful in this business’’); Transcript, United
States Department of Justice, United States
Department of Agriculture, Public Workshops
Exploring Competition in Agriculture: Poultry
Workshop May 21, 2010, Normal, Alabama. Lee
Schrader and John Wilson, ‘‘Broiler Grower Survey
Report,’’ in Farmers’ Legal Action Group, Assessing
the Impact of LPD Practices on Contract Poultry
Growers, ed. Farmers’ Legal Action Group (FLAG
Survey) (September 2001). https://www.flaginc.org/
publication/assessing-the-impact-of-LPD-practiceson-contract-poultry-growers/ (In 1999, Lee Schrader
of Purdue University and John Wilson of Duke
University surveyed over a thousand broiler
growers in ten of the largest broiler-growing states
(Alabama, Arkansas, Delaware, Georgia, Maryland,
Mississippi, North Carolina, South Carolina, Texas,
and Virginia). Based on AMS’ experience, the
survey results still provide a relevant reflection of
the views of growers today, including companies’
representations about compensation to growers).
15 See ‘‘A Bird’s Eye View of How Chicken
Farmers Are Paid,’’ National Chicken Council
(informing farmers that: ‘‘All farmers are guaranteed
a base pay from the chicken company per their
contract.’’; ‘‘No matter what, farmers get paid.’’; and
‘‘Bonuses are given to farmers who raise healthy
flocks and invest in their farm. This is referred to
as the tournament system.’’); available at https://
www.chickencheck.in/faq/tournament-system/ (last
accessed May 22, 2024).
16 MacDonald, James M. 2014, Technology,
Organization, and Financial Performance in U.S.
Broiler Production, EIB–126, USDA Economic
Research Service, https://www.ers.usda.gov/
webdocs/publications/43869/48159_
eib126.pdf?v=1829.6 (Half of respondents with two
integrators in their area and over a third of those
with three integrators asserted that they could not
shift to another integrator).
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C. Debt and Financial Vulnerabilities
Requests by LPDs for growers to make
additional capital investments are a
pervasive part of the broiler growing
industry such that Congress required
that LPDs disclose the possibility of
such requests to growers in their
contracts (7 U.S.C. 197a(b)). These
additional capital investment requests
occur against a backdrop of significant
financial vulnerability for growers,
which implicates issues of potential
unfairness and deception. Under this
system of capital improvement, the LPD
requests—and indeed, in practice,
largely requires—growers to invest in
housing improvements with little to no
information regarding the purposes,
processes, outcomes, or likely return to
be achieved by the investment. These
omissions of material information
critical to growers’ decision-making is
unfair and deceptive. These additional
capital investments are highly
particularized, which leaves the growers
investing in projects and investments
that may be used only for growing
broilers with a particular LPD. Growers
have long complained to AMS that they
face a perpetual cycle of debt owing to
successive requests by LPDs for
additional capital investments,
suppressing their returns and leaving
them even more vulnerable to the range
of abuses outlined above.
Indeed, the Figures below show a
declining rate of return on assets and
higher debt to asset ratios carried by
poultry operations compared to cattle,
dairy, and hog operations.
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Figure 1: Rate of return on equity for poultry growers has been declining for
growers from around 5 percent in 1995 to 2.5 percent in 2022, compared to upwardtrending returns for cattle, dairy, and hog producers (with values scaled freely to show the
trend in each panel)*
Cattle
-1
-1.5
-2
-2.5
-3
-5
1995 2000 2005 2010 2015 2020
1995 2000 2005 2010 2015 2020
Hogs
Poultry
15
10
5
0
10
5
0
-5
-f995 2000 2005 2010 2015 2020
1995 2000 2005 2010 2015 2020
Year
* U.S. Department of Agriculture, Economic Research Service. ARMS Farm Financial and Crop
Production Practices (1996 - 2022) (Analysts retrieved information through the ARMS APL Poultry farms showed
declining net farm income; livestock income (e.g., receipts from broiler contract fees); lower working capital to
expense ratio, which reached negative values in 2016 and 2018; and declining return on farm equity. For
conciseness, analysts only present figures showing return on farm equity and debt to asset ratios.)
Figure 2: Debt to asset ratio for poultry growers exceeds that for cattle, dairy, and hog
producers*
1995
2000
2005
2010
2015
2020
Year
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ER16JA25.002
*U.S. Department of Agriculture, Economic Research Service. ARMS Farm Financial and Crop Production
Practices (1996 - 2022) (Analysts retrieved information through the ARMS APL Poultry farms showed declining
net farm income; livestock income (e.g., receipts from broiler contract fees); lower working capital to expense ratio,
which reached negative values in 2016 and 2018; and declining return on farm equity. For conciseness, analysts only
present figures showing return on farm equity and debt to asset ratios.)
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The higher debt to asset ratios carried
by poultry operations are driven, in
part, by LPD requests for additional
capital investments and are also
facilitated, partially, by loan guarantees
authorized under Federal law.
Additionally, the gains from upgrades
commonly flow to LPDs, and so
growers’ higher debt levels are not
always supported by efficiency gains
that would result from the additional
capital investments. Under those
circumstances and because of the
willingness of lenders to loan due to
guarantees, when growers are asked by
LPDs to make additional capital
investments without critical information
about their purposes, processes, or
outcomes, they are deprived of key
information relating to those decisions.
This practice is both deceptive and
unfair because it deprives growers of
their ability to identify fundamentally
coercive or otherwise unfair capital
improvement programs at an early
enough time to seek AMS enforcement
assistance in halting them, if
appropriate.
Accordingly, AMS adopts this final
rule prohibiting practices that, in AMS’s
view, violate the Act. The overall
tournament system is highly
problematic for poultry growers, and it
is crucial to implement some guardrails
for the industry to prevent unfair and
deceptive contracting practices.
III. Summary of the Proposed Rule and
Changes in the Final Rule
In the June 2024 proposed rule, AMS
proposed amending 9 CFR 201, subpart
N, by adding several new provisions:
§ 201.106 regarding LPD responsibilities
for the design of broiler grower
compensation arrangements; § 201.110
regarding the fair operation of broiler
grower ranking systems; § 201.112
regarding disclosure requirements for
LPDs when requesting additional capital
investments from broiler growers; and
§ 201.290 regarding severability.
AMS proposed adding § 201.106,
titled ‘‘Broiler Grower Compensation
Design,’’ to prohibit the reduction, or
discounting, of any compensation rate
under the broiler growing arrangement
based on a grower’s performance
relative to other growers. The proposed
provision would have required broiler
grower arrangements to clearly state the
grower’s rate of compensation and not
reduce that rate based on the grower’s
performance relative to other growers.
The arrangement could provide for the
rate of compensation to be increased
based on that comparison.
AMS proposed adding § 201.110,
titled ‘‘Operation of Broiler Grower
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Ranking Systems,’’ to prevent unfair and
deceptive practices in LPDs’ operation
of ranking systems for broiler growers.
Proposed paragraph (a)(1) would have
required LPDs to design and operate
their poultry grower ranking system to
provide a fair comparison among
growers, and under proposed paragraph
(a)(2), the Secretary would evaluate
specific factors to determine if the
poultry grower ranking system is
reasonably designed to deliver a fair
comparison among growers. Proposed
§ 201.110(a)(3) also included a
requirement that, when LPDs could not
conduct a fair comparison, they must
compensate growers through a noncomparison method. Proposed
paragraph (b)(1) would have required
documentation regarding the processes
(policies and procedures) the LPDs must
establish and maintain for the design
and operation of poultry grower ranking
systems for broiler growers that is
consistent with the duty of fair
comparison. Under proposed paragraph
(b)(2), LPDs would have been required
to review their compliance with these
processes, and under proposed
paragraph (b)(3) they would have been
required to retain all written records
relevant to their compliance for no less
than 5 years from the date of record
creation.
AMS proposed adding § 201.112,
titled ‘‘Broiler Grower Capital
Improvement Disclosure Document,’’
detailing in proposed paragraph (a) that
an LPD would be required to provide
the grower with a Capital Improvement
Disclosure Document (Disclosure
Document) upon requesting that the
grower make an additional capital
investment. Paragraph (b) of the
proposed regulation described the
disclosures that the LPD would be
required to include in the Disclosure
Document. These disclosures included a
justification of the request, financial
incentives for the grower, specifications
for construction, and a thorough
analysis of the grower’s projected
returns.
Lastly, AMS proposed adding
§ 201.290, titled ‘‘Severability,’’ to
ensure that if any provision of subpart
N or component of any provision is
declared invalid, or if the applicability
of any of these provisions to any person
or circumstances is held invalid, the
validity of the remainder of this subpart
or the applicability thereof to other
persons or circumstances shall not be
affected. Such a provision is typical in
AMS regulations that cover several
different topics and was proposed here
as a matter of housekeeping.
Upon consideration of public
comments on the proposed rule, AMS
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has modified the proposed provisions as
follows:
• Revised proposed § 201.106 by
designating the proposed text as
paragraph (a) and adding the paragraph
heading ‘‘Rate transparency.’’
• Added a new § 201.106(b),
‘‘Excessive variability,’’ that establishes
a presumptive violation of the Act when
aggregate gross annual payments based
upon a grouping, ranking, or
comparison of growers exceeds 25
percent of total gross payments to
growers in a complex on an annualcalendar year basis.
• Added a new § 201.106(c),
‘‘Transition,’’ that requires that LPDs,
for each of the three calendar years
commencing with and including the
rule’s effective date, submit to AMS a
copy of the prior and modified contract
and any LPD Disclosure Document
prepared under § 201.102 for any
modified or renewed contracts under
specified conditions.
• Simplified proposed
§ 201.110(b)(1)(i) and (ii) (concerning
LPDs’ processes for determining inputs
and production practices) by removing
the subparagraphs that itemized each
component of the required processes.
• Simplified proposed
§ 201.110(b)(1)(iii) (concerning LPDs’
processes for grower comparison
flexibility) by removing subparagraphs
(A) through (C) and placing those
requirements into three simple
paragraphs: (b)(1)(iii), ‘‘League
composition;’’ (b)(1)(iv), ‘‘Evaluation
period;’’ and (b)(1)(v), ‘‘Noncomparison.’’ Accordingly, AMS also
redesignated proposed
§ 201.110(b)(1)(iv), ‘‘Communication
and cooperation,’’ as paragraph
(b)(1)(vi).
• Removed proposed § 201.110(b)(2),
‘‘Compliance review’’ and redesignated
proposed § 201.110(b)(3), ‘‘Record
retention,’’ as paragraph (b)(2).
• Revised proposed § 201.112(a) and
(b) to include the paragraph headings
‘‘Disclosure requirement’’ and
‘‘Disclosure contents,’’ respectively.
• Revised proposed § 201.112(b)(1)
through (3) to remove the term
‘‘relevant’’ as a technical change, along
with conforming grammatical edits.
• Revised proposed § 201.112(b)(5) to
clarify that, in addition to disclosing
any required or approved manufacturers
or vendors, the Capital Improvement
Disclosure Document must disclose all
financial benefits, if any, that the LPD
or other affiliated persons receives from
the use of the required or approved
manufacturer or vendor.
• Revised proposed § 201.112(b)(6) as
a technical stylistic change.
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• Added a new § 201.112(c) to require
the LPDs to make reasonable efforts to
ensure that growers are aware of their
right to request translation assistance
and to assist the grower in translating
the Capital Improvement Disclosure
Document.
Section IV. below explains in detail
AMS’s reasons for making these
changes.
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IV. Provisions of the Final Rule
Throughout this final rule, AMS’s
analysis of unfair and deceptive trade
practices in poultry contracts is
informed by prior P&S Act case law,
States’ unfair and deceptive practice
laws, and, in particular, the Federal
Trade Commission (FTC)’s
encapsulation of principles governing
unfairness, unfair methods of
competition, and deception.17 AMS
looks to the FTC’s policy statements
owing to the FTC’s extensive experience
enforcing prohibitions against unfair
practices, unfair methods of
competition, and deception arising
under the FTC Act, which are similar to
provisions prohibiting unfair and
deceptive practices under section 202(a)
of the P&S Act. Like section 202(a) of
the Act, section 5 of the Federal Trade
Commission (FTC) Act also prohibits
unfair and deceptive practices and
unfair methods of competition. In 1980,
1983, and 2022, the FTC adopted the
aforementioned policy statements
summarizing its longstanding
approaches to these matters under its
cases. While recognizing that the P&S
Act is broader than the FTC Act, AMS
references these policy statements
because they offer useful guidance
owing to the similarity of the statutory
provisions and case law histories.18 In
addition, AMS recognizes the benefits to
17 Federal Trade Commission, Policy Statement
on Unfairness, 1980, https://www.ftc.gov/legallibrary/browse/ftc-policy-statement-unfairness (last
accessed Oct. 2024); Federal Trade Commission,
Policy Statement on Deception, 1983 available at
https://www.ftc.gov/system/files/documents/
public_statements/410531/831014deceptionstmt.
pdf (last accessed Oct. 2024); Federal Trade
Commission: Policy Statement on the Scope of
Unfair Methods of Competition Under Section 5 of
the Federal Trade Commission Act, Nov. 2022,
available at https://www.ftc.gov/legal-library/
browse/policy-statement-regarding-scope-unfairmethods-competition-under-section-5-federal-tradecommission (last accessed Oct. 2024).
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)
(‘‘Section 202(a) should be read liberally enough to
take care of the types of anti-competitive practices
properly deemed ‘unfair’ by the Federal Trade
Commission (15 U.S.C. 45) and also to reach any
of the special mischiefs and injuries inherent in
livestock and poultry traffic’’).
18 Michael Kades, ‘‘Protecting livestock producers
and chicken growers,’’ Washington Center for
Equitable Growth (May 2022).
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the practical application of this final
rule by grounding it on the wellunderstood principles of unfairness,
unfair methods of competition, and
deception as identified in the FTC
policy statements. It is for these reasons
that the FTC Act has, in part, informed
this final rule.
A. Broiler Grower Compensation Design
(§ 201.106)
AMS is finalizing new § 201.106,
‘‘Broiler grower compensation design,’’
with two notable changes from the
proposed rule. In the final rule, AMS is
retaining § 201.106 as proposed and
designating it as paragraph (a), ‘‘Rate
transparency.’’ AMS is adding
paragraph (b), ‘‘Excessive variability,’’
and paragraph (c), ‘‘Transition.’’
Paragraph (b) adds a presumption
against excessive variability in
performance compensation to growers
competing in a tournament. Paragraph
(c) provides for grower protections
during the transition from the existing
payment systems to systems compliant
with this final rule. Each paragraph will
be discussed further below.
Most large LPDs today include a
tournament component as part of their
grower compensation arrangements.
Under this type of arrangement, if a
grower’s feed conversion ratio (i.e., the
quantity of feed consumed by the flock
divided by the weight of the flock
delivered) is above the average of other
growers in the tournament, the grower
receives a bonus; if the grower is below
average, the LPD reduces the grower’s
compensation. Under the tournament
system, the contract between the grower
and LPD provides for payment to the
grower based on a grouping, ranking, or
comparison of growers delivering
broilers to the same company during a
specified period. These pay rates are
generally expressed in cents per pound.
Applying these adjustments, whether
positive or negative, significantly affects
growers’ effective rates of compensation
and net income.
In its current form, the tournament
system operates unfairly and
deceptively. Without clearly stated base
rates of compensation, the complexity of
the tournament makes it difficult for
growers to clearly understand the
minimum amount they could be paid.
Moreover, compensation based on
relative performance when LPDs control
the operation of the tournament (such as
the distribution of inputs and
assignment of production practices)
creates the potential for growers’
performance to be determined by factors
outside their control, thereby making
the tournament system an ineffective
incentive system that is arbitrary and
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unfair to growers. The tournament
system also introduces considerable
complexity and uncertainty for growers
in calculating their anticipated total
compensation and evaluating the
potential return on their investments.
Furthermore, if the comparisoncompensation factor (i.e., the bonus or
deduction) is a large percentage of total
compensation, that variance in total
grower compensation is no longer a
legitimate business but simply shifts
economic risk from processors onto
poultry growers without a demonstrable
countervailing benefit. Without
additional guardrails, the current
tournament system creates significant
risk of deception or unfairness for
growers under the Act.
AMS has not found any evidence that
poultry tournament systems that
include deductions from the base pay
rate or excessive variability in grower
compensation provide a benefit to
growers or competition in the market for
grower services that outweighs the harm
to growers. Deductions in other
livestock contracts commonly reflect
performance attributes of the animal
itself, which is owned by the producer.
Here, the producer provides a service
with no ownership interest in or role in
the selection of the animal. These
deceptive and unfair payment practices
create an unfair competitive advantage
for LPDs at the expense of growers.
Therefore, the widespread adoption of
these types of contracts has frustrated
fair competition, instead of enhancing
it. Such discounting and pay variability
also reflect the market power and
bargaining power of the LPD in dictating
contract terms.
Section 201.106 will provide growers
with greater clarity and protection
regarding the minimum payments they
can expect under broiler growing
arrangements. This rule prohibits a
range of unlawful behavior by
establishing a threshold presumption
against excessive pay variability,
establishing a transition period to
preserve existing pay, and making
minimum pay clear for growers. This
rule will better enable growers to
compare contract terms, evaluate
revenue generation, and assess the value
of additional capital investments.
i. Section 201.106(a)—Rate
Transparency
AMS is finalizing new § 201.106(a),
which prohibits the reduction of any
rate of compensation under the broiler
growing arrangement on account of the
grower’s grouping, ranking, or
comparison to other growers. This
provision is identical to that which was
proposed, except that the provision is
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now designated paragraph (a), with the
paragraph heading ‘‘Rate transparency.’’
Under this provision, the broiler
growing arrangement must clearly state
the compensation rate. The arrangement
may not provide for mechanisms or
calculations that would reduce the
compensation rate based on the grower’s
performance relative to other growers,
but it can provide for the rate to be
increased based on the grower’s
performance relative to others. The
broiler growing arrangement could
provide for the compensation rate to be
increased based on the broiler grower’s
performance relative to others, but in no
event could the rate be decreased or
discounted by that comparison.
‘‘Rate of compensation’’ refers to any
payment amount that the LPD utilizes to
compensate the grower under a broiler
growing arrangement, which could
include ‘‘base pay,’’ ‘‘minimum pay,’’ or
any other rate defined in the contract.
That rate would have to be prominently
and clearly defined as the guaranteed
level of pay a grower will receive if the
grower performs to the minimum
specifications of the relevant provisions
of the contract. To the extent that a
broiler growing arrangement had more
than one rate of compensation, none of
the rates could be reduced or
discounted by a comparison. Under
existing AMS regulations, a broiler
growing arrangement must include all
payment terms in the contract (9 CFR
201.100(c)(2)).
Under section 202 of the P&S Act,
AMS concludes that the practice of
discounting disclosed ‘‘base’’ pay rates
in broiler contracts is an unfair and
deceptive practice. This practice forces
growers to estimate potential earnings
using contractually stated ‘‘base’’ pay
rates that, under the tournament system,
only half of the settlement group can
achieve. This unfair and deceptive
practice obscures the value of the
contract, thereby frustrating
comparisons with competing LPD
contracts in markets where growers are
fortunate enough to have more than one
or two LPDs to contract with.
AMS expects that, under this
regulation, LPDs will still be able to
elicit a competitive level of performance
using a broiler compensation design that
conforms to the requirements of this
final rule. The LPD could reward
performance for feed efficiency relative
to the growers in the settlement with a
minimum base pay rate per pound and
an upward adjustment to the payment
formula. Depending upon the facts and
circumstances, mere compliance with
this regulation does not absolve an LPD
of its other legal obligations. A
compensation structure without a
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penalty or reduction from a true
guaranteed minimum pay rate may
still—if the facts demonstrate it—result
in other violations of the Act.
ii. Section 201.106(b)—Excessive
Variability
In the final rule, AMS is adding new
paragraph (b), ‘‘Excessive variability,’’
which establishes a presumption that an
LPD has violated section 202 of the Act
when aggregate gross annual payments
based upon a grouping, ranking, or
comparison of growers exceed 25
percent of total gross payments to
growers in a complex on an annualcalendar year basis. AMS is adopting
this approach because excessive
variance in total grower compensation
arising from comparison-based
compensation would, generally, create
excessive variability that is deceptive
because growers cannot reasonably
assess the risk they are undertaking or
forecast, predict, or budget their
business operations. Further, excessive
pay variance makes compensation
dependent on arbitrary criteria, random
factors, or other criteria that the grower
cannot control or affect. When the
comparison performance pay too
substantially affects compensation, it is
unfair.
When growers perform reasonably
under the terms of the production
agreement, excessive variability in
performance pay arises at least in part
due to LPD-controlled factors or
unavoidable inherent natural variability.
These factors are outside of the grower’s
control and cannot be completely offset
by grower effort or skill. LPDs design
ranking systems to allocate grower
payments based upon grower effort and
skill. When factors other than grower
effort and skill are comingled with the
metrics used to allocate pay, the
practice is ripe for potential abuse and
unfairness because excessive variability
in performance payments unfairly
reduces compensation to growers. This
unfairness to growers is particularly
pronounced owing to high indebtedness
among growers, which leaves them
more financially vulnerable to harms
from excessive income variability that
does not reasonably reflect their own
efforts.19 That pay variability also
frustrates growers’ ability to accurately
assess, or reasonably control, their rates
of compensation and the overall
financial risk they undertake under a
broiler growing arrangement, which is
particularly problematic given the risk
19 In contrast to contributions by the grower, LPDs
contribute much more significantly to overall
performance by furnishing the inputs, e.g., genetics,
feed, nutrition, sex of chicks, and close supervision
of the grower’s managing production.
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they bear. The injury is not offset by
attendant benefits, since the practice
tends toward distorting the market’s
true pay amount and reducing growers’
ability to accurately assess, or
reasonably control, their finances and
make informed business decisions.
Though § 201.106(a) addresses the
problem of reductions to rates of
compensation that arise owing to
groupings, rankings, or comparisons of
growers, it does not alleviate all
potentially unfair aspects of the
tournament system or of the integrated
model of broiler production. The
proposed rule indicated that AMS
intended to engage in case-by-case
enforcement to remedy other aspects of
tournament system unfairness,
including issues arising from excessive
variability in payments. In addition to a
prohibition on discounting rates of
compensation, the proposed rule
particularly highlighted the potential
importance of a 25 percent presumption
on total compensation based on a
grouping, ranking, or a comparison (the
tournament) to total of base pay rate
plus performance compensation. As
AMS indicated in the proposed rule,
this approach could alleviate extreme
variability as an aspect of existing
tournament system unfairness.
In the proposed rule, AMS included
questions containing additional
proposals. One such proposal solicited
comment on whether it is
presumptively unfair for comparisonbased compensation to equal or exceed
25 percent of total (base pay rate plus
comparison-based) compensation for
any grower and asked a range of
questions around the appropriateness of
the specific threshold, how to calculate
it, and how it would affect the
industry.20 These questions included
highlighting the role of the 25 percent
presumption as a potentially binding
constraint, and how LPDs might
respond to the prohibition introduced in
§ 201.106(a) by modifying the
compensation structures in grower
contracts. AMS’s questions indicated
that it could raise base pay and/or limit
performance payments—thus reducing
the difference between top and bottom
performing growers—without increasing
total grower compensation
expenditures. It also left open the
possibility that LPDs could potentially
adjust their compensation structures in
other ways, such as by providing noncomparison-based incentives to growers
they might seek to reward (such as per
pound or per square foot compensation
for housing known to provide
efficiencies to the LPD) or deploy other
20 89
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incentives (such as fixed performance
bonuses).
In response to the proposed rule,
growers and advocate commenters
overwhelmingly supported the need for
additional limitations on excessive
variability in payment arising from rates
of compensation, with a particularly
strong endorsement of the 25 percent
limitation on performance. Commenters
underscored the importance of this
limitation for some of the reasons that
AMS indicated in the proposed rule:
that it is necessary to protect growers
from unfair reductions in payments.
To incentivize grower effort, LPDs
allocate grower pay using relative
performance metrics; however, grower
effort alone is an insufficient
determinant of grower performance.
Growers’ performance depends on many
factors, some of which are under the
control of growers while others are not.
Some known factors, including a
grower’s skill and effort, are within a
grower’s control. Other factors are
outside a grower’s control, such as feed
quality, chick quality, and the skill or
other efforts of other growers in the
comparison group. Even if all these
known factors are accounted for, there
is still some unavoidable inherent
natural variation in performance that
would explain growers’ performance
volatility, flock to flock, even if all the
known factors remain constant. The
nature of this variability creates harm to
growers in reduced performance
payments.
The use of flock performance metrics,
specifically feed conversion, as a proxy
to grower effort is imperfect. Feed
conversion itself is affected by variables
beyond grower effort. AMS is not aware
of existing technological innovations
that could serve to better isolate grower
effort, which is exclusively under
grower control. That is not to say flock
performance metrics serve no purpose
in assessment of grower effort and
allocation of grower payments. AMS’s
experience in analyzing performance
payments suggest that ranking systems
can be a useful and reasonably equitable
mechanism for pay allocation with
proper regulation and in proper
magnitude. Within a reasonably
contained range—i.e., presumptively 25
percent of total compensation—the
tournament may offer a reasonable
benefit to growers by enabling LPDs to
efficiently measure grower performance
and guard against natural forms of
variability that would arise were
compensation fixed rather than floating
(i.e., the comparison-based average of
growers). Yet at too high a level, the
potential harms of comparison-based
compensation (performance pay
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dominating grower pay allocation
without rewarding commensurate
differences in effort) outweigh the
potential benefits. That is unfair under
section 202(a) of the Act because
compensation under the tournament
becomes correlated to input distribution
(and other circumstances under the
control of the LPD, such as flock
production practices or responsiveness
to complaints), which is commonly
arbitrary—or, in some cases when not
arbitrary, can be punitive. Some growers
who comply with the contract and are
unfairly penalized for factors beyond
their control suffer unavoidable harm;
they are denied the full amount due for
their growout services. While growers
can benefit from participation in the
tournament, excessive pay variability
can cancel out those benefits as they are
outweighed by the harms.
Based on previous analysis of grower
compensation data for a small sample of
broiler complexes, AMS is not aware of
any complex with performance
payments that are as much as 26 percent
of total payments. Additionally, in
United States v. Cargill Meat Solutions
Corp., commonly referred to as ‘‘WayneSanderson,’’ the final judgment also
contains a 25 percent limitation on
performance payments.21 The WayneSanderson settlement is significant
because it was agreed to by one of the
largest market participants and has not
caused any demonstrable harm to the
company or to the market, nor is there
any evidence that it disincentivized
grower effort or lowered performance.
While Wayne-Sanderson had agreed to
a 25 percent limitation on performance
payments, this final rule establishes that
performance payments above 25 percent
are presumed to be unfair. This is
because performance pay variability
causes injury to growers when the
magnitude of performance pay is so
excessive. That is, the performance pay
significantly affects whether the grower
is successful, yet the amount depends
on unavoidable variance and does not
reflect grower performance. In those
circumstances, compensation no longer
correlates to factors within grower
control, such as their effort and
expertise. This deprives growers of the
value, both real and expected, of their
services. The vast majority of
commenters who addressed the topic of
comparison-based compensation
endorsed the idea of 25 percent as an
appropriate level for a presumption of
this type.
We note that this presumption will
provide guardrails in helping LPDs set
21 United States v. Cargill Meat Solutions Corp.,
1:22-cv-01821–ELH (D. Md. July 25, 2022).
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and maintain performance pay
standards that achieve appropriate
goals, such as rewarding effort and skill
against a floating average that adjusts for
common circumstances, like weather,
without unduly denying growers the
expected value of their growout
services. This clarity will guide LPDs
that need to modify existing contracts to
comply with this final rule, such as with
§ 201.106(a). For example, absent the
existence of § 201.106(b), LPDs could
comply with § 201.106(a) by decreasing
base pay and excessively increasing the
proportion of pay that is dependent on
performance compensation. Such
contract modifications would
supercharge pay variance in the
tournament while penalizing growers
under the guise of complying with
reforms designed to improve
transparency and fairness. The
presumption under § 201.106(b) helps
ensure continuity in compensation at an
aggregate level because it guards against
excessive variability of performance pay
relative to total pay. To stay within the
presumptive boundary set by
§ 201.106(b), an LPD must set a
reasonable compensation rate for any
new base payment under the contract.
AMS underscores that nothing in the
rule prevents LPDs from providing other
forms of incentive compensation to
growers for reasons other than relative
performance, such as payments for
improved facilities or utility subsidies.
Overall, the 25 percent presumption
against excessive variability is useful to
provide clarity and consistency around
when AMS may seek to investigate for
case-by-case compliance and enhances
the fairness and transparency of
compensation rates in broiler growing
arrangements. As such, it reflects a
logical outgrowth of the proposed rule.
Separately, AMS notes that it also
expects to examine for excessive
variability other forms of performance
payments that are based on how
efficiently a grower uses inputs
supplied by the LPD: such payments
could emerge as a method for evading
this provision’s purpose. Examples of
such performance payment systems
include what are commonly called fixed
metric performance payments, which
predate the current tournament,
whereby growers’ performance
payments are tied to their individual
achievement of certain fixed metrics
around efficient use of inputs. AMS
expects to examine these types of
performance systems for excessive
variability for similar risks of
unfairness, including because the LPD
provides the inputs and production
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practices and in those circumstances
would be setting the fixed metrics.
In review of the presumption, AMS
will consider other complex-specific
incentives as requested by the LPD that
would otherwise not be appropriate to
consider as part of the rates that make
up base payment. For example, energy
incentives may be considered
differently because they vary
significantly based on geographic
location, and so would result in
somewhat different application of the
provision for growers at different
complexes. Where a relatively high
degree of variability in performance pay
exists, even within the 25 percent, due
in part to energy incentive payments,
AMS may examine whether the
tournament is unfair.
To rebut the presumption of
unfairness triggered when comparison
compensation payments exceed 25
percent of total compensation, the LPD
may affirmatively demonstrate (i) that a
given tournament’s compensation
system allows all growers to be
economically successful without the
need to receive any payments based
upon a grouping, ranking, or
comparison of growers that exceed the
amount covered by the presumption; (ii)
that payments to all growers that exceed
the amount covered by the presumption
are sufficient to reflect the increased
risk of variability to all growers under
that system; and (iii) that the system is
not otherwise unfair or deceptive. The
Agency would examine any rebuttal on
a case-by-case basis to comport with the
purposes of the presumption to prevent
LPDs from engaging in unfair or
deceptive practices or devices that harm
poultry growers.
AMS adopted this provision after
considering the case-by-case
presumption set forth in the proposed
rule and public comments that urged
AMS to instead establish a greater
limitation on excessive variability of
payments arising from performance,
especially comparison-based,
compensation. Public comment
regarding this provision, and AMS’s
response to those comments, are
discussed in greater detail below in
section V., ‘‘Comment Analysis.’’
iii. Section 201.106(c)—Transition
In the final rule, AMS is also adding
new § 201.106(c), which requires that,
for any contract modification or renewal
subject to § 201.106(a) that results in a
grower receiving less than the prior
year’s complex-wide average gross
payment, the LPD must submit a copy
of the prior contract and the modified
contract, as well as any LPD Disclosure
Document prepared under § 201.102
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with respect to the prior and the
modified contract, to the Secretary.
AMS will monitor contracts to
identify signs of the unfair exercise of
LPD bargaining power during this
transition period. These could include,
for example, a predatory method of
competition whereby an LPD seeks to
lower pay across the entire complex or
discriminatory or retaliatory conduct
that seeks to lower the pay of some
subset of growers. Unfair conduct by the
LPD could potentially arise where the
LPD seeks to undermine contractually
agreed-upon earnings from the previous
contract irrespective of the tournament.
One way for AMS to identify such
conduct could be through LPD
Disclosure Documents (currently
required under existing 9 CFR 201.102),
which would be required if LPDs
modify or replace contracts in seeking
compliance with this rule. The recordkeeping and reporting requirements in
this final rule will further help identify
any potential illicit exertions of market
power by allowing AMS to closely
scrutinize contract modifications that
jeopardize grower welfare during the
transition period.
In keeping with the requirements in
§ 201.102(d)(2), AMS expects LPDs to
explain why the annual gross payment
averages for the previous five years may
not provide an accurate representation
of projected future payments. AMS also
expects a distinct explanation of how
any changes the LPD is proposing under
the new contract are necessary to
comply each part of final § 201.106.
That is, changes made to comply with
§ 201.106(a) and (b) should be
explained. AMS strongly encourages
LPDs to explain changes needed to
comply with § 201.106(b) first, and then
apply a conversion scale from whatever
updated approach is adopted to comply
with § 201.106(a).
AMS will evaluate the reported
contract modifications and associated
documentation to assess grower welfare,
given that growers will be particularly
susceptible to economic hold-up
concerns. In particular, AMS will
consider the following variables: (1) the
number of flock placements annually;
(2) the stocking density; and (3) the
distributional range of payments. If,
upon consideration of these variables,
AMS identifies contract modifications
that negatively impact grower welfare or
that include supply reductions from the
complex, the Agency will closely
scrutinize the modifications, including
rates, for fairness and reasonableness.
It is crucial that growers are
meaningfully informed about the terms
of the grower arrangements and the
expected compensation for their
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services so that they can make
financially sound decisions and identify
potential economic hold-up. The
reporting requirements will only be in
effect for three years including and from
the effective date of this rule.
During the three-year transition
period, LPDs must evaluate average
grower compensation at the complex
level for each of the three calendar years
commencing with and including the
rule’s effective date to determine if they
need to submit their contract to AMS for
review. The rule requires LPDs to use
the average grower compensation across
the complex, because this analysis
shows if an LPD has cut grower
compensation overall. The rule uses
averages because performance-based
compensation is unpredictable on a
grower-by-grower basis and because
using total grower compensation at the
complex would be overinclusive. For
example, grower turnover might skew
an analysis based on total grower
compensation. This makes the
§ 201.106(c) method of evaluation
comparable to how unfair levels of
performance-based compensation are
defined under § 201.106(b).
AMS chose a transition period of
three years for several reasons. First, it
is nearly impossible to evaluate the
changes to grower pay made to contracts
within 180 days or even a single year
with any level of confidence. Many
contracts are three, five, or ten years in
length, so it may take up to a year of
payments to even begin evaluating the
financial effect of changes. Reviewing
payments within a 180-day period may
not indicate what growers would earn in
a year and would be limited in scope
and value; any conclusions based on
that limited review would be
speculative, and violations of the Act
cannot be based on speculation. After a
full year of operation following contract
modification, the realization of grower
performance outcomes and practical
application of the compensation
structure are known and translated into
actual grower payments. This will
facilitate AMS’s analysis of the actual
distribution of grower payments and
overall level of compensation that
resulted from the new compensation
structure and allow for a more fulsome
evaluation of fairness concerns. It also
allows AMS to consider the market
environment as context for LPD actions.
Additionally, this new rule may
necessitate adjustments to the
compensation structures used in grower
contracts, and it will take time for
growers to become used to the new
regulation. AMS needs to look at how
the overall market is adjusting to this
new reality and prevent evasion during
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that adjustment period. For example, an
LPD may make a series of small contract
changes, which would require AMS to
review the overall market adjustments,
not just the initial changes. Failure to
capture the full implications of the
transition period would put growers at
risk from LPD market power and
bargaining imbalances between LPDs
and growers.
AMS underscores that this is a
monitoring and reporting requirement,
owing to the ongoing risk to growers
that the contracts could be modified and
re-modified during this transition
period. This contract review will help
the Agency decide whether to conduct
more specific oversight and enforcement
while the new regulatory regime is
implemented.
Three years is the period of financial
information that banks request from
borrowers, such as growers, and so it
provides a reasonable period for AMS to
engage in these market-monitoring
activities. After three years, AMS agents
will continue to monitor contracts and
ensure they are following the
requirements of this final rule, but LPDs
will not need to submit contract
modifications.
In the proposed rule, we asked for
public comment on this issue, and
received overall support for a provision
to protect growers that rely on existing
contracts from holdups and potential
market abuse. Specifically, we asked the
following question: ‘‘To minimize
transition risks to growers, should AMS
include a requirement that LPDs submit
to AMS for review any contracts
modified or revised to comply with new
§ 201.106?’’ 17 The comments received
in response to this specific question
were mixed in their support and are
addressed below in sections V.A.iv. and
v.
Because the Secretary will subject the
updated contracts to close scrutiny for
unfairness, the Secretary would seek
access to the dealer’s business records.
During any investigation, AMS may
examine any changes to average annual
gross payment per pound for growers in
the complex and any changes to average
payment per square foot increased. Each
investigation will consider the
individual facts and circumstances of
each situation, as these considerations
are important in examining whether
growers were held at least no worse off
during the contract modification
process. Although the final rule is
designed to benefit growers and reduce
unfair and deceptive practices, growers
face a significant risk of unfair practices
owing to the risk of hold-up when they
may be required to change their
contracts so that LPDs comply with this
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rule. Based on AMS’s experience
implementing rules, LPDs may seek
during any compliance and
implementation period to extract
changes to the contract unrelated to the
regulatory requirements of this rule. The
purpose of providing contracts to AMS
is to identify unfair practices or
otherwise unlawful reductions to
payment that are favorable to LPDs and
harmful to growers.
B. Operation of Broiler Grower Ranking
Systems (§ 201.110)
AMS is finalizing new § 201.110,
‘‘Operation of broiler grower ranking
systems,’’ which regulates how LPDs
operate ranking systems (i.e.,
tournaments) for contract broiler
growers, establishing a duty of fair
comparison when calculating
comparison-based compensation among
a group of poultry growers in a
settlement group. This section contains
factors for the Secretary to consider
when evaluating whether LPDs have
abided by the duty of fair comparison
requirement. When LPDs are unable to
make a fair comparison for one or more
growers, they are required to use a noncomparison compensation method as
specified in the contract. LPDs are
required to document how they design
and operate their poultry grower
ranking systems in a manner that is
consistent with the duty of fair
comparison. The documentation must
show that LPDs take measures to
mitigate the impact of inequitable
distribution of inputs and flock
production practices on grower
performance and, hence, comparisonbased compensation.
The purpose of the rule is to ensure
that comparison-based compensation
reflects grower effort, not factors that
injure the grower, such as feed or chick
quality or timing of feed delivery that
are outside of grower control but within
the control of LPDs. The problem this
rule seeks to address is how LPDs
manage variation in quality or timing of
inputs, flock production practices, and
how LPDs handle growers’ concerns
(i.e., groupings, responsiveness to
problems). AMS certainly believes that
rewarding grower effort is fair, but
unfair and deceptive comparison
systems are not.
For example, breeding hens have a
lifecycle of 50 weeks. They produce
optimal chicks between weeks 20–34,
but they also produce chicks that have
value outside the optimal window. The
LPD has a financial incentive to grow all
these chicks to maturity, and thus will
distribute a mix of higher and lower
quality chicks in any one settlement
period to its growers. Those growers
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receiving a higher proportion of
suboptimal chicks are disadvantaged in
a relative comparison to growers who
received a higher proportion of optimal
chicks.
In theory, LPDs would provide
uniformly high-quality inputs (such as
chicks and feed) and appropriate
production practices (such as flock
density) to all growers to ensure
maximum efficiency, product quality,
and profit. LPDs would also ensure
tournament groupings are reasonably
random or otherwise not biased and
would also reasonably control for
problems that growers faced (such as
accidental delivery of the wrong feed).
However, inputs are natural systems
and, therefore, variation in input quality
necessarily exists. This variation in
input quality affects performance.
Moreover, human error can be present
in vertically integrated systems as well,
for example, the accidental delivery of
feed designed for older birds. LPDs want
to obtain the full value from all usable
inputs and are not inclined to dispose
of lower quality chicks or feed to ensure
growers only get the highest quality
inputs. Thus, LPDs routinely distribute
lower quality, lesser performing inputs
to their contract growers, even though
growers who receive those inputs will
likely receive lower compensation than
their peer growers in the same
tournament that receive higher quality,
higher performing inputs. Within a
given poultry complex (group of
growers serving a single processing
plant), a significant share of each
grower’s compensation is determined by
their rank in tournaments between
growers at the complex, even though a
proportion of performance variation
across growers is attributable to
variation in inputs, including feed and
chick quality, timing of feed delivery
and flock pick-ups.
LPDs purport that this system works
to promote fair competition in the
market for grower services. From an
LPD’s perspective, as outlined in several
public comments, a grower receiving
poorly performing inputs and a low
rank in one tournament is how the
system works; over the long term,
according to the commenter, the grower
will likely receive better-performing
inputs that help to balance out one
tournament’s losses. LPDs also stated in
their public comments that they have no
incentive to furnish a grower with
poorly performing inputs and/or
otherwise mistreat growers.
In practice, LPDs assertions do not
bear out. LPDs have limited financial
incentive to expend extra efforts to
evenly distribute optimal inputs and
production practices across growers in a
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poultry settlement pool or even to some
extent to promptly address problems.
LPDs have not provided supporting
evidence that long-term provision of
inputs balance out uniformly. Even if
over the long-term the variability, on
average, balances out, there will be
growers who do not benefit from the
balancing or for whom the balancing
comes too late to address the harms
caused by variability. LPDs’ assurances
of long-term balancing out do not
provide comfort to the grower facing
decreasing ability to pay for immediate
operating expenses—and who does not
have the extra cash to buffer one
tournament’s losses. Furthermore, under
the current compensation system, LPDs
have little motivation to limit
performance variability, exercise
appropriate care in input distribution,
or generally create reasonable
uniformity regarding other aspects of
tournament operations.
As growers and grower advocacy
organizations have asserted, LPDs often
provide the ‘‘noisy’’ grower (who
exercises their dissatisfaction or seeks
redress for bad treatment) ‘‘bad’’ or
otherwise inappropriate or untimely
inputs or flock production practices, or
even organize them into comparison
groupings designed to adversely affect
their performance. This can even occur
for those seeking timely assistance or
correction for supposedly inadvertent
mistakes (e.g., feed delivered to new
chicks that is designed for older birds,
and hence is not edible by the younger
birds). Growers have consistently
reported over the years that LPDs
commonly exercise punitive control
over inputs, production practices,
tournament groupings, and the
availability of assistance for ordinary
problems. These circumstances suggest
an environment characterized by
unavoidable unfairness and oppressive
methods that adversely affect growers’
and even LPDs’ ability to compete on
the merits. Growers who receive bad
treatment cannot competitively
discipline an LPD by negotiating better
terms or choosing a different LPD. They
must accede to continued poor
treatment by the LPD.
LPDs’ practice of basing grower
compensation on factors beyond
growers’ control distorts the competitive
market for grower services. LPDs
possess power—whether regionally,
within the contract relationship with
growers who depend on that
relationship to pay down debt, and/or
through information asymmetry (i.e.,
through knowing detailed information
about inputs and growers’ finances
while growers know relatively little).
This power allows them to reduce
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growers’ compensation to unfair levels
they know growers can barely bear; in
turn, growers’ reduced financial
stability further reduces their
countervailing power. Another feature
of this practice is that LPDs are not
actually allocating more funds to better
compensate higher-performing growers:
they fix overall compensation to their
growers from tournament to tournament
and deduct pay from those who
performed below the average to reward
those who performed above average. In
so doing, they prevent growers from
actually earning compensation
commensurate to services—a
circumstance that numerous
commenters described experiencing but
possessed little recourse to
counterbalance, i.e., ‘‘Take it or leave
it.’’ This practice further erodes the
competitive conditions in the market for
grower services. Numerous commenters
discussed how just a few below-average
rankings caused them to not be able to
afford operational expenses and perform
worse and worse; and/or exit. By basing
compensation on factors outside of
actual grower services, LPDs also distort
the actual price signal for grower
services. And, by fixing overall
compensation and deducting from the
bottom to reward the top, they prevent
honest competitors that actually allocate
more funds for better-performing
growers. Altogether, AMS believes these
are unfair and deceptive practices under
the Act.
LPDs harm growers when they
compare growers where inputs,
production practices, tournament
groupings, and assistance are not
equitably distributed. Grower pay
becomes undeservedly low and fosters
unlawful variability in both
performance and compensation that
have no relationship to the grower’s
work, initiative, or skill. Growers have
no control over how inputs, production
practices, tournament groupings and
assistance are allocated, owing to the
vertically integrated model of broiler
chicken production. Unfair comparisons
do not benefit growers or competition,
and indeed frustrate the LPDs’ claimed
purpose of the tournament structure.
The tournament is a form of
performance payment that is intended
to incentivize grower deployment of
effort, skill, and investment to foster
more efficient use of the inputs
provided by the LPD. Purportedly,
tournaments capture actual differences
in grower performance during a given
period, while adjusting for overall
conditions affecting performance, such
as adverse weather conditions, that
affect all growers in the complex. The
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rule sets out reasonable alternatives to
these harms that do not undermine the
benefits to growers from the vertically
integrated production system or from
using comparisons to establish flexible
baselines for evaluating grower
performance, within its appropriate
limits.
AMS notes that growers get paid by
the pound and start with a static
number of chickens. Thus, they have
contractually inherent incentives to
grow their chickens to the target weight
and to minimize the death loss of
chickens, even in the absence of a
performance payment. Yet AMS also
acknowledges that ensuring growers’
use of the minimum amount of inputs,
such as feed, to achieve maximum
growout is also an important part of the
overall mix of cost efficiencies. AMS
agrees, to the extent that the pool of
growers in a tournament is sufficiently
random and that the necessary
conditions for equitable comparison are
met, a tournament may spur growers to
operate more efficiently as they seek
higher comparison-based compensation,
while reasonably guarding against
commonly shared external conditions.
Yet as discussed in the proposed rule
and reflected in comments from grower
groups and others, those conditions are
often not met. Nor, indeed, are arbitrary
or inequitable differences in inputs and
production practices inherently
essential features required to deliver the
benefits of the poultry industry’s
vertically integrated production and
comparison-based performance
compensation system. In fact, arbitrary
or inequitable practices undermine
these benefits, producing instead
arbitrary or otherwise inequitable
grower pay differences that run contrary
to the industry’s avowed purpose of the
tournament system.22
Because the tournament system
determines a component of grower pay,
LPD practices that impair a fair
comparison of grower performance
cause a misallocation of performance
compensation, thereby unfairly
reducing the compensation that may
otherwise be due to some growers.
Studies 23 have shown that differences
22 See, e.g., ‘‘How the Tournament System
Works,’’ National Chicken Council (informing
farmers that: ‘‘1 All farmers are provided the same
quality of chicks, the same feed, and access to
veterinary care. 2 Farmers who invest in more
advanced facilities, as well as use the best
management practices will likely produce higher
quality chickens more efficiently. 3 Farmers receive
a base pay (per their contract) and potentially a
bonus, based on the health and quantity of the flock
(tournament system).’’); available at https://
www.chickencheck.in/faq/tournament-system/ (last
accessed May 22, 2024).
23 Dozier III, W.A., et al. ‘‘Stocking Density Effects
on Growth Performance and Processing Yields of
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in production practices and inputs, such
as stocking density, slaughter weight,
bird gender, and breeder flock age, can
impact the performance metrics used in
determining the performance
adjustments in tournament payment
systems. If LPDs provide all growers in
a tournament group similar-quality
inputs and compare growers using
similar flock production practices, or if
they take steps to balance these
differences over time or otherwise
adjust pay to account for the relevant
differences, these production factors
under LPD control are unlikely to
unfairly affect growers.
However, when LPDs rank growers
who received lower quality (i.e., lesser
performing) inputs or less favorable
flock production practices against
growers who received higher quality
(i.e., higher performing) inputs or more
favorable flock production practices the
former group will likely receive lower
pay than the latter group due to factors
beyond their control. The ranking in the
tournament will not reflect the grower’s
actual performance; it will reflect the
inputs and flock distribution practices
the grower received and the grower’s
performance relative to that of other
growers. This is an unfair practice
unless the LPD took effective steps to
make appropriate adjustments to the
compensation structure for this
settlement group to reasonably
neutralize the impact of the inequitable
distribution of inputs and flock
production practices within the ranking
group. The problem this section of the
rule addresses is how tournaments can
be designed to effectively counteract the
impact of inequitable tournament
practices and lead to a fair comparison
in poultry ranking systems.
Some LPDs have taken steps to design
their compensation systems to
appropriately account for the
Heavy Broilers,’’ Poultry Science 84 (2005): 1332–
1338; Puron, Diego et al. ‘‘Broiler performance at
different stocking densities.’’ Journal of Applied
Poultry Research 4.1:55–60 (1995). Burke, William
and Peter J. Sharp. ‘‘Sex Differences in Body Weight
of Chicken Embryos.’’ Poultry Science 68.6 (1989):
805–810; Beg, Mah, et al. Effects of Separate Sex
Growing on Performance and Metabolic Disorders
of Broilers. Diss. Faculty of Animal Science and
Veterinary Medicine, Sher-e-Bangla Agricultural
University, Dhaka, Bangladesh, 2016; Wilson, H.R.
‘‘Interrelationships of Egg Size, Chick Size,
Posthatching Growth and Hatchability.’’ World’s
Poultry Science Journal 47.1 (1991): 5–20;
Washburn, K.W., and R.A. Guill. ‘‘Relationship of
Embryo Weight as a Percent of Egg Weight to
Efficiency of Feed Utilization in the Hatched
Chick.’’ Poultry Science 53.2 (1974): 766–769;
Weatherup, S.T.C., and W.H. Foster. ‘‘A Description
of the Curve Relating Egg Weight and Age of Hen.’’
British Poultry Science 21.6 (1980): 511–519;
University of Kentucky/Kentucky Poultry
Federation, Poultry Production Manual, https://
afs.ca.uky.edu/poultry/production-manual
(uky.edu), last accessed 08/21/2023.
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maldistribution of inputs and
production practices within a poultry
ranking group. In response to the
Advance Notice of Proposed
Rulemaking that preceded the proposed
rule for this final rule, LPDs and their
trade associations described different
steps LPDs have taken to correct for the
inequitable distribution of inputs and
production practices among growers
and resulting comparisons. A meat
industry trade organization indicated
that LPDs are known to reduce
unpredictability in grower outcomes by
having contracts that evaluate
performance over multiple flocks and
adjust pay for factors outside growers’
control. For example, some LPDs adjust
payments for different densities of birds
placed or provide credits for excess
seven-day death loss.
Complementing these examples, AMS
investigations have also found that some
LPDs will attempt to ensure that broiler
growers do not receive chicks from
young laying hens too often because this
can negatively affect growers’
tournament performance. Some LPDs
will communicate and correct ordinary
problems on a timely basis. This helps
growers avoid unintentionally punitive
outcomes than would otherwise be the
case. Yet, while LPDs assert that quality
communication and fair operation are
universal, AMS has found through
interviews and comment review that
LPD behavior currently depends
extensively on the goodwill of the LPD,
commonly via the manager of the local
complex, and LPDs are not uniformly
consistent in addressing issues that lead
to unfair outcomes. Some local
complexes make discretionary decisions
that harm growers.
For instance, while LPDs regularly
maintain extensive grower manuals,
LPDs are not obligated to have their
manuals address the range of situations
that undermine a fair comparison or
monitor whether the local complexes
comply with that manual in practice.
Growers need a poultry ranking system
that meets a reasonably reliable
standard. For there to be fair payments
under sections 202(a) and 410 of the
Act, LPDs must properly adjust their
comparison-based compensation
systems used in poultry grower ranking
systems. Rules, like this final rule, must
reasonably neutralize the impact of
inequitable distribution of inputs and
flock distribution practices on poultry
grower compensation.
Because different inputs and flock
production practices affect performance
under the tournament, LPD decisions
are an outsized component of grower
payments. When an LPD operates a
tournament that uses arbitrary or
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inequitable delivery of inputs and
production practices without
establishing systems to mitigate material
differences in inputs and production
practices among growers in a
comparison group or otherwise
reasonably neutralize comparison
impacts, the LPD has committed an
unfair and deceptive practice under the
Act. Such a practice is unfair because it
uses criteria outside the growers’ control
to evaluate their performance. It is
deceptive because it purports to
evaluate growers on their effort when in
fact it does not, often leading to
payment rates that are wildly
fluctuating and unpredictable. The duty
of fair comparison established in this
rule also arises out of the Act’s
prohibitions on unfair practices, unjust
discrimination, the manipulation of
prices, and failure to pay. Comparisonbased compensation systems can be
used to proactively cause harm to one
or more growers by placing them in
grower settlement groups that are
inappropriate based on distribution of
inputs or flock production practices.
LPDs likewise can use league
composition (i.e., the formation of
settlement groups) to manipulate prices
downward for a given grower or group
of growers. Finally, such practices can
lead to a failure to pay for services
provided. Violations of the Act include
an LPD failing to maintain policies and
procedures necessary to document the
company’s compliance with those fair
comparison duties, owing to the Act’s
recordkeeping authorities (7 U.S.C. 221).
AMS is adding a new § 201.110,
‘‘Operation of broiler grower ranking
systems,’’ to regulate LPDs’ operation of
poultry grower ranking systems (i.e.,
tournaments) for broiler growers.
Paragraph (a) establishes an LPD duty of
fair comparison in tournaments. This
duty of fair comparison requires LPDs to
structure their tournament system to
provide a fair comparison among
growers. AMS acknowledges that
sometimes a fair comparison is not
possible due to unforeseen differences
in inputs or other circumstances, in
which case an LPD must compensate
growers through a non-comparison
method specified in the contract that
reflects a reasonable compensation to
the grower for its services. Paragraph (b)
establishes basic documentation that
LPDs must maintain regarding how they
design and operate their poultry grower
ranking systems for broiler growers.
i. Section 201.110(a)—Fair Comparison
Paragraph (a)(1) requires LPDs that
use comparison-based compensation
systems for their poultry growers to
design and operate their poultry grower
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ranking system (i.e., comparison-based
compensations system) in a way that
provides a fair comparison among
growers. This final rule uses in various
places the definition of ‘‘poultry grower
ranking system’’—commonly called the
tournament contract—already set forth
in PSD regulations at § 201.2.24
Recognizing that LPDs have long
claimed that tournament contracts are
designed to promote efficiency, not
frustrate it, AMS has written this rule to
affirm the duty to fairly compare
growers. Specifically, this rule requires
LPDs to advance a fair comparison
among growers in a poultry ranking
group based on grower effort and skill.
Measuring performance based on input
quality—which is outside of the
grower’s control—is unfair and
deceptive. LPDs have a multitude of
means to maintain fair comparisons.
This includes correcting for: input
quality variations, inappropriate feed
type delivery, gaps in feed delivery,
variation in production practices such
as flock density, pick-up time or pickup weight across the comparison group.
LPDs can manage fair comparisons
through extending the period over
which the comparisons are made,
adjusting payment for certain inputs or
production practice differences, or
removing growers from tournaments
where a fair comparison is not possible.
LPDs can ensure league composition
(ranking groups) are reasonably random
and robust enough to establish a fair
comparison baseline. LPDs can also
establish processes for responding to
complaints in a timely manner or
making appropriate adjustments to
comparisons. But LPDs violate the Act
when they do not design and operate
their comparison poultry compensation
system in a manner that delivers a fair
comparison among growers within any
given ranking group.
Paragraph (a)(2) of § 201.110
establishes the factors the Secretary will
consider in determining whether an
LPD reasonably designed or operated its
poultry grower ranking system to
deliver a fair comparison among
growers or whether the LPD must utilize
a non-comparison compensation
method. This provision establishes a
violation for either the LPD’s failure to
design or failure to operate a poultry
grower ranking system to deliver a fair
comparison among growers. In the first
instance, AMS could bring an
enforcement action for an LPD’s failure
24 Poultry grower ranking system means a system
where the contract between the live poultry dealer
and the poultry grower provides for payment to the
poultry grower based upon a grouping, ranking, or
comparison of poultry growers delivering poultry
during a specified period.
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to design the ranking system in a
manner that would deliver a fair
comparison; such an action would be
based upon the processes set forth in the
documentation required under
paragraph (b) of this section. In the
second instance, AMS could bring an
enforcement action based upon an
LPD’s failure to operate the ranking
system in a manner consistent with the
duty of fair comparison. Such a failure
could be because the LPD was not
following the documented processes or
because in practice the documented
processes do not deliver a fair
comparison. The factors listed in
§ 201.110 (a)(2)(i) through (vi) are
designed to establish what constitutes
reasonable delivery of a fair comparison.
That is, the Secretary will examine these
factors when determining whether the
LPD has reasonably designed or
operated their ranking system.
Reasonableness should be viewed as an
objective test that accounts for growers’
contract expectations, basic
considerations of equity, and the LPD’s
ability and willingness to prevent harms
to growers resulting from factors outside
growers’ control. However, it should
also provide some flexibility to LPDs to
achieve distinct goals provided they are
well-designed, justified, and not
otherwise unfair or deceptive.
Paragraphs (a)(2)(i) and (ii) of
§ 201.110 address whether an LPD’s
distribution of inputs and assignment of
flock production practices caused
material differences in performance that
growers cannot avoid, and whether the
LPD made appropriate adjustments to
compensation. Fair comparison of
growers requires that growers do not
receive a distribution of inputs or
assignment of production practices that
cause material differences in
performance from other growers to
whom they are being compared and are
caused by factors outside of a grower’s
control. Material differences in
performance are differences that
meaningfully (from the perspective of
the grower) impact grower payments.
To comply with these requirements,
LPDs must identify inputs and flock
production practices under their control
that impact grower payment and ensure
that these factors do not meaningfully
impact grower payments. LPDs also
must improve their monitoring of how
inputs and flock production practices
are allocated across growers, and, as
appropriate, adjust such allocations to
reduce the unequal distribution among
growers within a settlement group or
across a given time period. An LPD
could still provide certain growers with
different inputs, for example because an
LPD believed certain growers were
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better at raising particular types or
quality of birds (e.g., chicks from older
hens), provided it adjusted
compensation if material differences in
performance affected the comparison.
The LPD would also be free to use a
non-comparison method for those
growers.
LPDs must adjust how grower pay is
calculated if a fair comparison is
impractical due to unavoidable
inequitable allocations. For example,
the LPD may determine that a five-flock
average may be appropriate for
determining a grower’s pay when the
LPD provided chicks for that grower are
later discovered to be diseased, and no
fair comparison is reasonably possible,
practical, or appropriate for that grower
within the tournament for that flock.
Any adjustment to how grower
compensation is determined must use a
non-comparison method specified in the
contract that reflects reasonable
compensation to the grower for its
services. The contract should set forth
the preferred approach(es) of the parties.
Ensuring that agreed-to payment
adjustments are fair will be part of
regular AMS poultry compliance
reviews. An average of the last five
settlements by the grower is considered
a non-comparison method for the
purpose of the tournament settlement
that the grower is being excluded from,
even though the average is affected by
the previous comparisons (unless
unusual facts and circumstances call
into question the fairness of such an
approach).
Section 201.110(a)(2)(iii) addresses
whether the designated time period
used in an LPD’s comparison is
appropriate, including whether the LPD
uses one or more groupings, rankings, or
comparisons of growers to mitigate the
effects of any differences in inputs over
the designated time period. Fair
comparison of growers does not require
that LPDs provide all growers precisely
equal inputs and identical production
practices for each flock. This rule
permits LPDs to minimize production
inefficiencies that would arise from a
standard requiring strict equality in
inputs, while avoiding an unfair
comparison of grower performance. If
the LPDs compare growers fairly over
reasonable period of time, randomly
selecting inputs is one way, in most
cases, to minimize the effect of the
flock-to-flock variance in inputs.
Companies may use non-random
distribution, including temporarily
correct for what would otherwise be an
inequitable distribution of inputs under
an otherwise random system, provided
they ensure comparisons are fair.
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AMS considers a period of one year
or less to be a reasonable timeframe
across which to compare growers’
performance because it provides
sufficient time to limit variation from
one event while ensuring that LPDs treat
growers fairly over a reasonable
timeline. The one-year period coincides
with commonly used five-flock averages
and with one-year comparisons used in
some live poultry growing
arrangements.
Paragraph (a)(2)(iv) of § 201.110
addresses whether conditions and
circumstances outside the control of the
LPD render comparison impractical or
inappropriate. A settlement group may
have differences in LPD-provided
inputs, LPD-assigned production
practices, or other factors beyond the
control of LPDs and growers that render
a reliable comparison impossible. The
Secretary will consider the facts and
circumstances applicable to each case.
One example might be the previously
described situation where an LPD
unknowingly delivered chicks to a
grower that are later discovered to be
diseased so that no fair comparison is
possible.
Section 201.110(a)(2)(v) addresses
whether an LPD has made reasonable
efforts to resolve in a timely manner
grower concerns regarding the LPD’s
exercise of discretion over the
implementation of its fair comparison
processes. In determining compliance
with this requirement, through
compliance reviews or in response to a
complaint, AMS will consider whether
an LPD has demonstrated enough
responsiveness and commitment to
resolving legitimate concerns to avoid
potential secondary harm to the grower.
What constitutes ‘‘reasonable efforts’’
and ‘‘timely’’ resolution of a grower’s
concerns will depend on the facts and
circumstances of each case, with
particular attention placed on whether
and how the situation adversely impacts
the fairness of the comparison(s) for the
grower. For example, if a grower raises
immediate and urgent concerns about
feed quality, such as the delivery of feed
meant for older chicks than the grower
has, the LPD should have in place
processes to—and in fact, actually—
resolve this concern as soon as possible
to minimize any additional undue
damage to the grower’s flock due to lack
of proper nutrition. If a grower raises
concerns about feed persistently being
delivered late or in an insufficient
quantity, the Agency will examine the
LPD’s ‘‘reasonable efforts’’ taken to
adjust the delivery method.
Additionally, an LPD is prohibited from
retaliating against a grower in any
manner for raising concerns as to
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whether a fair comparison method was
used.
Lastly, § 201.110(a)(2)(vi) states that
the Secretary shall consider any other
factor relevant to a fair comparison
among broiler growers in a poultry
ranking system. This provision gives
AMS the authority to address any other
facts or circumstances that adversely
affected the fairness of the design or
operation of the poultry grower ranking
system. AMS will determine
compliance by examining the facts and
circumstances, and in particular,
whether the LPD took specific actions to
undermine the comparison process. For
example, this prong allows AMS to
consider whether an LPD’s intentional
grouping of certain growers in a poultry
ranking group to manipulate or
adversely affect comparison-based
outcomes constitutes a violation of the
Act.
When determining whether an LPD
has designed and operated its broiler
grower ranking system to provide a fair
comparison among growers, AMS will
consider the fair comparison factors set
forth in § 201.110(a)(2) against how and
to what degree comparison factors
account for total grower compensation.
When relative grower performance pay
accounts for a very small portion of
grower compensation, AMS expects
differences in inputs and flock
production practices to cause fewer
material differences in pay. AMS
expects this dynamic to operate on a
sliding scale; the smaller the role of
comparison pay in total grower
compensation, the smaller the effect of
variations in inputs and flock
production practices on total
compensation. AMS will also consider
the design of the formula to determine
its impact on the magnitude or
distribution of compensation, if any.
In some situations, differences among
LPD-provided inputs, LPD-assigned
flock production practices, or factors
beyond the control of both LPDs and
growers make a reliable comparison
impossible, impractical, or
inappropriate for one or more growers.
In such cases, § 201.110(a)(3) requires
that an LPD must fairly compensate
growers through a non-comparison
method specified in the contract that
reflects reasonable compensation to the
grower or growers for their services. For
example, if an LPD is unable to pick up
a flock in a timely manner because of
processing disruptions (as occurred
during the COVID–19 pandemic), the
LPD may remove the grower from the
settlement rather than compare that
grower’s flock performance against
growers delivering flocks of a
significantly different age. In such cases,
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the LPD must compensate the grower
using a reasonable non-comparison
alternative. Multiple approaches could
be considered reasonable depending on
the circumstances, and LPD costs are an
appropriate consideration as part of
those particular facts and
circumstances. AMS is aware that LPDs
often pay the grower an amount equal
to the average rate they received over
their previous five flocks. The noncomparison method is intended to fairly
compensate the grower. Therefore,
absent special circumstances where a
rationale and an agreement to do
otherwise are reasonable and
appropriate (and documented as such),
the non-comparison compensation
method needs to equal or exceed the
pay that the comparison-based
compensation rate would have
delivered. AMS will rely on the
documentation of written processes set
out in § 201.110(b), as well as the facts
and circumstances of specific
occurrences, to evaluate compliance.
ii. Section 201.110(b)—Documentation
Paragraph (b) of § 201.110 details the
documentation an LPD must establish
and maintain of its processes for the
design and operation of its poultry
grower ranking system for broiler
growers that is consistent with the duty
of fair comparison. This paragraph has
changed considerably from the
proposed rule to provide greater
flexibility in meeting the terms of this
regulation. AMS also revised paragraph
(b) in response to commenters’ concerns
that the specific documentation
requirements laid out in the proposed
rule were very similar to documentation
requirements delineated in existing
regulations at § 201.102(b) and that
burdening LPD service technicians with
increased paperwork would take away
from their core responsibilities of
attending to the production needs of
growers.
In the final rule, § 201.110(b) sets
forth documentation requirements
regarding LPDs’ duty to ensure the fair
design and operation of broiler grower
ranking systems. Under section 401 of
the Act, AMS is authorized to prescribe
‘‘the manner and form in which such
accounts, records, and memoranda shall
be kept’’ whenever the Secretary finds
that the records of an LPD do not fully
and correctly disclose the LPD’s
business transactions (7 U.S.C. 221).
Paragraph (b)(1) requires that LPDs
establish and maintain written
documentation of their processes for the
design and operation of a poultry
grower ranking system that is consistent
with the duty of fair comparison. This
rule requires documentation to include
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written processes, referred to as policies
and procedures, regarding the process
for (i) inputs under LPD control, (ii)
flock production practices (iii) league
composition, (iv) the evaluation period,
(v) non-comparison factors, and (vi) LPD
communication and cooperation with
growers. These processes must provide
a general description of the items that
the rule requires to be included, with
sufficient detail to provide a typical user
of the documentation—such as a local
poultry complex manager that directs
the operation of the complex’s
tournament—with an understanding of
how duty of fair comparison is to be
operationalized within this complex’s
poultry grower ranking systems.
To simplify the documentation
requirements and minimize paperwork
burdens for poultry complex service
technicians, AMS revised paragraph
§ 201.110(b)(1)(i), ‘‘Inputs under live
poultry dealer control,’’ from what was
proposed by removing subparagraphs
(b)(1)(i)(A) through (E), which
delineated detailed requirements
pertaining to identification,
management, and adjustment of
differences in input distribution to
growers, and how LPDs adjust
compensation calculations based on the
inputs a grower receives. In the final
rule, paragraph (b)(1)(i) contains no
subparagraphs and simply requires that
the LPD’s written processes include
how and when the LPD assigns, adjusts,
or otherwise accounts for similarities
and differences of quality and quantity
in the delivery of inputs to growers. The
removal of subparagraphs (A) through
(E) simplifies the requirement by
including one all-encompassing
requirement that LPDs must explain
how they assign, adjust or otherwise
account for similarities and differences
of quality and quantity in the delivery
of inputs to growers. Revised paragraph
(b)(1)(i) clearly requires that LPDs
address all the ways that variation in
inputs can impact a poultry growing
ranking system, while giving LPDs
flexibility in how to mitigate the impact
of uneven distribution of LPD-provided
inputs on fair comparison in the
tournament and, hence, comparisonbased grower pay. In sum, AMS
determined that the deleted
subparagraphs were not needed to
establish that LPDs must explain in
their written documentation how they
account for the possible distortions and
resulting inequities that can manifest in
poultry grower ranking systems when
they fail to properly account for
variations in inputs.
Under paragraph (b)(1)(i), LPDs are
required to create a written process for
how and when the LPD assigns, adjusts,
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or otherwise accounts for similarities
and differences of quality and quantity
in the delivery of inputs to growers.
This provision requires LPDs to have a
defined process governing how they
will ensure the duty of fair comparison
is met. Such a process needs to explain
how the LPD will operate its poultry
complex and its related poultry grower
ranking system, so growers have fair
opportunity to compete on a level
playing field in individual flock
settlements or in a comparison
settlement that stretches beyond
individual flocks, where the impact of
variation in quality, quantity, or timing
of inputs may be significantly reduced
or eliminated. LPDs unfairly harm
growers when they distribute inputs in
a manner that disadvantages a grower
relative to other growers in said
tournament(s) and base their
compensation accordingly. Growers
cannot control the nature of the inputs
they receive from their LPD, whether
that be quality of chicks or feed,
appropriateness of feed delivered for
stage of growth, gaps in feed delivery, or
delivery of veterinary services. Receipt
of low-quality, insufficient, or
inappropriate inputs can unfairly
impact growers’ performance in
tournaments if the LPD does not have
appropriate processes in place for
mitigating such variation in input
delivery. LPD processes required under
paragraph (b)(1)(i) must include ongoing
accounting and monitoring of inputs
supplied to each producer using
objective measures of quality and
performance that are generally accepted
in the industry. Such monitoring and
accounting should aim for as minimal
variation as possible in input delivery
quality or quantity across the members
of one or more grower poultry ranking
groups, and appropriate mechanisms for
detecting and correcting for input
variations in a timely manner. Such
processes should address key areas of
concern, including allocation of chicks
that differ in quality and performance,
variation in quality or quantity of feed,
or variation in medication across grower
groupings. LPDs may include policies
and procedures for balancing disparity
of inputs either within a single flock or
over multiple flocks as appropriate and
feasible.
In the final rule, AMS also simplified
§ 201.110(b)(1)(ii), ‘‘Flock production
practices,’’ from that which was
proposed. AMS removed subparagraphs
(b)(1)(ii)(A) through (E), which
described, in detail, the processes LPDs
must include in the design and
operation of their poultry grower
ranking systems pertaining to
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assignment of flock density at delivery,
timing of pick-up, adjustment of
comparison based on different
assignment flock production practices,
and adjustment of compensation
calculations based on the grower’s
receipt of specific flock production
practices. In the final rule, paragraph
(b)(1)(ii) contains no subparagraphs and
simply requires that written processes
include how and when the LPD assigns,
adjusts, or otherwise accounts for
differences in production practices. The
removal of subparagraphs (A) through
(E) simplifies the requirement by
including one all-encompassing
requirement that LPDs must explain
how they assign, adjust, or otherwise
account for similarities and differences
regarding assignment of flock
production practices. Revised paragraph
(b)(1)(ii) clearly requires that LPD
address the ways that variation in flock
production practices assigned to
growers can impact a poultry growing
ranking system, while providing
flexibility on the appropriate processes
LPDs can establish to mitigate the
negative impact LPD-assigned
production practices can have on fair
comparison in the tournament(s) and,
therefore, comparison-based grower pay.
In sum, AMS determined that the
deleted subparagraphs were not needed
to establish that LPDs must explain how
they account for the possible distortions
and resulting inequities that can
manifest in poultry grower ranking
systems when LPDs fail to account for
variations in flock production practices.
Under paragraph (b)(1)(ii), LPDs must
maintain written documentation of its
processes for how and when the LPD
assigns, adjusts, or otherwise accounts
for differences in production practices
across growers in a poultry ranking
system. Similar to paragraph (b)(1)(i),
such processes should include ongoing
monitoring of how flock production
practices are allocated across different
growers in one or more poultry grower
ranking systems, and mechanisms for
adjusting for disparities in flock
production allocations in a reasonable
time frame such that additional harm
does not result. Such processes
governing flock production processes
should cover how and when the LPD
assigns density at delivery; how and
when the LPD manages pickup of birds
with respect to slaughter weight and
bird age; how and when the LPD adjusts
how a grower is compared to other
growers with different assigned flock
production practices or otherwise
adjusts the flock production practices
the grower receives; any steps the LPD
takes to adjust compensation
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calculations based on suboptimal
allocation of flock production practices
to growers; and how and when the LPD
minimizes, adjusts, or otherwise
accounts for differences in production
practices. LPDs can unfairly manipulate
grower payments when they compare
growers even within a single
tournament settlement group within
which the LPD has assigned different
types of production practices to growers
in the group. Under this rule, LPDs must
develop policies and procedures that
describe the processes for ongoing
accounting and monitoring of LPDdetermined flock production practices
allocated to each producer. The LPD’s
processes must provide a consistent
approach to minimize differences in
production practice assignments and
describe methods to compensate
growers for differences that result in
harms.
In the final rule, AMS also simplified
paragraph (b)(1)(iii) of § 201.110 from
what was proposed. In the final rule,
AMS removed subparagraphs (A)
through (C) from paragraph (b)(1)(iii)
and instead separated out the
requirements into three distinct
paragraphs: (b)(1)(iii), ‘‘League
composition;’’ (b)(1)(iv), ‘‘Evaluation
period;’’ and (b)(1)(v), ‘‘Noncomparison.’’
Under the final rule, paragraph
(b)(1)(iii), ‘‘League composition,’’
requires LPDs to create written
processes governing league
composition, which is how LPDs assign
groups of growers to settlement groups.
AMS revised this paragraph for
simplicity and readability. Formerly, the
provision was contained in paragraph
(b)(1)(iii)(C), reading, ‘‘If the live poultry
dealer groups growers for settlement in
any manner other than the one used in
recent settlements, how the dealer
determines such groupings.’’ Settlement
groupings, also called league
composition, are most commonly based
on their chronological availability for
slaughter within the complex but could
also be based on housing type or other
commonalities across a group of
growers. Generally, the settlement
grouping is determined by flock
placement timing, which commonly
varies based on the timing needs of the
growers. For example, growers may
need additional time between flocks for
cleaning, maintenance, vacation, or
other similar reasons.
Paragraph (b)(1)(iii) of this rule serves
to identify practices or circumstances
that diverge from these ordinary reasons
for determining settlement groupings.
While legitimate reasons exist for
deviating from a strict chronological
availability-based grouping, this
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provision is principally meant to ensure
that LPDs do not use league
composition to interfere with fair
comparison by intentionally grouping
specific growers together to lower the
pay of one or more members of the
settlement group, or to otherwise
manipulate pay to deliberately benefit
certain growers over others.
Under § 201.110(b)(1)(iv) of the final
rule, ‘‘Evaluation period,’’ the LPD is
required to maintain written
documentation of how it establishes a
reasonable time period over which the
LPD evaluates the duty of fair
comparison. This provision was
proposed with slightly different
phrasing as paragraph (b)(1)(iii)(A). This
provision requires the LPD to describe
its process for how it determines the
number of settlement groupings over
which grower comparisons will be
made. The duty of fair comparison
requires that LPDs design and operate
their poultry growing ranking systems to
provide a fair comparison among
growers. This means that the
comparison must genuinely reflect effort
by the growers, not variability in inputs
or flock production practices, which are
outside of the growers’ control and thus
not criteria that form the basis of a fair
comparison. It may be that over the
course of a year variations in inputs or
flock production practices will cancel
each other out. The evaluation period
must account for the length of its
growers’ contracts and the reasonable
expectation of renewal. If the duty of
fair comparison requires five flocks,
then the contracts need to span at least
five flocks, or if they do not, there must
be a very high likelihood that the
contract will be renewed such that the
growers will receive the five flocks and
thus be subject to a fair comparison that
evens out fluctuations in input quality
or quantity or flock production
practices.
In the final rule, § 201.110(b)(1)(v),
‘‘Non-comparison,’’ requires that an
LPD’s written processes explain when
the LPD might remove a grower from a
ranking group, and how the LPD will
compensate growers removed from a
ranking group to satisfy the noncomparison compensation method
required under § 201.110(a)(3). This
provision was proposed as paragraph
(b)(1)(iii)(B) in similar language. There
are myriad reasons why an LPD may
decide to remove a grower from a
ranking group. For example, LPDs may
not have enough comparable growers
with which to make a reliable
comparison in the current grouping and
may use growers settling in previous
periods to make a reliable comparison.
Likewise, a specific grower may have
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received undesirable inputs or an
assignment of production practices that
materially impacted the grower’s
performance, necessitating the removal
of the grower from the grouping and
compensation under a non-comparison
compensation method. Under this
provision, the LPD is required to
explain how and when the LPD removes
a grower from a ranking group because
the grower received unfavorable inputs
or production practices and how it will
fairly compensate such growers through
a non-comparison compensation
method.
In the final rule, § 201.110(b)(1)(vi),
‘‘Communication and cooperation,’’ is
very similar to the provision as
proposed, with the only notable change
being the paragraph designation: in the
proposed rule, the paragraph was
designated paragraph (b)(1)(iv); in the
final rule, the paragraph is designated
paragraph (b)(1)(vi). This paragraph
requires LPDs to create written
processes for how the LPD will resolve
a grower’s concerns with the LPD’s
exercise of discretion over the
implementation of the policies required
by this section, including the timeliness
of the resolution. A tournament system
cannot be fair if it fails to permit
growers to contest, without fear of
retribution, negligent or malicious
actions taken by the LPD that may
impact grower performance. The rule
provides flexibility on how LPDs can
satisfy this requirement. A range of
procedures are available, such as timely
communication with complex
management, communication with LPD
headquarters, and grower councils,
wherein disputes are resolved with
input from other growers. The
implementation of processes to manage
and resolve grower disputes can serve to
alert LPDs to potential unfairness in
their comparison of growers and enable
them to resolve issues in a timely
manner.
In the final rule, AMS removed
proposed § 201.110(b)(2), ‘‘Compliance
review.’’ In the proposed rule, this
paragraph delineated detailed
compliance review procedures for the
processes set out in paragraph (b)(1) of
this section. AMS removed this
requirement in response to comments
that such self-audits are a somewhat
burdensome requirement for LPDs that
can be eliminated with minimal effect
on effective compliance. Rather than
requiring self-audits, AMS will review
the policies and procedures required
under § 201.110(b)(1) through its
ongoing compliance review process.
This will ensure regular review of LPDs’
compliance with the provisions of this
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regulation with minimal additional
recordkeeping burden on LPDs.
In the final rule, § 201.110(b)(2),
‘‘Record retention,’’ mirrors that which
was proposed, with the only notable
change being the paragraph designation:
in the proposed rule, the paragraph was
designated paragraph (b)(3); in the final
rule, the paragraph is designated
paragraph (b)(2). This paragraph
requires LPDs to retain all written
records relevant to their compliance
with paragraph (b) for no less than five
years from the date of record creation.
These records should be made available
to AMS upon request. Relevant records
include, for example, copies of existing
processes (policies and procedures);
written documentation of LPD processes
used within the last five years,
including documentation of inputs and
flock production practices provided to
growers; written documentation of
league composition; written
documentation of grower complaints
and their resolution; board minutes
discussing compliance with this section
for five years from the date of the board
meeting; current and expired grower
contracts for five years for the date of
last effectiveness of the contract;
disclosures provided to growers for five
years from the date of the disclosure is
provided to the grower; information on
payments to growers or other forms of
adjustment made to ensure a fair
tournament, etc. Under the regulation,
LPDs must retain these records for five
years to enable the Agency to monitor
the evolution of compliance practices
over time in this area and to ensure that
records are available for what may be
complex evidentiary cases. As noted
earlier in this section, section 401 of the
P&S Act authorizes AMS to prescribe
the manner and form in which LPDs
keep business records. This
recordkeeping requirement will enhance
LPD management’s ability to establish
and monitor compliance, as well as
AMS’s ability to supervise and enforce
the rule.
iii. Compliance and Enforcement
Compliance with § 201.110(b)
requires LPDs to retain records that
document the LPD’s design and
operation of broiler grower ranking
systems in a manner that is consistent
with the duty of fair comparison. These
policies and procedures are necessary to
document compliance precisely because
the options for delivering a fair
comparison are so diverse. Policies and
procedures developed pursuant to this
rule should describe the LPD’s
framework for assigning inputs and
LPD-determined flock production
practices, comparing grower
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performance, and resolving growers’
concerns regarding the LPDs’
implementation of its policies and
procedures. Recordkeeping should
enable periodic review by the LPD to
examine and report on the LPD’s
compliance with its established written
processes and, as such, with its
compliance with the duty of fair
comparison.
Enforcement of § 201.110 can occur in
several ways. Growers can contact
AMS–PSD to submit a complaint
regarding an alleged violation of
§ 201.110. PSD would then investigate,
which could lead to referral to DOJ for
appropriate action or, where failure to
pay is implicated, to USDA enforcement
through administrative action.25 AMS
will also review LPD contracts, along
with other required records from the
LPD, in connection with routine
compliance reviews and investigations
to ensure LPD compliance. Injured
individuals also have a right to proceed
directly in Federal court.
C. Broiler Grower Capital Improvement
Disclosure Document (§ 201.112)
AMS is finalizing new § 201.112,
‘‘Broiler grower Capital Improvement
Disclosure Document,’’ which requires
that LPDs provide growers with a
Capital Improvement Disclosure
Document (Disclosure Document).
Paragraph (a) requires that when an LPD
requests that a grower make an
additional capital investment, the LPD
must provide the grower with a
Disclosure Document. Paragraph (b)
describes the required disclosures in the
Disclosure Document. AMS made slight
modifications to provisions of paragraph
(b), which will be described below.
AMS also modified proposed § 201.112
in response to public comment by
adding a new paragraph (c), which
requires the LPD to assist with
translating the Disclosure Document.
The inclusion of § 201.112 is
necessary because LPDs often request or
require that growers make costly
additional capital investments, which
may benefit LPDs and growers in some
ways, but may also be problematic and
unfair. The LPD requesting an
additional capital investment may be
deploying bargaining leverage and
forcing the grower to bear unreasonable
risk, and the purposes, processes, and
outcomes of the additional capital
investment may be opaque,
complicated, or otherwise difficult to
evaluate. Additional capital investments
25 Additional information on reporting violations
of the P&S Act can be found here: https://www.ams.
usda.gov/services/enforcement/psd/reportingviolations (last accessed 11/13/2023).
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can also further serve to lock in growers
to specific LPDs, making it harder to
switch. Growers, however, are often not
in a position to choose not to make an
additional capital investment. Many
growers come under significant pressure
from LPDs to make a requested
additional capital investment. Even
when a grower has sufficient bargaining
leverage to negotiate the terms of
compensation, the LPD may not provide
sufficient information for the grower to
assess the full risk and reward of
undertaking the additional capital
investment. Indeed, based on AMS’s
knowledge of industry disclosure
practices and decades of hearing
complaints from growers, growers today
often undertake additional capital
investments for the LPD without the
opportunity to fully understand the
additional capital investment’s purpose,
design, risks, and impacts on their
financial well-being; or, are pressured in
some way to make those investments.26
Information asymmetry impairs
growers’ ability to negotiate, effectively
exercise independent decision-making
to reject an additional capital
investment, and, more broadly, manage
their farming operation upon choosing
26 MacDonald, James M. 2014, Technology,
Organization, and Financial Performance in U.S.
Broiler Production, EIB–126, USDA Economic
Research Service, https://www.ers.usda.gov/
webdocs/publications/43869/48159_
eib126.pdf?v=1829.6 (In a 2011 survey of contract
growers, sixty percent of growers making any
capital expenditures reported that the LPD required
those expenditures). AMS–FTPP–22–0046–0799
(‘‘Poultry companies require capital improvements
that do not improve my bottom line. I must pay for
the capital improvements, which may not be a
capital improvement that will benefit my operation.
It will not benefit the quality of the bird. The
benefit is not clearly proven or explained, just I am
required to make the improvement or get paid less
or dropped as a grower.’’); AMS–FTPP–22–0046–
0737 (‘‘For years, I’ve been forced to upgrade my
farms facilities at my own expense just to maintain
contracts. These costly and often unnecessary
upgrades, dictated by companies like [name
redacted], have left me in debt and struggling to
cover basic expenses. The financial burden is
unsustainable and has made it incredibly
challenging to keep my farm afloat’’); AMS–FTPP–
22–0046–0176 (‘‘For way too long these poultry
integrators have been let off the hook for bullying,
forcing their contract growers into making large
investments in upgrades that will never see a
payback beyond the initial investment to build the
infrastructure to keep their growers under their total
control and blaming growers for everything that
goes wrong . . .’’). 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/publicworkshops-agriculture-and-antitrust-enforcementissues-our-21st-century-economy-10 (‘‘It’s typical
for growers to be asked to do expensive upgrades
on their poultry houses before this first loan of this
building has been paid off. I know because I was
one of those growers. The threats put before you,
the communication, the threat is put before you, if
you do not do this, they’re not going to bring you
any more chickens to grow’’).
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to make the additional capital
investment. When information
asymmetries prevent growers from
evaluating whether they are able to
recoup their investment or whether they
can engage in other farming practices
that could achieve the goals of the
additional capital investment, growers
cannot effectively protect their financial
interests or freely exercise decisionmaking with respect to their farming
operation. Growers and AMS may also
be unable to identify circumstances
where LPDs are seeking to compete
through additional capital investment
practices that shift or hide costs to
growers, which subverts the competitive
process.
AMS has identified as deceptive those
LPD contracting practices that fail to
disclose key information about
additional capital investments. Growers
make critical investment decisions in
reliance on the information required by
this rule, most of which is not currently
provided by LPDs. AMS emphasizes
that disclosure under new § 201.112 is
not, and is not intended to be, a remedy
to unfairness in and of itself; rather,
disclosure provides AMS and growers
with information necessary to enforce
their rights under existing § 201.216,
‘‘Additional capital investments
criteria,’’ and the P&S Act more broadly,
when terms are unfair. Without
sufficient, simple, and clear disclosures,
growers cannot assess the benefits or
risks of making the investment. Indeed,
given the role of performance pay in
determining total grower compensation
under the tournament, some voluntary
additional capital investments may
seem mandatory if growers want to
maintain existing revenue levels, even if
growers don’t fully understand the
purposes and expected outcomes of the
requested additional capital investment.
Furthermore, growers experience
considerable pressure to accept LPDs’
additional capital investment requests
given LPDs’ market power, or
substantial bargaining power, and
growers’ relatively weak market
position, including commonly a lack of
meaningful choice among LPDs. A
majority of broiler growers cannot
change LPDs if their current
relationship sours.27
AMS notes that the existing regulation
in § 201.216 is intended to allow the
27 MacDonald, James M. 2014. Technology,
Organization, and Financial Performance in U.S.
Broiler Production, EIB–126, USDA Economic
Research Service (Roughly 22 percent of growers
operate in a pure monopsonistic local market, and
that 52 percent of broiler growers (farms),
accounting for 55 percent of broilers produced and
56 percent of total production, report having only
one or two LPDs in their local areas).
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Agency to partially mitigate additional
capital investment problems for
growers. The existing regulation sets
forth criteria for whether additional
capital investments would be an unfair
practice or other violation of the Act,
including whether the grower can
decide against the additional capital
investments; whether the additional
capital investments were a result of
coercion, retaliation, or threats by the
LPD; and whether the additional capital
investments can result in reasonable
recoupment, or adequate compensation
for the additional capital investments,
among other non-exhaustive criteria.
However, AMS has found that the
presence of the criteria alone is
insufficient to effectively address
problems stemming from additional
capital investments. For example,
insufficient information about
additional capital investments impacts
the criteria at § 201.216(a) that seek to
preserve the grower’s discretion to
decline an additional capital
investment. Lacking sufficient
information about additional capital
investments, a grower cannot effectively
assess whether they would still be able
to compete against other growers
without the additional capital
investment.
The Act requires production contracts
to disclose the possibility of additional
capital investment (7 U.S.C. 197a(b)).
However, the majority of contracts
contain no information relating to when
or how additional capital investments
may be required, nor the costs or risks
of any such additional capital
investment, nor what, if any, limits
there are on an LPD’s ability to
unilaterally impose additional capital
investments that do not materially
improve production efficiency or meet
consumer demands. To better enable
growers and AMS to guard against
unfairness and to prevent deception,
LPDs must disclose more information
regarding the purposes, processes, and
outcomes of additional capital
investments they request from broiler
growers. The disclosures must occur
before growers take on the financial
burden and risks of the additional
capital investment. The provision of
such information is not, in and of itself,
the cure for unfairness, but rather a key
tool for AMS and growers to halt
abusive practices by arming them with
the ability to identify those challenges
sooner. The disclosures required in
§ 201.112 accomplish these goals.
Furthermore, the act of disclosing
information does not, in and of itself,
render the action lawful. Even if
disclosed, certain actions may be unfair
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or deceptive practices under the P&S
Act. Disclosure alone does not mitigate
the legal or ethical ramifications of such
practices.
The Agency has an existing
regulation, 9 CFR 201.216, which sets
forth a non-exclusive list of criteria the
Secretary may consider in determining
if a required additional capital
investment violates the Act. In future
cases, the § 201.112 disclosures on
additional capital investments will
improve the Secretary’s analysis of
§ 201.216. Whether the Secretary
considers recoupment of the additional
capital investment to be reasonable
includes consideration of the projected
returns under § 201.112(b)(6), the
contract terms, and the return to an
average grower operating under the
LPD’s contract. AMS underscores the
importance of length of the contract to
secure a full opportunity for
recoupment. AMS recognizes that
growers in many instances cannot avoid
the LPD’s unfair exercise of market
power or bargaining leverage, and that
the LPD failing to sufficiently and fairly
compensate growers for an additional
capital investment is not a cognizable
benefit to growers or to competition.
i. Section 201.112(a)—Disclosure
Requirement
In the final rule, paragraph (a) of
§ 201.112 requires that when an LPD
requests that a broiler grower make an
additional capital investment, the LPD
must provide the broiler grower with a
Disclosure Document that contains the
information required by paragraph (b) of
this section. AMS slightly modified this
provision from the proposed rule by
adding the paragraph heading,
‘‘Disclosure requirement.’’ Information
provided in the Disclosure Document
will help growers protect themselves at
an earlier stage—before the
investment—from unfair practices, by
enabling them to report to AMS
potentially unfair additional capital
investment practices or bring their own
action. Improved documentation will
also enable AMS to take earlier and
more effective action against
problematic additional capital
investment practices. Transparency will
also enable some growers, where
sufficient choice exists, to make better
additional investment decisions.
Importantly, clear disclosure of
additional capital investment
parameters will enhance growers’ ability
to enforce their rights relating to unfair
practices under § 201.216 (such as
recoupment and discretion to refuse to
make an additional capital investment),
as well as other provisions of the P&S
Act and regulations. Disclosure alone is
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not a remedy for an additional capital
investment that is unfair, but the
disclosures required by new § 201.112
will create a record that will facilitate
the Agency’s ability to enforce the Act
under existing § 201.216.
This requirement applies
prospectively to requests for additional
capital investments. However, if the
LPD has previously provided any
disclosure to the grower that was
incomplete or inaccurate, the company
should consider revising it and
providing an updated copy to the
grower to minimize the risks of having
engaged in a violation of deceptive
practices.
ii. Section 201.112(b)—Disclosure
Contents
Section 201.112(b) lists the items the
Disclosure Document is required to
disclose. AMS slightly modified this
provision from the proposed rule by
adding the paragraph heading,
‘‘Disclosure contents.’’ The required
disclosures must be prominently
presented in a clear, concise, and
understandable manner. Paragraph
(b)(1) requires that the Disclosure
Document provide the purpose of the
additional capital investment for both
the LPD and the grower and a summary
of all research and other supporting
material that the LPD has relied upon in
justifying the additional capital
investment. LPDs almost always have
superior information regarding the
outcomes of and risks around the
contemplated additional capital
investment. LPDs commonly research
and design additional capital
investments and usually have a plan or
intended outcomes with respect to their
request for the adoption of an additional
capital investment. Growers have
limited to no access to that information,
yet they are often asked to expend
hundreds of thousands or even millions
of dollars to implement additional
capital investments. As part of any
assessment of risks or benefits relating
to an additional capital investment,
growers must be provided the
information necessary to understand the
intended purpose of the additional
capital investment and have access to
any research or other supporting
material regarding that additional
capital investment. For example,
growers may make different decisions
about their approach to additional
capital investment depending on
whether it is intended to be
performance-enhancing (e.g., tunnel
ventilation), whether it is intended to
enable a change in the product offered
(e.g., a switch to ‘‘No Antibiotics Ever’’),
or whether it changes the nature of the
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controls and risks (e.g., automation and
monitoring). Omissions of this
information prevent growers from
making an informed business decision,
negotiating effectively for adequate
compensation, or determining if and
how the original bargain for exchange
has been modified or altered. Thus, an
LPD’s failure to adequately disclose this
information is deceptive and harmful to
growers because that failure imposes
undue financial risk and increases the
likelihood of a poor financial outcome
on the investment.
Paragraph (b)(2) of § 201.112 requires
LPDs to provide clear additional capital
investment financial incentives and
schedules to growers. Under paragraph
(b)(2), LPDs are required to disclose to
the grower all financial incentives and
compensation associated with the
additional capital investment. The
Disclosure Document shall clearly
delineate how long such financial
incentives or changes in grower
compensation will last and the degree to
which benefits accruing to growers
making such investments are contingent
on how widely they are adopted by
other growers. Compensation and
financial incentives are broad terms and
may include changes to grower base pay
or performance pay, payments
specifically linked to adoption of the
particular technology resulting from the
additional capital investment, and any
other changes to the economics of the
grower’s relationship with the poultry
company associated with making the
additional capital investment or its
implementation once made. Clearly
disclosing financial incentives will
assist the grower in assessing the
relative risks of non-recoupment, as the
reliability of those incentives may vary
based on the duration of the contract
and whether other growers are likely to
incorporate the additional capital
investment technology in a way that
would make recoupment through
performance pay less reliable.
Paragraph (b)(3) of § 201.112 requires
that LPDs disclose all construction
schedules related to the request for the
additional capital investment. Clearly
disclosing expected grower construction
schedules and other repayment
schedules also will assist the grower in
assessing incentives and risks relating to
borrowing, construction, and payment
timing. This disclosure will position
growers to better analyze the business
risk in undertaking an additional capital
investment, including the operational
risks relating to implementing the
additional capital investment and risks
of LPD strict enforcement of these
implementation requirements. For
example, comments (discussed in
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further detail below in section V.,
‘‘Comment Analysis’’) noted concerns
about LPDs not being sufficiently
lenient regarding construction
schedules. By enabling growers to
clearly understand each component of
the additional capital investment
requested by the LPD, the required
disclosures will address key information
asymmetries that exist between the LPD
and the grower with respect to LPD’s
purposes, bases, and expectations for an
additional capital investment. Growers
will be better positioned to evaluate the
true costs and risks from the additional
capital investment, as well as the
operational implications for their
farming enterprise.
As proposed, paragraphs (b)(1)
through (3) of § 201.112 included
language requiring that LPDs describe
within their Disclosure Document: (1)
‘‘any relevant’’ research or other
supporting material that the LPD has
relied upon in justifying the additional
capital investment; (2) ‘‘all relevant’’
financial incentives and compensation
for the grower associated with the
additional capital investment; and (3)
‘‘all relevant’’ construction schedules
related to the request for additional
capital investment. After consideration
and review of public comments, it
became clear that the term ‘‘relevant’’ as
proposed was ambiguous and confusing.
Commenters expressed uncertainty
regarding how to determine compliance
with these requirements. Some
stakeholders believed that the term
‘‘relevant’’ created an ambiguous
requirement that could result in the
inclusion of unnecessary documents
that may not in fact be ‘‘relevant’’ to
satisfy the required disclosures. AMS
finds these comments persuasive and,
thus, AMS has struck the term
‘‘relevant’’ from paragraphs (b)(1)
through (3) of § 201.112. After the
change, paragraphs (b)(1) through (3)
require LPDs to submit: (1) all research
and other supporting material that the
LPD has relied upon in justifying the
additional capital investment; (2) all
financial incentives and compensation
for the grower associated with the
additional capital investment; and (3)
all construction schedules related to the
request for additional capital
investment. The removal of the word
‘‘relevant’’ will ease the burden on LPDs
by removing ambiguity regarding which
disclosures are required to be included
in the Disclosure Document. This
technical change does not increase the
burden of the disclosure requirement; it
merely removes ambiguous phrasing
while retaining the same disclosure
requirement proposed in the proposed
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rule. This change will prevent
inconstancies in LPDs’ interpretation of
what disclosures are required by
paragraphs (b)(1) through (3).
In the final rule, § 201.112(b)(4)
requires that LPDs disclose their
expectations regarding housing
specifications associated with the
additional capital investment. LPD
housing specifications are critical
components to any additional capital
investment. The provision of these basic
details regarding the additional capital
investment will enable a grower to
understand the workings, process, and
design characteristics of the requested
additional capital investment. They thus
would enable a grower to identify
business risks associated with
undertaking the additional capital
investment, as well as any unfair or
otherwise impermissible additional
capital investment practices prohibited
under § 201.216. This provision remains
unchanged from the proposed rule.
In the final rule, AMS revised
§ 201.112(b)(5). As proposed, paragraph
(b)(5) required that LPDs disclose any
required or approved manufacturers or
vendors. In the proposed rule, AMS
solicited comment on whether
paragraph (b)(5) should also require the
disclosure of any material financial
benefits that the LPD, or any officer,
director, employee or family member of
any such person, receives from the use
of the required or approved vendor.28
Commenters indicated that LPDs should
not be allowed to require growers to use
certain equipment or vendors,
especially when those LPDs hold any
amount of financial interest in those
equipment companies or specifically
required vendors. Therefore, in the final
rule AMS expanded paragraph (b)(5) to
require disclosure not only of required
or approved manufacturers or vendors,
but also all financial benefits that the
LPD or any officer, director, decisionmaking employee, or close family
member thereof receives from the use of
the required or approved manufacturer
or vendor.
In the additional capital investment
Disclosure Document, the LPD must
disclose any required or approved
manufacturers or vendors, and any
financial benefits that the LPD or its
officers (such as CEO, President,
Secretary, etc.), members of its board of
directors, decision-making employees,
or close family members of any such
person, will receive from using such a
manufacturer or vendor. Decisionmaking employees refers to those
employees who are involved with the
decision-making for the additional
28 89
FR 49002, 49025 (June 10, 2024).
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capital investment and its
implementation. A close family member
covers an immediate or other family
member where a reasonable person
would question the impartiality of the
business judgment of the decisionmaker. This component of the
Disclosure Document applies to possible
conflicts of interest that may influence
specifications for required or approved
manufacturers or vendors.
The additional language is similar to
an existing disclosure requirement
under the Federal Trade Commission’s
Franchise Rule, but requires disclosure
of benefits from more individuals.29
AMS found this addition persuasive
because it is designed to promote a
similar purpose by protecting the more
financially vulnerable party—who is
making a significant investment—from
incurring debt or otherwise expending
scare resources, not solely to achieve the
investment’s purpose, but rather as a
reflection of the presence of a conflict of
interest on the part of the less
financially vulnerable party (the LPD).
Section 201.112(b)(6) requires that
LPDs provide a financial analysis of
projected returns the grower can expect
related to the additional capital
investment, including any assumptions,
risks, or uncertainties, sufficient to
allow the grower to make their own
projections. The language of the final
rule is slightly simplified from that
proposed to remove the hyphenated text
and incorporate that same language
closer to the end of the sentence. This
technical change improves the
readability of the provision without
changing its meaning as proposed. This
provision is designed to enable the
grower to evaluate the reliability of the
financial returns that the grower could
receive over the duration of the contract.
Such information would include, where
relevant, assumptions regarding the
expected likelihood of whether other
growers will adopt the additional
capital investment and the impacts on
the reliability of returns in relation to
the incentives. Financial analysis of
projected returns is critical to enabling
growers to understand the
opportunities, and hence the risks, they
may be taking on. For example, revenue
projections should include assumptions
that can be relied upon by growers in
relation to annual flock placements,
stocking density, and the expected
distribution of performance pay.
Omission of this information is central
to the inability for growers to effectively
identify whether they can adequately
recoup the additional capital investment
29 16
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or whether the additional capital
investment is otherwise unfair.
Disclosure under § 201.112 is more
detailed than LPD disclosure under the
existing regulation in § 201.102(d)(2).
The existing disclosures provide
guidance to the grower with respect to
the relative risks associated with
contracting with the LPD to prevent
deception before it harms the producer.
The disclosures required in this final
rule focus on ensuring that growers are
aware of known or reasonably expected
sources of returns, risks, and costs
(including costs such as labor,
operating, maintenance, and other costs
associated with a request for an
additional capital investment). Thus,
§ 201.102(d)(2)(i) and (ii) 30 is a focused
revenue disclosure, and references
situations where contracts are modified
due to additional capital investment or
otherwise and requires a projection from
LPDs when contract modifications
dilute the value of the 5-year revenue
tables required in § 201.102(d)(1). If
§ 201.112 is applicable to the LPD and
incorporates what is otherwise required
under § 201.102(d)(2)(i) and (ii), the LPD
can use one set of disclosures for both
§ 201.112 and § 201.102(d)(2)(i) and (ii).
Finally, § 201.112(b)(7) requires that
LPDs include in the Disclosure
Document a specific statement that the
Disclosure Document has not been
reviewed by USDA, and that false and
misleading statements or material
omissions may violate State and/or
Federal laws.31 The statement must also
indicate that violations of Federal and
State laws may be determined to be
unfair, unjustly discriminatory, or
30 (2) If poultry housing specifications for broiler
growers under contract with the complex are
modified such that an additional capital investment
may be required, or if the 5-year averages provided
under paragraph (d)(1) of this section do not
accurately represent projected grower gross annual
payments under the terms of the applicable broiler
growing arrangement for any reason, the live
poultry dealer must provide the following
information:
(i) Tables providing projections of average annual
gross payments to broiler growers under contract
with the complex with the same housing
specifications for the term of the broiler growing
arrangement at five quintile levels or by mean and
standard deviation expressed as dollars per farm
facility square foot.
(ii) An explanation of why the annual gross
payment averages for the previous 5 years, as
provided under paragraph (d)(1) of this section, do
not provide an accurate representation of projected
future payments, including the basic assumptions
underlying the projections provided under
paragraph (d)(2)(i) of this section.
31 This mirrors language in the FTC Franchise
Rule at 16 CFR 436(e)(2) that refers to the FTC’s
position on Francise Disclosure Documents (FDDs),
specifying that while the FTC requires franchisors
to provide accurate disclosures, it does not verify
the content of the FDD, nor does it endorse the
franchise offering.
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deceptive and unlawful under the P&S
Act, as amended. AMS does not intend
for the Disclosure Document to be a
means by which LPDs may waive any
unfairness provisions in law or
regulation. AMS maintains that a
determination of unfairness is
dependent on the facts and
circumstances of each case. The
required statement must also include
Packers and Stockyard Division contact
information that growers can use to
report violations and other concerns.
Lastly, the statement must provide
website contact information for those
seeking additional information on rights
and responsibilities under the P&S Act.
This provision is unchanged from the
proposed rule.
AMS underscores that the information
required to be set out in the Disclosure
Document is not currently provided to
most growers or in all circumstances.
These omissions present material risk of
deceiving growers, as well as subjecting
them to potentially unfair practices
which they are unable to identify at an
early enough stage to halt them in their
incipiency.
iii. Section 201.112(c)—Translation
In the final rule, § 201.112 contains a
new paragraph (c). In the proposed rule,
AMS asked commenters what
considerations, if any, AMS should take
into account with respect to the timing,
delivery, or readability with respect to
the Disclosure Document.32 AMS also
specifically asked commenters whether
it should include a provision requiring
that LPDs make reasonable efforts to
assist growers in translating the
Disclosure Document and to ensure that
growers are aware of their right to
request translation assistance.33 In
response to the proposed rule, including
specific questions posed related to
translation, some commenters requested
that translations of the Disclosure
Document be made available in
languages other than English. Therefore,
AMS is adding paragraph (c) to
§ 201.112, which requires that, upon
delivery of the Disclosure Document to
the grower the LPD must make
reasonable efforts to ensure that the
grower is aware of their right to request
translation assistance and must assist
the grower in translating the Disclosure
Document. Reasonable efforts include,
but are not limited to, providing current
contact information for professional
translation service providers, trade
associations with translator resources,
relevant community groups, or any
other person or organization that
32 89
FR 49002, 49025 (June 10, 2024).
33 Ibid.
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provides translation services in the
poultry grower’s geographic area.
Depending on the facts and
circumstances (such as convenience,
expense, and timeliness of the
translation), reasonable efforts may also
include allowing the grower access to a
computer-generated translation of the
Disclosure Document and additional
time to review any translated Disclosure
Document. An LPD may not restrict a
broiler grower or prospective broiler
grower from discussing or sharing the
Disclosure Document for purposes of
translation with a person or
organization that provides language
translation services. Nothing in the rule
prevents companies from providing a
translation, provided it is complete,
accurate, and not misleading.
This addition of translation assistance
is necessary because language barriers
can prevent poultry growers from
understanding the Disclosure
Document, which would thwart the
purpose of § 201.112. If growers do not
have a reasonable opportunity to
understand the Disclosure Document
due to language barriers, the goal of
remedying deception is thwarted.
Notably, the translation requirements
under § 201.102(g)(4) apply to § 201.112
if the latter is applicable to the LPD and
incorporates what is otherwise required
under § 201.102(d)(2)(i) and (ii) in a
single disclosure that meets the
requirements of both § 201.112 and
§ 201.102(d)(2)(i) and (ii).
iv. Compliance and Enforcement
Compliance with § 201.112 requires
LPDs to include the information and
topics described in § 201.112(b)(1)
through (7) in the Disclosure Document
and provide that document to growers
when requesting an additional capital
investment. LPDs are also required to
inform growers of their right to request
translation assistance and/or assist
growers with translation of the
Disclosure Document, if necessary.
Enforcement of § 201.112 could occur
in several ways. Growers could contact
AMS (PSD) to submit a complaint
regarding an alleged violation of
§ 201.112. PSD would investigate,
which could lead to a referral to DOJ for
appropriate action or, where failure to
pay is implicated, USDA enforcement
through administrative action.44 As
necessary for compliance enforcement
or during investigations, PSD will
review Disclosure Documents to ensure
completeness. Injured individuals also
have a right to proceed in Federal court.
D. Severability (§ 201.290)
AMS is adding § 201.290,
‘‘Severability,’’ to subpart N to confirm
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that if any provision of this rule, any
component of any provision, or any
provision of subpart N is declared
invalid or if the applicability thereof to
any person or circumstances is held
invalid, it is AMS’s intention that the
validity of the remainder of the
provision or the applicability thereof to
other persons or circumstances shall not
be affected thereby with the remaining
provision, or component of any
provision, to continue in effect. Such a
provision is typical in AMS regulations
that cover different topics and is
included here as a matter of
housekeeping.
This rule aims to address different
harms common in the broiler
production industry: lack of payment
transparency in broiler growing
arrangements, unfairness in tournament
operations, and lack of disclosure from
LPDs regarding additional capital
investments. Each of the new sections
can operate independently in the
absence of the others. Conduct that
violates one section is not dependent on
protections put in place by other
sections. For example, if an LPD
discounts the rate of compensation
provided in a broiler grower
arrangement in violation of § 201.106,
the Agency would still be able to
enforce this provision even if the
provision requiring the fair operation of
broiler grower ranking systems
(§ 201.110) were struck down. These are
not inextricably connected regulations:
§ 201.110 focuses on establishing a fair
comparison among growers in a
tournament, while the focus of
§ 201.106 is ensuring clear (no
discounting) and reliable (not
unreasonably variable) rates of
compensation disclosed in the contract.
As another example, if the provision
regarding additional capital investments
(§ 201.112) was struck, AMS would still
retain criteria under § 201.216 to
evaluate whether requiring an
additional capital investment
constitutes a violation of the P&S Act.
AMS intends that the severability
provision operate to the fullest extent
possible. For example, under
§ 201.110(b)(1), ‘‘Policies and
procedures,’’ if the league composition
requirement in paragraph (b)(1)(iii) is
severed, this does not necessarily negate
the benefits or make unenforceable the
other processes requirements contained
in paragraphs (b)(1)(i) (inputs under
LPD control), (ii) (flock production
practices under LPD control), and (iv)
(evaluation period), etc. Similarly, AMS
intends that the severability provision
apply to all of subpart N. If one of the
new regulations implemented via this
final rule is severed, this does not make
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unenforceable the existing provisions in
subpart N. In other words, if the benefits
of a section in subpart N remain intact
without the unenforceable provision,
AMS’s intent is to retain the enforceable
provisions of the section. AMS notes
that this discussion is illustrative and
not exhaustive.
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V. Comment Analysis
Overview
The Poultry Grower Payment Systems
and Capital Improvement Systems
proposed rule, published on June 10,
2024, received 758 comments, some
with multiple signatories, over a 60-day
comment period. Of these comments,
671 were in clear support of the rule
(the majority of these consisting of form
letters from advocacy campaigns), while
13 comments were in clear opposition
to the rule and the remaining 74 were
ambiguous or unclear. A variety of
stakeholders commented on the
proposed rule, including farmers’
coalitions, government entities,
advocacy organizations, industry trade
organizations, processors, producers,
and other non-affiliated, individual
parties. Topics that garnered
considerable attention in the proposed
rule, both positive and negative,
included the rate of compensation,
transition and implementation costs, the
duty of fair comparison, and reasonable
recoupment of required additional
capital investments. A common theme
among the majority of supportive
comments, particularly by growers, was
the fear of retaliation underlying their
concerns about LPD practices.
Many farmers’ coalitions, advocacy
groups, and individual producers
argued that LPDs would easily find
ways to deny producers fair payment,
especially during the industry’s
transition to adopt the proposed
changes. For example, while many
commenters supported § 201.106’s 25
percent comparison-based
compensation presumption, most of
these supporters requested other
changes to the final rule, such as
requiring performance-based pay to be
applied at the individual level and
pairing it with a requirement of a fair
minimum base pay. Other common
recommendations for financial
safeguards included making the option
for non-comparison-based pay more
accessible to producers and requiring
that producers’ contracts be long enough
to ensure a reasonable rate of return for
their loans.
Another common theme among
commenters was the fear of LPD
retaliation against producers who made
unfairness claims, requested non-
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comparison-based pay, refused to take
on an additional capital investment, etc.
Many individual producers shared
personal experiences of retaliation,
often in the form of intentionally
unequal inputs and threatened or actual
contract termination, for speaking out
against unfair practices. Many
commenters emphasized the inherent
power imbalance between both parties,
pointing out that producers, who carry
high amounts of debt, depend on LPDs
for paying down the debt. Moreover,
commenters described feeling or
receiving intimidation against making
unfairness claims and pressure to
adhere to unfair terms. For instance,
commenters described receiving
unexpected deductions or variability in
pay and had no choice but to accept
their circumstance. Commenters
recounted struggling to make ends meet
as a result. If they ranked lower than
other growers for one or more
settlements, the resulting decrease(s) in
compensation left them unable to afford
necessary expenses. Some commenters
stated that experiencing these losses
forced them to sell their families’ farms,
driving them out of the industry
entirely. Many commenters requested
that the final rule include specific
protections against retaliation for
producers who made unfairness claims
against their LPD or who refused to take
on an additional capital investment
required by their LPD. Many other
commenters requested greater
protections for producers who receive
unequal inputs from their LPDs,
describing numerous input variables
that can be and have been exploited by
LPDs to deliberately lower producers’
placement in their tournament.
Conversely, comments in opposition,
many from industry representatives,
defended the current system and
expressed concerns about the proposed
rule. These commenters asserted that
the rule is unfair to growers who are
successfully operating in the current
system and that the rule would unfairly
punish high performers. These
commenters also stated that the rule
disregarded the self-interest of LPDs in
ensuring grower success. Opposing
commenters further stated the rule
would be overly burdensome for the
industry to implement.
A. Section 201.106
i. Transparency in Pay
Comment: Many commenters,
especially growers and advocacy
organizations, highlighted the need for
stronger protections, greater
transparency, and a more equitable
balance of power within the poultry
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5169
industry. Commenters emphasized that
greater transparency from LPDs is
essential for a fair and equitable
payment system. Specific concerns
stemming from inadequate transparency
included the inability to predict income
due to fluctuations in flock-to-flock
payments, and payments below the base
price due to factors outside of growers’
control. Commenters also suggested
safeguards to prevent unfair payment
deductions related to stocking density
and other external factors. Advocacy
groups raised concerns about the
potential for LPDs to exploit the system
and drive down grower base pay.
Other commenters, especially
industry stakeholders, emphasized
existing measures and cautioned against
government intervention. These
commenters asserted that growers face
no uncertainty regarding income or
input costs and opposed a fixed base
price. They also asserted that most
contracts already include minimum
compensation floors and expressed
concern that raising base pay would be
unsustainable and lead to higher
consumer prices. One commenter
suggested that AMS identify and
address potential gaps in grower
education and outreach.
AMS response: AMS agrees with the
comments that asserted the need for
stronger protections, greater
transparency, and a more equitable
balance of power. Accordingly, AMS
modified the proposed § 201.106 to
include provisions that further these
goals. Paragraph (a) will prevent LPDs
from reducing a poultry grower’s
compensation based on the grower’s
ranking, grouping, or comparison to
others. This will improve growers’
ability to predict income. As discussed
below, paragraph (b) will establish a
presumptive limit on comparison-based
performance pay, which will enhance
growers’ ability to predict their income
from a contract by reducing variability
from that rate due to fluctuations in
flock-to-flock payments. Paragraph (c)
works to prevent LPDs from exploiting
their market power and associated
bargaining power by requiring LPDs to
notify the Administrator if there are any
contract modifications that result in a
reduced payment to poultry growers.
Existing regulation fails to protect
poultry growers from injury in the
manner Congress intended. Contrary to
LPDs’ claims, growers do face
uncertainty regarding income, because
the payment they will receive is not
known until the growing cycle is
complete and all growers’ outputs are
compared and performance payments
are distributed. AMS has consistently
heard reports from growers receiving
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deductions or excessively variable
compensation from LPDs such that their
compensation does not align with the
LPDs’ initial representations.34
Accordingly, a high percentage of
growers’ operations have sustained net
negative incomes—an outcome that
growers most likely do not anticipate
before agreeing to contract with their
LPDs.35 Moreover, AMS has reviewed
broiler growing contracts for decades
during routine regulatory reviews of
LPD’s payment practices. While many
contracts that AMS has reviewed
already include minimum
compensation provisions, these
provisions are not an industry-wide
practice, and do not cure the deception
or unfairness arising from deductions in
the rates of compensation in the
contract, especially the base price,
because the minimum price could be far
below the base price or even the lower
bounds of base plus performance pay.
Moreover, requiring that minimum
compensation be disclosed allows
growers who have the option of
contracting between multiple LPDs to
meaningfully compare their options,
34 United States v. Cargill Meat Solutions Corp.,
1:22–cv–01821–ELH (D. Md. July 25, 2022) (LPDs
did not adequately disclose the risk inherent in the
tournament systems to growers, so growers could
not reasonably evaluate the range of potential
financial outcomes, manage their risks, or compare
competing poultry processors); AMS–FTPP–22–
0046–0777 (‘‘[W]e were told our houses would be
paid off raking in the money in 10 years[.] I am now
out to twice that still in debt. . .’’); AMS–FTPP–
22–0046–0876 (‘‘In our communications with
growers, we have learned that when they signed
their initial poultry contract, most had expectations
that their contract relationship with a poultry
company would be one of mutual respect where
both parties shared in the risks and rewards of
producing chicken for consumers. They expected a
transparent system that would reward them for
their hard work and management services. Instead,
what they quickly found was a dictatorial system
that gives growers an unpredictable and often
inadequate income stream, and allows poultry
companies to shift risks onto growers, without fairly
sharing in the economic rewards commensurate
with their financial investment and services
provided’’); AMS–FTPP–22–0046–0156
(‘‘Frequently, that deception begins even before
poultry growers sign their contracts. It is a common
story for growers to be attracted by unrealistic
financial models and integrators’ promises of
support. Once the contracts are signed, though,
growers find themselves on the short end of a
massive power imbalance’’).
35 MacDonald, James, Technology, Organization,
and Financial Performance in U.S. Broiler
Production, EIB–126, USDA Economic Research
Service (2014), https://www.ers.usda.gov/webdocs/
publications/43869/48159_eib126.pdf?v=1829.6 (In
2011, nearly a third of smaller farms and nearly a
fifth of larger farms realized negative net farm
income); AMS–FTPP–22–0046–0780 (‘‘I’ve been a
poultry grower for almost 15 years and it is a shame
that you have to have multiple jobs just to make
ends meet. . . Everyone is struggling in this
economy right now and we have massive debt
loads, insurance and utilities have skyrocketed
parts are extremely high and even just the basic
necessities to live are at critical levels. . .’’).
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enhancing competition in the market for
grower services in certain geographies.
Nor is this an unworkable or
unreasonable requirement; some LPDs
have already adopted the reforms
included in this final rule, and so this
regulation builds on existing, successful
models that that commenters said some
LPDs have already found workable and
effective.
Also, contrary to some commenters’
claims, nothing in the regulation
requires the base pay to be increased or
otherwise be fixed in a manner that
would affect supply or the price of
chicken for consumers; rather, it is
designed to address inadequate poultry
grower compensation arising from
deceptive and unfair practices by LPDs.
Simply, § 201.106(a) enables LPDs to
continue to set a base pay and provide
bonuses based on a grower’s grouping,
ranking, or comparison to others, or
through other payment incentives
schemes. AMS acknowledges that
grower education and outreach may be
useful but believes that the
responsibility to eliminate deception
starts with the legal responsibilities
Congress placed on the LPDs when it
amended the Packers and Stockyards
Act. This includes clear contract terms
and transparent communication
between LPDs and growers.
AMS notes that § 201.102 requires
disclosure of stocking density in
production contracts. Reductions in
stocking density are best addressed
under those disclosure requirements.
AMS acknowledges that § 201.106 may
not address every form of unfair practice
that a grower may experience, such as
reductions in flock placements or
stocking density, and AMS remains
committed to robust enforcement of
section 202 of the Act to address the full
range of potentially unfair practices that
growers may face.
AMS agrees that USDA-sponsored
education and outreach helps growers’
make informed decisions. AMS is taking
steps to increase producer education
and outreach, including, for example, by
establishing the farmerfairness.gov
portal to facilitate ease of access for
submitting complaints. AMS intends to
expand education and outreach
regarding this rule and other regulatory
requirements. Disclosure and education,
although beneficial, are unlikely to
address unfairness because of the
substantial difference in bargaining
power between LPDs and growers.
AMS’s responsibility, however, is to
enforce the Act. Better information
concerning an unfair practice does not
make the practice fair, nor alleviate the
need for regulation.
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ii. Performance Pay
Comment: Growers and supporting
organizations highlighted the need for a
more balanced system that protects
growers from income volatility and
unfair deductions related to factors
outside of their control. Many
commenters explicitly endorsed a 25
percent cap, citing the potential to curb
the negative impacts of the tournament
system while preserving performancebased incentives. Several advocacy
groups supported calculating the
variance at the individual grower level
rather than the complex level to allow
growers to make more informed
financial calculations, better determine
whether they are being treated unfairly
by LPDs, and to limit the potential for
favoritism and retaliation against
individual growers. To strengthen
fairness and transparency, commenters
emphasized the need for objectively
measurable bonus criteria and the
importance of pairing the cap with a fair
minimum base pay. One commenter
suggested allowing exceptions for
exceeding the 25 percent cap with
proper justification. Another pointed to
the bonus cap model in the turkey
industry and a farm bureau suggested a
20 percent pay difference between
growers. Several commenters indicated
that bonuses should be linked to factors
within a grower’s control.
Some industry representatives
emphasized the role of performance
incentives in driving productivity.
Commenters argued that limiting
performance bonuses would
disincentivize growers and negatively
impact productivity. Some commenters
questioned the basis for the 25 percent
figure.
Many stakeholders expressed concern
about the feasibility of case-by-case
enforcement to ensure fair comparisonbased bonuses. Comments reveal a
consensus among stakeholders that
case-by-case enforcement alone is
insufficient to guarantee fair
comparison-based compensation.
Advocacy organizations argued that
case-by-case enforcement is ineffective
and inefficient and places an undue
burden on growers who seek redress.
These organizations cited past instances
in which this approach failed to
adequately protect grower interests. One
commenter raised a concern about caseby-case enforcement’s vulnerability to
changing political landscapes, thereby
creating uncertainty for growers and
potentially discouraging them from
reporting unfair practices. Many
stakeholders advocated for clear
regulations and proactive measures to
prevent unfair bonuses rather than
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relying solely on enforcement. For
example, one commenter requested that
USDA establish guidelines defining
unfair performance payment structures,
proposing a presumption of unfairness
for bonuses exceeding 25 percent of
total compensation. The commenter also
suggested that contracts offered to
indebted growers could serve as
potential evidence of anti-competitive
practices, particularly by processors
with significant market power.
AMS response: In the proposed rule,
AMS specifically inquired whether it is
presumptively unfair for comparisonbased compensation to equal or exceed
25 percent of total compensation (base
pay rate plus comparison-based) for any
grower and asked a range of questions
around the appropriateness of the
specific threshold, how to calculate it,
and how it would affect the industry.
These questions included inquiries
highlighting the role of the 25 percent
presumption as a potentially binding
constraint and how LPDs might respond
in the compensation structures.
AMS agrees with the majority of
commenters suggesting that
comparison-based performance pay
should be presumptively limited in
order to balance the interests of growers
and LPDs and prevent unfair outcomes.
Grower concerns regarding thin
margins, debt load, input variability,
and tournament composition invoke
equity issues that must be balanced with
performance and productivity
incentives. While useful as an incentive
and a means to allocate pay, flock
performance metrics, specifically feed
conversion, as a proxy to grower effort
are imperfect. Feed conversion itself is
affected by variables beyond grower
effort. AMS is not aware of existing
technological innovations that could
serve to better isolate grower effort or a
measurement that would be exclusively
under grower control.
Flock performance metrics serve some
purposes in the assessment of grower
effort and the allocation of grower
payments. AMS’s experience in
analyzing performance payments
suggest that ranking systems can be a
useful and reasonably equitable
mechanism for pay allocation with
proper regulation in magnitude.
Performance payments can reward
grower effort without being an
unlawfully deceptive or unfair practice.
In considering the appropriate form of
regulation, AMS considered the variety
of grower ranking systems currently in
practice and the possible evolution and
redesign of those systems, such that the
purpose of the regulation would be
resistant to circumvention while also
providing an appropriate level of
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flexibility to maintain an incentive
structure. As referenced in the proposed
rule, a presumptive limitation on
performance pay magnitude strikes that
balance. As a presumption, enforcement
will occur based on an inquiry into
specific factual circumstances. Based on
currently available information, a bright
line standard is likely to be overly rigid
and may serve to deprive successful
growers of the expected value of their
services. Allowing LPDs to provide a
rebuttal to justify exceeding the
prescribed performance pay magnitude
is a desirable feature for growers and
LPDs alike because payment systems
may reflect different circumstances at
different complexes. Again, facts and
circumstances matter, in particular
around the variability of performance
for the birds in question, the housing
specifications, etc., as 25 percent may
still be an appropriate limit. Whether
the LPD took appropriate measures to
comply with the duty of fair comparison
under § 201.110 or otherwise mitigated
other identifiable risks of unfair
variability relating to the larger
magnitude of the tournament will also
be important. To underscore, AMS
expects the presumption will not be
easily overcome.
AMS acknowledges that some
commenters preferred application of the
presumption at the individual
settlement level. AMS is concerned that
application at the individual level will
be difficult to monitor and enforce and
could also result in overly rigid
limitations on individual performance
outcomes in flock settlements. That
could dilute or distort grower
performance incentives, including
through capturing statistical outliers,
which could result in restriction of
performance payments that reduce
aggregate grower revenue in ways that
AMS believes are not presently
necessary to address unfairness and
deception under the tournament.
Applying the presumption as an
aggregate analysis at the complex-wide
level offers several benefits to LPDs and
growers. It allows smoothing of outliers
from individual settlements and allows
LPDs to focus on the design of the
incentive system without requiring
compliance on a grower-by-grower,
individual settlement basis. An
application at the complex-wide level
will, nevertheless, have sufficient
limitation on the available funds for
comparison-based performance
payments for individuals—owing
simply to the constraint on funds for
those purposes—so as to achieve the
desired goal of right-sizing the
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magnitude of the tournament for
individual growers.
In considering the appropriate
threshold at which to institute the
presumption, AMS first reviewed a
limited sample of existing ranking
systems. AMS reviewed one to five
years of confidential grower
compensation data for four individual
broiler complexes that AMS gathered in
prior investigations. This sample
included small, medium, and large bird
sizes and some of the largest broiler
LPDs that operate several other
complexes across the U.S. Aggregate
performance payments at these four
complexes were 11.4, 17.4, 20.5, and
25.4 percent of total grower payments.
AMS is not aware of any complex with
performance payments that are as much
as 26 percent of total payments. As
noted above, in the proposed rule, AMS
solicited comment regarding a 25
percent limitation on comparison or
‘‘performance’’ payments. Additionally,
Wayne-Sanderson Farms, one of the
three largest LPDs, recently agreed to a
similar performance pay limitation at
the 25 percent.36 Governmental
commenters noted the 25 percent cap
has proven workable for both a major
LPD and the growers contracted with
Wayne-Sanderson. As numerous LPDs
will likely need to modify contracts to
achieve compliance under § 201.106(a)
of this rule, finding that the industry
upper bound of performance pay
magnitude approaches 25 percent is also
a relevant data point in AMS’s
determination that 25 percent is
appropriate as the presumptive
threshold for this regulation.
With respect to objectively
measurable bonus criteria, AMS agrees
that comparisons must be fair, and
§ 201.110 below sets out AMS’s
approach to mitigating comparisons
based on inappropriate approaches to
inputs, production practices, and
related matters. AMS is not adopting
further specificity with respect to bonus
criteria in § 201.106 because AMS has
designed this portion of the rule to
operate in a simpler, more easily
enforceable manner, including
§ 201.106(a)’s prohibition on deductions
to any rate of compensation and
§ 201.106(b)’s limitation on the
magnitude of performance pay overall.
36 United States v. Cargill Meat Solutions Corp.,
1:22-cv-01821–ELH (D. Md. July 25, 2022); United
States v. Cargill Meat Solutions Corp., et al. (2022).
Proposed final judgments and competitive impact
statement. Federal Register. Retrieved from https://
www.federalregister.gov/documents/2022/09/16/
2022-20014/united-states-v-cargill-meat-solutionscorp-et-al-proposed-final-judgments-andcompetitive-impact.
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With respect to the importance of
pairing the cap with a fair minimum
base pay, AMS has adopted transition
rules under § 201.106(c) to monitor and
guard against unfair changes to
aggregate compensation for growers.
AMS sets out additional views on rates
of return below.
AMS appreciates the commenter’s
suggestion regarding the bonus cap
model in the turkey industry and the
farm bureau suggestion of a 20 percent
pay difference between growers. AMS
did not consider the turkey industry in
this final rule because contracting
practices in the turkey industry are
more diverse, in part owing to the
biological differences in the birds which
to some extent mute differences in
outcomes, and so this rule would not
necessarily be sufficiently tailored for
that sector. However, the comment
underscores the reasonableness of
AMS’s approach of a presumptive 25
percent limitation on aggregate
performance compensation.
iii. Rate of Return
Comment: Grower and grower
association commenters expressed
concern around ensuring a reasonable
rate of return for their labor and
investments. Many commenters
expressed broad concerns of monopsony
power suppressing grower
compensation. Some commenters stated
the minimum base pay should reflect
more competitive conditions, such as
geographies where growers have the
option to contract with three or more
LPDs. Commenters stated that the
minimum base pay should be sufficient
to allow growers to make a reasonable
return over the course of the contract,
provided that the grower follows the
LPD’s required management practices
and contract guarantees. One
commenter suggested defining
reasonable return as, at a minimum,
enough net income to compensate
poultry growers’ labor hours at the state
minimum wage rate. Others called for
set minimum base pay, minimum flock
placements and flock densities
combining to allow growers to
comfortably make loan payments plus a
reasonable return. Commenters called
for a more equitable and transparent
compensation system that guarantees a
reasonable rate of return, provides
greater financial security, and addresses
the power imbalance between growers
and LPDs.
Grower commenters reported being
underpaid and struggling to cover
production costs, service debt, and earn
a livable wage. Commenters highlighted
a lack of adjustments for inflation, and
penalties for factors outside their
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control as contributors to insufficient
compensation. They assert that the
current payment structure often makes
necessary capital improvements
financially risky for growers, thereby
hindering their ability to reinvest in
their operations. Commenters also
claimed that the current payment
system lacks transparency regarding
how performance payments are
determined, the minimum price per
pound rates, feed quality and ingredient
details, breeder flock age and health,
and chick hatch times and temperatures.
Some commenters urged AMS to
include in the final rule a presumption
that an LPD is in violation of the P&S
Act if the LPD does not offer a minimum
base pay rate that is reasonably expected
to cover the costs of operation, service
debt associated with initial investments
and capital improvements, and provide
a reasonable rate of return. Commenters
also advocated for a fairer system of
deductions for condemned birds,
arguing that deductions should be based
on the actual weight of condemned
birds rather than the flock’s average
weight.
To ensure fairness and sustainability,
commenters proposed several solutions
to the proposed question regarding
whether AMS should prescriptively
require grower base pay to earn
‘‘reasonable return,’’ assuming they
follow production practices. Many
commenters recommended establishing
a minimum base pay that: (1) ensures a
livable income and covers basic
production costs; (2) includes
provisions for inflation adjustments to
maintain real income over time; (3)
allows for debt service, enabling
growers to invest in their operations
without undue financial strain; and (4)
provides an opportunity for a reasonable
return on investment, recognizing the
inherent risks and capital requirements
in poultry growing. Several commenters
suggested a shift toward a base pay
based on square footage, potentially
with a bonus component determined
through a tournament system. This
approach aims to provide a more stable
and predictable income stream for
growers. However, one producer
expressed concern that square foot pay
would lower bird quality and reduce
animal welfare.
Commenters also called for increased
transparency from LPDs, including more
detailed documentation and reporting
requirements. This would provide
growers with a clearer understanding of
how their pay is calculated and enable
better monitoring of potential unfair
practices. Finally, commenters
emphasized the need for mechanisms
that protect growers from debt burdens
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and provide a greater assurance of a
return on their investments. Suggested
measures include limiting the financial
burden on growers for capital
improvements mandated by processors
and establishing mechanisms to share
the risks associated with market
fluctuations or unforeseen events.
AMS response: AMS appreciates the
challenges that many growers face in
negotiating fair pay, especially given the
levels of concentration in many local
markets, the take-it-or-leave it form of
LPD contracts, and the prevalence of the
reports on troubling practices in the
poultry industry. AMS aims to promote
an industry market structure that can
secure payment rates and contract terms
for all growers that: (1) ensure a livable
income and covers basic production
costs; (2) include provisions for
inflation adjustments to maintain real
income over time; (3) allow for debt
service, enabling growers to invest in
their operations without undue
financial strain; and (4) provide an
opportunity for a reasonable return on
investment, recognizing the inherent
risks and capital requirements in
poultry growing. AMS also recognizes
the value of basing payment, in many
circumstances, on square footage,
potentially with a bonus component
determined through a tournament
system. In many cases, such a
compensation structure could create a
more stable and predictable income
stream for growers because there would
be a guaranteed payment rate based on
factor that does not change.
This final rule seeks to make targeted
reforms based on the information and
strategies available to AMS at this time.
In this final rule, AMS does not purport
to alleviate all potential unfair aspects
of the tournament system or of the
integrated model of broiler production
in concentrated markets. AMS believes
that general principles of unfairness
prohibit an unlawful exercise of market
power or bargaining power that injures
growers, including by providing returns
that are below a reasonable return. AMS
does not, however, identify a strict
framework that prescribes exactly how
to ensure competitive compensation.
Rather, at present, AMS will apply a
case-by-case enforcement approach to
protect growers from unfair and
unlawful market power or bargaining
that denies growers reasonable
compensation. In conducting its
analysis, AMS expects to rely heavily on
the facts and circumstances, including
but not limited to:
• Relative levels of market power
(including the number of LPDs growers
can contract with in a given geography,
whether there is meaningful choice in
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contracting practices among LPDs in a
given locality, the extent to which risk
or other unfair contract terms are shifted
to growers, the extent to which contracts
are meaningfully negotiated, etc.), and
other differences in bargaining power
between growers and relevant LPDs;
• The type and nature of the unfair
conduct (e.g., express or tacit collusion
via information sharing, the presence of
express or implied no-poach
agreements, whether the tournament
system was being utilized in a manner
to prevent growers from negotiating or
securing competitive compensation, the
LPD’s treatment of days out and
condemnation within the tournament
system, etc.);
• What constitutes competitive pay
for growout services, especially in
geographies where more LPDs are
present;
• The rates of payment under the
contract; in particular, whether the base
rate a grower can expect to receive for
performing fully under the contract can
ensure a reasonable return;
• The costs of providing growout
services over the contract, including
appropriately and reasonably measured
labor costs;
• The levels of contractually
guaranteed and otherwise relied upon
flock placements and density;
• Whether the length of the contract
and reliance expectations on renewal
are sufficient to assure reasonable
return;
• The inclusion of cost-of-living
adjustments or opportunities to secure
those adjustments in contract renewals;
and
• Where additional capital
investment is required, factors relevant
to additional capital investment,
including those set forth in § 201.216
and the information set forth as required
under § 201.112.
AMS underscores that many growers
face high levels of local market power
or bargaining power by LPDs,
exacerbated by hold-up concerns arising
from high levels of investment and
reliance on LPDs for critical inputs.
Moreover, growers face limited
opportunities to avoid take-it-or-leave-it
terms from their LPDs, including cuts to
flocks or nonrenewals of contracts. In
general, AMS expects this enforcement
approach will, in practice, reinforce the
principle that an LPD must provide a
reasonable opportunity for a grower that
delivers under the contract to earn a
reasonable return over the life of the
contract if they comply generally with
the specified production practices.
AMS appreciates the commenters’
interest in further enhancing
transparency. AMS notes that this final
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rule increases transparency for growers
around rates of compensation
(§ 201.106) and additional capital
investments (§ 201.112), and also sets
more fair standards around, and
enhances transparency into, LPD
practices relating to input and
production practice distribution. It also
complements other regulatory initiatives
that AMS has already finalized to
provide transparency around
contracting and input distribution (88
FR 83210, November 28, 2023). AMS
intends now to turn its focus to the
important task of monitoring the
implementation of existing mandates to
evaluate the remaining gaps and needs.
AMS also appreciates grower
comments around the challenges that
debt burdens place on growers and on
the importance of more fairly sharing
the burden of market fluctuations or
unforeseen events. A central purpose of
§ 201.112 is to enhance the information
available to growers and to AMS to
ensure the fairness of additional capital
investments, and therefore LPDs’
accountability, under § 201.216 and
section 202 of the Act. For example, an
LPD’s failure to ensure the reasonable
ability for a grower to recoup the cost
of a required (including ostensibly
requested but in practice coerced)
additional capital investment would, on
its own, be dispositive to show a
violation of § 201.216. AMS recognizes
that growers cannot avoid the unfair
exercise of market power. Failing to
sufficiently and fairly compensate
growers is not a cognizable benefit to
growers or to competition. (AMS’s
approach is discussed below in section
V.C.ii., ‘‘Additional capital investment
unfairness.’’)
With respect to new housing, as
opposed to additional capital
investments, AMS has also separately
finalized the Transparency in Poultry
Grower Contracting and Tournaments
(Transparency Rule) rule that provides
significantly enhanced transparency
over the preexisting system.37 As
described in the Transparency Rule,
these disclosures include returns broken
out by quintile and other information
delivered in a disclosure document
when the grower receives any housing
specifications and would be
contemplating making additional
investments. AMS expects to monitor
the implementation of that rule and
would, for example, examine
circumstances where the disclosures
were deceptive or misleading relating to
securing the new grower’s commitment
to invest in housing.
37 88
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iv. Transition and Implementation
Comment: AMS asked what risks
growers and/or LPDs might face during
any transition to the proposed
§ 201.106. Concerns about transition
and implementation risks for growers
and LPDs centered on potential shifts in
the market power dynamics and the
administrative compliance burdens.
Some commenters, especially grower
advocates, farmers’ coalitions, and legal
institutions, were concerned about the
potential for LPDs to exploit the new
regulations by arbitrarily lowering base
pay rates. They argued that this could
undermine the intended fairness that
the rule aims to achieve and called for
explicit prohibitions against such
practices.
A governmental commenter suggested
that, for the duration of a reasonable
transition period, USDA require that
current payments remain overall
comparable, so that LPDs cannot
arbitrarily lower grower base pay or
overall compensation during the
transition period or impose other unfair
contract terms. This commenter also
suggested that USDA require that
modified contracts have, at a minimum,
the same length as the period covered
by the grower’s initial contract.
Advocacy associations urged USDA to
closely monitor the industry’s transition
and establish fair minimum rates that
are not lower than the average pay
under the current comparison system.
To minimize transition risks to growers,
one advocacy association noted that
AMS should not require submission of
all contracts that are modified to comply
with new § 201.106, in order to avoid a
bottleneck in contract negotiations.
Instead, they recommend that AMS
require LPDs to submit representative
contracts that show how they are
calculating a fair base pay. The
commenter also suggested an
accountability mechanism rather than a
pre-approval process so that LPDs can
deliver to AMS the information
necessary for the Agency to determine
whether contract modifications are
happening in compliance with
§ 201.106 and the Act.
Another advocacy association urged
AMS to presume undue buyer power
exists whenever an LPD offers a grower
in debt a contract that, based on the
minimum income possible from the
contract’s guaranteed flock placements,
stocking density, and firm base price,
does not give the grower enough income
to pay off their debt. The commenter
also stated that AMS should include a
requirement that LPDs submit to AMS
for review any contracts modified or
revised to comply with new § 201.106
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and should also require all LPDs to
submit compensation data for review.
This data can be used as a basis for
requiring all integrators to offer base
prices that rise to a truly competitive
level, and that are consistent with
grower cash flow and loan servicing
expectations under original contracts.
AMS response: In response to these
concerns, AMS is adding paragraph (c)
to the final rule, so that if an LPD
modifies a contract and reduces
aggregate compensation to growers,38
the LPD must submit notice of the
change to AMS and include copies of
the original contract and new contract,
as well as any related Disclosure
Documents. AMS can then adequately
assess that reductions in aggregate
grower compensation does not violate
section 202 of the Act. Aggregate
compensation enables sufficient
flexibility for LPDs to adjust supply and
deliveries based on changing market
conditions. In any case, AMS regularly
conducts compliance reviews of LPDs.
AMS has also considered the
concerns that industry stakeholders
have presented regarding the
importance of LPDs having the ability to
adjust payment to maintain a
functioning market. This regulation
allows for reductions to compensation
that do not otherwise violate section 202
of the P&S Act. The LPDs are required
to submit the prior contract, the new
contract, and any Disclosure Documents
related thereto. This is not a timeconsuming or costly requirement as this
information is already readily available
to LPDs. It also does not stifle
innovation as it does not impact novel
contracting practices so long as they are
fair and not deceptive. The regulation
does not prevent contracts from being
updated; it only requires a minimum
level of review to ensure that the
changes are not unfair or deceptive.
AMS is not, at this time, specifically
requiring that modified contracts have,
at a minimum, the same length as the
period covered by the grower’s initial
contract. Instead, AMS is focusing on
ensuring the grower compensation in
aggregate remain unchanged for the
initial period of compliance, as AMS
views that factor as being at greater risk
of immediate, unavoidable abuse from
LPDs than the length of contract per se.
v. Benefit, Burden, and Cost
Comment: Several commenters
emphasized the need for safeguards
against LPDs leveraging their market
power or bargaining power to offset any
38 Defined as ‘‘less than the prior annual-calendar
year’s complex-wide average gross payment to the
grower.’’
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losses incurred due to the rule. They
argued that such protections are needed
to ensure fair compensation for growers.
On the other hand, industry
stakeholders were concerned about the
administrative burden of compliance.
Processor commenters were opposed to
submitting revised contracts and
compensation data to USDA on the
grounds that it is unnecessary and could
lead to delays and increased costs and
stifle innovation in contract structures.
They argued that allowing LPDs to
adjust base pay rates, within reason, is
necessary to maintain a functioning
market. An industry commenter stated
the rule would require renegotiation of
thousands of grower contracts, a
potentially disruptive and costly
process. The commenter pointed to the
potential for uncertainty, economic risk,
and nullification of lawful contracts.
AMS response: AMS acknowledges
that this regulation would require
renegotiation of many existing grower
contracts. Due to sunk capital costs and
thin margins, poultry growers are
generally at a distinct disadvantage in
the face of contract renegotiation and
renewal. As explained in this final rule,
however, AMS has determined the
current structure of many contracts is
unfair and deceptive and therefore
unlawful under the Act. AMS is
providing an extended effective date for
the provisions of this final rule to
provide additional time for LPDs and
growers to modify contracts or
otherwise renew under a new, legally
compliant system. In addition, AMS
recognizes that growers may be at risk
of unfairness during any transition
period and, accordingly, is adopting a
transition requirement for LPDs to
submit contracts upon modification or
renewal if those contract changes result
in decreased grower compensation. This
requirement is designed to enable a
smooth transition to the new system.
AMS review will not delay contracts, as
AMS will not be approving the contracts
under § 201.106(c), but rather will be
identifying unfair practices and
potentially commencing enforcement.
AMS’s purpose is, as commenters urged,
to safeguard growers against LPDs
leveraging their market power to offset
any costs they incur due to the rule’s
fairer and less deceptive approach to
payment systems.
AMS rejects the view that this rule
would stifle innovation in contract
structures. It provides a small number of
basic safeguards for the protection of
growers, but otherwise does not dictate
the specific manner in which LPDs
compensate growers for their services.
AMS is aware of a wide variation of
existing contractual approaches to
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compensation which would remain
permissible under this final rule. For
example, some contracts compensate on
a per pound base rate while others use
a square footage contract for base
payments or a combination.
Performance pay will still be permitted
at an appropriate magnitude, and LPDs
may continue to use a range of
approaches for comparison-based pay,
including flock-by-flock comparisons or
longer rolling averages as some
contracts currently do.
LPDs are also free to adjust base pay
rates upwards based on grouping,
ranking or comparison, which aligns
with some industry views that the
tournament system, within reason, is
necessary to maintain a functioning
market. LPDs can also continue to
deduct growers’ payment for
noncompliance with contractual
requirements, provided it is not based
on the outcomes of the tournament.
B. Section 201.110
i. Input Variability
Comment: Overall, commenters
broadly agreed that input variability
poses a significant challenge to fair
grower compensation within
performance-based payment systems.
While commenters acknowledged the
difficulty of controlling certain inputs
such as chick quality, stakeholders
disagreed on the degree of control and
intentionality surrounding input
variability. Generally, growers pointed
to examples of inconsistencies that
impacted their performance, including
inconsistencies in chick quality and hen
age, which suggest a lack of control and
potential for unfair outcomes. Industry
commenters emphasized the challenges
of controlling the inputs, such as chick
quality, countering that they also lack
control over certain inputs, particularly
when ordered in bulk, which would
make intentional manipulation difficult.
One commenter challenged the
assumption that input variability is
intentional, controllable, and material,
and asserted that USDA lacked evidence
to prove the assumptions.
Regarding the impact of input
variability on grower performance and
fairness, commenters argued that since
growers have limited control over key
inputs (e.g., chick quality, feed delivery,
or disease management), basing
payments on performance relative to
these inputs is inherently unfair. They
emphasized that settlement outcomes
under these conditions do not
accurately reflect grower management
skills or effort. Other commenters
expressed concern that excessive
variability in inputs such as chick
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health, feed delivery, and flock pickup
within a settlement group creates
significant financial risk for growers,
especially over multiple flocks.
Industry stakeholders argued that
requiring LPDs to control all input
variations is impractical and could lead
to inflexible systems that ultimately
harm growers.
AMS response: AMS has gathered
significant evidence from poultry
growers that input variability in poultry
tournaments can lead to unfair
comparisons, and lead to inappropriate
burdening of risk onto growers. AMS
does not need to find that input and
production practice variability is
intentional, fully controllable, or
material in all instances by the LPD to
reach the conclusion, based on
academic evidence, regulatory
experience, and complaints from
growers, that it exists and can and
should be mitigated by LPDs. AMS has
identified at least the following
differences that may affect grower
performance: breed,39 bird sex,40
breeder stock age,41 stocking density,42
39 See, e.g., Muir, W.M. and SE Aggrey. Poultry
Genetics, Breeding, and BioTechnology (2003).
40 See Burke, William, and Peter J. Sharp. ‘‘Sex
Differences in Body Weight of Chicken Embryos.’’
Poultry Science 68.6 (1989): 805–810; and Beg,
Mah, et al. Effects of Separate Sex Growing on
Performance and Metabolic Disorders of Broilers.
Diss. Faculty of Animal Science and Veterinary
Medicine, Sher-e-Bangla Agricultural University,
Dhaka, Bangladesh, 2016.
41 Breeder stock age: See Washburn, K.W., and
R.A. Guill. ‘‘Relationship of Embryo Weight as a
Percent of Egg Weight to Efficiency of Feed
Utilization in the Hatched Chick.’’ Poultry Science
53.2 (1974): 766–769; Weatherup, S.T.C., and W.H.
Foster. ‘‘A Description of the Curve Relating Egg
Weight and Age of Hen.’’ British Poultry Science
21.6 (1980): 511–519; Wilson, H.R.
‘‘Interrelationships of Egg Size, Chick Size,
Posthatching Growth and Hatchability.’’ World’s
Poultry Science Journal 47.1 (1991): 5–20; Goodwin,
K. ‘‘Effect of Hatching Egg Size and Chick Size
Upon Subsequent Growth Rate in Chickens.’’
Poultry Science 40 (1961): 1408–1409; Morris, R.H.,
D.F. Hessels, and R.J. Bishop. ‘‘The Relationship
Between Hatching Egg Weight and Subsequent
Performance of Broiler Chickens.’’ British Poultry
Science 9.4 (1968): 305–315; Peebles, E. David, et
al. ‘‘Effects of Breeder Age and Dietary Fat on
Subsequent Broiler Performance. 1. Growth,
Mortality, and Feed Conversion.’’ Poultry Science
78.4 (1999): 505–511. AMS notes additionally that
research in this and related areas has limitations.
It is older and results are mixed. AMS is concerned
that publicly available research has stagnated,
despite the introduction of new breed strains in the
intervening years. Because integrators now own the
genetics companies, AMS has additional concerns
that research has, in effect, been privatized, creating
informational asymmetries. Based on regulatory
experience and on public comments, growers
believe these factors affect performance.
42 Dozier III, W.A., et al. ‘‘Stocking Density Effects
on Growth Performance and Processing Yields of
Heavy Broilers,’’ Poultry Science 84 (2005): 1332–
1338; Puron, Diego et al. ‘‘Broiler performance at
different stocking densities.’’ Journal of Applied
Poultry Research 4.1:55–60 (1995).
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consistency of feed availability,43 and
the type and administration of
veterinary medicines.44 AMS also notes
that chick genetics are currently
proprietary and largely controlled by
two companies, one of which is owned
by one of the nation’s largest LPDs.45
This rule aims to set conditions on
performance-based payment systems in
contract poultry growing such that
poultry growers are compared based on
factors under their control. When
poultry companies take appropriate
measures, as prescribed in this rule to
ensure a fair comparison, then contract
poultry growing reduces a significant
amount of risk to growers because the
LPD provides the inputs.
The purpose of this rule is to establish
a framework for fair comparisons to
prevent unfair and deceptive practices
that reduce pay. To the extent that input
variability is creating unfairness, the
rule requires LPDs to mitigate the
impacts of input variability on the
comparison. AMS recognizes that LPDs
have an incentive to get full economic
value of less productive chicks. Yet it is
incumbent upon them under the
Packers and Stockyards Act—and this
rule’s explicit duty of fair comparison—
to structure their comparison-based
compensation system to make a fair
comparison among growers. Input
differences should not be a significant
variable over time in the determination
of grower compensation. As
commenters noted, excessive variability
in input quality, timing, and flock
pickup can cause significant harm to
growers, hence the inclusion of explicit
duties imposed on LPDs in this rule
with respect to the design and operation
of comparison-based poultry
compensation schemes. Furthermore,
LPDs must institute a non-comparisonbased system when it is impossible for
the LPD to conduct a fair comparison
due to extenuating circumstances.
43 Dozier III, W.A., et al. ‘‘Effects of Early SkipA-Day Feed Removal on Broiler Live Performance
and Carcass Yield.’’ Journal of Applied Poultry
Research 11.3 (2002): 297–303.
44 Treatments may be necessary to mitigate
disease within a single poultry house or an entire
flock, or to boost the performance of suboptimal
progeny from impaired breeder flocks, as described
above. These treatments may affect the flock’s
growth rate or mortality. See Wells, R.G., and C.G.
Belyawin. ‘‘Egg quality-current problems and recent
advances.’’ Poultry science symposium series. No.
636.513 W4. 1987. (citing Spackman, D. ‘‘The
Effects of Disease on Egg Quality.’’).
45 Hendrickson, M. et al, ‘‘The Food System:
Concentration and Its Impacts,’’ 3, (2020), https://
farmaction.us/concentrationreport/, (‘‘Globally, just
two firms control 99% of turkey genetics, 94% of
laying hen genetics, and 91% of broiler genetics,
and just three firms control 47% of swine genetics
(ETC Group 2013; Shand and Wetter 2019)’’).
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ii. Application, Material Difference, and
Non-Comparison Method
Comment: While there was broad
agreement on the importance of fair
compensation for all growers, some
commenters expressed concern about
the rule’s practicality, administrative
burdens, and potential confusion
regarding the definition of ‘‘material
differences in performance.’’
Commenters, especially farmers’
coalitions and advocacy groups,
endorsed the duty of fair comparison,
viewing it as a key step toward ensuring
equitable treatment for growers
operating outside of tournament
systems. They emphasized the need for
transparent, data-driven mechanisms
that guarantee fair compensation
regardless of payment model.
Commenters both in support of and in
opposition to the proposed rule
requested further clarity for the
definition of ‘‘material differences in
performance’’ so that growers know
when they have suffered a specific
prohibited harm and can confidently
request an investigation. Commenters
also favored a presumption of
unfairness rather than a material
threshold for change in pay. One
commenter asserted that any material or
numeric threshold for change in pay
would be inappropriate, and that AMS
should establish the presumption that
providing unequal inputs to growers
within the same settlement group is
material to grower performance, and
another commenter advocated for the
use of a presumption to provide greater
clarity and notify growers of problems
to be addressed.
AMS response: The preamble to this
final rule explains that ‘‘Material
differences in performance are
differences that meaningfully (from the
perspective of the grower) impact
grower payments.’’ AMS chose not to
publish a dollar amount because a given
change in performance may have
disparate impacts on growers,
depending on the ratio of performance
pay to total pay, the overall size of the
grower’s operation, their level of
indebtedness, or other factors pertaining
to a grower’s financial position.
AMS is not adopting a presumption of
unfairness for differences in inputs
because there are always differences in
inputs in natural systems. The use of a
presumption would be overinclusive
and unhelpful in guiding LPDs in
improving the fairness of their
comparisons in relation to inputs,
production practices, and related factors
set out in the duty of fair comparison.
Material change in pay is a more
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appropriate target because the
comparison affects the grower’s pay.
Comment: Commenters stressed the
importance of clearly outlining noncomparison methods within production
contracts before they become necessary
to provide growers with a clear
understanding of their rights and
options should tournament-based
comparisons become unfair or
impractical. Both industry stakeholders
and advocacy groups acknowledge the
need for clearer guidance on
determining when fair comparison is no
longer feasible and advocated for more
specific criteria to guide both LPDs and
growers. Commenters also expressed
concern that implementation should
appropriately address growers’
circumstances.
AMS response: Fair comparison of
growers requires that growers do not
receive a distribution of inputs or
assignment of production practices that
causes material differences in
performance from other growers to
whom they are being compared. Factors
outside of a grower’s control should not
meaningfully (from the perspective of
the grower) impact grower payments.
This is a facts and circumstances
analysis.
Per § 201.110(a)(3), the noncomparison method must be included in
the contract; therefore, growers will
know what this method is before it is
used. Per § 201.110(b)(1)(v), ‘‘Noncomparison,’’ requires that an LPD’s
written processes explain when the LPD
might remove a grower from a ranking
group, and how the LPD will
compensate growers removed from a
ranking group to satisfy the noncomparison compensation method
required under § 201.110(a)(3). There
are myriad reasons why a grower may
need to be removed from a ranking
group. For example, there may not be
enough comparable growers with which
to make a reliable comparison in the
current grouping and the LPD may use
growers settling in previous periods to
make a reliable comparison. Likewise, a
specific grower may have received
undesirable inputs or an assignment of
production practices that materially
impacted the grower’s performance,
necessitating the removal of the grower
from the grouping and compensation
under a non-comparison compensation
method. Under this provision, the LPD
must explain how and when the LPD
removes a grower from a ranking group
because the grower received unfavorable
inputs or production practices and how
it will fairly compensate such growers
through a non-comparison
compensation method.
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Comment: A common theme across
comments was addressing the inherent
power imbalance between growers and
LPDs, including the need to protect
growers from retaliation. Commenters
advocated for independent compliance
reviews, potentially involving grower
feedback, to ensure LPDs comply with
the duty of fair comparison. However,
some commenters contend that such
requirements would create excessive
paperwork burdens for LPDs,
potentially hindering their ability to
address grower needs effectively.
AMS response: AMS monitors and
regulates power imbalances in the
poultry industry in accordance with the
Act and associated regulations. AMS’s
regulations at § 201.304 prohibit
retaliation for asserting any of the rights
granted under the Act or part 201 or
asserting contract rights (9 CFR
201.304(b)(2)(vii)). AMS’s regulations
also prohibit retaliation by LPDs against
poultry growers for speaking with
government officials for the purposes of
seeking redress for grievances brought
under the Acts (9 CFR 201.304(b)(2)(i)).
Moreover, this regulation aims to
prevent injury from specific practices by
LPDs—who possess local market power
or bargaining power over growers. Out
of concern that the compliance review
process will divert poultry technicians
from their primary responsibility to
assist poultry growers with production
issues, AMS has simplified the
documentation requirements under
§ 201.110(b)(1). This new streamlined
documentation requirement gives LPDs
the needed flexibility to efficiently
incorporate compliance with this rule
into their standard business practices.
Additionally, this section was
streamlined in part because the
Transparency Rule had similar
documentation requirements.46
Comment: To refine comparisonbased payment systems, one commenter
suggested using shorter rolling averages
for performance comparisons; a short
rolling average mitigates the impact of
seasonal variations and new breeder
flocks on grower pay, and therefore
might create a more level playing field
and prevent unfair disadvantages
stemming from factors outside a
grower’s control. Another commenter
advocated for contract provisions that
would automatically adjust grower pay
or provide avenues for redress when
external factors, such as chick quality,
veterinary care access, and feed quality
negatively impact performance.
AMS response: AMS agrees that the
duty of fair comparison requires
integrators to use an appropriate time
46 88
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period for comparing growers. Use of an
inappropriate time period for the
comparison-based compensation may be
unfair or deceptive, and therefore
constitute a violation of the Act. The
final regulatory text indicates that one
factor for the Secretary to consider when
determining if a fair comparison has
been made in the design or operation of
a poultry grower ranking system is
‘‘whether the designated time period
used in the live poultry dealer’s
comparison is appropriate, including
whether the live poultry dealer uses one
or more groupings, rankings, or
comparisons of growers to mitigate the
effects of any differences in inputs over
the designated time period.’’ Under the
duty of fair comparison provision,
growers will be compensated through a
non-comparison method when a fair
comparison-based compensation
scheme is impossible.
iii. Appeal, Dispute Resolution
Comment: An industry stakeholder
expressed concern that the language
surrounding ‘‘reasonable efforts’’ was
not detailed enough and that this could
create uncertainty for LPDs, potentially
leading to inconsistent application and
legal challenges. To provide greater
clarity and specificity regarding the
definition of ‘‘reasonable efforts,’’ one
commenter suggested defining the term
through concrete examples of both
reasonable and unreasonable behavior
to provide clearer expectations for both
growers and LPDs. Another commenter
proposed specific actions that LPDs
should take to demonstrate ‘‘reasonable
efforts,’’ including (1) allowing for
grower-installed feed scales to verify
feed amounts, (2) permitting third-party
veterinarian selection for sick flock
assessments, (3) providing options for
growers to independently assess LPDcontrolled inputs, and (4) offering noncomparison compensation without fear
of retaliation. Emphasizing grower
agency, one commenter recommended
empowering growers with the ability to
independently verify inputs and
performance factors.
An industry commenter noted that, in
order to fairly address and resolve a
situation, an LPD will always depend on
the facts and circumstances of each
case. The commenter noted that there
are a multitude of factors for each
situation, making a set policy or
procedure not conducive to the dispute
resolution process.
AMS response: As noted above,
fairness requires a poultry ranking
system that meets a reasonably reliable
standard. LPDs must properly adjust the
comparison-based compensation
systems used in their poultry grower
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ranking systems to reasonably neutralize
the impact of inequitable distribution of
inputs and assignment of flock
production practices on poultry grower
compensation, as well as to reasonably
neutralize the impact of communication
and dispute resolution challenges that
are not effectively and timely addressed.
Reasonableness is intended to be
viewed as an objective test that accounts
for standard industry practice, growers’
contract expectations, basic
considerations of equity, and the LPD’s
ability and willingness to prevent harms
to growers resulting from factors outside
growers’ control. This objective test
should also provide some flexibility to
LPDs in particular facts and
circumstances to achieve distinct goals
in management of their operations,
provided the LPD’s goals are reasonably
designed, appropriately documented,
and not otherwise unfair or deceptive to
growers.
Although ‘‘reasonable efforts’’ follows
the typical standard applied for
reasonable behavior in the law—what a
reasonable person would do under
similar circumstances—AMS also
recognizes that enough circumstances
are recurring in nature that an LPD
should in many if not most cases be
expected to have a regularized approach
to the concern. Ultimately, what
constitutes reasonable efforts will
depend on the facts and circumstances
of each case, with the LPD’s duty
focused on the fairness of the
comparison(s) for the grower.
For example, if a grower raises
immediate and urgent concerns about
feed quality, such as the delivery of feed
meant for older chicks than the grower
has, the LPD should resolve this
concern as soon as possible to minimize
any additional undue damage to the
grower’s flock due to lack of proper
nutrition. Or if a grower raises concerns
about feed consistently being delivered
late or in an insufficient quantity, the
Agency would examine the LPD’s effort
to adjust the method of delivery. Failure
to do so would likely justify placing the
grower into a non-comparison method.
Without a doubt, an LPD is prohibited
from retaliating against a grower in any
manner for raising concerns as to
whether a fair comparison method was
used. Whether or not reasonable efforts
specifically include LPDs allowing for
grower-installed feed scales to verify
feed amounts, permitting third-party
veterinarian selection for sick flock
assessments, or providing options for
growers to independently assess LPDcontrolled inputs is not something that
AMS intends to determine in this rule
for all circumstances. However, to the
extent that LPDs face repeated grower
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complaints and concerns regarding
these matters and a track record of
problems in resolving those complaints,
reasonable efforts under particular facts
and circumstances could point to the
need for solutions such as those,
although other less intrusive options
may also be available.
Regarding the comment stating that
set policies and procedures are not
appropriate for how LPDs resolve issues
with growers, AMS agrees that every
growing operation is different, and LPDs
must be careful in designing processes
for resolving issues with growers that
are context specific. Yet a wide range of
problems are commonplace enough that
LPDs should have regularized means for
dealing with them. To strike an
appropriate balance and enable LPD
complex staff to retain focus on the
important work of helping growers,
AMS has changed the documentation
requirements under § 201.110(b) to be
less specific and, instead, simply
require LPDs to describe how they
account for similarities and differences
in quality or quantity of inputs
delivered to growers and how they
account for differences in production
practices across growers in a poultry
grower ranking system.
iv. Benefit, Burden, and Cost
Comment: Commenters highlighted
the perceived need for greater
transparency and fairness in grower
compensation. While grower advocates
believe the rule is necessary to address
systemic issues, LPDs expressed
concern about potential cost increases
and impacts on grower pay. Comments
revealed a clear divide between grower
advocates and industry representatives.
Grower organizations argued that the
duty of fair comparison is crucial for
addressing the unfair and deceptive
practice of shifting costs and risks from
LPDs to growers. Advocacy groups
suggested including a list of
presumptive violations, such as
providing unequal inputs within the
same settlement group, to strengthen the
rule’s effectiveness. Several commenters
emphasized the importance of robust
anti-retaliation protections for growers
who report rule violations or seek noncomparison compensation. An industry
commenter expressed concern that
requiring non-comparison-based pay
could lead to lower overall
compensation for growers.
AMS response: AMS agrees with
commenters that the duty of fair
comparison plays a critical role in
addressing the unfair and deceptive
risk-shifting of costs and risks from
LPDs to growers. Regarding noncomparison-based pay, the rule clearly
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states that when a fair comparison-based
system is impossible, the LPD must
implement a non-comparison method
for calculating pay to ensure that factors
outside of the growers’ control do not
cause harm to growers through
decreased compensation for grow-out
services. Even where adopted, noncomparison-based pay is not
intrinsically likely to reduce average
grower pay; the total amounts of pay are
entirely dependent on the LPD’s
choices, and this rule does not ban
bonuses for increased productivity or
greater investment.
AMS agrees that a presumptive list of
violations would assist with
enforcement and has included some
examples of potential violations in the
appropriate section of the preamble of
the final rule addressing the duty of fair
comparison. Moreover, AMS agrees that
growers cannot be retaliated against for
reporting a violation of the duty of fair
comparison and have indicated as such
in this final rule. AMS included a
prohibition against retaliation in the
Inclusive Competition and Market
Integrity Under the Packers and
Stockyards Act final rule (89 FR 16092,
March 6, 2024). LPDs cannot retaliate
against growers for speaking with
government officials for the purposes of
seeking redresses for grievances brought
under the Act.
Comment: Several commenters were
concerned about the feasibility of
implementing the documentation
requirements for the new duty of fair
comparison. Growers emphasized the
need to access detailed, house-specific
data on bird weights, feed consumption,
and other key metrics. Some other
commenters recommended additional
requirements pertaining to LPDcontrolled factors and assessing
compliance, and one commenter
recommended USDA to require LPDs to
equally distribute inputs and adjust
performance-based pay to account for
differences in inputs and treatment. An
industry commenter argued that
requiring LPDs to control all variations
in inputs, as implied in
§ 201.110(b)(1)(i), would be overly
prescriptive and impractical given the
scale, speed, and complexity of input
delivery. The commenters argued that
this could lead to inflexible systems that
would ultimately harm growers. Other
commenters criticized the provision for
being vague, unfounded and lacking
necessary explanation.
AMS response: AMS finds that
comparison-based pay using factors
outside growers’ control constitutes an
unfair practice under section 202(a) of
the Act. While it is true that inputs
cannot be delivered on a 100 percent
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equal basis to all growers all the time,
that does not mean that LPDs cannot
construct payment systems that
appropriately account for and mitigate
the impact of input and flock
production variability on grower
compensation. The LPD does not need
to control all variations in inputs;
instead, the rule as proposed and
finalized here merely requires the LPD
to account for this variation in the
design of a comparison-based payment
system. AMS has been careful to
specifically not require, nor expect, that
identical inputs are delivered to all
growers.
Also, the compliance reviews have
been removed from the final rule
because of the speed and complexity of
the poultry growing process. Instead,
AMS will incorporate audits of records
pertaining to the duty of fair comparison
into its regular audits of LPDs to lessen
the compliance burden of this rule.
AMS expects the duty of fair
comparison to substantially prevent
unfair and deceptive practices when
comparison-based pay is linked to input
or flock production variation. This
provision is written with sufficient
specificity to tackle the problem at
hand, while also allowing LPDs enough
flexibility to design and operate a
comparison-based compensation system
that causes minimal disruption to their
business operations. In fact, several LPD
comments indicated they already have
processes in place for addressing
situations where a comparison-based
pay system is not appropriate. This rule
is codifying what industry stakeholders
recognize as a best practice to create a
level playing field and uphold the
purpose of the tournament system in
contract poultry growing. AMS has
created new § 201.110(b)(1)(iii), ‘‘League
composition,’’ which requires written
documentation regarding how LPDs
determine groupings of growers for
settlement. AMS has also created new
§ 201.110(b)(1)(iv), ‘‘Evaluation period,’’
requiring LPDs to have a reasonable
time period over which they shall
evaluate the duty of fair comparison,
and new § 201.110(b)(1)(v), ‘‘Noncomparison,’’ which requires LPDs to
specify when they may remove growers
from a ranking group and how they will
compensate such growers to satisfy the
non-comparison compensation method
requirement under § 201.110(a)(3). This
is meant to account for fluctuations
across flocks while also ensuring that
poultry growers do not face material
harm resulting from input quality or
timing variation.
Comment: Some commenters asserted
that the proposed documentation
requirements were burdensome and
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potentially litigious. One commenter
argued that AMS lacked authority to
require LPDs to conduct and document
self-audits to evaluate P&S Act
compliance.
AMS response: As explained above in
section IV., ‘‘Provisions of the Final
Rule,’’ AMS agrees that some of the
proposed documentation requirements
can be streamlined. In the final rule,
AMS is focused on only the most
important documentation requirements
that would assist AMS in reviewing
LPDs’ compliance with the duty of fair
comparison. Requirements for policies
and procedures are not new or
particularly controversial and are used
widely across in the financial regulatory
context to ensure firms are appropriate
managing risks that cannot be entirely
eliminated through regulation or
otherwise. The situation is similar in the
operation of broiler growing
arrangements, where LPDs need to
distribute inputs, production practices,
and manage the needs of growers. To
the extent that an LPD improves its
management practices through
maintaining policies and procedures,
that should reduce litigation risk from
unfair comparisons.
AMS is removing the provision
requiring self-audits and will
incorporate inspection of
documentation required under
§ 201.110(b) into its regular compliance
process. The compliance process
undertaken by AMS to ensure
compliance with the Act is routine,
flexible, and comprehensive, thereby
making it the ideal mechanism by
which the provisions of this section
shall be enforced. AMS regulatory staff
already perform regular compliance
audits of LPDs, so they are well
positioned to review documentation
describing the design and operation of
LPDs’ poultry grower ranking systems
and ensure that it complies with the
duty of fair comparison.
v. Alternatives
Comment: Several stakeholders
offered alternative approaches to
address unfair compensation practices
in the poultry industry. An advocacy
group for growers proposed exploring
non-comparison-based compensation
models, such as contracts based on
square footage, to mitigate the inherent
issues of tournament systems. Another
group advocated for a complete ban on
tournament systems, based on the need
for more stable and predictable grower
income that is decoupled from relative
performance within a group.
A number of commenters expressed
concerns about LPDs manipulating
input distribution (e.g., chick quality,
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feed) as a form of retaliation against
growers who challenge them or refuse to
make capital investments. One
commenter recommended explicitly
defining unequal inputs within a
settlement group as an unfair practice
under the Act. Another commenter
argued there are no simpler alternatives
to directly addressing unfair
comparisons, and that focusing on
alternative compensation models or
banning tournament systems wouldn’t
fully address the root issue of unequal
bargaining power and the potential for
exploitation within the poultry
industry.
AMS response: AMS is not at this
time adopting the alternative
approaches to address unfair
compensation practices in the poultry
industry because it believes that the
final rule’s approaches are more
effective at addressing the identified
concerns around unfairness and
deception given the available evidence.
While AMS recognizes that noncomparison-based compensation
models, such as contracts based on
square footage, are popular with growers
and mitigate the inherent issues of
tournament systems, they have other
limitations around recognizing skill,
effort, and investment. AMS is not at
this time, based on the available
evidence, able to say that tournaments
should be banned in all circumstances
and replaced with those noncomparison methods, especially when
AMS believes that the approaches set
forth in this final rule, including
prohibiting deductions and setting a
presumption of 25 percent limitation on
tournament magnitude, along with a
clearer duty of fair comparison, offer a
more narrowly tailored approach. If the
approaches set forth in this final rule do
not yield sufficient change in the
treatment of growers, AMS will evaluate
whether those facts necessitate other
actions.
AMS acknowledges concerns about
LPDs manipulating input distribution
(e.g., chick quality, feed) as a form of
retaliation against growers who
challenge them or refuse to make capital
investments. In a previous final rule,
Inclusive Competition and Market
Integrity Under the Packers and
Stockyards Act (89 FR 16092, March 6,
2024), AMS specifically set out a range
of circumstances where retaliation is
prohibited (9 CFR 201.304(b)).
Moreover, new § 201.110, which
includes requirements for maintaining
and complying with policies and
procedures relating to input
distribution, is designed to better
protect growers against precisely those
kinds of abuses. Were an LPD to adopt
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policies and procedures that permitted
inputs to be distributed in a retaliatory
manner and compared growers on that
basis, it would be in violation of the
duty of fair comparison. And, if the LPD
failed to comply with its policies and
procedure requiring the equitable
distribution of inputs and compared
growers on that basis, that would also be
in violation. AMS underscores that
these principles (of pay not being
affected by unfair input distribution)
apply regardless of whether a
tournament is present. Indeed, as AMS
inquired in the proposed rule and
affirms here, a practice (including, but
not limited to, intentional, arbitrary, or
punitive distribution) of unequal,
dissimilar, or inappropriate inputs or
flock production practices would be an
unfair practice under the Act under any
payment system that relies upon grower
performance relative to inputs or
production practices provided by the
LPD (such as feed efficiency)
irrespective of whether the payment
system was a tournament.
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C. Section 201.112
i. Additional Capital Investment
Disclosure Document
Comment: Commenters including
several farmers’ coalitions supported the
proposed additional capital investment
disclosure requirements, asserting they
would increase transparency and reduce
deception. Several farmers’ coalitions
indicated the proposed transparency
requirements should provide lenders
with more consistent information for
justifying investment viability, help
prevent producers from being misled to
make unviable investments, deter LPDs
from making unnecessary upgrade
requests, and may increase incentive
pay for additional capital investments.
However, industry associations and
LPDs stated that it is outside USDA’s
statutory authority under the Act to
require disclosures for additional capital
investment requests. One commenter
asserted that section 401 of the Act only
allows AMS to require LPDs to maintain
business records for AMS’s benefit, not
to require disclosure of records to
growers, and that under section 401
AMS can only prescribe the manner and
form in which regulated entities must
keep transaction records if the Secretary
finds that the records ‘‘do not fully and
correctly disclose all transactions
involved in the dealer’s business.’’
Another commenter asserted that AMS
has failed to establish that disclosures
are always necessary to avoid an unfair
or deceptive practice or device.
AMS response: The Agency believes
that the additional disclosure
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information will help mitigate the
information asymmetry between LPDs
and poultry growers when entering into
an additional capital investment
agreement. When LPDs ask contract
poultry growers to make additional
capital investments but fail to be
transparent regarding the purpose, risks,
financial incentives and rates of return,
those growers cannot make an informed
business decision. Any failure to
disclose material information essential
to making critical business decisions is
deceptive and also inhibits growers
from identifying unfair practices in their
incipiency, and so violates the Act’s
prohibition in section 202(a) against
unfair and deceptive practices. Section
407 of the Act specifically authorizes
the Secretary to implement regulations
to carry out the provisions of the Act.
This provision is one instance of this
authority. Accordingly, AMS disagrees
with the notion that the Agency lacks
statutory authority to promulgate the
additional capital investment disclosure
requirements.
In this regulation, AMS enables
growers to better detect the risks in
contracting because the LPDs’ contracts
will now show the grower the real value
of the LPDs’ offer, which they obscure
in tournament contracts. Preventing
deception and stopping unfairness in its
incipiency enhances competition among
dealers by enabling growers to compare
offers and reasonably assess entry into
the business. Preventing unfairness and
deception improves how markets
function by forcing LPDs to compete for
growers’ services based on the merits of
the producer’s offer and prevents likely
injuries to competition. Preventing
deception enables growers to better
assess their performance vis-à-vis other
growers. Ultimately, the conduct at
issue is squarely within the purposes of
the Act. Where conduct ‘‘prevents an
honest give and take in the market,’’ it
‘‘deprives market participants of the
benefits of competition’’ and ‘‘impedes
. . . a well-functioning market.’’ 47 In its
report on the 1958 amendments to the
Packers and Stockyards Act, the U.S.
House of Representatives explained that
the statute promotes both ‘‘fair
competition and fair trade practices’’
and is designed to guard ‘‘against
[producers] receiving less than the true
market value of their livestock.’’ 48
Moreover, other agencies that enforce
laws prohibiting unfairness and
47 Federal Trade Commission, ‘‘FTC Policy
Statement on Unfairness’’ (1980), available at
https://www.ftc.gov/public-statements/1980/12/ftcpolicy-statement-unfairness. Last viewed October 9,
2024.
48 H.R. Rep. No. 85–1048 (1957), reprinted in
1958 U.S.C.C.A.N. 5212, 5213.
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deception often have used disclosure to
prevent deception. For example, the
FTC enforces prohibitions against unfair
practices, unfair methods of
competition, and deceptive practices
arising under the FTC Act.49 Effective
disclosure is well-established as a cure
for deceptive practices that arise from
information gaps in the marketplace, as
exemplified by AMS’s existing
disclosure requirements under
§§ 201.100 and 102, the FTC’s
franchisor-to-franchisee disclosure
requirements, and a range of other
mandated disclosures by Federal and
State regulators. Although disclosure
will not remedy an unfair practice,
robust disclosure can help identify such
practices, enabling remediation of
unfairness at earlier stages, and so help
stop harms in their incipiency. AMS
believes that the parallels between the
FTC’s section 5 authority on deceptive
and unfair practices greatly outweigh
any differences between the statutes
because the language of both statutes is
similar,50 and it is generally recognized
that Congress wrote the Act with
broader application than the original
FTC Act.51 It is plain from the statutory
language Congress wrote—and in the
floor debates and Congressional
reports—that the Act empowered the
Secretary to prevent unfair and
deceptive practices, and not merely
enforce existing antitrust law.52
49 Letter from FTC Chair Lina Khan to AMS,
‘‘Poultry Grower Tournament Systems: Fairness and
Related Concerns,’’ Docket No. AMS–FTPP–22–046,
at https://www.regulations.gov/comment/
AMSFTPP-22-0046-0143; Michael Kades,
‘‘Protecting livestock producers and chicken
growers,’’ Washington Center for Equitable Growth
(May 2022). Federal Trade Commission, Policy
Statement on Deception, (1983), https://
www.ftc.gov/system/files/documents/public_
statements/410531/831014deceptionstmt.pdf. 15
U.S.C. 45(n); Fed. Trade Comm’n, Policy Statement
on Unfairness, (1980), https://www.ftc.gov/legallibrary/browse/ftc-policy-statement-unfairness; Fed.
Trade Comm’n, Policy Statement Regarding the
Scope of Unfair Methods of Competition Under
Section 5 of the FTC Act, 9 (2022), https://
www.ftc.gov/legal-library/browse/policy-statementregarding-scope-unfair-methods-competition-undersection-5-federal-trade-commission.
50 15 U.S.C. 45(a)(1) (‘‘Unfair methods of
competition in or affecting commerce, and unfair or
deceptive acts or practices in or affecting
commerce, are hereby declared unlawful.’’).
51 FTC comment, submitted to Regulations.gov on
September 10, 2024, posted on September 11, 2024.
https://www.regulations.gov/document/AMS-FTPP21-0046-12413.
52 The House of Representatives’ report on the
P&S Act stated that the P&S Act was the ‘‘most
comprehensive measure and extends farther than
any previous law in the regulation of private
business, in time of peace, except possibly the
Interstate Commerce Act.’’ 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 . . .’’ See, Shively, J. and Roberts, J.,
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AMS emphasizes that disclosure
under new § 201.112 is not, and is not
intended to be, a remedy to unfairness
in and of itself; rather, disclosure
provides AMS and growers with
information necessary to enforce their
rights under existing § 201.216,
‘‘Additional capital investments
criteria,’’ and the P&S Act more broadly,
when terms are unfair. This rule is
meant to both cure deception and to
identify unfairness in its incipiency to
make enforcement under § 201.106
possible.
A commenter grounded opposition to
the additional capital investment
disclosure requirement in section 401 of
the Act and argued that section 401
requires dealers to maintain records for
AMS’s benefit, not for the benefit of
growers. The commenter also argued
that AMS is not authorized to control
the content of the records required
under section 401. AMS disagrees.
Section 202 of the Act prohibits unfair
and deceptive practices. The disclosures
required in this rule seek to identify or
prevent those harms. Section 401
complements these goals to the extent
that disclosure is based on
recordkeeping. Section 401 statutorily
requires LPDs to maintain complete
records of all their business
transactions. Moreover, LPD obligations
to retain information do not affect
AMS’s ability to require the LPD to
share the information to prevent unfair
and deceptive practices under section
202(a) and (b) of the Act. Growers have
informed the Agency that LPDs
systematically withhold information
that the LPDs possess concerning the
design, purposes, impacts, and other
aspects of the contracts the LPDs make
regarding additional capital
investments. This regulation targets
material omissions under section 202,
and the commenter’s assertions
regarding section 401 ignore how
additional capital investment requests
fit into the business relationship
between LPDs and growers. When an
LPD asks a grower to make an additional
capital investment, that is
fundamentally a request to modify the
contract that the grower must consider
under circumstances where the LPD has
all the information on its benefits, and
the grower has none. Therefore, when
the LPD requests that the grower spend
money to advance the LPD’s business
interests, the grower may incorrectly
infer that an additional capital
investment must also be in the grower’s
‘‘Competition Under the Packers and Stockyards
Act: What Now?’’ 15 Drake Journal of Agricultural
Law 419, 422–423 (2010); and Current Legislation,
22 Columbia Law Review 68, 69 (1922).
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interest. The regulation is remedial in
purpose and effect, exactly as Congress
intended the Secretary to regulate when
the Act passed in 1921, and when
Congress amended that statute in
1987.53
Regarding the comment that asserted
AMS has not proven that disclosures are
always necessary to avoid an unfair or
deceptive act or practice, Congress did
not require that regulation be ‘‘always’’
necessary. AMS is not required to
adduce individualized evidence that the
disclosure was necessary to every
grower—the regulation simply must be
necessary to prevent deception or
identify unfairness for some growers. As
a factual matter, AMS concludes that
the unequal bargaining terms between
growers and LPDs requires LPDs to
disclose key information regarding
additional capital investment requests
to mitigate asymmetric information gaps
that result in unfair and deceptive
practices. Furthermore, transparency in
the market requires disclosure of this
information when LPDs request an
additional capital investment in order to
prevent deceptive practices.
Comment: One commenter
commented on the rule explaining that
AMS lacks the authority under ‘‘Section
410’’ to ‘‘require dealers to make a
variety of ‘‘disclosures’’ to growers.’’
AMS Response: Section 410 of the
cited material, entitled ‘‘Final date for
making payment to cash seller or
poultry grower’’ deals with (a) ‘‘Delivery
of full amount due,’’ (b) ‘‘Delay or
attempt to delay collection of funds as
‘unfair practice, ’ ’’ and (c) ‘‘Definition of
cash sale.’’ Section 410 makes clear that
Congress expected the Secretary to
protect growers from receiving less than
full payment. The mechanism for
reducing or delaying that payment is
immaterial.
The Congressional purpose of the Act
was to stop unfair practices in their
incipiency.54 When an LPD fails to
make available the required disclosures
here, the unfair practice of reducing
pay, banned by section 410, becomes
undetectable because the terms
surrounding payment are not clearly
expressed. In other words, without
having the necessary foundational
terms, as per the required disclosure,
53 Public
Law 100–173, 101 Stat. 918.
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).
54 See
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there is no way for aggrieved party or for
USDA to see a reduction of pay as there
has been no set baseline. Congress
expected USDA to take a proactive
approach to prevent this sort of harm,
which hurts both the grower and the
market, because it destroys the ability of
growers to continue in the business and
reduces the supply of growers willing to
contract. Thus, among the other
authorities in the Act, USDA also
believes this regulation implements
provisions of section 410 of the Act.
Comment: Several advocacy
organizations suggested additional
disclosure of cost and liability burden
for environmental compliance.
AMS response: AMS appreciates these
comments and understands the
importance of properly allocating cost
and liability burden for environmental
compliance in the poultry industry.
However, AMS did not consider that in
the proposed rule, and P&S Act
regulations in general do not impact the
environment.55 To the extent that the
costs of environmental compliance are
grower variable costs under particular
poultry growing arrangements, they
should be disclosed by the LPD under
the requirement to disclose information
relating to grower variable costs (9 CFR
201.102(d)(3)). Therefore, AMS made no
changes to the rule as proposed based
on these comments.
Comment: One commenter suggested
that AMS make additional capital
investment requests and disclosures
public to other growers and track the
frequency of additional capital
investment requests and grower
complaints of coercion, retaliation, or
arbitrariness.
AMS response: This rule is not
designed to make private business
arrangements and agreements public
information. Furthermore, AMS is not
contemplating such a shift as the
dissemination of private business
arrangements and agreements would
require additional regulatory provisions,
justifications, and safeguards that do not
fall under the purview of this rule.
Rather, this rule is designed to help
poultry growers understand why they
are being requested to make additional
capital investments, how entering into
those contracts will impact their pay,
how long it will take to complete
additional capital investments, potential
conflicts of interest with LPD personnel
or their family members, required
vendors/manufacturers, and expected
returns from the investment. This
information will help growers make
55 See 7 CFR 1b.4 (Listing the USDA agencies and
agency units found to have no individual or
cumulative effect on the human environment.).
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effective business decisions, and, when
shared with AMS, identify
circumstances that may be unfair.
With respect to AMS tracking the
frequency of additional capital
investment requests and grower
complaints of coercion, retaliation, or
arbitrariness, AMS agrees that market
monitoring is important and invites
growers to contact AMS at
farmerfairness.gov or call 1–833–DIAL–
PSD (1–833–342–5773) when they have
concerns regarding additional capital
investments they encounter and
especially if they feel they are being
subject to coercion, retaliation, or
arbitrariness.
Comment: An advocacy association
suggested that all additional capital
investments should be subject to the
same disclosures and prohibitions.
AMS response: The requirement to
provide the disclosure will be triggered
when the LPD requests the grower make
an additional capital investment. There
is no threshold below which this
disclosure requirement does not apply.
Nor are there any exclusions or
exemptions for additional capital
investment disclosures for other
reasons.
Additional capital investment
prohibitions, however, will be
considered on a facts-and-circumstances
basis under the criteria set forth in
§ 201.216 of AMS’s regulations and
generally under section 202 of the Act.
AMS does not in this rule identify
specific prohibitions. To the extent that
AMS identified an additional capital
investment practice that was unfair,
AMS would seek to stop the practice
through an enforcement action and
communicate its intent to stop such
practices in similar circumstances.
Comment: Several commenters
suggested that LPDs should be required
to make all additional capital
investment contracts guaranteed for the
duration of the loan required to pay for
the additional capital investment.
AMS response: AMS acknowledges
the concerns of the commenters and
advocacy groups. If an LPD requests
additional capital investments without
guaranteeing that the grower will have
a contract that is sufficient to recoup the
costs of the investment or loan, such
conduct could violate section 202 of the
P&S Act, including by being unfair
under section 202(a). AMS will monitor
these practices and enforce on a case-bycase basis.
Comment: Several advocacy
organizations supported the inclusion of
LPDs’ motives for the additional capital
investment request in the Disclosure
Document.
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AMS response: AMS agrees that it is
important for growers to know why an
LPD requests an additional capital
investment. As proposed, AMS
included in § 201.112(b)(1) language
requiring the LPD to disclose the
purpose of the additional capital
investment to both the LPD and the
grower. Although AMS underscores that
the inquiry should be focused on
objective purposes and desired
outcomes rather than a potentially
vague concept of motives, the paragraph
(b)(1) disclosures would mandate the
full and complete presentation of any
purposes of the additional capital
investment. Partial disclosure of
anything less than the LPD’s full range
of purposes would not be considered
compliance with the provision because
growers need to understand the full
range of risks they are taking on,
including to be able to identify potential
sources of unfairness.
The provision also requires a
summary of all research or other
supporting material that the LPD has
relied upon in justifying the additional
capital investment. This requirement
seeks to elicit the basis of the additional
capital investment and permit the
grower the ability to better understand,
as well as evaluate, the reliability of that
basis.
Overall, AMS has included this
provision around purpose, research, and
supporting material because alleviating
some of the information asymmetry
between LPDs and growers through the
disclosure of purposes and motivations
for an additional capital investment will
help poultry growers make better
business decisions. Furthermore, the
requirement for information regarding
purposes and motivations will help
poultry growers know if that particular
additional capital investment request is
for experimental or research purposes,
and thus appreciate the degree of risk
the grower is taking on in the additional
capital investment. AMS did not make
any changes to the regulation as
proposed in response to this comment.
Comment: Farmers’ coalitions
indicated a clear disclosure of financial
incentives is essential to a grower’s
cashflow modeling. Advocacy
associations requested further
requirements for the analysis of
projected returns. These suggested
requirements include (1) a review of the
projected returns by a disinterested
third party and (2) the use of a
standardized projected return form.
AMS response: The Agency agrees
with the comment that clear disclosure
of financial incentives is essential.
Under the final rule, LPDs must disclose
all financial incentives and
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compensation for the grower associated
with the additional capital investment
(§ 201.112(b)(2)), along with any
financial benefits that the LPD or any of
its officers, directors, decision-making
employees (as discussed above), or close
family members receive from the use of
an LPD-required manufacturer or
vendor in connection with an additional
capital investment (§ 201.112(b)(5)).
AMS added the requirement regarding
financial benefits accrued to an LPD or
its affiliates as a result of an additional
capital investment in the final rule to
provide greater transparency regarding
the financial components of an
additional capital investment. For the
time being, AMS is making no further
changes to § 201.112.
Comment: Several commenters
suggested AMS should require the use
of plain language in disclosure
documents, especially the descriptions
of financial terms. Advocacy
organizations stressed the importance of
standardizing disclosure documents
(e.g., the format for reporting projected
returns and delivery expectations).
Industry commenters requested that
AMS clarify certain aspects of the
disclosure document, including the
description of ‘‘relevant’’ information
and of the summary justifying an
additional capital investment.
AMS response: Section 201.112(b)
requires that the Disclosure Document
present disclosures in a ‘‘clear, concise,
and understandable manner.’’ The
Agency acknowledges the potential
benefits of standardizing Disclosure
Documents but is not requiring a
specific form for this required
disclosure.
AMS appreciates the commenters’
interest in additional clarity. However,
AMS declines to adopt more specific
terms in the regulatory text because
specificity reduces the LPDs’ and
growers’ contracting flexibility. The
nature and circumstances of additional
capital investment varies. Some
additional capital investments may be
oriented on technology designed to
enhance the efficient use of inputs or to
deliver more uniform growout of birds.
Other additional capital investments
may be oriented towards delivering
particular production practices that
consumers seek, such as no antibiotics
use. In those examples, the purpose and
construction of the additional capital
investments are quite different. Rigid
specificity in the disclosure
requirements may create confusion or
even limit the disclosures’ effectiveness.
AMS’s purposes for the disclosure of
this information in § 201.112 is to help
poultry growers understand how the
additional capital investment is
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intended to affect their operation and
the risks and opportunities they may be
taking on as a whole. AMS values
comprehensive coverage rather than
standardization.
With respect to the term ‘‘relevant,’’
AMS agrees that its inclusion in
paragraphs (b)(1) through (3) is
superfluous to meaning of the sentences
as drafted. Accordingly, AMS is
removing it in this final rule and is
revising paragraph (b)(1) slightly from
‘‘any research or other supporting
material’’ to ‘‘all research and other
supporting material’’ to be consistent
with the phrasing in paragraphs (b)(2)
and (3). There is no change in the
intended meaning.
Comment: Some commenters
requested that translations of the
Disclosure Document be made available
in languages other than English.
AMS response: AMS appreciates this
comment and acknowledges that
disclosure has a basis in understanding;
after all, the proposal included a
requirement that the disclosure be
‘‘clear, concise, and understandable.’’
Language can be a barrier to effective
disclosure. To mitigate the barriers to
this disclosure, we have added
paragraph § 201.112(c), which requires
the LPD to ‘‘make reasonable efforts to
ensure that growers are aware of their
right to request translation assistance
and to assist the grower in translating
the Capital Improvement Disclosure
Document.’’ AMS takes note of the Civil
Rights Impact Analysis located in
section VI.G. of this rule that highlights
the disproportionate impact of the rule
on Asian-Pacific Island persons. Some
commenters also indicated a need to
ensure growers who are not native
speakers of English can understand the
disclosures. As noted by multiple
commenters, non-native speakers of
English are engaged in poultry growing.
For example, in the early 2000s, large
numbers of first-generation immigrant
Hmong people, many of whom had been
farmers in their native Laos, moved
from urban areas in California,
Minnesota, and North Carolina to the
Ozark region in and around southwest
Missouri and started growing poultry.
Pew Research Center studies show that
the English proficiency of the Hmong
population in the U.S. in 2019 was only
68 percent and, among foreign-born
Hmong, English proficiency is just 43
percent.56 Data supports the concerns
expressed by commenters regarding
56 Abby Budimen, ‘‘Hmong in the U.S. Fact
Sheet,’’ Pew Research Center’s Social &
Demographic Trends Project (May 24, 2022),
available at https://www.pewresearch.org/socialtrends/fact-sheet/asian-americans-hmong-in-the-us/.
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providing poultry growers information
in a manner growers are able to
understand. AMS agrees that providing
documents in the language growers best
understand ensures fairness and reduces
the risk of deception. Therefore, AMS
added new language to the final rule to
require that LPDs must make reasonable
efforts to ensure that growers are aware
of their right to request translation
assistance and to assist the grower in
translating the Disclosure Document.
Historically, many growers have been
immigrants who may not be fully
proficient in English; hence, this rule’s
goal of preventing deception would not
be fully accomplished without LPDs
providing reasonable assistance to help
growers understand the disclosures in
their most competent language upon its
delivery. Notably, the translation
requirements under § 201.102(g)(4)
would apply to disclosures made under
§ 201.112 if the latter is applicable to the
LPD and incorporates what is otherwise
required under § 201.102(d)(2)(i) and (ii)
in a single disclosure that meets the
requirements of both § 201.112 and
§ 201.102(d)(2)(i) and (ii).
ii. Additional Capital Investment
Unfairness
Comment: Growers stated the
disclosure provisions should prioritize
preventing harm to growers rather than
focusing on enforcement after the fact.
They further asserted that full
transparency from poultry companies is
crucial to ensure a level playing field.
Several commenters were concerned
that the proposed rule did not address
the power imbalances that exist when
negotiating additional capital
investments. This imbalance creates an
inherent pressure for producers to
comply with LPD requests; even
‘‘optional’’ or ‘‘voluntary’’ terms in a
producer’s contract may amount to an
unfair burden on producers given their
fear of retaliation. Advocacy
organizations and other commenters
requested further provisions to protect
growers from unfairness, excessive debt,
and retaliation.
AMS response: AMS appreciates and
agrees with the comments that
preventing harm to growers is preferable
to enforcement after the fact. Indeed, the
purpose of this disclosure rule is to help
equalize the negotiating powers between
poultry growers and LPDs. There is an
asymmetric power imbalance between
LPDs and poultry growers when
deciding to undertake an additional
capital investment and the goal of the
new regulation is to equalize the footing
of these parties prior to agreeing to an
additional capital investment. To better
enable AMS and growers to protect
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against unfairness and deception, the
rule requires that LPDs disclose and
record more information regarding the
additional capital investments they
request from broiler growers. The
disclosures must occur before growers
take on the financial burden and risks
of the additional capital investment.
The provision of such information is
not, in and of itself, the cure for
unfairness, but rather a key tool for
AMS and growers to halt abusive
practices by arming them with the
ability to identify those challenges
sooner. Indeed, disclosure has
historically been one of the most
powerful tools for preventing harms to
growers by bringing practices to light
early, and also subjecting those
practices to the clarifying light of
transparency.
AMS further underscores that leveling
the playing field for growers is one of
the main purposes of this provision.
This rule is designed to reduce
deception, strengthen poultry growers’
negotiating position, and aid in their
ability to identify and address unfair
practices. The Agency believes that this
disclosure requirement for requested
additional capital investments will
reduce information asymmetry between
LPDs and poultry growers, thus helping
poultry growers make more informed
business decisions about additional
capital investments. Reducing
information asymmetry, by definition,
helps mitigate power imbalances.
However, AMS also acknowledges
that this rule does not solve all
challenges that growers may face arising
from power imbalances between LPDs
and growers, especially in concentrated
local markets and in the context of holdup risks and dependency arising from
vertical contracting arrangements. To
that end, AMS underscores its
commitment to vigorous enforcement of
§ 201.216, which sets out criteria that
AMS utilizes in identifying and
enforcing against unfair additional
capital investment practices. When the
cost of the required additional capital
investments cannot reasonably be
expected to be recouped by the poultry
grower, that failure is likely to be
dispositive that the investment is unfair
(§ 201.216(f)). AMS agrees with the
commenter’s perspective on the
importance of protecting growers from
unfairness, excessive debt, and
retaliation (discussed more fully below
in the next comment response). Indeed,
AMS is adopting this disclosure rule to
enhance growers’ and AMS’s ability to
identify and take swift action against
unfair practices and the risk of unfair
additional capital investment under
existing § 201.216. That regulation sets
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forth criteria for whether additional
capital investments would be an unfair
practice or other violation of the Act.
These criteria include whether the
grower can decide against the additional
capital investments; whether the
additional capital investments were a
result of coercion, retaliation, or threats
by the LPD; and whether the additional
capital investments can result in
reasonable recoupment, or adequate
compensation for the additional capital
investments, among other nonexhaustive criteria. However, AMS has
found that the presence of the criteria
alone is insufficient to effectively
address problems stemming from
additional capital investments. AMS
and growers lack the data necessary to
analyze whether an additional capital
investment violates the criteria.
Moreover, if an additional capital
investment is unfair, the grower has
both investment and debt, and the
additional capital investment is
impossible to unwind. Technical
specifications can make switching
costly (where even possible), and
alternative uses at similar compensation
rates are nearly nonexistent.
Comment: Several commenters
requested additional protection against
retaliation for growers who refuse
additional capital investment requests.
Some commenters expressed concern
regarding retaliation if additional capital
investment requests are refused. One
commenter requested AMS monitor
complaints of coercion in relation to
additional capital investment request
refusals.
AMS response: AMS agrees that
retaliation is likely to harm competition
and growers. AMS’s regulations at
§ 201.304 recognize that retaliation for
asserting any of the rights granted under
the Act or part 201, or asserting contract
rights (9 CFR 201.304(b)(2)(vii)), violates
the Act. LPDs also violate the Act if they
retaliate against poultry growers for
speaking with government officials for
the purposes of seeking redress for
grievances brought under the Acts (9
CFR 201.304(b)(2)(i)). AMS fully agrees
that without those existing retaliation
protections, poultry growers are in a
weak position to refuse additional
capital investment requests making the
disclosure requirement ineffective.
AMS regularly reviews LPDs for P&S
Act compliance, and AMS expects to
review Disclosure Documents for
compliance. Growers who experience
coercion should contact AMS regarding
possible violations of the Act. AMS also
notes that existing § 201.216 would help
address these problems. The regulation
sets forth criteria for whether additional
capital investments would be an unfair
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practice or other violation of the Act.
These criteria include whether the
growers can choose to decline
additional capital investments; whether
the additional capital investments were
a result of coercion, retaliation, or
threats by the LPD; and whether the
additional capital investments can
result in reasonable recoupment, or
adequate compensation for the
additional capital investments, among
other non-exhaustive criteria. AMS did
not make any changes to the regulations
as proposed in response to this
comment.
Comment: Many commenters
emphasized the need for grower
protection against debt and assurance of
return on investments. Advocacy
organizations and others also suggested
adding a requirement that LPDs shall
not mandate additional capital
investments unless the cost can be
reasonably recouped by the grower.
Advocacy organizations indicated that
projected recoupment should only be
evaluated based on non-performance
(base) pay. Many commenters also
suggested contracts should be
guaranteed to match the duration of
loans or ensure a reasonable rate of
return to recover additional capital
investment costs. Advocacy
organizations suggested growers should
reserve the right to renew contracts until
additional capital investment debt is
fully serviced.
AMS response: Under § 201.112(b)(2)
and (3), LPDs would be required to
disclose all relevant financial incentives
and compensation associated with an
additional capital investment and
establish a schedule of expected grower
construction for new additional capital
investments. Financial incentives would
include all incentives relating to the
additional capital investment, including
explicit incentive payment additions to
base pay rates or performance
compensation amounts, as well as what
assumptions and risks undergird or may
put at risk those incentives. Clearly
disclosing financial incentives would
assist the grower in assessing the
relative risks of non-recoupment, as the
reliability of those incentives may vary
based on the duration of the contract
and whether other growers are likely to
incorporate the additional capital
investment technology in a way that
would make recoupment through
performance pay less reliable. Clearly
disclosing expected grower construction
schedules and other repayment
schedules also would assist the grower
in assessing incentives and risks relating
to borrowing, construction, and
payment timing. Similarly, the
requirement under § 201.112(b)(4) and
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(5) for LPDs to clearly disclose their
expectations regarding housing
specifications and required or approved
manufacturers or vendors will position
growers to better analyze the business
risk in undertaking an additional capital
investment. An important goal of this
rule is to give the poultry grower
adequate information so that they may
make an informed decision, identify
risks and opportunities based on their
knowledge of their own costs and
earning opportunities, including as
disclosed in existing regulations such as
§ 201.102.
AMS remains committed to protecting
growers to the maximum extent possible
from practices that prevent growers
from fully recouping their additional
capital investment. An LPD’s failure to
provide a reasonable opportunity for a
grower to recoup the cost of a required
(including ostensibly requested but in
practice coerced) additional capital
investments would be expected to
violate § 201.216. AMS recognizes that
growers cannot avoid the unfair exercise
of market power and failing to
sufficiently and fairly compensate
growers is not a cognizable benefit to
growers or to competition. Any
reasonable recoupment analysis is factspecific, but it principally relies on the
following criteria: (1) the information
required to be disclosed under
§ 201.112; (2) whether the contract term,
including sufficient flock placements
and density, extends at least as long as
the projected timeline for returns set
forth in that analysis; and (3) whether
basic returns would cover the costs of
the additional capital investment for the
reasonable grower in the complex that
performs under the contract. AMS is not
adopting a requirement that projected
recoupment only be evaluated based on
non-performance (base) pay. The actual
purpose of performance pay can vary
greatly across different LPDs and even
between complexes.
AMS recognizes the grower concerns
that give rise to those comments, but at
this time intends to take a case-by-case
approach to enforcement in part because
the range of grower situations require
any unfairness analysis to be tailored to
the particular facts and circumstances.
As noted in the paragraph above,
contract term and renewals
opportunities are relevant
considerations in any recoupment or
rate of return analysis owing to the
heavy reliance interest that the grower
has in the broiler growing arrangement,
but AMS declines at this time to set
forth a rule for all cases. AMS may
revisit this determination following
implementation of this rule and
additional familiarity with the success
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or limitations of its current case-by-case
enforcement approach.
Comment: Some commenters
suggested growers should be ensured
leniency for delays in construction
schedules due to labor and supply
shortages outside their control.
AMS response: AMS acknowledges
this comment regarding leniency for
construction schedules, and the
disclosure of the construction schedule
under § 201.112(b)(3) is designed to
help growers identify their risks in
implementing an additional capital
investment. However, as a disclosure
requirement, it is intended to aid
poultry growers by obligating that LPDs
share relevant information regarding an
additional capital investment request, so
that the growers can make better
decisions. It is also designed to help
growers address potential unfairness
relating to additional capital
investment. To the extent that growers
conclude that an LPD’s failure to
provide leniency on construction
schedules caused an unavoidable harm,
the grower may consider reporting the
matter to AMS for investigation into
whether the LPD has committed an
unfair practice.
Comment: Some commenters
indicated that LPDs should not be
allowed to require growers to use
certain equipment or vendors,
especially when those LPDs hold any
amount of financial interest in those
equipment companies or specifically
required vendors.
AMS response: AMS appreciates the
concerns that this comment raises
around grower freedom to operate and
especially regarding conflicts of interest
around additional capital investment.
The Agency recognizes that growers rely
on construction schedules, housing
specification requirements, and
approved manufacturers or vendors
when implementing an additional
capital investment. In this final rule,
AMS is enhancing the disclosure of
required equipment and vendors in
§ 201.112(b)(5) with an additional
conflict of interest provision requiring
the disclosure of ‘‘all financial benefits,
if any, that the live poultry dealer or any
officer, director, decision-making
employee, or close family member of
any such person, receives from the use
of the required or approved
manufacturer or vendor.’’
In the proposed rule, AMS asked,
‘‘Should proposed § 201.112(b)(5),
which requires LPDs to disclose
required or approved manufacturers or
vendors, also require the disclosure of
any material financial benefits that the
LPD, or any officer, director, employee
or family member of any such person,
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receives from the use of the required or
approved vendor? If so, please explain
why for each party recommended to be
covered, including examples and
explanation where available.’’ 57 In
adopting this provision, which is
similar to a disclosure that the Federal
Trade Commission requires under its
Franchise Rule (16 CFR 436.5(h)),
AMS’s goal is to help enable a grower
to identify certain risks relating to the
additional capital investment and
potentially unfair or otherwise
impermissible additional capital
investment practices under § 201.116.
For example, the disclosure should help
growers identify conflicts of interest,
favoritism, kickbacks, or financial
benefits that may call into question the
purposes of the additional capital
investment. This should help combat
the incentive problem inherent where
one party has the decision-making
power (LPDs) and another bears the
costs (growers). LPDs are incentivized to
seek out manufacturers and vendors that
offer them the best incentives, not
necessarily the manufacturers and
vendors that offer the best deal for
growers. This problem has been
reported to AMS over the years to exist
even at the level of complex managers
who may have discretion over certain
aspects of additional capital investment
implementation.
Disclosure of a relationship between
an LPD and its equipment or vendors
does not mean that the relationship is
lawful. An LPD’s choice of vendor may
be unfair or even anticompetitive in
violation of the Act, such as contracting
in bad faith or engaging in
anticompetitive tying. But, at this time,
AMS has designed this regulation to
protect growers from unfairness and
deception—for example by omissions or
conflicts of interests—and not to
specifically ban an LPD’s choice of
vendor.
iii. Benefit, Burden, and Cost
Comment: A number of stakeholders
commented on the rule stating that it is
similar to the Transparency Rule and
that much of the information being
requested in this rule is already
provided to the poultry growers and that
this rule is therefore frivolous. An
industry commenter suggested there is
sufficient regulation regarding
additional capital investment issues.
AMS response: AMS recognizes the
value of the Transparency Rule,
including in helping growers
understand financial opportunities
relating to contract modifications and
additional capital investment. However,
57 89
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the Transparency Rule does not require
the disclosure of information specific to
the additional capital investment
request, nor does it prohibit certain
practices relating to base pay and unfair
comparisons which this final rule does.
LPDs possess information about the
expected purposes, processes, and
outcomes relating to additional capital
investments that growers do not have
and cannot obtain independently.
Therefore, LPDs exert substantial
control over growers’ ability to evaluate
the economic and financial feasibility of
an additional capital investment while
possessing the power to impose all
additional capital investment costs on
growers. Growers lack the bargaining
power to demand the information they
need to make decisions for their
financial benefit. The inability to access
this information frustrates growers’ and
AMS’s ability to identify and therefore
halt unfair practices in a timely manner.
AMS has found transaction records
around the financial incentives and the
financial analysis insufficient to
evaluate the compliance of additional
capital investments under the Act
generally. Therefore, even with the
additional information that AMS and
poultry dealers receive because of the
Transparency Rule, this additional
capital investment disclosure
requirement is meant to ascertain
different information than the
information that results from
compliance with the Transparency Rule.
AMS also disagrees with the position
that there is sufficient regulation on this
issue overall. Although § 201.216 sets
out criteria around unfair additional
capital investment, AMS has found
§ 201.216 challenging to implement in
practice without sufficient real-time
transparency into additional capital
investment programs as they occur. As
noted above, this is the first rule that
addresses the information divide
between poultry growers and LPDs
regarding additional capital investment
requests. Previous rules, namely the
Transparency Rule, have required
different kinds of information, such as
settlement sheets, summaries of the
LPD’s litigation history with broiler
growers and its bankruptcy filings over
the past 5 years, whereas this rule
covers only additional capital
investment requests and related
materials.
Comment: Some commenters were
concerned about unnecessary additional
capital investment requests. Farmers’
coalitions proffered that transparency
requirements would result in fewer
unnecessary additional capital
investment requests.
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AMS response: The extent to which
additional transparency may reduce the
amount of additional capital investment
requests that are either unnecessary or
that do not add clear value to farms is
not a determination that AMS can make.
This final rule is a transparency rule to
address deceptive conduct, but it is also
designed to assist growers in identifying
potential unfairness in additional
capital investments. An additional
capital investment with a speculative
purpose or one not grounded in research
and reasonable estimates—a concern
that growers have reported to AMS
regarding additional capital
investments—would be more apparent
if AMS and growers are able to review
an LPD’s representations about the
purpose of an additional capital
investment, the research associated with
it, and an LPD’s expectation of costs,
construction schedules, and approved
vendors for the additional capital
investment. AMS emphasizes that
disclosure under new § 201.112 is not,
and is not intended to be, a remedy to
unfairness in and of itself; rather,
disclosure provides AMS and growers
with information necessary to enforce
their rights under existing § 201.216,
‘‘Additional capital investments
criteria,’’ and the P&S Act more broadly,
when terms are unfair. Without
sufficient, simple, and clear disclosures,
growers cannot assess the benefits or
risks of making the investment. Indeed,
given the role of performance in
determining compensation under the
tournament, growers often cannot
determine whether a program presented
as voluntary is, for all practical
purposes, mandatory without
understanding the purposes, processes,
and outcomes. Unfair practices, which
can encompass additional capital
investments, are illegal under section
202(a) of the Act, even if fully
disclosed.58 AMS did not make any
changes to the rule as proposed in
response to these comments.
D. Other Comments About the Proposed
Rule
Comment: One processor pointed to a
study prepared for the National Chicken
Council that captured live chicken
production statistics from 2021.59 The
survey results indicated that ‘‘current
poultry grower contracting relationships
are mutually beneficial, successful, and
profitable for both growers and
integrators.’’ The survey found that
58 See, e.g., 9 CFR 201.216, ‘‘Additional capital
investments criteria.’’
59 Elam, Thomas, ‘‘Live Chicken Production
Trends,’’ March 2022, Live-Chicken-ProductionFARMECON-LLC-2022-revision-FINAL.pdf
(nationalchickencouncil.org).
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among growers polled, despite options
to work with different integrators, most
growers have been with their current
integrator for over five years and that
the default rates on loans for poultry
growers and integrators are low. Overall,
the commenter argued that the current
poultry grower compensation system
works well, resulting in a highly
efficient market and lower prices for
consumers.
AMS response: The comment
indicates that current poultry grower
contracting relationships are mutually
beneficial to growers and integrators
and utilizes survey results showing how
long current farmers have been with
their company and loan default rates to
demonstrate this. This rule addresses
specific components of the broiler
growing compensation system that AMS
has received multiple complaints and
comments about and that the Agency
has determined constitute unfair or
deceptive acts or practices. The rule
does not prohibit incentive payments,
which some commenters would like to
retain and suggest are a beneficial part
of the tournament system. The
comment, however, does not necessarily
measure if growers support or oppose
specific provisions of this rule. Other
reasons may explain the duration
farmers have been with their current
dealer or experience low rates of
default. AMS notes that growers may
not switch because of barriers to
switching: even when growers have
other competitor LPDs, the competitor
may not be recruiting or may require
LPD-specific equipment changes, among
other reasons. The commenter says that,
according to a survey of farmers
associated with member companies of
the organization submitting the
comment, a small percentage of farmers
depart due to contract terminations. The
described methodology does not say if
the survey represents all growers,
including dissatisfied growers or exgrowers. This methodological
consideration aside, the survey results
do not address specific provisions of the
rule.
The comment also cites data showing
higher median incomes for broiler
growers and lower loan deficiency and
charge-off rates for chicken farmers
compared to other types of farming
operations to indicate the mutual
benefits of the current poultry
contracting system. While such
comparisons provide some insight into
the financial condition of poultry
growers, they do not capture the full
picture. For example, poultry growers
carry the highest debt to asset ratios of
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5185
all agricultural commodity operations.60
Additionally, the income variability for
broiler growers is much higher than that
for all agricultural producers or U.S.
households.61
Comment: Industry associations
commented on the rule, explaining that
AMS only has the authority to prohibit
conduct with an anticompetitive effect.
AMS response: Section 202(a) of the
Act prohibits any unfair practice or
device. As noted earlier, in section 407
of the Act Congress granted to the
Secretary the authority to write
regulations to effectuate the Act’s
purposes. Under the Act, this authority
includes issuing regulations to, among
other things, define the obligations that
the Agency is charged with enforcing.
AMS believes this includes the power to
prevent LPDs from engaging in unfair,
unjustly discriminatory or deceptive
practices or devices in their contracts.
No court has held the Secretary does
not have this rulemaking authority.
Been v. O.K. Indus., Inc., 495 F.3d 1217,
1227 (10th Cir. 2007), for example,
recognized that the Secretary had the
authority to promulgate rules relevant to
that case, but that USDA had not done
so.62 Been quoted, with approval, Excel
Corp. v. United States Department of
Agriculture, which held the
Department’s implementing regulation
on grading prohibited a practice that
was harmful to competition but the
court did not require evidence of harm
to competition in case itself.63 Further,
60 Giri, Anil and Subedi, Dipak, Farm Businesses
Well-Positioned Financially Despite High Interest
Rates, U.S. Department of Agriculture, Economic
Research Service (2024), https://www.ers.usda.gov/
amber-waves/2024/july/farm-businesses-wellpositioned-financially-despite-high-interest-rates/
(In 2022, poultry farms carried the highest average
debt-to-asset ratio in 2022: 26.7 (6 times that for all
farm businesses), 28.7 (2.6x), and 17.4 (1.3x)
percent for small, midsize, and large family farm
businesses, respectively; while all farm businesses
caried average debt-to-asset ratios of 4.2, 10.8, and
13.1 percent, respectively).
61 Whitt, Christine, USDA Economic Research
Service, Fees paid to growers for raising broiler
chickens varied widely in 2020, (2022), https://
www.ers.usda.gov/data-products/chart-gallery/
gallery/chart-detail/?chartId=104642 (Median
income does not tell the whole story. The range of
household incomes earned by contract broiler
growers is wider than other groups. The bottom 20
percent of contract broiler growers earns $170,871
less than those in the top 20 percent, compared to
$123,094 for all farm households, and $114,084 for
all U.S. households. The wider range reflects, in
part, the financial risks associated with contract
broiler production); MacDonald, James M. 2014,
Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB–126,
USDA Economic Research Service, https://
www.ers.usda.gov/webdocs/publications/43869/
48159_eib126.pdf?v=1829.6.
62 See Been v. O.K. Indus., Inc., 495 F.3d 1217,
1227 (10th Cir. 2007).
63 Id. at 1230 citing Excel Corp. v. U.S. Dept. of
Agriculture, 397 F.3d 1285, 1293 (10th Cir. 2005)
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the Supreme Court, in Mahon v.
Stowers, 416 U.S. 100, 112 (1974),
recognized that USDA has the authority
to issue substantive regulations.
Congress designed the P&S Act to
provide broader protections than
existing antitrust laws, such as the
Clayton and Sherman Acts, in response
to specific challenges in agricultural
markets. More specifically, 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.’’ 64 AMS
rejects the comments that the statute or
case law limits violations of the Act to
conduct that causes an anticompetitive
effect, as that term is used in the
antitrust laws. Such an approach would
abrogate the scope of the plain meaning
of section 202 of the Act.
The existence of the P&S Act is proof
that existing antitrust laws were not
sufficient in protecting livestock
producers and ensuring fair agricultural
markets. It is well established that, to
meet the needs of livestock producers
more effectively, the Act provides
broader protections than existing
antitrust laws.65 The statutory text, case
law, and legislative history make plain
that the Act’s protections extend beyond
antitrust laws.66 Accordingly, it has
been the Agency’s longstanding position
that because the Act addresses more and
different types of harmful conduct than
antitrust laws, the Agency has authority
over a plethora of market behaviors, and
is not limited to conduct with an
anticompetitive effect.67 Additionally,
(‘‘ ‘Congress and the USDA are the arbiters of what
practices will impede competition.’ ’’).
64 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).
65 See, e.g., Bruhn’s Freezer Meats of Chicago, Inc.
v. U.S. Dep’t of Agric., 438 F.2d 1332, 1336 (8th Cir.
1971) (citing cases); Swift & Co. v. United States,
393 F.2d 247, 253 (7th Cir. 1968) (‘‘The Act is
remedial legislation and is to be construed liberally
in accord with its purpose to prevent economic
harm to producers and consumers at the expense
of middlemen.’’).
66 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)). If the antitrust laws were sufficient, then
DOJ’s 1920 settlement with the major packers
would have been sufficient; Congress understood
the words ‘‘unfair practices’’ to have an obviously
broader effect on regulating competition than
antitrust injury.
67 Luke Herrine, ‘‘Cutthroat Business,’’ U. of
Alabama Legal Studies Research Paper
Forthcoming, Aug. 2024, available at https://papers.
ssrn.com/sol3/papers.cfm?abstract_id=4936628;
Michael Kades, ‘‘Protecting livestock producers and
chicken growers,’’ Washington Center for Equitable
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as discussed elsewhere in this
document, evidence of anticompetitive
injury is not required under this rule to
establish violations of section 202(a)
and (b).
Market abuses such as unfair or
deceptive business practices by
regulated entities are illegal under the
Act. Addressing the harmful conduct
this rule aims to prevent is squarely
within the authority of the Secretary
and accords with Congressional intent.
Moreover, the Secretary, exercising
authority to define the scope of section
202(a) and (b), has determined that the
prohibited practices are likely to
prevent producers from earning the full
value of their services and push some
producers out of the market caused by
coercive or deceptive practices by LPDs.
Comment: One commenter said that
AMS lacks the statutory authority to
promulgate rules that have significant
economic or political repercussions due
to the major questions doctrine. The
commenter expressed the idea that, in
light of the U.S. Supreme Court decision
in West Virginia v. EPA, 597 U.S. 697
(2022), AMS may not expand its
regulatory framework to change or
undermine currently used poultry
growing compensation systems because
it lacks clear Congressional
authorization.
AMS response: AMS disagrees that
the major questions doctrine applies to
this rule. The Supreme Court has held
that, ‘‘in certain extraordinary cases,
both separation of powers principles
and a practical understanding of
legislative intent make us ‘reluctant to
read into ambiguous statutory text’ the
delegation claimed to be lurking
there.’’ 68 Under such circumstances,
courts may conclude that Congress does
not ‘‘typically use oblique or elliptical
language to empower an agency to make
a radical or fundamental change to a
statutory scheme.’’ 69 The major
questions doctrine thus applies to some
‘‘significant cases all addressing a
particular and recurring problem:
agencies asserting highly consequential
power beyond what Congress could
reasonably be understood to have
Growth (May 2022); Peter C. Carstensen, ‘‘The
Packers and Stockyards Act: A History of Failure to
Date,’’ The CPI Antitrust Journal (2) (2010),
available at https://www.competitionpolicy
international.com/assets/Uploads/CarstensenAPR2.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.
68 West Virginia v. Env’t Prot. Agency, 597 U.S.
697, 723 (2022).
69 Id. at 723 (citation and quotation marks
omitted).
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granted.’’ 70 This final rule does not fall
within this category for two
independent reasons: USDA is not
construing an ambiguous statute, but
rather is applying a statute that
explicitly confers upon it the power to
make necessary regulations in the
context of a scheme that
comprehensively regulates unfair
practices in certain industries; and, even
if the relevant statutory authorities are
ambiguous—and they are not—this final
rule does not represent the type of
‘‘transformative expansion’’ of the
Agency’s regulatory authority that
animates the major question doctrine.
First, the major questions doctrine
applies only when there is ambiguity
over the power conferred. Here, there is
none. Congress prohibited unfair,
deceptive, discriminatory, and other
practices in section 202 of the Act.
Further, it explicitly gave power to the
Secretary to comprehensively regulate
unfair practices in meatpacking and
broiler production. The Secretary has
the power to enforce the provisions of
the Act, including sections 202 and
410.71 And separately, pursuant to
section 407 of the Act, the Secretary was
provided broad authority to ‘‘make such
rules, regulations, and orders as may be
necessary to carry out the provisions of
this chapter.’’ The broad language here
reflects Congress’ effort to grant the
Secretary the flexibility necessary to
prevent the P&S Act from becoming
obsolete.72 Congress was clear in the
authority it had granted, and that
authority includes issuing regulations
and orders relating to the Act and its
remedial purposes—including, as here,
the power of the Agency to construe the
relevant provisions of the Act so as to
provide clarity in enforcement. The
Secretary has extensive power to
regulate, and therefore has the authority
to issue regulations such as this one. So,
unlike cases where there has been some
heretofore unforeseen ‘‘unheralded
power,’’ there is no reason to believe
that Congress understated the breadth of
the authority it granted to the Agency to
issue regulations construing the Act.
Second, this final rule does not
constitute the type of ‘‘transformative
expansion’’ of Agency authorities that
animates the major question doctrine.
The rule codifies USDA’s interpretation
70 Id.
at 724.
7 U.S.C. 193(a) (‘‘Whenever the Secretary
has reason to believe that any packer or swine
contractor has violated or is violating any provision
of this subchapter’’ he may take appropriate
enforcement actions as set out in the statute).
72 See Massachusetts v. E.P.A., 549 U.S. 497, 532
(2007) (‘‘ ‘[T]he fact that a statute can be applied in
situations not expressly anticipated by Congress
does not demonstrate ambiguity. It demonstrates
breadth.’ ’’).
71 See
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of section 202 consistent with much of
the caselaw: the P&S Act is a remedial
statute with a purpose that is broader
than the antitrust acts.73 The Agency
has used its section 228 authority for the
issuance of a great variety of regulations
to specify obligations for bonding,
registration, accounting, recordkeeping,
ownership, public communications,
disclosures, limitations on
commissions, credit sales, weighing,
payment practices and other
responsibilities under the statute—so
this is not a newfound substantive
power; and, in any event, this is not the
type of consequential rule to which the
major questions doctrine would
otherwise apply.
As discussed above, Congress enacted
the P&S Act after many years of concern
about farmers and ranchers being
cheated and mistreated. Congress
believed that existing antitrust and
market regulatory laws, including the
Sherman Act and Federal Trade
Commission Act, did not sufficiently
protect farmers and ranchers.
Section 407 of the Act (7 U.S.C. 228)
gives the Secretary authority to ‘‘make
such rules, regulations, and orders as
may be necessary to carry out the
provisions of this Act.’’ The House of
Representatives’ report on the Act stated
that it was the ‘‘most comprehensive
measure and extends farther than any
previous law in the regulation of private
business, in time of peace, except
possibly the interstate commerce act.’’ 74
The Conference Report on the Act stated
that, ‘‘Congress intends to exercise, in
the bill, the fullest control of the packers
and stockyards which the Constitution
permits. . . .’’ 75 Congress considered
this a power beyond the authority of the
FTC and the Interstate Commerce
Commission. The Supreme Court said of
sections 407 and 202 of the P&S Act that
Congress gave: ‘‘authority [to] the
Secretary of Agriculture to promulgate
appropriate rules and regulations to
carry out the provisions of the Act.’’
And, ‘‘Enforcement of [section 202 of
the Act] is the responsibility of the
Secretary of Agriculture, who is given
authority to hold hearings and enter
binding orders.’’ 76 The major questions
doctrine is an extraordinary application
of statutory interpretation, because it
73 See, e.g., Bruhn’s Freezer Meats of Chicago, Inc.
v. U.S. Dep’t of Agric., 438 F.2d 1332, 1336 (8th Cir.
1971) (citing cases); Swift & Co. v. United States,
393 F.2d 247, 253 (7th Cir. 1968) (‘‘The Act is
remedial legislation and is to be construed liberally
in accord with its purpose to prevent economic
harm to producers and consumers at the expense
of middlemen.’’).
74 House Report No. 67–77, at 2 (1921).
75 House Report No. 67–324, at 3 (1921).
76 Mahon v. Stowers, 416 U.S. 100, 107 (1974).
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has the potential to reverse an act of
Congress, and, therefore, the Supreme
Court has already noted that the
doctrine does not apply generally. It has
so far only applied in cases where the
regulation would have been a
questionable application of regulations
with billions of dollars of effects, from
regulating tobacco packaging, a nationwide moratorium on eviction, and
setting limits on the carbon dioxide
emissions from millions of small
sources.77 Here, however, the rule does
not meet these standards. 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
in accordance with Congressional intent
upon passage of the Act. The
Department’s policy on unfair practices
has not changed throughout the course
of its enforcement of the Act.
The final rule continues this policy
approach of protecting producer welfare
and advancing fair trade practices in the
poultry industry. This final rule
advances these goals by prohibiting
certain payment practices under poultry
grower ranking systems, requires LPDs
to adopt policies and procedures
regarding their processes for operating a
fair ranking system for broiler growers,
and requires LPDs to provide certain
information to broiler growers when the
LPD requests or requires the grower to
make additional capital investments.
These regulations will increase
transparency and address deception and
unfairness in broiler grower payments,
tournament operations, and capital
improvement systems. The Act
advances fair trade and competitive
markets for the broiler industry.
Notably, commentors generally
appear to assert that the 2008 Farm Bill,
and the decade of rulemaking that
followed, either limits the Department’s
general authority to issues rules, or
shows that the Department did not have
that authority. This is not an accurate
version of events. Starting in 1997, a
series of OIG and GAO reports were
highly critical of USDA’s failure to
pursue unfair practices and cases of
antitrust injury in meatpacking under
the P&S Act. At a Senate hearing in
March of 2006, Senator Chambliss
noted, ‘‘[t]his act is a critical law that
assures farmers and ranchers that
business transactions are conducted
under the principles of fair competition,
open and honest trade practices, and
prompt payments to producers.’’ These
criticisms culminated in an April 2007
hearing in the House of Representatives
77 West
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5187
where advocates requested, inter alia,
that the Secretary be required to issue
rules on undue preferences and
advantages, because regulation was
perceived ‘‘to ensure that small and
midsized farmers and ranchers are not
forced to accepted volume-based price
discrimination.’’ The thrust of the 2008
Farm Bill was not that the Secretary did
not have the power to regulate, but that
Congress demanded that power be used.
Comment: Producers were both in
opposition to and in support of the
tournament system. Industry
associations and processors generally
supported the tournament system,
claiming the tournament system
incentivizes and rewards high
performance, resulting in market
efficiency, and also removes costs and
economic risk from growers by
providing inputs. Industry stakeholders
asserted the rule undermines the
tournament system, leading to
inefficiencies and potentially higher
prices. Commenters cited unintended
consequences including increased
production costs passed on to
consumers; barriers to entry for small
farmers, leading to further industry
consolidation; and shift in production to
countries with less stringent regulations.
Additionally, industry commenters
claimed that capping performance-based
payments might create an undesirable
redistribution of income from highperforming to lower-performing
growers. Lastly, the industry anticipates
substantial legal and administrative
costs associated with compliance,
including contract amendments and
legal counsel. Some producers and an
industry trade organization claimed the
tournament system promotes animal
welfare.
Farmers’ coalitions, advocacy
associations, and many individual
commenters were largely opposed to the
tournament system, expressing that the
tournament system shifts economic
risks to growers, locks them into
inescapable cycles of debt, and enables
retaliation. Some commenters were
concerned that the tournament system
appeared to pit farmers against each
other, limiting knowledge sharing.
Other commenters felt the tournament
system is unfair due to the grower’s lack
of control over production variables.
AMS response: It is important to note
that AMS is not banning the tournament
system. Rather, AMS is prohibiting
those parts of tournament systems that
are unfair practices and ensuring that
those agreements serve the competitive
operation of the market in a fair and
non-deceptive manner. Additionally,
increased transparency through this
final rule should improve confidence in
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the tournament system rather than
undermine it.
In theory, the tournament system
insulates growers from variation in the
cost of feed and other inputs,
encourages growers to perform to the
best of their ability, and rewards betterperforming growers. In practice,
however, the tournament system also
raises a number of fairness concerns for
growers. If an LPD treats individual
growers in a tournament differently, for
example providing a grower with
inferior inputs, the grower’s skill does
not determine their compensation.
Information asymmetry in contracting
arrangements is another cause for
concern. LPDs have information related
decision-making that impacts grower
compensation, including the methods
for calculating grower payment. These
methods are often intended to limit total
grower compensation while maximizing
production efficiency. LPDs also have
information relating to the factors that
are under their control and the
influence of performance elements on
grower compensation. LPDs have
internal knowledge about the types of
additional capital investments that they
typically require, which growers may
not anticipate. Moreover, without a
guaranteed base pay rate, the
complexity of the tournament system
makes it difficult for growers to clearly
understand what the minimum amount
is that they could actually receive in
payment. If the comparison-factor (i.e.,
the bonus or deduction) is a large
percentage of the total compensation,
that variance in total could put the
growers at significant financial risk.
Tournament pay systems are also not an
effective incentive system when factors
outside of the grower’s control
determine the grower’s performance.
Finally, LPDs have substantial
bargaining power, and as a result, LPDs
can require growers to make additional
capital investments that will increase
the grower’s debt, and subsequently
increase the grower’s reliance on the
LPD’s contract. Such a dynamic can
unfairly impose risk on the grower (for
example by creating a difference in the
term of the grower’s loan and the
grower’s contract). Another concern is
the variation in the quality of inputs
(e.g., feed or chicks) supplied by the
LPD, which can impact the performance
of the grower’s flock. Similarly, LPDs
determine the production practices on
growers’ farms (e.g., density of bird
placement, age at harvest, and weight at
harvest), which greatly impact grower
compensation. These factors can result
in the grower’s becoming financially
dependent on LPDs, therefore losing the
power to negotiate, and to move to
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different LPDs if the terms of the
growing contract are not ideal.
AMS is not aware of any evidence
that tournament systems promote
animal welfare, nor did the commentors
provide specific examples explaining
the connection beyond the general
assertion that performance payments
through a tournament encourage grower
effort. The tournament systems control
how poultry growers are compensated
for their output, but the quality of
inputs or production practices on farms,
and even the quality of the housing and
equipment, is determined by the LPD.
These requirements may have the effect
of improving animal welfare, but they
may well also have the opposite effect.
Moreover, AMS in this rule does not
prohibit performance payments nor ban
the tournament. Rather, the rule sets
standards around the reasonable design
of payment systems and scope of the
operation of tournaments. These
standards provide ample opportunity
for LPDs to incentivize grower effort,
while minimizing the downsides of the
current payment systems and
tournament operations as they have
been reported to AMS by growers.
Comment: An industry representative
stated that the proposed duty of fair
comparison creates the untenable
situation of extending P&S Act liability
to a situation without determining
whether the outcome was unfair, much
less whether competition was harmed
overall. The commenter cited an
example in which a grower might
receive a payment that aligns with the
contract terms, meets the grower’s
expectations, and is entirely fair when
viewed objectively, but the LPD does
not follow written policy; in this case,
under the proposed rule, the commenter
asserts that the LPD would potentially
be liable for an unfair practice.
AMS response: The comment appears
to suggest that the regulation bans
reasonable conduct. It does not.
The duty of fair comparison provision
(§ 201.110(a)) establishes a violation of
the Act for either failure to design or
failure to operate the comparison system
in a fair manner. Failing in that
responsibility is not contract
compliance; it is bad faith and failure to
make the full payment to the grower.
In the first instance, AMS might bring
an enforcement action for an LPD’s
failure to design the ranking system in
a manner that would deliver a fair
comparison; such an action would be
based upon the processes set forth in the
documentation required under
paragraph (b) of § 201.110. In the second
instance, AMS might bring an
enforcement action based upon an
LPD’s failure to operate the ranking
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system in a manner consistent with the
duty of fair comparison. Such a failure
could be because the LPD was not
following the documented processes or
because in practice the documented
processes did not deliver a fair
comparison.
The requirement to design the ranking
system in a manner consistent with the
duty of fair comparison is intended to
prevent injury before it occurs,
consistent with P&S precedent and the
Act’s remedial purpose. USDA, through
the P&S Act, has broad authority to
ensure fair practices prevail in the
poultry industry, and AMS concludes
this includes preventing LPDs from
designing a poultry grower ranking
system that can be expected to produce
an unfair comparison of growers. AMS
did not make any revisions to the rule
as proposed in response to this
comment.
Comment: Some commenters asserted
that the proposed rule’s disclosure
requirements violate the First
Amendment because they restrict and
prescribe what LPDs can say to their
contract growers through their contracts.
AMS response: The P&S Act prohibits
unfairness and deception, and this final
rule addresses harms caused by unfair
and deceptive practices. While some
commercial speech may be protected
under the First Amendment,
withholding material facts from a
contracting party has never been
protected speech. The rule does not
restrict information that LPDs may
provide to growers, rather it encourages
full disclosure of material information
to the grower. A disclosure requirement
can be justified either because without
the disclosure there is a risk of
deception or there is another substantial
government interest at issue. This rule’s
disclosure requirements meet both
justifications; absent the disclosures
there is a risk of deception by regulated
entities and the government is otherwise
advancing its interest in a fair
marketplace for poultry. To this end,
AMS has narrowly tailored the required
disclosures to protect the growers from
the types of deception and unfair
practices that many growers themselves
have commented occurs in LPD contract
performance and negotiation and which
the Act seeks to prevent.
With respect to compelled speech,
AMS believes that the provision of
additional factual information, related
specifically to the growing arrangement,
to growers is consistent with
Congressional intent to benefit
competition in the industry and
provides growers with information
needed to make informed business
decisions. AMS concludes that
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alleviating the asymmetric information
problems in these contracts enables
growers to identify the practices relating
to additional capital investments that
can lead to potential underpayment or
other unfair and deceptive practices
under the Act. Additionally, the Agency
believes that the additional
transparency and equalization of
information asymmetry is critical for the
longevity of the poultry business
because it would allow poultry growers
to accumulate a history of previous
contracts, additional capital investment
requests, and other information, which
is good for long-term market conditions
Congress designed the Act to promote.
The First Amendment does not protect
corporations from practices that
deceive, and this final rule requires
LPDs to share factual and
uncontroversial information related to
additional capital investments,
contracts, and schedules with their
growers to prevent deception and unfair
practices. The information shared
should achieve contracts that are both
equitable and rely on facts, which is
also consistent with the Act’s
prohibition on unfair and deceptive
practices.
Comment: One commenter supported
the proposal for the rule to be effective
180 days after publication in the
Federal Register, unless it disrupts
contract renewals or seasonal
production pauses. One industry
representative suggested that the 180day implementation period is the
minimum timeframe necessary for
compliance, and another expressed
concern that short effective dates create
challenges for managing grower
relationships and suggested AMS
develop outreach and educational
programs. Two advocacy groups
suggested shorter effective dates, one at
60 days and one at 30 days. One trade
association requested a 2-year
implementation period.
AMS response: AMS agrees with
commenters that the final rule should
provide sufficient time to implement
any changes it requires, and broadly
with the comment that 180 days is
sufficient time for compliance with the
rule. However, out of an abundance of
caution, AMS is setting the effective
date for this rule at July 1, 2026, which
is approximately 18 months following
publication in the Federal Register.
LPDs will need to amend contracts in
some instances, create records
processes, format the incorporation of
new information in existing documents,
and create Disclosure Documents using
the new format. Eighteen months
provides more than the length of five
flocks to prepare for implementation of
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the rule. AMS will have resources
available to answer questions as
appropriate. Additionally, based in part
on the experience of recent settlements
between DOJ and a large poultry
company, AMS believes this period will
provide sufficient time for LPDs to
update their compliance systems and
policies and procedures and comments
complying with the rule. AMS’s
approach has been to address the
regulatory needs of the poultry industry
systematically and as swiftly as
possible. And while the 2-year period
suggested by a commenter would
unnecessarily delay implementation,
thus denying growers the benefit of the
rule and exposing them to continued
uncertainty, AMS acknowledges
additional time beyond 180 days will
help facilitate an effective transition.
Accordingly, AMS is extending the
effective date to July 1, 2026, which is
approximately 18 months post
publication.
AMS agrees that it should conduct
outreach to growers and LPDs regarding
these changes, implementation, and
enforcement. Over the course of this
rulemaking, AMS has published
informational materials, including a fact
sheet and a video webinar, to help the
public understand the proposed rule.
AMS intends to conduct further
education and outreach following the
finalization of the rule.
VI. Regulatory Analysis
A. Executive Orders 12866, 13563, and
14094
AMS is issuing this final rule in
conformance with Executive Orders
12866, 13563, and 14094. Executive
Order 12866, as supplemented by
Executive Order 13563, directs 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
further emphasizes the importance of
quantifying both costs and benefits,
reducing costs, harmonizing rules, and
promoting flexibility. Executive Order
14094 amended Executive Order 12866
and 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’’ under Executive
Order 12866, as supplemented by
Executive Order 13563 and amended by
Executive Order 14094, and, therefore,
has been accordingly reviewed by the
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Office of Management and Budget
(OMB). As a required part of the
regulatory process, Agricultural
Marketing Service (AMS) prepared an
economic analysis of the costs and
benefits of §§ 201.106, 110, 112, and
390.
B. Regulatory Impact Analysis
AMS prepared an economic analysis
of the costs and benefits of the final
§§ 201.106, 110, and 112 as a required
part of the regulatory process.
As described previously elsewhere in
this final rule, the organization and
structure of broiler production is
characterized by a high degree of
vertical integration, market power in
regional markets, substantial investment
in production capital that is specific to
a single production purpose, nearly
universal use of production contracts,
and use of complex grower
compensation systems based on relative
performance. Important factors that
affect grower performance, including
inputs (chicks, feed, medication, etc.)
and some production practices
(placement density, age and weight at
harvest, etc.) are controlled by the LPD.
In addition, the percentage of poultry
producing farms considered to be in
‘‘extreme financial stress’’ (defined as
term debt coverage ratio less than one
and a debt-to-asset ratio greater than 55
percent) is among the highest of all
types of commodity production
operations.78 Market failures caused by
asymmetric information, incomplete
contracts, and hold-up in poultry
contracting motivate specific
interventions as discussed in this final
rule.
Comments From the Proposed Rule and
Changes to the Final Rule
After consideration of public
comments, AMS decided to adopt the
proposed rule as a final rule with
several modifications. Live poultry
dealers (LPDs) commented that the
regulation would be particularly
challenging if the period of time
allowed for regulated entities to comply
with the provisions is too short. In
addition, they stated that a shortened
period for implementing changes would
require greater expenditures of
resources to make required
modifications and communicate with
growers. To allow sufficient time for
regulated entities to comply with the
final rule and avoid excess
78 Nigel Key, Christopher Burns, and Greg Lyons,
‘‘Financial Conditions in the U.S. Agricultural
Sector: Historical Comparisons,’’ EIB–211, U.S.
Department of Agriculture, Economic Research
Service (2019), https://www.ers.usda.gov/webdocs/
publications/95238/eib-211.pdf?v=4876.5.
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implementation costs, AMS is setting
July 1, 2026, as the effective date for this
rule, which is approximately 18 months
following publication in the Federal
Register. This extended time frame will
not impact the amount or timing for
estimated costs of the final rule;
regulated entities are expected to incur
first year costs during the 12 months
preceding the effective date.
Industry trade organizations and LPDs
commented that the full cost of
implementing the proposed rule would
be far greater than estimated by AMS.
The commenters asserted that AMS
greatly underestimated the costs that
will be required for employing teams
with highly specialized legal and
technical expertise to implement the
proposed rule by modifying or replacing
grower contracts and communicating
changes to growers. Commenters
suggested that AMS did not adequately
consider the total number of hours
needed, but none provided quantified
estimates. LPDs also commented that
hourly rates paid to specialized industry
professionals. Commenters also
suggested that implementation of the
rule would require LPDs to hire and
train additional staff and pull resources
away from other important activities.
AMS consulted subject matter experts
who are familiar with LPDs, integrators,
and broiler complex operations. These
experts were auditors and supervisors
with many years of experience at AMS
in auditing LPDs for compliance with
the Act. The final rule provides an
extended period of approximately 18
months following publication in the
Federal Register before the effective
date, to permit sufficient time for
implementation. Hourly rates used in
cost analysis for the proposed rule were
based on averages for legal,
management, administrative, and
information technology labor categories
specifically within the agricultural
sector as published and annually
updated by the U.S. Bureau of Labor
Statistics.79 Although the largest
corporations likely employ lawyers and
other specialists at hourly rates much
higher than the National average,
contract development and review efforts
at those companies are spread across
many complexes. AMS expects that
average hourly rates provide an
appropriate benchmark for estimating
industry average costs. AMS revisited
the estimated hours to implement all
provisions of the final rule based on
comments that costs were
79 See U.S. Bureau of Labor Statistics, May 2023
National Occupational Employment and Wage
Estimates, May 2023. https://www.bls.gov/oes/
special.requests/oesm23all.zip.
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underestimated. After further discussion
with subject matter experts, AMS added
a modest amount of time to account for
the cost of IT work in preparing
§ 201.112 disclosures. AMS subject
matter experts who are familiar with the
operations of LPDs, integrators, and
broiler complexes through their
experience conducting regulatory
reviews of LPDs confirmed that all other
costs of the proposed rule are accurate
estimates and accordingly, AMS made
no other changes to hourly costs or
estimated numbers of hours for
implementation of the rule based on this
comment.
AMS received numerous comments
from growers, grower groups, and
advocate commenters in support of
additional limitations on grower risk
from excessive variability in
compensation. Based on these
comments, AMS has added provision
§ 201.106(b), which establishes a
presumption that a regulated entity is in
violation of the Act when aggregate
gross annual payments based upon a
grouping, ranking, or comparison of
growers (performance pay) exceed 25
percent of total gross payments
(including performance and all other
types of grower pay). AMS again
consulted its internal subject matter
experts and added costs for LPDs to
implement and monitor this new
provision, which are discussed and
quantified as direct costs. Other
expected additional benefits and
indirect costs resulting from this new
provision cannot be quantified and are
discussed separately.
AMS also solicited comment in the
proposed rule on whether there was a
need to protect growers against the risk
that LPDs might unfairly reduce broiler
grower total compensation during a
transition period after implementation
of the final rule. Comments on the
proposed rule reflected support for
adding such protections. Based on
comments received, AMS added
§ 201.106(c), which will require LPDs to
submit copies of the prior and modified
contracts and disclosures to AMS if
average gross grower payments at a
complex show year-over-year decline
following a contract modification in any
of the three calendar years commencing
with and including the effective date of
the rule. AMS will review the
information provided by LPDs to
identify any potentially unfair practices
related to broiler grower compensation.
AMS consulted with its internal subject
matter experts and added direct
administrative costs for LPDs to provide
information in compliance with this
provision during the three-year period.
AMS is not able to quantify the
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potential benefits and the potential
indirect costs to LPDs of this
provision—these will also be discussed
separately.
AMS received comments suggesting
that some of the detailed documentation
requirements under proposed
§ 201.110(b) were similar to existing
documentation requirements and might
create unnecessarily burdensome and
complex paperwork that could burden
service technicians at broiler complexes
and keep them from other important
responsibilities such as assisting
growers. In response to these comments,
AMS made several changes to
§ 201.110(b) in the final rule that
included consolidating and streamlining
the documentation requirements and
removing some detailed requirements
delineated under subparagraphs in the
proposed rule.80 AMS expects that these
adjustments to final § 201.110(b) will
add clarity and minimize potential
confusion about the documentation
requirements, thereby making them
more effective, and that these changes
will reduce recordkeeping requirements
by some amount. However, based on
consultation with its internal subject
matter experts, AMS chose to attempt to
avoid underestimating costs and did not
reduce the total recordkeeping
requirements or the time cost of the
information collection for LPDs.
Accordingly, these changes did not
affect the estimation of costs or benefits
in the final rule.
The proposed rule included
§ 201.110(b)(2), ‘‘Compliance review,’’
which required LPDs to conduct a biannual review of the processes set out
in § 201.110(b)(1). AMS removed this
requirement in response to comments
that self-audits would be burdensome
for LPDs, and that elimination of this
requirement would not substantially
diminish effective compliance with
§ 201.110. Compliance will be enforced
through regular AMS review of the
policies and procedures, as newly
enhanced documentation, which LPDs
are required to establish and maintain
under § 201.110(b). Accordingly,
removal of § 201.110(b)(2) eliminated
the burden of compliance review on
LPDs and reduced costs from the
proposed to the final rule by the cost
estimate in the proposed rule for that
provision.
80 As described in the preamble section III.,
‘‘Summary of the Proposed Rule and Changes in the
Final Rule,’’ these changes to proposed § 201.110(b)
included simplifying 17 combined paragraphs and
subparagraphs in proposed § 201.110(b)(1),
‘‘Policies and procedures,’’ into six simple
paragraphs in final § 201.110(b)(1) and removing
proposed § 201.110(b)(2), ‘‘Compliance review,’’
and redesignating § 201.110(b)(3), ‘‘Record
retention,’’ as paragraph (b)(2).
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Based on comments received, AMS
added a provision at § 201.112(c) to
require that the LPD make reasonable
efforts to ensure that growers are aware
of their right to request translation
assistance and to assist the grower in
translating the Capital Improvement
Disclosure Document. Reasonable
efforts include, but are not limited to,
providing current contact information
for professional translation service
providers, trade associations with
translator resources, relevant
community groups, or any other person
or organization that provides translation
services in the poultry grower’s
geographic area. Reasonable efforts,
depending on the facts and
circumstances (such as convenience,
expense, and timeliness of the
translation), may also include allowing
the grower access to a computergenerated translation of the Disclosure
Document and additional time to review
any translated Disclosure Document.
A similar requirement was established
for LPDs in § 201.102(g)(4) of the
‘‘Transparency in Poultry Grower
Contracting and Tournaments’’ final
rule.81 As LPDs already have all
necessary information to make
reasonable efforts to assist growers in
translating disclosure documents and
have made it available to growers who
request the information, AMS did not
add any time to its cost estimates for
LPDs to comply with this new
requirement.
The following analysis describes the
anticipated impacts of the final rule.
The value of broiler production in the
U.S. for 2023 was approximately $50.6
billion.82 Our analysis finds that the
total direct cost of final §§ 201.106, 110,
and 112 will be greatest in the first year
at $26.0 million or 0.051 percent of
revenues. The broiler industry is a
mature industry, and margins are likely
relatively low. If profit margins are 1 to
5 percent of revenues, then first-year
direct costs would be 1.0 to 5.1 percent
of margins. The total direct costs are low
in relation to total industry size, but
they do not include any potential costs
from changes in supply or demand
caused by final §§ 201.106, 110, and
112. The final rule is also expected to
provide many benefits of importance to
broiler growers that could not be
quantified. These include the value to
broiler growers of improved fairness,
reduced income variability, and reduced
risk of fraud and deception. As a result
of many factors that AMS is unable to
measure due to insufficient data or
81 88
FR 83210, 83301 (Nov. 28, 2023).
Poultry—Production and Value
2023 Summary (April 2024).
82 USDA–NASS.
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which cannot be predicted with
reasonable certainty, AMS is unable to
quantify benefits or indirect costs and
therefore cannot make a determination
about the sign or magnitude of net
benefits to the industry from final
§§ 201.106, 110, and 112.
Regulatory Alternatives Considered
AMS expects final §§ 201.106, 110,
and 112 to mitigate costs associated
with asymmetric information and LPD
unfairness and deception by
establishing a duty of fair comparison
for LPDs in poultry grower ranking
system administration, requiring LPDs
to establish and document processes,
requiring LPDs to adopt transparent
methods of presenting grower
compensation in broiler grower
contracts, limiting excess income
variability, and requiring LPDs to
provide important information to broiler
growers. Final § 201.106 will prohibit
the LPD from using a grower’s grouping,
ranking, or comparison to other growers
to reduce a rate of compensation
disclosed in a broiler growing
arrangement, establishes a presumption
of violation when performance
compensation for growers at a complex
exceeds 25 percent of total
compensation, and implements a threeyear transition pay period with
additional grower protections. Final
§ 201.110 will require LPDs to provide
a fair comparison among growers when
basing compensation upon a grouping
or ranking of growers delivering during
a specified period of time and to
document how they comply with that
duty. Final § 201.112 will require LPDs
to produce and distribute disclosures
when they request growers to make
additional capital investments.
AMS considered four alternatives to
final §§ 201.106, 110, and 112, with the
second and preferred alternative being
the final rule. The first alternative is the
‘‘do nothing’’ approach or maintaining
the status quo. All regulations under the
Packers and Stockyards Act would
remain unchanged. This first alternative
forms the baseline against which AMS
will compare the second alternative,
final §§ 201.106, 110, and 112.
AMS considered a third alternative
that would leave all requirements in
final §§ 201.106, 110, and 112 the same,
but entirely exempt LPDs that meet the
criteria to be classified as small
businesses by the Small Business
Administration.83 This third alternative
83 The Small Business Administration (SBA)
defines small businesses by their North American
Industry Classification System Codes (NAICS). Live
poultry dealers, NAICS 311615, are considered
small businesses by SBA if they have fewer than
1,250 employees (13 CFR 121.201).
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would exempt smaller LPDs. However,
since larger LPDs do most of the
contracting (as quantified later in this
analysis), most poultry growers would
still receive the benefits of new
protections under final §§ 201.106, 110,
and 112. AMS considered a fourth
alternative, which would be to adopt
proposed §§ 201.106, 110, and 112—this
alternative also includes all small and
large LPDs. Below, AMS provides
estimates and comparisons of the costs
and benefits of the alternatives and an
explanation for why the Agency
selected final §§ 201.106, 110, and 112
as the preferred alternative.
Benefits of Final §§ 201.106, 110, and
112
AMS expects that final §§ 201.106,
110, and 112 will provide benefits to
growers by reducing the risk of potential
fraud, deception, and reduced payment
for grower services by LPDs during the
first three years of the final rule,
improving clarity in grower payment
systems, limiting excess variation in
grower compensation, protecting
growers against unfair reductions in
compensation by LPDs during
implementation of the rule, establishing
a duty for fair comparison in the
administration of broiler grower ranking
systems, and making more information
available to growers. These benefits are
difficult to quantify. They depend on
the extent to which the interventions
will mitigate some existing unfairness
and deception that results from
incomplete contracts, inadequate and
asymmetric information, and hold-up
problems in an environment where
LPDs are able to exert market power or
bargaining power. Some of the benefits
may vary based on the extent of
competitive choice for growers in local
markets. For example, in more
competitive markets, increased
transparency might benefit growers by
empowering them to negotiate better
terms with LPDs. In less competitive
markets, increased transparency might
assist growers in identifying potential
unfairness from low compensation or
abusive practices and allow them to
seek assistance from AMS in more
quickly remedying these problems. The
size of benefits will be directly related
to the extent to which the final rule will
mitigate or reduce these practices. AMS
is unable to quantify the benefits and
will present a qualitative discussion of
the potential types of benefits that
growers would receive from final
§§ 201.106, 110, and 112. The following
discussion of unquantified benefits will
proceed by final rule section.
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Benefits of Final § 201.106
Section 201.106(a) prohibits LPDs
from reducing a grower’s rate of
compensation based upon a grouping,
ranking, or comparison of growers. The
practice of discounting or reducing
disclosed contract ‘‘rates’’ creates
problems for growers in assessing and
comparing broiler production contracts.
Growers commonly expect that based on
ordinary efforts, they will be able to
obtain at least the average rate of pay for
growers in a settlement group, which is
typically known as the ‘‘base’’ pay. If
growers are evaluating the expected
value of these contracts based upon
‘‘base’’ or ‘‘average’’ pay rates, downside
risk, which affects half of the settlement
pool per flock, would be ignored. These
are the types of problems that create
income expectations that are unlikely to
be met for a large segment of broiler
growers. Growers thus cannot
effectively evaluate their risks on a
settlement payment by settlement
payment basis, through presentation of
base pay rate at the mid-point. Growers
are harmed when they incur costs as a
result of entering a contract with an LPD
and the actual revenue and the range of
payment outcomes realized are below
those the grower was led to believe they
would receive when reviewing the
contract based on reasonably expected
efforts within the control of the grower.
In addition, competition in the market
for broiler grower services is harmed
when such deception and unfairness
prevent growers from comparing
competing offers from LPDs for the
services of growers.
Final § 201.106(a) applies to LPDs that
calculate grower compensation based
upon a grouping, ranking, or
comparison of growers delivering
poultry during a specified period. LPDs
using such a system are prohibited from
using that grouping, ranking, or
comparison to reduce a rate of
compensation disclosed in a broiler
growing arrangement. Final § 201.106(a)
requires that any performance or
incentive payments made to broiler
growers under a poultry ranking system
must be in addition to a disclosed rate
of compensation (i.e., any adjustments
to rates of pay must be non-negative).
Growers will benefit from increased
certainty about the lowest possible
revenue outcome under the growing
arrangement. Greater certainty about
minimum rate for their service can lead
to improved financial planning and
ability to manage financial risk. More
transparent methods of presenting
payments and compensation systems
would also facilitate comparisons
between alternative LPDs and benefit
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growers who may be evaluating offers or
considering agreements from more than
one LPD.
In accordance with final § 201.106(a),
LPDs will be expected to redefine
grower payment calculation systems as
appropriate to express all payments in
the form of bonuses added to a stated
pay rate. AMS expects that existing
schedules of grower payments can be
recreated such that they conform to this
final rule change, assuming that no
additional modifications are needed to
comply with final § 201.106(b). Existing
LPD methods of grower payment
calculation can be expressed in an
alternative format that includes only
bonus adjustments added to an existing
minimum rate.84 AMS is aware that
several of the largest LPDs currently
have existing payment systems that
express all ranking bonuses as positive
adjustments added to a stated pay rate
and would conform to this requirement.
Changes to presentation of grower
compensation rates as required by final
§ 201.106(a) are not expected to change
the basic structure of grower
compensation schedules for relative
performance payments. The benefits
that will accrue to growers from the
changes will result from increased
clarity as growers will be better
informed of minimum compensation
outcomes that can occur under the
broiler growing arrangement. Growers in
some circumstances may, therefore, be
able to negotiate more appropriate
compensation systems for themselves,
in the form of higher base rates, for
example. There is no expectation,
however, that aggregate payments to
growers will increase. Clearer
presentation of grower compensation
methods will benefit growers by
improving grower understanding of
potential revenue outcomes, thereby
reducing problems of inadequate and
asymmetric information and improving
the clarity of defined terms to address
incompleteness in contracting.
Final § 201.106(b) will establish a
presumption that an LPD is in violation
of the Act if more than 25 percent of
total compensation paid to all growers
in a complex on an annual basis is
based on performance. If a complex is
in violation of this provision, in order
to comply an LPD may either raise
grower base pay, reduce grower
performance pay, shift some
performance pay to mechanisms not
covered by the provision, or a
combination of all of these. Although
other alternatives would be possible,
84 All contracts that AMS has previously
reviewed include provisions for a minimum grower
payment that is greater than zero.
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AMS expects that the most likely
outcome will be for LPDs to restructure
compensation systems while keeping
total grower compensation at
approximately the same level. In this
case, a grower compensation structure
that includes less comparison-based
performance pay would limit the range
of potential compensation outcomes
that an individual grower might observe
and reduce risk from income variability.
Benefits of § 201.106(b) will accrue to
broiler growers in the form of reduced
income variability. For a given level of
total income, growers would be likely to
benefit if they receive a larger
percentage of expected compensation
based on fixed non-performance pay—
which may include minimum base pay,
fixed incentive payments for equipment
standards and housing, fixed bonuses
for adherence to clearly defined
management practices, or other fixed
targets—and a smaller percentage of
compensation that is variable based on
a grouping, ranking, or comparison to
other growers, which makes up most
forms of performance pay at present in
the industry.
When income is variable, growers will
likely see trade-offs in the value to them
of reducing income variability
compared to mean incomes. Risk
neutral growers will be made better off
if they value any increase they receive
in less variable pay not based on
performance more than they value any
decrease they experience in the
expected value of performance-based
pay. However, a risk averse grower
would value a one dollar increase in
less variable but more certain
compensation more than they would
value a one dollar decrease in the
expected value of performance-based
compensation that involves risk.
Overall, individual growers are likely to
benefit if the value to them of any
increase they receive in less variable
income—from compensation that is not
based on performance—is greater than
the value to them of any decrease they
experience in the expected value of
more variable performance-based
compensation.
The magnitude of benefits to growers
that will result from § 201.106(b)
depends on several factors that cannot
be predicted with any reasonable degree
of confidence. These factors include
uncertainty about the number of
complexes that will modify grower
compensation structures in response to
§ 201.106(b), the manner in which such
modifications would be implemented,
and the number of growers at affected
complexes that would be impacted by
any changes. AMS is unable to analyze
comprehensive grower data for all
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broiler complexes and cannot predict
with certainty how regulated entities
will respond to this provision. For this
reason, potential benefits of § 201.106(b)
are discussed qualitatively and not
quantified.
AMS does not have sufficient data to
make an industry-wide inference on the
number complexes that will need to
reduce performance payments relative
to total payments or the magnitude of
any reductions that will be required.
AMS reviewed one to five years of
confidential grower compensation data
for four individual broiler complexes
that AMS gathered in prior
investigations. This sample included
small, medium, and large bird sizes and
some of the largest broiler LPDs that
operate several other complexes across
the U.S. Aggregate performance
payments at these four complexes were
11.4, 17.4, 20.5, and 25.4 percent of total
grower payments. AMS is not aware of
any complex with performance
payments that are as much as 26 percent
of total payments, and it is possible that
no complex will need to reduce
performance payments relative to total
payments by a substantial amount to
comply with final § 201.106(b).
To the extent that the complexes AMS
reviewed are representative of the other
complexes owned by the same firms,
two or possibly three of the firms would
likely already be in compliance with
final § 201.106(b). In addition, the terms
of a 2022 consent agreement between
Wayne-Sanderson Farms, USDA, and
the U.S. Department of Justice informed
final § 201.106(b). In the WayneSanderson Farms consent, performance
payments that Wayne-Sanderson Farms
pays to broiler growers was limited to
25 percent of total payments. Section
201.106 establishes a presumption that
poultry growing arrangements with
variable pay greater than 25 percent is
presumptively unfair. It is unlikely that
the unfairness presumption will have
any effect on these firms, which
combined account for up to 35 percent
of the complexes. It is possible that
other firms already limit performance
payments to less than 25 percent of total
payments, but AMS does not have
sufficient information to confirm this
with a reasonable degree of confidence.
Growers will benefit directly from
changes in variability of compensation
as a result of § 201.106(b) only at
complexes where LPDs modify existing
compensation structures to comply with
the 25 percent presumption of
unfairness. However, growers will also
benefit from ongoing protection to the
extent that this provision causes LPDs to
forego future changes that would
increase performance-based
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compensation beyond 25 percent of
total compensation.
For a given level of grower
performance-based compensation at a
complex, the presumption of unfairness
also indirectly limits reductions to
grower base pay rates. A reduction in
the base pay rate will reduce the total
amount of grower compensation not
based on performance and must be
accompanied by a proportional decrease
in performance-based compensation to
maintain an equivalent percentage. The
presumptive limitation therefore
provides an incentive for LPDs to
maintain or increase existing levels of
base grower compensation. This
provides another benefit to growers: it
serves as a backstop against the
potential harm to growers that would
occur if LPDs were to substantially and
unfairly lower base pay rates when
modifying pay structures to comply
with § 201.106(a).
The distributional effects of final
§ 201.106(b) are likely to be unequal
across individual growers: not all
growers will benefit or benefit equally
from this provision. Current contracting
practices can vary widely between
complexes even of the same LPD. As
previously noted, AMS expects that the
most likely outcome at complexes
where grower compensation structure
modifications occur will be for LPDs to
keep total grower compensation at
approximately the same level and
reduce the percentage of compensation
based on performance payments. This
would change the distribution of total
compensation among growers at the
complex. Depending heavily upon the
strategy for compliance chosen by the
LPD, AMS would expect these changes
to result in benefits to some growers,
welfare transfers between some growers,
and no change in welfare for some
growers. At some complexes, AMS
would expect that some amount of
welfare transfer from higher performing
growers to lower performing growers
would result from payment structure
modifications implemented to comply
with the 25 percent presumption of
unfairness. AMS expects some
complexes to shift some performance
pay to non-comparison methods, such
as fixed metric performance, or to other
innovative systems. Another possibility
is that modifications could result in
LPDs terminating or not renewing some
marginally performing growers. This
will be most likely to occur if LPDs seek
to reduce the overall variation in grower
performance at a complex as a means to
comply or if payment structure
modifications include increases in
minimum grower payments that exceed
the marginal value of services provided
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by some growers. Some LPDs may seek
to utilize technology to more greatly
standardize outcomes, thus reducing the
need to utilize higher magnitudes of
performance payment. AMS
underscores that actual outcomes will
depend upon how LPDs respond at
different complexes owing to local
factors on the ground.
Performance-based compensation
structures based on a grouping, ranking,
or comparison of growers determine
individual grower compensation using
relative performance metrics that
typically include feed efficiency and
chick livability. Some aspects of
performance can be controlled or
influenced by the grower through effort
and management, and to some extent
investment (subject to the concerns
highlighted by this rule), in the broiler
operation. Other determinants of grower
performance depend on actions of the
LPD or other factors outside the control
of the grower. Section 201.110 of this
rulemaking addresses factors under
control of the LPD by establishing a
duty of fair comparison. As discussed
elsewhere, this provision is expected to
benefit producers by reducing unfair
impacts on growers attributable to these
factors. Nonetheless, the influence of
factors controlled by LPDs on grower
compensation will not and cannot be
eliminated without eliminating
performance-based methods of
compensation. Natural variation and
randomness will persist for certain
production factors that influence
relative performance, such as breed, sex,
age of breeding flock, health at
placement, and the performance of other
growers, even if the LPD strictly adheres
to the duty of fair comparison in the
distribution of them. These factors
therefore will continue to be important
in determining compensation in a
performance-based pay system.
Provision § 201.106(b) benefits growers
by establishing a presumption of
unfairness based on the magnitude of
performance-based compensation,
thereby also limiting the share of
income that will be affected by risk
factors out of their control.
Growers are vulnerable to hold-up in
the broiler contracting relationship:
once a grower makes a housing and
equipment investment to grow broilers
for an LPD, that capital cannot be
repurposed and the grower’s choices
become limited. In addition, many
broiler operations operate in areas
where they can potentially contract with
only a very small number integrators,
which severely limits the grower’s
ability to switch integrators. Data cited
in the preamble of this final rule
(MacDonald 2014) shows that more than
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half of broiler growers have only one or
two LPDs (integrators) in their local
areas. As a result, growers lack
bargaining power to protect their
existing level of compensation when
LPDs change contract terms. In
requiring LPDs to provide the prior and
modified contracts and required
disclosures when contract modification
or renewal results in lower year over
year gross annual average grower
payments at a complex, § 201.106(c)
facilitates AMS intervention in unfair
treatment. During a three-year transition
period, LPDs will report changes to
existing grower payment systems that
reduce average compensation for
growers at a complex.
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Benefits of Final § 201.110
Market power gives LPDs a
considerable bargaining advantage
relative to growers in poultry
contracting arrangements. As a result,
growers lack negotiating power to
demand, among other things,
transparency around, and completeness
in, and reasonable performance under
contracts that would likely reduce the
potential for deception and unfairness.
The interventions aim to reduce
potential adverse impacts of market
power by establishing a duty of fair
comparison that would provide
protections to growers that they do not
have bargaining leverage to demand.
Currently, most broiler production
contracts are incomplete in that they fail
to clearly state important terms and
provisions related to input distribution
and flock production practices, how
grower compensation will be handled in
certain variable circumstances,
settlement grouping procedures, and
other aspects of broiler grower ranking
system administration. LPDs commonly
seek to disclaim under these contracts
what should be express or implied
duties and warranties around the
usability or appropriateness of inputs or
production practices and other aspects
of broiler grower ranking system
administrations. LPDs frequently offer
broiler contracts to growers on a take it
or leave it basis, providing growers with
little insight as to methods the LPD will
use to compare growers for purposes of
determining compensation, including
whether growers will be compared to
other growers provided with similar
inputs and assigned similar production
practices. Moreover, during
performance, growers have little to no
ability to demand LPDs actually perform
as could be reasonably expected under
the contracts, including promptly
addressing problems that may emerge
during ordinary operations.
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Even under a reasonable level of
transparency around specific input
differences, growers are often unable to
make sufficient modifications to their
individual efforts to manage risks to
how payments are affected under a
poultry grower ranking system. Nor can
they avoid harms from disputes that
may arise under the poultry growing
arrangement. Growers reasonably
assume that they will be fairly
compared to other growers under a
broiler grower ranking system. They are
deceived if LPDs do not make a good
faith effort to ensure fair comparison
among participating growers when
operating broiler grower ranking
systems. Given the extent of LPD control
over grower outcomes through the
distribution of inputs such as feed and
chicks or production practices such as
placement density, target weight, etc.,
growers are forced to rely heavily on
LPD good faith efforts in performing fair
comparisons under broiler growing
arrangements.
Consistent delivery of fair comparison
requires LPDs to incur monitoring costs
and take corrective actions when
operating poultry grower ranking
systems. In fact, many LPDs implicitly
acknowledge a responsibility to fairly
compare growers when they use
procedures to identify and correct
imbalances and provide remedies when
factors beyond the growers’ control
affect grower payments. These include,
for example, provisions to remove a
grower from a broiler grower ranking
system pool and to pay that grower
according to another metric (such as a
multi-flock average) if the LPD discovers
that inputs provided to the grower were
inferior—such as sick chicks. Another
example would be a policy of the LPD
to avoid providing a grower with
inferior inputs on consecutive flocks—
such as chicks from excessively young
layer flocks that are considered to be
lower performing, at least when using
the broiler grower ranking system to
determine performance pay in those
circumstances. Although such policies
are not uncommon, they are not
currently required to be universally
employed or uniformly applied by
LPDs. LPDs may have legitimate
business interests in providing certain
growers, sometimes higher skilled
growers in fact, with lower performing
inputs. Yet care needs to be taken to
ensure that any comparison-based
method for determining performance
pay be established under circumstances
that do not permit or enable the LPD to
intentionally disadvantage one or more
growers in the ranking system.
Growers also have no means by which
to ensure that LPDs consistently carry
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out their responsibility under the
contract or to enforce it. Further, the
benefits of monitoring and correcting for
unfair grower outcomes accrue to
growers and not to the LPD. Therefore,
LPDs have insufficient incentive to
uphold their end of the bargain,
especially in markets where growers
have few options of alternative LPDs
with whom they could contract. LPDs
can therefore opportunistically
minimize their costs of delivering a fair
comparison at the expense of growers
and, as a result, fail to deliver on their
obligation for good faith and fair dealing
under the contract.
Final § 201.110 addresses these
problems by establishing a duty for
LPDs to provide a fair comparison
among growers when basing
compensation on a grouping or ranking
of growers delivering poultry during a
specified period and requiring LPDs to
document how they comply with that
duty. The fair comparison requirement
in final § 201.110(a) ensures that LPDs
will not compare growers to other
growers who have been supplied with
inputs or assigned production practices
that result in material differences in
performance metrics used in payment
calculations. Duty of fair comparison
also requires that LPDs compare growers
over appropriate time periods and use
appropriate non-comparison payment
methods. Final § 201.110(b) establishes
documentation requirements in the form
of processes, commonly known as
policies and procedures, to facilitate
LPD effective broiler grower ranking
system operation under that duty,
effective recordkeeping of transactions,
and facilitates AMS supervision and
enforcement. These provisions will
benefit growers by reducing deception
and unfairness in the operation of
poultry grower ranking systems.
Expressly requiring LPDs to
implement written processes that
promote fair comparison of growers,
whether through more consistent
allocation of inputs and production
practices or adjustments to methods and
formulas, will foster more transparent,
accurate, and reliable broiler grower
ranking systems, and hold LPDs
accountable for divergences from lawful
action. Growers will benefit from this
regulation because they will be less
vulnerable to intentional harm due to
deception, retaliation, or bad faith by
LPDs. An LPD, AMS, or enforcement
body can more easily evaluate grower
complaints of intentional harm—for
example, LPD employees targeting
growers by providing inferior inputs—
when they are able to consider whether
the LPD has complied with its own
stated policies and procedures for
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ensuring fair comparison. Ongoing
monitoring of the broiler grower ranking
system by LPDs to fulfill the duty of fair
comparison required by final
§ 201.110(a) will also provide safeguards
to prevent growers from being
substantially disadvantaged by
unintentional or inadvertent outcomes.
For example, an LPD will be compelled
to take prescribed corrective action if it
discovers that a particular grower has
randomly received an unusual share of
inferior inputs over multiple flocks.
Procedures designed to ensure fair
comparison will include monitoring to
prevent natural variation in input
quality and LPD-determined flock
production practices among growers
within a single settlement group from
being allowed to persist as a pattern that
disadvantages a particular grower over
multiple settlement groups. By
establishing a basic duty for LPDs to
deliver fair comparison of growers, final
§ 201.110 is structured to provide LPDs
flexibility in fulfilling that duty within
the context of individual circumstances
and complex production processes.
Benefits of § 201.110 deriving from
the value to growers of fairness and
equity are important. AMS is unable to
quantify these benefits. However, as a
result of this provision, compensation
for individual growers will more closely
match the level of individual grower
effort, skill, and investment relative to
other growers under a poultry grower
compensation system that guarantees
fair comparison. This provision will
benefit growers by removing some of the
unfairness in the distribution of grower
compensation within poultry ranking
payment systems. When LPDs fulfill a
duty to ensure fair comparisons, no
individual grower will receive
consistently poor inputs while other
growers with whom that grower is
compared receive consistently good
inputs. The expected benefits of
ensuring fair comparisons among
growers are highlighted by the
consistent widespread reports of harm
to individual growers resulting from
existing unfair comparisons.85 A
reduction in the occurrence of such
harms could potentially lead to reduced
grower turnover.
Provisions included in final
§ 201.110(b)(1)(vi) will also require
LPDs to maintain written processes for
communication and resolution of
grower concerns with the design or
operation of a system that is consistent
with the duty of fair comparison. These
85 Section II of this final rule, ‘‘Background,’’
documents decades of grower comments to USDA
that highlight concerns of persistent unfairness
resulting from unfair comparisons in broiler grower
tournaments.
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processes should address timely
resolution of such disputes. Providing
an effective method of dispute
resolution has the potential to help
resolve disagreements involving
personality conflicts which can lead to
avoidable inefficiencies.
Benefits of Final § 201.112
LPDs encourage and often require
broiler growers to make additional
capital investments in assets that are
specific to producing poultry for that
LPD. Growers cannot exert bargaining
power to demand essential information
that would inform such investments. As
a result, LPDs can induce growers to
make additional investment decisions
that do not benefit growers when they
do not supply sufficient information for
evaluation of requested upgrades. Such
investments can cause financial harm to
growers and increase the extent of their
investments in capital that is specific to
poultry production for nearby LPDs
(thereby also increasing grower hold-up
exposure) while still benefiting those
LPDs. Moreover, broiler growers bear all
the costs and risks of additional capital
improvement investment. LPDs do not
own the farm-based production capital
and therefore do not share in these risks,
although they frequently dictate grower
investments. Because poultry
production capital is largely owned by
growers, LPDs have limited incentive to
carefully consider how much required
additional capital investments will
improve individual grower production
efficiency and whether they are likely to
lead to financial success or failure. This
misalignment of incentives is consistent
with grower complaints that LPDs
sometimes require costly investments
that are unnecessary or in some cases
merely cosmetic.86 When a broiler
considers a new investment, the broiler
grower considers gains in productivity
relative to the cost of the investment.
However, when LPDs do not bear
investment cost, they have incentive to
maximize only their benefits and
encourage growers to over-invest in
poultry-specific production capital to
the point of negative returns for the
grower.
AMS has sought to address similar
concerns through prior action. Finalized
in 2011, § 201.216 sets out criteria for
86 AMS sought feedback on proposed rulemaking
in a 2022 ANPR (87 FR 34814, June 8, 2022). Some
commenters noted that LPDs often supply
insufficient information with respect to requested
or required upgrades and deceptively induce
growers to make costly additional capital
investments. One commenter, for example, asserted
that LPDs demand costly upgrades that some
growers have reported to be arbitrary and
apparently untethered to any reasonable assurance
of increased compensation.
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when the Secretary will find additional
capital investment violated the Act (76
FR 76874, December 9, 2011). However,
AMS’s experience since has found that
the rule is insufficient to help growers
or the Agency to identify problematic
additional capital investment in time to
act. Accordingly, the Agency in this
final rule has prioritized disclosure of
critical information to growers in a
timely manner, to enable growers and
the Agency to have ready access to the
necessary information to conduct
analyses under § 201.216 and under the
Act generally, including to stop
additional capital investment that cause
unavoidable harms. AMS also is
adopting final § 201.112 to prevent
deception of growers related to
additional capital investment, as the
information being required is critical to
their decision-making around the
additional capital investment, whether
or not the additional capital investment
gives rise to unavoidable harms separate
and apart from the failure to disclose.
LPDs prevent growers from making
fully informed decisions and
understanding the true extent of overinvestment when they withhold
important information about additional
capital improvement investments. An
increase in grower investment leads to
increased grower dependency on LPDs
to generate returns on that investment
through poultry contracting. The
presence of few or no other poultry
contracting options in a grower region
further focuses dependence on a single
LPD. The use of incentive payments by
LPDs to compensate growers for
additional capital investment can help
to align investment incentives. For these
arrangements to work properly, growers
must clearly understand the parameters
of the investment and the breakdown of
payment components and financial
incentives offered by the LPD.
Final § 201.112 will require LPDs to
provide a Capital Improvement
Disclosure Document when requesting
an additional capital investment over
the identified threshold of $12,500 (as
defined in § 201.2(n)). This disclosure
will provide information to existing
growers contemplating additional
capital investments about the goal or
purpose of the investment, grower
financial incentives, construction
schedules, description of changes to
housing specifications, approved
manufacturers or vendors, and analysis
of projected returns including the
assumptions, risks, and uncertainties
upon which those projections are based
(paragraphs (b)(1) through (6)). As such,
the Capital Improvement Disclosure
Document will clearly state the
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intended and expected outcome of LPD
additional investment requirements.
Requiring LPDs to provide this
information to growers will reduce
asymmetric information that contributes
to inefficient investment and resource
allocation decisions, where such choice
exists by growers. LPDs providing this
additional information related to grower
requirements reduces the cost to
growers of identifying and qualifying
manufacturers and vendors when
making capital improvements. To the
extent that disclosures assist growers in
understanding the purpose of additional
capital investments, those growers will
be more likely to realize any potential
benefits from the additional capital
investment. For example, growers will
be able to tailor additional capital
investments to their particular operation
so as to be better positioned to
implement the additional capital
investment and produce intended
production improvements. The clarity
provided by additional capital
investment disclosure will reduce the
likelihood of costly errors caused by
miscommunication and
misunderstanding and increase the
likelihood that growers will be able to
correctly implement additional capital
investments. Final § 201.112 will
generate economic benefits by
addressing certain limitations on market
functioning arising in part from
asymmetric information. Growers
operating with better information are
less likely to be deceived or unfairly
misled by LPDs when additional capital
improvement investments are required.
Even where growers may not be able
to avoid or negotiate around these
terms, growers may be better able to
effectuate their rights under the Act, and
AMS would benefit from earlier
identification of potentially unfair
practices. To the extent this occurs, by
addressing asymmetric information this
section of the final rule will help
alleviate additional hold-up of growers
by LPDs. Even in cases where grower
refusal may still result in other adverse
consequences, growers may still be
better off by preventing additional
financial loss and increased specific
investment and dependence on the LPD.
Financial projections and other analyses
of additional capital improvement
investments developed by LPDs along
with more complete information about
investment purpose, expected benefit,
and grower performance will be
superior to analysis based on limited
grower information.
Final § 201.112(c) will benefit growers
who require translation assistance by
requiring LPDs to make reasonable
efforts to ensure that growers are aware
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of their right to request translation
assistance and to assist growers in
translating the Capital Improvement
Disclosure Document.
Summary of Benefits of Final
§§ 201.106, 110, and 112
AMS expects that the final rule would
provide substantial benefits to the
industry and address issues of extreme
importance to broiler growers. However,
these benefits are unquantified. AMS
cannot measure any impact or shift in
total industry supply or any
corresponding indirect effects on
industry supply and demand, including
price and quantity effects.
Estimation of Costs of the Final
Regulations
AMS estimates cost for three
alternatives. The first is the final
§§ 201.106, 110, and 112, which is the
preferred alternative. The second
alternative is the same as final
§§ 201.106, 110, and 112 with a
complete exemption for LPDs that are
considered small businesses by the
Small Business Administration.87 All
LPDs are also included in the third
alternative, which is adoption of the
proposed §§ 201.106, 110, and 112. All
three alternatives are compared against
a baseline of status quo, which has no
costs or benefits.
The direct costs of final §§ 201.106,
110, and 112 primarily consist of the
time required for LPDs to: (1) modify
and monitor grower contracts to
determine compensation in a manner
consistent with final § 201.106; (2)
develop, document, and comply with
policies and procedures for ensuring
that growers are fairly compared to
other growers in poultry grower ranking
systems; and (3) gather and document
information pertaining to grower
additional capital investments and
distribute it among the growers. The
costs of the final rules will fall on LPDs
as they modify existing contracts and
compensation systems, develop and
comply with new policies, and collect
and disseminate required information.
Costs will also fall on poultry growers
based on the value of the time they put
into reviewing the disclosures. Though
poultry growers are expected to incur
costs in reviewing information, they
will be the primary beneficiaries of the
information, which may be reflected in
their ability to make more informed
decisions (where they may have more
87 The Small Business Administration (SBA)
defines small businesses by their North American
Industry Classification System Codes (NAICS). Live
poultry dealers, NAICS 311615, are considered
small businesses by SBA if they have fewer than
1,250 employees.
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than one or two integrators as options in
certain geographic areas). Further,
growers will be able to better identify
additional capital investment programs
that are unfair, which either AMS or
growers can challenge as a violation of
the Packers and Stockyards Act. This
may result in a more efficient allocation
of capital within the poultry growing
industry.
There were 42 LPDs in the broiler
chicken market that filed a fiscal year
2023 Annual Report with AMS, and
their reports indicate that they had
20,014 contracts with poultry growers
during fiscal year 2023.88 Of these, 21
LPDs are considered small businesses
according to SBA classification, and
these have a total of 1,208 grower
contracts. Small LPDs are expected to
differ from large LPDs in structure and
complexity, particularly with regard to
the number of contract types used,
management, use of legal services, and
divisions of labor. Where noted below,
some components of cost estimates are
calculated separately for large and small
LPDs to reflect these differences.89
AMS expects the direct costs of the
final rule will be small in relation to
overall production costs and will not
measurably alter poultry supply. AMS
also expects that neither LPDs nor
poultry growers will measurably change
any production practices that will
impact the overall supply of poultry as
a result of these direct costs.
Expected direct costs are estimated as
the value of the time required to
develop and implement new broiler
grower contracts and grower payment
systems to comply with requirements of
final § 201.106; develop, implement,
and maintain compliance with
processes reasonably designed by the
LPD to deliver fair comparisons among
broiler growers in the operation of
broiler contract tournament systems as
required by final § 201.110; and produce
and distribute disclosures when LPDs
request or require growers to make
additional capital investments as
required by final § 201.112, as well as
the time required to create and maintain
any necessary additional records.
Grower payment systems required by
final § 201.106(a) are substantively
similar to many current payment
systems already in use and will
therefore not require large adjustments
88 All live poultry dealers are required to annually
file PSD form 3002 ‘‘Annual Report of Live Poultry
Dealers,’’ OMB control number 0581–0308. The
annual report form is available to public at https://
www.ams.usda.gov/sites/default/files/media/
PSP3002.pdf.
89 Unless otherwise noted, estimated cost or hours
estimates for small and large live poultry dealers are
the same.
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for most LPDs. AMS does not have
sufficient data to predict whether the
presumption of unfairness based on 25
percent performance-based grower pay
will cause any LPDs to make substantial
changes to grower compensation
structures. The policies and procedures
that LPDs would be required to develop
in response to final § 201.110 are
expected to result in formalization, in
many cases, of existing practices LPDs
are currently following, albeit
sporadically or inconsistently. Nearly
all of the information and records
required for disclosure to growers under
final § 201.112 are already kept by and/
or available to LPDs.
Although LPDs will need to take
several actions to comply with new
requirements under final §§ 201.106,
110, and 112, these provisions are not
expected to require LPDs to
substantially change their existing
business practices. The exception to this
would occur if some LPDs currently
exceed the 25 percent presumption of
unfairness on performance-based grower
compensation set by § 201.106(b) and
will be unable to comply without
substantial changes. The changes to
comply would result in indirect costs.
Non-quantifiable potential indirect costs
to LPDs who exceed the 25 percent
presumption of unfairness on
performance-based grower
compensation will be discussed
separately within this section. AMS
expects total direct costs of adjustments,
contract modifications, records creation,
and compliance under the final rule to
be small relative to the overall size of
the industry.
AMS also estimates the amount of
time that growers would take to review
the information provided to them by
LPDs. Estimates of the amount of time
required by LPDs to modify existing
contracts, develop and comply with
new policies, and collect and distribute
required information, and for growers to
review the information were provided
by AMS subject matter experts. These
experts were supervisors and auditors
with many years of experience with
AMS in auditing LPDs for compliance
with the Packers and Stockyards Act.
Estimates for the value of time are U.S.
Bureau of Labor Statistics Occupational
Employment and Wage Statistics
estimates released May 2023 and costs
are therefore expressed in 2023
dollars.90 Throughout the discussion
that follows, ‘‘first year’’ costs refers to
costs that are estimated to be incurred
90 See U.S. Bureau of Labor Statistics, May 2023
National Occupational Employment and Wage
Estimates, May 2023. https://www.bls.gov/oes/
special.requests/oesm23all.zip.
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during the 12 months immediately
preceding the effective date of the rule.
Direct Costs of Final § 201.106—
Preferred Alternative
Under final § 201.106(a), LPDs will be
required to redefine grower payment
calculation systems as appropriate to
express all payments in the form of
bonuses added to a stated pay rate. AMS
expects that existing schedules of
grower payments can be recreated such
that they comply with this final rule
change. Existing LPD methods of grower
payment calculation can be expressed in
an alternative format that includes only
bonus adjustments added to from an
existing minimum pay rate. AMS
expects that most LPDs will be required
to make one-time changes to existing
grower contracts and develop new
payment systems that are consistent
with these provisions. This process will
also include producing and filing
grower documents and communicating
information about the new contract and
payment system to growers and staff at
each complex.
AMS estimates that the aggregate onetime costs to LPDs of updating grower
contracts and developing new grower
payment systems, including modifying
information systems to include new
calculations as well as filing, and
reporting to comply with final
§ 201.106(a), will require 17,664 legal
hours,91 57,750 management hours,
7,360 administrative hours, and 7,360
information technology hours, costing a
total of $9,106,000 92 in the first year.93
Once LPDs have incurred a one-time
cost of developing, documenting, and
communicating new contracts and a
new system of grower payments, AMS
does not expect additional ongoing costs
of implementing final § 201.106(a).
91 Small live poultry dealers are estimated to
require 50% as many legal hours as large live
poultry dealers on a per company basis for one-time
cost of developing § 201.106 one-time changes to
grower contracts and payment systems.
92 17,664 legal hours × $139.96 per hour + 57,750
management hours × $96.40 per hour + 7.360
administrative hours × $49.36 per hour + 7,360
information technology hours × $95.58 per hour =
$9,106,112.
93 Average hourly wage rates used to estimate
dealer costs include a 41.79% markup for benefits
and are as follows: Management—$96.40, Legal—
$139.96, Administrative—$49.36, and Information
Technology—$95.58. Hourly wage rates were
established using the following BLS classifications
for each labor category as follows (NAICS Code—
OCC code—OCC Title): Management (3116—11–
1020—General and Operations Managers) for live
poultry dealers’ managers, Legal (3110—23–1011—
Lawyers) for attorneys for live poultry dealers and
for growers, Administrative (3116—43–6011—
Executive Secretaries and Executive Administrative
Assistants) for live poultry dealers’ administrative
assistants, and Information Technology (3116—11–
3020—Computer and Information Systems
Managers) for information technology managers.
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5197
Once in place, new provisions and
modifications resulting from this onetime update are not expected to lead to
an increase in costs associated with the
ongoing maintenance and updating of
grower contracts that would occur in the
normal course of business.
Final § 201.106(b) establishes a
presumption of unfairness when, for a
given complex, aggregate payments
based upon a grouping, ranking, or
comparison of growers (performance
pay) exceed 25 percent of gross payment
to growers on an annual basis. LPDs will
need to analyze grower compensation
structures at the complex-level and
calculate annual performance-based
grower compensation as a percentage of
total compensation to ensure
compliance with the 25 percent
presumption established by final
§ 201.106(b). LPDs may choose to redesign and modify existing
compensation structures where greater
than 25 percent of the total grower
compensation is based on performance
pay These LPDs may choose to create
processes for monitoring compliance on
an ongoing basis. Modifications to
grower compensation structures will
need to be incorporated into broiler
contracts and communicated to growers.
AMS estimates that the aggregate onetime costs to LPDs of examining and
evaluating existing grower
compensation structures and making
modifications as required to ensure
ongoing compliance with final
§ 201.106(b), will require 7,360 legal
hours, 52,500 management hours, 7,306
administrative hours, and 14,720
information technology hours, costing a
total of $7,861,000 in the first year.94
LPDs will implement and maintain
processes for monitoring ongoing
compliance with § 201.106(b). AMS
expects these annual ongoing costs to
require in aggregate 736 legal hours,
5,250 management hours, 736
administrative hours, and 1,472
information technology hours for an
aggregate annual cost of $786,000.95
Final § 201.106(c) requires that for
each of the three calendar years
commencing with and including the
effective date for § 201.106, LPDs must
submit to USDA a copy of the prior and
modified contracts and associated
disclosures if any contract modification
94 7,360 legal hours × $139.96 per hour + 52,500
management hours × $96.40 per hour + 7,360
administrative hours × $49.36 per hour + 14,720
information technology hours × $95.58 per hour =
$7,861,333.
95 736 legal hours × $139.96 per hour + 5,250
management hours × $96.40 per hour + 736
administrative hours × $49.36 per hour + 1,472
information technology hours × $95.58 per hour =
$786,133.
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or renewal results in less than the prior
annual-calendar year’s complex-wide
average gross payment to the grower.
LPDs will be required to monitor
changes in average annual gross
payments to growers at the complex
and, if necessary, provide
documentation.
AMS does not expect any costs to
LPDs in the first year in response to
§ 201.106(c). For each of the three
calendar years following the effective
date, LPDs will monitor grower
compensation and submit any necessary
documentation on an annual basis. AMS
expects these annual ongoing costs to
require in aggregate 736 legal hours,
5,250 management hours, 736
administrative hours, and 1,472
information technology hours for an
aggregate annual cost of $786,000.96
Final § 201.106 concerns potential
changes to the method of payment
calculation and compensation structure
used in grower tournament settlement
systems. LPDs will provide new
contracts that include these updated
provisions for review by broiler growers.
AMS expects that the first time a grower
receives a new contract containing these
modifications, he or she will require
about 4 hours to review and consider all
new terms and provisions. At $62.13 per
hour,97 the total one-time cost for all
broiler growers to review the new
contract is $4,974,000.98 AMS expects
that the updated contract provisions and
payment systems developed by LPDs
pursuant to § 201.106 will not
contribute to additional ongoing
contract review time by growers beyond
an initial one-time review. Therefore, no
ongoing future costs of grower contract
review have been included for
§ 201.106. The ten-year aggregate total
costs of final § 201.106 to LPDs are
estimated to be $26,401,000, the tenyear aggregated total costs of final
§ 201.106 to poultry growers are
estimated to be $4,974,000, and the
combined ten-year aggregate total costs
of final § 201.106 to LPDs and poultry
growers are estimated to be $31,375,000.
ddrumheller on DSK120RN23PROD with RULES4
Unquantified Indirect Costs of
§ 201.106—Preferred Alternative
Many factors will affect the costs to
LPDs of changing existing compensation
96 736 legal hours × $139.96 per hour + 5,250
management hours × $96.40 per hour + 736
administrative hours × $49.36 per hour + 1,472
information technology hours × $95.58 per hour =
$786,133.
97 The average hourly wage rate of $62.13 per
hour used to estimate costs for a poultry grower
includes a 41.79% markup for benefits. The wage
rate was established using BLS classification
(1152—11–0000—Management Occupations).
98 4 hours to review each disclosure × $62.13 per
hour × 20,014 contracts = $4,973,879.
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structures to comply with a 25 percent
presumption as defined in § 201.106(b).
The scope of comprehensive data that
would be required for AMS to
accurately measure and quantify these
costs makes collection of sufficient data
infeasible if such exists. Further, the
nature of these costs will depend on
future choices made by industry
participants that cannot be predicted
with reasonable certainty. The potential
indirect costs—other than those direct
administrative costs which are
quantified separately—will be discussed
qualitatively in this section.
If LPDs substantively modify existing
structures of grower compensation to
reduce performance-based
compensation to less than 25 percent of
total grower compensation, additional
costs must be considered. The
likelihood and magnitude of these
additional indirect costs will depend on
the number of complexes that will
modify existing compensation
structures as a result of § 201.106(b), the
extent of those modifications, and
resulting cost increases.
As discussed in the benefits section,
AMS does not have sufficient data to
make an inference on the number
complexes that will reduce performance
payments relative to total payments or
the magnitude of any reductions that
will be required. As previously
discussed, at four complexes, aggregate
performance payments were 11.4, 17.4,
20.5, and 25.4 percent of total grower
payments. AMS is not aware of any
complex with performance payments
that are as much as 26 percent of total
payments, and it is possible that no
complex will reduce performance
payments relative to total payments by
a substantial amount to avoid the
presumption of unfairness established
in final § 201.106(b).
To the extent that the complexes AMS
reviewed are representative of the other
complexes owned by the same firms,
two or possibly three of the firms would
likely already be in compliance with
final § 201.106(b). And due to the
Wayne-Sanderson Farms consent
agreement with U.S. Department of
Justice, it is unlikely that the regulation
will have an effect on WayneSanderson’s existing contracts.
Therefore, it is unlikely that the
presumption of unfairness on
performance payments will have any
effect on these firms, which combined
account for up to 35 percent of broiler
complexes. It is possible that at other
firms, performance payment makes up
less than 25 percent of total payments
as well, but AMS does not have
sufficient information to confirm this
with a reasonable degree of confidence.
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Conceptually, where firms modify
existing grower compensation structures
at a complex in response to this rule, if
reductions in performance-based
payments relative to total payments
adversely affect grower performance
incentives and cause growers to produce
broilers less efficiently, that could result
in increased production costs for the
firms. In general, the ‘‘tournament’’
system of broiler grower compensation
bases payments to individual growers
on their performance relative to other
growers. Performance payments provide
an incentive for growers to optimize
factors under their control, such as
effort and management, and to some
extent investment (subject to the
concerns around investments
highlighted by this rule), to improve
their own relative performance
efficiency and increase income. The
strength of individual performance
incentives is related to the size of
expected (potential) grower performance
payments, which will be limited by the
total amount of performance-based pay
distributed among all growers. The
effectiveness of incentives is also
limited by the extent to which the
grower can control performance.
Decreasing the relative size of
performance payments available to all
growers at a complex might, at or above
a certain level, in theory, therefore
weaken performance incentives of
individual growers and could result in
reduced overall grower efficiency in
broiler production.
AMS has no reason to believe that the
25 percent presumption adopted in this
final rule would significantly change
incentives. As noted above, the third
largest LPD is already in compliance
with the provision and some LPDs do
not use the tournament system. No
evidence was produced by commenters
regarding the level of tournament
compensation needed to optimize
grower performance. Other factors,
including inputs and production
practices, the level of prudence and
professionalism of growers, their risks of
termination, and non-comparison
performance payments can, for example,
provide incentives for growers.
Additionally, LPDs already closely
monitor grower performance with a
range of information they already have.
Finally, the concern arises only if both
the 25 percent presumption would
affect incentives and if an LPD could
not otherwise overcome the
presumption.
AMS cannot rule out the possibility
that incentives may be affected, and
AMS is unable to predict specific effects
with certainty. Were production
efficiency in some manner to be
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reduced, economic principles suggest
that cost of production would increase,
causing an inward shift of a firm’s
marginal cost curve and that those costs
could be passed on to consumers.
Increases in cost structures could, under
that same hypothetical, affect demand
for broiler growing services in certain
areas, for example possibly resulting in
LPDs terminating some marginal
growers. As noted above, based on the
regulatory record and the Agency’s
expert judgment based on the
information and data available to AMS
during the rulemaking process, AMS
does not view these outcomes as likely
to any material degree.
Furthermore, LPDs have tools to
incentivize grower effort that would
partially or entirely avoid the risks
outlined above. LPDs may shift some
performance pay to non-comparison
methods, such as fixed metric
performance or to other innovative
systems, which could retain the
incentives where necessary and
appropriate. Other LPDs, however, may
believe that the performance incentive
delivered by the tournament is
misplaced given the particularities of
their business model or the type of bird
being grown at a complex (e.g., growout
of ‘‘no antibiotics ever’’ may require
different incentives and management
than commoditized product).
Depending on the needs of the complex,
LPDs may seek to utilize technology,
training, or other approaches to improve
outcomes, thus reducing the need to
utilize higher magnitudes of
performance payments.
LPDs currently use many variations of
relative performance compensation
systems at broiler complexes and some
LPDs do not use tournament
performance compensation systems.
This suggests that that setting
comparison pay above 25 percent is not
the only way to optimize incentives for
all complexes, growers, or
circumstances. AMS does not have data
for every payment structure currently in
use. Limited data analysis from the
small sample of complexes described
above shows that performance
compensation at a number of complexes
is less than 25 percent of total pay. This
suggests that regulated entities can
optimize incentives without setting
comparison performance pay above 25
percent. Ultimately, AMS does not
expect that LPDs will choose to abandon
the tournament compensation system
entirely as a result of this regulation and
does not expect materially adverse
effects on production efficiency.
Final § 201.106(c) requires that within
a three-year transition period following
the effective date, LPDs must provide
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the prior and modified contracts and
grower disclosures if complex-wide
average gross payment to growers falls
below the level of the prior calendar
year. AMS considered that LPDs could
face additional costs if they were
prevented from lowering grower
compensation for a three-year period
and were not able to adjust payment
structures to meet challenging and
unforeseen industry conditions in the
broiler industry. For example, a sharp
decline in broiler demand or other type
of event disrupts the broiler industry
could potentially create conditions in
which aggregate average grower
compensation at a complex temporarily
falls below its level in the prior year.
In analyzing information submitted by
LPDs, AMS will consider all relevant
factors, including industry conditions,
when investigating unfairness. As a
result, AMS expects that LPDs will be
constrained only from unfair reductions
in grower compensation and will not be
prevented from adjustments to grower
compensation that reflect legitimate
business operations, such as responding
to a decline in broiler demand or higher
feed costs. In addition, the tendency for
base levels of year over year inflation to
naturally erode real grower
compensation will also attenuate the
need for nominal decreases. Given the
restructuring of how payment
calculation methods and compensation
structures will be presented to growers
as LPDs comply with § 201.106(a),
review and analysis of documentation
by AMS under this provision will focus
on the unfair reductions in
compensation resulting from contract
modification which this provision is
intended to prevent. Therefore, AMS
does not expect additional costs for
LPDs as a result of § 201.106(c) beyond
the direct administrative costs of
assessing and monitoring revised
payment systems for potential
reductions in grower compensation and
providing documentation when
required as explicitly described in the
previous section.
Direct Costs of Final § 201.110—
Preferred Alternative
Final § 201.110 will require LPDs to
develop, maintain and comply with a
set of policies and procedures that
ensure the operation of a poultry grower
ranking system that is consistent with
the duty of fair comparison among
growers, including describing processes
for supplying or assigning inputs and
production practices, communication
and cooperation, and facilitating the
conduct of ongoing compliance reviews
with those processes.
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5199
Final § 201.110(a) and (b)(1)(i)
through (v) describe objectives and
minimum requirements for written
documentation of processes, including
how LPDs will operate poultry grower
ranking systems that are consistent with
the duty of fair comparison. Information
obtained during previous AMS
investigations suggests that LPDs may
already have some informal policies and
practices or perhaps even some contract
provisions in place to address and
attempt to remedy situations in which
growers have been inadvertently
disadvantaged by such factors. For
example, AMS is aware of situations
where an LPD has removed a grower
that received an unreasonable share of
lower quality inputs from the grower
pool and paid them by another method
that would not penalize relative
performance (e.g., a five-flock average).
Under final § 201.110(a) and (b)(1)(i)
through (v), all LPDs will be required to
develop formal written processes that
meet specific criteria outlined in the
regulation.
AMS estimates that the one-time
aggregate cost of developing new
policies and procedures in response to
final § 201.110(a) and (b)(1)(i) through
(v) for LPDs will require 4,128 legal
hours, 28,500 management hours, 1,472
administrative hours, and 1,472
information technology hours, costing a
total of $3,539,000 in the first year.99
Due to differences in their structure,
estimates for small LPDs were
calculated with the expectation that
they would employ relatively fewer
legal (attorney) hours that are offset by
a larger share of management hours.100
LPDs will implement, monitor, and
comply with new written processes for
the design and operation of a poultry
grower ranking system that is consistent
with the duty of fair comparison; they
will also maintain and update these
written processes. AMS expects these
annual ongoing costs to require in
aggregate 1,400 legal hours,101 28,336
management hours which include
renewing and updating written
processes at the corporate level as well
as monitoring activities conducted by
99 4,128 legal hours × $139.96 per hour + 28,500
management hours × $96.40 per hour + 1,472
administrative hours × $49.36 per hour + 1,472
information technology hours × $95.58 per hour =
$3,538,507.
100 Small live poultry dealers are estimated to
require 33% as many legal hours and 133% as
many management hours as large live poultry
dealers on a per-complex basis for one-time cost of
developing § 201.110 tournament fairness policies
and procedures.
101 Small live poultry dealers are estimated to
require 50% as many legal hours as large live
poultry dealers on a per-complex basis in ongoing
compliance and maintenance of § 201.110
tournament fairness policies and procedures.
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managers at each complex to ensure
ongoing compliance, 736 administrative
hours, and 736 information technology
hours for an aggregate annual cost of
$3,034,000.102
Final § 201.110(b)(1)(vi) requires that
the written processes developed must
include a description of how LPDs
communicate and cooperate to resolve
grower concerns in a timely fashion.
AMS expects that the aggregate one-time
cost to LPDs of setting up
communications and cooperation
protocol and implementing them in the
first year will require 840 legal hours,
546 management hours, 168
administrative hours, and 336
information technology hours 103 for an
aggregate one-time cost of $211,000.104
Final § 201.110(b)(2) states the length
of time for retaining the records relevant
to an LPD’s compliance with final
§ 201.110(b)(1) and (2). AMS considered
record retention when estimating costs
for final § 201.110(b)(1) and final
§ 201.110(b)(2) does not impose any
costs independently.
AMS expects the ongoing annual
costs after the first year of implementing
written processes regarding
communication, cooperation, and
dispute resolution policies and
procedures described in final
§ 201.110(b)(1)(vi) to require, in
aggregate, 336 legal hours, 168
management hours, 84 administrative
hours, and 84 information technology
hours for an aggregate annual cost of
$75,000.105
Written processes developed by LPDs
are for internal use, to be complied with
and maintained, to be provided to AMS,
and as part of ongoing compliance
monitoring. Under final § 201.110, LPDs
are not required to provide additional
disclosures to contract growers.
Therefore, final § 201.110 will not
impose any additional one-time or
ongoing costs on growers to review
102 1,400 legal hours × $139.96 per hour + 28,336
management hours × $96.40 per hour + 736
administrative hours × $49.36 per hour + 736
information technology hours × $95.58 per hour =
$3,034,210.
103 Small live poultry dealers are estimated to
require 50% as many legal hours and 125% as
many management hours, and 50% as many
information technology hours as large live poultry
dealers on a per company basis for one-time cost
of developing § 201.110 communication,
cooperation, and dispute resolution policies and
procedures.
104 840 legal hours × $139.96 per hour + 546
management hours × $96.40 per hour + 168
administrative hours × $49.36 per hour + 336
information technology hours × $95.58 per hour =
$210,608.
105 336 legal hours × $139.96 per hour + 168
management hours × $96.40 per hour + 84
administrative hours × $49.36 per hour + 84
information technology hours × $95.58 per hour =
$75,397.
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additional disclosures, and total grower
costs of final § 201.110 are zero.
The ten-year total costs of final
§ 201.110 to all 42 live broiler poultry
dealers are estimated to be $31,736,000.
Since expected grower costs for this
section are zero, these also represent the
total aggregate costs of § 201.110.
Direct Costs of Final§ 201.112—
Preferred Alternative
The new provisions in final § 201.112
will require LPDs to provide a Capital
Improvement Disclosure Document any
time the LPD requests existing broiler
chicken growers to make an additional
capital investment ($12,500 or more per
structure excluding maintenance or
repair). The Capital Improvement
Disclosure Document must include
information about the goal or purpose of
the investment, financial incentives and
compensation for the grower associated
with the additional capital investment,
all schedules and deadlines for the
investment, a description of changes to
housing specifications, and analysis of
projected returns.
Final § 201.112 will require LPDs to
create a Capital Improvement Disclosure
Document when new capital
investments are required of growers.
Based on information provided by
subject matter experts, AMS estimates
that capital upgrades will be required at
5 percent of complexes each year,
triggering creation of a new disclosure
document for approximately 5 percent
of growers annually. Therefore, AMS
estimates the annual cost of creating
disclosures for additional requested
grower capital investment will require
74 legal hours, 368 management hours,
74 administrative hours, and 92
information technology hours to create
and provide a Capital Improvement
Disclosure Document for all growers
requiring additional capital
improvement upgrades, for an aggregate
annual cost of $58,000.106
With the exception of acknowledging
receipt, the final rule will not impose
any requirement on poultry growers to
review the information provided by
LPDs, but to benefit from the Capital
Improvement Disclosure Document,
growers will need to review the
information provided. For final
§ 201.112, AMS expects that growers
will take about four hours to review
these documents when they are
disclosed as part of a capital
improvement request or requirement by
the LPD. LPDs will be required to
106 74 legal hours × $139.96 per hour + 368
management hours × $96.40 per hour + 74
administrative hours × $49.36 per hour + 92
information technology hours × $95.58 per hour =
$58,203.
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provide disclosures to growers for any
of 20,014 contracts for which additional
capital investment requests are made.107
AMS expects that LPDs will make
additional capital investment requests
for an average of 5 percent of grower
contracts annually. At an estimated 4
hours of grower review time per
disclosure at $62.13 per hour, growers’
aggregate annual costs will be
$249,000 108 for reviewing documents
required by § 201.112 in the first year
and in each successive year.
The ten-year aggregate total costs of
final § 201.112 to LPDs are estimated to
be $582,000, the ten-year aggregated
total costs of final § 201.112 to poultry
growers are estimated to be $2,487,000,
and the combined ten-year aggregate
total costs of final § 201.112 to LPDs and
poultry growers are estimated to be
$3,069,000.
Unquantified Indirect Costs of
§ 201.112—Preferred Alternative
If AMS enforcement of final § 201.112
has the effect of preventing broiler
growers from making unprofitable
additional capital investments (those for
which individual grower returns do not
exceed costs), then such decisions to
forgo investment will likely result in
fewer benefits for LPDs, and more for
growers. Because LPDs benefit from any
productivity gain created by grower
investments, whether or not the
investment is profitable for the grower
in the long-run, LPDs will not receive
these benefits if additional information
provided under this provision causes
growers to avoid additional capital
investments that they deem to be
unprofitable and inefficient for their
operation. AMS is not able to quantify
these lost benefits to LPDs. They
represent costs to LPDs, but these costs
are at least partly offset by gains (or
avoided losses) for growers. In addition,
to the degree that an additional capital
investment requires over-investment,
eliminating it benefits society. Overinvestment occurs when the cost of the
investment exceeds the total value it
generates (in terms of increased grower
productivity, production cost efficiency,
etc.) and the investment resources
would be more productively employed
in other ways. The benefits to growers
and society of avoiding such
investments would exceed the losses to
LPDs.
107 Live poultry dealers reported a combined total
of 20,014 contracts for their fiscal year 2023.
108 4 hours to review each disclosure × $62.13 per
hour x 20,014 contracts × 5 percent of growers that
require significant housing upgrades = $248,694.
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Combined Costs of Final §§ 201.106,
110, and 112—Preferred Alternative
Combined costs to LPDs for final
§§ 201.106, 110, and 112 are expected to
be $20,775,000 in the first year,
$4,740,000 in years two through four,
and $3,954,000 in subsequent years
thereafter. Information collection costs
are also reported in the Paperwork
Reduction Act section as the combined
costs to LPDs for compliance with the
reporting and recordkeeping
requirements of final §§ 201.106, 110,
and 112. The combined costs for poultry
growers are expected to be $5,223,000 in
the first year and $249,000 in
subsequent years.
The ten-year aggregate combined costs
of final §§ 201.106, 110, and 112 to
LPDs are estimated to be $58,719,000
and the present value of the ten-year
total costs to be $54,230,000 discounted
at a two percent rate. The annualized
aggregate combined costs of the present
value (PV) of ten-year costs to LPDs
discounted at a two percent rate are
expected to be $6,037,000.
The ten-year aggregate combined costs
of final §§ 201.106, 110, and 112 to
poultry growers are estimated to be
$7,461,000 and the present value of the
ten-year total costs to be $7,110,000
discounted at a three percent rate. The
annualized aggregate combined costs of
5201
the PV of ten-year costs to poultry
growers discounted at a three percent
rate are expected to be $792,000.
The ten-year aggregate combined costs
of final §§ 201.106, 110, and 112 to
LPDs and poultry growers are estimated
to be $66,179,000 and the present value
of the ten-year aggregate combined costs
to be $61,341,000 discounted at a two
percent rate. The annualized aggregate
costs of the PV of ten-year costs to LPDs
and poultry growers discounted at a two
percent rate are expected to be
$6,829,000. The cost estimates of final
§§ 201.106, 110, and 112 presented
above appear in the following table.
TABLE 1—ESTIMATED COSTS OF FINAL §§ 201.106, 110, AND 112—PREFERRED ALTERNATIVE
Expected costs *
Preferred alternative
Live poultry
dealers
§ 201.106:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§ 201.110:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§ 201.112:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§§ 201.106, 110, and 112:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
Poultry
growers
Industry total
$16,968,000
26,401,000
25,148,000
2,800,000
$4,974,000
4,974,000
4,876,000
543,000
$21,941,000
31,375,000
30,025,000
3,343,000
3,749,000
31,736,000
28,559,000
3,179,000
0
0
0
0
3,749,000
31,736,000
28,559,000
3,179,000
58,000
582,000
523,000
58,000
249,000
2,487,000
2,234,000
249,000
307,000
3,069,000
2,757,000
307,000
20,775,000
58,719,000
54,230,000
6,037,000
5,223,000
7,461,000
7,110,000
792,000
25,997,000
66,179,000
61,341,000
6,829,000
ddrumheller on DSK120RN23PROD with RULES4
* Rows may not sum to Total Costs due to rounding.
Estimated Costs-and Expected Benefits
of Final §§ 201.106, 110, and 112—
Preferred Alternative
The value of broiler production in the
U.S. for 2023 was approximately $50.6
billion.109 Total direct costs of final
§§ 201.106, 110, and 112 are estimated
to be greatest in the first year at $26.0
million, or 0.051 percent of revenues. A
relatively small improvement in
efficiency from improved allocation of
capital and labor resources in the
industry would more than outweigh the
direct costs of this final rule. A
reduction in information asymmetry
(resulting in more useful information
provided to growers), grower
uncertainty and risk of potential adverse
outcomes, and retaliatory and deceptive
practices by LPDs will lead to benefits
109 USDA–NASS. Poultry—Production and Value
2023 Summary (April 2024).
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resulting from the final rule. The size of
benefits will be directly related to the
extent of these reductions. AMS expects
that the final rule will provide
substantial benefits the industry and
address issues of extreme importance to
broiler growers. However, these benefits
are not quantifiable. Benefits and costs
are summarized below for each
provision of the rule.
Final § 201.106(a) benefits broiler
growers by requiring LPDs to implement
payment structures that increase clarity
and certainty about the lowest possible
revenue outcomes under a growing
arrangement. LPDs are expected to incur
one-time direct costs of developing,
documenting, and communicating new
contracts and a new system of grower
payments and no additional ongoing
costs. Since most LPDs currently
employ payment structures that allow
for both bonuses and discounts, AMS
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expects these costs to be realized by
LPDs at most complexes and the
corresponding benefits to be realized by
the vast majority of broiler growers.
Final § 201.106(b) establishes a
presumption of unfairness when the
amount of total grower compensation
based on relative performance exceeds
25 percent and thereby protects growers
from excess income variability. Some
growers at complexes where LPDs
modify compensation structures to
reduce the percentage of grower pay
based on relative performance may
benefit from reductions in the
variability of their income. The
distribution of benefits is likely to be
unequal, such that increases in
compensation for some growers may
correspond with decreases in
performance-based compensation for
other growers.
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In addition to direct costs to LPDs of
implementing the rule, § 201.106(b)
could result in additional indirect costs
to broiler industry stakeholders
(including LPDs, consumers, and
growers) if LPDs modify existing
compensation structures in ways that
adversely affect grower incentives and
lead to increased production costs. The
magnitude of benefits and costs
resulting from § 201.106(b) will depend
on two important factors that cannot be
measured or predicted with a reasonable
degree of certainty: the number of
broiler complexes that will modify
existing compensation structures as a
result of final § 201.106(b) and the
manner in which those change will be
implemented by LPDs. If few or no
complexes make substantial
modifications to existing compensation
structures as a result of § 201.106(b), the
resulting benefits to growers of reduced
income variability and the indirect costs
to the broiler industry will be small. All
broiler growers will nonetheless benefit
from ongoing protection against future
increases in performance-based pay
variability and reductions in base pay
amounts.
Growers will benefit from additional
protections under § 201.106(c) that
require LPDs to submit prior and
modified contracts if contract
modifications result in reduced average
grower compensation during a threeyear transition period. This requirement
will facilitate AMS monitoring and
intervention, when necessary, to protect
growers from unfair treatment. AMS
does not expect indirect costs to broiler
industry stakeholders. AMS expects the
benefits of § 201.106(c) will accrue to all
broiler growers and the direct costs of
implementation over the three-year
transition period will apply to all LPDs.
By requiring that LPDs design and
operate poultry grower ranking systems
to provide a fair comparison among
growers, final § 201.110 will benefit
broiler growers through increased
fairness and reduced deception. All
broiler growers will benefit to the degree
that this provision improves fairness
and reduces deception within poultry
grower ranking systems. The direct costs
of implementing and maintaining
compliance with § 201.110 will be
incurred by all LPDs, and AMS does not
expect any other indirect costs of this
provision.
Disclosures concerning additional
capital investments required by final
§ 201.112 will provide broiler growers
with better information to make
financial decisions and reduce the
likelihood the LPDs can deceive or
mislead growers. Growers will also
benefit to the extent that this
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requirement provides information that
facilitates improved identification and
enforcement of violations under
§ 201.116. LPDs will incur direct costs
of preparing and distributing
disclosures when additional capital
investments are requested by the LPD.
The provision could also cause some
transfer of benefits from LPDs to
growers if the provision causes growers
to avoid making unprofitable
investments that would have benefited
the LPD more than the grower.
Net total costs and benefits to the
industry from final §§ 201.106, 110, and
112 cannot be quantified. Thus, AMS
cannot measure any impact or shift in
total industry supply or any
corresponding indirect effects on
industry supply and demand, including
price and quantity effects.
Estimated Costs and Expected Benefits
of the Small Business Exemption
Alternative
AMS estimated costs for an
alternative to the preferred option for
the final rule. It would be the same as
final §§ 201.106, 110, and 112, with the
exception that the alternative would
exempt LPDs that fall under the SBA
definition of small businesses from all
provisions of the two final rules. In the
preferred alternative, the requirements
in final §§ 201.106, 110, and 112 would
apply to all LPDs, including those
classified as small businesses.
The costs associated with this
alternative are similar, but smaller than
the preferred option. According to PSD
records, small LPDs make up 50.0
percent of all LPDs, but have only 6.0
percent of poultry growing contracts.
The estimation of the costs of the small
business exemption alternative will
follow the same format as the preferred
alternative.
Costs of Final § 201.106—Small
Business Exemption Alternative
AMS estimates that the aggregate onetime costs to LPDs of updating grower
contracts and developing new grower
payment systems, including modifying
information systems to include new
calculations as well as filing, and
reporting to comply with final
§ 201.106(a), will require 15,936 legal
hours, 54,780 management hours, 6,640
administrative hours, and 6,640
information technology hours, costing a
total of $8,474,000 in the first year
under the small business exemption
alternative. Once LPDs have incurred a
one-time cost of developing,
documenting, and communicating new
contracts and a new system of grower
payments, AMS does not expect
additional ongoing costs of
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implementing final § 201.106(a) under
the small business exemption
alternative.
AMS estimates that the aggregate onetime costs to LPDs of examining and
evaluating existing grower
compensation structures and making
modifications as required to ensure
ongoing compliance with final
§ 201.106(b), will require 6,640 legal
hours, 49,800 management hours, 6,640
administrative hours, and 13,280
information technology hours, costing a
total of $7,327,000 in the first year
under the small business exemption
alternative.
LPDs will monitor, maintain and
comply with the processes for
examining excessive variability. AMS
expects these annual ongoing costs to
require in aggregate 664 legal hours,
4,980 management hours, 664
administrative hours, and 1,328
information technology hours for an
aggregate annual cost of $733,000 under
the small business exemption
alternative.
AMS does not expect any cost in the
first year to set up and implement a plan
in response to § 201.106(c). For each of
the three calendar years following the
effective date for § 201.106, AMS
expects these annual ongoing costs to
require in aggregate 664 legal hours,
4,980 management hours, 664
administrative hours, and 1,328
information technology hours for an
aggregate annual cost of $733,000 under
the small business exemption
alternative.
For final § 201.106(a), AMS expects
that growers will take about 4 hours to
review new contract terms and
provisions when they are provided in
the first year. At $62.13 per hour, the
total one-time cost for all broiler
growers to review the new contract
under the small business exemption
alternative is $4,674,000.110 AMS
expects that the updated contract
provisions and payment systems
developed by LPDs pursuant to final
§ 201.106 (a) would not contribute to
additional ongoing contract review time
by growers beyond an initial one-time
review. Therefore, no ongoing future
costs of grower contract review are
included.
The ten-year aggregate total costs to
LPDs of final § 201.106 under the small
business exemption alternative are
estimated to be $24,593,000, the tenyear aggregate total costs to broiler
growers of final § 201.106 for the small
business exemption alternative are
estimated to be $4,674,000, and the first110 4 hours to review each disclosure × $62.13 per
hour × 18,806 contracts = $4,673,667.
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year and ten-year aggregate total costs to
LPDs and poultry growers of final
§ 201.106 for the small business
exemption alternative are estimated to
be $29,267,000.
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Unquantified Indirect Costs of
§ 201.106—Small Business Exemption
Alternative
AMS expects that indirect costs
resulting from § 201.106(b) and (c) for
the small business exemption
alternative will be nearly identical to
those discussed for the preferred
alternative, with the only difference
being the number of complexes
potentially affected. In particular, small
LPDs would be exempt from the
presumption of unfairness under
§ 201.106(b) and will not incur indirect
costs from modifying grower
compensation structures to reduce the
percentage of performance-based
compensation for a complex below the
presumptively unfair 25 percent of total
compensation. The 10 percent of
complexes that would be exempted
from the regulation under this
alternative are small by definition. AMS
does not have access to data that would
suggest whether these small LPD
complexes are any more or less likely to
require modifications to existing grower
compensation structures that result in
indirect costs than other complexes.
Indirect costs for the small business
exemption alternative could only be
equal to or less than the preferred
alternative but cannot be quantified for
the same reasons.
Direct Costs of Final § 201.110—Small
Business Exemption Alternative
AMS estimates that the one-time
aggregate cost of developing new
policies and procedures in response to
final § 201.110(a) and (b)(1)(i) through
(v) for LPDs will require 3,984 legal
hours, 24,900 management hours, 1,328
administrative hours, and 1,328
information technology hours, costing a
total of $3,150,000 in the first year for
the small business exemption
alternative.
After new written processes have
been developed, LPDs would be
required to implement, monitor, and
comply and to maintain and update
them. AMS expects these annual
ongoing costs for the small business
exemption alternative to require in
aggregate 1,328 legal hours, 25,564
management hours which include
renewal and updating of written
processes at the corporate level as well
as monitoring activities conducted by
managers at each complex to ensure
ongoing compliance, 664 administrative
hours, and 664 information technology
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hours for an aggregate annual cost of
$2,746,000.111
Final § 201.110(b)(1)(vi) requires that
the written processes developed must
include a description for how the LPD
would resolve a grower’s concerns with
the LPD’s design or operation of a
poultry grower ranking system that is
consistent with the duty of fair
comparison that is required by this
section, including the timeliness of the
resolution. AMS expects that the
aggregate one-time cost to LPDs of
setting up communications and
complaint resolution processes as
described in § 201.110(b)(1)(vi) for the
small business exemption alternative
will require 504 legal hours, 252
management hours, 84 administrative
hours, and 210 information technology
hours for an aggregate one-time cost of
$119,000.112
Costs associated with final
§ 201.110(b)(2), ‘‘Record retention,’’ are
included in cost estimates for final
§ 201.110(b)(1). AMS expects that this
section does not incur any additional
costs.
AMS expects the ongoing annual
costs of implementing communications
and complaint resolution processes as
described in § 201.110(b)(1)(vi) to
require, for the small business
exemption alternative, in aggregate, 168
legal hours, 84 management hours, 42
administrative hours, and 42
information technology hours for an
aggregate annual cost of $38,000.113
Because final § 201.110 does not require
LPDs to provide additional disclosures
to contract growers, final § 201.110
would not impose any additional onetime or ongoing costs on growers to
review additional disclosures, and total
grower costs of final § 201.110 are also
zero under the small business
exemption alternative.
The ten-year total costs of final
§ 201.110 to the 50.0 percent of live
broiler poultry dealers impacted under
the small business exemption
alternative are estimated to be
$28,327,000. Since expected grower
costs for this section are zero, these also
represent the total aggregate costs of
final § 201.110.
111 1,328 legal hours × $139.96 per hour + 25,564
management hours × $96.40 per hour + 664
administrative hours × $49.36 per hour + 664
information technology hours × $95.58 per hour =
$2,746,477.
112 504 legal hours × $139.96 per hour + 252
management hours × $96.40 per hour + 84
administrative hours × $49.36 per hour + 210
information technology hours × $95.58 per hour =
$119,051.
113 168 legal hours × $139.96 per hour + 84
management hours × $96.40 per hour + 42
administrative hours × $49.36 per hour + 42
information technology hours × $95.58 per hour =
$37,698.
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5203
Direct Costs of Final § 201.112—Small
Business Exemption Alternative
Final § 201.112 would require LPDs to
create a Capital Improvement Disclosure
Document when new capital
investments are requested of growers.
Based on information provided by
subject matter experts, AMS estimates a
five percent annual average probability
that capital improvement upgrades will
be required for growers at a complex,
which would trigger creation of a new
Disclosure Document. Therefore, AMS
estimates the annual ongoing cost of
creating Capital Improvement
Disclosure Documents for the small
business exemption alternative will
require 66 legal hours, 332 management
hours, 66 administrative hours, and 83
information technology hours to create
and provide Capital Improvement
Disclosure Documents for all growers
requiring additional capital
improvement upgrades, for an aggregate
annual cost of $53,000 for the small
business exemption alternative.114
For final § 201.112, AMS expects that
growers would take about four hours to
review these documents when they are
disclosed as part of a capital
improvement request or requirement by
the LPD. For the small business
exemption alternative, LPDs would be
required to provide disclosures to
growers for any of the 18,806 contracts
for which additional capital investment
requests are made.115 AMS expects that
LPDs will make additional capital
investment requests for an average of
five percent of grower contracts
annually. Given that growers require an
estimated 4 hours at $62.13 per hour,
growers’ aggregate annual costs would
be $234,000 for reviewing documents
required by final § 201.112 in the first
year and in each successive year for the
small business exemption alternative.116
The ten-year aggregate total costs of
final § 201.112 under the small business
exemption alternative for LPDs are
estimated to be $525,000, and the tenyear aggregated total costs to poultry
growers of final § 201.112 under the
small business exemption alternative
are estimated to be $2,337,000. The
combined first-year aggregate total costs
to LPDs and poultry growers of final
114 66 legal hours × $139.96 per hour + 332
management hours × $96.40 per hour + 66
administrative hours × $49.36 per hour + 83
information technology hours × $95.58 per hour =
$52,509.
115 Live poultry dealers that exceed SBA
classification criteria for small businesses reported
a combined 18,806 poultry contracts in their
Annual Reports to AMS.
116 4 hours to review each disclosure × $62.13 per
hour × 18,806 contracts × 5 percent of growers that
require significant housing upgrades = $233,683.
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§ 201.112 under the small business
exemption alternative are estimated to
be $286,000, and the ten-year aggregate
total costs are estimated to be
$2,862,000.
Combined Costs of Final §§ 201.106,
110, and 112—Small Business
Exemption Alternative
Aggregate combined costs to LPDs for
final §§ 201.106, 110, and 112 for the
small business exemption alternative
are expected to be $19,123,000 in the
first year, and $4,302,000 in subsequent
years. The combined costs for poultry
growers are expected to be $4,907,000 in
the first year, $234,000 in subsequent
years.
The aggregate ten-year combined
quantified costs to LPDs of final
§§ 201.106, 110, and 112 for the small
business exemption alternative are
estimated to be $53,445,000 and the
present value of the ten-year combined
costs $49,382,000 discounted at a two
percent rate. The aggregate annualized
costs of the PV of ten-year costs to LPDs
discounted at a two percent rate are
expected to be $5,498,000.
The aggregate ten-year combined costs
to poultry growers of final §§ 201.106,
110, and 112 for the small business
exemption alternative are estimated to
be $7,011,000 and the present value of
the ten-year combined costs are
estimated to be $6,681,000 discounted
at a two percent rate. The aggregate
annualized costs of the PV of ten-year
costs to poultry growers discounted at a
two percent rate are expected to be
$744,000.
The aggregate combined costs of final
§§ 201.106, 110, and 112 under the
small business exemption alternative for
LPDs and poultry growers are estimated
to be $24,030,000 in the first year and
$4,536,000 in subsequent years. The
aggregate ten-year combined costs to
LPDs and poultry growers of final
§§ 201.106, 110, and 112 for the small
business exemption alternative are
estimated to be $60,456,000 and the
present value of the ten-year combined
costs are estimated to be $56,063,000
discounted at a two percent rate. The
aggregate annualized costs of the PV of
ten-year costs to LPDs and poultry
growers discounted at a two percent rate
are expected to be $6,241,000. The
aggregate cost estimates of final
§§ 201.106, 110, and 112 under the
small business exemption alternative
presented above appear in the following
table. The quantified costs to the
industry in the first year under the small
business exemption alternative are
$24.030 million.
TABLE 2—ESTIMATED COSTS OF FINAL §§ 201.106, 110, AND 112—SMALL BUSINESS EXEMPTION ALTERNATIVE
Expected cost *
SBE alternative
Live poultry
dealers
§ 201.106:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§ 201.110:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§ 201.112:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§§ 201.106, 110, and 112:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
Poultry
growers
Industry total
$15,801,000
24,593,000
23,426,000
2,608,000
$4,674,000
4,674,000
4,582,000
510,000
$20,474,000
29,267,000
28,008,000
3,118,000
3,269,000
28,327,000
25,485,000
2,837,000
0
0
0
0
3,269,000
28,327,000
25,485,000
2,837,000
53,000
525,000
472,000
53,000
234,000
2,337,000
2,099,000
234,000
286,000
2,862,000
2,571,000
286,000
19,123,000
53,445,000
49,382,000
5,498,000
4,907,000
7,011,000
6,681,000
744,000
24,030,000
60,456,000
56,063,000
6,241,000
* Rows may not sum to Total Costs due to rounding.
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Estimated Costs and Expected-Benefits
of Final §§ 201.106, 110, and 112—
Small Business Exemption Alternative
According to PSD records, only 6.0
percent of poultry growing contracts are
between small LPDs and poultry
growers. Thus, 94 percent of all poultry
growers will receive the benefits of final
§§ 201.106, 110, and 112 under the
small business exemption alternative.
As with the preferred option, net total
costs and benefits to the industry from
§§ 201.106, 110, and 112 under the
small business exemption alternative
cannot be quantified. Thus, AMS cannot
measure any impact or shift in total
industry supply or any corresponding
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indirect effects on industry supply and
demand, including price and quantity
effects.
The tables above indicate that the
small business exemption alternative
would cost the industry less than the
preferred option. Although most
growers contract with large poultry
growers, AMS chose not to accept the
alternative because exempting small
business from complying with the
regulations would also result in less
benefits to growers.
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Estimated Costs and Expected Benefits
of Proposed Rule Alternative
AMS estimated costs for a third
alternative to the ‘‘do nothing’’ option
and the last of four total alternatives
presented. This alternative considers
adopting §§ 201.106, 110, and 112 for all
small and large LPDs as originally
proposed without including the changes
in the final rule. These changes have
already been described in extensively
earlier in the document. The estimation
of costs for the proposed rule alternative
will proceed by describing differences
in costs by major rule section and
combined.
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Costs of § 201.106—Proposed Rule
Alternative
Final § 201.106(a) is unchanged from
§ 201.106 as it was proposed and as it
is analyzed in this alternative. Final
§ 201.106(b), ‘‘Excessive variability,’’
and (c), ‘‘Transition,’’ were not included
in proposed § 201.106. Neither estimates
of direct time costs nor other potential
indirect costs or associated benefits for
these provisions are included for the
proposed rule alternative. Estimated
costs for § 201.106 under the proposed
rule alternative are equal to one-time
direct costs of final § 201.106(a).
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Costs of § 201.110—Proposed Rule
Alternative
Final § 201.110 requires LPDs to
develop, maintain, and comply with a
set of policies and procedures that are
reasonably designed for the design and
operation of a poultry grower ranking
system that is consistent with the duty
of fair comparison. As described in
previous discussion of changes from the
proposed to final rule, final § 201.110(a)
is substantively unchanged from the
proposed rule, text of final
§ 201.110(b)(1) has been simplified from
the proposed rule to improve clarity of
documentation requirements, and
proposed § 201.110(b)(2), ‘‘Compliance
review,’’ has been removed. Two other
provisions of proposed § 201.110
relating to ‘‘Communication and
cooperation’’ and ‘‘Record retention’’
have received paragraph number
redesignations but are otherwise
unchanged. Changes to § 201.110(b)(1)
did not affect the estimation of hours or
of costs and benefits to the rule.
Estimated costs of § 201.110 under the
proposed rule alternative are therefore
equal to estimated direct costs for the
final § 201.110 under the preferred
alternative with costs for proposed
§ 201.110(b)(2) added.
Proposed § 201.110(b)(2), would
require LPDs to conduct a compliance
review of each complex no less than
once every two years to ensure
compliance with policies and
procedures established under proposed
§ 201.110(a) and (b)(1). LPDs would
need to first design a compliance review
system to be used for conducting
written review of compliance by
complex managers, production
supervisors, and field agents.
Compliance reviews would then need to
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be conducted every two years at each
complex.
AMS estimates that the aggregate onetime costs of designing and initiating
the compliance review process would
require 2,208 legal hours, 14,720
management hours, 736 administrative
hours, and 2,392 information
technology hours costing $1,993,000 117
in the first year for LPDs to initially set
up their review and compliance policies
and procedures and initiate their
ongoing compliance review processes.
The ongoing cost for LPDs to conduct
compliance reviews for each complex
every two years has been converted to
an annual cost by dividing the total cost
of conducting reviews on all complexes
in half. This could be consistent with,
for example, a system where each LPD
reviews half of their complexes each
year on a rolling basis or, alternatively,
where a sinking fund deposit is made
each year and used every other year.
AMS estimates that total ongoing annual
costs on the part of LPDs will require
736 legal hours, 7,360 management
hours, 368 administrative hours, and
920 information technology hours to
conduct and document written reviews
of compliance of each complex no less
than once every two years, for an
aggregate annual cost of $919,000.118
Costs of § 201.112—Proposed Rule
Alternative
Text of § 201.112(a) and (b) was
changed from the proposed to final rule
primarily for the purpose of clarification
or to add paragraph titles; these changes
did not affect the estimation of hours or
of costs and benefits to the rule. The
addition of final § 201.112(c),
‘‘Translation,’’ from the proposed to
final rule is also not expected to change
hours or costs because LPDs already
have all necessary information to make
reasonable efforts to assist growers in
translating disclosure documents and
have made it available to growers who
request the information. Accordingly,
AMS did not add any time to its cost
estimates for LPDs to comply with this
new requirement. AMS cost estimates to
117 2,208 legal hours × $139.96 per hour + 14,720
management hours × $96.40 per hour + 736
administrative hours × $49.36 per hour + 2,392
information technology hours × $95.58 per hour =
$1,992,996.
118 736 legal hours × $139.96 per hour + 7,360
management hours × $96.40 per hour + 368
administrative hours × $49.36 per hour + 920
information technology hours × $95.58 per hour =
$918,613.
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LPDs and growers of § 201.112 under
the proposed rule alternative are
identical to those described under the
preferred alternative.
Combined Costs of §§ 201.106, 110, and
112—Proposed Rule Alternative
Aggregate combined costs to LPDs for
§§ 201.106, 110, and 112 for the
proposed rule alternative are expected
to be $14,906,000 in the first year, and
$4,086,000 in subsequent years. The
combined costs for poultry growers are
expected to be $5,223,000 in the first
year, $249,000 in subsequent years.
The aggregate ten-year combined
quantified costs to LPDs of §§ 201.106,
110, and 112 for the proposed rule
alternative are estimated to be
$51,684,000 and the present value of the
ten-year combined costs is $47,314,000
discounted at a two percent rate. The
aggregate annualized costs of the PV of
ten-year costs to LPDs discounted at a
two percent rate are expected to be
$5,267,000.
The aggregate ten-year combined costs
to poultry growers of §§ 201.106, 110,
and 112 for the proposed rule
alternative are estimated to be
$7,461,000 and the present value of the
ten-year combined costs are estimated to
be $7,110,000 discounted at a two
percent rate. The aggregate annualized
costs of the PV of ten-year costs to
poultry growers discounted at a two
percent rate are expected to be
$792,000.
The aggregate combined costs of final
§§ 201.106, 110, and 112 under the
proposed rule alternative for LPDs and
poultry growers are estimated to be
$20,129,000 in the first year and
$4,335,000 in subsequent years. The
aggregate ten-year combined costs to
LPDs and poultry growers of §§ 201.106,
110, and 112 for the proposed rule
alternative are estimated to be
$59,145,000 and the present value of the
ten-year combined costs are estimated to
be $54,425,000 discounted at a two
percent rate. The aggregate annualized
costs of the PV of ten-year costs to LPDs
and poultry growers discounted at a two
percent rate are expected to be
$6,059,000. The aggregate cost estimates
of final §§ 201.106, 110, and 112 under
the proposed rule alternative presented
above appear in the following table. The
quantified costs to the industry in the
first year under the proposed rule
alternative are $20.13 million.
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TABLE 3—ESTIMATED COSTS OF §§ 201.106, 110, AND 112—PROPOSED RULE ALTERNATIVE
Expected cost *
Preferred alternative
Live poultry
dealers
§ 201.106:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§ 201.110:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§ 201.112:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
§§ 201.106, 110, and 112:
First-Year ..............................................................................................................................
Ten-Year Total ......................................................................................................................
PV of Ten-Year Discounted at 2% .......................................................................................
Ten-Year Annualized at 2% .................................................................................................
Poultry
growers
Industry total
$9,106,000
9,106,000
8,928,000
994,000
$4,974,000
4,974,000
4,876,000
543,000
$14,080,000
14,080,000
13,804,000
1,537,000
5,742,000
41,996,000
37,864,000
4,215,000
0
0
0
0
5,742,000
41,996,000
37,864,000
4,215,000
58,000
582,000
523,000
58,000
249,000
2,487,000
2,234,000
249,000
307,000
3,069,000
2,757,000
307,000
14,906,000
51,684,000
47,314,000
5,267,000
5,223,000
7,461,000
7,110,000
792,000
20,129,000
59,145,000
54,425,000
6,059,000
* Rows may not sum to Total Costs due to rounding.
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Estimated Costs and Expected Benefits
of §§ 201.106, 110, and 112—Proposed
Rule Alternative
The expected benefits of proposed
§§ 201.106, 110, and 112 as analyzed in
the proposed rule alternative have been
described in the discussion of benefits
for the preferred option, final
§§ 201.106, 110, and 112, with the
exception of § 201.110(b)(2),
‘‘Compliance review,’’ which was
removed from the proposed to final rule.
Proposed § 201.110(b)(2) would require
a written review of each broiler complex
at least every other year to ensure
compliance with the policies and
procedures developed under this
section. While the proposed rule would
not require that LPD documentation be
distributed to growers, it would be
subject to USDA review to ensure
ongoing maintenance and compliance.
This compliance review requirement
would not provide benefits separate
from those generated by establishing the
duty in § 201.110(a); however,
documentation of regular review of LPD
procedures could assist in ongoing
enforcement of the proposed rule,
thereby increasing the likelihood of
compliance so that benefits of the
proposed rule are realized by growers.
All potential non-quantifiable benefits
and indirect costs of final § 201.106(b)
and (c) are excluded from the proposed
rule alternative. Net total costs and
benefits to the industry from §§ 201.106,
110, and 112 in the proposed rule
alternative cannot be quantified in
relation to the total value of industry
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production. Thus, AMS cannot measure
any impact or shift in total industry
supply or any corresponding indirect
effects on industry supply and demand,
including price and quantity effects.
Comments from the proposed rule
have been discussed and changes to the
final rule have been explained
previously in this regulatory analysis.
Expected benefits and costs of adopting
the proposed rule are presented in this
section as a third regulatory alternative
to final §§ 201.106, 110, and 112.
Estimated direct costs for the final rule
preferred alternative are decreased by
removal of proposed § 201.110(b)(2),
‘‘Compliance review’’ and increased by
the addition of § 201.106(b) and (c). As
a net result of all changes, estimated
direct costs are lower for the proposed
rule alternative in comparison to the
final §§ 201.106, 110, and 112. The
proposed rule alternative also excludes
expected benefits and indirect costs of
§ 201.106(b) and (c). As discussed
previously, commenters on the
proposed rule expressed strong support
for including these provisions. Under
the proposed rule alternative, growers
would be denied protection against
excessive variation in compensation by
establishing 25 percent as a
presumptively unfair percentage of
performance-based pay. Without
protection during the transition period
for implementation of these rule
provisions, growers would be
vulnerable to reductions in
compensation by LPDs.
After considering all four regulatory
alternatives, AMS determined that the
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preferred alternative is the best
alternative.
C. Regulatory Flexibility Act
As part of the regulatory process, a
Regulatory Flexibility Analysis (RFA) is
conducted in order to evaluate the
effects of this final rule on small
businesses.
AMS is adding final §§ 201.106, 110,
and 112 to the regulations under the
Packers and Stockyards Act. The
regulations will establish requirements
for LPDs that produce broilers with
grower ranking contracts. LPDs that
only produce turkeys, ducks, geese, or
other fowl will not be affected. Final
§ 201.106 will require LPDs to develop
and implement new broiler grower
contracts and grower payment systems.
Final § 201.110 will impose a duty on
LPDs that produce broilers to establish
and maintain compliance with written
processes for the design and operation
of poultry growing ranking systems
consistent with a duty of fair
comparison. Final § 201.112 would
require LPDs to produce and distribute
disclosures when they request growers
to make additional capital investments.
Summary of the Final Rule
Final § 201.106 will prevent LPDs
reducing compensation rates based on a
grower’s grouping, ranking, or
comparison to others. All payment
adjustments related to grower
performance will need to be positive
adjustments. LPDs are prevented from
taking deductions based on relative
performance rankings.
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Final § 201.106 will also establish a
presumptive unfairness limitation on
the share of grower payments that an
LPD may determine by a grower’s
grouping, ranking, or comparison to
others. The Secretary will presume that
an LPD is in violation of the Act if a
payment associated with a grower’s
grouping, ranking, or comparison to
others is more than 25 percent of the
total payments to growers in a calendar
year.
Final § 201.106 also creates a
transition period lasting three years after
the regulation becomes effective. During
the transition period, if an LPD reduces
the price per pound, the LPD will be
required to forward to the AMS
Administrator a copy of the prior and
the modified contract and any LPD
Disclosure Document.
Final § 201.110 will require LPDs to
provide for fair comparison among
growers when basing compensation on
a upon a grouping or ranking of growers
delivering during a specified period.
Final § 201.110 also lists factors that the
Secretary will consider in determining
whether the system was designed to
deliver a fair comparison, which
include: whether growers will be
compared to growers supplied with
inputs or assigned production practices
that result in material differences in
performance metrics used in payment
calculations, whether growers will be
compared over appropriate time
periods, whether any non-comparison
payment methods applied are
appropriate, whether the LPD has made
reasonable efforts to timely resolve
concerns a grower raises regarding the
LPD’s design and operation of its
poultry grower ranking system, and any
other factor relevant to a fair
comparison.
Final § 201.110 will further require
that when an LPD uses a poultry grower
ranking system and cannot conduct a
fair comparison for one or more
growers, the LPD must compensate
those growers through an appropriate
non-comparison method specified in the
contract that reflects reasonable
compensation to the grower for its
services.
Final § 201.110 will also require LPDs
to establish and maintain written
documentation of poultry grower
ranking system policies and procedures
for the design and operation of a poultry
grower ranking system that is consistent
with the duty of fair comparison. The
written documentation must include
policies and procedures regarding the
manner in which LPDs will work to
ensure a fair comparison among contract
growers taking into account the
distribution of inputs and assignment of
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production variables that are controlled
by the LPD, any flexibility the LPD has
in performing these comparisons, and
how the LPD resolves concerns
regarding the design and operation of
the poultry grower ranking system by
the LPD.
Final § 201.112 will require LPDs to
provide a Capital Improvement
Disclosure Document any time the LPD
requests or requires existing broiler
chicken growers to make an additional
capital investment that is $12,500 or
more per structure excluding
maintenance or repair. The Capital
Improvement Disclosure Document
must include information about the goal
or purpose of the investment, all
schedules and deadlines for the
investment, a description of changes to
housing specifications, and analysis of
projected returns.
Comments on the Proposed Rule and
Associated Changes to the Final Rule
AMS did not receive comments from
small LPDs. AMS received comments
from trade associations that likely
represent small LPDs, but none of their
comments specifically addressed issues
concerning small LPDs. After
consideration of all the public
comments, AMS chose to adopt the
proposed rule as a final rule with
several modifications. Large LPDs and
trade associations commented that the
regulation would be particularly
challenging if the period of time
allowed for regulated entities to comply
with the provisions is too short.
To allow sufficient time for regulated
entities to comply with the final rule
and avoid excess implementation costs,
AMS is setting the effective date for this
rule at July 1, 2026, which is
approximately 18 months following
publication in the Federal Register.
This extended time frame will not
impact the amount or timing for
estimated costs of the final rule because
regulated entities are expected to incur
costs during the year preceding the
effective date.
Industry trade organizations and large
LPDs commented that the full cost of
implementing the proposed rule would
be far greater than estimated by AMS.
The commenters asserted that AMS
greatly underestimated the costs that
will be required for employing teams
with highly specialized legal and
technical expertise to implement the
proposed rule by modifying or replacing
grower contracts and communicating
changes to growers. Commenters
suggested that AMS did not adequately
consider the total number of hours
needed, but none provided quantified
estimates. Large LPDs also commented
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5207
that hourly rates paid to specialized
industry professionals such as attorneys
should be much higher. Commenters
also suggested that implementation of
the rule would require LPDs to hire and
train additional staff and pull resources
away from other important activities.
For the time that small LPDs would
require to comply with the rule, AMS
consulted auditors and supervisors as
subject matter experts who are familiar
with LPDs and broiler complex
operations from many years of
experience employed with AMS in
auditing LPDs for compliance with the
Act. Small LPDs may need to hire new
staff to implement the changes required
by final §§ 201.106, 110, and 112,
particularly in the first year. Hourly
rates used in cost analysis for the
proposed rule were based on averages
within the agricultural sector as
published and annually updated by the
U.S. Bureau of Labor Statistics.119 AMS
expects that average hourly rates
provide an appropriate benchmark for
estimating industry average costs. While
some LPDs commented that AMS’s
estimates were too low, none of them
recommended a different method of
estimating costs.
In preparation for the final rule AMS
reviewed direct costs with the subject
matter experts. After doing so, AMS
added modest amount of time to
account for the cost of IT work in
preparing disclosures in § 201.112.
AMS received comments from
growers, grower groups, government
agencies, and advocates in support of
additional limitations on grower risk
from excessive variability in
compensation. Based on these
comments, AMS has added provision
§ 201.106(b), which establishes a
presumption that a regulated entity is in
violation of the Act when aggregate
gross annual payments based upon a
grouping, ranking, or comparison of
growers (performance pay) exceed of 25
percent of total gross payments
(including performance and all other
types of grower pay).
AMS added costs for LPDs to
implement and monitor this new
provision, which are discussed and
quantified as direct administrative costs.
Other expected additional benefits and
indirect costs resulting from this new
provision cannot be quantified and are
discussed separately.
AMS also solicited comment in the
proposed rule on whether there was a
need to protect growers against the risk
119 See U.S. Bureau of Labor Statistics, May 2023
National Occupational Employment and Wage
Estimates, May 2023. https://www.bls.gov/oes/
special.requests/oesm23all.zip.
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that LPDs might unfairly reduce broiler
grower total compensation during a
transition period after implementation
of the final rule. Based on comments,
AMS added § 201.106(c), which will
require LPDs to submit copies of the
prior and modified contracts and
disclosures to AMS if average gross
grower payments at a complex show
year-over-year decline following a
contract modification during the three
calendar years commencing with and
including the effective date of the rule.
AMS will review the information
provided by LPDs to identify any
potentially unfair practices related to
broiler grower compensation.
AMS expects that requirements in
final § 201.106(c) will increase direct
administrative costs for LPDs relative to
the proposed rule. Final § 201.106(c)
may increase indirect costs as well, but
AMS does not have sufficient data to
quantify the potential indirect costs or
benefits associated with final
§ 201.106(c).
AMS received comments suggesting
that some of the detailed documentation
requirements under proposed
§ 201.110(b) were similar to existing
documentation requirements and might
create unnecessarily burdensome and
complex paperwork. In response to
these comments, AMS made several
changes to § 201.110(b) in the final rule
that included consolidating and
streamlining the documentation
requirements and removing some
detailed requirements that were
included in the proposed rule. AMS
expects these changes to modestly
reduce the total recordkeeping
requirements or time cost of the
information collection for LPDs, but
AMS is unable to estimate these effects
with certainty. To limit the potential for
underestimating costs, AMS did not
reduce hours and accordingly these
changes did not affect the estimation of
costs or benefits in the final rule relative
to the proposed rule.
The proposed rule included
§ 201.110(b)(2), ‘‘Compliance review,’’
which required LPDs to conduct a
required bi-annual review process. AMS
removed this requirement in response to
comments that self-audits would be
burdensome for LPDs, and that
elimination of this requirement would
not substantially diminish compliance
with § 201.110. Compliance will be
enforced through regular AMS review of
the policies and procedures poultry
dealers are required to establish and
maintain under § 201.110(b). Removing
the compliance reviews reduced costs in
the final rule relative to the proposed
rule.
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Based on comments received, AMS
added a provision at § 201.112(c) to
require that the LPD make reasonable
efforts to ensure that growers are aware
of their right to request translation
assistance and to assist the grower in
translating the Capital Improvement
Disclosure Document. Reasonable
efforts include, but are not limited to,
providing current contact information
for professional translation service
providers, trade associations with
translator resources, relevant
community groups, or any other person
or organization that provides translation
services in the poultry grower’s
geographic area. Reasonable efforts,
depending on the facts and
circumstances (such as convenience,
expense, and timeliness of the
translation), may also include allowing
the grower access to a computergenerated translation of the Disclosure
Document and additional time to review
any translated Disclosure Document.
A similar requirement was established
for LPDs in § 201.102 of the
‘‘Transparency in Poultry Grower
Contracting and Tournaments’’ final
rule.120 As LPDs already have all
necessary information to make
reasonable efforts to assist growers in
translating disclosure documents and
have made it available to growers who
request the information. Similarly, AMS
did not increase grower review time for
the addition of § 201.112 as growers
who require translation assistance
already should be connected with the
resources from § 201.102.
Small Businesses Affected
The Small Business Administration
(SBA) defines small businesses by their
North American Industry Classification
System Codes (NAICS).121 SBA
considers broiler producers small if
sales are less than $3.5 million per year.
LPDs, classified under NAICS 311615,
are considered small businesses if they
have fewer than 1,250 employees.
AMS maintains data on LPDs from the
Annual Reports these firms file with
PSD.122 Currently, 42 LPDs would be
subject to the regulation. Of these, 21
LPDs would be small businesses
according to the SBA standard. In their
fiscal year 2023, LPDs reported that they
had 18,806 production contracts with
120 88
FR 83210, 83301 (Nov. 28, 2023).
CFR 121.201.
122 All LPDs are required to annually file PSD
form 3002 ‘‘Annual Report of Live Poultry Dealers,’’
OMB control number 0581–0308. The Annual
Report form is available to the public at https://
www.ams.usda.gov/sites/default/files/media/
PSP3002.pdf.
121 13
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broiler growers. Small LPDs accounted
for 1,208 contracts (6.0 percent).
Annual Reports from LPDs indicate
they had 20,014 contracts, but a poultry
grower can have more than one contract.
The 2022 Census of Agriculture
indicated that there were 14,144
contract broiler growers in the United
States.123 AMS does not regulate poultry
growers and has no record of the
number of poultry growers that qualify
as small businesses but expects that
nearly all of them are small businesses.
The typical size of broiler grow-out
operations has trended larger from the
early 2000s—when a typical broiler
farm consisted of a 80,000–100,000
square foot operation—to a typical new
farm today which ‘‘may have eight or
more barns of over 30,000 square feet
each on one site.’’ 124 Projected gross
revenue for a newer farm receiving
relatively high performance-based pay
rates is $224,000 for two 36,000 square
foot barns.125 Extrapolating these
projections on a per house basis, gross
revenue for an eight barn 288,000 square
foot operation would total just under
$900,000 and an operation with 30
barns could still remain within the $3.5
million threshold for small business
classification. However, this same study
notes that, ‘‘still, 80,000 to 120,000
square feet of housing for most family
farms is all a single farmer can
successfully operate while limiting
hired labor.’’
Direct Costs of Final §§ 201.106, 110,
and 112
Direct costs of final §§ 201.106, 110,
and 112 to LPDs would primarily
consist of the time required to modify
existing contracts, develop and comply
with new policies, and collect and
distribute it among the growers. Final
§§ 201.106, 110, and 112 would also
cost poultry growers the value of the
time they put into reviewing and
acknowledging receipt of new contracts
and disclosures.
Expected direct costs are estimated as
the total value of the time required by
LPDs to modify existing contracts,
develop and comply with new policies,
123 USDA, NASS. 2023 Census of Agriculture:
United States Summary and State Data. Volume 1,
Part 51. Issued February 2024 Table 42. st99_1_042_
044.pdf (usda.gov).
124 Brothers, D. Goeringer, P. Thompson, J. ‘‘U.S.
Broiler Growers Face Increasing Challenges on the
Family Farm,’’ Choices Magazine, December 2023.
Available online at last accessed 11/6/2024.
125 Alabama A&M & Auburn University Extension
ANR–2932, February 2024. Available online at
last accessed 11/6/2024.
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and collect and distribute required
disclosures that would be required by
final §§ 201.106, 110, and 112 as well as
the time to create and maintain any
necessary additional records. Estimates
of the amount of time required to create
and distribute the disclosure documents
were provided by AMS subject matter
experts. These experts were auditors
and supervisors with many years of
experience in auditing LPDs for
compliance with the Packers and
Stockyards Act. Estimates for the value
of the time are U.S. Bureau of Labor
Statistics Occupational Employment
and Wage Statistics estimate released
May 2023.126 AMS marked up the wages
41.79 percent to account for benefits.
AMS estimated one-time first-year
investment to LPDs of updating grower
contracts and developing new grower
payment systems, including modifying
information systems to include new
calculations as well as filing, and
reporting to comply with § 201.106
would require 2,448 legal hours at
$139.96 per hour costing $342,000,
5,670 hours of management time at
$96.40 per hour costing $547,000, 1,440
hours of administrative time at $49.36
per hour costing $71,000, and 2,160
hours of information technology staff
time at $95.58 per hour costing
$206,000. Aggregate total first-year
setup costs are expected to be
$1,167,000 127 for final § 201.106.128
AMS expects that ongoing aggregate
costs of implementation, maintenance,
monitoring, and compliance with final
§ 201.106 would annually require an
additional 144 legal hours at $139.96
per hour costing $20,000, 540 hours of
management time at $96.40 per hour
costing $52,000, 144 hours of
administrative time at $49.36 per hour
costing $7,000, and 288 hours of
information technology staff time at
$95.58 per hour costing $28,000. Total
aggregate ongoing costs to small LPDs
for final § 201.110 are expected to be
$107,000 annually.129
AMS estimated the total costs of
developing new policies and
procedures, communications plans, and
126 See U.S. Bureau of Labor Statistics, May 2023
National Occupational Employment and Wage
Estimates, May 2023 https://www.bls.gov/oes/
special.requests/oesm23all.zip.
127 2,448 legal hours × $139.96 per hour + 5,670
management hours × $96.40 per hour + 1,140
administrative hours × $49.36 per hour + 2,160
information technology hours × $95.58 per hour =
$1,166,741.
128 Please note throughout the document that
components may not sum exactly to aggregate
amounts due to rounding.
129 144 legal hours × $139.96 per hour + 540
management hours × $96.40 per hour + 144
administrative hours × $49.36 per hour + 288
information technology hours × $95.58 per hour =
$106,845.
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compliance review systems to comply
with final § 201.110 would require a
one-time first-year aggregate investment
of 480 legal hours at $139.96 per hour
costing $67,000, 3,894 hours of
management time at $96.40 per hour
costing $375,000, 228 hours of
administrative time at $49.36 per hour
costing $11,000, and 270 hours of
information technology staff time at
$95.58 per hour costing $26,000. Total
aggregate first-year setup costs are
expected to be $480,000 130 for final
§ 201.110.
AMS expects that ongoing aggregate
costs of implementation, maintenance,
monitoring, and compliance with final
§ 201.110 would annually require an
additional 240 legal hours at $139.96
per hour costing $214,000, 2,856 hours
of management time at $96.40 per hour
costing $95,000, 114 hours of
administrative time at $49.36 per hour
costing $6,000, and 114 hours of
information technology staff time at
$95.58 per hour costing $11,000. Total
aggregate ongoing costs to small LPDs
for final § 201.110 are expected to be
$325,000 annually.131
Proposed § 201.112 would require
LPDs to provide a Capital Improvement
Disclosure Document any time the LPD
requests existing broiler chicken
growers to make an additional capital
investment.132 AMS estimated ongoing
annual costs of final § 201.112 to small
LPDs would require on average an
additional 7 legal hours at $139.96 per
hour costing $1,000, 36 hours of
management time at $96.40 per hour
costing $3,000, 7 hours of
administrative time at $49.36 per hour
costing $400, and 9 hours of information
technology staff time at $95.58 per hour
costing $900. Total aggregate ongoing
costs to small LPDs for final § 201.110
are expected to be $6,000 annually.133
Expected costs of final §§ 201.106,
110, and 112 are associated with
developing, maintaining, updating, and
complying with policies and procedures
that will be implemented at poultry
growing complexes and communicating
changes, and producing and distributing
disclosure documents among contract
growers. AMS expects that firms with
fewer contract types and those that
contract with few growers will have
lower costs. Larger LPDs will tend to
have larger numbers and types of
contracts and will likely have more
costs. Final §§ 201.106 and 201.110 only
concern poultry grower ranking
systems. Smaller LPDs that do not have
grower ranking or tournament contracts
will not have any of the costs associated
with final §§ 201.106 and 201.110. Some
LPDs have few contracts with poultry
growers and raise poultry in their own
facilities. Those dealers will have
relatively lower costs.
AMS does not regulate poultry
growers, and, with the exception of
reviewing and signing contracts that
have been updated by LPDs to meet
requirements of § 201.106 and
acknowledging receipt of Capital
Improvement Disclosure Documents at
the time of capital investment requests,
the final rule imposes no requirements
on poultry growers. To benefit from the
disclosures and to understand the
updated contracts, growers would need
to review the new contracts and
disclosure information provided.
Growers that do not expect a benefit
from reviewing the disclosure
information likely would not review it.
AMS estimates aggregate growers’
costs for reviewing updated contracts
and disclosures associated with final
§§ 201.106 and 201.112 combined to be
$315,000 in the initial year. After an
updated contract has been reviewed and
signed in the first year, AMS expects the
annual aggregate cost for reviewing
disclosures by growers making
additional capital investments would be
$15,000 each year. This amounts to
$400 per grower in the first year. The
table below summarizes costs of final
§§ 201.106, 110, and 112 to small LPDs
and small poultry growers.
130 480 legal hours × $139.96 per hour + 3,894
management hours × $96.40 per hour + 228
administrative hours × $49.36 per hour + 270
information technology hours × $95.58 per hour =
$479,623.
131 240 legal hours × $139.96 per hour + 2,856
management hours × $96.40 per hour + 114
administrative hours × $49.36 per hour + 114
information technology hours × $95.58 per hour =
$325,432.
132 Based on information provided by subject
matter experts, AMS estimates that capital upgrades
would be required at 5% of complexes each year,
triggering creation of a new disclosure document for
approximately 5% of growers annually.
133 7 legal hours × $139.96 per hour + 36
management hours × $96.40 per hour + 7
administrative hours × $49.36 per hour + 9
information technology hours × $95.58 per hour =
$5,694.
Indirect Costs Associated With Final
§§ 201.106, 110, and 112
Final § 201.106 will require all LPDs
involved in broiler production with
tournament or grower ranking contracts
to redesign the way they pay broiler
growers. It is likely that all LPDs will be
required to change their contracts to
make all performance base adjustments
positive adjustments to the base prices.
AMS does not have sufficient data to
determine how many LPDs will need to
change contracts to comply with the
provision capping performance
payments at 25 percent of total
payments at a complex. AMS is aware
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that some firms would currently be in
compliance with a 25 percent cap, and
at least some firms will not.
Any firms that modify existing grower
compensation structures at a complex in
response to this rule could experience
increased production costs if reductions
in performance-based payments relative
to total payments adversely affect
grower performance incentives and
cause growers to produce broilers less
efficiently. In general, the ‘‘tournament’’
system of broiler grower compensation
bases payments to individual growers
on their performance relative to other
growers. Performance payments provide
an incentive for growers to optimize
factors under their control, such as
effort and management, and to some
extent investment (subject to the
concerns highlighted by this rule), to
improve their own relative performance
efficiency and increase income.
Tournament systems have been
described in economic literature as
‘‘particularly economical means to
provide incentive.’’ The strength of
individual performance incentives is
directly related to the size of expected
grower performance payments, which
will be limited by the total amount of
performance-based pay distributed
among all growers. Any firms that
modify existing grower compensation
structures at a complex in response to
this rule by decreasing the relative size
of performance payments available to
growers at a complex might therefore
weaken performance incentives and
could result in reduced grower
efficiency in broiler production.
Given the range of possible outcomes,
AMS is unable to predict effects with
any degree of certainty. For example, if
production efficiency is reduced,
economic principles suggest that cost of
production would increase at the
impacted broiler complex, causing an
inward shift of a firm’s marginal cost
curve and an associated decrease in
broiler production at the impacted
complex. A decrease in production for
a broiler complex would also be likely
to reduce demand for broiler growing
services in the area and could result in
LPDs lowering overall rates of grower
compensation and possibly terminating
some marginal growers.
AMS is not able quantify indirect
costs related to capping performance
payments. However, if the cap has any
significant effect on grower
productivity, it is likely that indirect
costs of capping performance payments
will be considerably larger than the
direct costs that AMS has been able to
estimate.
TABLE 4—ESTIMATED DIRECT COSTS TO SMALL BUSINESSES OF FINAL §§ 201.106, 110, AND 112
Regulated
live poultry
dealers
Type of cost
Final § 201.106:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Final § 201.110:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Final § 201.112:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Proposed §§ 201.106, 110, and 112:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Unregulated
growers
Total *
$1,167,000
56,000
1,722,000
192,000
9,000
$300,000
351
294,000
33,000
38
$1,467,000
NA
2,017,000
225,000
N/A
480,000
23,000
3,074,000
342,000
16,000
0
0
0
0
0
480,000
NA
3,074,000
342,000
NA
6,000
271
51,000
6,000
286
15,000
18
135,000
15,000
18
21,000
NA
186,000
21,000
NA
1,652,000
79,000
4,848,000
540,000
26,000
315,000
369
429,000
48,000
56
1,967,000
NA
5,277,000
587,000
NA
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* Rows may not sum to Total Costs due to rounding.
** Totals do not include indirect costs to associated with possible changes in supply or demand. AMS was not able to estimate indirect costs,
but it is possible that they are larger than the direct costs in the table.
LPDs report net sales in Annual
Reports to AMS. Table 5 below groups
small LPDs’ net sales into quartiles,
reports the average net sales in each
quartile, and compares average net sales
to average expected first-year direct
costs per firm for each of final
§§ 201.106, 110, and 112 and total firstyear direct costs.134 Estimated first-year
direct costs are higher than 10-year
annualized costs, and for the threshold
analysis, first-year costs will be higher
than annualized costs as a percentage of
net sales. Correspondingly, the ratio of
ten-year annualized direct costs to net
sales is lower than their corresponding
first-year cost ratios listed in Table 5. If
estimated costs meet the threshold in
the first year, they will in the following
134 AMS expects that recordkeeping costs will be
correlated with the size of the firms. AMS ranked
live poultry dealers by size and grouped them into
quartiles.
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years as well. AMS is able to perform a
threshold analysis on based on direct
costs. However, AMS was unable to
estimate indirect costs associated with
the final rule include indirect costs.
Estimated first-year direct costs per
firm are less than 1 percent of average
net sales in the three largest quartiles.
Total first-year direct costs as a percent
of net sales are estimated to be about 0.8
percent for the smallest quartile.
However, average first-year cost per
entity in Table 5 is the average cost of
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all of the small businesses. Costs for the
LPDs in smallest quartile will likely be
less than the average for small
businesses.
LPDs do not report to AMS whether
any of their contracts are tournamentstyle contracts but evaluating the
number contracts that LPDs listed in
their Annual Reports to AMS, few of the
LPDs in smallest quartile contracted
with a sufficient number of growers to
implement tournament contracts. It is
unlikely that any of the LPDs in the
smallest quartiles had any tournament
contracts. It is unlikely that several of
the smaller LPDs in the second quartile
had any tournament contracts either.
Since final §§ 201.106 and 201.110
only apply to tournament contracts,
none of the LPDs in the smallest quartile
are likely to incur any costs from final
§§ 201.106 and 201.110. Their costs are
likely only costs associated with final
§ 201.112, which, as percentage of net
sales would be 0.003 percent. Because
the smallest LPDs have fewer contracts
5211
than the other small LPDs, their costs
associated with final § 201.112 are also
likely less than average.
Costs in the threshold analysis do not
include indirect costs, which AMS was
not able to quantify. The size of the
indirect costs is not known, and AMS
cannot state with any confidence that
the total costs associated with final
§§ 201.106, 110, and 112 will be
insignificant for any LPD.
TABLE 5—COMPARISON OF SMALL LIVE POULTRY DEALERS’ NET SALES TO EXPECTED ANNUALIZED DIRECT COSTS OF
FINAL §§ 201.106, 110, AND 112 *
Quartile
(%)
Average net sales
0 to 25% ................................................
25 to 50% ..............................................
50 to 75% ..............................................
75 to 100% ............................................
First-year costs
related to
§ 201.106 as a
percent of net sales
(%)
$10,017,311
34,567,539
92,380,634
226,958,521
First-year costs
related to
§ 201.110 as a
percent of net sales
(%)
0.559
0.162
0.061
0.025
First-year costs
related to
§ 201.112 as a
percent of net sales
(%)
0.230
0.067
0.025
0.010
Total
first-year costs
as a percent of net
sales
(%)
0.003
0.001
0.000
0.000
0.789
0.229
0.086
0.035
* Numbers in the table may not sum to one due to rounding.
** Costs do not include indirect costs to associated with possible changes in supply or demand. AMS was not able to estimate indirect costs, but it is possible
that they are larger than the direct costs in the table.
Direct Cost Associated With an
Alternative §§ 201.106, 110, and 112
AMS also estimated costs of the
original proposed rule as an alternative.
Section 201.106(b) and (c) in the final
rule were not include in the proposed
rule. AMS estimated that alternative
§ 201.106 would require a one-time firstyear investment of 1,728 legal hours at
$139.96 per hour costing $242,000,
2,970 hours of management time at
$96.40 per hour costing $286,000, 720
hours of administrative time at $49.36
per hour costing $36,000, and 720 hours
of information technology staff time at
$95.58 per hour costing $69,000.
Aggregate total first-year setup costs are
expected to be $633,000. AMS does not
expect additional ongoing costs of
implementing final § 201.106 under the
proposed rule alternative.
Under the proposed rule alternative,
§ 201.110(b) includes a section dealing
with compliance reviews. AMS
estimated that alternative § 201.110
would require a one-time first-year
aggregate investment of 696 legal hours
at $139.96 per hour costing $97,000,
5,334 hours of management time at
$96.40 per hour costing $514,000, 300
hours of administrative time at $49.36
per hour costing $15,000, and 504 hours
of information technology staff time at
$95.58 per hour costing $48,000. Total
aggregate first-year setup costs for small
LPDs under the alternative are expected
to be $675,000.
AMS expects alternative § 201.110
would annually require an additional
312 legal hours at $139.96 per hour
costing $44,000, 3,576 hours of
management time at $96.40 per hour
costing $345,000, 150 hours of
administrative time at $49.36 per hour
costing $7,000, and 204 hours of
information technology staff time at
$95.58 per hour costing $19,000. Total
aggregate ongoing costs to small LPDs
for final § 201.110 are expected to be
$415,000 annually.
All sections of § 201.112 were
included under the proposed rule
alternative. AMS estimated that firstyear and ongoing annual costs of final
§ 201.112 to small LPDs would require
on average an additional 7 legal hours
at $139.96 per hour costing $1,000, 36
hours of management time at $96.40 per
hour costing $3,000, 7 hours of
administrative time at $49.36 per hour
costing $400, and 9 hours of information
technology staff time at $95.58 per hour
costing $900. Total aggregate ongoing
costs to small LPDs for final § 201.110
are expected to be $6,000 annually.
The alternative would have a
relatively small effect on costs to
poultry growers on a per grower basis,
and growers will only review the
disclosures if they perceive that they are
beneficial. AMS estimates growers’
aggregate costs for reviewing updated
contracts and disclosures associated
with final §§ 201.106 and 201.112
combined to be $315,000 in the initial
year. AMS expects the annual aggregate
cost to growers making additional
capital investments to be $15,000 each
year. Table 6 below summarizes costs of
alternative §§ 201.106, 110, and 112 to
small LPDs and small poultry growers.
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TABLE 6—ESTIMATED COSTS TO SMALL BUSINESSES OF ALTERNATIVE §§ 201.106, 110, AND 112
Regulated
live poultry
dealers
Type of cost
Final § 201.106:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
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$633,000
30,000
620,000
69,000
3,000
E:\FR\FM\16JAR4.SGM
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Unregulated
growers
$300,000
351
294,000
33,000
38
Total *
$933,000
NA
914,000
102,000
N/A
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TABLE 6—ESTIMATED COSTS TO SMALL BUSINESSES OF ALTERNATIVE §§ 201.106, 110, AND 112—Continued
Regulated
live poultry
dealers
Type of cost
Final § 201.110:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Final § 201.112:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Final §§ 201.106, 110, and 112:
First-year Cost ......................................................................................................................
First-year Cost per Firm .......................................................................................................
PV of Ten-year Cost Discounted at 2% ...............................................................................
Ten-year Cost Annualized at 2% .........................................................................................
Average Ten-Year Cost per Firm Annualized at 2% ...........................................................
Unregulated
growers
Total *
675,000
32,000
3,266,000
364,000
17,000
0
0
0
0
0
675,000
NA
3,266,000
364,000
NA
6,000
271
51,000
6,000
286
15,000
18
135,000
15,000
18
21,000
NA
186,000
21,000
NA
1,313,000
63,000
3,937,000
438,000
21,000
315,000
369
429,000
48,000
56
1,628,000
NA
4,366,000
486,000
NA
* Rows may not sum to Total Costs due to rounding.
Net sales for small LPDs that would
be required to make disclosure under
alternative §§ 201.106, 110, and 112
averaged $91 million for their fiscal year
2023. Expected first-year cost per LPD
would be well below 0.1 percent.135
TABLE 7—COMPARISON OF SMALL LIVE POULTRY DEALERS’ NET SALES TO EXPECTED ANNUALIZED COSTS OF
ALTERNATIVE §§ 201.106, 110, AND 112
ddrumheller on DSK120RN23PROD with RULES4
Quartile
Average net sales
First-year costs
related to
§ 201.106 as a
percent of net sales
(%)
First-year costs
related to
§ 201.110 as a
percent of net sales
(%)
0 to 25% ................................................
25 to 50% ..............................................
50 to 75% ..............................................
75 to 100% ............................................
$10,017,311
34,567,539
92,380,634
226,958,521
Clearly, excluding § 201.110(b)(1)(vi)
and (b)(2) would reduce cost to small
LPDs. AMS prefers final §§ 201.106,
110, and 112 because it reduces the
amount of variation in payments that
broiler growers might receive and
provides protection against lower
contract prices during the transition
period of the first three years following
implementation of the final rule.
If direct costs were the only
consideration, it is likely that final
§§ 201.106, 110, and 112 would not
have a significant economic impact on
a substantial number of small business
LPDs. AMS does not have sufficient
information to make a quantified
estimate of the indirect costs associated
with §§ 201.106, 110, and 112, but the
indirect costs have the potential to be
much larger than the direct costs that
AMS was able to quantify. If indirect
costs are equal to direct costs, total costs
would be about 1.26 percent for LPDs in
the smallest quartile. It is possible that
the indirect costs are considerably larger
than direct costs, in which case larger
LPDs would face significant costs. It is
likely that costs will be significant for a
substantial number of small business
LPDs.
Costs to growers will be limited to the
time required to review and
acknowledge receipt of updated grower
contracts and disclosures. AMS expects
that final §§ 201.106, 110, and 112 will
have effects on a substantial number of
growers. However, the costs will not be
significant for any of them. Because
AMS does not regulate poultry growers,
AMS does not have information
regarding the business sizes of poultry
growers similar to the information it has
concerning LPDs.
Based on the above analyses, it is
unlikely that final §§ 201.106, 110, and
112 will create significant costs for a
substantial number of small business
135 The first-year cost per small live poultry
dealer of $63,000 divided by the average net sales
for all small live poultry dealers of $91 million is
equal to 0.069 percent.
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0.299
0.087
0.032
0.013
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First-year costs
related to
§ 201.112 as a
percent of net sales
(%)
0.319
0.093
0.035
0.014
Total
first-year costs
as a percent of net
sales
(%)
0.003
0.001
0.000
0.000
0.629
0.182
0.068
0.028
broiler growers. AMS was not able to
quantify indirect costs associated with
final §§ 201.106, 110, and 112 but the
rulemaking could cause significant costs
for a substantial number of small LPDs.
D. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C.
chapter 35), AMS requested OMB
approval of the new information
collection and recordkeeping
requirements related to this final rule
when it was proposed in the Federal
Register on June 10, 2024 (89 FR 49002).
The proposed information collection
was for a total of 59,182 hours for the
first year, and 42,682 hours per year
thereafter. The comment period was
open for 60 days and closed on August
9, 2024. Below is a summary of the final
rule’s information collection
requirements, the comments AMS
received relating to the information
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collection requirements of the proposed
rule, and any changes AMS made in
response to the comments. Additional
detail can be found in the Regulatory
Impact Analysis (RIA).
Title: Poultry Growing Tournament
Systems: Fairness and Related
Concerns.
OMB Number: 0581–0346.
Expiration Date of Approval: This is
a NEW collection.
Type of Request: Approval of a New
Information Collection.
Abstract: The information collection
requirements in this request are
essential to improve transparency and
forestall deception and unfairness in the
use of broiler growing arrangements, in
accordance with the purposes of the
Packers and Stockyards Act, 1921. The
revisions to the Packers and Stockyards
regulations would require that live
poultry dealers (LPDs) establish,
maintain, and review written
documentation regarding their processes
for the design and operation of a poultry
grower ranking system that is consistent
with the LPD duty of fair comparison,
provide information through disclosures
to growers when requesting that growers
make additional capital investments,
and submit contract and disclosure
documentation to USDA when contract
modifications result in reduced annual
grower compensation during a
transition period.
Under this final rule, LPDs must
develop and document policies and
procedures for the design and operation
of their tournament system consistent
with the duty of fair grower comparison.
All LPD documentation will be
provided to USDA on request,
maintained for no less than five years,
and used for ongoing internal
compliance activities. The final
rulemaking requires that LPDs provide a
Capital Improvement Disclosure
Document to growers when LPDs
request that growers make additional
capital investments. In addition, for
each of the three years following the
effective date, LPDs will be required to
provide the prior and modified
contracts as well as all related LPD
Disclosure Documents to USDA if any
contract modification or renewal results
in less than the prior annual-calendar
year’s complex-wide average gross
payment to the grower. The estimates
provided below apply only to LPDs
when they are required to provide the
information to growers or create
documentation for internal use and
review. Poultry growers would not be
required to provide information but
would be able to use the information
provided by LPDs to analyze additional
capital investment decisions.
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Broiler Grower Compensation Design
Under § 201.106(c)
Estimate of Burden: Public burden for
this collection of information is
estimated to average 0.01 hours per
response (years two through four), 0
hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents:
42.
Estimated Number of Responses:
20,014.
Estimated Number of Responses per
Respondent: 477.
Estimated Total Annual Burden on
Respondents: 0 hours in the first year,
and 194 hours per year thereafter for
years two through four.
Operation of Broiler Grower Ranking
Systems Under § 201.110(a) and (b)(1)(i)
Through (v)
Estimate of Burden: Public burden for
this collection of information is
estimated to average 193.33 hours per
response (first year), 169.61 hours per
year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents:
42.
Estimated Number of Responses: 184.
Estimated Number of Responses per
Respondent: 4.
Estimated Total Annual Burden on
Respondents: 35,572 hours in the first
year, and 31,208 hours per year
thereafter.
Communication and Cooperation Under
§ 201.110(b)(1)(vi)
Estimate of Burden: Public burden for
this collection of information is
estimated to average 45.00 hours per
response (first year), 16.00 hours per
year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents:
42.
Estimated Number of Responses: 42.
Estimated Number of Responses per
Respondent: 1.
Estimated Total Annual Burden on
Respondents: 1,890 hours in the first
year, and 672 hours per year thereafter.
Broiler Grower Capital Improvement
Disclosure Document Under § 201.112
Estimate of Burden: Public reporting
burden for this collection of information
is estimated to average 0.61 hours per
response (first year), 0.61 hours per year
thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents:
42.
Estimated Number of Responses:
1,001.
Estimated Number of Responses per
Respondent: 24.
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5213
Estimated Total Annual Burden on
Respondents: 607 hours in the first year,
and 607 hours per year thereafter.
AMS estimates that 42 LPDs would
each submit the prior and modified
contracts as well any LPD Disclosure
Documents prepared with respect to
those contracts to AMS as required
under final § 201.106(c). AMS arrived at
its estimate that 477 responses would be
produced per LPD during each of years
two, three, and four following the rule
effective date in complying with the
new requirements during a transition
period following modification and
renewal of broiler growing contracts by
dividing the 20,014 grower contracts
with broiler growers that were reported
by 42 LPDs that filed fiscal year 2023
Annual Reports with AMS. AMS does
not have access to sufficient data and
cannot predict the number of complexes
for which the annual calendar year’s
complex-wide average gross payment to
the grower will be less than the prior
year. Based on information provided by
subject matter experts, AMS estimates
that LPDs would be able to submit the
required documentation for all contracts
to USDA electronically once per year for
a fixed annual time cost per complex.
As a result, the estimate that all LPDs
will provide 477 responses per year in
years two through four therefore likely
overestimates the burden by a
substantial amount given that average
grower payments may not be less than
the prior year at most complexes. AMS
estimates the annual cost of collecting
and submitting required contract
documents in years two through four,
including management, legal,
administrative, and information
technology time, will require an average
0.01 hours each. AMS arrived at the
estimates of the number of hours on an
annual basis to submit required contract
documentation by dividing the number
of hours to collect and submit the
required documents (184 hours in each
of years two through four) by the annual
number of responses for all LPDs
(20,014).
AMS estimates that 42 LPDs would
each establish, maintain, and review
documentation of written processes for
the design and operation of a poultry
grower ranking system that is consistent
with a duty of fair comparison as
required under final § 201.110.136 AMS
arrived at its estimate that four (4)
responses would be produced per LPD
in complying with new requirements for
136 Responses and costs related to final
§ 201.110(b)(1)(vi), ‘‘Communication and
cooperation,’’ are discussed below separately from
the other paragraphs of § 201.110. Costs associated
with final § 201.110(b)(2), ‘‘Record retention,’’ are
included in cost estimates for § 201.110(b)(1).
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poultry grower ranking system fairness
policies and procedures by dividing the
184 broiler plants (or complexes)
indicated in the fiscal year 2023 Annual
Report filed by 42 LPDs with broiler
production.137 AMS estimates first-year
development and production of
§ 201.110 policies and procedures,
including legal, management,
administrative, and information
technology time, would require an
average of 193.33 hours for each
response, while ongoing annual
maintenance, compliance monitoring,
production, and distribution would take
169.61 hours. AMS estimates first-year
development and production of
§ 201.110 policies and procedures,
including legal, management,
administrative, and information
technology time, would require an
average of 193.33 hours for each
response, while ongoing annual
maintenance, compliance monitoring,
production, and distribution would take
169.61 hours. AMS arrived at the
estimates of the number of hours per
response on an annual basis to set up,
produce, distribute, monitor, review,
and maintain § 201.110 policies and
procedures by dividing the total number
of hours required (35,572 first-year
hours and 31,208 ongoing hours) by the
annual number of responses for all LPDs
(184).
AMS estimates that 42 LPDs would
each develop and document one set of
processes that address communication
and cooperation when resolving grower
concerns as required under final
§ 201.110(b)(1)(vi). AMS estimates firstyear set-up and implementation of the
plan, including management, legal,
administrative, and information
technology time, would require
approximately 45.00 hours. AMS
estimates ongoing annual
implementation of communication,
cooperation, and dispute resolution
processes would require an average of
16.00 hours.
AMS estimates each of 42 LPDs
would create and distribute an average
of 24 Broiler Grower Capital
Improvement Disclosure Documents
each year for poultry growers relating to
additional capital investments, as
required under final § 201.112. AMS
arrived at its estimate of 24 developed
disclosure documents per LPD per year
from AMS records which show 42 LPDs
filed fiscal year 2023 Annual Reports
with AMS, and their reports indicate
137 All
live poultry dealers are required to
annually file PSD form 3002 ‘‘Annual Report of
Live Poultry Dealers,’’ OMB control number 0581–
0308. The Annual Report form is available to the
public at https://www.ams.usda.gov/sites/default/
files/media/PSP3002.pdf.
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that they had 20,014 growing contracts
with broiler growers during fiscal year
2023. Based on information provided by
subject matter experts, AMS estimates
that capital upgrades would be required
at 5 percent of complexes each year,
triggering creation of a new disclosure
document for approximately 5 percent
of growers annually. AMS multiplied
the 20,014 growing contracts by 5
percent and divided by the 42 LPDs to
arrive at 24 disclosure documents per
LPD. LPDs would only be required to
provide the Broiler Grower Capital
Improvement Disclosure Document to
growers when requesting or requiring
the grower to make an additional capital
investment. AMS estimates first-year
and ongoing development, production,
and distribution of the disclosure
documents, including management,
legal, administrative, and information
technology time, would require an
average 0.61 hours each. AMS arrived at
the estimates of the number of hours on
an annual basis to set up, produce, and
distribute the Broiler Grower Capital
Improvement Disclosure Documents by
dividing the number of hours to set up,
produce, and distribute the disclosures
(607 first-year and annual ongoing
hours) by the annual number of
responses for all LPDs (1,001).
Under § 201.106(c) LPDs are required
for a period for three years following the
effective date to submit to USDA copies
of the prior and modified contracts and
any LPD Disclosure Documents
prepared under § 201.102 if the annualcalendar year’s complex-wide average
gross payments to growers at a complex
of an LPD is less than the prior annualcalendar year’s complex-wide average
gross payments to growers at the
complex.
Final § 201.110 would require LPDs to
provide a fair comparison among
growers when basing compensation on
a grouping or ranking of growers
delivering during a specified period of
time and would also require LPDs to
document how they comply with that
duty of fair comparison. The policies
and procedures documentation required
under final § 201.110 must describe the
LPD’s processes for the design and
operation of a poultry grower ranking
system for broiler growers that is
consistent with the duty of fair
comparison. The documentation of
processes under final § 201.110, must
also include a plan for communication
and cooperation between the LPD and
growers. LPDs are required to
document, maintain, and comply with
all policies and procedures required
under final § 201.110 on an ongoing
basis and provide them to USDA upon
request. LPDs must retain all written
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records relevant to compliance with
§ 201.110(b) for no less than 5 years
from the date of record creation.
Final § 201.112 would require LPDs to
provide a Broiler Grower Capital
Improvement Disclosure Document any
time the LPD requests existing broiler
chicken growers to make an additional
capital investment ($12,500 or more per
structure excluding maintenance or
repair). The Broiler Grower Capital
Improvement Disclosure Document
must include information about the goal
or purpose of the investment, financial
incentives and compensation for the
grower associated with the additional
capital investment, all schedules and
deadlines for the investment, a
description of changes to housing
specifications, and analysis of projected
returns.
Costs of Final §§ 201.106, 110, and 112
The combined costs to LPDs for
compliance with the recordkeeping and
disclosure requirements of final
§§ 201.106, 110, and 112 are expected to
be $3,807,000 in the first year,
$3,181,000 in years two through four,
and $3,168,000 in subsequent years. The
total hours estimated for the LPDs to
create, produce, distribute, and
maintain these documents are 38,069 in
the first year, 32,671 in in years two
through four, and 32,487 in subsequent
years. As stated previously, the
estimates provided apply only to LPDs
who would be required to provide the
information to growers.
The amount of time required for
recordkeeping and disclosure was
estimated by AMS subject matter
experts. These experts were auditors
and supervisors with many years of
experience in AMS’s Packers and
Stockyards Division (PSD) conducting
investigations and compliance reviews
of regulated entities.
AMS used the May 2023 U.S. Bureau
of Labor Statistics (BLS) Occupational
Employment and Wage Statistics for the
time values in this analysis.138 BLS
estimated an average hourly wage for
general and operations managers in
animal slaughtering and processing to
be $67.99 per hour; $34.81 per hour for
administrative assistants; $67.41 per
hour for IT system managers; and $98.71
per hour for lawyers in food
manufacturing. In applying the cost
estimates, AMS marked-up the wages by
41.79 percent to account for fringe
138 Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage
Statistics, available at https://www.bls.gov/oes/
special-requests/oesm23all.zip (accessed 9/14/
2024). Featured OES Searchable Databases: U.S.
Bureau of Labor Statistics (bls.gov) (accessed
September 2024).
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benefits. The average hourly wage rates,
adjusted to include the 41.79 percent
markup for benefits, are as follows:
$96.40 for managers, $49.36 for
administrative assistants; $95.58 for IT
system managers, and $139.96 for
lawyers.
Comments From the Proposed Rule and
Changes to the Final Rule
After consideration of public
comments, AMS determined to adopt
the proposed rule as a final rule with
several modifications. This section
provides an overview of the comments
made specifically on the costs and
benefits and how the final rule differs
from the proposed rule in that analysis.
Industry trade associations and LPDs
commented that the full cost of
implementing the proposed rule would
be far greater than estimated by AMS.
The commenters asserted that AMS
greatly underestimated the costs that
will be required for employing teams
with highly specialized legal and
technical expertise to implement the
proposed rule by modifying or replacing
grower contracts and communicating
changes to growers. Commenters
suggested that AMS did not adequately
consider the total number of hours
needed, but none provided quantified
estimates. LPDs also commented that
hourly rates paid to specialized industry
professionals such as attorneys should
be much higher. Commenters also
suggested that implementation of the
rule would require LPDs to hire and
train additional staff and pull resources
away from other important activities.
AMS consulted auditors and
supervisors as subject matter experts
who are familiar with LPDs, integrators,
and broiler complex operations from
many years of experience with AMS in
auditing LPDs for compliance with the
Act. The final rule provides an extended
period of approximately 18 months
following publication in the Federal
Register before the effective date, to
permit sufficient time for
implementation. Hourly rates used in
cost analysis for the proposed rule were
based on averages for legal,
management, administrative, and
information technology labor categories
specifically within the agricultural
sector as published and annually
updated by the U.S. Bureau of Labor
Statistics. Although the largest
corporations likely employ lawyers and
other specialists at hourly rates much
higher than the national average,
contract development and review efforts
at those companies are spread across
many complexes. AMS expects that
average hourly rates provide an
appropriate benchmark for estimating
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industry average costs. After further
discussion with subject matter experts,
AMS added a modest amount of time to
account for the cost of information
technology work in preparing § 201.112
disclosures. AMS subject matter experts
confirmed that all other costs from the
proposed rule are accurate estimates
and accordingly, AMS made no other
changes to the information collection
requirements of the rule based on this
comment.
AMS also received comments on the
proposed rule in support of adding
measures to protect growers against the
risk that LPDs might unfairly reduce
broiler grower total compensation
during a transition period after
implementation of the final rule. Based
on comments received, AMS added
§ 201.106(c), which will require LPDs to
submit copies of the prior and modified
contracts and disclosures to AMS if
average gross grower payments at a
complex show year-over-year decline
following a contract modification during
the three calendar years commencing
with and including the effective date of
the rule. AMS will review the
information provided by LPDs to
identify any potentially unfair practices
related to broiler grower compensation.
AMS consulted with its internal subject
matter experts and added direct
information collection costs for LPDs to
comply with this provision during the
three-year period.
AMS also received comments
suggesting that some of the detailed
documentation requirements of
proposed § 201.110(b) were similar to
existing P&S documentation and
disclosure requirements and might
create unnecessarily burdensome and
complex paperwork that could burden
service technicians at broiler complexes
and keep them from other important
responsibilities such as assisting
growers. In response to these comments,
AMS made several changes to
§ 201.110(b) in the final rule that
included consolidating and streamlining
the documentation requirements and
removing some detailed requirements
delineated under subparagraphs in the
proposed rule. AMS expects that these
changes in final § 201.110(b) will add
clarity and minimize potential
confusion about the documentation
requirements, thereby making them
more effective. AMS expects these
changes will somewhat reduce total
recordkeeping requirements for LPDs.
Based on consultation with internal
subject matter experts, AMS determined
that the precise amount of time savings
is difficult to estimate. AMS therefore
chose a cautious approach to avoid
underestimating costs and did not
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5215
reduce the total recordkeeping
requirements or the time cost of the
information collection for LPDs.
Accordingly, these changes did not
affect the estimation of costs or benefits
in the final rule.
The proposed rule included
§ 201.110(b)(2), ‘‘Compliance review,’’
which required LPDs to conduct a
required bi-annual review of the
processes set out in § 201.110(b)(1).
AMS removed this requirement from the
final rule in response to comments that
self-audits would be burdensome for
LPDs, and that elimination of this
requirement would not substantially
diminish effective compliance with
§ 201.110. Compliance will be enforced
through regular AMS review of the
policies and procedures LPDs are
required to establish and maintain
under § 201.110(b). Accordingly,
removal of § 201.110(b)(2) eliminated
the burden of compliance review on
LPDs and reduced costs from the
proposed to the final rule by the cost
estimate in the proposed rule for that
provision.
Based on comments received, AMS
added a provision at § 201.112(c) to
require that the LPD make reasonable
efforts to ensure that growers are aware
of their right to request translation
assistance and to assist the grower in
translating the Broiler Grower Capital
Improvement Disclosure Document.
Reasonable efforts include, but are not
limited to, providing current contact
information for professional translation
service providers, trade associations
with translator resources, relevant
community groups, or any other person
or organization that provides translation
services in the poultry grower’s
geographic area. Reasonable efforts,
depending on the facts and
circumstances (such as convenience,
expense, and timeliness of the
translation), may also include allowing
the grower access to a computergenerated translation of the Disclosure
Document and additional time to review
any translated Disclosure Document. A
similar requirement was established for
LPDs in § 201.102(g)(4). As LPDs
already have all necessary information
to make reasonable efforts to assist
growers in translating disclosure
documents and have made it available
to growers who request the information,
AMS did not add any time to its
information collection cost estimates for
LPDs to comply with this new
requirement.
E. Executive Order 12988—Civil Justice
Reform
Executive Order 12988 instructs each
executive agency to adhere to certain
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requirements in the development of new
and revised regulations to avoid unduly
burdening the court system. This rule
has been reviewed under Executive
Order 12988 and complies with these
requirements. This rule is not intended
to have retroactive effect. This rule
would not preempt state or local laws,
regulations, or policies, unless they
present an irreconcilable conflict with
this rulemaking. There are no
administrative procedures that must be
exhausted prior to any judicial
challenge to the provisions of this rule.
Nothing in this rule is intended to
interfere with a person’s right to enforce
liability against any person subject to
the Act under authority granted in
section 308 of the Act.
F. 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
rulemaking also under the Act
(Inclusive Competition and Market
Integrity Under the Packers and
Stockyards Act (87 FR 60010, October 3,
2022)) 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 final rule. This final
rule provides additional standards for
individual LPDs or growers, and AMS
does not find that this rule carries
substantial direct effects on one or more
Indian Tribes beyond the purely legal
issue raised during consultation.
AMS recognizes and supports the
Secretary’s desire to incorporate Tribal
and Indigenous perspectives, remove
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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.
G. Civil Rights Impact Analysis
Statement
AMS has considered the potential
civil rights implications of this final 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, religion, sex,
gender identity (including gender
expression), sexual orientation,
disability, age, marital status, family/
parental status, income derived from a
public assistance program, political
beliefs, reprisal or retaliation for prior
civil rights activity, in any program or
activity conducted or funded by USDA.
This final 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
disparate impact analysis, using the
required calculations, which resulted in
a finding that Asians and Native
Hawaiian or Other Pacific Islanders
could be disproportionately impacted
by the rule, insofar as fewer farmers in
those groups participate in poultry
production than would be expected by
their representation among U.S. farmers
in general and therefore are less likely
to benefit, as a whole, from the
protections provided by this rule.139
However, the regulations would provide
benefits equally to all individual poultry
growers across demographic
characteristics, with some demographic
groups being more or less represented
among poultry growers. AMS will
enhance efforts to notify the groups
found to be more significantly impacted
of the regulations and their
implications. AMS will conduct
mitigation and monitoring strategies and
139 Among Asian and Native Hawaiian or Other
Pacific Islander growers, a smaller percent
participates in livestock or poultry agriculture
(animal agriculture) than in other types of
agriculture. A larger percent of American Indian or
Alaskan Native growers participates in animal
agriculture than in other types of agriculture. The
other demographic groups’ participation in animal
agriculture tended to fall within 10 percentage
points of their participation in agriculture overall.
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reach out to several organizations that
represent the interests of the impacted
groups.
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 rule. This rule will
not compel the expenditure in any one
year of $100 million or more (adjusted
for inflation) by State, local, and Tribal
governments, in the aggregate, or by the
private sector. Therefore, a statement
under 2 U.S.C. 1532 is not required.
J. Congressional Review Act
Pursuant to subtitle E of the Small
Business Regulatory Enforcement
Fairness Act of 1996 (also known as the
Congressional Review Act, 5 U.S.C. 801
et seq.), OMB’s Office of Information
and Regulatory Affairs has determined
that this rule does not meet the criteria
set forth in 5 U.S.C. 804(2).
List of Subjects in 9 CFR Part 201
Confidential business information,
Reporting and recordkeeping
requirements, Stockyards, Surety bonds,
Trade practices.
For the reasons stated in the
preamble, AMS amends 9 CFR part 201
as follows:
PART 201—ADMINISTERING THE
PACKERS AND STOCKYARDS ACT
1. The authority citation for part 201
continues to read as follows:
■
Authority: 7 U.S.C. 181–229c.
2. Add § 201.106 to subpart N to read
as follows:
■
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§ 201.106
design.
Broiler grower compensation
(a) Rate transparency. When a broiler
growing arrangement between the live
poultry dealer and the broiler grower
compensates the grower based upon a
grouping, ranking, or comparison of
growers delivering poultry during a
specified period, the live poultry dealer
may not use the grower’s grouping,
ranking, or comparison to others to
reduce any rate of compensation under
the broiler growing arrangement.
(b) Excessive variability. The
Secretary presumes that a live poultry
dealer violates the Act when aggregate
gross annual payments based upon a
grouping, ranking, or comparison of
growers exceed 25 percent of total gross
payments to growers in a complex on an
annual-calendar year basis.
(c) Transition. For modified or
renewed broiler growing arrangements
subject to paragraph (a) of this section,
for each of the three calendar years
commencing with and including the
year this section becomes effective, if
the annual-calendar year’s complexwide average gross payments to growers
at a complex of a live poultry dealer is
less than the prior annual-calendar
year’s complex-wide average gross
payments to growers at the complex, the
live poultry dealer must submit to the
Secretary the following:
(1) A copy of the prior broiler growing
arrangement and the modified or
renewed growing arrangement; and
(2) Any Live Poultry Dealer
Disclosure Document prepared under
§ 201.102 with respect to the prior
broiler growing arrangement and the
modified or renewed broiler growing
arrangement for the growers at the
complex.
■ 3. Add § 201.110 to subpart N to read
as follows:
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§ 201.110 Operation of broiler grower
ranking systems.
(a) Fair comparison.—(1) Duty of fair
comparison. Live poultry dealers
providing compensation to broiler
growers based upon a grouping, ranking,
or comparison of growers delivering
poultry must design and operate their
poultry grower ranking system to
provide a fair comparison among
growers.
(2) Fair comparison factors. In
determining whether the live poultry
dealer reasonably designed or operated
its poultry grower ranking system to
deliver a fair comparison among
growers or whether the live poultry
dealer must utilize a non-comparison
compensation method, the Secretary
shall consider the following:
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(i) Whether the distribution of inputs
by the live poultry dealer causes
material differences in performance, and
whether appropriate adjustments to
grower compensation will be made.
(ii) Whether the assignment of flock
production practices by the live poultry
dealer causes material differences in
performance, and whether appropriate
adjustments to grower compensation
will be made.
(iii) Whether the designated time
period used in the live poultry dealer’s
comparison is appropriate, including
whether the live poultry dealer uses one
or more groupings, rankings, or
comparisons of growers to mitigate the
effects of any differences in inputs over
the designated time period.
(iv) Whether conditions and
circumstances outside the control of the
live poultry dealer render comparison
impractical or inappropriate.
(v) Whether the live poultry dealer
has made reasonable efforts to timely
resolve concerns a grower raises
regarding the live poultry dealer’s
design and operation of its poultry
grower ranking system to deliver a fair
comparison among growers.
(vi) Any other factor relevant to a fair
comparison.
(3) Non-comparison compensation
method. When a live poultry dealer uses
a poultry grower ranking system and
cannot conduct a fair comparison for
one or more growers, the live poultry
dealer must compensate those growers
through a non-comparison method
specified in the contract that reflects
reasonable compensation to the grower
for its services.
(b) Documentation.—(1) Policies and
procedures. A live poultry dealer must
establish and maintain written
documentation of its processes for the
design and operation of a poultry
grower ranking system for broiler
growers that is consistent with the duty
of fair comparison. The written
documentation must include the
following:
(i) Inputs under live poultry dealer
control. How and when the live poultry
dealer assigns, adjusts, or otherwise
accounts for similarities and differences
of quality and quantity in the delivery
of inputs to growers.
(ii) Flock production practices. How
and when the live poultry dealer
assigns, adjusts, or otherwise accounts
for differences in production practices.
(iii) League composition. How the
dealer determines groupings of growers
for settlement.
(iv) Evaluation period. A reasonable
time period over which the dealer
evaluates the duty of fair comparison.
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(v) Non-comparison. When a live
poultry dealer may remove growers
from a ranking group, and how the live
poultry dealer compensates the growers
to satisfy the non-comparison
compensation method under paragraph
(a)(3) of this section.
(vi) Communication and cooperation.
How the live poultry dealer resolves a
grower’s concerns with the design or
operation of a poultry grower ranking
system for broiler growers that is
consistent with the duty of fair
comparison, including the timeliness of
the resolution.
(2) Record retention. The live poultry
dealer must retain all written records
relevant to its compliance with this
paragraph (b) for no less than 5 years
from the date of record creation.
■ 4. Add § 201.112 to subpart N to read
as follows:
§ 201.112 Broiler grower Capital
Improvement Disclosure Document.
(a) Disclosure requirement. When a
live poultry dealer requests that a
broiler grower make an additional
capital investment, the live poultry
dealer must provide the broiler grower
with a Capital Improvement Disclosure
Document, as described in paragraph (b)
of this section.
(b) Disclosure contents. The Capital
Improvement Disclosure Document
must disclose the following in a clear,
concise, and understandable manner:
(1) The purpose of the additional
capital investment for both the live
poultry dealer and the grower, and a
summary of all research and other
supporting material that the live poultry
dealer has relied upon in justifying the
additional capital investment.
(2) All financial incentives and
compensation for the grower associated
with the additional capital investment.
(3) All construction schedules related
to the request for additional capital
investment.
(4) The housing specifications
associated with the additional capital
investment.
(5) Any required or approved
manufacturers or vendors, and all
financial benefits, if any, that the live
poultry dealer or any officer, director,
decision-making employee, or close
family member of any such person,
receives from the use of the required or
approved manufacturer or vendor.
(6) An analysis of projected returns
the grower can expect related to the
additional capital investment, including
any assumptions, risks, or uncertainties,
sufficient to allow the grower to make
their own projections.
(7) This statement that ‘‘USDA has not
verified the information contained in
E:\FR\FM\16JAR4.SGM
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ddrumheller on DSK120RN23PROD with RULES4
this document. If this disclosure by the
live poultry dealer contains any false or
misleading statement or a material
omission, a violation of Federal and/or
State law may have occurred. Violations
of Federal and State laws may be
determined to be unfair, unjustly
discriminatory, or deceptive and
unlawful under the Packers and
Stockyards Act, as amended. You may
file a complaint at farmerfairness.gov or
call 1–833–DIAL–PSD (1–833–342–
5773) if you suspect a violation of the
Packers and Stockyards Act or any other
Federal law governing fair and
competitive marketing, including
contract growing, of livestock and
VerDate Sep<11>2014
21:38 Jan 15, 2025
Jkt 265001
poultry. Additional information on
rights and responsibilities under the
Packers and Stockyards Act may be
found at www.ams.usda.gov.’’
(c) Translation. Upon delivery to the
grower, the live poultry dealer must
make reasonable efforts to ensure that
growers are aware of their right to
request translation assistance and to
assist the grower in translating the
Capital Improvement Disclosure
Document.
■ 5. Add § 201.290 to subpart N to read
as follows:
§ 201.290
Frm 00074
Fmt 4701
Sfmt 9990
Erin Morris,
Associate Administrator, Agricultural
Marketing Service.
[FR Doc. 2025–00508 Filed 1–15–25; 8:45 am]
Severability.
If any provision of this subpart or any
component of any provision is declared
PO 00000
invalid, or the applicability thereof to
any person or circumstances is held
invalid, it is the Agricultural Marketing
Service’s intention that the validity of
the remainder of this subpart or the
applicability thereof to other persons or
circumstances shall not be affected
thereby with the remaining provision, or
component of any provision, to
continue in effect.
BILLING CODE P
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Agencies
[Federal Register Volume 90, Number 10 (Thursday, January 16, 2025)]
[Rules and Regulations]
[Pages 5146-5218]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-00508]
[[Page 5145]]
Vol. 90
Thursday,
No. 10
January 16, 2025
Part VI
Department of Agriculture
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Agricultural Marketing Service
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9 CFR Part 201
Poultry Grower Payment Systems and Capital Improvement Systems; Final
Rule
Federal Register / Vol. 90, No. 10 / Thursday, January 16, 2025 /
Rules and Regulations
[[Page 5146]]
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DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
9 CFR Part 201
[Doc. No. AMS-FTPP-22-0046]
RIN 0581-AE18
Poultry Grower Payment Systems and Capital Improvement Systems
AGENCY: Agricultural Marketing Service, U.S. Department of Agriculture.
ACTION: Final rule.
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SUMMARY: This final rule by the United States Department of
Agriculture's (USDA or the Department) Agricultural Marketing Service
(AMS or the Agency) amends the Agency's regulations under the Packers
and Stockyards Act, 1921 (P&S Act or Act). The Act protects fair trade,
financial integrity, and competitive markets for poultry. The final
rule prohibits certain payment practices under poultry grower ranking
systems (commonly known as tournaments) in contract poultry production
for broiler chickens, requires live poultry dealers (LPDs) to adopt
policies and procedures for operating a fair ranking system for broiler
growers, and requires LPDs to provide certain information to broiler
growers when the LPD requests or requires the grower to make additional
capital investments. These regulations will increase transparency and
address deception and unfairness in broiler grower payments, tournament
operations, and capital improvement systems.
DATES: This rule is effective July 1, 2026.
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: usda.gov">s.brett.offutt@usda.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Executive Summary
II. Background
III. Summary of the Proposed Rule and Changes in the Final Rule
IV. Provisions of the Final Rule
V. Comment Analysis
VI. Regulatory Analysis
I. Executive Summary
The current broiler chicken industry is highly susceptible to both
unfairness and deception. Within the last 40 years, the poultry
industry has become highly integrated, with most LPDs operating as
``integrators'' who frequently own or control all segments of the
production process except growout. The growout stage of the production
process consists of growers raising young poultry to harvest size under
poultry growing arrangements (contracts). To pay the grower, most LPDs,
which will also be referred to as ``integrators'' throughout this rule,
use a relative performance or poultry grower ranking system, commonly
known as a tournament. Under the tournament system, poultry growers
compete against one another to determine payment for their services. As
discussed throughout this rule, growers cannot reasonably avoid certain
practices that cause them harm. Additionally, growers lack access to
certain information, which inhibits their ability to meaningfully
understand, negotiate, and enforce poultry growing contracts with LPDs,
including in relation to capital investments that LPDs request.
The Packers and Stockyards Act, 1921, as amended (P&S Act or the
Act) (7 U.S.C. 181 et seq.), authorizes USDA to issue regulations and
orders to prohibit unfair and deceptive practices by LPDs.
In a June 8, 2022, advance notice of proposed rulemaking (ANPR),
AMS sought comments and information to inform policy development and
future rulemaking regarding the use of poultry grower ranking systems
(87 FR 34814, June 8, 2022)). Commenters expressed both support and
concern about the use of tournaments in poultry production, with the
majority expressing support. Other commenters, especially advocacy
associations, objected to the current tournament payment system,
stating that tournament systems do not fulfill the integrators' claimed
purposes and that the tournament payment systems exemplify the
manipulative and unjust practices that Congress designed the Act to
prevent. These commenters cited integrators' arbitrary, unjust, or
punitive distribution of inputs and production variables, potentially
punitive manipulation of the group composition, and penalties for small
deviations below average performance. Some of these ANPR commenters
also stated that the rulemaking could help address bargaining power
imbalances for growers by providing proper enforcement, minimum base
pay, and other provisions.
Trade organizations commented on the ways input variability affects
pay and that LPDs lack incentives to take action to reduce
unpredictability in grower inputs and pay outcomes. AMS has observed
that monitoring and intervention to remedy unpredictability requires an
LPD to expend effort and incur cost, and that the LPD does not directly
benefit from the increased fairness to growers. Without an explicit
prohibition on unfair variability, LPDs lack compelling incentives to
operate their tournament system contracts fairly. Comments in response
to the ANPR, other available data and information, and AMS's Packers
and Stockyards Division's (PSD) expertise provided the basis for a
proposed rulemaking.
On June 10, 2024, AMS published the proposed rule, Poultry Grower
Payment Systems and Capital Improvement Systems, in the Federal
Register (89 FR 49002). In response to the proposed rule, AMS posted
755 comments, some with multiple signatories, over a 60-day comment
period. Comments were submitted by a variety of stakeholders, including
farmers' coalitions, government entities, advocacy organizations,
industry trade organizations, processors, producers, and other
individual interested parties. Stakeholders commented on the proposed
rule, as well as several specific questions containing alternate
proposals. The proposed rule covered, among other things, rate of
compensation for growers, transition and implementation costs, the
proposed duty of fair comparison, and reasonable recoupment for
required additional capital investments. Farmers' coalitions, advocacy
associations, government entities, and unaffiliated individual
commenters broadly supported the proposed rule, while the regulated
trade organizations and LPDs opposed the proposed rule. Live poultry
growers both supported and opposed the proposed rule. Many growers who
support the rule raised concerns of unfairness within the tournament
system, including that pay rates are influenced by factors outside
growers' control, that growers are forced to make new capital
investments that have poor to nonexistent return while putting growers
in more debt, and that growers must compete against fellow growers in
an unfair manner. Those growers who opposed the proposed rule felt that
the tournament system does a good job of rewarding effort, and that the
rule would upset this system by shifting money away from high-
performing growers and by reducing overall bird quality. However,
several growers that opposed the rule expressed concern that LPDs force
growers to make additional capital investments that do not produce an
economic return for the grower.
Section 407(a) of the P&S Act (7 U.S.C. 228(a)) authorizes the
Secretary of Agriculture (the Secretary) to make rules and regulations
as necessary to
[[Page 5147]]
carry out the provisions of the Act (7 U.S.C. 181 et seq.), and the
Secretary has delegated the responsibility for administering the Act to
AMS. See 7 CFR 2.22(a)(3)(iii) (delegating authority to administer the
Act from the Secretary to the Under Secretary for Marketing and
Regulatory Programs); 7 CFR 2.79(a)(17) (in turn, delegating authority
to administer the Act from the Under Secretary to the Administrator,
Agriculture Marketing Service). Under this authority, AMS issues this
rule to carry out the provisions of section 407 of the Act, as well as
provisions of sections 202(a) (7 U.S.C. 192(a)) (which prohibits ``any
unfair, unjustly discriminatory, or deceptive practice or device''),
401 (7 U.S.C. 221) (which requires an LPD to ``keep such accounts,
records, and memoranda as fully and correctly disclose all transactions
involved in his business''), and 410 (7 U.S.C. 228b) (which bans the
failure to pay ``the full amount due [to the] poultry grower on account
of such poultry'').
In this final rule, AMS amends 9 CFR part 201, subpart N, by adding
several new provisions, including: Sec. 201.106 regarding LPD
responsibilities for the design of broiler grower compensation
arrangements; Sec. 201.110 regarding the fair operation of broiler
grower ranking systems; Sec. 201.112 regarding disclosure requirements
for LPDs when requesting additional capital investments from broiler
growers; and Sec. 201.290 regarding severability. In particular, the
Agency is:
Prohibiting LPDs from discounting or reducing a grower's
rate of compensation as disclosed in the broiler growing arrangement
based on the grower's grouping, ranking, or comparison to others (Sec.
201.106(a)).
Establishing that it is a presumptive violation of the Act
when aggregate gross annual payments based upon a grouping, ranking, or
comparison of growers exceeds 25 percent of total gross payments to
growers in a complex on an annual-calendar year basis (Sec.
201.106(b)).
For each of the three calendar years following the
publication date of the above-referenced provisions, requiring LPDs to
submit certain documentation to the Secretary when any contract
modification or renewal subject to the prohibition on discounts results
in a decrease in the prior annual-calendar year's complex-wide average
gross payment to the grower (Sec. 201.106(c)).
Establishing a duty of fair comparison that requires LPDs
to design and operate their broiler grower ranking system to provide a
fair comparison among growers, with particular attention to certain
factors in the methods of comparison, including the distribution of
inputs and flock production practices, the time period of the
comparison, the conditions and circumstances for the comparison, the
reasonableness of efforts to resolve disputes, and how the LPD will
compensate growers when the LPD cannot conduct a fair comparison (Sec.
201.110(a)).
Requiring LPDs to establish and maintain written
documentation of their processes for the design and operation of a
broiler grower ranking system that is consistent with the duty of fair
comparison and to retain all relevant written records for five years
(Sec. 201.110(b)).
Requiring LPDs to provide growers with a Capital
Improvement Disclosure Document when an LPD requests that a grower make
an additional capital investment and requiring that LPDs make
reasonable efforts to assist the grower in translating the document, as
well as ensure that the grower is aware of their right to request
translation assistance (Sec. 201.112).
Introducing a severability clause that specifies that it
is USDA's intent that the provisions in subpart N remain in effect even
if any provision or component of any provision is deemed unenforceable
(Sec. 201.290).
II. Background
A. Vertical Integration and Market Power
Today, the broiler chicken industry is highly vertically
integrated. That is, a single entity owns or controls nearly all the
steps of production and distribution, with the only partial exception
being the growout stage, during which broiler growers raise chicks on
their farms to slaughter weight. The USDA National Agricultural
Statistics Service's (NASS) Census of Agriculture (Agricultural Census)
reported that 96.2 percent of broilers were raised and delivered under
production contracts between LPDs and independent farmers, or broiler
growers.\1\ Under a production contract, the LPD provides the grower
chicks, feed, and veterinary treatment services, which the grower uses
to grow out the flock. The LPD maintains ownership of the chickens
throughout the production process. The grower provides the poultry
growing facility, flock management, labor, and utilities required
during flock growout.\2\ At the end of growout, the LPD collects and
weighs the mature poultry and pays the broiler grower for their
services.
---------------------------------------------------------------------------
\1\ USDA, NASS, 2022 Census of Agriculture: United States
Summary and State Data, volume1, part 51, issued February 2024 pp.
51 and 411. https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
\2\ Growout period is defined as the period of time between
placement of poultry at a grower's facility and the harvest or
delivery of such animals for slaughter, during which the feeding and
care of such poultry are under the control of the grower.
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To grow broiler chickens on a commercial scale, a grower must make
a substantial initial investment in housing. Over time, LPDs may
request or require that growers make additional capital investments to
upgrade housing and equipment, which are intended to improve efficiency
or respond to customer preferences (e.g., relating to the use of
antibiotics or other animal-raising concerns) during the contracting
relationship. Growers generally finance these long-term assets against
much shorter-term production contracts.\3\ This exposes growers to
financial risk and uncertainty around debt repayment and the recoupment
of their investments. For example, compared to other commodity
producers, broiler growers registered among the highest share of farms
in extreme financial stress, measured as carrying a term debt coverage
ratio less than one and a debt-to-asset ratio greater than 55
percent.\4\ Growers are thus dependent on LPDs--who control most
aspects of a grower's production--to recoup their substantial initial
and continuing investments.\5\ Growers also currently receive little to
no information about the purpose, process, and outcomes expected around
such investments.
---------------------------------------------------------------------------
\3\ MacDonald, James M. ``Financial Risks and Incomes in
Contract Broiler Production.'' Amber Waves August 04, 2014. https://www.ers.usda.gov/amber-waves/2014/august/financial-risks-and-incomes-in-contract-broiler-production/ (last accessed 12/13/2023).
\4\ Nigel Key, Christopher Burns, and Greg Lyons, ``Financial
Conditions in the U.S. Agricultural Sector: Historical
Comparisons,'' EIB-211, U.S. Department of Agriculture, Economic
Research Service (2019), https://www.ers.usda.gov/webdocs/publications/95238/eib-211.pdf?v=4876.5 (In 2017, compared to other
commodity categories considered, poultry farms showed the greatest
share of farms in extreme financial stress--around four times that
of larger-scale general livestock and specialty crop, fruit, nut,
and vegetable producers and twice that of large-scale grain and
oilseed producers. Moreover, the percentage of poultry farmers in
extreme financial stress has been increasing since 2006).
\5\ For a discussion the difficulty in adapting of broiler grow
houses for other purposes see Tom Vukina and Porametr Leegomonchai.
``Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from
the Broiler Industry.'' American Journal of Agricultural Economics
88 (2006).
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Currently, most LPDs operate with the benefit of substantial market
power and bargaining power in local markets to purchase grower
services. Broiler grower operations must be close (usually less than 50
miles) to an LPD's
[[Page 5148]]
feed mills, hatcheries, and processing plants due to the costs of
transporting feed to the grower's farm and the costs (including death
loss) associated with transporting finished chickens from the grower's
farm to the processing plant. This results in poultry production that
is often localized and regionally concentrated. Most growers have few
LPDs in their area with whom they can contract. Even where multiple
LPDs are present, there can be significant costs associated with
switching to a different LPD, including adjustments for differences in
technical specifications that LPDs may require. To switch LPDs, a
grower may need to invest in new equipment and learn to apply different
operational techniques for different breeds, target weights, and
growout programs. Facility-specific investments may inhibit the ability
of growers to switch to a competing LPD where different facility
specifications are required. Growers have recently complained of at
least one LPD penalizing growers that are trying to switch to an LPD's
competition. AMS referred the complaint to the Department of Justice
for enforcement under the Packers and Stockyards Act. The Department
secured a consent decree that stopped the conduct, prohibited its
recurrence, and compensated the harmed growers.\6\
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\6\ Final Judgment, United States v. Koch Foods, Inc., No. 23-
cv-15813, Dkt. No. 23 (N.D. III. Feb. 12, 2024). See also,
Zimmerman, Sarah, ``Department of Justice, ``Justice Department
Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods
from Imposing Unfair and Anticompetitive Termination Penalties in
Contracts with Chicken Growers,'' https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing.
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Owing to the vertical integration in the system, LPDs exercise
substantial control over growers' operations through the provision of
inputs, control over production practices, their tournament settlement
and comparison practices, and their level of performance in relation to
communication and dispute resolution. In this rule, AMS uses the term
``inputs'' to mean resources supplied by LPDs, such as chicks or feed.
Inputs often vary among growers, which impacts the growers' flock
performance, thereby unfairly skewing relative performance measures.
Likewise, LPDs determine production practices on growers' farms, and
those production practices affect growers' pay. AMS uses the term
``production practices'' to refer to features of the on-farm production
process that are determined by the LPD, such as density of bird
placement (number of chicks delivered or placed with a grower per
square foot of broiler housing), age at harvest, and weight at harvest.
These practices greatly impact grower compensation. If LPDs fail to
apply production practices evenly across grower participants in
tournaments, that unevenness also unfairly skews relative performance
measures.
Additionally, information asymmetry in poultry contracting
arrangements contributes to market inefficiencies and unfair and
deceptive practices. Asymmetric information occurs when one party to a
contract has more critical information than the other party.
Information asymmetry leads to market failure in the broiler production
industry as growers lack the information needed to make informed
business decisions, whereas LPDs know what each grower makes. This
increases LPDs' to set contractual terms in ways that benefit
themselves, while the grower lacks the information needed to
effectively negotiate compensation for the provision of growout
services or to make a comparison and switch to a competitor that offers
more competitive terms. Another feature of this information asymmetry
is that while LPDs know the amounts they have fixed for grower
compensation, growers do not know this amount, which can span a wide
range. Similarly, LPDs know the distribution of inputs as well as which
growers may be grouped together for settlement in the complex, while
growers cannot easily track that information. Exploiting this
information asymmetry, LPDs can adjust down compensation in ways that
are difficult for growers to know or competitively discipline the LPD,
e.g., by switching out. As highlighted by grower comments and based on
AMS's experience in evaluating grower concerns in this area, without an
accurate projection of purposes, processes, and outcomes related to
capital improvement programs, growers cannot accurately and effectively
evaluate their allocation of resources to cover necessary expenses \7\
or engage in rational decision-making around whether to pursue (or
resist) additional capital investments to improve and protect their own
financial interests. Additionally, having widely variable income
prevents growers from knowing which elements under their control they
can adjust, and how to adjust them, to correspondingly increase
compensation. This can cause growers to futilely expend extraneous
resources that do not yield proportionate increases in performance and
compensation.\8\ Information asymmetry also facilitates abusive
practices, whereas the provision of information would help growers and
AMS identify and halt those practices sooner. Disclosure is not an
absolute defense. Acts or practices can be unfair or deceptive and
violate section 202(a) of the Act even if they have been disclosed.
---------------------------------------------------------------------------
\7\ For example, a grower without an accurate projection of
future income may forgo making an expenditure that costs less long-
term, e.g., making a bundled purchase for two pieces of equipment at
a reduced per-unit price. Instead, if they don't know if they can
afford a future purchase, they purchase the minimum amount--one
piece of equipment at a time at a higher unit price--to sustain
operations short-term.
\8\ Numerous commenters described how they would make all of the
upgrades recommended by the LPD technician and inexplicably place
last compared to other growers: ``Six months of down time spent
installing several more thousands of dollars of equipment. We've
grown two flocks since then and have failed to make enough money to
even pay the bank each time. We've had to take out a loan to even
survive our day-to-day life and are behind on all farm bills. We do
everything the company tells us, but when we finish in the negative,
were given all kinds of reasons for why our birds weren't good
enough. When speaking with other farmers and techs from other
companies, we're told that our weight and feed conversions are good,
but a couple of farms seem to continuously have unexplained
successful numbers. Basically, were losing money that goes to pay
the ones at the top. On one flock, 12 farms were pitted against each
other. Two farms performed at a level so high that isn't believable,
and three farms performed below the bottom level we can be paid at.
The integrator took the bottom three farms out of the tournament
calculation and compared the remaining farms without them. How fair
is it that they drop the bottom farms, but not the top ones? This
resulted in the farms that were close to average being pushed down
and making less money because the average was raised considerably
with the highflyers included and the bottom places excluded. The
company tells us that this helps us, but it doesn't. We've made the
decision to sell because we can't continue to put our children
through this'').
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LPDs often use incomplete contracts in broiler production. When a
contract is incomplete, the LPD interprets material terms in their
favor as the grower lacks the ability to require a fairer
interpretation. Contracts are incomplete when key terms basic to its
functioning are vague or missing. Incomplete contracts magnify risks
with respect to the performance of the other contractual party, leading
to other potential inefficiencies. For example, broiler production
contracts regularly disclaim LPD responsibility for input quality or
usability. Nor do they provide enforceable detail around LPD management
of tournament operations, including tournament groupings or dispute
resolution expectations. Moreover, the complexity of such pay systems
makes it difficult for growers to fully understand the potential range
of payments they are likely to receive or the ways in which LPD
performance or nonperformance may affect that pay, preventing them from
properly
[[Page 5149]]
evaluating the fairness of the contract before signing. Preventing LPDs
from injuring producers using these contracts is among the purposes of
the Act.\9\ Contracts may be viewed as complete, with no material gaps,
if the contract terms include the substantive legal, practical, and
economic promises, obligations, and contingencies needed to operate in
a poultry growing arrangement. These terms should be verifiable and
legally enforceable.
---------------------------------------------------------------------------
\9\ See, e.g., Luke Herrine, ``Cutthroat Business,'' U. of
Alabama Legal Studies Research Paper Forthcoming, Aug. 2024,
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4936628; Michael Kades, ``Protecting
livestock producers and chicken growers,'' Washington Center for
Equitable Growth (May 2022); 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.
---------------------------------------------------------------------------
Finally, contracts that require investments in contract-specific
assets give rise to the hold-up problem. The economic concept of hold-
up refers to a situation in which one or both parties to a transaction
must make investments in such contract-specific assets, and the two
parties may be unable to cooperate efficiently due to incomplete or
asymmetric information and the inability to write, enforce, or commit
to contracts. Once a party becomes locked into a transaction by making
a transaction-specific investment, they lose bargaining leverage and
become vulnerable to exploitation by the other party. Hold-ups occur in
broiler production due to market failures associated with incomplete
grower information, contract-specific investments, market power,
relative capital leverage, as well as insufficient enforcement of law
intended to maintain market integrity and prevent market abuses--
including unfair breaches of contract. Growers are commonly unable to
exercise contract rights to remedy LPD performance failures owing to
the risk of hold-up and to the necessity of timely remedies when
dealing with living birds. Examples from grower complaints include
failure to correct improper or insufficient feed delivery, the delivery
of successive inputs that are lower performing, or tournament groupings
that are suspect.
B. Tournament Practices
Since the 1990s, the broiler industry overwhelmingly uses the
tournament system to compensate growers. As discussed above, under a
tournament system the contract between the broiler grower and the LPD
provides for payment to the grower based on a grouping, ranking, or
comparison of broiler growers delivering broilers to the same company
during a specified period (usually one week). AMS will refer to this as
a settlement group. Under a typical tournament system, the broiler
grower receives a fixed payment per pound of broilers produced, that
LPDs often call a ``base pay rate,'' plus a calculation adjustment that
is supposed to be based on how efficiently, compared to other growers,
the grower used the resources provided by the LPD to produce each pound
of broilers (informally referred to as a performance adjustment).\10\
LPDs typically calculate the performance adjustment primarily by
comparing the feed conversion ratio (i.e., the quantity of feed
consumed by the flock divided by the weight of the flock delivered) to
the average ratio of all growers in the tournament settlement group.
Broiler growers whose feed conversion ratio is less than the average
ratio for that tournament settlement group receive a bonus above the
base pay rate, while those whose costs are above the average incur a
discount from the base pay rate.
---------------------------------------------------------------------------
\10\ There is some inconsistency in the use of payment terms
across broiler contracts at different companies or complexes. Most
grower contracts define the term base pay rate as it is described in
this paragraph. However, some contracts instead use the term base
pay when referring to a fixed amount plus the performance
adjustment.
---------------------------------------------------------------------------
LPDs benefit from the tournament system in several ways. The
tournament system provides LPDs control and certainty over total grower
compensation as a group. For each tournament, the LPD knows and sets
the total compensation that will be paid per pound of broilers produced
by the group. In other words, the LPD is never concerned about paying
an excess bonus for an individual flock because the LPD allocates the
pool of payments among growers through performance adjustments for
growers relative to the floating average performance (i.e., in today's
system, amounts above, or deductions from, the base pay rate). LPDs
(and growers, as discussed below) also get the benefit of utilizing a
floating average (relative to external shocks, such as weather, as
noted below) to incentivize performance. However, the tournament system
comes at a cost to growers: that of seeing payment for the services
they provide reduced for reasons outside of their control yet within
the control of the LPD. This outcome is magnified by the fact that
growers cannot easily switch over to a competitor LPD--even if the
competitor LPD offers more attractive compensation--due to the high
barriers to switching imposed partly by LPDs.\11\
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\11\ See, e.g., ``Settlement Administrator Angeion Group
Announces Proposed Settlement In Broiler Grow-Out Services Class
Action,'' PR Newswire (2024), https://www.prnewswire.com/news-releases/settlement-administrator-angeion-group-announces-proposed-settlement-in-broiler-grow-out-services-class-action-302252706.html
(In 2024, some of the largest LPDs agreed to settle grower claims
that the LPDs conspired with rivals to suppress pay by agreeing not
to hire growers from each other. Multiple commenters also described
the difficulty in switching.); 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.
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LPDs have long claimed that tournaments systems reward growers
financially for their experience, skill, effort, and investments in up-
to-date and efficient housing and equipment.\12\ The extent to which
the tournament actually incentivizes additional grower effort and
expenditure of resources, and whether those efforts and expenditures
were necessary and fair to growers, depends on a range of factors,
including the magnitude of the tournament but, in some circumstances,
also the design of the housing specification (e.g., the use of
automation and other technology), the type of bird being raised (e.g.,
some require special efforts), the availability of other payment
incentives, and the absence of arbitrary distortions in the allocation
of payments, among other factors. In theory, provided that all growers
in a tournament grouping were treated materially the same and the
variables within the tournament grouping were within the control of the
growers, a tournament system could insulate growers to some degree
against external shocks that affect all growers in the grouping. This
is because, in this scenario, performance is based on an average that
floats and adjusts to the particular external circumstances that all
growers in the pool experienced during the period.\13\ In reality, the
[[Page 5150]]
tournament system does not sufficiently protect from external shock. A
range of shocks and factors external to the growers--some of which are
within the control of the LPD--still adversely affect the overall
weight of the broilers in a tournament and thereby reduce the
compensation for all participating growers.
---------------------------------------------------------------------------
\12\ See, e.g., ``How the Tournament System Works,'' National
Chicken Council (informing farmers that: ``1 All farmers are
provided the same quality of chicks, the same feed, and access to
veterinary care. 2 Farmers who invest in more advanced facilities,
as well as use the best management practices will likely produce
higher quality chickens more efficiently. 3 Farmers receive a base
pay (per their contract) and potentially a bonus, based on the
health and quantity of the flock (tournament system).''); available
at https://www.chickencheck.in/faq/tournament-system/ (last accessed
May 22, 2024).
\13\ Knoeber and Thurman show that tournaments shift most of the
risks of broiler production from broiler growers to LPDs relative to
a fixed payment system. See Knoeber, C.R. and W.N Thurman. `` `Don't
Count Your Chickens . . .': Risk and Risk Shifting in the Broiler
Industry,'' American Journal of Agricultural Economics 77 (August
1995) p. 486-496.
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AMS has concluded that several widely adopted aspects of LPDs'
operations are unfair, deceptive, or both. First, without a clearly
stated base pay rate, LPDs deceive growers regarding their actual
minimum pay. The complexity and unpredictability of LPDs' current
operation of tournaments makes it difficult for growers to clearly
understand before entering into a contract the minimum amount they
could actually receive under the contract.\14\ For example, base pay
can be, but is not commonly, a guaranteed minimum pay.\15\ Second, if
performance pay--particularly performance pay that is based on
comparisons with other growers--is substantial relative to total
compensation, the arbitrary lottery-like aspects in a tournament system
operation will, in most circumstances, undermine its effectiveness as a
compensation scheme because compensation outcomes will not reflect the
effort or performance of growers, and is unfair and deceptive. Third,
arbitrary or unjustly discriminatory distribution of inputs, production
practices, tournament groupings, or communications and dispute
resolution--as key aspects of LPD performance under the contract--also
can create a system in which compensation does not reflect the effort
or performance of growers, deprives growers of the full amount due for
their performance, and is unfair. These provisions are meant to be
complementary and mutually reinforcing. AMS explains each of these
concerns in greater detail below, under section IV., ``Provisions of
the Final Rule.''
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\14\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022) (Wayne-Sanderson), pars. 153-56,
available at https://www.justice.gov/media/1238931/dl?inline; AMS-
FTPP-22-0046-0913 (``As a third-generation contract poultry farmer,
this is one of the most unstable times I have witnessed or heard
about with the growers in the majority. For many years we have been
paid based on the tournament system, and for several years I viewed
it to be fair, but no longer. Currently, we as growers compete
against each other on a weekly basis to see who has the best cost.
The list used to be really tight on what cost of top versus bottom
grower, but in our complex alone, that is no longer the case. The
top grower is making a healthy check, while those below average are
not making enough to cover the cost of production and overhead. It
is no longer the ones that put in the effort of hard work that are
successful in this business''); Transcript, United States Department
of Justice, United States Department of Agriculture, Public
Workshops Exploring Competition in Agriculture: Poultry Workshop May
21, 2010, Normal, Alabama. Lee Schrader and John Wilson, ``Broiler
Grower Survey Report,'' in Farmers' Legal Action Group, Assessing
the Impact of LPD Practices on Contract Poultry Growers, ed.
Farmers' Legal Action Group (FLAG Survey) (September 2001). https://www.flaginc.org/publication/assessing-the-impact-of-LPD-practices-on-contract-poultry-growers/ (In 1999, Lee Schrader of Purdue
University and John Wilson of Duke University surveyed over a
thousand broiler growers in ten of the largest broiler-growing
states (Alabama, Arkansas, Delaware, Georgia, Maryland, Mississippi,
North Carolina, South Carolina, Texas, and Virginia). Based on AMS'
experience, the survey results still provide a relevant reflection
of the views of growers today, including companies' representations
about compensation to growers).
\15\ See ``A Bird's Eye View of How Chicken Farmers Are Paid,''
National Chicken Council (informing farmers that: ``All farmers are
guaranteed a base pay from the chicken company per their
contract.''; ``No matter what, farmers get paid.''; and ``Bonuses
are given to farmers who raise healthy flocks and invest in their
farm. This is referred to as the tournament system.''); available at
https://www.chickencheck.in/faq/tournament-system/ (last accessed
May 22, 2024).
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As noted above, many broiler growers operate in regions with just
one to two LPDs.\16\ The local competitive conditions result in higher-
risk, lower-paying grower contracts that commonly subject the grower to
arbitrary and unfair payment; in particular, these contracts do not
guarantee growers an adequate minimum base pay rate, flock placements
and stocking densities, or length of contract in relation to the loan
obligations commonly necessary to engage in broiler growing. Because
LPDs control the distribution of inputs and assignment of production
practices, growers repeatedly tell AMS that they experience unfair and
deceptive operation of the contract. The typical tournament contract
introduces levels of complexity and uncertainty for growers in the
calculation of their compensation and in evaluating growers' return on
investments so as to render the payment system unfair and deceptive.
Furthermore, under that payment system, growers are commonly unable to
discover unscrupulous conduct by LPDs, compare offers from competing
LPDs, and plan and manage their businesses effectively. LPDs also say
growers will operate ``independently''--i.e., their individual effort
will produce commensurate higher compensation--though in practice their
comparison-based compensation pay is heavily dependent on the LPD's
inputs and comparison method, close supervision, responsiveness, and
the performance of others in their LPD-determined settlement group.
---------------------------------------------------------------------------
\16\ MacDonald, James M. 2014, Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, USDA
Economic Research Service, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6 (Half of respondents
with two integrators in their area and over a third of those with
three integrators asserted that they could not shift to another
integrator).
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AMS concludes that the ``incentive system'' in its current form
does not excuse the unfair and deceptive operation of tournament
systems because factors outside of the grower's control impact
performance. Without adequate regulation under the current system, LPDs
fail to provide fair compensation for the grower's effort and deceive
the grower regarding tournament operation and pay.
C. Debt and Financial Vulnerabilities
Requests by LPDs for growers to make additional capital investments
are a pervasive part of the broiler growing industry such that Congress
required that LPDs disclose the possibility of such requests to growers
in their contracts (7 U.S.C. 197a(b)). These additional capital
investment requests occur against a backdrop of significant financial
vulnerability for growers, which implicates issues of potential
unfairness and deception. Under this system of capital improvement, the
LPD requests--and indeed, in practice, largely requires--growers to
invest in housing improvements with little to no information regarding
the purposes, processes, outcomes, or likely return to be achieved by
the investment. These omissions of material information critical to
growers' decision-making is unfair and deceptive. These additional
capital investments are highly particularized, which leaves the growers
investing in projects and investments that may be used only for growing
broilers with a particular LPD. Growers have long complained to AMS
that they face a perpetual cycle of debt owing to successive requests
by LPDs for additional capital investments, suppressing their returns
and leaving them even more vulnerable to the range of abuses outlined
above.
Indeed, the Figures below show a declining rate of return on assets
and higher debt to asset ratios carried by poultry operations compared
to cattle, dairy, and hog operations.
BILLING CODE P
[[Page 5151]]
[GRAPHIC] [TIFF OMITTED] TR16JA25.001
[GRAPHIC] [TIFF OMITTED] TR16JA25.002
[[Page 5152]]
BILLING CODE C
The higher debt to asset ratios carried by poultry operations are
driven, in part, by LPD requests for additional capital investments and
are also facilitated, partially, by loan guarantees authorized under
Federal law. Additionally, the gains from upgrades commonly flow to
LPDs, and so growers' higher debt levels are not always supported by
efficiency gains that would result from the additional capital
investments. Under those circumstances and because of the willingness
of lenders to loan due to guarantees, when growers are asked by LPDs to
make additional capital investments without critical information about
their purposes, processes, or outcomes, they are deprived of key
information relating to those decisions. This practice is both
deceptive and unfair because it deprives growers of their ability to
identify fundamentally coercive or otherwise unfair capital improvement
programs at an early enough time to seek AMS enforcement assistance in
halting them, if appropriate.
Accordingly, AMS adopts this final rule prohibiting practices that,
in AMS's view, violate the Act. The overall tournament system is highly
problematic for poultry growers, and it is crucial to implement some
guardrails for the industry to prevent unfair and deceptive contracting
practices.
III. Summary of the Proposed Rule and Changes in the Final Rule
In the June 2024 proposed rule, AMS proposed amending 9 CFR 201,
subpart N, by adding several new provisions: Sec. 201.106 regarding
LPD responsibilities for the design of broiler grower compensation
arrangements; Sec. 201.110 regarding the fair operation of broiler
grower ranking systems; Sec. 201.112 regarding disclosure requirements
for LPDs when requesting additional capital investments from broiler
growers; and Sec. 201.290 regarding severability.
AMS proposed adding Sec. 201.106, titled ``Broiler Grower
Compensation Design,'' to prohibit the reduction, or discounting, of
any compensation rate under the broiler growing arrangement based on a
grower's performance relative to other growers. The proposed provision
would have required broiler grower arrangements to clearly state the
grower's rate of compensation and not reduce that rate based on the
grower's performance relative to other growers. The arrangement could
provide for the rate of compensation to be increased based on that
comparison.
AMS proposed adding Sec. 201.110, titled ``Operation of Broiler
Grower Ranking Systems,'' to prevent unfair and deceptive practices in
LPDs' operation of ranking systems for broiler growers. Proposed
paragraph (a)(1) would have required LPDs to design and operate their
poultry grower ranking system to provide a fair comparison among
growers, and under proposed paragraph (a)(2), the Secretary would
evaluate specific factors to determine if the poultry grower ranking
system is reasonably designed to deliver a fair comparison among
growers. Proposed Sec. 201.110(a)(3) also included a requirement that,
when LPDs could not conduct a fair comparison, they must compensate
growers through a non-comparison method. Proposed paragraph (b)(1)
would have required documentation regarding the processes (policies and
procedures) the LPDs must establish and maintain for the design and
operation of poultry grower ranking systems for broiler growers that is
consistent with the duty of fair comparison. Under proposed paragraph
(b)(2), LPDs would have been required to review their compliance with
these processes, and under proposed paragraph (b)(3) they would have
been required to retain all written records relevant to their
compliance for no less than 5 years from the date of record creation.
AMS proposed adding Sec. 201.112, titled ``Broiler Grower Capital
Improvement Disclosure Document,'' detailing in proposed paragraph (a)
that an LPD would be required to provide the grower with a Capital
Improvement Disclosure Document (Disclosure Document) upon requesting
that the grower make an additional capital investment. Paragraph (b) of
the proposed regulation described the disclosures that the LPD would be
required to include in the Disclosure Document. These disclosures
included a justification of the request, financial incentives for the
grower, specifications for construction, and a thorough analysis of the
grower's projected returns.
Lastly, AMS proposed adding Sec. 201.290, titled ``Severability,''
to ensure that if any provision of subpart N or component of any
provision is declared invalid, or if the applicability of any of these
provisions to any person or circumstances is held invalid, the validity
of the remainder of this subpart or the applicability thereof to other
persons or circumstances shall not be affected. Such a provision is
typical in AMS regulations that cover several different topics and was
proposed here as a matter of housekeeping.
Upon consideration of public comments on the proposed rule, AMS has
modified the proposed provisions as follows:
Revised proposed Sec. 201.106 by designating the proposed
text as paragraph (a) and adding the paragraph heading ``Rate
transparency.''
Added a new Sec. 201.106(b), ``Excessive variability,''
that establishes a presumptive violation of the Act when aggregate
gross annual payments based upon a grouping, ranking, or comparison of
growers exceeds 25 percent of total gross payments to growers in a
complex on an annual-calendar year basis.
Added a new Sec. 201.106(c), ``Transition,'' that
requires that LPDs, for each of the three calendar years commencing
with and including the rule's effective date, submit to AMS a copy of
the prior and modified contract and any LPD Disclosure Document
prepared under Sec. 201.102 for any modified or renewed contracts
under specified conditions.
Simplified proposed Sec. 201.110(b)(1)(i) and (ii)
(concerning LPDs' processes for determining inputs and production
practices) by removing the subparagraphs that itemized each component
of the required processes.
Simplified proposed Sec. 201.110(b)(1)(iii) (concerning
LPDs' processes for grower comparison flexibility) by removing
subparagraphs (A) through (C) and placing those requirements into three
simple paragraphs: (b)(1)(iii), ``League composition;'' (b)(1)(iv),
``Evaluation period;'' and (b)(1)(v), ``Non-comparison.'' Accordingly,
AMS also redesignated proposed Sec. 201.110(b)(1)(iv), ``Communication
and cooperation,'' as paragraph (b)(1)(vi).
Removed proposed Sec. 201.110(b)(2), ``Compliance
review'' and redesignated proposed Sec. 201.110(b)(3), ``Record
retention,'' as paragraph (b)(2).
Revised proposed Sec. 201.112(a) and (b) to include the
paragraph headings ``Disclosure requirement'' and ``Disclosure
contents,'' respectively.
Revised proposed Sec. 201.112(b)(1) through (3) to remove
the term ``relevant'' as a technical change, along with conforming
grammatical edits.
Revised proposed Sec. 201.112(b)(5) to clarify that, in
addition to disclosing any required or approved manufacturers or
vendors, the Capital Improvement Disclosure Document must disclose all
financial benefits, if any, that the LPD or other affiliated persons
receives from the use of the required or approved manufacturer or
vendor.
Revised proposed Sec. 201.112(b)(6) as a technical
stylistic change.
[[Page 5153]]
Added a new Sec. 201.112(c) to require the LPDs to make
reasonable efforts to ensure that growers are aware of their right to
request translation assistance and to assist the grower in translating
the Capital Improvement Disclosure Document.
Section IV. below explains in detail AMS's reasons for making these
changes.
IV. Provisions of the Final Rule
Throughout this final rule, AMS's analysis of unfair and deceptive
trade practices in poultry contracts is informed by prior P&S Act case
law, States' unfair and deceptive practice laws, and, in particular,
the Federal Trade Commission (FTC)'s encapsulation of principles
governing unfairness, unfair methods of competition, and deception.\17\
AMS looks to the FTC's policy statements owing to the FTC's extensive
experience enforcing prohibitions against unfair practices, unfair
methods of competition, and deception arising under the FTC Act, which
are similar to provisions prohibiting unfair and deceptive practices
under section 202(a) of the P&S Act. Like section 202(a) of the Act,
section 5 of the Federal Trade Commission (FTC) Act also prohibits
unfair and deceptive practices and unfair methods of competition. In
1980, 1983, and 2022, the FTC adopted the aforementioned policy
statements summarizing its longstanding approaches to these matters
under its cases. While recognizing that the P&S Act is broader than the
FTC Act, AMS references these policy statements because they offer
useful guidance owing to the similarity of the statutory provisions and
case law histories.\18\ In addition, AMS recognizes the benefits to the
practical application of this final rule by grounding it on the well-
understood principles of unfairness, unfair methods of competition, and
deception as identified in the FTC policy statements. It is for these
reasons that the FTC Act has, in part, informed this final rule.
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\17\ Federal Trade Commission, Policy Statement on Unfairness,
1980, https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness (last accessed Oct. 2024); Federal Trade Commission,
Policy Statement on Deception, 1983 available at https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf (last accessed Oct. 2024); Federal Trade
Commission: Policy Statement on the Scope of Unfair Methods of
Competition Under Section 5 of the Federal Trade Commission Act,
Nov. 2022, available at https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission (last accessed Oct. 2024).
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) (``Section 202(a) should be read liberally enough to take care
of the types of anti-competitive practices properly deemed `unfair'
by the Federal Trade Commission (15 U.S.C. 45) and also to reach any
of the special mischiefs and injuries inherent in livestock and
poultry traffic'').
\18\ Michael Kades, ``Protecting livestock producers and chicken
growers,'' Washington Center for Equitable Growth (May 2022).
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A. Broiler Grower Compensation Design (Sec. 201.106)
AMS is finalizing new Sec. 201.106, ``Broiler grower compensation
design,'' with two notable changes from the proposed rule. In the final
rule, AMS is retaining Sec. 201.106 as proposed and designating it as
paragraph (a), ``Rate transparency.'' AMS is adding paragraph (b),
``Excessive variability,'' and paragraph (c), ``Transition.'' Paragraph
(b) adds a presumption against excessive variability in performance
compensation to growers competing in a tournament. Paragraph (c)
provides for grower protections during the transition from the existing
payment systems to systems compliant with this final rule. Each
paragraph will be discussed further below.
Most large LPDs today include a tournament component as part of
their grower compensation arrangements. Under this type of arrangement,
if a grower's feed conversion ratio (i.e., the quantity of feed
consumed by the flock divided by the weight of the flock delivered) is
above the average of other growers in the tournament, the grower
receives a bonus; if the grower is below average, the LPD reduces the
grower's compensation. Under the tournament system, the contract
between the grower and LPD provides for payment to the grower based on
a grouping, ranking, or comparison of growers delivering broilers to
the same company during a specified period. These pay rates are
generally expressed in cents per pound. Applying these adjustments,
whether positive or negative, significantly affects growers' effective
rates of compensation and net income.
In its current form, the tournament system operates unfairly and
deceptively. Without clearly stated base rates of compensation, the
complexity of the tournament makes it difficult for growers to clearly
understand the minimum amount they could be paid. Moreover,
compensation based on relative performance when LPDs control the
operation of the tournament (such as the distribution of inputs and
assignment of production practices) creates the potential for growers'
performance to be determined by factors outside their control, thereby
making the tournament system an ineffective incentive system that is
arbitrary and unfair to growers. The tournament system also introduces
considerable complexity and uncertainty for growers in calculating
their anticipated total compensation and evaluating the potential
return on their investments. Furthermore, if the comparison-
compensation factor (i.e., the bonus or deduction) is a large
percentage of total compensation, that variance in total grower
compensation is no longer a legitimate business but simply shifts
economic risk from processors onto poultry growers without a
demonstrable countervailing benefit. Without additional guardrails, the
current tournament system creates significant risk of deception or
unfairness for growers under the Act.
AMS has not found any evidence that poultry tournament systems that
include deductions from the base pay rate or excessive variability in
grower compensation provide a benefit to growers or competition in the
market for grower services that outweighs the harm to growers.
Deductions in other livestock contracts commonly reflect performance
attributes of the animal itself, which is owned by the producer. Here,
the producer provides a service with no ownership interest in or role
in the selection of the animal. These deceptive and unfair payment
practices create an unfair competitive advantage for LPDs at the
expense of growers. Therefore, the widespread adoption of these types
of contracts has frustrated fair competition, instead of enhancing it.
Such discounting and pay variability also reflect the market power and
bargaining power of the LPD in dictating contract terms.
Section 201.106 will provide growers with greater clarity and
protection regarding the minimum payments they can expect under broiler
growing arrangements. This rule prohibits a range of unlawful behavior
by establishing a threshold presumption against excessive pay
variability, establishing a transition period to preserve existing pay,
and making minimum pay clear for growers. This rule will better enable
growers to compare contract terms, evaluate revenue generation, and
assess the value of additional capital investments.
i. Section 201.106(a)--Rate Transparency
AMS is finalizing new Sec. 201.106(a), which prohibits the
reduction of any rate of compensation under the broiler growing
arrangement on account of the grower's grouping, ranking, or comparison
to other growers. This provision is identical to that which was
proposed, except that the provision is
[[Page 5154]]
now designated paragraph (a), with the paragraph heading ``Rate
transparency.'' Under this provision, the broiler growing arrangement
must clearly state the compensation rate. The arrangement may not
provide for mechanisms or calculations that would reduce the
compensation rate based on the grower's performance relative to other
growers, but it can provide for the rate to be increased based on the
grower's performance relative to others. The broiler growing
arrangement could provide for the compensation rate to be increased
based on the broiler grower's performance relative to others, but in no
event could the rate be decreased or discounted by that comparison.
``Rate of compensation'' refers to any payment amount that the LPD
utilizes to compensate the grower under a broiler growing arrangement,
which could include ``base pay,'' ``minimum pay,'' or any other rate
defined in the contract. That rate would have to be prominently and
clearly defined as the guaranteed level of pay a grower will receive if
the grower performs to the minimum specifications of the relevant
provisions of the contract. To the extent that a broiler growing
arrangement had more than one rate of compensation, none of the rates
could be reduced or discounted by a comparison. Under existing AMS
regulations, a broiler growing arrangement must include all payment
terms in the contract (9 CFR 201.100(c)(2)).
Under section 202 of the P&S Act, AMS concludes that the practice
of discounting disclosed ``base'' pay rates in broiler contracts is an
unfair and deceptive practice. This practice forces growers to estimate
potential earnings using contractually stated ``base'' pay rates that,
under the tournament system, only half of the settlement group can
achieve. This unfair and deceptive practice obscures the value of the
contract, thereby frustrating comparisons with competing LPD contracts
in markets where growers are fortunate enough to have more than one or
two LPDs to contract with.
AMS expects that, under this regulation, LPDs will still be able to
elicit a competitive level of performance using a broiler compensation
design that conforms to the requirements of this final rule. The LPD
could reward performance for feed efficiency relative to the growers in
the settlement with a minimum base pay rate per pound and an upward
adjustment to the payment formula. Depending upon the facts and
circumstances, mere compliance with this regulation does not absolve an
LPD of its other legal obligations. A compensation structure without a
penalty or reduction from a true guaranteed minimum pay rate may
still--if the facts demonstrate it--result in other violations of the
Act.
ii. Section 201.106(b)--Excessive Variability
In the final rule, AMS is adding new paragraph (b), ``Excessive
variability,'' which establishes a presumption that an LPD has violated
section 202 of the Act when aggregate gross annual payments based upon
a grouping, ranking, or comparison of growers exceed 25 percent of
total gross payments to growers in a complex on an annual-calendar year
basis. AMS is adopting this approach because excessive variance in
total grower compensation arising from comparison-based compensation
would, generally, create excessive variability that is deceptive
because growers cannot reasonably assess the risk they are undertaking
or forecast, predict, or budget their business operations. Further,
excessive pay variance makes compensation dependent on arbitrary
criteria, random factors, or other criteria that the grower cannot
control or affect. When the comparison performance pay too
substantially affects compensation, it is unfair.
When growers perform reasonably under the terms of the production
agreement, excessive variability in performance pay arises at least in
part due to LPD-controlled factors or unavoidable inherent natural
variability. These factors are outside of the grower's control and
cannot be completely offset by grower effort or skill. LPDs design
ranking systems to allocate grower payments based upon grower effort
and skill. When factors other than grower effort and skill are
comingled with the metrics used to allocate pay, the practice is ripe
for potential abuse and unfairness because excessive variability in
performance payments unfairly reduces compensation to growers. This
unfairness to growers is particularly pronounced owing to high
indebtedness among growers, which leaves them more financially
vulnerable to harms from excessive income variability that does not
reasonably reflect their own efforts.\19\ That pay variability also
frustrates growers' ability to accurately assess, or reasonably
control, their rates of compensation and the overall financial risk
they undertake under a broiler growing arrangement, which is
particularly problematic given the risk they bear. The injury is not
offset by attendant benefits, since the practice tends toward
distorting the market's true pay amount and reducing growers' ability
to accurately assess, or reasonably control, their finances and make
informed business decisions.
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\19\ In contrast to contributions by the grower, LPDs contribute
much more significantly to overall performance by furnishing the
inputs, e.g., genetics, feed, nutrition, sex of chicks, and close
supervision of the grower's managing production.
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Though Sec. 201.106(a) addresses the problem of reductions to
rates of compensation that arise owing to groupings, rankings, or
comparisons of growers, it does not alleviate all potentially unfair
aspects of the tournament system or of the integrated model of broiler
production. The proposed rule indicated that AMS intended to engage in
case-by-case enforcement to remedy other aspects of tournament system
unfairness, including issues arising from excessive variability in
payments. In addition to a prohibition on discounting rates of
compensation, the proposed rule particularly highlighted the potential
importance of a 25 percent presumption on total compensation based on a
grouping, ranking, or a comparison (the tournament) to total of base
pay rate plus performance compensation. As AMS indicated in the
proposed rule, this approach could alleviate extreme variability as an
aspect of existing tournament system unfairness.
In the proposed rule, AMS included questions containing additional
proposals. One such proposal solicited comment on whether it is
presumptively unfair for comparison-based compensation to equal or
exceed 25 percent of total (base pay rate plus comparison-based)
compensation for any grower and asked a range of questions around the
appropriateness of the specific threshold, how to calculate it, and how
it would affect the industry.\20\ These questions included highlighting
the role of the 25 percent presumption as a potentially binding
constraint, and how LPDs might respond to the prohibition introduced in
Sec. 201.106(a) by modifying the compensation structures in grower
contracts. AMS's questions indicated that it could raise base pay and/
or limit performance payments--thus reducing the difference between top
and bottom performing growers--without increasing total grower
compensation expenditures. It also left open the possibility that LPDs
could potentially adjust their compensation structures in other ways,
such as by providing non-comparison-based incentives to growers they
might seek to reward (such as per pound or per square foot compensation
for housing known to provide efficiencies to the LPD) or deploy other
[[Page 5155]]
incentives (such as fixed performance bonuses).
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\20\ 89 FR 49002, 49011-49012 (June 10, 2024).
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In response to the proposed rule, growers and advocate commenters
overwhelmingly supported the need for additional limitations on
excessive variability in payment arising from rates of compensation,
with a particularly strong endorsement of the 25 percent limitation on
performance. Commenters underscored the importance of this limitation
for some of the reasons that AMS indicated in the proposed rule: that
it is necessary to protect growers from unfair reductions in payments.
To incentivize grower effort, LPDs allocate grower pay using
relative performance metrics; however, grower effort alone is an
insufficient determinant of grower performance. Growers' performance
depends on many factors, some of which are under the control of growers
while others are not. Some known factors, including a grower's skill
and effort, are within a grower's control. Other factors are outside a
grower's control, such as feed quality, chick quality, and the skill or
other efforts of other growers in the comparison group. Even if all
these known factors are accounted for, there is still some unavoidable
inherent natural variation in performance that would explain growers'
performance volatility, flock to flock, even if all the known factors
remain constant. The nature of this variability creates harm to growers
in reduced performance payments.
The use of flock performance metrics, specifically feed conversion,
as a proxy to grower effort is imperfect. Feed conversion itself is
affected by variables beyond grower effort. AMS is not aware of
existing technological innovations that could serve to better isolate
grower effort, which is exclusively under grower control. That is not
to say flock performance metrics serve no purpose in assessment of
grower effort and allocation of grower payments. AMS's experience in
analyzing performance payments suggest that ranking systems can be a
useful and reasonably equitable mechanism for pay allocation with
proper regulation and in proper magnitude. Within a reasonably
contained range--i.e., presumptively 25 percent of total compensation--
the tournament may offer a reasonable benefit to growers by enabling
LPDs to efficiently measure grower performance and guard against
natural forms of variability that would arise were compensation fixed
rather than floating (i.e., the comparison-based average of growers).
Yet at too high a level, the potential harms of comparison-based
compensation (performance pay dominating grower pay allocation without
rewarding commensurate differences in effort) outweigh the potential
benefits. That is unfair under section 202(a) of the Act because
compensation under the tournament becomes correlated to input
distribution (and other circumstances under the control of the LPD,
such as flock production practices or responsiveness to complaints),
which is commonly arbitrary--or, in some cases when not arbitrary, can
be punitive. Some growers who comply with the contract and are unfairly
penalized for factors beyond their control suffer unavoidable harm;
they are denied the full amount due for their growout services. While
growers can benefit from participation in the tournament, excessive pay
variability can cancel out those benefits as they are outweighed by the
harms.
Based on previous analysis of grower compensation data for a small
sample of broiler complexes, AMS is not aware of any complex with
performance payments that are as much as 26 percent of total payments.
Additionally, in United States v. Cargill Meat Solutions Corp.,
commonly referred to as ``Wayne-Sanderson,'' the final judgment also
contains a 25 percent limitation on performance payments.\21\ The
Wayne-Sanderson settlement is significant because it was agreed to by
one of the largest market participants and has not caused any
demonstrable harm to the company or to the market, nor is there any
evidence that it disincentivized grower effort or lowered performance.
While Wayne-Sanderson had agreed to a 25 percent limitation on
performance payments, this final rule establishes that performance
payments above 25 percent are presumed to be unfair. This is because
performance pay variability causes injury to growers when the magnitude
of performance pay is so excessive. That is, the performance pay
significantly affects whether the grower is successful, yet the amount
depends on unavoidable variance and does not reflect grower
performance. In those circumstances, compensation no longer correlates
to factors within grower control, such as their effort and expertise.
This deprives growers of the value, both real and expected, of their
services. The vast majority of commenters who addressed the topic of
comparison-based compensation endorsed the idea of 25 percent as an
appropriate level for a presumption of this type.
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\21\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022).
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We note that this presumption will provide guardrails in helping
LPDs set and maintain performance pay standards that achieve
appropriate goals, such as rewarding effort and skill against a
floating average that adjusts for common circumstances, like weather,
without unduly denying growers the expected value of their growout
services. This clarity will guide LPDs that need to modify existing
contracts to comply with this final rule, such as with Sec.
201.106(a). For example, absent the existence of Sec. 201.106(b), LPDs
could comply with Sec. 201.106(a) by decreasing base pay and
excessively increasing the proportion of pay that is dependent on
performance compensation. Such contract modifications would supercharge
pay variance in the tournament while penalizing growers under the guise
of complying with reforms designed to improve transparency and
fairness. The presumption under Sec. 201.106(b) helps ensure
continuity in compensation at an aggregate level because it guards
against excessive variability of performance pay relative to total pay.
To stay within the presumptive boundary set by Sec. 201.106(b), an LPD
must set a reasonable compensation rate for any new base payment under
the contract. AMS underscores that nothing in the rule prevents LPDs
from providing other forms of incentive compensation to growers for
reasons other than relative performance, such as payments for improved
facilities or utility subsidies. Overall, the 25 percent presumption
against excessive variability is useful to provide clarity and
consistency around when AMS may seek to investigate for case-by-case
compliance and enhances the fairness and transparency of compensation
rates in broiler growing arrangements. As such, it reflects a logical
outgrowth of the proposed rule.
Separately, AMS notes that it also expects to examine for excessive
variability other forms of performance payments that are based on how
efficiently a grower uses inputs supplied by the LPD: such payments
could emerge as a method for evading this provision's purpose. Examples
of such performance payment systems include what are commonly called
fixed metric performance payments, which predate the current
tournament, whereby growers' performance payments are tied to their
individual achievement of certain fixed metrics around efficient use of
inputs. AMS expects to examine these types of performance systems for
excessive variability for similar risks of unfairness, including
because the LPD provides the inputs and production
[[Page 5156]]
practices and in those circumstances would be setting the fixed
metrics.
In review of the presumption, AMS will consider other complex-
specific incentives as requested by the LPD that would otherwise not be
appropriate to consider as part of the rates that make up base payment.
For example, energy incentives may be considered differently because
they vary significantly based on geographic location, and so would
result in somewhat different application of the provision for growers
at different complexes. Where a relatively high degree of variability
in performance pay exists, even within the 25 percent, due in part to
energy incentive payments, AMS may examine whether the tournament is
unfair.
To rebut the presumption of unfairness triggered when comparison
compensation payments exceed 25 percent of total compensation, the LPD
may affirmatively demonstrate (i) that a given tournament's
compensation system allows all growers to be economically successful
without the need to receive any payments based upon a grouping,
ranking, or comparison of growers that exceed the amount covered by the
presumption; (ii) that payments to all growers that exceed the amount
covered by the presumption are sufficient to reflect the increased risk
of variability to all growers under that system; and (iii) that the
system is not otherwise unfair or deceptive. The Agency would examine
any rebuttal on a case-by-case basis to comport with the purposes of
the presumption to prevent LPDs from engaging in unfair or deceptive
practices or devices that harm poultry growers.
AMS adopted this provision after considering the case-by-case
presumption set forth in the proposed rule and public comments that
urged AMS to instead establish a greater limitation on excessive
variability of payments arising from performance, especially
comparison-based, compensation. Public comment regarding this
provision, and AMS's response to those comments, are discussed in
greater detail below in section V., ``Comment Analysis.''
iii. Section 201.106(c)--Transition
In the final rule, AMS is also adding new Sec. 201.106(c), which
requires that, for any contract modification or renewal subject to
Sec. 201.106(a) that results in a grower receiving less than the prior
year's complex-wide average gross payment, the LPD must submit a copy
of the prior contract and the modified contract, as well as any LPD
Disclosure Document prepared under Sec. 201.102 with respect to the
prior and the modified contract, to the Secretary.
AMS will monitor contracts to identify signs of the unfair exercise
of LPD bargaining power during this transition period. These could
include, for example, a predatory method of competition whereby an LPD
seeks to lower pay across the entire complex or discriminatory or
retaliatory conduct that seeks to lower the pay of some subset of
growers. Unfair conduct by the LPD could potentially arise where the
LPD seeks to undermine contractually agreed-upon earnings from the
previous contract irrespective of the tournament. One way for AMS to
identify such conduct could be through LPD Disclosure Documents
(currently required under existing 9 CFR 201.102), which would be
required if LPDs modify or replace contracts in seeking compliance with
this rule. The record-keeping and reporting requirements in this final
rule will further help identify any potential illicit exertions of
market power by allowing AMS to closely scrutinize contract
modifications that jeopardize grower welfare during the transition
period.
In keeping with the requirements in Sec. 201.102(d)(2), AMS
expects LPDs to explain why the annual gross payment averages for the
previous five years may not provide an accurate representation of
projected future payments. AMS also expects a distinct explanation of
how any changes the LPD is proposing under the new contract are
necessary to comply each part of final Sec. 201.106. That is, changes
made to comply with Sec. 201.106(a) and (b) should be explained. AMS
strongly encourages LPDs to explain changes needed to comply with Sec.
201.106(b) first, and then apply a conversion scale from whatever
updated approach is adopted to comply with Sec. 201.106(a).
AMS will evaluate the reported contract modifications and
associated documentation to assess grower welfare, given that growers
will be particularly susceptible to economic hold-up concerns. In
particular, AMS will consider the following variables: (1) the number
of flock placements annually; (2) the stocking density; and (3) the
distributional range of payments. If, upon consideration of these
variables, AMS identifies contract modifications that negatively impact
grower welfare or that include supply reductions from the complex, the
Agency will closely scrutinize the modifications, including rates, for
fairness and reasonableness.
It is crucial that growers are meaningfully informed about the
terms of the grower arrangements and the expected compensation for
their services so that they can make financially sound decisions and
identify potential economic hold-up. The reporting requirements will
only be in effect for three years including and from the effective date
of this rule.
During the three-year transition period, LPDs must evaluate average
grower compensation at the complex level for each of the three calendar
years commencing with and including the rule's effective date to
determine if they need to submit their contract to AMS for review. The
rule requires LPDs to use the average grower compensation across the
complex, because this analysis shows if an LPD has cut grower
compensation overall. The rule uses averages because performance-based
compensation is unpredictable on a grower-by-grower basis and because
using total grower compensation at the complex would be overinclusive.
For example, grower turnover might skew an analysis based on total
grower compensation. This makes the Sec. 201.106(c) method of
evaluation comparable to how unfair levels of performance-based
compensation are defined under Sec. 201.106(b).
AMS chose a transition period of three years for several reasons.
First, it is nearly impossible to evaluate the changes to grower pay
made to contracts within 180 days or even a single year with any level
of confidence. Many contracts are three, five, or ten years in length,
so it may take up to a year of payments to even begin evaluating the
financial effect of changes. Reviewing payments within a 180-day period
may not indicate what growers would earn in a year and would be limited
in scope and value; any conclusions based on that limited review would
be speculative, and violations of the Act cannot be based on
speculation. After a full year of operation following contract
modification, the realization of grower performance outcomes and
practical application of the compensation structure are known and
translated into actual grower payments. This will facilitate AMS's
analysis of the actual distribution of grower payments and overall
level of compensation that resulted from the new compensation structure
and allow for a more fulsome evaluation of fairness concerns. It also
allows AMS to consider the market environment as context for LPD
actions.
Additionally, this new rule may necessitate adjustments to the
compensation structures used in grower contracts, and it will take time
for growers to become used to the new regulation. AMS needs to look at
how the overall market is adjusting to this new reality and prevent
evasion during
[[Page 5157]]
that adjustment period. For example, an LPD may make a series of small
contract changes, which would require AMS to review the overall market
adjustments, not just the initial changes. Failure to capture the full
implications of the transition period would put growers at risk from
LPD market power and bargaining imbalances between LPDs and growers.
AMS underscores that this is a monitoring and reporting
requirement, owing to the ongoing risk to growers that the contracts
could be modified and re-modified during this transition period. This
contract review will help the Agency decide whether to conduct more
specific oversight and enforcement while the new regulatory regime is
implemented.
Three years is the period of financial information that banks
request from borrowers, such as growers, and so it provides a
reasonable period for AMS to engage in these market-monitoring
activities. After three years, AMS agents will continue to monitor
contracts and ensure they are following the requirements of this final
rule, but LPDs will not need to submit contract modifications.
In the proposed rule, we asked for public comment on this issue,
and received overall support for a provision to protect growers that
rely on existing contracts from holdups and potential market abuse.
Specifically, we asked the following question: ``To minimize transition
risks to growers, should AMS include a requirement that LPDs submit to
AMS for review any contracts modified or revised to comply with new
Sec. 201.106?'' \17\ The comments received in response to this
specific question were mixed in their support and are addressed below
in sections V.A.iv. and v.
Because the Secretary will subject the updated contracts to close
scrutiny for unfairness, the Secretary would seek access to the
dealer's business records. During any investigation, AMS may examine
any changes to average annual gross payment per pound for growers in
the complex and any changes to average payment per square foot
increased. Each investigation will consider the individual facts and
circumstances of each situation, as these considerations are important
in examining whether growers were held at least no worse off during the
contract modification process. Although the final rule is designed to
benefit growers and reduce unfair and deceptive practices, growers face
a significant risk of unfair practices owing to the risk of hold-up
when they may be required to change their contracts so that LPDs comply
with this rule. Based on AMS's experience implementing rules, LPDs may
seek during any compliance and implementation period to extract changes
to the contract unrelated to the regulatory requirements of this rule.
The purpose of providing contracts to AMS is to identify unfair
practices or otherwise unlawful reductions to payment that are
favorable to LPDs and harmful to growers.
B. Operation of Broiler Grower Ranking Systems (Sec. 201.110)
AMS is finalizing new Sec. 201.110, ``Operation of broiler grower
ranking systems,'' which regulates how LPDs operate ranking systems
(i.e., tournaments) for contract broiler growers, establishing a duty
of fair comparison when calculating comparison-based compensation among
a group of poultry growers in a settlement group. This section contains
factors for the Secretary to consider when evaluating whether LPDs have
abided by the duty of fair comparison requirement. When LPDs are unable
to make a fair comparison for one or more growers, they are required to
use a non-comparison compensation method as specified in the contract.
LPDs are required to document how they design and operate their poultry
grower ranking systems in a manner that is consistent with the duty of
fair comparison. The documentation must show that LPDs take measures to
mitigate the impact of inequitable distribution of inputs and flock
production practices on grower performance and, hence, comparison-based
compensation.
The purpose of the rule is to ensure that comparison-based
compensation reflects grower effort, not factors that injure the
grower, such as feed or chick quality or timing of feed delivery that
are outside of grower control but within the control of LPDs. The
problem this rule seeks to address is how LPDs manage variation in
quality or timing of inputs, flock production practices, and how LPDs
handle growers' concerns (i.e., groupings, responsiveness to problems).
AMS certainly believes that rewarding grower effort is fair, but unfair
and deceptive comparison systems are not.
For example, breeding hens have a lifecycle of 50 weeks. They
produce optimal chicks between weeks 20-34, but they also produce
chicks that have value outside the optimal window. The LPD has a
financial incentive to grow all these chicks to maturity, and thus will
distribute a mix of higher and lower quality chicks in any one
settlement period to its growers. Those growers receiving a higher
proportion of suboptimal chicks are disadvantaged in a relative
comparison to growers who received a higher proportion of optimal
chicks.
In theory, LPDs would provide uniformly high-quality inputs (such
as chicks and feed) and appropriate production practices (such as flock
density) to all growers to ensure maximum efficiency, product quality,
and profit. LPDs would also ensure tournament groupings are reasonably
random or otherwise not biased and would also reasonably control for
problems that growers faced (such as accidental delivery of the wrong
feed). However, inputs are natural systems and, therefore, variation in
input quality necessarily exists. This variation in input quality
affects performance. Moreover, human error can be present in vertically
integrated systems as well, for example, the accidental delivery of
feed designed for older birds. LPDs want to obtain the full value from
all usable inputs and are not inclined to dispose of lower quality
chicks or feed to ensure growers only get the highest quality inputs.
Thus, LPDs routinely distribute lower quality, lesser performing inputs
to their contract growers, even though growers who receive those inputs
will likely receive lower compensation than their peer growers in the
same tournament that receive higher quality, higher performing inputs.
Within a given poultry complex (group of growers serving a single
processing plant), a significant share of each grower's compensation is
determined by their rank in tournaments between growers at the complex,
even though a proportion of performance variation across growers is
attributable to variation in inputs, including feed and chick quality,
timing of feed delivery and flock pick-ups.
LPDs purport that this system works to promote fair competition in
the market for grower services. From an LPD's perspective, as outlined
in several public comments, a grower receiving poorly performing inputs
and a low rank in one tournament is how the system works; over the long
term, according to the commenter, the grower will likely receive
better-performing inputs that help to balance out one tournament's
losses. LPDs also stated in their public comments that they have no
incentive to furnish a grower with poorly performing inputs and/or
otherwise mistreat growers.
In practice, LPDs assertions do not bear out. LPDs have limited
financial incentive to expend extra efforts to evenly distribute
optimal inputs and production practices across growers in a
[[Page 5158]]
poultry settlement pool or even to some extent to promptly address
problems. LPDs have not provided supporting evidence that long-term
provision of inputs balance out uniformly. Even if over the long-term
the variability, on average, balances out, there will be growers who do
not benefit from the balancing or for whom the balancing comes too late
to address the harms caused by variability. LPDs' assurances of long-
term balancing out do not provide comfort to the grower facing
decreasing ability to pay for immediate operating expenses--and who
does not have the extra cash to buffer one tournament's losses.
Furthermore, under the current compensation system, LPDs have little
motivation to limit performance variability, exercise appropriate care
in input distribution, or generally create reasonable uniformity
regarding other aspects of tournament operations.
As growers and grower advocacy organizations have asserted, LPDs
often provide the ``noisy'' grower (who exercises their dissatisfaction
or seeks redress for bad treatment) ``bad'' or otherwise inappropriate
or untimely inputs or flock production practices, or even organize them
into comparison groupings designed to adversely affect their
performance. This can even occur for those seeking timely assistance or
correction for supposedly inadvertent mistakes (e.g., feed delivered to
new chicks that is designed for older birds, and hence is not edible by
the younger birds). Growers have consistently reported over the years
that LPDs commonly exercise punitive control over inputs, production
practices, tournament groupings, and the availability of assistance for
ordinary problems. These circumstances suggest an environment
characterized by unavoidable unfairness and oppressive methods that
adversely affect growers' and even LPDs' ability to compete on the
merits. Growers who receive bad treatment cannot competitively
discipline an LPD by negotiating better terms or choosing a different
LPD. They must accede to continued poor treatment by the LPD.
LPDs' practice of basing grower compensation on factors beyond
growers' control distorts the competitive market for grower services.
LPDs possess power--whether regionally, within the contract
relationship with growers who depend on that relationship to pay down
debt, and/or through information asymmetry (i.e., through knowing
detailed information about inputs and growers' finances while growers
know relatively little). This power allows them to reduce growers'
compensation to unfair levels they know growers can barely bear; in
turn, growers' reduced financial stability further reduces their
countervailing power. Another feature of this practice is that LPDs are
not actually allocating more funds to better compensate higher-
performing growers: they fix overall compensation to their growers from
tournament to tournament and deduct pay from those who performed below
the average to reward those who performed above average. In so doing,
they prevent growers from actually earning compensation commensurate to
services--a circumstance that numerous commenters described
experiencing but possessed little recourse to counterbalance, i.e.,
``Take it or leave it.'' This practice further erodes the competitive
conditions in the market for grower services. Numerous commenters
discussed how just a few below-average rankings caused them to not be
able to afford operational expenses and perform worse and worse; and/or
exit. By basing compensation on factors outside of actual grower
services, LPDs also distort the actual price signal for grower
services. And, by fixing overall compensation and deducting from the
bottom to reward the top, they prevent honest competitors that actually
allocate more funds for better-performing growers. Altogether, AMS
believes these are unfair and deceptive practices under the Act.
LPDs harm growers when they compare growers where inputs,
production practices, tournament groupings, and assistance are not
equitably distributed. Grower pay becomes undeservedly low and fosters
unlawful variability in both performance and compensation that have no
relationship to the grower's work, initiative, or skill. Growers have
no control over how inputs, production practices, tournament groupings
and assistance are allocated, owing to the vertically integrated model
of broiler chicken production. Unfair comparisons do not benefit
growers or competition, and indeed frustrate the LPDs' claimed purpose
of the tournament structure. The tournament is a form of performance
payment that is intended to incentivize grower deployment of effort,
skill, and investment to foster more efficient use of the inputs
provided by the LPD. Purportedly, tournaments capture actual
differences in grower performance during a given period, while
adjusting for overall conditions affecting performance, such as adverse
weather conditions, that affect all growers in the complex. The rule
sets out reasonable alternatives to these harms that do not undermine
the benefits to growers from the vertically integrated production
system or from using comparisons to establish flexible baselines for
evaluating grower performance, within its appropriate limits.
AMS notes that growers get paid by the pound and start with a
static number of chickens. Thus, they have contractually inherent
incentives to grow their chickens to the target weight and to minimize
the death loss of chickens, even in the absence of a performance
payment. Yet AMS also acknowledges that ensuring growers' use of the
minimum amount of inputs, such as feed, to achieve maximum growout is
also an important part of the overall mix of cost efficiencies. AMS
agrees, to the extent that the pool of growers in a tournament is
sufficiently random and that the necessary conditions for equitable
comparison are met, a tournament may spur growers to operate more
efficiently as they seek higher comparison-based compensation, while
reasonably guarding against commonly shared external conditions. Yet as
discussed in the proposed rule and reflected in comments from grower
groups and others, those conditions are often not met. Nor, indeed, are
arbitrary or inequitable differences in inputs and production practices
inherently essential features required to deliver the benefits of the
poultry industry's vertically integrated production and comparison-
based performance compensation system. In fact, arbitrary or
inequitable practices undermine these benefits, producing instead
arbitrary or otherwise inequitable grower pay differences that run
contrary to the industry's avowed purpose of the tournament system.\22\
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\22\ See, e.g., ``How the Tournament System Works,'' National
Chicken Council (informing farmers that: ``1 All farmers are
provided the same quality of chicks, the same feed, and access to
veterinary care. 2 Farmers who invest in more advanced facilities,
as well as use the best management practices will likely produce
higher quality chickens more efficiently. 3 Farmers receive a base
pay (per their contract) and potentially a bonus, based on the
health and quantity of the flock (tournament system).''); available
at https://www.chickencheck.in/faq/tournament-system/ (last accessed
May 22, 2024).
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Because the tournament system determines a component of grower pay,
LPD practices that impair a fair comparison of grower performance cause
a misallocation of performance compensation, thereby unfairly reducing
the compensation that may otherwise be due to some growers. Studies
\23\ have shown that differences
[[Page 5159]]
in production practices and inputs, such as stocking density, slaughter
weight, bird gender, and breeder flock age, can impact the performance
metrics used in determining the performance adjustments in tournament
payment systems. If LPDs provide all growers in a tournament group
similar-quality inputs and compare growers using similar flock
production practices, or if they take steps to balance these
differences over time or otherwise adjust pay to account for the
relevant differences, these production factors under LPD control are
unlikely to unfairly affect growers.
---------------------------------------------------------------------------
\23\ Dozier III, W.A., et al. ``Stocking Density Effects on
Growth Performance and Processing Yields of Heavy Broilers,''
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler
performance at different stocking densities.'' Journal of Applied
Poultry Research 4.1:55-60 (1995). Burke, William and Peter J.
Sharp. ``Sex Differences in Body Weight of Chicken Embryos.''
Poultry Science 68.6 (1989): 805-810; Beg, Mah, et al. Effects of
Separate Sex Growing on Performance and Metabolic Disorders of
Broilers. Diss. Faculty of Animal Science and Veterinary Medicine,
Sher-e-Bangla Agricultural University, Dhaka, Bangladesh, 2016;
Wilson, H.R. ``Interrelationships of Egg Size, Chick Size,
Posthatching Growth and Hatchability.'' World's Poultry Science
Journal 47.1 (1991): 5-20; Washburn, K.W., and R.A. Guill.
``Relationship of Embryo Weight as a Percent of Egg Weight to
Efficiency of Feed Utilization in the Hatched Chick.'' Poultry
Science 53.2 (1974): 766-769; Weatherup, S.T.C., and W.H. Foster.
``A Description of the Curve Relating Egg Weight and Age of Hen.''
British Poultry Science 21.6 (1980): 511-519; University of
Kentucky/Kentucky Poultry Federation, Poultry Production Manual,
https://afs.ca.uky.edu/poultry/production-manual (uky.edu), last
accessed 08/21/2023.
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However, when LPDs rank growers who received lower quality (i.e.,
lesser performing) inputs or less favorable flock production practices
against growers who received higher quality (i.e., higher performing)
inputs or more favorable flock production practices the former group
will likely receive lower pay than the latter group due to factors
beyond their control. The ranking in the tournament will not reflect
the grower's actual performance; it will reflect the inputs and flock
distribution practices the grower received and the grower's performance
relative to that of other growers. This is an unfair practice unless
the LPD took effective steps to make appropriate adjustments to the
compensation structure for this settlement group to reasonably
neutralize the impact of the inequitable distribution of inputs and
flock production practices within the ranking group. The problem this
section of the rule addresses is how tournaments can be designed to
effectively counteract the impact of inequitable tournament practices
and lead to a fair comparison in poultry ranking systems.
Some LPDs have taken steps to design their compensation systems to
appropriately account for the maldistribution of inputs and production
practices within a poultry ranking group. In response to the Advance
Notice of Proposed Rulemaking that preceded the proposed rule for this
final rule, LPDs and their trade associations described different steps
LPDs have taken to correct for the inequitable distribution of inputs
and production practices among growers and resulting comparisons. A
meat industry trade organization indicated that LPDs are known to
reduce unpredictability in grower outcomes by having contracts that
evaluate performance over multiple flocks and adjust pay for factors
outside growers' control. For example, some LPDs adjust payments for
different densities of birds placed or provide credits for excess
seven-day death loss.
Complementing these examples, AMS investigations have also found
that some LPDs will attempt to ensure that broiler growers do not
receive chicks from young laying hens too often because this can
negatively affect growers' tournament performance. Some LPDs will
communicate and correct ordinary problems on a timely basis. This helps
growers avoid unintentionally punitive outcomes than would otherwise be
the case. Yet, while LPDs assert that quality communication and fair
operation are universal, AMS has found through interviews and comment
review that LPD behavior currently depends extensively on the goodwill
of the LPD, commonly via the manager of the local complex, and LPDs are
not uniformly consistent in addressing issues that lead to unfair
outcomes. Some local complexes make discretionary decisions that harm
growers.
For instance, while LPDs regularly maintain extensive grower
manuals, LPDs are not obligated to have their manuals address the range
of situations that undermine a fair comparison or monitor whether the
local complexes comply with that manual in practice. Growers need a
poultry ranking system that meets a reasonably reliable standard. For
there to be fair payments under sections 202(a) and 410 of the Act,
LPDs must properly adjust their comparison-based compensation systems
used in poultry grower ranking systems. Rules, like this final rule,
must reasonably neutralize the impact of inequitable distribution of
inputs and flock distribution practices on poultry grower compensation.
Because different inputs and flock production practices affect
performance under the tournament, LPD decisions are an outsized
component of grower payments. When an LPD operates a tournament that
uses arbitrary or inequitable delivery of inputs and production
practices without establishing systems to mitigate material differences
in inputs and production practices among growers in a comparison group
or otherwise reasonably neutralize comparison impacts, the LPD has
committed an unfair and deceptive practice under the Act. Such a
practice is unfair because it uses criteria outside the growers'
control to evaluate their performance. It is deceptive because it
purports to evaluate growers on their effort when in fact it does not,
often leading to payment rates that are wildly fluctuating and
unpredictable. The duty of fair comparison established in this rule
also arises out of the Act's prohibitions on unfair practices, unjust
discrimination, the manipulation of prices, and failure to pay.
Comparison-based compensation systems can be used to proactively cause
harm to one or more growers by placing them in grower settlement groups
that are inappropriate based on distribution of inputs or flock
production practices. LPDs likewise can use league composition (i.e.,
the formation of settlement groups) to manipulate prices downward for a
given grower or group of growers. Finally, such practices can lead to a
failure to pay for services provided. Violations of the Act include an
LPD failing to maintain policies and procedures necessary to document
the company's compliance with those fair comparison duties, owing to
the Act's recordkeeping authorities (7 U.S.C. 221).
AMS is adding a new Sec. 201.110, ``Operation of broiler grower
ranking systems,'' to regulate LPDs' operation of poultry grower
ranking systems (i.e., tournaments) for broiler growers. Paragraph (a)
establishes an LPD duty of fair comparison in tournaments. This duty of
fair comparison requires LPDs to structure their tournament system to
provide a fair comparison among growers. AMS acknowledges that
sometimes a fair comparison is not possible due to unforeseen
differences in inputs or other circumstances, in which case an LPD must
compensate growers through a non-comparison method specified in the
contract that reflects a reasonable compensation to the grower for its
services. Paragraph (b) establishes basic documentation that LPDs must
maintain regarding how they design and operate their poultry grower
ranking systems for broiler growers.
i. Section 201.110(a)--Fair Comparison
Paragraph (a)(1) requires LPDs that use comparison-based
compensation systems for their poultry growers to design and operate
their poultry grower
[[Page 5160]]
ranking system (i.e., comparison-based compensations system) in a way
that provides a fair comparison among growers. This final rule uses in
various places the definition of ``poultry grower ranking system''--
commonly called the tournament contract--already set forth in PSD
regulations at Sec. 201.2.\24\ Recognizing that LPDs have long claimed
that tournament contracts are designed to promote efficiency, not
frustrate it, AMS has written this rule to affirm the duty to fairly
compare growers. Specifically, this rule requires LPDs to advance a
fair comparison among growers in a poultry ranking group based on
grower effort and skill. Measuring performance based on input quality--
which is outside of the grower's control--is unfair and deceptive. LPDs
have a multitude of means to maintain fair comparisons. This includes
correcting for: input quality variations, inappropriate feed type
delivery, gaps in feed delivery, variation in production practices such
as flock density, pick-up time or pick-up weight across the comparison
group. LPDs can manage fair comparisons through extending the period
over which the comparisons are made, adjusting payment for certain
inputs or production practice differences, or removing growers from
tournaments where a fair comparison is not possible. LPDs can ensure
league composition (ranking groups) are reasonably random and robust
enough to establish a fair comparison baseline. LPDs can also establish
processes for responding to complaints in a timely manner or making
appropriate adjustments to comparisons. But LPDs violate the Act when
they do not design and operate their comparison poultry compensation
system in a manner that delivers a fair comparison among growers within
any given ranking group.
---------------------------------------------------------------------------
\24\ Poultry grower ranking system means a system where the
contract between the live poultry dealer and the poultry grower
provides for payment to the poultry grower based upon a grouping,
ranking, or comparison of poultry growers delivering poultry during
a specified period.
---------------------------------------------------------------------------
Paragraph (a)(2) of Sec. 201.110 establishes the factors the
Secretary will consider in determining whether an LPD reasonably
designed or operated its poultry grower ranking system to deliver a
fair comparison among growers or whether the LPD must utilize a non-
comparison compensation method. This provision establishes a violation
for either the LPD's failure to design or failure to operate a poultry
grower ranking system to deliver a fair comparison among growers. In
the first instance, AMS could bring an enforcement action for an LPD's
failure to design the ranking system in a manner that would deliver a
fair comparison; such an action would be based upon the processes set
forth in the documentation required under paragraph (b) of this
section. In the second instance, AMS could bring an enforcement action
based upon an LPD's failure to operate the ranking system in a manner
consistent with the duty of fair comparison. Such a failure could be
because the LPD was not following the documented processes or because
in practice the documented processes do not deliver a fair comparison.
The factors listed in Sec. 201.110 (a)(2)(i) through (vi) are designed
to establish what constitutes reasonable delivery of a fair comparison.
That is, the Secretary will examine these factors when determining
whether the LPD has reasonably designed or operated their ranking
system. Reasonableness should be viewed as an objective test that
accounts for growers' contract expectations, basic considerations of
equity, and the LPD's ability and willingness to prevent harms to
growers resulting from factors outside growers' control. However, it
should also provide some flexibility to LPDs to achieve distinct goals
provided they are well-designed, justified, and not otherwise unfair or
deceptive.
Paragraphs (a)(2)(i) and (ii) of Sec. 201.110 address whether an
LPD's distribution of inputs and assignment of flock production
practices caused material differences in performance that growers
cannot avoid, and whether the LPD made appropriate adjustments to
compensation. Fair comparison of growers requires that growers do not
receive a distribution of inputs or assignment of production practices
that cause material differences in performance from other growers to
whom they are being compared and are caused by factors outside of a
grower's control. Material differences in performance are differences
that meaningfully (from the perspective of the grower) impact grower
payments.
To comply with these requirements, LPDs must identify inputs and
flock production practices under their control that impact grower
payment and ensure that these factors do not meaningfully impact grower
payments. LPDs also must improve their monitoring of how inputs and
flock production practices are allocated across growers, and, as
appropriate, adjust such allocations to reduce the unequal distribution
among growers within a settlement group or across a given time period.
An LPD could still provide certain growers with different inputs, for
example because an LPD believed certain growers were better at raising
particular types or quality of birds (e.g., chicks from older hens),
provided it adjusted compensation if material differences in
performance affected the comparison. The LPD would also be free to use
a non-comparison method for those growers.
LPDs must adjust how grower pay is calculated if a fair comparison
is impractical due to unavoidable inequitable allocations. For example,
the LPD may determine that a five-flock average may be appropriate for
determining a grower's pay when the LPD provided chicks for that grower
are later discovered to be diseased, and no fair comparison is
reasonably possible, practical, or appropriate for that grower within
the tournament for that flock. Any adjustment to how grower
compensation is determined must use a non-comparison method specified
in the contract that reflects reasonable compensation to the grower for
its services. The contract should set forth the preferred approach(es)
of the parties. Ensuring that agreed-to payment adjustments are fair
will be part of regular AMS poultry compliance reviews. An average of
the last five settlements by the grower is considered a non-comparison
method for the purpose of the tournament settlement that the grower is
being excluded from, even though the average is affected by the
previous comparisons (unless unusual facts and circumstances call into
question the fairness of such an approach).
Section 201.110(a)(2)(iii) addresses whether the designated time
period used in an LPD's comparison is appropriate, including whether
the LPD uses one or more groupings, rankings, or comparisons of growers
to mitigate the effects of any differences in inputs over the
designated time period. Fair comparison of growers does not require
that LPDs provide all growers precisely equal inputs and identical
production practices for each flock. This rule permits LPDs to minimize
production inefficiencies that would arise from a standard requiring
strict equality in inputs, while avoiding an unfair comparison of
grower performance. If the LPDs compare growers fairly over reasonable
period of time, randomly selecting inputs is one way, in most cases, to
minimize the effect of the flock-to-flock variance in inputs. Companies
may use non-random distribution, including temporarily correct for what
would otherwise be an inequitable distribution of inputs under an
otherwise random system, provided they ensure comparisons are fair.
[[Page 5161]]
AMS considers a period of one year or less to be a reasonable
timeframe across which to compare growers' performance because it
provides sufficient time to limit variation from one event while
ensuring that LPDs treat growers fairly over a reasonable timeline. The
one-year period coincides with commonly used five-flock averages and
with one-year comparisons used in some live poultry growing
arrangements.
Paragraph (a)(2)(iv) of Sec. 201.110 addresses whether conditions
and circumstances outside the control of the LPD render comparison
impractical or inappropriate. A settlement group may have differences
in LPD-provided inputs, LPD-assigned production practices, or other
factors beyond the control of LPDs and growers that render a reliable
comparison impossible. The Secretary will consider the facts and
circumstances applicable to each case. One example might be the
previously described situation where an LPD unknowingly delivered
chicks to a grower that are later discovered to be diseased so that no
fair comparison is possible.
Section 201.110(a)(2)(v) addresses whether an LPD has made
reasonable efforts to resolve in a timely manner grower concerns
regarding the LPD's exercise of discretion over the implementation of
its fair comparison processes. In determining compliance with this
requirement, through compliance reviews or in response to a complaint,
AMS will consider whether an LPD has demonstrated enough responsiveness
and commitment to resolving legitimate concerns to avoid potential
secondary harm to the grower. What constitutes ``reasonable efforts''
and ``timely'' resolution of a grower's concerns will depend on the
facts and circumstances of each case, with particular attention placed
on whether and how the situation adversely impacts the fairness of the
comparison(s) for the grower. For example, if a grower raises immediate
and urgent concerns about feed quality, such as the delivery of feed
meant for older chicks than the grower has, the LPD should have in
place processes to--and in fact, actually--resolve this concern as soon
as possible to minimize any additional undue damage to the grower's
flock due to lack of proper nutrition. If a grower raises concerns
about feed persistently being delivered late or in an insufficient
quantity, the Agency will examine the LPD's ``reasonable efforts''
taken to adjust the delivery method. Additionally, an LPD is prohibited
from retaliating against a grower in any manner for raising concerns as
to whether a fair comparison method was used.
Lastly, Sec. 201.110(a)(2)(vi) states that the Secretary shall
consider any other factor relevant to a fair comparison among broiler
growers in a poultry ranking system. This provision gives AMS the
authority to address any other facts or circumstances that adversely
affected the fairness of the design or operation of the poultry grower
ranking system. AMS will determine compliance by examining the facts
and circumstances, and in particular, whether the LPD took specific
actions to undermine the comparison process. For example, this prong
allows AMS to consider whether an LPD's intentional grouping of certain
growers in a poultry ranking group to manipulate or adversely affect
comparison-based outcomes constitutes a violation of the Act.
When determining whether an LPD has designed and operated its
broiler grower ranking system to provide a fair comparison among
growers, AMS will consider the fair comparison factors set forth in
Sec. 201.110(a)(2) against how and to what degree comparison factors
account for total grower compensation. When relative grower performance
pay accounts for a very small portion of grower compensation, AMS
expects differences in inputs and flock production practices to cause
fewer material differences in pay. AMS expects this dynamic to operate
on a sliding scale; the smaller the role of comparison pay in total
grower compensation, the smaller the effect of variations in inputs and
flock production practices on total compensation. AMS will also
consider the design of the formula to determine its impact on the
magnitude or distribution of compensation, if any.
In some situations, differences among LPD-provided inputs, LPD-
assigned flock production practices, or factors beyond the control of
both LPDs and growers make a reliable comparison impossible,
impractical, or inappropriate for one or more growers. In such cases,
Sec. 201.110(a)(3) requires that an LPD must fairly compensate growers
through a non-comparison method specified in the contract that reflects
reasonable compensation to the grower or growers for their services.
For example, if an LPD is unable to pick up a flock in a timely manner
because of processing disruptions (as occurred during the COVID-19
pandemic), the LPD may remove the grower from the settlement rather
than compare that grower's flock performance against growers delivering
flocks of a significantly different age. In such cases, the LPD must
compensate the grower using a reasonable non-comparison alternative.
Multiple approaches could be considered reasonable depending on the
circumstances, and LPD costs are an appropriate consideration as part
of those particular facts and circumstances. AMS is aware that LPDs
often pay the grower an amount equal to the average rate they received
over their previous five flocks. The non-comparison method is intended
to fairly compensate the grower. Therefore, absent special
circumstances where a rationale and an agreement to do otherwise are
reasonable and appropriate (and documented as such), the non-comparison
compensation method needs to equal or exceed the pay that the
comparison-based compensation rate would have delivered. AMS will rely
on the documentation of written processes set out in Sec. 201.110(b),
as well as the facts and circumstances of specific occurrences, to
evaluate compliance.
ii. Section 201.110(b)--Documentation
Paragraph (b) of Sec. 201.110 details the documentation an LPD
must establish and maintain of its processes for the design and
operation of its poultry grower ranking system for broiler growers that
is consistent with the duty of fair comparison. This paragraph has
changed considerably from the proposed rule to provide greater
flexibility in meeting the terms of this regulation. AMS also revised
paragraph (b) in response to commenters' concerns that the specific
documentation requirements laid out in the proposed rule were very
similar to documentation requirements delineated in existing
regulations at Sec. 201.102(b) and that burdening LPD service
technicians with increased paperwork would take away from their core
responsibilities of attending to the production needs of growers.
In the final rule, Sec. 201.110(b) sets forth documentation
requirements regarding LPDs' duty to ensure the fair design and
operation of broiler grower ranking systems. Under section 401 of the
Act, AMS is authorized to prescribe ``the manner and form in which such
accounts, records, and memoranda shall be kept'' whenever the Secretary
finds that the records of an LPD do not fully and correctly disclose
the LPD's business transactions (7 U.S.C. 221). Paragraph (b)(1)
requires that LPDs establish and maintain written documentation of
their processes for the design and operation of a poultry grower
ranking system that is consistent with the duty of fair comparison.
This rule requires documentation to include
[[Page 5162]]
written processes, referred to as policies and procedures, regarding
the process for (i) inputs under LPD control, (ii) flock production
practices (iii) league composition, (iv) the evaluation period, (v)
non-comparison factors, and (vi) LPD communication and cooperation with
growers. These processes must provide a general description of the
items that the rule requires to be included, with sufficient detail to
provide a typical user of the documentation--such as a local poultry
complex manager that directs the operation of the complex's
tournament--with an understanding of how duty of fair comparison is to
be operationalized within this complex's poultry grower ranking
systems.
To simplify the documentation requirements and minimize paperwork
burdens for poultry complex service technicians, AMS revised paragraph
Sec. 201.110(b)(1)(i), ``Inputs under live poultry dealer control,''
from what was proposed by removing subparagraphs (b)(1)(i)(A) through
(E), which delineated detailed requirements pertaining to
identification, management, and adjustment of differences in input
distribution to growers, and how LPDs adjust compensation calculations
based on the inputs a grower receives. In the final rule, paragraph
(b)(1)(i) contains no subparagraphs and simply requires that the LPD's
written processes include how and when the LPD assigns, adjusts, or
otherwise accounts for similarities and differences of quality and
quantity in the delivery of inputs to growers. The removal of
subparagraphs (A) through (E) simplifies the requirement by including
one all-encompassing requirement that LPDs must explain how they
assign, adjust or otherwise account for similarities and differences of
quality and quantity in the delivery of inputs to growers. Revised
paragraph (b)(1)(i) clearly requires that LPDs address all the ways
that variation in inputs can impact a poultry growing ranking system,
while giving LPDs flexibility in how to mitigate the impact of uneven
distribution of LPD-provided inputs on fair comparison in the
tournament and, hence, comparison-based grower pay. In sum, AMS
determined that the deleted subparagraphs were not needed to establish
that LPDs must explain in their written documentation how they account
for the possible distortions and resulting inequities that can manifest
in poultry grower ranking systems when they fail to properly account
for variations in inputs.
Under paragraph (b)(1)(i), LPDs are required to create a written
process for how and when the LPD assigns, adjusts, or otherwise
accounts for similarities and differences of quality and quantity in
the delivery of inputs to growers. This provision requires LPDs to have
a defined process governing how they will ensure the duty of fair
comparison is met. Such a process needs to explain how the LPD will
operate its poultry complex and its related poultry grower ranking
system, so growers have fair opportunity to compete on a level playing
field in individual flock settlements or in a comparison settlement
that stretches beyond individual flocks, where the impact of variation
in quality, quantity, or timing of inputs may be significantly reduced
or eliminated. LPDs unfairly harm growers when they distribute inputs
in a manner that disadvantages a grower relative to other growers in
said tournament(s) and base their compensation accordingly. Growers
cannot control the nature of the inputs they receive from their LPD,
whether that be quality of chicks or feed, appropriateness of feed
delivered for stage of growth, gaps in feed delivery, or delivery of
veterinary services. Receipt of low-quality, insufficient, or
inappropriate inputs can unfairly impact growers' performance in
tournaments if the LPD does not have appropriate processes in place for
mitigating such variation in input delivery. LPD processes required
under paragraph (b)(1)(i) must include ongoing accounting and
monitoring of inputs supplied to each producer using objective measures
of quality and performance that are generally accepted in the industry.
Such monitoring and accounting should aim for as minimal variation as
possible in input delivery quality or quantity across the members of
one or more grower poultry ranking groups, and appropriate mechanisms
for detecting and correcting for input variations in a timely manner.
Such processes should address key areas of concern, including
allocation of chicks that differ in quality and performance, variation
in quality or quantity of feed, or variation in medication across
grower groupings. LPDs may include policies and procedures for
balancing disparity of inputs either within a single flock or over
multiple flocks as appropriate and feasible.
In the final rule, AMS also simplified Sec. 201.110(b)(1)(ii),
``Flock production practices,'' from that which was proposed. AMS
removed subparagraphs (b)(1)(ii)(A) through (E), which described, in
detail, the processes LPDs must include in the design and operation of
their poultry grower ranking systems pertaining to assignment of flock
density at delivery, timing of pick-up, adjustment of comparison based
on different assignment flock production practices, and adjustment of
compensation calculations based on the grower's receipt of specific
flock production practices. In the final rule, paragraph (b)(1)(ii)
contains no subparagraphs and simply requires that written processes
include how and when the LPD assigns, adjusts, or otherwise accounts
for differences in production practices. The removal of subparagraphs
(A) through (E) simplifies the requirement by including one all-
encompassing requirement that LPDs must explain how they assign,
adjust, or otherwise account for similarities and differences regarding
assignment of flock production practices. Revised paragraph (b)(1)(ii)
clearly requires that LPD address the ways that variation in flock
production practices assigned to growers can impact a poultry growing
ranking system, while providing flexibility on the appropriate
processes LPDs can establish to mitigate the negative impact LPD-
assigned production practices can have on fair comparison in the
tournament(s) and, therefore, comparison-based grower pay. In sum, AMS
determined that the deleted subparagraphs were not needed to establish
that LPDs must explain how they account for the possible distortions
and resulting inequities that can manifest in poultry grower ranking
systems when LPDs fail to account for variations in flock production
practices.
Under paragraph (b)(1)(ii), LPDs must maintain written
documentation of its processes for how and when the LPD assigns,
adjusts, or otherwise accounts for differences in production practices
across growers in a poultry ranking system. Similar to paragraph
(b)(1)(i), such processes should include ongoing monitoring of how
flock production practices are allocated across different growers in
one or more poultry grower ranking systems, and mechanisms for
adjusting for disparities in flock production allocations in a
reasonable time frame such that additional harm does not result. Such
processes governing flock production processes should cover how and
when the LPD assigns density at delivery; how and when the LPD manages
pickup of birds with respect to slaughter weight and bird age; how and
when the LPD adjusts how a grower is compared to other growers with
different assigned flock production practices or otherwise adjusts the
flock production practices the grower receives; any steps the LPD takes
to adjust compensation
[[Page 5163]]
calculations based on suboptimal allocation of flock production
practices to growers; and how and when the LPD minimizes, adjusts, or
otherwise accounts for differences in production practices. LPDs can
unfairly manipulate grower payments when they compare growers even
within a single tournament settlement group within which the LPD has
assigned different types of production practices to growers in the
group. Under this rule, LPDs must develop policies and procedures that
describe the processes for ongoing accounting and monitoring of LPD-
determined flock production practices allocated to each producer. The
LPD's processes must provide a consistent approach to minimize
differences in production practice assignments and describe methods to
compensate growers for differences that result in harms.
In the final rule, AMS also simplified paragraph (b)(1)(iii) of
Sec. 201.110 from what was proposed. In the final rule, AMS removed
subparagraphs (A) through (C) from paragraph (b)(1)(iii) and instead
separated out the requirements into three distinct paragraphs:
(b)(1)(iii), ``League composition;'' (b)(1)(iv), ``Evaluation period;''
and (b)(1)(v), ``Non-comparison.''
Under the final rule, paragraph (b)(1)(iii), ``League
composition,'' requires LPDs to create written processes governing
league composition, which is how LPDs assign groups of growers to
settlement groups. AMS revised this paragraph for simplicity and
readability. Formerly, the provision was contained in paragraph
(b)(1)(iii)(C), reading, ``If the live poultry dealer groups growers
for settlement in any manner other than the one used in recent
settlements, how the dealer determines such groupings.'' Settlement
groupings, also called league composition, are most commonly based on
their chronological availability for slaughter within the complex but
could also be based on housing type or other commonalities across a
group of growers. Generally, the settlement grouping is determined by
flock placement timing, which commonly varies based on the timing needs
of the growers. For example, growers may need additional time between
flocks for cleaning, maintenance, vacation, or other similar reasons.
Paragraph (b)(1)(iii) of this rule serves to identify practices or
circumstances that diverge from these ordinary reasons for determining
settlement groupings. While legitimate reasons exist for deviating from
a strict chronological availability-based grouping, this provision is
principally meant to ensure that LPDs do not use league composition to
interfere with fair comparison by intentionally grouping specific
growers together to lower the pay of one or more members of the
settlement group, or to otherwise manipulate pay to deliberately
benefit certain growers over others.
Under Sec. 201.110(b)(1)(iv) of the final rule, ``Evaluation
period,'' the LPD is required to maintain written documentation of how
it establishes a reasonable time period over which the LPD evaluates
the duty of fair comparison. This provision was proposed with slightly
different phrasing as paragraph (b)(1)(iii)(A). This provision requires
the LPD to describe its process for how it determines the number of
settlement groupings over which grower comparisons will be made. The
duty of fair comparison requires that LPDs design and operate their
poultry growing ranking systems to provide a fair comparison among
growers. This means that the comparison must genuinely reflect effort
by the growers, not variability in inputs or flock production
practices, which are outside of the growers' control and thus not
criteria that form the basis of a fair comparison. It may be that over
the course of a year variations in inputs or flock production practices
will cancel each other out. The evaluation period must account for the
length of its growers' contracts and the reasonable expectation of
renewal. If the duty of fair comparison requires five flocks, then the
contracts need to span at least five flocks, or if they do not, there
must be a very high likelihood that the contract will be renewed such
that the growers will receive the five flocks and thus be subject to a
fair comparison that evens out fluctuations in input quality or
quantity or flock production practices.
In the final rule, Sec. 201.110(b)(1)(v), ``Non-comparison,''
requires that an LPD's written processes explain when the LPD might
remove a grower from a ranking group, and how the LPD will compensate
growers removed from a ranking group to satisfy the non-comparison
compensation method required under Sec. 201.110(a)(3). This provision
was proposed as paragraph (b)(1)(iii)(B) in similar language. There are
myriad reasons why an LPD may decide to remove a grower from a ranking
group. For example, LPDs may not have enough comparable growers with
which to make a reliable comparison in the current grouping and may use
growers settling in previous periods to make a reliable comparison.
Likewise, a specific grower may have received undesirable inputs or an
assignment of production practices that materially impacted the
grower's performance, necessitating the removal of the grower from the
grouping and compensation under a non-comparison compensation method.
Under this provision, the LPD is required to explain how and when the
LPD removes a grower from a ranking group because the grower received
unfavorable inputs or production practices and how it will fairly
compensate such growers through a non-comparison compensation method.
In the final rule, Sec. 201.110(b)(1)(vi), ``Communication and
cooperation,'' is very similar to the provision as proposed, with the
only notable change being the paragraph designation: in the proposed
rule, the paragraph was designated paragraph (b)(1)(iv); in the final
rule, the paragraph is designated paragraph (b)(1)(vi). This paragraph
requires LPDs to create written processes for how the LPD will resolve
a grower's concerns with the LPD's exercise of discretion over the
implementation of the policies required by this section, including the
timeliness of the resolution. A tournament system cannot be fair if it
fails to permit growers to contest, without fear of retribution,
negligent or malicious actions taken by the LPD that may impact grower
performance. The rule provides flexibility on how LPDs can satisfy this
requirement. A range of procedures are available, such as timely
communication with complex management, communication with LPD
headquarters, and grower councils, wherein disputes are resolved with
input from other growers. The implementation of processes to manage and
resolve grower disputes can serve to alert LPDs to potential unfairness
in their comparison of growers and enable them to resolve issues in a
timely manner.
In the final rule, AMS removed proposed Sec. 201.110(b)(2),
``Compliance review.'' In the proposed rule, this paragraph delineated
detailed compliance review procedures for the processes set out in
paragraph (b)(1) of this section. AMS removed this requirement in
response to comments that such self-audits are a somewhat burdensome
requirement for LPDs that can be eliminated with minimal effect on
effective compliance. Rather than requiring self-audits, AMS will
review the policies and procedures required under Sec. 201.110(b)(1)
through its ongoing compliance review process. This will ensure regular
review of LPDs' compliance with the provisions of this
[[Page 5164]]
regulation with minimal additional recordkeeping burden on LPDs.
In the final rule, Sec. 201.110(b)(2), ``Record retention,''
mirrors that which was proposed, with the only notable change being the
paragraph designation: in the proposed rule, the paragraph was
designated paragraph (b)(3); in the final rule, the paragraph is
designated paragraph (b)(2). This paragraph requires LPDs to retain all
written records relevant to their compliance with paragraph (b) for no
less than five years from the date of record creation. These records
should be made available to AMS upon request. Relevant records include,
for example, copies of existing processes (policies and procedures);
written documentation of LPD processes used within the last five years,
including documentation of inputs and flock production practices
provided to growers; written documentation of league composition;
written documentation of grower complaints and their resolution; board
minutes discussing compliance with this section for five years from the
date of the board meeting; current and expired grower contracts for
five years for the date of last effectiveness of the contract;
disclosures provided to growers for five years from the date of the
disclosure is provided to the grower; information on payments to
growers or other forms of adjustment made to ensure a fair tournament,
etc. Under the regulation, LPDs must retain these records for five
years to enable the Agency to monitor the evolution of compliance
practices over time in this area and to ensure that records are
available for what may be complex evidentiary cases. As noted earlier
in this section, section 401 of the P&S Act authorizes AMS to prescribe
the manner and form in which LPDs keep business records. This
recordkeeping requirement will enhance LPD management's ability to
establish and monitor compliance, as well as AMS's ability to supervise
and enforce the rule.
iii. Compliance and Enforcement
Compliance with Sec. 201.110(b) requires LPDs to retain records
that document the LPD's design and operation of broiler grower ranking
systems in a manner that is consistent with the duty of fair
comparison. These policies and procedures are necessary to document
compliance precisely because the options for delivering a fair
comparison are so diverse. Policies and procedures developed pursuant
to this rule should describe the LPD's framework for assigning inputs
and LPD-determined flock production practices, comparing grower
performance, and resolving growers' concerns regarding the LPDs'
implementation of its policies and procedures. Recordkeeping should
enable periodic review by the LPD to examine and report on the LPD's
compliance with its established written processes and, as such, with
its compliance with the duty of fair comparison.
Enforcement of Sec. 201.110 can occur in several ways. Growers can
contact AMS-PSD to submit a complaint regarding an alleged violation of
Sec. 201.110. PSD would then investigate, which could lead to referral
to DOJ for appropriate action or, where failure to pay is implicated,
to USDA enforcement through administrative action.\25\ AMS will also
review LPD contracts, along with other required records from the LPD,
in connection with routine compliance reviews and investigations to
ensure LPD compliance. Injured individuals also have a right to proceed
directly in Federal court.
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\25\ Additional information on reporting violations of the P&S
Act can be found here: https://www.ams.usda.gov/services/enforcement/psd/reporting-violations (last accessed 11/13/2023).
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C. Broiler Grower Capital Improvement Disclosure Document (Sec.
201.112)
AMS is finalizing new Sec. 201.112, ``Broiler grower Capital
Improvement Disclosure Document,'' which requires that LPDs provide
growers with a Capital Improvement Disclosure Document (Disclosure
Document). Paragraph (a) requires that when an LPD requests that a
grower make an additional capital investment, the LPD must provide the
grower with a Disclosure Document. Paragraph (b) describes the required
disclosures in the Disclosure Document. AMS made slight modifications
to provisions of paragraph (b), which will be described below. AMS also
modified proposed Sec. 201.112 in response to public comment by adding
a new paragraph (c), which requires the LPD to assist with translating
the Disclosure Document.
The inclusion of Sec. 201.112 is necessary because LPDs often
request or require that growers make costly additional capital
investments, which may benefit LPDs and growers in some ways, but may
also be problematic and unfair. The LPD requesting an additional
capital investment may be deploying bargaining leverage and forcing the
grower to bear unreasonable risk, and the purposes, processes, and
outcomes of the additional capital investment may be opaque,
complicated, or otherwise difficult to evaluate. Additional capital
investments can also further serve to lock in growers to specific LPDs,
making it harder to switch. Growers, however, are often not in a
position to choose not to make an additional capital investment. Many
growers come under significant pressure from LPDs to make a requested
additional capital investment. Even when a grower has sufficient
bargaining leverage to negotiate the terms of compensation, the LPD may
not provide sufficient information for the grower to assess the full
risk and reward of undertaking the additional capital investment.
Indeed, based on AMS's knowledge of industry disclosure practices and
decades of hearing complaints from growers, growers today often
undertake additional capital investments for the LPD without the
opportunity to fully understand the additional capital investment's
purpose, design, risks, and impacts on their financial well-being; or,
are pressured in some way to make those investments.\26\ Information
asymmetry impairs growers' ability to negotiate, effectively exercise
independent decision-making to reject an additional capital investment,
and, more broadly, manage their farming operation upon choosing
[[Page 5165]]
to make the additional capital investment. When information asymmetries
prevent growers from evaluating whether they are able to recoup their
investment or whether they can engage in other farming practices that
could achieve the goals of the additional capital investment, growers
cannot effectively protect their financial interests or freely exercise
decision-making with respect to their farming operation. Growers and
AMS may also be unable to identify circumstances where LPDs are seeking
to compete through additional capital investment practices that shift
or hide costs to growers, which subverts the competitive process.
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\26\ MacDonald, James M. 2014, Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, USDA
Economic Research Service, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6 (In a 2011 survey of
contract growers, sixty percent of growers making any capital
expenditures reported that the LPD required those expenditures).
AMS-FTPP-22-0046-0799 (``Poultry companies require capital
improvements that do not improve my bottom line. I must pay for the
capital improvements, which may not be a capital improvement that
will benefit my operation. It will not benefit the quality of the
bird. The benefit is not clearly proven or explained, just I am
required to make the improvement or get paid less or dropped as a
grower.''); AMS-FTPP-22-0046-0737 (``For years, I've been forced to
upgrade my farms facilities at my own expense just to maintain
contracts. These costly and often unnecessary upgrades, dictated by
companies like [name redacted], have left me in debt and struggling
to cover basic expenses. The financial burden is unsustainable and
has made it incredibly challenging to keep my farm afloat''); AMS-
FTPP-22-0046-0176 (``For way too long these poultry integrators have
been let off the hook for bullying, forcing their contract growers
into making large investments in upgrades that will never see a
payback beyond the initial investment to build the infrastructure to
keep their growers under their total control and blaming growers for
everything that goes wrong . . .''). 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 (``It's
typical for growers to be asked to do expensive upgrades on their
poultry houses before this first loan of this building has been paid
off. I know because I was one of those growers. The threats put
before you, the communication, the threat is put before you, if you
do not do this, they're not going to bring you any more chickens to
grow'').
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AMS has identified as deceptive those LPD contracting practices
that fail to disclose key information about additional capital
investments. Growers make critical investment decisions in reliance on
the information required by this rule, most of which is not currently
provided by LPDs. AMS emphasizes that disclosure under new Sec.
201.112 is not, and is not intended to be, a remedy to unfairness in
and of itself; rather, disclosure provides AMS and growers with
information necessary to enforce their rights under existing Sec.
201.216, ``Additional capital investments criteria,'' and the P&S Act
more broadly, when terms are unfair. Without sufficient, simple, and
clear disclosures, growers cannot assess the benefits or risks of
making the investment. Indeed, given the role of performance pay in
determining total grower compensation under the tournament, some
voluntary additional capital investments may seem mandatory if growers
want to maintain existing revenue levels, even if growers don't fully
understand the purposes and expected outcomes of the requested
additional capital investment. Furthermore, growers experience
considerable pressure to accept LPDs' additional capital investment
requests given LPDs' market power, or substantial bargaining power, and
growers' relatively weak market position, including commonly a lack of
meaningful choice among LPDs. A majority of broiler growers cannot
change LPDs if their current relationship sours.\27\
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\27\ MacDonald, James M. 2014. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, USDA
Economic Research Service (Roughly 22 percent of growers operate in
a pure monopsonistic local market, and that 52 percent of broiler
growers (farms), accounting for 55 percent of broilers produced and
56 percent of total production, report having only one or two LPDs
in their local areas).
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AMS notes that the existing regulation in Sec. 201.216 is intended
to allow the Agency to partially mitigate additional capital investment
problems for growers. The existing regulation sets forth criteria for
whether additional capital investments would be an unfair practice or
other violation of the Act, including whether the grower can decide
against the additional capital investments; whether the additional
capital investments were a result of coercion, retaliation, or threats
by the LPD; and whether the additional capital investments can result
in reasonable recoupment, or adequate compensation for the additional
capital investments, among other non-exhaustive criteria. However, AMS
has found that the presence of the criteria alone is insufficient to
effectively address problems stemming from additional capital
investments. For example, insufficient information about additional
capital investments impacts the criteria at Sec. 201.216(a) that seek
to preserve the grower's discretion to decline an additional capital
investment. Lacking sufficient information about additional capital
investments, a grower cannot effectively assess whether they would
still be able to compete against other growers without the additional
capital investment.
The Act requires production contracts to disclose the possibility
of additional capital investment (7 U.S.C. 197a(b)). However, the
majority of contracts contain no information relating to when or how
additional capital investments may be required, nor the costs or risks
of any such additional capital investment, nor what, if any, limits
there are on an LPD's ability to unilaterally impose additional capital
investments that do not materially improve production efficiency or
meet consumer demands. To better enable growers and AMS to guard
against unfairness and to prevent deception, LPDs must disclose more
information regarding the purposes, processes, and outcomes of
additional capital investments they request from broiler growers. The
disclosures must occur before growers take on the financial burden and
risks of the additional capital investment. The provision of such
information is not, in and of itself, the cure for unfairness, but
rather a key tool for AMS and growers to halt abusive practices by
arming them with the ability to identify those challenges sooner. The
disclosures required in Sec. 201.112 accomplish these goals.
Furthermore, the act of disclosing information does not, in and of
itself, render the action lawful. Even if disclosed, certain actions
may be unfair or deceptive practices under the P&S Act. Disclosure
alone does not mitigate the legal or ethical ramifications of such
practices.
The Agency has an existing regulation, 9 CFR 201.216, which sets
forth a non-exclusive list of criteria the Secretary may consider in
determining if a required additional capital investment violates the
Act. In future cases, the Sec. 201.112 disclosures on additional
capital investments will improve the Secretary's analysis of Sec.
201.216. Whether the Secretary considers recoupment of the additional
capital investment to be reasonable includes consideration of the
projected returns under Sec. 201.112(b)(6), the contract terms, and
the return to an average grower operating under the LPD's contract. AMS
underscores the importance of length of the contract to secure a full
opportunity for recoupment. AMS recognizes that growers in many
instances cannot avoid the LPD's unfair exercise of market power or
bargaining leverage, and that the LPD failing to sufficiently and
fairly compensate growers for an additional capital investment is not a
cognizable benefit to growers or to competition.
i. Section 201.112(a)--Disclosure Requirement
In the final rule, paragraph (a) of Sec. 201.112 requires that
when an LPD requests that a broiler grower make an additional capital
investment, the LPD must provide the broiler grower with a Disclosure
Document that contains the information required by paragraph (b) of
this section. AMS slightly modified this provision from the proposed
rule by adding the paragraph heading, ``Disclosure requirement.''
Information provided in the Disclosure Document will help growers
protect themselves at an earlier stage--before the investment--from
unfair practices, by enabling them to report to AMS potentially unfair
additional capital investment practices or bring their own action.
Improved documentation will also enable AMS to take earlier and more
effective action against problematic additional capital investment
practices. Transparency will also enable some growers, where sufficient
choice exists, to make better additional investment decisions.
Importantly, clear disclosure of additional capital investment
parameters will enhance growers' ability to enforce their rights
relating to unfair practices under Sec. 201.216 (such as recoupment
and discretion to refuse to make an additional capital investment), as
well as other provisions of the P&S Act and regulations. Disclosure
alone is
[[Page 5166]]
not a remedy for an additional capital investment that is unfair, but
the disclosures required by new Sec. 201.112 will create a record that
will facilitate the Agency's ability to enforce the Act under existing
Sec. 201.216.
This requirement applies prospectively to requests for additional
capital investments. However, if the LPD has previously provided any
disclosure to the grower that was incomplete or inaccurate, the company
should consider revising it and providing an updated copy to the grower
to minimize the risks of having engaged in a violation of deceptive
practices.
ii. Section 201.112(b)--Disclosure Contents
Section 201.112(b) lists the items the Disclosure Document is
required to disclose. AMS slightly modified this provision from the
proposed rule by adding the paragraph heading, ``Disclosure contents.''
The required disclosures must be prominently presented in a clear,
concise, and understandable manner. Paragraph (b)(1) requires that the
Disclosure Document provide the purpose of the additional capital
investment for both the LPD and the grower and a summary of all
research and other supporting material that the LPD has relied upon in
justifying the additional capital investment. LPDs almost always have
superior information regarding the outcomes of and risks around the
contemplated additional capital investment. LPDs commonly research and
design additional capital investments and usually have a plan or
intended outcomes with respect to their request for the adoption of an
additional capital investment. Growers have limited to no access to
that information, yet they are often asked to expend hundreds of
thousands or even millions of dollars to implement additional capital
investments. As part of any assessment of risks or benefits relating to
an additional capital investment, growers must be provided the
information necessary to understand the intended purpose of the
additional capital investment and have access to any research or other
supporting material regarding that additional capital investment. For
example, growers may make different decisions about their approach to
additional capital investment depending on whether it is intended to be
performance-enhancing (e.g., tunnel ventilation), whether it is
intended to enable a change in the product offered (e.g., a switch to
``No Antibiotics Ever''), or whether it changes the nature of the
controls and risks (e.g., automation and monitoring). Omissions of this
information prevent growers from making an informed business decision,
negotiating effectively for adequate compensation, or determining if
and how the original bargain for exchange has been modified or altered.
Thus, an LPD's failure to adequately disclose this information is
deceptive and harmful to growers because that failure imposes undue
financial risk and increases the likelihood of a poor financial outcome
on the investment.
Paragraph (b)(2) of Sec. 201.112 requires LPDs to provide clear
additional capital investment financial incentives and schedules to
growers. Under paragraph (b)(2), LPDs are required to disclose to the
grower all financial incentives and compensation associated with the
additional capital investment. The Disclosure Document shall clearly
delineate how long such financial incentives or changes in grower
compensation will last and the degree to which benefits accruing to
growers making such investments are contingent on how widely they are
adopted by other growers. Compensation and financial incentives are
broad terms and may include changes to grower base pay or performance
pay, payments specifically linked to adoption of the particular
technology resulting from the additional capital investment, and any
other changes to the economics of the grower's relationship with the
poultry company associated with making the additional capital
investment or its implementation once made. Clearly disclosing
financial incentives will assist the grower in assessing the relative
risks of non-recoupment, as the reliability of those incentives may
vary based on the duration of the contract and whether other growers
are likely to incorporate the additional capital investment technology
in a way that would make recoupment through performance pay less
reliable.
Paragraph (b)(3) of Sec. 201.112 requires that LPDs disclose all
construction schedules related to the request for the additional
capital investment. Clearly disclosing expected grower construction
schedules and other repayment schedules also will assist the grower in
assessing incentives and risks relating to borrowing, construction, and
payment timing. This disclosure will position growers to better analyze
the business risk in undertaking an additional capital investment,
including the operational risks relating to implementing the additional
capital investment and risks of LPD strict enforcement of these
implementation requirements. For example, comments (discussed in
further detail below in section V., ``Comment Analysis'') noted
concerns about LPDs not being sufficiently lenient regarding
construction schedules. By enabling growers to clearly understand each
component of the additional capital investment requested by the LPD,
the required disclosures will address key information asymmetries that
exist between the LPD and the grower with respect to LPD's purposes,
bases, and expectations for an additional capital investment. Growers
will be better positioned to evaluate the true costs and risks from the
additional capital investment, as well as the operational implications
for their farming enterprise.
As proposed, paragraphs (b)(1) through (3) of Sec. 201.112
included language requiring that LPDs describe within their Disclosure
Document: (1) ``any relevant'' research or other supporting material
that the LPD has relied upon in justifying the additional capital
investment; (2) ``all relevant'' financial incentives and compensation
for the grower associated with the additional capital investment; and
(3) ``all relevant'' construction schedules related to the request for
additional capital investment. After consideration and review of public
comments, it became clear that the term ``relevant'' as proposed was
ambiguous and confusing. Commenters expressed uncertainty regarding how
to determine compliance with these requirements. Some stakeholders
believed that the term ``relevant'' created an ambiguous requirement
that could result in the inclusion of unnecessary documents that may
not in fact be ``relevant'' to satisfy the required disclosures. AMS
finds these comments persuasive and, thus, AMS has struck the term
``relevant'' from paragraphs (b)(1) through (3) of Sec. 201.112. After
the change, paragraphs (b)(1) through (3) require LPDs to submit: (1)
all research and other supporting material that the LPD has relied upon
in justifying the additional capital investment; (2) all financial
incentives and compensation for the grower associated with the
additional capital investment; and (3) all construction schedules
related to the request for additional capital investment. The removal
of the word ``relevant'' will ease the burden on LPDs by removing
ambiguity regarding which disclosures are required to be included in
the Disclosure Document. This technical change does not increase the
burden of the disclosure requirement; it merely removes ambiguous
phrasing while retaining the same disclosure requirement proposed in
the proposed
[[Page 5167]]
rule. This change will prevent inconstancies in LPDs' interpretation of
what disclosures are required by paragraphs (b)(1) through (3).
In the final rule, Sec. 201.112(b)(4) requires that LPDs disclose
their expectations regarding housing specifications associated with the
additional capital investment. LPD housing specifications are critical
components to any additional capital investment. The provision of these
basic details regarding the additional capital investment will enable a
grower to understand the workings, process, and design characteristics
of the requested additional capital investment. They thus would enable
a grower to identify business risks associated with undertaking the
additional capital investment, as well as any unfair or otherwise
impermissible additional capital investment practices prohibited under
Sec. 201.216. This provision remains unchanged from the proposed rule.
In the final rule, AMS revised Sec. 201.112(b)(5). As proposed,
paragraph (b)(5) required that LPDs disclose any required or approved
manufacturers or vendors. In the proposed rule, AMS solicited comment
on whether paragraph (b)(5) should also require the disclosure of any
material financial benefits that the LPD, or any officer, director,
employee or family member of any such person, receives from the use of
the required or approved vendor.\28\ Commenters indicated that LPDs
should not be allowed to require growers to use certain equipment or
vendors, especially when those LPDs hold any amount of financial
interest in those equipment companies or specifically required vendors.
Therefore, in the final rule AMS expanded paragraph (b)(5) to require
disclosure not only of required or approved manufacturers or vendors,
but also all financial benefits that the LPD or any officer, director,
decision-making employee, or close family member thereof receives from
the use of the required or approved manufacturer or vendor.
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\28\ 89 FR 49002, 49025 (June 10, 2024).
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In the additional capital investment Disclosure Document, the LPD
must disclose any required or approved manufacturers or vendors, and
any financial benefits that the LPD or its officers (such as CEO,
President, Secretary, etc.), members of its board of directors,
decision-making employees, or close family members of any such person,
will receive from using such a manufacturer or vendor. Decision-making
employees refers to those employees who are involved with the decision-
making for the additional capital investment and its implementation. A
close family member covers an immediate or other family member where a
reasonable person would question the impartiality of the business
judgment of the decision-maker. This component of the Disclosure
Document applies to possible conflicts of interest that may influence
specifications for required or approved manufacturers or vendors.
The additional language is similar to an existing disclosure
requirement under the Federal Trade Commission's Franchise Rule, but
requires disclosure of benefits from more individuals.\29\ AMS found
this addition persuasive because it is designed to promote a similar
purpose by protecting the more financially vulnerable party--who is
making a significant investment--from incurring debt or otherwise
expending scare resources, not solely to achieve the investment's
purpose, but rather as a reflection of the presence of a conflict of
interest on the part of the less financially vulnerable party (the
LPD).
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\29\ 16 CFR 436.5(h)(6).
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Section 201.112(b)(6) requires that LPDs provide a financial
analysis of projected returns the grower can expect related to the
additional capital investment, including any assumptions, risks, or
uncertainties, sufficient to allow the grower to make their own
projections. The language of the final rule is slightly simplified from
that proposed to remove the hyphenated text and incorporate that same
language closer to the end of the sentence. This technical change
improves the readability of the provision without changing its meaning
as proposed. This provision is designed to enable the grower to
evaluate the reliability of the financial returns that the grower could
receive over the duration of the contract. Such information would
include, where relevant, assumptions regarding the expected likelihood
of whether other growers will adopt the additional capital investment
and the impacts on the reliability of returns in relation to the
incentives. Financial analysis of projected returns is critical to
enabling growers to understand the opportunities, and hence the risks,
they may be taking on. For example, revenue projections should include
assumptions that can be relied upon by growers in relation to annual
flock placements, stocking density, and the expected distribution of
performance pay. Omission of this information is central to the
inability for growers to effectively identify whether they can
adequately recoup the additional capital investment or whether the
additional capital investment is otherwise unfair.
Disclosure under Sec. 201.112 is more detailed than LPD disclosure
under the existing regulation in Sec. 201.102(d)(2). The existing
disclosures provide guidance to the grower with respect to the relative
risks associated with contracting with the LPD to prevent deception
before it harms the producer. The disclosures required in this final
rule focus on ensuring that growers are aware of known or reasonably
expected sources of returns, risks, and costs (including costs such as
labor, operating, maintenance, and other costs associated with a
request for an additional capital investment). Thus, Sec.
201.102(d)(2)(i) and (ii) \30\ is a focused revenue disclosure, and
references situations where contracts are modified due to additional
capital investment or otherwise and requires a projection from LPDs
when contract modifications dilute the value of the 5-year revenue
tables required in Sec. 201.102(d)(1). If Sec. 201.112 is applicable
to the LPD and incorporates what is otherwise required under Sec.
201.102(d)(2)(i) and (ii), the LPD can use one set of disclosures for
both Sec. 201.112 and Sec. 201.102(d)(2)(i) and (ii).
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\30\ (2) If poultry housing specifications for broiler growers
under contract with the complex are modified such that an additional
capital investment may be required, or if the 5-year averages
provided under paragraph (d)(1) of this section do not accurately
represent projected grower gross annual payments under the terms of
the applicable broiler growing arrangement for any reason, the live
poultry dealer must provide the following information:
(i) Tables providing projections of average annual gross
payments to broiler growers under contract with the complex with the
same housing specifications for the term of the broiler growing
arrangement at five quintile levels or by mean and standard
deviation expressed as dollars per farm facility square foot.
(ii) An explanation of why the annual gross payment averages for
the previous 5 years, as provided under paragraph (d)(1) of this
section, do not provide an accurate representation of projected
future payments, including the basic assumptions underlying the
projections provided under paragraph (d)(2)(i) of this section.
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Finally, Sec. 201.112(b)(7) requires that LPDs include in the
Disclosure Document a specific statement that the Disclosure Document
has not been reviewed by USDA, and that false and misleading statements
or material omissions may violate State and/or Federal laws.\31\ The
statement must also indicate that violations of Federal and State laws
may be determined to be unfair, unjustly discriminatory, or
[[Page 5168]]
deceptive and unlawful under the P&S Act, as amended. AMS does not
intend for the Disclosure Document to be a means by which LPDs may
waive any unfairness provisions in law or regulation. AMS maintains
that a determination of unfairness is dependent on the facts and
circumstances of each case. The required statement must also include
Packers and Stockyard Division contact information that growers can use
to report violations and other concerns. Lastly, the statement must
provide website contact information for those seeking additional
information on rights and responsibilities under the P&S Act. This
provision is unchanged from the proposed rule.
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\31\ This mirrors language in the FTC Franchise Rule at 16 CFR
436(e)(2) that refers to the FTC's position on Francise Disclosure
Documents (FDDs), specifying that while the FTC requires franchisors
to provide accurate disclosures, it does not verify the content of
the FDD, nor does it endorse the franchise offering.
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AMS underscores that the information required to be set out in the
Disclosure Document is not currently provided to most growers or in all
circumstances. These omissions present material risk of deceiving
growers, as well as subjecting them to potentially unfair practices
which they are unable to identify at an early enough stage to halt them
in their incipiency.
iii. Section 201.112(c)--Translation
In the final rule, Sec. 201.112 contains a new paragraph (c). In
the proposed rule, AMS asked commenters what considerations, if any,
AMS should take into account with respect to the timing, delivery, or
readability with respect to the Disclosure Document.\32\ AMS also
specifically asked commenters whether it should include a provision
requiring that LPDs make reasonable efforts to assist growers in
translating the Disclosure Document and to ensure that growers are
aware of their right to request translation assistance.\33\ In response
to the proposed rule, including specific questions posed related to
translation, some commenters requested that translations of the
Disclosure Document be made available in languages other than English.
Therefore, AMS is adding paragraph (c) to Sec. 201.112, which requires
that, upon delivery of the Disclosure Document to the grower the LPD
must make reasonable efforts to ensure that the grower is aware of
their right to request translation assistance and must assist the
grower in translating the Disclosure Document. Reasonable efforts
include, but are not limited to, providing current contact information
for professional translation service providers, trade associations with
translator resources, relevant community groups, or any other person or
organization that provides translation services in the poultry grower's
geographic area. Depending on the facts and circumstances (such as
convenience, expense, and timeliness of the translation), reasonable
efforts may also include allowing the grower access to a computer-
generated translation of the Disclosure Document and additional time to
review any translated Disclosure Document. An LPD may not restrict a
broiler grower or prospective broiler grower from discussing or sharing
the Disclosure Document for purposes of translation with a person or
organization that provides language translation services. Nothing in
the rule prevents companies from providing a translation, provided it
is complete, accurate, and not misleading.
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\32\ 89 FR 49002, 49025 (June 10, 2024).
\33\ Ibid.
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This addition of translation assistance is necessary because
language barriers can prevent poultry growers from understanding the
Disclosure Document, which would thwart the purpose of Sec. 201.112.
If growers do not have a reasonable opportunity to understand the
Disclosure Document due to language barriers, the goal of remedying
deception is thwarted. Notably, the translation requirements under
Sec. 201.102(g)(4) apply to Sec. 201.112 if the latter is applicable
to the LPD and incorporates what is otherwise required under Sec.
201.102(d)(2)(i) and (ii) in a single disclosure that meets the
requirements of both Sec. 201.112 and Sec. 201.102(d)(2)(i) and (ii).
iv. Compliance and Enforcement
Compliance with Sec. 201.112 requires LPDs to include the
information and topics described in Sec. 201.112(b)(1) through (7) in
the Disclosure Document and provide that document to growers when
requesting an additional capital investment. LPDs are also required to
inform growers of their right to request translation assistance and/or
assist growers with translation of the Disclosure Document, if
necessary.
Enforcement of Sec. 201.112 could occur in several ways. Growers
could contact AMS (PSD) to submit a complaint regarding an alleged
violation of Sec. 201.112. PSD would investigate, which could lead to
a referral to DOJ for appropriate action or, where failure to pay is
implicated, USDA enforcement through administrative action.\44\ As
necessary for compliance enforcement or during investigations, PSD will
review Disclosure Documents to ensure completeness. Injured individuals
also have a right to proceed in Federal court.
D. Severability (Sec. 201.290)
AMS is adding Sec. 201.290, ``Severability,'' to subpart N to
confirm that if any provision of this rule, any component of any
provision, or any provision of subpart N is declared invalid or if the
applicability thereof to any person or circumstances is held invalid,
it is AMS's intention that the validity of the remainder of the
provision or the applicability thereof to other persons or
circumstances shall not be affected thereby with the remaining
provision, or component of any provision, to continue in effect. Such a
provision is typical in AMS regulations that cover different topics and
is included here as a matter of housekeeping.
This rule aims to address different harms common in the broiler
production industry: lack of payment transparency in broiler growing
arrangements, unfairness in tournament operations, and lack of
disclosure from LPDs regarding additional capital investments. Each of
the new sections can operate independently in the absence of the
others. Conduct that violates one section is not dependent on
protections put in place by other sections. For example, if an LPD
discounts the rate of compensation provided in a broiler grower
arrangement in violation of Sec. 201.106, the Agency would still be
able to enforce this provision even if the provision requiring the fair
operation of broiler grower ranking systems (Sec. 201.110) were struck
down. These are not inextricably connected regulations: Sec. 201.110
focuses on establishing a fair comparison among growers in a
tournament, while the focus of Sec. 201.106 is ensuring clear (no
discounting) and reliable (not unreasonably variable) rates of
compensation disclosed in the contract. As another example, if the
provision regarding additional capital investments (Sec. 201.112) was
struck, AMS would still retain criteria under Sec. 201.216 to evaluate
whether requiring an additional capital investment constitutes a
violation of the P&S Act.
AMS intends that the severability provision operate to the fullest
extent possible. For example, under Sec. 201.110(b)(1), ``Policies and
procedures,'' if the league composition requirement in paragraph
(b)(1)(iii) is severed, this does not necessarily negate the benefits
or make unenforceable the other processes requirements contained in
paragraphs (b)(1)(i) (inputs under LPD control), (ii) (flock production
practices under LPD control), and (iv) (evaluation period), etc.
Similarly, AMS intends that the severability provision apply to all of
subpart N. If one of the new regulations implemented via this final
rule is severed, this does not make
[[Page 5169]]
unenforceable the existing provisions in subpart N. In other words, if
the benefits of a section in subpart N remain intact without the
unenforceable provision, AMS's intent is to retain the enforceable
provisions of the section. AMS notes that this discussion is
illustrative and not exhaustive.
V. Comment Analysis
Overview
The Poultry Grower Payment Systems and Capital Improvement Systems
proposed rule, published on June 10, 2024, received 758 comments, some
with multiple signatories, over a 60-day comment period. Of these
comments, 671 were in clear support of the rule (the majority of these
consisting of form letters from advocacy campaigns), while 13 comments
were in clear opposition to the rule and the remaining 74 were
ambiguous or unclear. A variety of stakeholders commented on the
proposed rule, including farmers' coalitions, government entities,
advocacy organizations, industry trade organizations, processors,
producers, and other non-affiliated, individual parties. Topics that
garnered considerable attention in the proposed rule, both positive and
negative, included the rate of compensation, transition and
implementation costs, the duty of fair comparison, and reasonable
recoupment of required additional capital investments. A common theme
among the majority of supportive comments, particularly by growers, was
the fear of retaliation underlying their concerns about LPD practices.
Many farmers' coalitions, advocacy groups, and individual producers
argued that LPDs would easily find ways to deny producers fair payment,
especially during the industry's transition to adopt the proposed
changes. For example, while many commenters supported Sec. 201.106's
25 percent comparison-based compensation presumption, most of these
supporters requested other changes to the final rule, such as requiring
performance-based pay to be applied at the individual level and pairing
it with a requirement of a fair minimum base pay. Other common
recommendations for financial safeguards included making the option for
non-comparison-based pay more accessible to producers and requiring
that producers' contracts be long enough to ensure a reasonable rate of
return for their loans.
Another common theme among commenters was the fear of LPD
retaliation against producers who made unfairness claims, requested
non-comparison-based pay, refused to take on an additional capital
investment, etc. Many individual producers shared personal experiences
of retaliation, often in the form of intentionally unequal inputs and
threatened or actual contract termination, for speaking out against
unfair practices. Many commenters emphasized the inherent power
imbalance between both parties, pointing out that producers, who carry
high amounts of debt, depend on LPDs for paying down the debt.
Moreover, commenters described feeling or receiving intimidation
against making unfairness claims and pressure to adhere to unfair
terms. For instance, commenters described receiving unexpected
deductions or variability in pay and had no choice but to accept their
circumstance. Commenters recounted struggling to make ends meet as a
result. If they ranked lower than other growers for one or more
settlements, the resulting decrease(s) in compensation left them unable
to afford necessary expenses. Some commenters stated that experiencing
these losses forced them to sell their families' farms, driving them
out of the industry entirely. Many commenters requested that the final
rule include specific protections against retaliation for producers who
made unfairness claims against their LPD or who refused to take on an
additional capital investment required by their LPD. Many other
commenters requested greater protections for producers who receive
unequal inputs from their LPDs, describing numerous input variables
that can be and have been exploited by LPDs to deliberately lower
producers' placement in their tournament.
Conversely, comments in opposition, many from industry
representatives, defended the current system and expressed concerns
about the proposed rule. These commenters asserted that the rule is
unfair to growers who are successfully operating in the current system
and that the rule would unfairly punish high performers. These
commenters also stated that the rule disregarded the self-interest of
LPDs in ensuring grower success. Opposing commenters further stated the
rule would be overly burdensome for the industry to implement.
A. Section 201.106
i. Transparency in Pay
Comment: Many commenters, especially growers and advocacy
organizations, highlighted the need for stronger protections, greater
transparency, and a more equitable balance of power within the poultry
industry. Commenters emphasized that greater transparency from LPDs is
essential for a fair and equitable payment system. Specific concerns
stemming from inadequate transparency included the inability to predict
income due to fluctuations in flock-to-flock payments, and payments
below the base price due to factors outside of growers' control.
Commenters also suggested safeguards to prevent unfair payment
deductions related to stocking density and other external factors.
Advocacy groups raised concerns about the potential for LPDs to exploit
the system and drive down grower base pay.
Other commenters, especially industry stakeholders, emphasized
existing measures and cautioned against government intervention. These
commenters asserted that growers face no uncertainty regarding income
or input costs and opposed a fixed base price. They also asserted that
most contracts already include minimum compensation floors and
expressed concern that raising base pay would be unsustainable and lead
to higher consumer prices. One commenter suggested that AMS identify
and address potential gaps in grower education and outreach.
AMS response: AMS agrees with the comments that asserted the need
for stronger protections, greater transparency, and a more equitable
balance of power. Accordingly, AMS modified the proposed Sec. 201.106
to include provisions that further these goals. Paragraph (a) will
prevent LPDs from reducing a poultry grower's compensation based on the
grower's ranking, grouping, or comparison to others. This will improve
growers' ability to predict income. As discussed below, paragraph (b)
will establish a presumptive limit on comparison-based performance pay,
which will enhance growers' ability to predict their income from a
contract by reducing variability from that rate due to fluctuations in
flock-to-flock payments. Paragraph (c) works to prevent LPDs from
exploiting their market power and associated bargaining power by
requiring LPDs to notify the Administrator if there are any contract
modifications that result in a reduced payment to poultry growers.
Existing regulation fails to protect poultry growers from injury in
the manner Congress intended. Contrary to LPDs' claims, growers do face
uncertainty regarding income, because the payment they will receive is
not known until the growing cycle is complete and all growers' outputs
are compared and performance payments are distributed. AMS has
consistently heard reports from growers receiving
[[Page 5170]]
deductions or excessively variable compensation from LPDs such that
their compensation does not align with the LPDs' initial
representations.\34\ Accordingly, a high percentage of growers'
operations have sustained net negative incomes--an outcome that growers
most likely do not anticipate before agreeing to contract with their
LPDs.\35\ Moreover, AMS has reviewed broiler growing contracts for
decades during routine regulatory reviews of LPD's payment practices.
While many contracts that AMS has reviewed already include minimum
compensation provisions, these provisions are not an industry-wide
practice, and do not cure the deception or unfairness arising from
deductions in the rates of compensation in the contract, especially the
base price, because the minimum price could be far below the base price
or even the lower bounds of base plus performance pay. Moreover,
requiring that minimum compensation be disclosed allows growers who
have the option of contracting between multiple LPDs to meaningfully
compare their options, enhancing competition in the market for grower
services in certain geographies. Nor is this an unworkable or
unreasonable requirement; some LPDs have already adopted the reforms
included in this final rule, and so this regulation builds on existing,
successful models that that commenters said some LPDs have already
found workable and effective.
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\34\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022) (LPDs did not adequately disclose
the risk inherent in the tournament systems to growers, so growers
could not reasonably evaluate the range of potential financial
outcomes, manage their risks, or compare competing poultry
processors); AMS-FTPP-22-0046-0777 (``[W]e were told our houses
would be paid off raking in the money in 10 years[.] I am now out to
twice that still in debt. . .''); AMS-FTPP-22-0046-0876 (``In our
communications with growers, we have learned that when they signed
their initial poultry contract, most had expectations that their
contract relationship with a poultry company would be one of mutual
respect where both parties shared in the risks and rewards of
producing chicken for consumers. They expected a transparent system
that would reward them for their hard work and management services.
Instead, what they quickly found was a dictatorial system that gives
growers an unpredictable and often inadequate income stream, and
allows poultry companies to shift risks onto growers, without fairly
sharing in the economic rewards commensurate with their financial
investment and services provided''); AMS-FTPP-22-0046-0156
(``Frequently, that deception begins even before poultry growers
sign their contracts. It is a common story for growers to be
attracted by unrealistic financial models and integrators' promises
of support. Once the contracts are signed, though, growers find
themselves on the short end of a massive power imbalance'').
\35\ MacDonald, James, Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, USDA Economic
Research Service (2014), https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6 (In 2011, nearly a
third of smaller farms and nearly a fifth of larger farms realized
negative net farm income); AMS-FTPP-22-0046-0780 (``I've been a
poultry grower for almost 15 years and it is a shame that you have
to have multiple jobs just to make ends meet. . . Everyone is
struggling in this economy right now and we have massive debt loads,
insurance and utilities have skyrocketed parts are extremely high
and even just the basic necessities to live are at critical levels.
. .'').
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Also, contrary to some commenters' claims, nothing in the
regulation requires the base pay to be increased or otherwise be fixed
in a manner that would affect supply or the price of chicken for
consumers; rather, it is designed to address inadequate poultry grower
compensation arising from deceptive and unfair practices by LPDs.
Simply, Sec. 201.106(a) enables LPDs to continue to set a base pay and
provide bonuses based on a grower's grouping, ranking, or comparison to
others, or through other payment incentives schemes. AMS acknowledges
that grower education and outreach may be useful but believes that the
responsibility to eliminate deception starts with the legal
responsibilities Congress placed on the LPDs when it amended the
Packers and Stockyards Act. This includes clear contract terms and
transparent communication between LPDs and growers.
AMS notes that Sec. 201.102 requires disclosure of stocking
density in production contracts. Reductions in stocking density are
best addressed under those disclosure requirements. AMS acknowledges
that Sec. 201.106 may not address every form of unfair practice that a
grower may experience, such as reductions in flock placements or
stocking density, and AMS remains committed to robust enforcement of
section 202 of the Act to address the full range of potentially unfair
practices that growers may face.
AMS agrees that USDA-sponsored education and outreach helps
growers' make informed decisions. AMS is taking steps to increase
producer education and outreach, including, for example, by
establishing the farmerfairness.gov portal to facilitate ease of access
for submitting complaints. AMS intends to expand education and outreach
regarding this rule and other regulatory requirements. Disclosure and
education, although beneficial, are unlikely to address unfairness
because of the substantial difference in bargaining power between LPDs
and growers. AMS's responsibility, however, is to enforce the Act.
Better information concerning an unfair practice does not make the
practice fair, nor alleviate the need for regulation.
ii. Performance Pay
Comment: Growers and supporting organizations highlighted the need
for a more balanced system that protects growers from income volatility
and unfair deductions related to factors outside of their control. Many
commenters explicitly endorsed a 25 percent cap, citing the potential
to curb the negative impacts of the tournament system while preserving
performance-based incentives. Several advocacy groups supported
calculating the variance at the individual grower level rather than the
complex level to allow growers to make more informed financial
calculations, better determine whether they are being treated unfairly
by LPDs, and to limit the potential for favoritism and retaliation
against individual growers. To strengthen fairness and transparency,
commenters emphasized the need for objectively measurable bonus
criteria and the importance of pairing the cap with a fair minimum base
pay. One commenter suggested allowing exceptions for exceeding the 25
percent cap with proper justification. Another pointed to the bonus cap
model in the turkey industry and a farm bureau suggested a 20 percent
pay difference between growers. Several commenters indicated that
bonuses should be linked to factors within a grower's control.
Some industry representatives emphasized the role of performance
incentives in driving productivity. Commenters argued that limiting
performance bonuses would disincentivize growers and negatively impact
productivity. Some commenters questioned the basis for the 25 percent
figure.
Many stakeholders expressed concern about the feasibility of case-
by-case enforcement to ensure fair comparison-based bonuses. Comments
reveal a consensus among stakeholders that case-by-case enforcement
alone is insufficient to guarantee fair comparison-based compensation.
Advocacy organizations argued that case-by-case enforcement is
ineffective and inefficient and places an undue burden on growers who
seek redress. These organizations cited past instances in which this
approach failed to adequately protect grower interests. One commenter
raised a concern about case-by-case enforcement's vulnerability to
changing political landscapes, thereby creating uncertainty for growers
and potentially discouraging them from reporting unfair practices. Many
stakeholders advocated for clear regulations and proactive measures to
prevent unfair bonuses rather than
[[Page 5171]]
relying solely on enforcement. For example, one commenter requested
that USDA establish guidelines defining unfair performance payment
structures, proposing a presumption of unfairness for bonuses exceeding
25 percent of total compensation. The commenter also suggested that
contracts offered to indebted growers could serve as potential evidence
of anti-competitive practices, particularly by processors with
significant market power.
AMS response: In the proposed rule, AMS specifically inquired
whether it is presumptively unfair for comparison-based compensation to
equal or exceed 25 percent of total compensation (base pay rate plus
comparison-based) for any grower and asked a range of questions around
the appropriateness of the specific threshold, how to calculate it, and
how it would affect the industry. These questions included inquiries
highlighting the role of the 25 percent presumption as a potentially
binding constraint and how LPDs might respond in the compensation
structures.
AMS agrees with the majority of commenters suggesting that
comparison-based performance pay should be presumptively limited in
order to balance the interests of growers and LPDs and prevent unfair
outcomes. Grower concerns regarding thin margins, debt load, input
variability, and tournament composition invoke equity issues that must
be balanced with performance and productivity incentives. While useful
as an incentive and a means to allocate pay, flock performance metrics,
specifically feed conversion, as a proxy to grower effort are
imperfect. Feed conversion itself is affected by variables beyond
grower effort. AMS is not aware of existing technological innovations
that could serve to better isolate grower effort or a measurement that
would be exclusively under grower control.
Flock performance metrics serve some purposes in the assessment of
grower effort and the allocation of grower payments. AMS's experience
in analyzing performance payments suggest that ranking systems can be a
useful and reasonably equitable mechanism for pay allocation with
proper regulation in magnitude. Performance payments can reward grower
effort without being an unlawfully deceptive or unfair practice.
In considering the appropriate form of regulation, AMS considered
the variety of grower ranking systems currently in practice and the
possible evolution and redesign of those systems, such that the purpose
of the regulation would be resistant to circumvention while also
providing an appropriate level of flexibility to maintain an incentive
structure. As referenced in the proposed rule, a presumptive limitation
on performance pay magnitude strikes that balance. As a presumption,
enforcement will occur based on an inquiry into specific factual
circumstances. Based on currently available information, a bright line
standard is likely to be overly rigid and may serve to deprive
successful growers of the expected value of their services. Allowing
LPDs to provide a rebuttal to justify exceeding the prescribed
performance pay magnitude is a desirable feature for growers and LPDs
alike because payment systems may reflect different circumstances at
different complexes. Again, facts and circumstances matter, in
particular around the variability of performance for the birds in
question, the housing specifications, etc., as 25 percent may still be
an appropriate limit. Whether the LPD took appropriate measures to
comply with the duty of fair comparison under Sec. 201.110 or
otherwise mitigated other identifiable risks of unfair variability
relating to the larger magnitude of the tournament will also be
important. To underscore, AMS expects the presumption will not be
easily overcome.
AMS acknowledges that some commenters preferred application of the
presumption at the individual settlement level. AMS is concerned that
application at the individual level will be difficult to monitor and
enforce and could also result in overly rigid limitations on individual
performance outcomes in flock settlements. That could dilute or distort
grower performance incentives, including through capturing statistical
outliers, which could result in restriction of performance payments
that reduce aggregate grower revenue in ways that AMS believes are not
presently necessary to address unfairness and deception under the
tournament. Applying the presumption as an aggregate analysis at the
complex-wide level offers several benefits to LPDs and growers. It
allows smoothing of outliers from individual settlements and allows
LPDs to focus on the design of the incentive system without requiring
compliance on a grower-by-grower, individual settlement basis. An
application at the complex-wide level will, nevertheless, have
sufficient limitation on the available funds for comparison-based
performance payments for individuals--owing simply to the constraint on
funds for those purposes--so as to achieve the desired goal of right-
sizing the magnitude of the tournament for individual growers.
In considering the appropriate threshold at which to institute the
presumption, AMS first reviewed a limited sample of existing ranking
systems. AMS reviewed one to five years of confidential grower
compensation data for four individual broiler complexes that AMS
gathered in prior investigations. This sample included small, medium,
and large bird sizes and some of the largest broiler LPDs that operate
several other complexes across the U.S. Aggregate performance payments
at these four complexes were 11.4, 17.4, 20.5, and 25.4 percent of
total grower payments. AMS is not aware of any complex with performance
payments that are as much as 26 percent of total payments. As noted
above, in the proposed rule, AMS solicited comment regarding a 25
percent limitation on comparison or ``performance'' payments.
Additionally, Wayne-Sanderson Farms, one of the three largest LPDs,
recently agreed to a similar performance pay limitation at the 25
percent.\36\ Governmental commenters noted the 25 percent cap has
proven workable for both a major LPD and the growers contracted with
Wayne-Sanderson. As numerous LPDs will likely need to modify contracts
to achieve compliance under Sec. 201.106(a) of this rule, finding that
the industry upper bound of performance pay magnitude approaches 25
percent is also a relevant data point in AMS's determination that 25
percent is appropriate as the presumptive threshold for this
regulation.
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\36\ United States v. Cargill Meat Solutions Corp., 1:22-cv-
01821-ELH (D. Md. July 25, 2022); United States v. Cargill Meat
Solutions Corp., et al. (2022). Proposed final judgments and
competitive impact statement. Federal Register. Retrieved from
https://www.federalregister.gov/documents/2022/09/16/2022-20014/united-states-v-cargill-meat-solutions-corp-et-al-proposed-final-judgments-and-competitive-impact.
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With respect to objectively measurable bonus criteria, AMS agrees
that comparisons must be fair, and Sec. 201.110 below sets out AMS's
approach to mitigating comparisons based on inappropriate approaches to
inputs, production practices, and related matters. AMS is not adopting
further specificity with respect to bonus criteria in Sec. 201.106
because AMS has designed this portion of the rule to operate in a
simpler, more easily enforceable manner, including Sec. 201.106(a)'s
prohibition on deductions to any rate of compensation and Sec.
201.106(b)'s limitation on the magnitude of performance pay overall.
[[Page 5172]]
With respect to the importance of pairing the cap with a fair
minimum base pay, AMS has adopted transition rules under Sec.
201.106(c) to monitor and guard against unfair changes to aggregate
compensation for growers. AMS sets out additional views on rates of
return below.
AMS appreciates the commenter's suggestion regarding the bonus cap
model in the turkey industry and the farm bureau suggestion of a 20
percent pay difference between growers. AMS did not consider the turkey
industry in this final rule because contracting practices in the turkey
industry are more diverse, in part owing to the biological differences
in the birds which to some extent mute differences in outcomes, and so
this rule would not necessarily be sufficiently tailored for that
sector. However, the comment underscores the reasonableness of AMS's
approach of a presumptive 25 percent limitation on aggregate
performance compensation.
iii. Rate of Return
Comment: Grower and grower association commenters expressed concern
around ensuring a reasonable rate of return for their labor and
investments. Many commenters expressed broad concerns of monopsony
power suppressing grower compensation. Some commenters stated the
minimum base pay should reflect more competitive conditions, such as
geographies where growers have the option to contract with three or
more LPDs. Commenters stated that the minimum base pay should be
sufficient to allow growers to make a reasonable return over the course
of the contract, provided that the grower follows the LPD's required
management practices and contract guarantees. One commenter suggested
defining reasonable return as, at a minimum, enough net income to
compensate poultry growers' labor hours at the state minimum wage rate.
Others called for set minimum base pay, minimum flock placements and
flock densities combining to allow growers to comfortably make loan
payments plus a reasonable return. Commenters called for a more
equitable and transparent compensation system that guarantees a
reasonable rate of return, provides greater financial security, and
addresses the power imbalance between growers and LPDs.
Grower commenters reported being underpaid and struggling to cover
production costs, service debt, and earn a livable wage. Commenters
highlighted a lack of adjustments for inflation, and penalties for
factors outside their control as contributors to insufficient
compensation. They assert that the current payment structure often
makes necessary capital improvements financially risky for growers,
thereby hindering their ability to reinvest in their operations.
Commenters also claimed that the current payment system lacks
transparency regarding how performance payments are determined, the
minimum price per pound rates, feed quality and ingredient details,
breeder flock age and health, and chick hatch times and temperatures.
Some commenters urged AMS to include in the final rule a presumption
that an LPD is in violation of the P&S Act if the LPD does not offer a
minimum base pay rate that is reasonably expected to cover the costs of
operation, service debt associated with initial investments and capital
improvements, and provide a reasonable rate of return. Commenters also
advocated for a fairer system of deductions for condemned birds,
arguing that deductions should be based on the actual weight of
condemned birds rather than the flock's average weight.
To ensure fairness and sustainability, commenters proposed several
solutions to the proposed question regarding whether AMS should
prescriptively require grower base pay to earn ``reasonable return,''
assuming they follow production practices. Many commenters recommended
establishing a minimum base pay that: (1) ensures a livable income and
covers basic production costs; (2) includes provisions for inflation
adjustments to maintain real income over time; (3) allows for debt
service, enabling growers to invest in their operations without undue
financial strain; and (4) provides an opportunity for a reasonable
return on investment, recognizing the inherent risks and capital
requirements in poultry growing. Several commenters suggested a shift
toward a base pay based on square footage, potentially with a bonus
component determined through a tournament system. This approach aims to
provide a more stable and predictable income stream for growers.
However, one producer expressed concern that square foot pay would
lower bird quality and reduce animal welfare.
Commenters also called for increased transparency from LPDs,
including more detailed documentation and reporting requirements. This
would provide growers with a clearer understanding of how their pay is
calculated and enable better monitoring of potential unfair practices.
Finally, commenters emphasized the need for mechanisms that protect
growers from debt burdens and provide a greater assurance of a return
on their investments. Suggested measures include limiting the financial
burden on growers for capital improvements mandated by processors and
establishing mechanisms to share the risks associated with market
fluctuations or unforeseen events.
AMS response: AMS appreciates the challenges that many growers face
in negotiating fair pay, especially given the levels of concentration
in many local markets, the take-it-or-leave it form of LPD contracts,
and the prevalence of the reports on troubling practices in the poultry
industry. AMS aims to promote an industry market structure that can
secure payment rates and contract terms for all growers that: (1)
ensure a livable income and covers basic production costs; (2) include
provisions for inflation adjustments to maintain real income over time;
(3) allow for debt service, enabling growers to invest in their
operations without undue financial strain; and (4) provide an
opportunity for a reasonable return on investment, recognizing the
inherent risks and capital requirements in poultry growing. AMS also
recognizes the value of basing payment, in many circumstances, on
square footage, potentially with a bonus component determined through a
tournament system. In many cases, such a compensation structure could
create a more stable and predictable income stream for growers because
there would be a guaranteed payment rate based on factor that does not
change.
This final rule seeks to make targeted reforms based on the
information and strategies available to AMS at this time. In this final
rule, AMS does not purport to alleviate all potential unfair aspects of
the tournament system or of the integrated model of broiler production
in concentrated markets. AMS believes that general principles of
unfairness prohibit an unlawful exercise of market power or bargaining
power that injures growers, including by providing returns that are
below a reasonable return. AMS does not, however, identify a strict
framework that prescribes exactly how to ensure competitive
compensation. Rather, at present, AMS will apply a case-by-case
enforcement approach to protect growers from unfair and unlawful market
power or bargaining that denies growers reasonable compensation. In
conducting its analysis, AMS expects to rely heavily on the facts and
circumstances, including but not limited to:
Relative levels of market power (including the number of
LPDs growers can contract with in a given geography, whether there is
meaningful choice in
[[Page 5173]]
contracting practices among LPDs in a given locality, the extent to
which risk or other unfair contract terms are shifted to growers, the
extent to which contracts are meaningfully negotiated, etc.), and other
differences in bargaining power between growers and relevant LPDs;
The type and nature of the unfair conduct (e.g., express
or tacit collusion via information sharing, the presence of express or
implied no-poach agreements, whether the tournament system was being
utilized in a manner to prevent growers from negotiating or securing
competitive compensation, the LPD's treatment of days out and
condemnation within the tournament system, etc.);
What constitutes competitive pay for growout services,
especially in geographies where more LPDs are present;
The rates of payment under the contract; in particular,
whether the base rate a grower can expect to receive for performing
fully under the contract can ensure a reasonable return;
The costs of providing growout services over the contract,
including appropriately and reasonably measured labor costs;
The levels of contractually guaranteed and otherwise
relied upon flock placements and density;
Whether the length of the contract and reliance
expectations on renewal are sufficient to assure reasonable return;
The inclusion of cost-of-living adjustments or
opportunities to secure those adjustments in contract renewals; and
Where additional capital investment is required, factors
relevant to additional capital investment, including those set forth in
Sec. 201.216 and the information set forth as required under Sec.
201.112.
AMS underscores that many growers face high levels of local market
power or bargaining power by LPDs, exacerbated by hold-up concerns
arising from high levels of investment and reliance on LPDs for
critical inputs. Moreover, growers face limited opportunities to avoid
take-it-or-leave-it terms from their LPDs, including cuts to flocks or
nonrenewals of contracts. In general, AMS expects this enforcement
approach will, in practice, reinforce the principle that an LPD must
provide a reasonable opportunity for a grower that delivers under the
contract to earn a reasonable return over the life of the contract if
they comply generally with the specified production practices.
AMS appreciates the commenters' interest in further enhancing
transparency. AMS notes that this final rule increases transparency for
growers around rates of compensation (Sec. 201.106) and additional
capital investments (Sec. 201.112), and also sets more fair standards
around, and enhances transparency into, LPD practices relating to input
and production practice distribution. It also complements other
regulatory initiatives that AMS has already finalized to provide
transparency around contracting and input distribution (88 FR 83210,
November 28, 2023). AMS intends now to turn its focus to the important
task of monitoring the implementation of existing mandates to evaluate
the remaining gaps and needs.
AMS also appreciates grower comments around the challenges that
debt burdens place on growers and on the importance of more fairly
sharing the burden of market fluctuations or unforeseen events. A
central purpose of Sec. 201.112 is to enhance the information
available to growers and to AMS to ensure the fairness of additional
capital investments, and therefore LPDs' accountability, under Sec.
201.216 and section 202 of the Act. For example, an LPD's failure to
ensure the reasonable ability for a grower to recoup the cost of a
required (including ostensibly requested but in practice coerced)
additional capital investment would, on its own, be dispositive to show
a violation of Sec. 201.216. AMS recognizes that growers cannot avoid
the unfair exercise of market power. Failing to sufficiently and fairly
compensate growers is not a cognizable benefit to growers or to
competition. (AMS's approach is discussed below in section V.C.ii.,
``Additional capital investment unfairness.'')
With respect to new housing, as opposed to additional capital
investments, AMS has also separately finalized the Transparency in
Poultry Grower Contracting and Tournaments (Transparency Rule) rule
that provides significantly enhanced transparency over the preexisting
system.\37\ As described in the Transparency Rule, these disclosures
include returns broken out by quintile and other information delivered
in a disclosure document when the grower receives any housing
specifications and would be contemplating making additional
investments. AMS expects to monitor the implementation of that rule and
would, for example, examine circumstances where the disclosures were
deceptive or misleading relating to securing the new grower's
commitment to invest in housing.
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\37\ 88 FR 83210, November 28, 2023.
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iv. Transition and Implementation
Comment: AMS asked what risks growers and/or LPDs might face during
any transition to the proposed Sec. 201.106. Concerns about transition
and implementation risks for growers and LPDs centered on potential
shifts in the market power dynamics and the administrative compliance
burdens. Some commenters, especially grower advocates, farmers'
coalitions, and legal institutions, were concerned about the potential
for LPDs to exploit the new regulations by arbitrarily lowering base
pay rates. They argued that this could undermine the intended fairness
that the rule aims to achieve and called for explicit prohibitions
against such practices.
A governmental commenter suggested that, for the duration of a
reasonable transition period, USDA require that current payments remain
overall comparable, so that LPDs cannot arbitrarily lower grower base
pay or overall compensation during the transition period or impose
other unfair contract terms. This commenter also suggested that USDA
require that modified contracts have, at a minimum, the same length as
the period covered by the grower's initial contract.
Advocacy associations urged USDA to closely monitor the industry's
transition and establish fair minimum rates that are not lower than the
average pay under the current comparison system. To minimize transition
risks to growers, one advocacy association noted that AMS should not
require submission of all contracts that are modified to comply with
new Sec. 201.106, in order to avoid a bottleneck in contract
negotiations. Instead, they recommend that AMS require LPDs to submit
representative contracts that show how they are calculating a fair base
pay. The commenter also suggested an accountability mechanism rather
than a pre-approval process so that LPDs can deliver to AMS the
information necessary for the Agency to determine whether contract
modifications are happening in compliance with Sec. 201.106 and the
Act.
Another advocacy association urged AMS to presume undue buyer power
exists whenever an LPD offers a grower in debt a contract that, based
on the minimum income possible from the contract's guaranteed flock
placements, stocking density, and firm base price, does not give the
grower enough income to pay off their debt. The commenter also stated
that AMS should include a requirement that LPDs submit to AMS for
review any contracts modified or revised to comply with new Sec.
201.106
[[Page 5174]]
and should also require all LPDs to submit compensation data for
review. This data can be used as a basis for requiring all integrators
to offer base prices that rise to a truly competitive level, and that
are consistent with grower cash flow and loan servicing expectations
under original contracts.
AMS response: In response to these concerns, AMS is adding
paragraph (c) to the final rule, so that if an LPD modifies a contract
and reduces aggregate compensation to growers,\38\ the LPD must submit
notice of the change to AMS and include copies of the original contract
and new contract, as well as any related Disclosure Documents. AMS can
then adequately assess that reductions in aggregate grower compensation
does not violate section 202 of the Act. Aggregate compensation enables
sufficient flexibility for LPDs to adjust supply and deliveries based
on changing market conditions. In any case, AMS regularly conducts
compliance reviews of LPDs.
---------------------------------------------------------------------------
\38\ Defined as ``less than the prior annual-calendar year's
complex-wide average gross payment to the grower.''
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AMS has also considered the concerns that industry stakeholders
have presented regarding the importance of LPDs having the ability to
adjust payment to maintain a functioning market. This regulation allows
for reductions to compensation that do not otherwise violate section
202 of the P&S Act. The LPDs are required to submit the prior contract,
the new contract, and any Disclosure Documents related thereto. This is
not a time-consuming or costly requirement as this information is
already readily available to LPDs. It also does not stifle innovation
as it does not impact novel contracting practices so long as they are
fair and not deceptive. The regulation does not prevent contracts from
being updated; it only requires a minimum level of review to ensure
that the changes are not unfair or deceptive.
AMS is not, at this time, specifically requiring that modified
contracts have, at a minimum, the same length as the period covered by
the grower's initial contract. Instead, AMS is focusing on ensuring the
grower compensation in aggregate remain unchanged for the initial
period of compliance, as AMS views that factor as being at greater risk
of immediate, unavoidable abuse from LPDs than the length of contract
per se.
v. Benefit, Burden, and Cost
Comment: Several commenters emphasized the need for safeguards
against LPDs leveraging their market power or bargaining power to
offset any losses incurred due to the rule. They argued that such
protections are needed to ensure fair compensation for growers. On the
other hand, industry stakeholders were concerned about the
administrative burden of compliance. Processor commenters were opposed
to submitting revised contracts and compensation data to USDA on the
grounds that it is unnecessary and could lead to delays and increased
costs and stifle innovation in contract structures. They argued that
allowing LPDs to adjust base pay rates, within reason, is necessary to
maintain a functioning market. An industry commenter stated the rule
would require renegotiation of thousands of grower contracts, a
potentially disruptive and costly process. The commenter pointed to the
potential for uncertainty, economic risk, and nullification of lawful
contracts.
AMS response: AMS acknowledges that this regulation would require
renegotiation of many existing grower contracts. Due to sunk capital
costs and thin margins, poultry growers are generally at a distinct
disadvantage in the face of contract renegotiation and renewal. As
explained in this final rule, however, AMS has determined the current
structure of many contracts is unfair and deceptive and therefore
unlawful under the Act. AMS is providing an extended effective date for
the provisions of this final rule to provide additional time for LPDs
and growers to modify contracts or otherwise renew under a new, legally
compliant system. In addition, AMS recognizes that growers may be at
risk of unfairness during any transition period and, accordingly, is
adopting a transition requirement for LPDs to submit contracts upon
modification or renewal if those contract changes result in decreased
grower compensation. This requirement is designed to enable a smooth
transition to the new system. AMS review will not delay contracts, as
AMS will not be approving the contracts under Sec. 201.106(c), but
rather will be identifying unfair practices and potentially commencing
enforcement. AMS's purpose is, as commenters urged, to safeguard
growers against LPDs leveraging their market power to offset any costs
they incur due to the rule's fairer and less deceptive approach to
payment systems.
AMS rejects the view that this rule would stifle innovation in
contract structures. It provides a small number of basic safeguards for
the protection of growers, but otherwise does not dictate the specific
manner in which LPDs compensate growers for their services. AMS is
aware of a wide variation of existing contractual approaches to
compensation which would remain permissible under this final rule. For
example, some contracts compensate on a per pound base rate while
others use a square footage contract for base payments or a
combination. Performance pay will still be permitted at an appropriate
magnitude, and LPDs may continue to use a range of approaches for
comparison-based pay, including flock-by-flock comparisons or longer
rolling averages as some contracts currently do.
LPDs are also free to adjust base pay rates upwards based on
grouping, ranking or comparison, which aligns with some industry views
that the tournament system, within reason, is necessary to maintain a
functioning market. LPDs can also continue to deduct growers' payment
for noncompliance with contractual requirements, provided it is not
based on the outcomes of the tournament.
B. Section 201.110
i. Input Variability
Comment: Overall, commenters broadly agreed that input variability
poses a significant challenge to fair grower compensation within
performance-based payment systems. While commenters acknowledged the
difficulty of controlling certain inputs such as chick quality,
stakeholders disagreed on the degree of control and intentionality
surrounding input variability. Generally, growers pointed to examples
of inconsistencies that impacted their performance, including
inconsistencies in chick quality and hen age, which suggest a lack of
control and potential for unfair outcomes. Industry commenters
emphasized the challenges of controlling the inputs, such as chick
quality, countering that they also lack control over certain inputs,
particularly when ordered in bulk, which would make intentional
manipulation difficult. One commenter challenged the assumption that
input variability is intentional, controllable, and material, and
asserted that USDA lacked evidence to prove the assumptions.
Regarding the impact of input variability on grower performance and
fairness, commenters argued that since growers have limited control
over key inputs (e.g., chick quality, feed delivery, or disease
management), basing payments on performance relative to these inputs is
inherently unfair. They emphasized that settlement outcomes under these
conditions do not accurately reflect grower management skills or
effort. Other commenters expressed concern that excessive variability
in inputs such as chick
[[Page 5175]]
health, feed delivery, and flock pickup within a settlement group
creates significant financial risk for growers, especially over
multiple flocks.
Industry stakeholders argued that requiring LPDs to control all
input variations is impractical and could lead to inflexible systems
that ultimately harm growers.
AMS response: AMS has gathered significant evidence from poultry
growers that input variability in poultry tournaments can lead to
unfair comparisons, and lead to inappropriate burdening of risk onto
growers. AMS does not need to find that input and production practice
variability is intentional, fully controllable, or material in all
instances by the LPD to reach the conclusion, based on academic
evidence, regulatory experience, and complaints from growers, that it
exists and can and should be mitigated by LPDs. AMS has identified at
least the following differences that may affect grower performance:
breed,\39\ bird sex,\40\ breeder stock age,\41\ stocking density,\42\
consistency of feed availability,\43\ and the type and administration
of veterinary medicines.\44\ AMS also notes that chick genetics are
currently proprietary and largely controlled by two companies, one of
which is owned by one of the nation's largest LPDs.\45\
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\39\ See, e.g., Muir, W.M. and SE Aggrey. Poultry Genetics,
Breeding, and BioTechnology (2003).
\40\ See Burke, William, and Peter J. Sharp. ``Sex Differences
in Body Weight of Chicken Embryos.'' Poultry Science 68.6 (1989):
805-810; and Beg, Mah, et al. Effects of Separate Sex Growing on
Performance and Metabolic Disorders of Broilers. Diss. Faculty of
Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural
University, Dhaka, Bangladesh, 2016.
\41\ Breeder stock age: See Washburn, K.W., and R.A. Guill.
``Relationship of Embryo Weight as a Percent of Egg Weight to
Efficiency of Feed Utilization in the Hatched Chick.'' Poultry
Science 53.2 (1974): 766-769; Weatherup, S.T.C., and W.H. Foster.
``A Description of the Curve Relating Egg Weight and Age of Hen.''
British Poultry Science 21.6 (1980): 511-519; Wilson, H.R.
``Interrelationships of Egg Size, Chick Size, Posthatching Growth
and Hatchability.'' World's Poultry Science Journal 47.1 (1991): 5-
20; Goodwin, K. ``Effect of Hatching Egg Size and Chick Size Upon
Subsequent Growth Rate in Chickens.'' Poultry Science 40 (1961):
1408-1409; Morris, R.H., D.F. Hessels, and R.J. Bishop. ``The
Relationship Between Hatching Egg Weight and Subsequent Performance
of Broiler Chickens.'' British Poultry Science 9.4 (1968): 305-315;
Peebles, E. David, et al. ``Effects of Breeder Age and Dietary Fat
on Subsequent Broiler Performance. 1. Growth, Mortality, and Feed
Conversion.'' Poultry Science 78.4 (1999): 505-511. AMS notes
additionally that research in this and related areas has
limitations. It is older and results are mixed. AMS is concerned
that publicly available research has stagnated, despite the
introduction of new breed strains in the intervening years. Because
integrators now own the genetics companies, AMS has additional
concerns that research has, in effect, been privatized, creating
informational asymmetries. Based on regulatory experience and on
public comments, growers believe these factors affect performance.
\42\ Dozier III, W.A., et al. ``Stocking Density Effects on
Growth Performance and Processing Yields of Heavy Broilers,''
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler
performance at different stocking densities.'' Journal of Applied
Poultry Research 4.1:55-60 (1995).
\43\ Dozier III, W.A., et al. ``Effects of Early Skip-A-Day Feed
Removal on Broiler Live Performance and Carcass Yield.'' Journal of
Applied Poultry Research 11.3 (2002): 297-303.
\44\ Treatments may be necessary to mitigate disease within a
single poultry house or an entire flock, or to boost the performance
of suboptimal progeny from impaired breeder flocks, as described
above. These treatments may affect the flock's growth rate or
mortality. See Wells, R.G., and C.G. Belyawin. ``Egg quality-current
problems and recent advances.'' Poultry science symposium series.
No. 636.513 W4. 1987. (citing Spackman, D. ``The Effects of Disease
on Egg Quality.'').
\45\ Hendrickson, M. et al, ``The Food System: Concentration and
Its Impacts,'' 3, (2020), https://farmaction.us/concentrationreport/
, (``Globally, just two firms control 99% of turkey genetics, 94% of
laying hen genetics, and 91% of broiler genetics, and just three
firms control 47% of swine genetics (ETC Group 2013; Shand and
Wetter 2019)'').
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This rule aims to set conditions on performance-based payment
systems in contract poultry growing such that poultry growers are
compared based on factors under their control. When poultry companies
take appropriate measures, as prescribed in this rule to ensure a fair
comparison, then contract poultry growing reduces a significant amount
of risk to growers because the LPD provides the inputs.
The purpose of this rule is to establish a framework for fair
comparisons to prevent unfair and deceptive practices that reduce pay.
To the extent that input variability is creating unfairness, the rule
requires LPDs to mitigate the impacts of input variability on the
comparison. AMS recognizes that LPDs have an incentive to get full
economic value of less productive chicks. Yet it is incumbent upon them
under the Packers and Stockyards Act--and this rule's explicit duty of
fair comparison--to structure their comparison-based compensation
system to make a fair comparison among growers. Input differences
should not be a significant variable over time in the determination of
grower compensation. As commenters noted, excessive variability in
input quality, timing, and flock pickup can cause significant harm to
growers, hence the inclusion of explicit duties imposed on LPDs in this
rule with respect to the design and operation of comparison-based
poultry compensation schemes. Furthermore, LPDs must institute a non-
comparison-based system when it is impossible for the LPD to conduct a
fair comparison due to extenuating circumstances.
ii. Application, Material Difference, and Non-Comparison Method
Comment: While there was broad agreement on the importance of fair
compensation for all growers, some commenters expressed concern about
the rule's practicality, administrative burdens, and potential
confusion regarding the definition of ``material differences in
performance.'' Commenters, especially farmers' coalitions and advocacy
groups, endorsed the duty of fair comparison, viewing it as a key step
toward ensuring equitable treatment for growers operating outside of
tournament systems. They emphasized the need for transparent, data-
driven mechanisms that guarantee fair compensation regardless of
payment model.
Commenters both in support of and in opposition to the proposed
rule requested further clarity for the definition of ``material
differences in performance'' so that growers know when they have
suffered a specific prohibited harm and can confidently request an
investigation. Commenters also favored a presumption of unfairness
rather than a material threshold for change in pay. One commenter
asserted that any material or numeric threshold for change in pay would
be inappropriate, and that AMS should establish the presumption that
providing unequal inputs to growers within the same settlement group is
material to grower performance, and another commenter advocated for the
use of a presumption to provide greater clarity and notify growers of
problems to be addressed.
AMS response: The preamble to this final rule explains that
``Material differences in performance are differences that meaningfully
(from the perspective of the grower) impact grower payments.'' AMS
chose not to publish a dollar amount because a given change in
performance may have disparate impacts on growers, depending on the
ratio of performance pay to total pay, the overall size of the grower's
operation, their level of indebtedness, or other factors pertaining to
a grower's financial position.
AMS is not adopting a presumption of unfairness for differences in
inputs because there are always differences in inputs in natural
systems. The use of a presumption would be overinclusive and unhelpful
in guiding LPDs in improving the fairness of their comparisons in
relation to inputs, production practices, and related factors set out
in the duty of fair comparison. Material change in pay is a more
[[Page 5176]]
appropriate target because the comparison affects the grower's pay.
Comment: Commenters stressed the importance of clearly outlining
non-comparison methods within production contracts before they become
necessary to provide growers with a clear understanding of their rights
and options should tournament-based comparisons become unfair or
impractical. Both industry stakeholders and advocacy groups acknowledge
the need for clearer guidance on determining when fair comparison is no
longer feasible and advocated for more specific criteria to guide both
LPDs and growers. Commenters also expressed concern that implementation
should appropriately address growers' circumstances.
AMS response: Fair comparison of growers requires that growers do
not receive a distribution of inputs or assignment of production
practices that causes material differences in performance from other
growers to whom they are being compared. Factors outside of a grower's
control should not meaningfully (from the perspective of the grower)
impact grower payments. This is a facts and circumstances analysis.
Per Sec. 201.110(a)(3), the non-comparison method must be included
in the contract; therefore, growers will know what this method is
before it is used. Per Sec. 201.110(b)(1)(v), ``Non-comparison,''
requires that an LPD's written processes explain when the LPD might
remove a grower from a ranking group, and how the LPD will compensate
growers removed from a ranking group to satisfy the non-comparison
compensation method required under Sec. 201.110(a)(3). There are
myriad reasons why a grower may need to be removed from a ranking
group. For example, there may not be enough comparable growers with
which to make a reliable comparison in the current grouping and the LPD
may use growers settling in previous periods to make a reliable
comparison. Likewise, a specific grower may have received undesirable
inputs or an assignment of production practices that materially
impacted the grower's performance, necessitating the removal of the
grower from the grouping and compensation under a non-comparison
compensation method. Under this provision, the LPD must explain how and
when the LPD removes a grower from a ranking group because the grower
received unfavorable inputs or production practices and how it will
fairly compensate such growers through a non-comparison compensation
method.
Comment: A common theme across comments was addressing the inherent
power imbalance between growers and LPDs, including the need to protect
growers from retaliation. Commenters advocated for independent
compliance reviews, potentially involving grower feedback, to ensure
LPDs comply with the duty of fair comparison. However, some commenters
contend that such requirements would create excessive paperwork burdens
for LPDs, potentially hindering their ability to address grower needs
effectively.
AMS response: AMS monitors and regulates power imbalances in the
poultry industry in accordance with the Act and associated regulations.
AMS's regulations at Sec. 201.304 prohibit retaliation for asserting
any of the rights granted under the Act or part 201 or asserting
contract rights (9 CFR 201.304(b)(2)(vii)). AMS's regulations also
prohibit retaliation by LPDs against poultry growers for speaking with
government officials for the purposes of seeking redress for grievances
brought under the Acts (9 CFR 201.304(b)(2)(i)). Moreover, this
regulation aims to prevent injury from specific practices by LPDs--who
possess local market power or bargaining power over growers. Out of
concern that the compliance review process will divert poultry
technicians from their primary responsibility to assist poultry growers
with production issues, AMS has simplified the documentation
requirements under Sec. 201.110(b)(1). This new streamlined
documentation requirement gives LPDs the needed flexibility to
efficiently incorporate compliance with this rule into their standard
business practices. Additionally, this section was streamlined in part
because the Transparency Rule had similar documentation
requirements.\46\
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\46\ 88 FR 83210, November 28, 2023.
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Comment: To refine comparison-based payment systems, one commenter
suggested using shorter rolling averages for performance comparisons; a
short rolling average mitigates the impact of seasonal variations and
new breeder flocks on grower pay, and therefore might create a more
level playing field and prevent unfair disadvantages stemming from
factors outside a grower's control. Another commenter advocated for
contract provisions that would automatically adjust grower pay or
provide avenues for redress when external factors, such as chick
quality, veterinary care access, and feed quality negatively impact
performance.
AMS response: AMS agrees that the duty of fair comparison requires
integrators to use an appropriate time period for comparing growers.
Use of an inappropriate time period for the comparison-based
compensation may be unfair or deceptive, and therefore constitute a
violation of the Act. The final regulatory text indicates that one
factor for the Secretary to consider when determining if a fair
comparison has been made in the design or operation of a poultry grower
ranking system is ``whether the designated time period used in the live
poultry dealer's comparison is appropriate, including whether the live
poultry dealer uses one or more groupings, rankings, or comparisons of
growers to mitigate the effects of any differences in inputs over the
designated time period.'' Under the duty of fair comparison provision,
growers will be compensated through a non-comparison method when a fair
comparison-based compensation scheme is impossible.
iii. Appeal, Dispute Resolution
Comment: An industry stakeholder expressed concern that the
language surrounding ``reasonable efforts'' was not detailed enough and
that this could create uncertainty for LPDs, potentially leading to
inconsistent application and legal challenges. To provide greater
clarity and specificity regarding the definition of ``reasonable
efforts,'' one commenter suggested defining the term through concrete
examples of both reasonable and unreasonable behavior to provide
clearer expectations for both growers and LPDs. Another commenter
proposed specific actions that LPDs should take to demonstrate
``reasonable efforts,'' including (1) allowing for grower-installed
feed scales to verify feed amounts, (2) permitting third-party
veterinarian selection for sick flock assessments, (3) providing
options for growers to independently assess LPD-controlled inputs, and
(4) offering non-comparison compensation without fear of retaliation.
Emphasizing grower agency, one commenter recommended empowering growers
with the ability to independently verify inputs and performance
factors.
An industry commenter noted that, in order to fairly address and
resolve a situation, an LPD will always depend on the facts and
circumstances of each case. The commenter noted that there are a
multitude of factors for each situation, making a set policy or
procedure not conducive to the dispute resolution process.
AMS response: As noted above, fairness requires a poultry ranking
system that meets a reasonably reliable standard. LPDs must properly
adjust the comparison-based compensation systems used in their poultry
grower
[[Page 5177]]
ranking systems to reasonably neutralize the impact of inequitable
distribution of inputs and assignment of flock production practices on
poultry grower compensation, as well as to reasonably neutralize the
impact of communication and dispute resolution challenges that are not
effectively and timely addressed.
Reasonableness is intended to be viewed as an objective test that
accounts for standard industry practice, growers' contract
expectations, basic considerations of equity, and the LPD's ability and
willingness to prevent harms to growers resulting from factors outside
growers' control. This objective test should also provide some
flexibility to LPDs in particular facts and circumstances to achieve
distinct goals in management of their operations, provided the LPD's
goals are reasonably designed, appropriately documented, and not
otherwise unfair or deceptive to growers.
Although ``reasonable efforts'' follows the typical standard
applied for reasonable behavior in the law--what a reasonable person
would do under similar circumstances--AMS also recognizes that enough
circumstances are recurring in nature that an LPD should in many if not
most cases be expected to have a regularized approach to the concern.
Ultimately, what constitutes reasonable efforts will depend on the
facts and circumstances of each case, with the LPD's duty focused on
the fairness of the comparison(s) for the grower.
For example, if a grower raises immediate and urgent concerns about
feed quality, such as the delivery of feed meant for older chicks than
the grower has, the LPD should resolve this concern as soon as possible
to minimize any additional undue damage to the grower's flock due to
lack of proper nutrition. Or if a grower raises concerns about feed
consistently being delivered late or in an insufficient quantity, the
Agency would examine the LPD's effort to adjust the method of delivery.
Failure to do so would likely justify placing the grower into a non-
comparison method.
Without a doubt, an LPD is prohibited from retaliating against a
grower in any manner for raising concerns as to whether a fair
comparison method was used. Whether or not reasonable efforts
specifically include LPDs allowing for grower-installed feed scales to
verify feed amounts, permitting third-party veterinarian selection for
sick flock assessments, or providing options for growers to
independently assess LPD-controlled inputs is not something that AMS
intends to determine in this rule for all circumstances. However, to
the extent that LPDs face repeated grower complaints and concerns
regarding these matters and a track record of problems in resolving
those complaints, reasonable efforts under particular facts and
circumstances could point to the need for solutions such as those,
although other less intrusive options may also be available.
Regarding the comment stating that set policies and procedures are
not appropriate for how LPDs resolve issues with growers, AMS agrees
that every growing operation is different, and LPDs must be careful in
designing processes for resolving issues with growers that are context
specific. Yet a wide range of problems are commonplace enough that LPDs
should have regularized means for dealing with them. To strike an
appropriate balance and enable LPD complex staff to retain focus on the
important work of helping growers, AMS has changed the documentation
requirements under Sec. 201.110(b) to be less specific and, instead,
simply require LPDs to describe how they account for similarities and
differences in quality or quantity of inputs delivered to growers and
how they account for differences in production practices across growers
in a poultry grower ranking system.
iv. Benefit, Burden, and Cost
Comment: Commenters highlighted the perceived need for greater
transparency and fairness in grower compensation. While grower
advocates believe the rule is necessary to address systemic issues,
LPDs expressed concern about potential cost increases and impacts on
grower pay. Comments revealed a clear divide between grower advocates
and industry representatives. Grower organizations argued that the duty
of fair comparison is crucial for addressing the unfair and deceptive
practice of shifting costs and risks from LPDs to growers. Advocacy
groups suggested including a list of presumptive violations, such as
providing unequal inputs within the same settlement group, to
strengthen the rule's effectiveness. Several commenters emphasized the
importance of robust anti-retaliation protections for growers who
report rule violations or seek non-comparison compensation. An industry
commenter expressed concern that requiring non-comparison-based pay
could lead to lower overall compensation for growers.
AMS response: AMS agrees with commenters that the duty of fair
comparison plays a critical role in addressing the unfair and deceptive
risk-shifting of costs and risks from LPDs to growers. Regarding non-
comparison-based pay, the rule clearly states that when a fair
comparison-based system is impossible, the LPD must implement a non-
comparison method for calculating pay to ensure that factors outside of
the growers' control do not cause harm to growers through decreased
compensation for grow-out services. Even where adopted, non-comparison-
based pay is not intrinsically likely to reduce average grower pay; the
total amounts of pay are entirely dependent on the LPD's choices, and
this rule does not ban bonuses for increased productivity or greater
investment.
AMS agrees that a presumptive list of violations would assist with
enforcement and has included some examples of potential violations in
the appropriate section of the preamble of the final rule addressing
the duty of fair comparison. Moreover, AMS agrees that growers cannot
be retaliated against for reporting a violation of the duty of fair
comparison and have indicated as such in this final rule. AMS included
a prohibition against retaliation in the Inclusive Competition and
Market Integrity Under the Packers and Stockyards Act final rule (89 FR
16092, March 6, 2024). LPDs cannot retaliate against growers for
speaking with government officials for the purposes of seeking
redresses for grievances brought under the Act.
Comment: Several commenters were concerned about the feasibility of
implementing the documentation requirements for the new duty of fair
comparison. Growers emphasized the need to access detailed, house-
specific data on bird weights, feed consumption, and other key metrics.
Some other commenters recommended additional requirements pertaining to
LPD-controlled factors and assessing compliance, and one commenter
recommended USDA to require LPDs to equally distribute inputs and
adjust performance-based pay to account for differences in inputs and
treatment. An industry commenter argued that requiring LPDs to control
all variations in inputs, as implied in Sec. 201.110(b)(1)(i), would
be overly prescriptive and impractical given the scale, speed, and
complexity of input delivery. The commenters argued that this could
lead to inflexible systems that would ultimately harm growers. Other
commenters criticized the provision for being vague, unfounded and
lacking necessary explanation.
AMS response: AMS finds that comparison-based pay using factors
outside growers' control constitutes an unfair practice under section
202(a) of the Act. While it is true that inputs cannot be delivered on
a 100 percent
[[Page 5178]]
equal basis to all growers all the time, that does not mean that LPDs
cannot construct payment systems that appropriately account for and
mitigate the impact of input and flock production variability on grower
compensation. The LPD does not need to control all variations in
inputs; instead, the rule as proposed and finalized here merely
requires the LPD to account for this variation in the design of a
comparison-based payment system. AMS has been careful to specifically
not require, nor expect, that identical inputs are delivered to all
growers.
Also, the compliance reviews have been removed from the final rule
because of the speed and complexity of the poultry growing process.
Instead, AMS will incorporate audits of records pertaining to the duty
of fair comparison into its regular audits of LPDs to lessen the
compliance burden of this rule.
AMS expects the duty of fair comparison to substantially prevent
unfair and deceptive practices when comparison-based pay is linked to
input or flock production variation. This provision is written with
sufficient specificity to tackle the problem at hand, while also
allowing LPDs enough flexibility to design and operate a comparison-
based compensation system that causes minimal disruption to their
business operations. In fact, several LPD comments indicated they
already have processes in place for addressing situations where a
comparison-based pay system is not appropriate. This rule is codifying
what industry stakeholders recognize as a best practice to create a
level playing field and uphold the purpose of the tournament system in
contract poultry growing. AMS has created new Sec. 201.110(b)(1)(iii),
``League composition,'' which requires written documentation regarding
how LPDs determine groupings of growers for settlement. AMS has also
created new Sec. 201.110(b)(1)(iv), ``Evaluation period,'' requiring
LPDs to have a reasonable time period over which they shall evaluate
the duty of fair comparison, and new Sec. 201.110(b)(1)(v), ``Non-
comparison,'' which requires LPDs to specify when they may remove
growers from a ranking group and how they will compensate such growers
to satisfy the non-comparison compensation method requirement under
Sec. 201.110(a)(3). This is meant to account for fluctuations across
flocks while also ensuring that poultry growers do not face material
harm resulting from input quality or timing variation.
Comment: Some commenters asserted that the proposed documentation
requirements were burdensome and potentially litigious. One commenter
argued that AMS lacked authority to require LPDs to conduct and
document self-audits to evaluate P&S Act compliance.
AMS response: As explained above in section IV., ``Provisions of
the Final Rule,'' AMS agrees that some of the proposed documentation
requirements can be streamlined. In the final rule, AMS is focused on
only the most important documentation requirements that would assist
AMS in reviewing LPDs' compliance with the duty of fair comparison.
Requirements for policies and procedures are not new or particularly
controversial and are used widely across in the financial regulatory
context to ensure firms are appropriate managing risks that cannot be
entirely eliminated through regulation or otherwise. The situation is
similar in the operation of broiler growing arrangements, where LPDs
need to distribute inputs, production practices, and manage the needs
of growers. To the extent that an LPD improves its management practices
through maintaining policies and procedures, that should reduce
litigation risk from unfair comparisons.
AMS is removing the provision requiring self-audits and will
incorporate inspection of documentation required under Sec. 201.110(b)
into its regular compliance process. The compliance process undertaken
by AMS to ensure compliance with the Act is routine, flexible, and
comprehensive, thereby making it the ideal mechanism by which the
provisions of this section shall be enforced. AMS regulatory staff
already perform regular compliance audits of LPDs, so they are well
positioned to review documentation describing the design and operation
of LPDs' poultry grower ranking systems and ensure that it complies
with the duty of fair comparison.
v. Alternatives
Comment: Several stakeholders offered alternative approaches to
address unfair compensation practices in the poultry industry. An
advocacy group for growers proposed exploring non-comparison-based
compensation models, such as contracts based on square footage, to
mitigate the inherent issues of tournament systems. Another group
advocated for a complete ban on tournament systems, based on the need
for more stable and predictable grower income that is decoupled from
relative performance within a group.
A number of commenters expressed concerns about LPDs manipulating
input distribution (e.g., chick quality, feed) as a form of retaliation
against growers who challenge them or refuse to make capital
investments. One commenter recommended explicitly defining unequal
inputs within a settlement group as an unfair practice under the Act.
Another commenter argued there are no simpler alternatives to directly
addressing unfair comparisons, and that focusing on alternative
compensation models or banning tournament systems wouldn't fully
address the root issue of unequal bargaining power and the potential
for exploitation within the poultry industry.
AMS response: AMS is not at this time adopting the alternative
approaches to address unfair compensation practices in the poultry
industry because it believes that the final rule's approaches are more
effective at addressing the identified concerns around unfairness and
deception given the available evidence. While AMS recognizes that non-
comparison-based compensation models, such as contracts based on square
footage, are popular with growers and mitigate the inherent issues of
tournament systems, they have other limitations around recognizing
skill, effort, and investment. AMS is not at this time, based on the
available evidence, able to say that tournaments should be banned in
all circumstances and replaced with those non-comparison methods,
especially when AMS believes that the approaches set forth in this
final rule, including prohibiting deductions and setting a presumption
of 25 percent limitation on tournament magnitude, along with a clearer
duty of fair comparison, offer a more narrowly tailored approach. If
the approaches set forth in this final rule do not yield sufficient
change in the treatment of growers, AMS will evaluate whether those
facts necessitate other actions.
AMS acknowledges concerns about LPDs manipulating input
distribution (e.g., chick quality, feed) as a form of retaliation
against growers who challenge them or refuse to make capital
investments. In a previous final rule, Inclusive Competition and Market
Integrity Under the Packers and Stockyards Act (89 FR 16092, March 6,
2024), AMS specifically set out a range of circumstances where
retaliation is prohibited (9 CFR 201.304(b)). Moreover, new Sec.
201.110, which includes requirements for maintaining and complying with
policies and procedures relating to input distribution, is designed to
better protect growers against precisely those kinds of abuses. Were an
LPD to adopt
[[Page 5179]]
policies and procedures that permitted inputs to be distributed in a
retaliatory manner and compared growers on that basis, it would be in
violation of the duty of fair comparison. And, if the LPD failed to
comply with its policies and procedure requiring the equitable
distribution of inputs and compared growers on that basis, that would
also be in violation. AMS underscores that these principles (of pay not
being affected by unfair input distribution) apply regardless of
whether a tournament is present. Indeed, as AMS inquired in the
proposed rule and affirms here, a practice (including, but not limited
to, intentional, arbitrary, or punitive distribution) of unequal,
dissimilar, or inappropriate inputs or flock production practices would
be an unfair practice under the Act under any payment system that
relies upon grower performance relative to inputs or production
practices provided by the LPD (such as feed efficiency) irrespective of
whether the payment system was a tournament.
C. Section 201.112
i. Additional Capital Investment Disclosure Document
Comment: Commenters including several farmers' coalitions supported
the proposed additional capital investment disclosure requirements,
asserting they would increase transparency and reduce deception.
Several farmers' coalitions indicated the proposed transparency
requirements should provide lenders with more consistent information
for justifying investment viability, help prevent producers from being
misled to make unviable investments, deter LPDs from making unnecessary
upgrade requests, and may increase incentive pay for additional capital
investments. However, industry associations and LPDs stated that it is
outside USDA's statutory authority under the Act to require disclosures
for additional capital investment requests. One commenter asserted that
section 401 of the Act only allows AMS to require LPDs to maintain
business records for AMS's benefit, not to require disclosure of
records to growers, and that under section 401 AMS can only prescribe
the manner and form in which regulated entities must keep transaction
records if the Secretary finds that the records ``do not fully and
correctly disclose all transactions involved in the dealer's
business.'' Another commenter asserted that AMS has failed to establish
that disclosures are always necessary to avoid an unfair or deceptive
practice or device.
AMS response: The Agency believes that the additional disclosure
information will help mitigate the information asymmetry between LPDs
and poultry growers when entering into an additional capital investment
agreement. When LPDs ask contract poultry growers to make additional
capital investments but fail to be transparent regarding the purpose,
risks, financial incentives and rates of return, those growers cannot
make an informed business decision. Any failure to disclose material
information essential to making critical business decisions is
deceptive and also inhibits growers from identifying unfair practices
in their incipiency, and so violates the Act's prohibition in section
202(a) against unfair and deceptive practices. Section 407 of the Act
specifically authorizes the Secretary to implement regulations to carry
out the provisions of the Act. This provision is one instance of this
authority. Accordingly, AMS disagrees with the notion that the Agency
lacks statutory authority to promulgate the additional capital
investment disclosure requirements.
In this regulation, AMS enables growers to better detect the risks
in contracting because the LPDs' contracts will now show the grower the
real value of the LPDs' offer, which they obscure in tournament
contracts. Preventing deception and stopping unfairness in its
incipiency enhances competition among dealers by enabling growers to
compare offers and reasonably assess entry into the business.
Preventing unfairness and deception improves how markets function by
forcing LPDs to compete for growers' services based on the merits of
the producer's offer and prevents likely injuries to competition.
Preventing deception enables growers to better assess their performance
vis-[agrave]-vis other growers. Ultimately, the conduct at issue is
squarely within the purposes of the Act. Where conduct ``prevents an
honest give and take in the market,'' it ``deprives market participants
of the benefits of competition'' and ``impedes . . . a well-functioning
market.'' \47\ In its report on the 1958 amendments to the Packers and
Stockyards Act, the U.S. House of Representatives explained that the
statute promotes both ``fair competition and fair trade practices'' and
is designed to guard ``against [producers] receiving less than the true
market value of their livestock.'' \48\
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\47\ Federal Trade Commission, ``FTC Policy Statement on
Unfairness'' (1980), available at https://www.ftc.gov/public-statements/1980/12/ftc-policy-statement-unfairness. Last viewed
October 9, 2024.
\48\ H.R. Rep. No. 85-1048 (1957), reprinted in 1958
U.S.C.C.A.N. 5212, 5213.
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Moreover, other agencies that enforce laws prohibiting unfairness
and deception often have used disclosure to prevent deception. For
example, the FTC enforces prohibitions against unfair practices, unfair
methods of competition, and deceptive practices arising under the FTC
Act.\49\ Effective disclosure is well-established as a cure for
deceptive practices that arise from information gaps in the
marketplace, as exemplified by AMS's existing disclosure requirements
under Sec. Sec. 201.100 and 102, the FTC's franchisor-to-franchisee
disclosure requirements, and a range of other mandated disclosures by
Federal and State regulators. Although disclosure will not remedy an
unfair practice, robust disclosure can help identify such practices,
enabling remediation of unfairness at earlier stages, and so help stop
harms in their incipiency. AMS believes that the parallels between the
FTC's section 5 authority on deceptive and unfair practices greatly
outweigh any differences between the statutes because the language of
both statutes is similar,\50\ and it is generally recognized that
Congress wrote the Act with broader application than the original FTC
Act.\51\ It is plain from the statutory language Congress wrote--and in
the floor debates and Congressional reports--that the Act empowered the
Secretary to prevent unfair and deceptive practices, and not merely
enforce existing antitrust law.\52\
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\49\ Letter from FTC Chair Lina Khan to AMS, ``Poultry Grower
Tournament Systems: Fairness and Related Concerns,'' Docket No. AMS-
FTPP-22-046, at https://www.regulations.gov/comment/AMSFTPP-22-0046-0143; Michael Kades, ``Protecting livestock producers and chicken
growers,'' Washington Center for Equitable Growth (May 2022).
Federal Trade Commission, Policy Statement on Deception, (1983),
https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf. 15 U.S.C. 45(n); Fed. Trade Comm'n, Policy
Statement on Unfairness, (1980), https://www.ftc.gov/legal-library/browse/ftc-policy-statement-unfairness; Fed. Trade Comm'n, Policy
Statement Regarding the Scope of Unfair Methods of Competition Under
Section 5 of the FTC Act, 9 (2022), https://www.ftc.gov/legal-library/browse/policy-statement-regarding-scope-unfair-methods-competition-under-section-5-federal-trade-commission.
\50\ 15 U.S.C. 45(a)(1) (``Unfair methods of competition in or
affecting commerce, and unfair or deceptive acts or practices in or
affecting commerce, are hereby declared unlawful.'').
\51\ FTC comment, submitted to Regulations.gov on September 10,
2024, posted on September 11, 2024. https://www.regulations.gov/document/AMS-FTPP-21-0046-12413.
\52\ The House of Representatives' report on the P&S Act stated
that the P&S Act was the ``most comprehensive measure and extends
farther than any previous law in the regulation of private business,
in time of peace, except possibly the Interstate Commerce Act.'' 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 . . .'' See, Shively, J.
and Roberts, J., ``Competition Under the Packers and Stockyards Act:
What Now?'' 15 Drake Journal of Agricultural Law 419, 422-423
(2010); and Current Legislation, 22 Columbia Law Review 68, 69
(1922).
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[[Page 5180]]
AMS emphasizes that disclosure under new Sec. 201.112 is not, and
is not intended to be, a remedy to unfairness in and of itself; rather,
disclosure provides AMS and growers with information necessary to
enforce their rights under existing Sec. 201.216, ``Additional capital
investments criteria,'' and the P&S Act more broadly, when terms are
unfair. This rule is meant to both cure deception and to identify
unfairness in its incipiency to make enforcement under Sec. 201.106
possible.
A commenter grounded opposition to the additional capital
investment disclosure requirement in section 401 of the Act and argued
that section 401 requires dealers to maintain records for AMS's
benefit, not for the benefit of growers. The commenter also argued that
AMS is not authorized to control the content of the records required
under section 401. AMS disagrees. Section 202 of the Act prohibits
unfair and deceptive practices. The disclosures required in this rule
seek to identify or prevent those harms. Section 401 complements these
goals to the extent that disclosure is based on recordkeeping. Section
401 statutorily requires LPDs to maintain complete records of all their
business transactions. Moreover, LPD obligations to retain information
do not affect AMS's ability to require the LPD to share the information
to prevent unfair and deceptive practices under section 202(a) and (b)
of the Act. Growers have informed the Agency that LPDs systematically
withhold information that the LPDs possess concerning the design,
purposes, impacts, and other aspects of the contracts the LPDs make
regarding additional capital investments. This regulation targets
material omissions under section 202, and the commenter's assertions
regarding section 401 ignore how additional capital investment requests
fit into the business relationship between LPDs and growers. When an
LPD asks a grower to make an additional capital investment, that is
fundamentally a request to modify the contract that the grower must
consider under circumstances where the LPD has all the information on
its benefits, and the grower has none. Therefore, when the LPD requests
that the grower spend money to advance the LPD's business interests,
the grower may incorrectly infer that an additional capital investment
must also be in the grower's interest. The regulation is remedial in
purpose and effect, exactly as Congress intended the Secretary to
regulate when the Act passed in 1921, and when Congress amended that
statute in 1987.\53\
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\53\ Public Law 100-173, 101 Stat. 918.
---------------------------------------------------------------------------
Regarding the comment that asserted AMS has not proven that
disclosures are always necessary to avoid an unfair or deceptive act or
practice, Congress did not require that regulation be ``always''
necessary. AMS is not required to adduce individualized evidence that
the disclosure was necessary to every grower--the regulation simply
must be necessary to prevent deception or identify unfairness for some
growers. As a factual matter, AMS concludes that the unequal bargaining
terms between growers and LPDs requires LPDs to disclose key
information regarding additional capital investment requests to
mitigate asymmetric information gaps that result in unfair and
deceptive practices. Furthermore, transparency in the market requires
disclosure of this information when LPDs request an additional capital
investment in order to prevent deceptive practices.
Comment: One commenter commented on the rule explaining that AMS
lacks the authority under ``Section 410'' to ``require dealers to make
a variety of ``disclosures'' to growers.''
AMS Response: Section 410 of the cited material, entitled ``Final
date for making payment to cash seller or poultry grower'' deals with
(a) ``Delivery of full amount due,'' (b) ``Delay or attempt to delay
collection of funds as `unfair practice, ' '' and (c) ``Definition of
cash sale.'' Section 410 makes clear that Congress expected the
Secretary to protect growers from receiving less than full payment. The
mechanism for reducing or delaying that payment is immaterial.
The Congressional purpose of the Act was to stop unfair practices
in their incipiency.\54\ When an LPD fails to make available the
required disclosures here, the unfair practice of reducing pay, banned
by section 410, becomes undetectable because the terms surrounding
payment are not clearly expressed. In other words, without having the
necessary foundational terms, as per the required disclosure, there is
no way for aggrieved party or for USDA to see a reduction of pay as
there has been no set baseline. Congress expected USDA to take a
proactive approach to prevent this sort of harm, which hurts both the
grower and the market, because it destroys the ability of growers to
continue in the business and reduces the supply of growers willing to
contract. Thus, among the other authorities in the Act, USDA also
believes this regulation implements provisions of section 410 of the
Act.
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\54\ 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).
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Comment: Several advocacy organizations suggested additional
disclosure of cost and liability burden for environmental compliance.
AMS response: AMS appreciates these comments and understands the
importance of properly allocating cost and liability burden for
environmental compliance in the poultry industry. However, AMS did not
consider that in the proposed rule, and P&S Act regulations in general
do not impact the environment.\55\ To the extent that the costs of
environmental compliance are grower variable costs under particular
poultry growing arrangements, they should be disclosed by the LPD under
the requirement to disclose information relating to grower variable
costs (9 CFR 201.102(d)(3)). Therefore, AMS made no changes to the rule
as proposed based on these comments.
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\55\ See 7 CFR 1b.4 (Listing the USDA agencies and agency units
found to have no individual or cumulative effect on the human
environment.).
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Comment: One commenter suggested that AMS make additional capital
investment requests and disclosures public to other growers and track
the frequency of additional capital investment requests and grower
complaints of coercion, retaliation, or arbitrariness.
AMS response: This rule is not designed to make private business
arrangements and agreements public information. Furthermore, AMS is not
contemplating such a shift as the dissemination of private business
arrangements and agreements would require additional regulatory
provisions, justifications, and safeguards that do not fall under the
purview of this rule. Rather, this rule is designed to help poultry
growers understand why they are being requested to make additional
capital investments, how entering into those contracts will impact
their pay, how long it will take to complete additional capital
investments, potential conflicts of interest with LPD personnel or
their family members, required vendors/manufacturers, and expected
returns from the investment. This information will help growers make
[[Page 5181]]
effective business decisions, and, when shared with AMS, identify
circumstances that may be unfair.
With respect to AMS tracking the frequency of additional capital
investment requests and grower complaints of coercion, retaliation, or
arbitrariness, AMS agrees that market monitoring is important and
invites growers to contact AMS at farmerfairness.gov or call 1-833-
DIAL-PSD (1-833-342-5773) when they have concerns regarding additional
capital investments they encounter and especially if they feel they are
being subject to coercion, retaliation, or arbitrariness.
Comment: An advocacy association suggested that all additional
capital investments should be subject to the same disclosures and
prohibitions.
AMS response: The requirement to provide the disclosure will be
triggered when the LPD requests the grower make an additional capital
investment. There is no threshold below which this disclosure
requirement does not apply. Nor are there any exclusions or exemptions
for additional capital investment disclosures for other reasons.
Additional capital investment prohibitions, however, will be
considered on a facts-and-circumstances basis under the criteria set
forth in Sec. 201.216 of AMS's regulations and generally under section
202 of the Act. AMS does not in this rule identify specific
prohibitions. To the extent that AMS identified an additional capital
investment practice that was unfair, AMS would seek to stop the
practice through an enforcement action and communicate its intent to
stop such practices in similar circumstances.
Comment: Several commenters suggested that LPDs should be required
to make all additional capital investment contracts guaranteed for the
duration of the loan required to pay for the additional capital
investment.
AMS response: AMS acknowledges the concerns of the commenters and
advocacy groups. If an LPD requests additional capital investments
without guaranteeing that the grower will have a contract that is
sufficient to recoup the costs of the investment or loan, such conduct
could violate section 202 of the P&S Act, including by being unfair
under section 202(a). AMS will monitor these practices and enforce on a
case-by-case basis.
Comment: Several advocacy organizations supported the inclusion of
LPDs' motives for the additional capital investment request in the
Disclosure Document.
AMS response: AMS agrees that it is important for growers to know
why an LPD requests an additional capital investment. As proposed, AMS
included in Sec. 201.112(b)(1) language requiring the LPD to disclose
the purpose of the additional capital investment to both the LPD and
the grower. Although AMS underscores that the inquiry should be focused
on objective purposes and desired outcomes rather than a potentially
vague concept of motives, the paragraph (b)(1) disclosures would
mandate the full and complete presentation of any purposes of the
additional capital investment. Partial disclosure of anything less than
the LPD's full range of purposes would not be considered compliance
with the provision because growers need to understand the full range of
risks they are taking on, including to be able to identify potential
sources of unfairness.
The provision also requires a summary of all research or other
supporting material that the LPD has relied upon in justifying the
additional capital investment. This requirement seeks to elicit the
basis of the additional capital investment and permit the grower the
ability to better understand, as well as evaluate, the reliability of
that basis.
Overall, AMS has included this provision around purpose, research,
and supporting material because alleviating some of the information
asymmetry between LPDs and growers through the disclosure of purposes
and motivations for an additional capital investment will help poultry
growers make better business decisions. Furthermore, the requirement
for information regarding purposes and motivations will help poultry
growers know if that particular additional capital investment request
is for experimental or research purposes, and thus appreciate the
degree of risk the grower is taking on in the additional capital
investment. AMS did not make any changes to the regulation as proposed
in response to this comment.
Comment: Farmers' coalitions indicated a clear disclosure of
financial incentives is essential to a grower's cashflow modeling.
Advocacy associations requested further requirements for the analysis
of projected returns. These suggested requirements include (1) a review
of the projected returns by a disinterested third party and (2) the use
of a standardized projected return form.
AMS response: The Agency agrees with the comment that clear
disclosure of financial incentives is essential. Under the final rule,
LPDs must disclose all financial incentives and compensation for the
grower associated with the additional capital investment (Sec.
201.112(b)(2)), along with any financial benefits that the LPD or any
of its officers, directors, decision-making employees (as discussed
above), or close family members receive from the use of an LPD-required
manufacturer or vendor in connection with an additional capital
investment (Sec. 201.112(b)(5)). AMS added the requirement regarding
financial benefits accrued to an LPD or its affiliates as a result of
an additional capital investment in the final rule to provide greater
transparency regarding the financial components of an additional
capital investment. For the time being, AMS is making no further
changes to Sec. 201.112.
Comment: Several commenters suggested AMS should require the use of
plain language in disclosure documents, especially the descriptions of
financial terms. Advocacy organizations stressed the importance of
standardizing disclosure documents (e.g., the format for reporting
projected returns and delivery expectations). Industry commenters
requested that AMS clarify certain aspects of the disclosure document,
including the description of ``relevant'' information and of the
summary justifying an additional capital investment.
AMS response: Section 201.112(b) requires that the Disclosure
Document present disclosures in a ``clear, concise, and understandable
manner.'' The Agency acknowledges the potential benefits of
standardizing Disclosure Documents but is not requiring a specific form
for this required disclosure.
AMS appreciates the commenters' interest in additional clarity.
However, AMS declines to adopt more specific terms in the regulatory
text because specificity reduces the LPDs' and growers' contracting
flexibility. The nature and circumstances of additional capital
investment varies. Some additional capital investments may be oriented
on technology designed to enhance the efficient use of inputs or to
deliver more uniform growout of birds. Other additional capital
investments may be oriented towards delivering particular production
practices that consumers seek, such as no antibiotics use. In those
examples, the purpose and construction of the additional capital
investments are quite different. Rigid specificity in the disclosure
requirements may create confusion or even limit the disclosures'
effectiveness. AMS's purposes for the disclosure of this information in
Sec. 201.112 is to help poultry growers understand how the additional
capital investment is
[[Page 5182]]
intended to affect their operation and the risks and opportunities they
may be taking on as a whole. AMS values comprehensive coverage rather
than standardization.
With respect to the term ``relevant,'' AMS agrees that its
inclusion in paragraphs (b)(1) through (3) is superfluous to meaning of
the sentences as drafted. Accordingly, AMS is removing it in this final
rule and is revising paragraph (b)(1) slightly from ``any research or
other supporting material'' to ``all research and other supporting
material'' to be consistent with the phrasing in paragraphs (b)(2) and
(3). There is no change in the intended meaning.
Comment: Some commenters requested that translations of the
Disclosure Document be made available in languages other than English.
AMS response: AMS appreciates this comment and acknowledges that
disclosure has a basis in understanding; after all, the proposal
included a requirement that the disclosure be ``clear, concise, and
understandable.'' Language can be a barrier to effective disclosure. To
mitigate the barriers to this disclosure, we have added paragraph Sec.
201.112(c), which requires the LPD to ``make reasonable efforts to
ensure that growers are aware of their right to request translation
assistance and to assist the grower in translating the Capital
Improvement Disclosure Document.'' AMS takes note of the Civil Rights
Impact Analysis located in section VI.G. of this rule that highlights
the disproportionate impact of the rule on Asian-Pacific Island
persons. Some commenters also indicated a need to ensure growers who
are not native speakers of English can understand the disclosures. As
noted by multiple commenters, non-native speakers of English are
engaged in poultry growing. For example, in the early 2000s, large
numbers of first-generation immigrant Hmong people, many of whom had
been farmers in their native Laos, moved from urban areas in
California, Minnesota, and North Carolina to the Ozark region in and
around southwest Missouri and started growing poultry. Pew Research
Center studies show that the English proficiency of the Hmong
population in the U.S. in 2019 was only 68 percent and, among foreign-
born Hmong, English proficiency is just 43 percent.\56\ Data supports
the concerns expressed by commenters regarding providing poultry
growers information in a manner growers are able to understand. AMS
agrees that providing documents in the language growers best understand
ensures fairness and reduces the risk of deception. Therefore, AMS
added new language to the final rule to require that LPDs must make
reasonable efforts to ensure that growers are aware of their right to
request translation assistance and to assist the grower in translating
the Disclosure Document. Historically, many growers have been
immigrants who may not be fully proficient in English; hence, this
rule's goal of preventing deception would not be fully accomplished
without LPDs providing reasonable assistance to help growers understand
the disclosures in their most competent language upon its delivery.
Notably, the translation requirements under Sec. 201.102(g)(4) would
apply to disclosures made under Sec. 201.112 if the latter is
applicable to the LPD and incorporates what is otherwise required under
Sec. 201.102(d)(2)(i) and (ii) in a single disclosure that meets the
requirements of both Sec. 201.112 and Sec. 201.102(d)(2)(i) and (ii).
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\56\ Abby Budimen, ``Hmong in the U.S. Fact Sheet,'' Pew
Research Center's Social & Demographic Trends Project (May 24,
2022), available at https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/.
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ii. Additional Capital Investment Unfairness
Comment: Growers stated the disclosure provisions should prioritize
preventing harm to growers rather than focusing on enforcement after
the fact. They further asserted that full transparency from poultry
companies is crucial to ensure a level playing field. Several
commenters were concerned that the proposed rule did not address the
power imbalances that exist when negotiating additional capital
investments. This imbalance creates an inherent pressure for producers
to comply with LPD requests; even ``optional'' or ``voluntary'' terms
in a producer's contract may amount to an unfair burden on producers
given their fear of retaliation. Advocacy organizations and other
commenters requested further provisions to protect growers from
unfairness, excessive debt, and retaliation.
AMS response: AMS appreciates and agrees with the comments that
preventing harm to growers is preferable to enforcement after the fact.
Indeed, the purpose of this disclosure rule is to help equalize the
negotiating powers between poultry growers and LPDs. There is an
asymmetric power imbalance between LPDs and poultry growers when
deciding to undertake an additional capital investment and the goal of
the new regulation is to equalize the footing of these parties prior to
agreeing to an additional capital investment. To better enable AMS and
growers to protect against unfairness and deception, the rule requires
that LPDs disclose and record more information regarding the additional
capital investments they request from broiler growers. The disclosures
must occur before growers take on the financial burden and risks of the
additional capital investment. The provision of such information is
not, in and of itself, the cure for unfairness, but rather a key tool
for AMS and growers to halt abusive practices by arming them with the
ability to identify those challenges sooner. Indeed, disclosure has
historically been one of the most powerful tools for preventing harms
to growers by bringing practices to light early, and also subjecting
those practices to the clarifying light of transparency.
AMS further underscores that leveling the playing field for growers
is one of the main purposes of this provision. This rule is designed to
reduce deception, strengthen poultry growers' negotiating position, and
aid in their ability to identify and address unfair practices. The
Agency believes that this disclosure requirement for requested
additional capital investments will reduce information asymmetry
between LPDs and poultry growers, thus helping poultry growers make
more informed business decisions about additional capital investments.
Reducing information asymmetry, by definition, helps mitigate power
imbalances.
However, AMS also acknowledges that this rule does not solve all
challenges that growers may face arising from power imbalances between
LPDs and growers, especially in concentrated local markets and in the
context of hold-up risks and dependency arising from vertical
contracting arrangements. To that end, AMS underscores its commitment
to vigorous enforcement of Sec. 201.216, which sets out criteria that
AMS utilizes in identifying and enforcing against unfair additional
capital investment practices. When the cost of the required additional
capital investments cannot reasonably be expected to be recouped by the
poultry grower, that failure is likely to be dispositive that the
investment is unfair (Sec. 201.216(f)). AMS agrees with the
commenter's perspective on the importance of protecting growers from
unfairness, excessive debt, and retaliation (discussed more fully below
in the next comment response). Indeed, AMS is adopting this disclosure
rule to enhance growers' and AMS's ability to identify and take swift
action against unfair practices and the risk of unfair additional
capital investment under existing Sec. 201.216. That regulation sets
[[Page 5183]]
forth criteria for whether additional capital investments would be an
unfair practice or other violation of the Act. These criteria include
whether the grower can decide against the additional capital
investments; whether the additional capital investments were a result
of coercion, retaliation, or threats by the LPD; and whether the
additional capital investments can result in reasonable recoupment, or
adequate compensation for the additional capital investments, among
other non-exhaustive criteria. However, AMS has found that the presence
of the criteria alone is insufficient to effectively address problems
stemming from additional capital investments. AMS and growers lack the
data necessary to analyze whether an additional capital investment
violates the criteria. Moreover, if an additional capital investment is
unfair, the grower has both investment and debt, and the additional
capital investment is impossible to unwind. Technical specifications
can make switching costly (where even possible), and alternative uses
at similar compensation rates are nearly nonexistent.
Comment: Several commenters requested additional protection against
retaliation for growers who refuse additional capital investment
requests. Some commenters expressed concern regarding retaliation if
additional capital investment requests are refused. One commenter
requested AMS monitor complaints of coercion in relation to additional
capital investment request refusals.
AMS response: AMS agrees that retaliation is likely to harm
competition and growers. AMS's regulations at Sec. 201.304 recognize
that retaliation for asserting any of the rights granted under the Act
or part 201, or asserting contract rights (9 CFR 201.304(b)(2)(vii)),
violates the Act. LPDs also violate the Act if they retaliate against
poultry growers for speaking with government officials for the purposes
of seeking redress for grievances brought under the Acts (9 CFR
201.304(b)(2)(i)). AMS fully agrees that without those existing
retaliation protections, poultry growers are in a weak position to
refuse additional capital investment requests making the disclosure
requirement ineffective.
AMS regularly reviews LPDs for P&S Act compliance, and AMS expects
to review Disclosure Documents for compliance. Growers who experience
coercion should contact AMS regarding possible violations of the Act.
AMS also notes that existing Sec. 201.216 would help address these
problems. The regulation sets forth criteria for whether additional
capital investments would be an unfair practice or other violation of
the Act. These criteria include whether the growers can choose to
decline additional capital investments; whether the additional capital
investments were a result of coercion, retaliation, or threats by the
LPD; and whether the additional capital investments can result in
reasonable recoupment, or adequate compensation for the additional
capital investments, among other non-exhaustive criteria. AMS did not
make any changes to the regulations as proposed in response to this
comment.
Comment: Many commenters emphasized the need for grower protection
against debt and assurance of return on investments. Advocacy
organizations and others also suggested adding a requirement that LPDs
shall not mandate additional capital investments unless the cost can be
reasonably recouped by the grower. Advocacy organizations indicated
that projected recoupment should only be evaluated based on non-
performance (base) pay. Many commenters also suggested contracts should
be guaranteed to match the duration of loans or ensure a reasonable
rate of return to recover additional capital investment costs. Advocacy
organizations suggested growers should reserve the right to renew
contracts until additional capital investment debt is fully serviced.
AMS response: Under Sec. 201.112(b)(2) and (3), LPDs would be
required to disclose all relevant financial incentives and compensation
associated with an additional capital investment and establish a
schedule of expected grower construction for new additional capital
investments. Financial incentives would include all incentives relating
to the additional capital investment, including explicit incentive
payment additions to base pay rates or performance compensation
amounts, as well as what assumptions and risks undergird or may put at
risk those incentives. Clearly disclosing financial incentives would
assist the grower in assessing the relative risks of non-recoupment, as
the reliability of those incentives may vary based on the duration of
the contract and whether other growers are likely to incorporate the
additional capital investment technology in a way that would make
recoupment through performance pay less reliable. Clearly disclosing
expected grower construction schedules and other repayment schedules
also would assist the grower in assessing incentives and risks relating
to borrowing, construction, and payment timing. Similarly, the
requirement under Sec. 201.112(b)(4) and (5) for LPDs to clearly
disclose their expectations regarding housing specifications and
required or approved manufacturers or vendors will position growers to
better analyze the business risk in undertaking an additional capital
investment. An important goal of this rule is to give the poultry
grower adequate information so that they may make an informed decision,
identify risks and opportunities based on their knowledge of their own
costs and earning opportunities, including as disclosed in existing
regulations such as Sec. 201.102.
AMS remains committed to protecting growers to the maximum extent
possible from practices that prevent growers from fully recouping their
additional capital investment. An LPD's failure to provide a reasonable
opportunity for a grower to recoup the cost of a required (including
ostensibly requested but in practice coerced) additional capital
investments would be expected to violate Sec. 201.216. AMS recognizes
that growers cannot avoid the unfair exercise of market power and
failing to sufficiently and fairly compensate growers is not a
cognizable benefit to growers or to competition. Any reasonable
recoupment analysis is fact-specific, but it principally relies on the
following criteria: (1) the information required to be disclosed under
Sec. 201.112; (2) whether the contract term, including sufficient
flock placements and density, extends at least as long as the projected
timeline for returns set forth in that analysis; and (3) whether basic
returns would cover the costs of the additional capital investment for
the reasonable grower in the complex that performs under the contract.
AMS is not adopting a requirement that projected recoupment only be
evaluated based on non-performance (base) pay. The actual purpose of
performance pay can vary greatly across different LPDs and even between
complexes.
AMS recognizes the grower concerns that give rise to those
comments, but at this time intends to take a case-by-case approach to
enforcement in part because the range of grower situations require any
unfairness analysis to be tailored to the particular facts and
circumstances.
As noted in the paragraph above, contract term and renewals
opportunities are relevant considerations in any recoupment or rate of
return analysis owing to the heavy reliance interest that the grower
has in the broiler growing arrangement, but AMS declines at this time
to set forth a rule for all cases. AMS may revisit this determination
following implementation of this rule and additional familiarity with
the success
[[Page 5184]]
or limitations of its current case-by-case enforcement approach.
Comment: Some commenters suggested growers should be ensured
leniency for delays in construction schedules due to labor and supply
shortages outside their control.
AMS response: AMS acknowledges this comment regarding leniency for
construction schedules, and the disclosure of the construction schedule
under Sec. 201.112(b)(3) is designed to help growers identify their
risks in implementing an additional capital investment. However, as a
disclosure requirement, it is intended to aid poultry growers by
obligating that LPDs share relevant information regarding an additional
capital investment request, so that the growers can make better
decisions. It is also designed to help growers address potential
unfairness relating to additional capital investment. To the extent
that growers conclude that an LPD's failure to provide leniency on
construction schedules caused an unavoidable harm, the grower may
consider reporting the matter to AMS for investigation into whether the
LPD has committed an unfair practice.
Comment: Some commenters indicated that LPDs should not be allowed
to require growers to use certain equipment or vendors, especially when
those LPDs hold any amount of financial interest in those equipment
companies or specifically required vendors.
AMS response: AMS appreciates the concerns that this comment raises
around grower freedom to operate and especially regarding conflicts of
interest around additional capital investment. The Agency recognizes
that growers rely on construction schedules, housing specification
requirements, and approved manufacturers or vendors when implementing
an additional capital investment. In this final rule, AMS is enhancing
the disclosure of required equipment and vendors in Sec. 201.112(b)(5)
with an additional conflict of interest provision requiring the
disclosure of ``all financial benefits, if any, that the live poultry
dealer or any officer, director, decision-making employee, or close
family member of any such person, receives from the use of the required
or approved manufacturer or vendor.''
In the proposed rule, AMS asked, ``Should proposed Sec.
201.112(b)(5), which requires LPDs to disclose required or approved
manufacturers or vendors, also require the disclosure of any material
financial benefits that the LPD, or any officer, director, employee or
family member of any such person, receives from the use of the required
or approved vendor? If so, please explain why for each party
recommended to be covered, including examples and explanation where
available.'' \57\ In adopting this provision, which is similar to a
disclosure that the Federal Trade Commission requires under its
Franchise Rule (16 CFR 436.5(h)), AMS's goal is to help enable a grower
to identify certain risks relating to the additional capital investment
and potentially unfair or otherwise impermissible additional capital
investment practices under Sec. 201.116. For example, the disclosure
should help growers identify conflicts of interest, favoritism,
kickbacks, or financial benefits that may call into question the
purposes of the additional capital investment. This should help combat
the incentive problem inherent where one party has the decision-making
power (LPDs) and another bears the costs (growers). LPDs are
incentivized to seek out manufacturers and vendors that offer them the
best incentives, not necessarily the manufacturers and vendors that
offer the best deal for growers. This problem has been reported to AMS
over the years to exist even at the level of complex managers who may
have discretion over certain aspects of additional capital investment
implementation.
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\57\ 89 FR 49002, 49025, June 10, 2024.
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Disclosure of a relationship between an LPD and its equipment or
vendors does not mean that the relationship is lawful. An LPD's choice
of vendor may be unfair or even anticompetitive in violation of the
Act, such as contracting in bad faith or engaging in anticompetitive
tying. But, at this time, AMS has designed this regulation to protect
growers from unfairness and deception--for example by omissions or
conflicts of interests--and not to specifically ban an LPD's choice of
vendor.
iii. Benefit, Burden, and Cost
Comment: A number of stakeholders commented on the rule stating
that it is similar to the Transparency Rule and that much of the
information being requested in this rule is already provided to the
poultry growers and that this rule is therefore frivolous. An industry
commenter suggested there is sufficient regulation regarding additional
capital investment issues.
AMS response: AMS recognizes the value of the Transparency Rule,
including in helping growers understand financial opportunities
relating to contract modifications and additional capital investment.
However, the Transparency Rule does not require the disclosure of
information specific to the additional capital investment request, nor
does it prohibit certain practices relating to base pay and unfair
comparisons which this final rule does. LPDs possess information about
the expected purposes, processes, and outcomes relating to additional
capital investments that growers do not have and cannot obtain
independently. Therefore, LPDs exert substantial control over growers'
ability to evaluate the economic and financial feasibility of an
additional capital investment while possessing the power to impose all
additional capital investment costs on growers. Growers lack the
bargaining power to demand the information they need to make decisions
for their financial benefit. The inability to access this information
frustrates growers' and AMS's ability to identify and therefore halt
unfair practices in a timely manner. AMS has found transaction records
around the financial incentives and the financial analysis insufficient
to evaluate the compliance of additional capital investments under the
Act generally. Therefore, even with the additional information that AMS
and poultry dealers receive because of the Transparency Rule, this
additional capital investment disclosure requirement is meant to
ascertain different information than the information that results from
compliance with the Transparency Rule.
AMS also disagrees with the position that there is sufficient
regulation on this issue overall. Although Sec. 201.216 sets out
criteria around unfair additional capital investment, AMS has found
Sec. 201.216 challenging to implement in practice without sufficient
real-time transparency into additional capital investment programs as
they occur. As noted above, this is the first rule that addresses the
information divide between poultry growers and LPDs regarding
additional capital investment requests. Previous rules, namely the
Transparency Rule, have required different kinds of information, such
as settlement sheets, summaries of the LPD's litigation history with
broiler growers and its bankruptcy filings over the past 5 years,
whereas this rule covers only additional capital investment requests
and related materials.
Comment: Some commenters were concerned about unnecessary
additional capital investment requests. Farmers' coalitions proffered
that transparency requirements would result in fewer unnecessary
additional capital investment requests.
[[Page 5185]]
AMS response: The extent to which additional transparency may
reduce the amount of additional capital investment requests that are
either unnecessary or that do not add clear value to farms is not a
determination that AMS can make. This final rule is a transparency rule
to address deceptive conduct, but it is also designed to assist growers
in identifying potential unfairness in additional capital investments.
An additional capital investment with a speculative purpose or one not
grounded in research and reasonable estimates--a concern that growers
have reported to AMS regarding additional capital investments--would be
more apparent if AMS and growers are able to review an LPD's
representations about the purpose of an additional capital investment,
the research associated with it, and an LPD's expectation of costs,
construction schedules, and approved vendors for the additional capital
investment. AMS emphasizes that disclosure under new Sec. 201.112 is
not, and is not intended to be, a remedy to unfairness in and of
itself; rather, disclosure provides AMS and growers with information
necessary to enforce their rights under existing Sec. 201.216,
``Additional capital investments criteria,'' and the P&S Act more
broadly, when terms are unfair. Without sufficient, simple, and clear
disclosures, growers cannot assess the benefits or risks of making the
investment. Indeed, given the role of performance in determining
compensation under the tournament, growers often cannot determine
whether a program presented as voluntary is, for all practical
purposes, mandatory without understanding the purposes, processes, and
outcomes. Unfair practices, which can encompass additional capital
investments, are illegal under section 202(a) of the Act, even if fully
disclosed.\58\ AMS did not make any changes to the rule as proposed in
response to these comments.
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\58\ See, e.g., 9 CFR 201.216, ``Additional capital investments
criteria.''
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D. Other Comments About the Proposed Rule
Comment: One processor pointed to a study prepared for the National
Chicken Council that captured live chicken production statistics from
2021.\59\ The survey results indicated that ``current poultry grower
contracting relationships are mutually beneficial, successful, and
profitable for both growers and integrators.'' The survey found that
among growers polled, despite options to work with different
integrators, most growers have been with their current integrator for
over five years and that the default rates on loans for poultry growers
and integrators are low. Overall, the commenter argued that the current
poultry grower compensation system works well, resulting in a highly
efficient market and lower prices for consumers.
---------------------------------------------------------------------------
\59\ Elam, Thomas, ``Live Chicken Production Trends,'' March
2022, Live-Chicken-Production-FARMECON-LLC-2022-revision-FINAL.pdf
(nationalchickencouncil.org).
---------------------------------------------------------------------------
AMS response: The comment indicates that current poultry grower
contracting relationships are mutually beneficial to growers and
integrators and utilizes survey results showing how long current
farmers have been with their company and loan default rates to
demonstrate this. This rule addresses specific components of the
broiler growing compensation system that AMS has received multiple
complaints and comments about and that the Agency has determined
constitute unfair or deceptive acts or practices. The rule does not
prohibit incentive payments, which some commenters would like to retain
and suggest are a beneficial part of the tournament system. The
comment, however, does not necessarily measure if growers support or
oppose specific provisions of this rule. Other reasons may explain the
duration farmers have been with their current dealer or experience low
rates of default. AMS notes that growers may not switch because of
barriers to switching: even when growers have other competitor LPDs,
the competitor may not be recruiting or may require LPD-specific
equipment changes, among other reasons. The commenter says that,
according to a survey of farmers associated with member companies of
the organization submitting the comment, a small percentage of farmers
depart due to contract terminations. The described methodology does not
say if the survey represents all growers, including dissatisfied
growers or ex-growers. This methodological consideration aside, the
survey results do not address specific provisions of the rule.
The comment also cites data showing higher median incomes for
broiler growers and lower loan deficiency and charge-off rates for
chicken farmers compared to other types of farming operations to
indicate the mutual benefits of the current poultry contracting system.
While such comparisons provide some insight into the financial
condition of poultry growers, they do not capture the full picture. For
example, poultry growers carry the highest debt to asset ratios of all
agricultural commodity operations.\60\ Additionally, the income
variability for broiler growers is much higher than that for all
agricultural producers or U.S. households.\61\
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\60\ Giri, Anil and Subedi, Dipak, Farm Businesses Well-
Positioned Financially Despite High Interest Rates, U.S. Department
of Agriculture, Economic Research Service (2024), https://www.ers.usda.gov/amber-waves/2024/july/farm-businesses-well-positioned-financially-despite-high-interest-rates/ (In 2022,
poultry farms carried the highest average debt-to-asset ratio in
2022: 26.7 (6 times that for all farm businesses), 28.7 (2.6x), and
17.4 (1.3x) percent for small, midsize, and large family farm
businesses, respectively; while all farm businesses caried average
debt-to-asset ratios of 4.2, 10.8, and 13.1 percent, respectively).
\61\ Whitt, Christine, USDA Economic Research Service, Fees paid
to growers for raising broiler chickens varied widely in 2020,
(2022), https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=104642 (Median income does not tell
the whole story. The range of household incomes earned by contract
broiler growers is wider than other groups. The bottom 20 percent of
contract broiler growers earns $170,871 less than those in the top
20 percent, compared to $123,094 for all farm households, and
$114,084 for all U.S. households. The wider range reflects, in part,
the financial risks associated with contract broiler production);
MacDonald, James M. 2014, Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, USDA Economic
Research Service, https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=1829.6.
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Comment: Industry associations commented on the rule, explaining
that AMS only has the authority to prohibit conduct with an
anticompetitive effect.
AMS response: Section 202(a) of the Act prohibits any unfair
practice or device. As noted earlier, in section 407 of the Act
Congress granted to the Secretary the authority to write regulations to
effectuate the Act's purposes. Under the Act, this authority includes
issuing regulations to, among other things, define the obligations that
the Agency is charged with enforcing. AMS believes this includes the
power to prevent LPDs from engaging in unfair, unjustly discriminatory
or deceptive practices or devices in their contracts.
No court has held the Secretary does not have this rulemaking
authority. Been v. O.K. Indus., Inc., 495 F.3d 1217, 1227 (10th Cir.
2007), for example, recognized that the Secretary had the authority to
promulgate rules relevant to that case, but that USDA had not done
so.\62\ Been quoted, with approval, Excel Corp. v. United States
Department of Agriculture, which held the Department's implementing
regulation on grading prohibited a practice that was harmful to
competition but the court did not require evidence of harm to
competition in case itself.\63\ Further,
[[Page 5186]]
the Supreme Court, in Mahon v. Stowers, 416 U.S. 100, 112 (1974),
recognized that USDA has the authority to issue substantive
regulations.
---------------------------------------------------------------------------
\62\ See Been v. O.K. Indus., Inc., 495 F.3d 1217, 1227 (10th
Cir. 2007).
\63\ Id. at 1230 citing Excel Corp. v. U.S. Dept. of
Agriculture, 397 F.3d 1285, 1293 (10th Cir. 2005) (`` `Congress and
the USDA are the arbiters of what practices will impede
competition.' '').
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Congress designed the P&S Act to provide broader protections than
existing antitrust laws, such as the Clayton and Sherman Acts, in
response to specific challenges in agricultural markets. More
specifically, 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.'' \64\ AMS rejects the
comments that the statute or case law limits violations of the Act to
conduct that causes an anticompetitive effect, as that term is used in
the antitrust laws. Such an approach would abrogate the scope of the
plain meaning of section 202 of the Act.
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\64\ 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).
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The existence of the P&S Act is proof that existing antitrust laws
were not sufficient in protecting livestock producers and ensuring fair
agricultural markets. It is well established that, to meet the needs of
livestock producers more effectively, the Act provides broader
protections than existing antitrust laws.\65\ The statutory text, case
law, and legislative history make plain that the Act's protections
extend beyond antitrust laws.\66\ Accordingly, it has been the Agency's
longstanding position that because the Act addresses more and different
types of harmful conduct than antitrust laws, the Agency has authority
over a plethora of market behaviors, and is not limited to conduct with
an anticompetitive effect.\67\ Additionally, as discussed elsewhere in
this document, evidence of anticompetitive injury is not required under
this rule to establish violations of section 202(a) and (b).
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\65\ See, e.g., Bruhn's Freezer Meats of Chicago, Inc. v. U.S.
Dep't of Agric., 438 F.2d 1332, 1336 (8th Cir. 1971) (citing cases);
Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 1968)
(``The Act is remedial legislation and is to be construed liberally
in accord with its purpose to prevent economic harm to producers and
consumers at the expense of middlemen.'').
\66\ 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)). If the
antitrust laws were sufficient, then DOJ's 1920 settlement with the
major packers would have been sufficient; Congress understood the
words ``unfair practices'' to have an obviously broader effect on
regulating competition than antitrust injury.
\67\ Luke Herrine, ``Cutthroat Business,'' U. of Alabama Legal
Studies Research Paper Forthcoming, Aug. 2024, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4936628; Michael Kades,
``Protecting livestock producers and chicken growers,'' Washington
Center for Equitable Growth (May 2022); 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.
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Market abuses such as unfair or deceptive business practices by
regulated entities are illegal under the Act. Addressing the harmful
conduct this rule aims to prevent is squarely within the authority of
the Secretary and accords with Congressional intent. Moreover, the
Secretary, exercising authority to define the scope of section 202(a)
and (b), has determined that the prohibited practices are likely to
prevent producers from earning the full value of their services and
push some producers out of the market caused by coercive or deceptive
practices by LPDs.
Comment: One commenter said that AMS lacks the statutory authority
to promulgate rules that have significant economic or political
repercussions due to the major questions doctrine. The commenter
expressed the idea that, in light of the U.S. Supreme Court decision in
West Virginia v. EPA, 597 U.S. 697 (2022), AMS may not expand its
regulatory framework to change or undermine currently used poultry
growing compensation systems because it lacks clear Congressional
authorization.
AMS response: AMS disagrees that the major questions doctrine
applies to this rule. The Supreme Court has held that, ``in certain
extraordinary cases, both separation of powers principles and a
practical understanding of legislative intent make us `reluctant to
read into ambiguous statutory text' the delegation claimed to be
lurking there.'' \68\ Under such circumstances, courts may conclude
that Congress does not ``typically use oblique or elliptical language
to empower an agency to make a radical or fundamental change to a
statutory scheme.'' \69\ The major questions doctrine thus applies to
some ``significant cases all addressing a particular and recurring
problem: agencies asserting highly consequential power beyond what
Congress could reasonably be understood to have granted.'' \70\ This
final rule does not fall within this category for two independent
reasons: USDA is not construing an ambiguous statute, but rather is
applying a statute that explicitly confers upon it the power to make
necessary regulations in the context of a scheme that comprehensively
regulates unfair practices in certain industries; and, even if the
relevant statutory authorities are ambiguous--and they are not--this
final rule does not represent the type of ``transformative expansion''
of the Agency's regulatory authority that animates the major question
doctrine.
---------------------------------------------------------------------------
\68\ West Virginia v. Env't Prot. Agency, 597 U.S. 697, 723
(2022).
\69\ Id. at 723 (citation and quotation marks omitted).
\70\ Id. at 724.
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First, the major questions doctrine applies only when there is
ambiguity over the power conferred. Here, there is none. Congress
prohibited unfair, deceptive, discriminatory, and other practices in
section 202 of the Act. Further, it explicitly gave power to the
Secretary to comprehensively regulate unfair practices in meatpacking
and broiler production. The Secretary has the power to enforce the
provisions of the Act, including sections 202 and 410.\71\ And
separately, pursuant to section 407 of the Act, the Secretary was
provided broad authority to ``make such rules, regulations, and orders
as may be necessary to carry out the provisions of this chapter.'' The
broad language here reflects Congress' effort to grant the Secretary
the flexibility necessary to prevent the P&S Act from becoming
obsolete.\72\ Congress was clear in the authority it had granted, and
that authority includes issuing regulations and orders relating to the
Act and its remedial purposes--including, as here, the power of the
Agency to construe the relevant provisions of the Act so as to provide
clarity in enforcement. The Secretary has extensive power to regulate,
and therefore has the authority to issue regulations such as this one.
So, unlike cases where there has been some heretofore unforeseen
``unheralded power,'' there is no reason to believe that Congress
understated the breadth of the authority it granted to the Agency to
issue regulations construing the Act.
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\71\ See 7 U.S.C. 193(a) (``Whenever the Secretary has reason to
believe that any packer or swine contractor has violated or is
violating any provision of this subchapter'' he may take appropriate
enforcement actions as set out in the statute).
\72\ See Massachusetts v. E.P.A., 549 U.S. 497, 532 (2007) (``
`[T]he fact that a statute can be applied in situations not
expressly anticipated by Congress does not demonstrate ambiguity. It
demonstrates breadth.' '').
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Second, this final rule does not constitute the type of
``transformative expansion'' of Agency authorities that animates the
major question doctrine. The rule codifies USDA's interpretation
[[Page 5187]]
of section 202 consistent with much of the caselaw: the P&S Act is a
remedial statute with a purpose that is broader than the antitrust
acts.\73\ The Agency has used its section 228 authority for the
issuance of a great variety of regulations to specify obligations for
bonding, registration, accounting, recordkeeping, ownership, public
communications, disclosures, limitations on commissions, credit sales,
weighing, payment practices and other responsibilities under the
statute--so this is not a newfound substantive power; and, in any
event, this is not the type of consequential rule to which the major
questions doctrine would otherwise apply.
---------------------------------------------------------------------------
\73\ See, e.g., Bruhn's Freezer Meats of Chicago, Inc. v. U.S.
Dep't of Agric., 438 F.2d 1332, 1336 (8th Cir. 1971) (citing cases);
Swift & Co. v. United States, 393 F.2d 247, 253 (7th Cir. 1968)
(``The Act is remedial legislation and is to be construed liberally
in accord with its purpose to prevent economic harm to producers and
consumers at the expense of middlemen.'').
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As discussed above, Congress enacted the P&S Act after many years
of concern about farmers and ranchers being cheated and mistreated.
Congress believed that existing antitrust and market regulatory laws,
including the Sherman Act and Federal Trade Commission Act, did not
sufficiently protect farmers and ranchers.
Section 407 of the Act (7 U.S.C. 228) gives the Secretary authority
to ``make such rules, regulations, and orders as may be necessary to
carry out the provisions of this Act.'' The House of Representatives'
report on the Act stated that it was the ``most comprehensive measure
and extends farther than any previous law in the regulation of private
business, in time of peace, except possibly the interstate commerce
act.'' \74\ The Conference Report on the Act stated that, ``Congress
intends to exercise, in the bill, the fullest control of the packers
and stockyards which the Constitution permits. . . .'' \75\ Congress
considered this a power beyond the authority of the FTC and the
Interstate Commerce Commission. The Supreme Court said of sections 407
and 202 of the P&S Act that Congress gave: ``authority [to] the
Secretary of Agriculture to promulgate appropriate rules and
regulations to carry out the provisions of the Act.'' And,
``Enforcement of [section 202 of the Act] is the responsibility of the
Secretary of Agriculture, who is given authority to hold hearings and
enter binding orders.'' \76\ The major questions doctrine is an
extraordinary application of statutory interpretation, because it has
the potential to reverse an act of Congress, and, therefore, the
Supreme Court has already noted that the doctrine does not apply
generally. It has so far only applied in cases where the regulation
would have been a questionable application of regulations with billions
of dollars of effects, from regulating tobacco packaging, a nation-wide
moratorium on eviction, and setting limits on the carbon dioxide
emissions from millions of small sources.\77\ Here, however, the rule
does not meet these standards. 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 in accordance with Congressional intent
upon passage of the Act. The Department's policy on unfair practices
has not changed throughout the course of its enforcement of the Act.
---------------------------------------------------------------------------
\74\ House Report No. 67-77, at 2 (1921).
\75\ House Report No. 67-324, at 3 (1921).
\76\ Mahon v. Stowers, 416 U.S. 100, 107 (1974).
\77\ West Virginia, 597 U.S. at 722.
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The final rule continues this policy approach of protecting
producer welfare and advancing fair trade practices in the poultry
industry. This final rule advances these goals by prohibiting certain
payment practices under poultry grower ranking systems, requires LPDs
to adopt policies and procedures regarding their processes for
operating a fair ranking system for broiler growers, and requires LPDs
to provide certain information to broiler growers when the LPD requests
or requires the grower to make additional capital investments. These
regulations will increase transparency and address deception and
unfairness in broiler grower payments, tournament operations, and
capital improvement systems. The Act advances fair trade and
competitive markets for the broiler industry.
Notably, commentors generally appear to assert that the 2008 Farm
Bill, and the decade of rulemaking that followed, either limits the
Department's general authority to issues rules, or shows that the
Department did not have that authority. This is not an accurate version
of events. Starting in 1997, a series of OIG and GAO reports were
highly critical of USDA's failure to pursue unfair practices and cases
of antitrust injury in meatpacking under the P&S Act. At a Senate
hearing in March of 2006, Senator Chambliss noted, ``[t]his act is a
critical law that assures farmers and ranchers that business
transactions are conducted under the principles of fair competition,
open and honest trade practices, and prompt payments to producers.''
These criticisms culminated in an April 2007 hearing in the House of
Representatives where advocates requested, inter alia, that the
Secretary be required to issue rules on undue preferences and
advantages, because regulation was perceived ``to ensure that small and
midsized farmers and ranchers are not forced to accepted volume-based
price discrimination.'' The thrust of the 2008 Farm Bill was not that
the Secretary did not have the power to regulate, but that Congress
demanded that power be used.
Comment: Producers were both in opposition to and in support of the
tournament system. Industry associations and processors generally
supported the tournament system, claiming the tournament system
incentivizes and rewards high performance, resulting in market
efficiency, and also removes costs and economic risk from growers by
providing inputs. Industry stakeholders asserted the rule undermines
the tournament system, leading to inefficiencies and potentially higher
prices. Commenters cited unintended consequences including increased
production costs passed on to consumers; barriers to entry for small
farmers, leading to further industry consolidation; and shift in
production to countries with less stringent regulations. Additionally,
industry commenters claimed that capping performance-based payments
might create an undesirable redistribution of income from high-
performing to lower-performing growers. Lastly, the industry
anticipates substantial legal and administrative costs associated with
compliance, including contract amendments and legal counsel. Some
producers and an industry trade organization claimed the tournament
system promotes animal welfare.
Farmers' coalitions, advocacy associations, and many individual
commenters were largely opposed to the tournament system, expressing
that the tournament system shifts economic risks to growers, locks them
into inescapable cycles of debt, and enables retaliation. Some
commenters were concerned that the tournament system appeared to pit
farmers against each other, limiting knowledge sharing. Other
commenters felt the tournament system is unfair due to the grower's
lack of control over production variables.
AMS response: It is important to note that AMS is not banning the
tournament system. Rather, AMS is prohibiting those parts of tournament
systems that are unfair practices and ensuring that those agreements
serve the competitive operation of the market in a fair and non-
deceptive manner. Additionally, increased transparency through this
final rule should improve confidence in
[[Page 5188]]
the tournament system rather than undermine it.
In theory, the tournament system insulates growers from variation
in the cost of feed and other inputs, encourages growers to perform to
the best of their ability, and rewards better-performing growers. In
practice, however, the tournament system also raises a number of
fairness concerns for growers. If an LPD treats individual growers in a
tournament differently, for example providing a grower with inferior
inputs, the grower's skill does not determine their compensation.
Information asymmetry in contracting arrangements is another cause
for concern. LPDs have information related decision-making that impacts
grower compensation, including the methods for calculating grower
payment. These methods are often intended to limit total grower
compensation while maximizing production efficiency. LPDs also have
information relating to the factors that are under their control and
the influence of performance elements on grower compensation. LPDs have
internal knowledge about the types of additional capital investments
that they typically require, which growers may not anticipate.
Moreover, without a guaranteed base pay rate, the complexity of the
tournament system makes it difficult for growers to clearly understand
what the minimum amount is that they could actually receive in payment.
If the comparison-factor (i.e., the bonus or deduction) is a large
percentage of the total compensation, that variance in total could put
the growers at significant financial risk. Tournament pay systems are
also not an effective incentive system when factors outside of the
grower's control determine the grower's performance.
Finally, LPDs have substantial bargaining power, and as a result,
LPDs can require growers to make additional capital investments that
will increase the grower's debt, and subsequently increase the grower's
reliance on the LPD's contract. Such a dynamic can unfairly impose risk
on the grower (for example by creating a difference in the term of the
grower's loan and the grower's contract). Another concern is the
variation in the quality of inputs (e.g., feed or chicks) supplied by
the LPD, which can impact the performance of the grower's flock.
Similarly, LPDs determine the production practices on growers' farms
(e.g., density of bird placement, age at harvest, and weight at
harvest), which greatly impact grower compensation. These factors can
result in the grower's becoming financially dependent on LPDs,
therefore losing the power to negotiate, and to move to different LPDs
if the terms of the growing contract are not ideal.
AMS is not aware of any evidence that tournament systems promote
animal welfare, nor did the commentors provide specific examples
explaining the connection beyond the general assertion that performance
payments through a tournament encourage grower effort. The tournament
systems control how poultry growers are compensated for their output,
but the quality of inputs or production practices on farms, and even
the quality of the housing and equipment, is determined by the LPD.
These requirements may have the effect of improving animal welfare, but
they may well also have the opposite effect. Moreover, AMS in this rule
does not prohibit performance payments nor ban the tournament. Rather,
the rule sets standards around the reasonable design of payment systems
and scope of the operation of tournaments. These standards provide
ample opportunity for LPDs to incentivize grower effort, while
minimizing the downsides of the current payment systems and tournament
operations as they have been reported to AMS by growers.
Comment: An industry representative stated that the proposed duty
of fair comparison creates the untenable situation of extending P&S Act
liability to a situation without determining whether the outcome was
unfair, much less whether competition was harmed overall. The commenter
cited an example in which a grower might receive a payment that aligns
with the contract terms, meets the grower's expectations, and is
entirely fair when viewed objectively, but the LPD does not follow
written policy; in this case, under the proposed rule, the commenter
asserts that the LPD would potentially be liable for an unfair
practice.
AMS response: The comment appears to suggest that the regulation
bans reasonable conduct. It does not.
The duty of fair comparison provision (Sec. 201.110(a))
establishes a violation of the Act for either failure to design or
failure to operate the comparison system in a fair manner. Failing in
that responsibility is not contract compliance; it is bad faith and
failure to make the full payment to the grower.
In the first instance, AMS might bring an enforcement action for an
LPD's failure to design the ranking system in a manner that would
deliver a fair comparison; such an action would be based upon the
processes set forth in the documentation required under paragraph (b)
of Sec. 201.110. In the second instance, AMS might bring an
enforcement action based upon an LPD's failure to operate the ranking
system in a manner consistent with the duty of fair comparison. Such a
failure could be because the LPD was not following the documented
processes or because in practice the documented processes did not
deliver a fair comparison.
The requirement to design the ranking system in a manner consistent
with the duty of fair comparison is intended to prevent injury before
it occurs, consistent with P&S precedent and the Act's remedial
purpose. USDA, through the P&S Act, has broad authority to ensure fair
practices prevail in the poultry industry, and AMS concludes this
includes preventing LPDs from designing a poultry grower ranking system
that can be expected to produce an unfair comparison of growers. AMS
did not make any revisions to the rule as proposed in response to this
comment.
Comment: Some commenters asserted that the proposed rule's
disclosure requirements violate the First Amendment because they
restrict and prescribe what LPDs can say to their contract growers
through their contracts.
AMS response: The P&S Act prohibits unfairness and deception, and
this final rule addresses harms caused by unfair and deceptive
practices. While some commercial speech may be protected under the
First Amendment, withholding material facts from a contracting party
has never been protected speech. The rule does not restrict information
that LPDs may provide to growers, rather it encourages full disclosure
of material information to the grower. A disclosure requirement can be
justified either because without the disclosure there is a risk of
deception or there is another substantial government interest at issue.
This rule's disclosure requirements meet both justifications; absent
the disclosures there is a risk of deception by regulated entities and
the government is otherwise advancing its interest in a fair
marketplace for poultry. To this end, AMS has narrowly tailored the
required disclosures to protect the growers from the types of deception
and unfair practices that many growers themselves have commented occurs
in LPD contract performance and negotiation and which the Act seeks to
prevent.
With respect to compelled speech, AMS believes that the provision
of additional factual information, related specifically to the growing
arrangement, to growers is consistent with Congressional intent to
benefit competition in the industry and provides growers with
information needed to make informed business decisions. AMS concludes
that
[[Page 5189]]
alleviating the asymmetric information problems in these contracts
enables growers to identify the practices relating to additional
capital investments that can lead to potential underpayment or other
unfair and deceptive practices under the Act. Additionally, the Agency
believes that the additional transparency and equalization of
information asymmetry is critical for the longevity of the poultry
business because it would allow poultry growers to accumulate a history
of previous contracts, additional capital investment requests, and
other information, which is good for long-term market conditions
Congress designed the Act to promote. The First Amendment does not
protect corporations from practices that deceive, and this final rule
requires LPDs to share factual and uncontroversial information related
to additional capital investments, contracts, and schedules with their
growers to prevent deception and unfair practices. The information
shared should achieve contracts that are both equitable and rely on
facts, which is also consistent with the Act's prohibition on unfair
and deceptive practices.
Comment: One commenter supported the proposal for the rule to be
effective 180 days after publication in the Federal Register, unless it
disrupts contract renewals or seasonal production pauses. One industry
representative suggested that the 180-day implementation period is the
minimum timeframe necessary for compliance, and another expressed
concern that short effective dates create challenges for managing
grower relationships and suggested AMS develop outreach and educational
programs. Two advocacy groups suggested shorter effective dates, one at
60 days and one at 30 days. One trade association requested a 2-year
implementation period.
AMS response: AMS agrees with commenters that the final rule should
provide sufficient time to implement any changes it requires, and
broadly with the comment that 180 days is sufficient time for
compliance with the rule. However, out of an abundance of caution, AMS
is setting the effective date for this rule at July 1, 2026, which is
approximately 18 months following publication in the Federal Register.
LPDs will need to amend contracts in some instances, create records
processes, format the incorporation of new information in existing
documents, and create Disclosure Documents using the new format.
Eighteen months provides more than the length of five flocks to prepare
for implementation of the rule. AMS will have resources available to
answer questions as appropriate. Additionally, based in part on the
experience of recent settlements between DOJ and a large poultry
company, AMS believes this period will provide sufficient time for LPDs
to update their compliance systems and policies and procedures and
comments complying with the rule. AMS's approach has been to address
the regulatory needs of the poultry industry systematically and as
swiftly as possible. And while the 2-year period suggested by a
commenter would unnecessarily delay implementation, thus denying
growers the benefit of the rule and exposing them to continued
uncertainty, AMS acknowledges additional time beyond 180 days will help
facilitate an effective transition. Accordingly, AMS is extending the
effective date to July 1, 2026, which is approximately 18 months post
publication.
AMS agrees that it should conduct outreach to growers and LPDs
regarding these changes, implementation, and enforcement. Over the
course of this rulemaking, AMS has published informational materials,
including a fact sheet and a video webinar, to help the public
understand the proposed rule. AMS intends to conduct further education
and outreach following the finalization of the rule.
VI. Regulatory Analysis
A. Executive Orders 12866, 13563, and 14094
AMS is issuing this final rule in conformance with Executive Orders
12866, 13563, and 14094. Executive Order 12866, as supplemented by
Executive Order 13563, directs 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
further emphasizes the importance of quantifying both costs and
benefits, reducing costs, harmonizing rules, and promoting flexibility.
Executive Order 14094 amended Executive Order 12866 and 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'' under
Executive Order 12866, as supplemented by Executive Order 13563 and
amended by Executive Order 14094, and, therefore, has been accordingly
reviewed by the Office of Management and Budget (OMB). As a required
part of the regulatory process, Agricultural Marketing Service (AMS)
prepared an economic analysis of the costs and benefits of Sec. Sec.
201.106, 110, 112, and 390.
B. Regulatory Impact Analysis
AMS prepared an economic analysis of the costs and benefits of the
final Sec. Sec. 201.106, 110, and 112 as a required part of the
regulatory process.
As described previously elsewhere in this final rule, the
organization and structure of broiler production is characterized by a
high degree of vertical integration, market power in regional markets,
substantial investment in production capital that is specific to a
single production purpose, nearly universal use of production
contracts, and use of complex grower compensation systems based on
relative performance. Important factors that affect grower performance,
including inputs (chicks, feed, medication, etc.) and some production
practices (placement density, age and weight at harvest, etc.) are
controlled by the LPD. In addition, the percentage of poultry producing
farms considered to be in ``extreme financial stress'' (defined as term
debt coverage ratio less than one and a debt-to-asset ratio greater
than 55 percent) is among the highest of all types of commodity
production operations.\78\ Market failures caused by asymmetric
information, incomplete contracts, and hold-up in poultry contracting
motivate specific interventions as discussed in this final rule.
---------------------------------------------------------------------------
\78\ Nigel Key, Christopher Burns, and Greg Lyons, ``Financial
Conditions in the U.S. Agricultural Sector: Historical
Comparisons,'' EIB-211, U.S. Department of Agriculture, Economic
Research Service (2019), https://www.ers.usda.gov/webdocs/publications/95238/eib-211.pdf?v=4876.5.
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Comments From the Proposed Rule and Changes to the Final Rule
After consideration of public comments, AMS decided to adopt the
proposed rule as a final rule with several modifications. Live poultry
dealers (LPDs) commented that the regulation would be particularly
challenging if the period of time allowed for regulated entities to
comply with the provisions is too short. In addition, they stated that
a shortened period for implementing changes would require greater
expenditures of resources to make required modifications and
communicate with growers. To allow sufficient time for regulated
entities to comply with the final rule and avoid excess
[[Page 5190]]
implementation costs, AMS is setting July 1, 2026, as the effective
date for this rule, which is approximately 18 months following
publication in the Federal Register. This extended time frame will not
impact the amount or timing for estimated costs of the final rule;
regulated entities are expected to incur first year costs during the 12
months preceding the effective date.
Industry trade organizations and LPDs commented that the full cost
of implementing the proposed rule would be far greater than estimated
by AMS. The commenters asserted that AMS greatly underestimated the
costs that will be required for employing teams with highly specialized
legal and technical expertise to implement the proposed rule by
modifying or replacing grower contracts and communicating changes to
growers. Commenters suggested that AMS did not adequately consider the
total number of hours needed, but none provided quantified estimates.
LPDs also commented that hourly rates paid to specialized industry
professionals. Commenters also suggested that implementation of the
rule would require LPDs to hire and train additional staff and pull
resources away from other important activities.
AMS consulted subject matter experts who are familiar with LPDs,
integrators, and broiler complex operations. These experts were
auditors and supervisors with many years of experience at AMS in
auditing LPDs for compliance with the Act. The final rule provides an
extended period of approximately 18 months following publication in the
Federal Register before the effective date, to permit sufficient time
for implementation. Hourly rates used in cost analysis for the proposed
rule were based on averages for legal, management, administrative, and
information technology labor categories specifically within the
agricultural sector as published and annually updated by the U.S.
Bureau of Labor Statistics.\79\ Although the largest corporations
likely employ lawyers and other specialists at hourly rates much higher
than the National average, contract development and review efforts at
those companies are spread across many complexes. AMS expects that
average hourly rates provide an appropriate benchmark for estimating
industry average costs. AMS revisited the estimated hours to implement
all provisions of the final rule based on comments that costs were
underestimated. After further discussion with subject matter experts,
AMS added a modest amount of time to account for the cost of IT work in
preparing Sec. 201.112 disclosures. AMS subject matter experts who are
familiar with the operations of LPDs, integrators, and broiler
complexes through their experience conducting regulatory reviews of
LPDs confirmed that all other costs of the proposed rule are accurate
estimates and accordingly, AMS made no other changes to hourly costs or
estimated numbers of hours for implementation of the rule based on this
comment.
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\79\ See U.S. Bureau of Labor Statistics, May 2023 National
Occupational Employment and Wage Estimates, May 2023. https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------
AMS received numerous comments from growers, grower groups, and
advocate commenters in support of additional limitations on grower risk
from excessive variability in compensation. Based on these comments,
AMS has added provision Sec. 201.106(b), which establishes a
presumption that a regulated entity is in violation of the Act when
aggregate gross annual payments based upon a grouping, ranking, or
comparison of growers (performance pay) exceed 25 percent of total
gross payments (including performance and all other types of grower
pay). AMS again consulted its internal subject matter experts and added
costs for LPDs to implement and monitor this new provision, which are
discussed and quantified as direct costs. Other expected additional
benefits and indirect costs resulting from this new provision cannot be
quantified and are discussed separately.
AMS also solicited comment in the proposed rule on whether there
was a need to protect growers against the risk that LPDs might unfairly
reduce broiler grower total compensation during a transition period
after implementation of the final rule. Comments on the proposed rule
reflected support for adding such protections. Based on comments
received, AMS added Sec. 201.106(c), which will require LPDs to submit
copies of the prior and modified contracts and disclosures to AMS if
average gross grower payments at a complex show year-over-year decline
following a contract modification in any of the three calendar years
commencing with and including the effective date of the rule. AMS will
review the information provided by LPDs to identify any potentially
unfair practices related to broiler grower compensation. AMS consulted
with its internal subject matter experts and added direct
administrative costs for LPDs to provide information in compliance with
this provision during the three-year period. AMS is not able to
quantify the potential benefits and the potential indirect costs to
LPDs of this provision--these will also be discussed separately.
AMS received comments suggesting that some of the detailed
documentation requirements under proposed Sec. 201.110(b) were similar
to existing documentation requirements and might create unnecessarily
burdensome and complex paperwork that could burden service technicians
at broiler complexes and keep them from other important
responsibilities such as assisting growers. In response to these
comments, AMS made several changes to Sec. 201.110(b) in the final
rule that included consolidating and streamlining the documentation
requirements and removing some detailed requirements delineated under
subparagraphs in the proposed rule.\80\ AMS expects that these
adjustments to final Sec. 201.110(b) will add clarity and minimize
potential confusion about the documentation requirements, thereby
making them more effective, and that these changes will reduce
recordkeeping requirements by some amount. However, based on
consultation with its internal subject matter experts, AMS chose to
attempt to avoid underestimating costs and did not reduce the total
recordkeeping requirements or the time cost of the information
collection for LPDs. Accordingly, these changes did not affect the
estimation of costs or benefits in the final rule.
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\80\ As described in the preamble section III., ``Summary of the
Proposed Rule and Changes in the Final Rule,'' these changes to
proposed Sec. 201.110(b) included simplifying 17 combined
paragraphs and subparagraphs in proposed Sec. 201.110(b)(1),
``Policies and procedures,'' into six simple paragraphs in final
Sec. 201.110(b)(1) and removing proposed Sec. 201.110(b)(2),
``Compliance review,'' and redesignating Sec. 201.110(b)(3),
``Record retention,'' as paragraph (b)(2).
---------------------------------------------------------------------------
The proposed rule included Sec. 201.110(b)(2), ``Compliance
review,'' which required LPDs to conduct a bi-annual review of the
processes set out in Sec. 201.110(b)(1). AMS removed this requirement
in response to comments that self-audits would be burdensome for LPDs,
and that elimination of this requirement would not substantially
diminish effective compliance with Sec. 201.110. Compliance will be
enforced through regular AMS review of the policies and procedures, as
newly enhanced documentation, which LPDs are required to establish and
maintain under Sec. 201.110(b). Accordingly, removal of Sec.
201.110(b)(2) eliminated the burden of compliance review on LPDs and
reduced costs from the proposed to the final rule by the cost estimate
in the proposed rule for that provision.
[[Page 5191]]
Based on comments received, AMS added a provision at Sec.
201.112(c) to require that the LPD make reasonable efforts to ensure
that growers are aware of their right to request translation assistance
and to assist the grower in translating the Capital Improvement
Disclosure Document. Reasonable efforts include, but are not limited
to, providing current contact information for professional translation
service providers, trade associations with translator resources,
relevant community groups, or any other person or organization that
provides translation services in the poultry grower's geographic area.
Reasonable efforts, depending on the facts and circumstances (such as
convenience, expense, and timeliness of the translation), may also
include allowing the grower access to a computer-generated translation
of the Disclosure Document and additional time to review any translated
Disclosure Document.
A similar requirement was established for LPDs in Sec.
201.102(g)(4) of the ``Transparency in Poultry Grower Contracting and
Tournaments'' final rule.\81\ As LPDs already have all necessary
information to make reasonable efforts to assist growers in translating
disclosure documents and have made it available to growers who request
the information, AMS did not add any time to its cost estimates for
LPDs to comply with this new requirement.
---------------------------------------------------------------------------
\81\ 88 FR 83210, 83301 (Nov. 28, 2023).
---------------------------------------------------------------------------
The following analysis describes the anticipated impacts of the
final rule. The value of broiler production in the U.S. for 2023 was
approximately $50.6 billion.\82\ Our analysis finds that the total
direct cost of final Sec. Sec. 201.106, 110, and 112 will be greatest
in the first year at $26.0 million or 0.051 percent of revenues. The
broiler industry is a mature industry, and margins are likely
relatively low. If profit margins are 1 to 5 percent of revenues, then
first-year direct costs would be 1.0 to 5.1 percent of margins. The
total direct costs are low in relation to total industry size, but they
do not include any potential costs from changes in supply or demand
caused by final Sec. Sec. 201.106, 110, and 112. The final rule is
also expected to provide many benefits of importance to broiler growers
that could not be quantified. These include the value to broiler
growers of improved fairness, reduced income variability, and reduced
risk of fraud and deception. As a result of many factors that AMS is
unable to measure due to insufficient data or which cannot be predicted
with reasonable certainty, AMS is unable to quantify benefits or
indirect costs and therefore cannot make a determination about the sign
or magnitude of net benefits to the industry from final Sec. Sec.
201.106, 110, and 112.
---------------------------------------------------------------------------
\82\ USDA-NASS. Poultry--Production and Value 2023 Summary
(April 2024).
---------------------------------------------------------------------------
Regulatory Alternatives Considered
AMS expects final Sec. Sec. 201.106, 110, and 112 to mitigate
costs associated with asymmetric information and LPD unfairness and
deception by establishing a duty of fair comparison for LPDs in poultry
grower ranking system administration, requiring LPDs to establish and
document processes, requiring LPDs to adopt transparent methods of
presenting grower compensation in broiler grower contracts, limiting
excess income variability, and requiring LPDs to provide important
information to broiler growers. Final Sec. 201.106 will prohibit the
LPD from using a grower's grouping, ranking, or comparison to other
growers to reduce a rate of compensation disclosed in a broiler growing
arrangement, establishes a presumption of violation when performance
compensation for growers at a complex exceeds 25 percent of total
compensation, and implements a three-year transition pay period with
additional grower protections. Final Sec. 201.110 will require LPDs to
provide a fair comparison among growers when basing compensation upon a
grouping or ranking of growers delivering during a specified period of
time and to document how they comply with that duty. Final Sec.
201.112 will require LPDs to produce and distribute disclosures when
they request growers to make additional capital investments.
AMS considered four alternatives to final Sec. Sec. 201.106, 110,
and 112, with the second and preferred alternative being the final
rule. The first alternative is the ``do nothing'' approach or
maintaining the status quo. All regulations under the Packers and
Stockyards Act would remain unchanged. This first alternative forms the
baseline against which AMS will compare the second alternative, final
Sec. Sec. 201.106, 110, and 112.
AMS considered a third alternative that would leave all
requirements in final Sec. Sec. 201.106, 110, and 112 the same, but
entirely exempt LPDs that meet the criteria to be classified as small
businesses by the Small Business Administration.\83\ This third
alternative would exempt smaller LPDs. However, since larger LPDs do
most of the contracting (as quantified later in this analysis), most
poultry growers would still receive the benefits of new protections
under final Sec. Sec. 201.106, 110, and 112. AMS considered a fourth
alternative, which would be to adopt proposed Sec. Sec. 201.106, 110,
and 112--this alternative also includes all small and large LPDs.
Below, AMS provides estimates and comparisons of the costs and benefits
of the alternatives and an explanation for why the Agency selected
final Sec. Sec. 201.106, 110, and 112 as the preferred alternative.
---------------------------------------------------------------------------
\83\ The Small Business Administration (SBA) defines small
businesses by their North American Industry Classification System
Codes (NAICS). Live poultry dealers, NAICS 311615, are considered
small businesses by SBA if they have fewer than 1,250 employees (13
CFR 121.201).
---------------------------------------------------------------------------
Benefits of Final Sec. Sec. 201.106, 110, and 112
AMS expects that final Sec. Sec. 201.106, 110, and 112 will
provide benefits to growers by reducing the risk of potential fraud,
deception, and reduced payment for grower services by LPDs during the
first three years of the final rule, improving clarity in grower
payment systems, limiting excess variation in grower compensation,
protecting growers against unfair reductions in compensation by LPDs
during implementation of the rule, establishing a duty for fair
comparison in the administration of broiler grower ranking systems, and
making more information available to growers. These benefits are
difficult to quantify. They depend on the extent to which the
interventions will mitigate some existing unfairness and deception that
results from incomplete contracts, inadequate and asymmetric
information, and hold-up problems in an environment where LPDs are able
to exert market power or bargaining power. Some of the benefits may
vary based on the extent of competitive choice for growers in local
markets. For example, in more competitive markets, increased
transparency might benefit growers by empowering them to negotiate
better terms with LPDs. In less competitive markets, increased
transparency might assist growers in identifying potential unfairness
from low compensation or abusive practices and allow them to seek
assistance from AMS in more quickly remedying these problems. The size
of benefits will be directly related to the extent to which the final
rule will mitigate or reduce these practices. AMS is unable to quantify
the benefits and will present a qualitative discussion of the potential
types of benefits that growers would receive from final Sec. Sec.
201.106, 110, and 112. The following discussion of unquantified
benefits will proceed by final rule section.
[[Page 5192]]
Benefits of Final Sec. 201.106
Section 201.106(a) prohibits LPDs from reducing a grower's rate of
compensation based upon a grouping, ranking, or comparison of growers.
The practice of discounting or reducing disclosed contract ``rates''
creates problems for growers in assessing and comparing broiler
production contracts. Growers commonly expect that based on ordinary
efforts, they will be able to obtain at least the average rate of pay
for growers in a settlement group, which is typically known as the
``base'' pay. If growers are evaluating the expected value of these
contracts based upon ``base'' or ``average'' pay rates, downside risk,
which affects half of the settlement pool per flock, would be ignored.
These are the types of problems that create income expectations that
are unlikely to be met for a large segment of broiler growers. Growers
thus cannot effectively evaluate their risks on a settlement payment by
settlement payment basis, through presentation of base pay rate at the
mid-point. Growers are harmed when they incur costs as a result of
entering a contract with an LPD and the actual revenue and the range of
payment outcomes realized are below those the grower was led to believe
they would receive when reviewing the contract based on reasonably
expected efforts within the control of the grower. In addition,
competition in the market for broiler grower services is harmed when
such deception and unfairness prevent growers from comparing competing
offers from LPDs for the services of growers.
Final Sec. 201.106(a) applies to LPDs that calculate grower
compensation based upon a grouping, ranking, or comparison of growers
delivering poultry during a specified period. LPDs using such a system
are prohibited from using that grouping, ranking, or comparison to
reduce a rate of compensation disclosed in a broiler growing
arrangement. Final Sec. 201.106(a) requires that any performance or
incentive payments made to broiler growers under a poultry ranking
system must be in addition to a disclosed rate of compensation (i.e.,
any adjustments to rates of pay must be non-negative). Growers will
benefit from increased certainty about the lowest possible revenue
outcome under the growing arrangement. Greater certainty about minimum
rate for their service can lead to improved financial planning and
ability to manage financial risk. More transparent methods of
presenting payments and compensation systems would also facilitate
comparisons between alternative LPDs and benefit growers who may be
evaluating offers or considering agreements from more than one LPD.
In accordance with final Sec. 201.106(a), LPDs will be expected to
redefine grower payment calculation systems as appropriate to express
all payments in the form of bonuses added to a stated pay rate. AMS
expects that existing schedules of grower payments can be recreated
such that they conform to this final rule change, assuming that no
additional modifications are needed to comply with final Sec.
201.106(b). Existing LPD methods of grower payment calculation can be
expressed in an alternative format that includes only bonus adjustments
added to an existing minimum rate.\84\ AMS is aware that several of the
largest LPDs currently have existing payment systems that express all
ranking bonuses as positive adjustments added to a stated pay rate and
would conform to this requirement.
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\84\ All contracts that AMS has previously reviewed include
provisions for a minimum grower payment that is greater than zero.
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Changes to presentation of grower compensation rates as required by
final Sec. 201.106(a) are not expected to change the basic structure
of grower compensation schedules for relative performance payments. The
benefits that will accrue to growers from the changes will result from
increased clarity as growers will be better informed of minimum
compensation outcomes that can occur under the broiler growing
arrangement. Growers in some circumstances may, therefore, be able to
negotiate more appropriate compensation systems for themselves, in the
form of higher base rates, for example. There is no expectation,
however, that aggregate payments to growers will increase. Clearer
presentation of grower compensation methods will benefit growers by
improving grower understanding of potential revenue outcomes, thereby
reducing problems of inadequate and asymmetric information and
improving the clarity of defined terms to address incompleteness in
contracting.
Final Sec. 201.106(b) will establish a presumption that an LPD is
in violation of the Act if more than 25 percent of total compensation
paid to all growers in a complex on an annual basis is based on
performance. If a complex is in violation of this provision, in order
to comply an LPD may either raise grower base pay, reduce grower
performance pay, shift some performance pay to mechanisms not covered
by the provision, or a combination of all of these. Although other
alternatives would be possible, AMS expects that the most likely
outcome will be for LPDs to restructure compensation systems while
keeping total grower compensation at approximately the same level. In
this case, a grower compensation structure that includes less
comparison-based performance pay would limit the range of potential
compensation outcomes that an individual grower might observe and
reduce risk from income variability.
Benefits of Sec. 201.106(b) will accrue to broiler growers in the
form of reduced income variability. For a given level of total income,
growers would be likely to benefit if they receive a larger percentage
of expected compensation based on fixed non-performance pay--which may
include minimum base pay, fixed incentive payments for equipment
standards and housing, fixed bonuses for adherence to clearly defined
management practices, or other fixed targets--and a smaller percentage
of compensation that is variable based on a grouping, ranking, or
comparison to other growers, which makes up most forms of performance
pay at present in the industry.
When income is variable, growers will likely see trade-offs in the
value to them of reducing income variability compared to mean incomes.
Risk neutral growers will be made better off if they value any increase
they receive in less variable pay not based on performance more than
they value any decrease they experience in the expected value of
performance-based pay. However, a risk averse grower would value a one
dollar increase in less variable but more certain compensation more
than they would value a one dollar decrease in the expected value of
performance-based compensation that involves risk. Overall, individual
growers are likely to benefit if the value to them of any increase they
receive in less variable income--from compensation that is not based on
performance--is greater than the value to them of any decrease they
experience in the expected value of more variable performance-based
compensation.
The magnitude of benefits to growers that will result from Sec.
201.106(b) depends on several factors that cannot be predicted with any
reasonable degree of confidence. These factors include uncertainty
about the number of complexes that will modify grower compensation
structures in response to Sec. 201.106(b), the manner in which such
modifications would be implemented, and the number of growers at
affected complexes that would be impacted by any changes. AMS is unable
to analyze comprehensive grower data for all
[[Page 5193]]
broiler complexes and cannot predict with certainty how regulated
entities will respond to this provision. For this reason, potential
benefits of Sec. 201.106(b) are discussed qualitatively and not
quantified.
AMS does not have sufficient data to make an industry-wide
inference on the number complexes that will need to reduce performance
payments relative to total payments or the magnitude of any reductions
that will be required. AMS reviewed one to five years of confidential
grower compensation data for four individual broiler complexes that AMS
gathered in prior investigations. This sample included small, medium,
and large bird sizes and some of the largest broiler LPDs that operate
several other complexes across the U.S. Aggregate performance payments
at these four complexes were 11.4, 17.4, 20.5, and 25.4 percent of
total grower payments. AMS is not aware of any complex with performance
payments that are as much as 26 percent of total payments, and it is
possible that no complex will need to reduce performance payments
relative to total payments by a substantial amount to comply with final
Sec. 201.106(b).
To the extent that the complexes AMS reviewed are representative of
the other complexes owned by the same firms, two or possibly three of
the firms would likely already be in compliance with final Sec.
201.106(b). In addition, the terms of a 2022 consent agreement between
Wayne-Sanderson Farms, USDA, and the U.S. Department of Justice
informed final Sec. 201.106(b). In the Wayne-Sanderson Farms consent,
performance payments that Wayne-Sanderson Farms pays to broiler growers
was limited to 25 percent of total payments. Section 201.106
establishes a presumption that poultry growing arrangements with
variable pay greater than 25 percent is presumptively unfair. It is
unlikely that the unfairness presumption will have any effect on these
firms, which combined account for up to 35 percent of the complexes. It
is possible that other firms already limit performance payments to less
than 25 percent of total payments, but AMS does not have sufficient
information to confirm this with a reasonable degree of confidence.
Growers will benefit directly from changes in variability of
compensation as a result of Sec. 201.106(b) only at complexes where
LPDs modify existing compensation structures to comply with the 25
percent presumption of unfairness. However, growers will also benefit
from ongoing protection to the extent that this provision causes LPDs
to forego future changes that would increase performance-based
compensation beyond 25 percent of total compensation.
For a given level of grower performance-based compensation at a
complex, the presumption of unfairness also indirectly limits
reductions to grower base pay rates. A reduction in the base pay rate
will reduce the total amount of grower compensation not based on
performance and must be accompanied by a proportional decrease in
performance-based compensation to maintain an equivalent percentage.
The presumptive limitation therefore provides an incentive for LPDs to
maintain or increase existing levels of base grower compensation. This
provides another benefit to growers: it serves as a backstop against
the potential harm to growers that would occur if LPDs were to
substantially and unfairly lower base pay rates when modifying pay
structures to comply with Sec. 201.106(a).
The distributional effects of final Sec. 201.106(b) are likely to
be unequal across individual growers: not all growers will benefit or
benefit equally from this provision. Current contracting practices can
vary widely between complexes even of the same LPD. As previously
noted, AMS expects that the most likely outcome at complexes where
grower compensation structure modifications occur will be for LPDs to
keep total grower compensation at approximately the same level and
reduce the percentage of compensation based on performance payments.
This would change the distribution of total compensation among growers
at the complex. Depending heavily upon the strategy for compliance
chosen by the LPD, AMS would expect these changes to result in benefits
to some growers, welfare transfers between some growers, and no change
in welfare for some growers. At some complexes, AMS would expect that
some amount of welfare transfer from higher performing growers to lower
performing growers would result from payment structure modifications
implemented to comply with the 25 percent presumption of unfairness.
AMS expects some complexes to shift some performance pay to non-
comparison methods, such as fixed metric performance, or to other
innovative systems. Another possibility is that modifications could
result in LPDs terminating or not renewing some marginally performing
growers. This will be most likely to occur if LPDs seek to reduce the
overall variation in grower performance at a complex as a means to
comply or if payment structure modifications include increases in
minimum grower payments that exceed the marginal value of services
provided by some growers. Some LPDs may seek to utilize technology to
more greatly standardize outcomes, thus reducing the need to utilize
higher magnitudes of performance payment. AMS underscores that actual
outcomes will depend upon how LPDs respond at different complexes owing
to local factors on the ground.
Performance-based compensation structures based on a grouping,
ranking, or comparison of growers determine individual grower
compensation using relative performance metrics that typically include
feed efficiency and chick livability. Some aspects of performance can
be controlled or influenced by the grower through effort and
management, and to some extent investment (subject to the concerns
highlighted by this rule), in the broiler operation. Other determinants
of grower performance depend on actions of the LPD or other factors
outside the control of the grower. Section 201.110 of this rulemaking
addresses factors under control of the LPD by establishing a duty of
fair comparison. As discussed elsewhere, this provision is expected to
benefit producers by reducing unfair impacts on growers attributable to
these factors. Nonetheless, the influence of factors controlled by LPDs
on grower compensation will not and cannot be eliminated without
eliminating performance-based methods of compensation. Natural
variation and randomness will persist for certain production factors
that influence relative performance, such as breed, sex, age of
breeding flock, health at placement, and the performance of other
growers, even if the LPD strictly adheres to the duty of fair
comparison in the distribution of them. These factors therefore will
continue to be important in determining compensation in a performance-
based pay system. Provision Sec. 201.106(b) benefits growers by
establishing a presumption of unfairness based on the magnitude of
performance-based compensation, thereby also limiting the share of
income that will be affected by risk factors out of their control.
Growers are vulnerable to hold-up in the broiler contracting
relationship: once a grower makes a housing and equipment investment to
grow broilers for an LPD, that capital cannot be repurposed and the
grower's choices become limited. In addition, many broiler operations
operate in areas where they can potentially contract with only a very
small number integrators, which severely limits the grower's ability to
switch integrators. Data cited in the preamble of this final rule
(MacDonald 2014) shows that more than
[[Page 5194]]
half of broiler growers have only one or two LPDs (integrators) in
their local areas. As a result, growers lack bargaining power to
protect their existing level of compensation when LPDs change contract
terms. In requiring LPDs to provide the prior and modified contracts
and required disclosures when contract modification or renewal results
in lower year over year gross annual average grower payments at a
complex, Sec. 201.106(c) facilitates AMS intervention in unfair
treatment. During a three-year transition period, LPDs will report
changes to existing grower payment systems that reduce average
compensation for growers at a complex.
Benefits of Final Sec. 201.110
Market power gives LPDs a considerable bargaining advantage
relative to growers in poultry contracting arrangements. As a result,
growers lack negotiating power to demand, among other things,
transparency around, and completeness in, and reasonable performance
under contracts that would likely reduce the potential for deception
and unfairness. The interventions aim to reduce potential adverse
impacts of market power by establishing a duty of fair comparison that
would provide protections to growers that they do not have bargaining
leverage to demand. Currently, most broiler production contracts are
incomplete in that they fail to clearly state important terms and
provisions related to input distribution and flock production
practices, how grower compensation will be handled in certain variable
circumstances, settlement grouping procedures, and other aspects of
broiler grower ranking system administration. LPDs commonly seek to
disclaim under these contracts what should be express or implied duties
and warranties around the usability or appropriateness of inputs or
production practices and other aspects of broiler grower ranking system
administrations. LPDs frequently offer broiler contracts to growers on
a take it or leave it basis, providing growers with little insight as
to methods the LPD will use to compare growers for purposes of
determining compensation, including whether growers will be compared to
other growers provided with similar inputs and assigned similar
production practices. Moreover, during performance, growers have little
to no ability to demand LPDs actually perform as could be reasonably
expected under the contracts, including promptly addressing problems
that may emerge during ordinary operations.
Even under a reasonable level of transparency around specific input
differences, growers are often unable to make sufficient modifications
to their individual efforts to manage risks to how payments are
affected under a poultry grower ranking system. Nor can they avoid
harms from disputes that may arise under the poultry growing
arrangement. Growers reasonably assume that they will be fairly
compared to other growers under a broiler grower ranking system. They
are deceived if LPDs do not make a good faith effort to ensure fair
comparison among participating growers when operating broiler grower
ranking systems. Given the extent of LPD control over grower outcomes
through the distribution of inputs such as feed and chicks or
production practices such as placement density, target weight, etc.,
growers are forced to rely heavily on LPD good faith efforts in
performing fair comparisons under broiler growing arrangements.
Consistent delivery of fair comparison requires LPDs to incur
monitoring costs and take corrective actions when operating poultry
grower ranking systems. In fact, many LPDs implicitly acknowledge a
responsibility to fairly compare growers when they use procedures to
identify and correct imbalances and provide remedies when factors
beyond the growers' control affect grower payments. These include, for
example, provisions to remove a grower from a broiler grower ranking
system pool and to pay that grower according to another metric (such as
a multi-flock average) if the LPD discovers that inputs provided to the
grower were inferior--such as sick chicks. Another example would be a
policy of the LPD to avoid providing a grower with inferior inputs on
consecutive flocks--such as chicks from excessively young layer flocks
that are considered to be lower performing, at least when using the
broiler grower ranking system to determine performance pay in those
circumstances. Although such policies are not uncommon, they are not
currently required to be universally employed or uniformly applied by
LPDs. LPDs may have legitimate business interests in providing certain
growers, sometimes higher skilled growers in fact, with lower
performing inputs. Yet care needs to be taken to ensure that any
comparison-based method for determining performance pay be established
under circumstances that do not permit or enable the LPD to
intentionally disadvantage one or more growers in the ranking system.
Growers also have no means by which to ensure that LPDs
consistently carry out their responsibility under the contract or to
enforce it. Further, the benefits of monitoring and correcting for
unfair grower outcomes accrue to growers and not to the LPD. Therefore,
LPDs have insufficient incentive to uphold their end of the bargain,
especially in markets where growers have few options of alternative
LPDs with whom they could contract. LPDs can therefore
opportunistically minimize their costs of delivering a fair comparison
at the expense of growers and, as a result, fail to deliver on their
obligation for good faith and fair dealing under the contract.
Final Sec. 201.110 addresses these problems by establishing a duty
for LPDs to provide a fair comparison among growers when basing
compensation on a grouping or ranking of growers delivering poultry
during a specified period and requiring LPDs to document how they
comply with that duty. The fair comparison requirement in final Sec.
201.110(a) ensures that LPDs will not compare growers to other growers
who have been supplied with inputs or assigned production practices
that result in material differences in performance metrics used in
payment calculations. Duty of fair comparison also requires that LPDs
compare growers over appropriate time periods and use appropriate non-
comparison payment methods. Final Sec. 201.110(b) establishes
documentation requirements in the form of processes, commonly known as
policies and procedures, to facilitate LPD effective broiler grower
ranking system operation under that duty, effective recordkeeping of
transactions, and facilitates AMS supervision and enforcement. These
provisions will benefit growers by reducing deception and unfairness in
the operation of poultry grower ranking systems.
Expressly requiring LPDs to implement written processes that
promote fair comparison of growers, whether through more consistent
allocation of inputs and production practices or adjustments to methods
and formulas, will foster more transparent, accurate, and reliable
broiler grower ranking systems, and hold LPDs accountable for
divergences from lawful action. Growers will benefit from this
regulation because they will be less vulnerable to intentional harm due
to deception, retaliation, or bad faith by LPDs. An LPD, AMS, or
enforcement body can more easily evaluate grower complaints of
intentional harm--for example, LPD employees targeting growers by
providing inferior inputs--when they are able to consider whether the
LPD has complied with its own stated policies and procedures for
[[Page 5195]]
ensuring fair comparison. Ongoing monitoring of the broiler grower
ranking system by LPDs to fulfill the duty of fair comparison required
by final Sec. 201.110(a) will also provide safeguards to prevent
growers from being substantially disadvantaged by unintentional or
inadvertent outcomes. For example, an LPD will be compelled to take
prescribed corrective action if it discovers that a particular grower
has randomly received an unusual share of inferior inputs over multiple
flocks. Procedures designed to ensure fair comparison will include
monitoring to prevent natural variation in input quality and LPD-
determined flock production practices among growers within a single
settlement group from being allowed to persist as a pattern that
disadvantages a particular grower over multiple settlement groups. By
establishing a basic duty for LPDs to deliver fair comparison of
growers, final Sec. 201.110 is structured to provide LPDs flexibility
in fulfilling that duty within the context of individual circumstances
and complex production processes.
Benefits of Sec. 201.110 deriving from the value to growers of
fairness and equity are important. AMS is unable to quantify these
benefits. However, as a result of this provision, compensation for
individual growers will more closely match the level of individual
grower effort, skill, and investment relative to other growers under a
poultry grower compensation system that guarantees fair comparison.
This provision will benefit growers by removing some of the unfairness
in the distribution of grower compensation within poultry ranking
payment systems. When LPDs fulfill a duty to ensure fair comparisons,
no individual grower will receive consistently poor inputs while other
growers with whom that grower is compared receive consistently good
inputs. The expected benefits of ensuring fair comparisons among
growers are highlighted by the consistent widespread reports of harm to
individual growers resulting from existing unfair comparisons.\85\ A
reduction in the occurrence of such harms could potentially lead to
reduced grower turnover.
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\85\ Section II of this final rule, ``Background,'' documents
decades of grower comments to USDA that highlight concerns of
persistent unfairness resulting from unfair comparisons in broiler
grower tournaments.
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Provisions included in final Sec. 201.110(b)(1)(vi) will also
require LPDs to maintain written processes for communication and
resolution of grower concerns with the design or operation of a system
that is consistent with the duty of fair comparison. These processes
should address timely resolution of such disputes. Providing an
effective method of dispute resolution has the potential to help
resolve disagreements involving personality conflicts which can lead to
avoidable inefficiencies.
Benefits of Final Sec. 201.112
LPDs encourage and often require broiler growers to make additional
capital investments in assets that are specific to producing poultry
for that LPD. Growers cannot exert bargaining power to demand essential
information that would inform such investments. As a result, LPDs can
induce growers to make additional investment decisions that do not
benefit growers when they do not supply sufficient information for
evaluation of requested upgrades. Such investments can cause financial
harm to growers and increase the extent of their investments in capital
that is specific to poultry production for nearby LPDs (thereby also
increasing grower hold-up exposure) while still benefiting those LPDs.
Moreover, broiler growers bear all the costs and risks of additional
capital improvement investment. LPDs do not own the farm-based
production capital and therefore do not share in these risks, although
they frequently dictate grower investments. Because poultry production
capital is largely owned by growers, LPDs have limited incentive to
carefully consider how much required additional capital investments
will improve individual grower production efficiency and whether they
are likely to lead to financial success or failure. This misalignment
of incentives is consistent with grower complaints that LPDs sometimes
require costly investments that are unnecessary or in some cases merely
cosmetic.\86\ When a broiler considers a new investment, the broiler
grower considers gains in productivity relative to the cost of the
investment. However, when LPDs do not bear investment cost, they have
incentive to maximize only their benefits and encourage growers to
over-invest in poultry-specific production capital to the point of
negative returns for the grower.
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\86\ AMS sought feedback on proposed rulemaking in a 2022 ANPR
(87 FR 34814, June 8, 2022). Some commenters noted that LPDs often
supply insufficient information with respect to requested or
required upgrades and deceptively induce growers to make costly
additional capital investments. One commenter, for example, asserted
that LPDs demand costly upgrades that some growers have reported to
be arbitrary and apparently untethered to any reasonable assurance
of increased compensation.
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AMS has sought to address similar concerns through prior action.
Finalized in 2011, Sec. 201.216 sets out criteria for when the
Secretary will find additional capital investment violated the Act (76
FR 76874, December 9, 2011). However, AMS's experience since has found
that the rule is insufficient to help growers or the Agency to identify
problematic additional capital investment in time to act. Accordingly,
the Agency in this final rule has prioritized disclosure of critical
information to growers in a timely manner, to enable growers and the
Agency to have ready access to the necessary information to conduct
analyses under Sec. 201.216 and under the Act generally, including to
stop additional capital investment that cause unavoidable harms. AMS
also is adopting final Sec. 201.112 to prevent deception of growers
related to additional capital investment, as the information being
required is critical to their decision-making around the additional
capital investment, whether or not the additional capital investment
gives rise to unavoidable harms separate and apart from the failure to
disclose.
LPDs prevent growers from making fully informed decisions and
understanding the true extent of over-investment when they withhold
important information about additional capital improvement investments.
An increase in grower investment leads to increased grower dependency
on LPDs to generate returns on that investment through poultry
contracting. The presence of few or no other poultry contracting
options in a grower region further focuses dependence on a single LPD.
The use of incentive payments by LPDs to compensate growers for
additional capital investment can help to align investment incentives.
For these arrangements to work properly, growers must clearly
understand the parameters of the investment and the breakdown of
payment components and financial incentives offered by the LPD.
Final Sec. 201.112 will require LPDs to provide a Capital
Improvement Disclosure Document when requesting an additional capital
investment over the identified threshold of $12,500 (as defined in
Sec. 201.2(n)). This disclosure will provide information to existing
growers contemplating additional capital investments about the goal or
purpose of the investment, grower financial incentives, construction
schedules, description of changes to housing specifications, approved
manufacturers or vendors, and analysis of projected returns including
the assumptions, risks, and uncertainties upon which those projections
are based (paragraphs (b)(1) through (6)). As such, the Capital
Improvement Disclosure Document will clearly state the
[[Page 5196]]
intended and expected outcome of LPD additional investment
requirements.
Requiring LPDs to provide this information to growers will reduce
asymmetric information that contributes to inefficient investment and
resource allocation decisions, where such choice exists by growers.
LPDs providing this additional information related to grower
requirements reduces the cost to growers of identifying and qualifying
manufacturers and vendors when making capital improvements. To the
extent that disclosures assist growers in understanding the purpose of
additional capital investments, those growers will be more likely to
realize any potential benefits from the additional capital investment.
For example, growers will be able to tailor additional capital
investments to their particular operation so as to be better positioned
to implement the additional capital investment and produce intended
production improvements. The clarity provided by additional capital
investment disclosure will reduce the likelihood of costly errors
caused by miscommunication and misunderstanding and increase the
likelihood that growers will be able to correctly implement additional
capital investments. Final Sec. 201.112 will generate economic
benefits by addressing certain limitations on market functioning
arising in part from asymmetric information. Growers operating with
better information are less likely to be deceived or unfairly misled by
LPDs when additional capital improvement investments are required.
Even where growers may not be able to avoid or negotiate around
these terms, growers may be better able to effectuate their rights
under the Act, and AMS would benefit from earlier identification of
potentially unfair practices. To the extent this occurs, by addressing
asymmetric information this section of the final rule will help
alleviate additional hold-up of growers by LPDs. Even in cases where
grower refusal may still result in other adverse consequences, growers
may still be better off by preventing additional financial loss and
increased specific investment and dependence on the LPD. Financial
projections and other analyses of additional capital improvement
investments developed by LPDs along with more complete information
about investment purpose, expected benefit, and grower performance will
be superior to analysis based on limited grower information.
Final Sec. 201.112(c) will benefit growers who require translation
assistance by requiring LPDs to make reasonable efforts to ensure that
growers are aware of their right to request translation assistance and
to assist growers in translating the Capital Improvement Disclosure
Document.
Summary of Benefits of Final Sec. Sec. 201.106, 110, and 112
AMS expects that the final rule would provide substantial benefits
to the industry and address issues of extreme importance to broiler
growers. However, these benefits are unquantified. AMS cannot measure
any impact or shift in total industry supply or any corresponding
indirect effects on industry supply and demand, including price and
quantity effects.
Estimation of Costs of the Final Regulations
AMS estimates cost for three alternatives. The first is the final
Sec. Sec. 201.106, 110, and 112, which is the preferred alternative.
The second alternative is the same as final Sec. Sec. 201.106, 110,
and 112 with a complete exemption for LPDs that are considered small
businesses by the Small Business Administration.\87\ All LPDs are also
included in the third alternative, which is adoption of the proposed
Sec. Sec. 201.106, 110, and 112. All three alternatives are compared
against a baseline of status quo, which has no costs or benefits.
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\87\ The Small Business Administration (SBA) defines small
businesses by their North American Industry Classification System
Codes (NAICS). Live poultry dealers, NAICS 311615, are considered
small businesses by SBA if they have fewer than 1,250 employees.
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The direct costs of final Sec. Sec. 201.106, 110, and 112
primarily consist of the time required for LPDs to: (1) modify and
monitor grower contracts to determine compensation in a manner
consistent with final Sec. 201.106; (2) develop, document, and comply
with policies and procedures for ensuring that growers are fairly
compared to other growers in poultry grower ranking systems; and (3)
gather and document information pertaining to grower additional capital
investments and distribute it among the growers. The costs of the final
rules will fall on LPDs as they modify existing contracts and
compensation systems, develop and comply with new policies, and collect
and disseminate required information. Costs will also fall on poultry
growers based on the value of the time they put into reviewing the
disclosures. Though poultry growers are expected to incur costs in
reviewing information, they will be the primary beneficiaries of the
information, which may be reflected in their ability to make more
informed decisions (where they may have more than one or two
integrators as options in certain geographic areas). Further, growers
will be able to better identify additional capital investment programs
that are unfair, which either AMS or growers can challenge as a
violation of the Packers and Stockyards Act. This may result in a more
efficient allocation of capital within the poultry growing industry.
There were 42 LPDs in the broiler chicken market that filed a
fiscal year 2023 Annual Report with AMS, and their reports indicate
that they had 20,014 contracts with poultry growers during fiscal year
2023.\88\ Of these, 21 LPDs are considered small businesses according
to SBA classification, and these have a total of 1,208 grower
contracts. Small LPDs are expected to differ from large LPDs in
structure and complexity, particularly with regard to the number of
contract types used, management, use of legal services, and divisions
of labor. Where noted below, some components of cost estimates are
calculated separately for large and small LPDs to reflect these
differences.\89\
---------------------------------------------------------------------------
\88\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The annual report form is available to public at
https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
\89\ Unless otherwise noted, estimated cost or hours estimates
for small and large live poultry dealers are the same.
---------------------------------------------------------------------------
AMS expects the direct costs of the final rule will be small in
relation to overall production costs and will not measurably alter
poultry supply. AMS also expects that neither LPDs nor poultry growers
will measurably change any production practices that will impact the
overall supply of poultry as a result of these direct costs.
Expected direct costs are estimated as the value of the time
required to develop and implement new broiler grower contracts and
grower payment systems to comply with requirements of final Sec.
201.106; develop, implement, and maintain compliance with processes
reasonably designed by the LPD to deliver fair comparisons among
broiler growers in the operation of broiler contract tournament systems
as required by final Sec. 201.110; and produce and distribute
disclosures when LPDs request or require growers to make additional
capital investments as required by final Sec. 201.112, as well as the
time required to create and maintain any necessary additional records.
Grower payment systems required by final Sec. 201.106(a) are
substantively similar to many current payment systems already in use
and will therefore not require large adjustments
[[Page 5197]]
for most LPDs. AMS does not have sufficient data to predict whether the
presumption of unfairness based on 25 percent performance-based grower
pay will cause any LPDs to make substantial changes to grower
compensation structures. The policies and procedures that LPDs would be
required to develop in response to final Sec. 201.110 are expected to
result in formalization, in many cases, of existing practices LPDs are
currently following, albeit sporadically or inconsistently. Nearly all
of the information and records required for disclosure to growers under
final Sec. 201.112 are already kept by and/or available to LPDs.
Although LPDs will need to take several actions to comply with new
requirements under final Sec. Sec. 201.106, 110, and 112, these
provisions are not expected to require LPDs to substantially change
their existing business practices. The exception to this would occur if
some LPDs currently exceed the 25 percent presumption of unfairness on
performance-based grower compensation set by Sec. 201.106(b) and will
be unable to comply without substantial changes. The changes to comply
would result in indirect costs. Non-quantifiable potential indirect
costs to LPDs who exceed the 25 percent presumption of unfairness on
performance-based grower compensation will be discussed separately
within this section. AMS expects total direct costs of adjustments,
contract modifications, records creation, and compliance under the
final rule to be small relative to the overall size of the industry.
AMS also estimates the amount of time that growers would take to
review the information provided to them by LPDs. Estimates of the
amount of time required by LPDs to modify existing contracts, develop
and comply with new policies, and collect and distribute required
information, and for growers to review the information were provided by
AMS subject matter experts. These experts were supervisors and auditors
with many years of experience with AMS in auditing LPDs for compliance
with the Packers and Stockyards Act. Estimates for the value of time
are U.S. Bureau of Labor Statistics Occupational Employment and Wage
Statistics estimates released May 2023 and costs are therefore
expressed in 2023 dollars.\90\ Throughout the discussion that follows,
``first year'' costs refers to costs that are estimated to be incurred
during the 12 months immediately preceding the effective date of the
rule.
---------------------------------------------------------------------------
\90\ See U.S. Bureau of Labor Statistics, May 2023 National
Occupational Employment and Wage Estimates, May 2023. https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------
Direct Costs of Final Sec. 201.106--Preferred Alternative
Under final Sec. 201.106(a), LPDs will be required to redefine
grower payment calculation systems as appropriate to express all
payments in the form of bonuses added to a stated pay rate. AMS expects
that existing schedules of grower payments can be recreated such that
they comply with this final rule change. Existing LPD methods of grower
payment calculation can be expressed in an alternative format that
includes only bonus adjustments added to from an existing minimum pay
rate. AMS expects that most LPDs will be required to make one-time
changes to existing grower contracts and develop new payment systems
that are consistent with these provisions. This process will also
include producing and filing grower documents and communicating
information about the new contract and payment system to growers and
staff at each complex.
AMS estimates that the aggregate one-time costs to LPDs of updating
grower contracts and developing new grower payment systems, including
modifying information systems to include new calculations as well as
filing, and reporting to comply with final Sec. 201.106(a), will
require 17,664 legal hours,\91\ 57,750 management hours, 7,360
administrative hours, and 7,360 information technology hours, costing a
total of $9,106,000 \92\ in the first year.\93\
---------------------------------------------------------------------------
\91\ Small live poultry dealers are estimated to require 50% as
many legal hours as large live poultry dealers on a per company
basis for one-time cost of developing Sec. 201.106 one-time changes
to grower contracts and payment systems.
\92\ 17,664 legal hours x $139.96 per hour + 57,750 management
hours x $96.40 per hour + 7.360 administrative hours x $49.36 per
hour + 7,360 information technology hours x $95.58 per hour =
$9,106,112.
\93\ Average hourly wage rates used to estimate dealer costs
include a 41.79% markup for benefits and are as follows:
Management--$96.40, Legal--$139.96, Administrative--$49.36, and
Information Technology--$95.58. Hourly wage rates were established
using the following BLS classifications for each labor category as
follows (NAICS Code--OCC code--OCC Title): Management (3116--11-
1020--General and Operations Managers) for live poultry dealers'
managers, Legal (3110--23-1011--Lawyers) for attorneys for live
poultry dealers and for growers, Administrative (3116--43-6011--
Executive Secretaries and Executive Administrative Assistants) for
live poultry dealers' administrative assistants, and Information
Technology (3116--11-3020--Computer and Information Systems
Managers) for information technology managers.
---------------------------------------------------------------------------
Once LPDs have incurred a one-time cost of developing, documenting,
and communicating new contracts and a new system of grower payments,
AMS does not expect additional ongoing costs of implementing final
Sec. 201.106(a). Once in place, new provisions and modifications
resulting from this one-time update are not expected to lead to an
increase in costs associated with the ongoing maintenance and updating
of grower contracts that would occur in the normal course of business.
Final Sec. 201.106(b) establishes a presumption of unfairness
when, for a given complex, aggregate payments based upon a grouping,
ranking, or comparison of growers (performance pay) exceed 25 percent
of gross payment to growers on an annual basis. LPDs will need to
analyze grower compensation structures at the complex-level and
calculate annual performance-based grower compensation as a percentage
of total compensation to ensure compliance with the 25 percent
presumption established by final Sec. 201.106(b). LPDs may choose to
re-design and modify existing compensation structures where greater
than 25 percent of the total grower compensation is based on
performance pay These LPDs may choose to create processes for
monitoring compliance on an ongoing basis. Modifications to grower
compensation structures will need to be incorporated into broiler
contracts and communicated to growers.
AMS estimates that the aggregate one-time costs to LPDs of
examining and evaluating existing grower compensation structures and
making modifications as required to ensure ongoing compliance with
final Sec. 201.106(b), will require 7,360 legal hours, 52,500
management hours, 7,306 administrative hours, and 14,720 information
technology hours, costing a total of $7,861,000 in the first year.\94\
---------------------------------------------------------------------------
\94\ 7,360 legal hours x $139.96 per hour + 52,500 management
hours x $96.40 per hour + 7,360 administrative hours x $49.36 per
hour + 14,720 information technology hours x $95.58 per hour =
$7,861,333.
---------------------------------------------------------------------------
LPDs will implement and maintain processes for monitoring ongoing
compliance with Sec. 201.106(b). AMS expects these annual ongoing
costs to require in aggregate 736 legal hours, 5,250 management hours,
736 administrative hours, and 1,472 information technology hours for an
aggregate annual cost of $786,000.\95\
---------------------------------------------------------------------------
\95\ 736 legal hours x $139.96 per hour + 5,250 management hours
x $96.40 per hour + 736 administrative hours x $49.36 per hour +
1,472 information technology hours x $95.58 per hour = $786,133.
---------------------------------------------------------------------------
Final Sec. 201.106(c) requires that for each of the three calendar
years commencing with and including the effective date for Sec.
201.106, LPDs must submit to USDA a copy of the prior and modified
contracts and associated disclosures if any contract modification
[[Page 5198]]
or renewal results in less than the prior annual-calendar year's
complex-wide average gross payment to the grower. LPDs will be required
to monitor changes in average annual gross payments to growers at the
complex and, if necessary, provide documentation.
AMS does not expect any costs to LPDs in the first year in response
to Sec. 201.106(c). For each of the three calendar years following the
effective date, LPDs will monitor grower compensation and submit any
necessary documentation on an annual basis. AMS expects these annual
ongoing costs to require in aggregate 736 legal hours, 5,250 management
hours, 736 administrative hours, and 1,472 information technology hours
for an aggregate annual cost of $786,000.\96\
---------------------------------------------------------------------------
\96\ 736 legal hours x $139.96 per hour + 5,250 management hours
x $96.40 per hour + 736 administrative hours x $49.36 per hour +
1,472 information technology hours x $95.58 per hour = $786,133.
---------------------------------------------------------------------------
Final Sec. 201.106 concerns potential changes to the method of
payment calculation and compensation structure used in grower
tournament settlement systems. LPDs will provide new contracts that
include these updated provisions for review by broiler growers. AMS
expects that the first time a grower receives a new contract containing
these modifications, he or she will require about 4 hours to review and
consider all new terms and provisions. At $62.13 per hour,\97\ the
total one-time cost for all broiler growers to review the new contract
is $4,974,000.\98\ AMS expects that the updated contract provisions and
payment systems developed by LPDs pursuant to Sec. 201.106 will not
contribute to additional ongoing contract review time by growers beyond
an initial one-time review. Therefore, no ongoing future costs of
grower contract review have been included for Sec. 201.106. The ten-
year aggregate total costs of final Sec. 201.106 to LPDs are estimated
to be $26,401,000, the ten-year aggregated total costs of final Sec.
201.106 to poultry growers are estimated to be $4,974,000, and the
combined ten-year aggregate total costs of final Sec. 201.106 to LPDs
and poultry growers are estimated to be $31,375,000.
---------------------------------------------------------------------------
\97\ The average hourly wage rate of $62.13 per hour used to
estimate costs for a poultry grower includes a 41.79% markup for
benefits. The wage rate was established using BLS classification
(1152--11-0000--Management Occupations).
\98\ 4 hours to review each disclosure x $62.13 per hour x
20,014 contracts = $4,973,879.
---------------------------------------------------------------------------
Unquantified Indirect Costs of Sec. 201.106--Preferred Alternative
Many factors will affect the costs to LPDs of changing existing
compensation structures to comply with a 25 percent presumption as
defined in Sec. 201.106(b). The scope of comprehensive data that would
be required for AMS to accurately measure and quantify these costs
makes collection of sufficient data infeasible if such exists. Further,
the nature of these costs will depend on future choices made by
industry participants that cannot be predicted with reasonable
certainty. The potential indirect costs--other than those direct
administrative costs which are quantified separately--will be discussed
qualitatively in this section.
If LPDs substantively modify existing structures of grower
compensation to reduce performance-based compensation to less than 25
percent of total grower compensation, additional costs must be
considered. The likelihood and magnitude of these additional indirect
costs will depend on the number of complexes that will modify existing
compensation structures as a result of Sec. 201.106(b), the extent of
those modifications, and resulting cost increases.
As discussed in the benefits section, AMS does not have sufficient
data to make an inference on the number complexes that will reduce
performance payments relative to total payments or the magnitude of any
reductions that will be required. As previously discussed, at four
complexes, aggregate performance payments were 11.4, 17.4, 20.5, and
25.4 percent of total grower payments. AMS is not aware of any complex
with performance payments that are as much as 26 percent of total
payments, and it is possible that no complex will reduce performance
payments relative to total payments by a substantial amount to avoid
the presumption of unfairness established in final Sec. 201.106(b).
To the extent that the complexes AMS reviewed are representative of
the other complexes owned by the same firms, two or possibly three of
the firms would likely already be in compliance with final Sec.
201.106(b). And due to the Wayne-Sanderson Farms consent agreement with
U.S. Department of Justice, it is unlikely that the regulation will
have an effect on Wayne-Sanderson's existing contracts. Therefore, it
is unlikely that the presumption of unfairness on performance payments
will have any effect on these firms, which combined account for up to
35 percent of broiler complexes. It is possible that at other firms,
performance payment makes up less than 25 percent of total payments as
well, but AMS does not have sufficient information to confirm this with
a reasonable degree of confidence.
Conceptually, where firms modify existing grower compensation
structures at a complex in response to this rule, if reductions in
performance-based payments relative to total payments adversely affect
grower performance incentives and cause growers to produce broilers
less efficiently, that could result in increased production costs for
the firms. In general, the ``tournament'' system of broiler grower
compensation bases payments to individual growers on their performance
relative to other growers. Performance payments provide an incentive
for growers to optimize factors under their control, such as effort and
management, and to some extent investment (subject to the concerns
around investments highlighted by this rule), to improve their own
relative performance efficiency and increase income. The strength of
individual performance incentives is related to the size of expected
(potential) grower performance payments, which will be limited by the
total amount of performance-based pay distributed among all growers.
The effectiveness of incentives is also limited by the extent to which
the grower can control performance. Decreasing the relative size of
performance payments available to all growers at a complex might, at or
above a certain level, in theory, therefore weaken performance
incentives of individual growers and could result in reduced overall
grower efficiency in broiler production.
AMS has no reason to believe that the 25 percent presumption
adopted in this final rule would significantly change incentives. As
noted above, the third largest LPD is already in compliance with the
provision and some LPDs do not use the tournament system. No evidence
was produced by commenters regarding the level of tournament
compensation needed to optimize grower performance. Other factors,
including inputs and production practices, the level of prudence and
professionalism of growers, their risks of termination, and non-
comparison performance payments can, for example, provide incentives
for growers. Additionally, LPDs already closely monitor grower
performance with a range of information they already have. Finally, the
concern arises only if both the 25 percent presumption would affect
incentives and if an LPD could not otherwise overcome the presumption.
AMS cannot rule out the possibility that incentives may be
affected, and AMS is unable to predict specific effects with certainty.
Were production efficiency in some manner to be
[[Page 5199]]
reduced, economic principles suggest that cost of production would
increase, causing an inward shift of a firm's marginal cost curve and
that those costs could be passed on to consumers. Increases in cost
structures could, under that same hypothetical, affect demand for
broiler growing services in certain areas, for example possibly
resulting in LPDs terminating some marginal growers. As noted above,
based on the regulatory record and the Agency's expert judgment based
on the information and data available to AMS during the rulemaking
process, AMS does not view these outcomes as likely to any material
degree.
Furthermore, LPDs have tools to incentivize grower effort that
would partially or entirely avoid the risks outlined above. LPDs may
shift some performance pay to non-comparison methods, such as fixed
metric performance or to other innovative systems, which could retain
the incentives where necessary and appropriate. Other LPDs, however,
may believe that the performance incentive delivered by the tournament
is misplaced given the particularities of their business model or the
type of bird being grown at a complex (e.g., growout of ``no
antibiotics ever'' may require different incentives and management than
commoditized product). Depending on the needs of the complex, LPDs may
seek to utilize technology, training, or other approaches to improve
outcomes, thus reducing the need to utilize higher magnitudes of
performance payments.
LPDs currently use many variations of relative performance
compensation systems at broiler complexes and some LPDs do not use
tournament performance compensation systems. This suggests that that
setting comparison pay above 25 percent is not the only way to optimize
incentives for all complexes, growers, or circumstances. AMS does not
have data for every payment structure currently in use. Limited data
analysis from the small sample of complexes described above shows that
performance compensation at a number of complexes is less than 25
percent of total pay. This suggests that regulated entities can
optimize incentives without setting comparison performance pay above 25
percent. Ultimately, AMS does not expect that LPDs will choose to
abandon the tournament compensation system entirely as a result of this
regulation and does not expect materially adverse effects on production
efficiency.
Final Sec. 201.106(c) requires that within a three-year transition
period following the effective date, LPDs must provide the prior and
modified contracts and grower disclosures if complex-wide average gross
payment to growers falls below the level of the prior calendar year.
AMS considered that LPDs could face additional costs if they were
prevented from lowering grower compensation for a three-year period and
were not able to adjust payment structures to meet challenging and
unforeseen industry conditions in the broiler industry. For example, a
sharp decline in broiler demand or other type of event disrupts the
broiler industry could potentially create conditions in which aggregate
average grower compensation at a complex temporarily falls below its
level in the prior year.
In analyzing information submitted by LPDs, AMS will consider all
relevant factors, including industry conditions, when investigating
unfairness. As a result, AMS expects that LPDs will be constrained only
from unfair reductions in grower compensation and will not be prevented
from adjustments to grower compensation that reflect legitimate
business operations, such as responding to a decline in broiler demand
or higher feed costs. In addition, the tendency for base levels of year
over year inflation to naturally erode real grower compensation will
also attenuate the need for nominal decreases. Given the restructuring
of how payment calculation methods and compensation structures will be
presented to growers as LPDs comply with Sec. 201.106(a), review and
analysis of documentation by AMS under this provision will focus on the
unfair reductions in compensation resulting from contract modification
which this provision is intended to prevent. Therefore, AMS does not
expect additional costs for LPDs as a result of Sec. 201.106(c) beyond
the direct administrative costs of assessing and monitoring revised
payment systems for potential reductions in grower compensation and
providing documentation when required as explicitly described in the
previous section.
Direct Costs of Final Sec. 201.110--Preferred Alternative
Final Sec. 201.110 will require LPDs to develop, maintain and
comply with a set of policies and procedures that ensure the operation
of a poultry grower ranking system that is consistent with the duty of
fair comparison among growers, including describing processes for
supplying or assigning inputs and production practices, communication
and cooperation, and facilitating the conduct of ongoing compliance
reviews with those processes.
Final Sec. 201.110(a) and (b)(1)(i) through (v) describe
objectives and minimum requirements for written documentation of
processes, including how LPDs will operate poultry grower ranking
systems that are consistent with the duty of fair comparison.
Information obtained during previous AMS investigations suggests that
LPDs may already have some informal policies and practices or perhaps
even some contract provisions in place to address and attempt to remedy
situations in which growers have been inadvertently disadvantaged by
such factors. For example, AMS is aware of situations where an LPD has
removed a grower that received an unreasonable share of lower quality
inputs from the grower pool and paid them by another method that would
not penalize relative performance (e.g., a five-flock average). Under
final Sec. 201.110(a) and (b)(1)(i) through (v), all LPDs will be
required to develop formal written processes that meet specific
criteria outlined in the regulation.
AMS estimates that the one-time aggregate cost of developing new
policies and procedures in response to final Sec. 201.110(a) and
(b)(1)(i) through (v) for LPDs will require 4,128 legal hours, 28,500
management hours, 1,472 administrative hours, and 1,472 information
technology hours, costing a total of $3,539,000 in the first year.\99\
Due to differences in their structure, estimates for small LPDs were
calculated with the expectation that they would employ relatively fewer
legal (attorney) hours that are offset by a larger share of management
hours.\100\
---------------------------------------------------------------------------
\99\ 4,128 legal hours x $139.96 per hour + 28,500 management
hours x $96.40 per hour + 1,472 administrative hours x $49.36 per
hour + 1,472 information technology hours x $95.58 per hour =
$3,538,507.
\100\ Small live poultry dealers are estimated to require 33% as
many legal hours and 133% as many management hours as large live
poultry dealers on a per-complex basis for one-time cost of
developing Sec. 201.110 tournament fairness policies and
procedures.
---------------------------------------------------------------------------
LPDs will implement, monitor, and comply with new written processes
for the design and operation of a poultry grower ranking system that is
consistent with the duty of fair comparison; they will also maintain
and update these written processes. AMS expects these annual ongoing
costs to require in aggregate 1,400 legal hours,\101\ 28,336 management
hours which include renewing and updating written processes at the
corporate level as well as monitoring activities conducted by
[[Page 5200]]
managers at each complex to ensure ongoing compliance, 736
administrative hours, and 736 information technology hours for an
aggregate annual cost of $3,034,000.\102\
---------------------------------------------------------------------------
\101\ Small live poultry dealers are estimated to require 50% as
many legal hours as large live poultry dealers on a per-complex
basis in ongoing compliance and maintenance of Sec. 201.110
tournament fairness policies and procedures.
\102\ 1,400 legal hours x $139.96 per hour + 28,336 management
hours x $96.40 per hour + 736 administrative hours x $49.36 per hour
+ 736 information technology hours x $95.58 per hour = $3,034,210.
---------------------------------------------------------------------------
Final Sec. 201.110(b)(1)(vi) requires that the written processes
developed must include a description of how LPDs communicate and
cooperate to resolve grower concerns in a timely fashion. AMS expects
that the aggregate one-time cost to LPDs of setting up communications
and cooperation protocol and implementing them in the first year will
require 840 legal hours, 546 management hours, 168 administrative
hours, and 336 information technology hours \103\ for an aggregate one-
time cost of $211,000.\104\
---------------------------------------------------------------------------
\103\ Small live poultry dealers are estimated to require 50% as
many legal hours and 125% as many management hours, and 50% as many
information technology hours as large live poultry dealers on a per
company basis for one-time cost of developing Sec. 201.110
communication, cooperation, and dispute resolution policies and
procedures.
\104\ 840 legal hours x $139.96 per hour + 546 management hours
x $96.40 per hour + 168 administrative hours x $49.36 per hour + 336
information technology hours x $95.58 per hour = $210,608.
---------------------------------------------------------------------------
Final Sec. 201.110(b)(2) states the length of time for retaining
the records relevant to an LPD's compliance with final Sec.
201.110(b)(1) and (2). AMS considered record retention when estimating
costs for final Sec. 201.110(b)(1) and final Sec. 201.110(b)(2) does
not impose any costs independently.
AMS expects the ongoing annual costs after the first year of
implementing written processes regarding communication, cooperation,
and dispute resolution policies and procedures described in final Sec.
201.110(b)(1)(vi) to require, in aggregate, 336 legal hours, 168
management hours, 84 administrative hours, and 84 information
technology hours for an aggregate annual cost of $75,000.\105\
---------------------------------------------------------------------------
\105\ 336 legal hours x $139.96 per hour + 168 management hours
x $96.40 per hour + 84 administrative hours x $49.36 per hour + 84
information technology hours x $95.58 per hour = $75,397.
---------------------------------------------------------------------------
Written processes developed by LPDs are for internal use, to be
complied with and maintained, to be provided to AMS, and as part of
ongoing compliance monitoring. Under final Sec. 201.110, LPDs are not
required to provide additional disclosures to contract growers.
Therefore, final Sec. 201.110 will not impose any additional one-time
or ongoing costs on growers to review additional disclosures, and total
grower costs of final Sec. 201.110 are zero.
The ten-year total costs of final Sec. 201.110 to all 42 live
broiler poultry dealers are estimated to be $31,736,000. Since expected
grower costs for this section are zero, these also represent the total
aggregate costs of Sec. 201.110.
Direct Costs of FinalSec. 201.112--Preferred Alternative
The new provisions in final Sec. 201.112 will require LPDs to
provide a Capital Improvement Disclosure Document any time the LPD
requests existing broiler chicken growers to make an additional capital
investment ($12,500 or more per structure excluding maintenance or
repair). The Capital Improvement Disclosure Document must include
information about the goal or purpose of the investment, financial
incentives and compensation for the grower associated with the
additional capital investment, all schedules and deadlines for the
investment, a description of changes to housing specifications, and
analysis of projected returns.
Final Sec. 201.112 will require LPDs to create a Capital
Improvement Disclosure Document when new capital investments are
required of growers. Based on information provided by subject matter
experts, AMS estimates that capital upgrades will be required at 5
percent of complexes each year, triggering creation of a new disclosure
document for approximately 5 percent of growers annually. Therefore,
AMS estimates the annual cost of creating disclosures for additional
requested grower capital investment will require 74 legal hours, 368
management hours, 74 administrative hours, and 92 information
technology hours to create and provide a Capital Improvement Disclosure
Document for all growers requiring additional capital improvement
upgrades, for an aggregate annual cost of $58,000.\106\
---------------------------------------------------------------------------
\106\ 74 legal hours x $139.96 per hour + 368 management hours x
$96.40 per hour + 74 administrative hours x $49.36 per hour + 92
information technology hours x $95.58 per hour = $58,203.
---------------------------------------------------------------------------
With the exception of acknowledging receipt, the final rule will
not impose any requirement on poultry growers to review the information
provided by LPDs, but to benefit from the Capital Improvement
Disclosure Document, growers will need to review the information
provided. For final Sec. 201.112, AMS expects that growers will take
about four hours to review these documents when they are disclosed as
part of a capital improvement request or requirement by the LPD. LPDs
will be required to provide disclosures to growers for any of 20,014
contracts for which additional capital investment requests are
made.\107\ AMS expects that LPDs will make additional capital
investment requests for an average of 5 percent of grower contracts
annually. At an estimated 4 hours of grower review time per disclosure
at $62.13 per hour, growers' aggregate annual costs will be $249,000
\108\ for reviewing documents required by Sec. 201.112 in the first
year and in each successive year.
---------------------------------------------------------------------------
\107\ Live poultry dealers reported a combined total of 20,014
contracts for their fiscal year 2023.
\108\ 4 hours to review each disclosure x $62.13 per hour x
20,014 contracts x 5 percent of growers that require significant
housing upgrades = $248,694.
---------------------------------------------------------------------------
The ten-year aggregate total costs of final Sec. 201.112 to LPDs
are estimated to be $582,000, the ten-year aggregated total costs of
final Sec. 201.112 to poultry growers are estimated to be $2,487,000,
and the combined ten-year aggregate total costs of final Sec. 201.112
to LPDs and poultry growers are estimated to be $3,069,000.
Unquantified Indirect Costs of Sec. 201.112--Preferred Alternative
If AMS enforcement of final Sec. 201.112 has the effect of
preventing broiler growers from making unprofitable additional capital
investments (those for which individual grower returns do not exceed
costs), then such decisions to forgo investment will likely result in
fewer benefits for LPDs, and more for growers. Because LPDs benefit
from any productivity gain created by grower investments, whether or
not the investment is profitable for the grower in the long-run, LPDs
will not receive these benefits if additional information provided
under this provision causes growers to avoid additional capital
investments that they deem to be unprofitable and inefficient for their
operation. AMS is not able to quantify these lost benefits to LPDs.
They represent costs to LPDs, but these costs are at least partly
offset by gains (or avoided losses) for growers. In addition, to the
degree that an additional capital investment requires over-investment,
eliminating it benefits society. Over-investment occurs when the cost
of the investment exceeds the total value it generates (in terms of
increased grower productivity, production cost efficiency, etc.) and
the investment resources would be more productively employed in other
ways. The benefits to growers and society of avoiding such investments
would exceed the losses to LPDs.
[[Page 5201]]
Combined Costs of Final Sec. Sec. 201.106, 110, and 112--Preferred
Alternative
Combined costs to LPDs for final Sec. Sec. 201.106, 110, and 112
are expected to be $20,775,000 in the first year, $4,740,000 in years
two through four, and $3,954,000 in subsequent years thereafter.
Information collection costs are also reported in the Paperwork
Reduction Act section as the combined costs to LPDs for compliance with
the reporting and recordkeeping requirements of final Sec. Sec.
201.106, 110, and 112. The combined costs for poultry growers are
expected to be $5,223,000 in the first year and $249,000 in subsequent
years.
The ten-year aggregate combined costs of final Sec. Sec. 201.106,
110, and 112 to LPDs are estimated to be $58,719,000 and the present
value of the ten-year total costs to be $54,230,000 discounted at a two
percent rate. The annualized aggregate combined costs of the present
value (PV) of ten-year costs to LPDs discounted at a two percent rate
are expected to be $6,037,000.
The ten-year aggregate combined costs of final Sec. Sec. 201.106,
110, and 112 to poultry growers are estimated to be $7,461,000 and the
present value of the ten-year total costs to be $7,110,000 discounted
at a three percent rate. The annualized aggregate combined costs of the
PV of ten-year costs to poultry growers discounted at a three percent
rate are expected to be $792,000.
The ten-year aggregate combined costs of final Sec. Sec. 201.106,
110, and 112 to LPDs and poultry growers are estimated to be
$66,179,000 and the present value of the ten-year aggregate combined
costs to be $61,341,000 discounted at a two percent rate. The
annualized aggregate costs of the PV of ten-year costs to LPDs and
poultry growers discounted at a two percent rate are expected to be
$6,829,000. The cost estimates of final Sec. Sec. 201.106, 110, and
112 presented above appear in the following table.
Table 1--Estimated Costs of Final Sec. Sec. 201.106, 110, and 112--Preferred Alternative
----------------------------------------------------------------------------------------------------------------
Expected costs *
-----------------------------------------------
Preferred alternative Live poultry Poultry
dealers growers Industry total
----------------------------------------------------------------------------------------------------------------
Sec. 201.106:
First-Year.................................................. $16,968,000 $4,974,000 $21,941,000
Ten-Year Total.............................................. 26,401,000 4,974,000 31,375,000
PV of Ten-Year Discounted at 2%............................. 25,148,000 4,876,000 30,025,000
Ten-Year Annualized at 2%................................... 2,800,000 543,000 3,343,000
Sec. 201.110:
First-Year.................................................. 3,749,000 0 3,749,000
Ten-Year Total.............................................. 31,736,000 0 31,736,000
PV of Ten-Year Discounted at 2%............................. 28,559,000 0 28,559,000
Ten-Year Annualized at 2%................................... 3,179,000 0 3,179,000
Sec. 201.112:
First-Year.................................................. 58,000 249,000 307,000
Ten-Year Total.............................................. 582,000 2,487,000 3,069,000
PV of Ten-Year Discounted at 2%............................. 523,000 2,234,000 2,757,000
Ten-Year Annualized at 2%................................... 58,000 249,000 307,000
Sec. Sec. 201.106, 110, and 112:
First-Year.................................................. 20,775,000 5,223,000 25,997,000
Ten-Year Total.............................................. 58,719,000 7,461,000 66,179,000
PV of Ten-Year Discounted at 2%............................. 54,230,000 7,110,000 61,341,000
Ten-Year Annualized at 2%................................... 6,037,000 792,000 6,829,000
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.
Estimated Costs-and Expected Benefits of Final Sec. Sec. 201.106, 110,
and 112--Preferred Alternative
The value of broiler production in the U.S. for 2023 was
approximately $50.6 billion.\109\ Total direct costs of final
Sec. Sec. 201.106, 110, and 112 are estimated to be greatest in the
first year at $26.0 million, or 0.051 percent of revenues. A relatively
small improvement in efficiency from improved allocation of capital and
labor resources in the industry would more than outweigh the direct
costs of this final rule. A reduction in information asymmetry
(resulting in more useful information provided to growers), grower
uncertainty and risk of potential adverse outcomes, and retaliatory and
deceptive practices by LPDs will lead to benefits resulting from the
final rule. The size of benefits will be directly related to the extent
of these reductions. AMS expects that the final rule will provide
substantial benefits the industry and address issues of extreme
importance to broiler growers. However, these benefits are not
quantifiable. Benefits and costs are summarized below for each
provision of the rule.
---------------------------------------------------------------------------
\109\ USDA-NASS. Poultry--Production and Value 2023 Summary
(April 2024).
---------------------------------------------------------------------------
Final Sec. 201.106(a) benefits broiler growers by requiring LPDs
to implement payment structures that increase clarity and certainty
about the lowest possible revenue outcomes under a growing arrangement.
LPDs are expected to incur one-time direct costs of developing,
documenting, and communicating new contracts and a new system of grower
payments and no additional ongoing costs. Since most LPDs currently
employ payment structures that allow for both bonuses and discounts,
AMS expects these costs to be realized by LPDs at most complexes and
the corresponding benefits to be realized by the vast majority of
broiler growers.
Final Sec. 201.106(b) establishes a presumption of unfairness when
the amount of total grower compensation based on relative performance
exceeds 25 percent and thereby protects growers from excess income
variability. Some growers at complexes where LPDs modify compensation
structures to reduce the percentage of grower pay based on relative
performance may benefit from reductions in the variability of their
income. The distribution of benefits is likely to be unequal, such that
increases in compensation for some growers may correspond with
decreases in performance-based compensation for other growers.
[[Page 5202]]
In addition to direct costs to LPDs of implementing the rule, Sec.
201.106(b) could result in additional indirect costs to broiler
industry stakeholders (including LPDs, consumers, and growers) if LPDs
modify existing compensation structures in ways that adversely affect
grower incentives and lead to increased production costs. The magnitude
of benefits and costs resulting from Sec. 201.106(b) will depend on
two important factors that cannot be measured or predicted with a
reasonable degree of certainty: the number of broiler complexes that
will modify existing compensation structures as a result of final Sec.
201.106(b) and the manner in which those change will be implemented by
LPDs. If few or no complexes make substantial modifications to existing
compensation structures as a result of Sec. 201.106(b), the resulting
benefits to growers of reduced income variability and the indirect
costs to the broiler industry will be small. All broiler growers will
nonetheless benefit from ongoing protection against future increases in
performance-based pay variability and reductions in base pay amounts.
Growers will benefit from additional protections under Sec.
201.106(c) that require LPDs to submit prior and modified contracts if
contract modifications result in reduced average grower compensation
during a three-year transition period. This requirement will facilitate
AMS monitoring and intervention, when necessary, to protect growers
from unfair treatment. AMS does not expect indirect costs to broiler
industry stakeholders. AMS expects the benefits of Sec. 201.106(c)
will accrue to all broiler growers and the direct costs of
implementation over the three-year transition period will apply to all
LPDs.
By requiring that LPDs design and operate poultry grower ranking
systems to provide a fair comparison among growers, final Sec. 201.110
will benefit broiler growers through increased fairness and reduced
deception. All broiler growers will benefit to the degree that this
provision improves fairness and reduces deception within poultry grower
ranking systems. The direct costs of implementing and maintaining
compliance with Sec. 201.110 will be incurred by all LPDs, and AMS
does not expect any other indirect costs of this provision.
Disclosures concerning additional capital investments required by
final Sec. 201.112 will provide broiler growers with better
information to make financial decisions and reduce the likelihood the
LPDs can deceive or mislead growers. Growers will also benefit to the
extent that this requirement provides information that facilitates
improved identification and enforcement of violations under Sec.
201.116. LPDs will incur direct costs of preparing and distributing
disclosures when additional capital investments are requested by the
LPD. The provision could also cause some transfer of benefits from LPDs
to growers if the provision causes growers to avoid making unprofitable
investments that would have benefited the LPD more than the grower.
Net total costs and benefits to the industry from final Sec. Sec.
201.106, 110, and 112 cannot be quantified. Thus, AMS cannot measure
any impact or shift in total industry supply or any corresponding
indirect effects on industry supply and demand, including price and
quantity effects.
Estimated Costs and Expected Benefits of the Small Business Exemption
Alternative
AMS estimated costs for an alternative to the preferred option for
the final rule. It would be the same as final Sec. Sec. 201.106, 110,
and 112, with the exception that the alternative would exempt LPDs that
fall under the SBA definition of small businesses from all provisions
of the two final rules. In the preferred alternative, the requirements
in final Sec. Sec. 201.106, 110, and 112 would apply to all LPDs,
including those classified as small businesses.
The costs associated with this alternative are similar, but smaller
than the preferred option. According to PSD records, small LPDs make up
50.0 percent of all LPDs, but have only 6.0 percent of poultry growing
contracts. The estimation of the costs of the small business exemption
alternative will follow the same format as the preferred alternative.
Costs of Final Sec. 201.106--Small Business Exemption Alternative
AMS estimates that the aggregate one-time costs to LPDs of updating
grower contracts and developing new grower payment systems, including
modifying information systems to include new calculations as well as
filing, and reporting to comply with final Sec. 201.106(a), will
require 15,936 legal hours, 54,780 management hours, 6,640
administrative hours, and 6,640 information technology hours, costing a
total of $8,474,000 in the first year under the small business
exemption alternative. Once LPDs have incurred a one-time cost of
developing, documenting, and communicating new contracts and a new
system of grower payments, AMS does not expect additional ongoing costs
of implementing final Sec. 201.106(a) under the small business
exemption alternative.
AMS estimates that the aggregate one-time costs to LPDs of
examining and evaluating existing grower compensation structures and
making modifications as required to ensure ongoing compliance with
final Sec. 201.106(b), will require 6,640 legal hours, 49,800
management hours, 6,640 administrative hours, and 13,280 information
technology hours, costing a total of $7,327,000 in the first year under
the small business exemption alternative.
LPDs will monitor, maintain and comply with the processes for
examining excessive variability. AMS expects these annual ongoing costs
to require in aggregate 664 legal hours, 4,980 management hours, 664
administrative hours, and 1,328 information technology hours for an
aggregate annual cost of $733,000 under the small business exemption
alternative.
AMS does not expect any cost in the first year to set up and
implement a plan in response to Sec. 201.106(c). For each of the three
calendar years following the effective date for Sec. 201.106, AMS
expects these annual ongoing costs to require in aggregate 664 legal
hours, 4,980 management hours, 664 administrative hours, and 1,328
information technology hours for an aggregate annual cost of $733,000
under the small business exemption alternative.
For final Sec. 201.106(a), AMS expects that growers will take
about 4 hours to review new contract terms and provisions when they are
provided in the first year. At $62.13 per hour, the total one-time cost
for all broiler growers to review the new contract under the small
business exemption alternative is $4,674,000.\110\ AMS expects that the
updated contract provisions and payment systems developed by LPDs
pursuant to final Sec. 201.106 (a) would not contribute to additional
ongoing contract review time by growers beyond an initial one-time
review. Therefore, no ongoing future costs of grower contract review
are included.
---------------------------------------------------------------------------
\110\ 4 hours to review each disclosure x $62.13 per hour x
18,806 contracts = $4,673,667.
---------------------------------------------------------------------------
The ten-year aggregate total costs to LPDs of final Sec. 201.106
under the small business exemption alternative are estimated to be
$24,593,000, the ten-year aggregate total costs to broiler growers of
final Sec. 201.106 for the small business exemption alternative are
estimated to be $4,674,000, and the first-
[[Page 5203]]
year and ten-year aggregate total costs to LPDs and poultry growers of
final Sec. 201.106 for the small business exemption alternative are
estimated to be $29,267,000.
Unquantified Indirect Costs of Sec. 201.106--Small Business Exemption
Alternative
AMS expects that indirect costs resulting from Sec. 201.106(b) and
(c) for the small business exemption alternative will be nearly
identical to those discussed for the preferred alternative, with the
only difference being the number of complexes potentially affected. In
particular, small LPDs would be exempt from the presumption of
unfairness under Sec. 201.106(b) and will not incur indirect costs
from modifying grower compensation structures to reduce the percentage
of performance-based compensation for a complex below the presumptively
unfair 25 percent of total compensation. The 10 percent of complexes
that would be exempted from the regulation under this alternative are
small by definition. AMS does not have access to data that would
suggest whether these small LPD complexes are any more or less likely
to require modifications to existing grower compensation structures
that result in indirect costs than other complexes. Indirect costs for
the small business exemption alternative could only be equal to or less
than the preferred alternative but cannot be quantified for the same
reasons.
Direct Costs of Final Sec. 201.110--Small Business Exemption
Alternative
AMS estimates that the one-time aggregate cost of developing new
policies and procedures in response to final Sec. 201.110(a) and
(b)(1)(i) through (v) for LPDs will require 3,984 legal hours, 24,900
management hours, 1,328 administrative hours, and 1,328 information
technology hours, costing a total of $3,150,000 in the first year for
the small business exemption alternative.
After new written processes have been developed, LPDs would be
required to implement, monitor, and comply and to maintain and update
them. AMS expects these annual ongoing costs for the small business
exemption alternative to require in aggregate 1,328 legal hours, 25,564
management hours which include renewal and updating of written
processes at the corporate level as well as monitoring activities
conducted by managers at each complex to ensure ongoing compliance, 664
administrative hours, and 664 information technology hours for an
aggregate annual cost of $2,746,000.\111\
---------------------------------------------------------------------------
\111\ 1,328 legal hours x $139.96 per hour + 25,564 management
hours x $96.40 per hour + 664 administrative hours x $49.36 per hour
+ 664 information technology hours x $95.58 per hour = $2,746,477.
---------------------------------------------------------------------------
Final Sec. 201.110(b)(1)(vi) requires that the written processes
developed must include a description for how the LPD would resolve a
grower's concerns with the LPD's design or operation of a poultry
grower ranking system that is consistent with the duty of fair
comparison that is required by this section, including the timeliness
of the resolution. AMS expects that the aggregate one-time cost to LPDs
of setting up communications and complaint resolution processes as
described in Sec. 201.110(b)(1)(vi) for the small business exemption
alternative will require 504 legal hours, 252 management hours, 84
administrative hours, and 210 information technology hours for an
aggregate one-time cost of $119,000.\112\
---------------------------------------------------------------------------
\112\ 504 legal hours x $139.96 per hour + 252 management hours
x $96.40 per hour + 84 administrative hours x $49.36 per hour + 210
information technology hours x $95.58 per hour = $119,051.
---------------------------------------------------------------------------
Costs associated with final Sec. 201.110(b)(2), ``Record
retention,'' are included in cost estimates for final Sec.
201.110(b)(1). AMS expects that this section does not incur any
additional costs.
AMS expects the ongoing annual costs of implementing communications
and complaint resolution processes as described in Sec.
201.110(b)(1)(vi) to require, for the small business exemption
alternative, in aggregate, 168 legal hours, 84 management hours, 42
administrative hours, and 42 information technology hours for an
aggregate annual cost of $38,000.\113\ Because final Sec. 201.110 does
not require LPDs to provide additional disclosures to contract growers,
final Sec. 201.110 would not impose any additional one-time or ongoing
costs on growers to review additional disclosures, and total grower
costs of final Sec. 201.110 are also zero under the small business
exemption alternative.
---------------------------------------------------------------------------
\113\ 168 legal hours x $139.96 per hour + 84 management hours x
$96.40 per hour + 42 administrative hours x $49.36 per hour + 42
information technology hours x $95.58 per hour = $37,698.
---------------------------------------------------------------------------
The ten-year total costs of final Sec. 201.110 to the 50.0 percent
of live broiler poultry dealers impacted under the small business
exemption alternative are estimated to be $28,327,000. Since expected
grower costs for this section are zero, these also represent the total
aggregate costs of final Sec. 201.110.
Direct Costs of Final Sec. 201.112--Small Business Exemption
Alternative
Final Sec. 201.112 would require LPDs to create a Capital
Improvement Disclosure Document when new capital investments are
requested of growers. Based on information provided by subject matter
experts, AMS estimates a five percent annual average probability that
capital improvement upgrades will be required for growers at a complex,
which would trigger creation of a new Disclosure Document. Therefore,
AMS estimates the annual ongoing cost of creating Capital Improvement
Disclosure Documents for the small business exemption alternative will
require 66 legal hours, 332 management hours, 66 administrative hours,
and 83 information technology hours to create and provide Capital
Improvement Disclosure Documents for all growers requiring additional
capital improvement upgrades, for an aggregate annual cost of $53,000
for the small business exemption alternative.\114\
---------------------------------------------------------------------------
\114\ 66 legal hours x $139.96 per hour + 332 management hours x
$96.40 per hour + 66 administrative hours x $49.36 per hour + 83
information technology hours x $95.58 per hour = $52,509.
---------------------------------------------------------------------------
For final Sec. 201.112, AMS expects that growers would take about
four hours to review these documents when they are disclosed as part of
a capital improvement request or requirement by the LPD. For the small
business exemption alternative, LPDs would be required to provide
disclosures to growers for any of the 18,806 contracts for which
additional capital investment requests are made.\115\ AMS expects that
LPDs will make additional capital investment requests for an average of
five percent of grower contracts annually. Given that growers require
an estimated 4 hours at $62.13 per hour, growers' aggregate annual
costs would be $234,000 for reviewing documents required by final Sec.
201.112 in the first year and in each successive year for the small
business exemption alternative.\116\
---------------------------------------------------------------------------
\115\ Live poultry dealers that exceed SBA classification
criteria for small businesses reported a combined 18,806 poultry
contracts in their Annual Reports to AMS.
\116\ 4 hours to review each disclosure x $62.13 per hour x
18,806 contracts x 5 percent of growers that require significant
housing upgrades = $233,683.
---------------------------------------------------------------------------
The ten-year aggregate total costs of final Sec. 201.112 under the
small business exemption alternative for LPDs are estimated to be
$525,000, and the ten-year aggregated total costs to poultry growers of
final Sec. 201.112 under the small business exemption alternative are
estimated to be $2,337,000. The combined first-year aggregate total
costs to LPDs and poultry growers of final
[[Page 5204]]
Sec. 201.112 under the small business exemption alternative are
estimated to be $286,000, and the ten-year aggregate total costs are
estimated to be $2,862,000.
Combined Costs of Final Sec. Sec. 201.106, 110, and 112--Small
Business Exemption Alternative
Aggregate combined costs to LPDs for final Sec. Sec. 201.106, 110,
and 112 for the small business exemption alternative are expected to be
$19,123,000 in the first year, and $4,302,000 in subsequent years. The
combined costs for poultry growers are expected to be $4,907,000 in the
first year, $234,000 in subsequent years.
The aggregate ten-year combined quantified costs to LPDs of final
Sec. Sec. 201.106, 110, and 112 for the small business exemption
alternative are estimated to be $53,445,000 and the present value of
the ten-year combined costs $49,382,000 discounted at a two percent
rate. The aggregate annualized costs of the PV of ten-year costs to
LPDs discounted at a two percent rate are expected to be $5,498,000.
The aggregate ten-year combined costs to poultry growers of final
Sec. Sec. 201.106, 110, and 112 for the small business exemption
alternative are estimated to be $7,011,000 and the present value of the
ten-year combined costs are estimated to be $6,681,000 discounted at a
two percent rate. The aggregate annualized costs of the PV of ten-year
costs to poultry growers discounted at a two percent rate are expected
to be $744,000.
The aggregate combined costs of final Sec. Sec. 201.106, 110, and
112 under the small business exemption alternative for LPDs and poultry
growers are estimated to be $24,030,000 in the first year and
$4,536,000 in subsequent years. The aggregate ten-year combined costs
to LPDs and poultry growers of final Sec. Sec. 201.106, 110, and 112
for the small business exemption alternative are estimated to be
$60,456,000 and the present value of the ten-year combined costs are
estimated to be $56,063,000 discounted at a two percent rate. The
aggregate annualized costs of the PV of ten-year costs to LPDs and
poultry growers discounted at a two percent rate are expected to be
$6,241,000. The aggregate cost estimates of final Sec. Sec. 201.106,
110, and 112 under the small business exemption alternative presented
above appear in the following table. The quantified costs to the
industry in the first year under the small business exemption
alternative are $24.030 million.
Table 2--Estimated Costs of Final Sec. Sec. 201.106, 110, and 112--Small Business Exemption Alternative
----------------------------------------------------------------------------------------------------------------
Expected cost *
-----------------------------------------------
SBE alternative Live poultry Poultry
dealers growers Industry total
----------------------------------------------------------------------------------------------------------------
Sec. 201.106:
First-Year.................................................. $15,801,000 $4,674,000 $20,474,000
Ten-Year Total.............................................. 24,593,000 4,674,000 29,267,000
PV of Ten-Year Discounted at 2%............................. 23,426,000 4,582,000 28,008,000
Ten-Year Annualized at 2%................................... 2,608,000 510,000 3,118,000
Sec. 201.110:
First-Year.................................................. 3,269,000 0 3,269,000
Ten-Year Total.............................................. 28,327,000 0 28,327,000
PV of Ten-Year Discounted at 2%............................. 25,485,000 0 25,485,000
Ten-Year Annualized at 2%................................... 2,837,000 0 2,837,000
Sec. 201.112:
First-Year.................................................. 53,000 234,000 286,000
Ten-Year Total.............................................. 525,000 2,337,000 2,862,000
PV of Ten-Year Discounted at 2%............................. 472,000 2,099,000 2,571,000
Ten-Year Annualized at 2%................................... 53,000 234,000 286,000
Sec. Sec. 201.106, 110, and 112:
First-Year.................................................. 19,123,000 4,907,000 24,030,000
Ten-Year Total.............................................. 53,445,000 7,011,000 60,456,000
PV of Ten-Year Discounted at 2%............................. 49,382,000 6,681,000 56,063,000
Ten-Year Annualized at 2%................................... 5,498,000 744,000 6,241,000
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.
Estimated Costs and Expected-Benefits of Final Sec. Sec. 201.106, 110,
and 112--Small Business Exemption Alternative
According to PSD records, only 6.0 percent of poultry growing
contracts are between small LPDs and poultry growers. Thus, 94 percent
of all poultry growers will receive the benefits of final Sec. Sec.
201.106, 110, and 112 under the small business exemption alternative.
As with the preferred option, net total costs and benefits to the
industry from Sec. Sec. 201.106, 110, and 112 under the small business
exemption alternative cannot be quantified. Thus, AMS cannot measure
any impact or shift in total industry supply or any corresponding
indirect effects on industry supply and demand, including price and
quantity effects.
The tables above indicate that the small business exemption
alternative would cost the industry less than the preferred option.
Although most growers contract with large poultry growers, AMS chose
not to accept the alternative because exempting small business from
complying with the regulations would also result in less benefits to
growers.
Estimated Costs and Expected Benefits of Proposed Rule Alternative
AMS estimated costs for a third alternative to the ``do nothing''
option and the last of four total alternatives presented. This
alternative considers adopting Sec. Sec. 201.106, 110, and 112 for all
small and large LPDs as originally proposed without including the
changes in the final rule. These changes have already been described in
extensively earlier in the document. The estimation of costs for the
proposed rule alternative will proceed by describing differences in
costs by major rule section and combined.
[[Page 5205]]
Costs of Sec. 201.106--Proposed Rule Alternative
Final Sec. 201.106(a) is unchanged from Sec. 201.106 as it was
proposed and as it is analyzed in this alternative. Final Sec.
201.106(b), ``Excessive variability,'' and (c), ``Transition,'' were
not included in proposed Sec. 201.106. Neither estimates of direct
time costs nor other potential indirect costs or associated benefits
for these provisions are included for the proposed rule alternative.
Estimated costs for Sec. 201.106 under the proposed rule alternative
are equal to one-time direct costs of final Sec. 201.106(a).
Costs of Sec. 201.110--Proposed Rule Alternative
Final Sec. 201.110 requires LPDs to develop, maintain, and comply
with a set of policies and procedures that are reasonably designed for
the design and operation of a poultry grower ranking system that is
consistent with the duty of fair comparison. As described in previous
discussion of changes from the proposed to final rule, final Sec.
201.110(a) is substantively unchanged from the proposed rule, text of
final Sec. 201.110(b)(1) has been simplified from the proposed rule to
improve clarity of documentation requirements, and proposed Sec.
201.110(b)(2), ``Compliance review,'' has been removed. Two other
provisions of proposed Sec. 201.110 relating to ``Communication and
cooperation'' and ``Record retention'' have received paragraph number
redesignations but are otherwise unchanged. Changes to Sec.
201.110(b)(1) did not affect the estimation of hours or of costs and
benefits to the rule. Estimated costs of Sec. 201.110 under the
proposed rule alternative are therefore equal to estimated direct costs
for the final Sec. 201.110 under the preferred alternative with costs
for proposed Sec. 201.110(b)(2) added.
Proposed Sec. 201.110(b)(2), would require LPDs to conduct a
compliance review of each complex no less than once every two years to
ensure compliance with policies and procedures established under
proposed Sec. 201.110(a) and (b)(1). LPDs would need to first design a
compliance review system to be used for conducting written review of
compliance by complex managers, production supervisors, and field
agents. Compliance reviews would then need to be conducted every two
years at each complex.
AMS estimates that the aggregate one-time costs of designing and
initiating the compliance review process would require 2,208 legal
hours, 14,720 management hours, 736 administrative hours, and 2,392
information technology hours costing $1,993,000 \117\ in the first year
for LPDs to initially set up their review and compliance policies and
procedures and initiate their ongoing compliance review processes.
---------------------------------------------------------------------------
\117\ 2,208 legal hours x $139.96 per hour + 14,720 management
hours x $96.40 per hour + 736 administrative hours x $49.36 per hour
+ 2,392 information technology hours x $95.58 per hour = $1,992,996.
---------------------------------------------------------------------------
The ongoing cost for LPDs to conduct compliance reviews for each
complex every two years has been converted to an annual cost by
dividing the total cost of conducting reviews on all complexes in half.
This could be consistent with, for example, a system where each LPD
reviews half of their complexes each year on a rolling basis or,
alternatively, where a sinking fund deposit is made each year and used
every other year. AMS estimates that total ongoing annual costs on the
part of LPDs will require 736 legal hours, 7,360 management hours, 368
administrative hours, and 920 information technology hours to conduct
and document written reviews of compliance of each complex no less than
once every two years, for an aggregate annual cost of $919,000.\118\
---------------------------------------------------------------------------
\118\ 736 legal hours x $139.96 per hour + 7,360 management
hours x $96.40 per hour + 368 administrative hours x $49.36 per hour
+ 920 information technology hours x $95.58 per hour = $918,613.
---------------------------------------------------------------------------
Costs of Sec. 201.112--Proposed Rule Alternative
Text of Sec. 201.112(a) and (b) was changed from the proposed to
final rule primarily for the purpose of clarification or to add
paragraph titles; these changes did not affect the estimation of hours
or of costs and benefits to the rule. The addition of final Sec.
201.112(c), ``Translation,'' from the proposed to final rule is also
not expected to change hours or costs because LPDs already have all
necessary information to make reasonable efforts to assist growers in
translating disclosure documents and have made it available to growers
who request the information. Accordingly, AMS did not add any time to
its cost estimates for LPDs to comply with this new requirement. AMS
cost estimates to LPDs and growers of Sec. 201.112 under the proposed
rule alternative are identical to those described under the preferred
alternative.
Combined Costs of Sec. Sec. 201.106, 110, and 112--Proposed Rule
Alternative
Aggregate combined costs to LPDs for Sec. Sec. 201.106, 110, and
112 for the proposed rule alternative are expected to be $14,906,000 in
the first year, and $4,086,000 in subsequent years. The combined costs
for poultry growers are expected to be $5,223,000 in the first year,
$249,000 in subsequent years.
The aggregate ten-year combined quantified costs to LPDs of
Sec. Sec. 201.106, 110, and 112 for the proposed rule alternative are
estimated to be $51,684,000 and the present value of the ten-year
combined costs is $47,314,000 discounted at a two percent rate. The
aggregate annualized costs of the PV of ten-year costs to LPDs
discounted at a two percent rate are expected to be $5,267,000.
The aggregate ten-year combined costs to poultry growers of
Sec. Sec. 201.106, 110, and 112 for the proposed rule alternative are
estimated to be $7,461,000 and the present value of the ten-year
combined costs are estimated to be $7,110,000 discounted at a two
percent rate. The aggregate annualized costs of the PV of ten-year
costs to poultry growers discounted at a two percent rate are expected
to be $792,000.
The aggregate combined costs of final Sec. Sec. 201.106, 110, and
112 under the proposed rule alternative for LPDs and poultry growers
are estimated to be $20,129,000 in the first year and $4,335,000 in
subsequent years. The aggregate ten-year combined costs to LPDs and
poultry growers of Sec. Sec. 201.106, 110, and 112 for the proposed
rule alternative are estimated to be $59,145,000 and the present value
of the ten-year combined costs are estimated to be $54,425,000
discounted at a two percent rate. The aggregate annualized costs of the
PV of ten-year costs to LPDs and poultry growers discounted at a two
percent rate are expected to be $6,059,000. The aggregate cost
estimates of final Sec. Sec. 201.106, 110, and 112 under the proposed
rule alternative presented above appear in the following table. The
quantified costs to the industry in the first year under the proposed
rule alternative are $20.13 million.
[[Page 5206]]
Table 3--Estimated Costs of Sec. Sec. 201.106, 110, and 112--Proposed Rule Alternative
----------------------------------------------------------------------------------------------------------------
Expected cost *
-----------------------------------------------
Preferred alternative Live poultry Poultry
dealers growers Industry total
----------------------------------------------------------------------------------------------------------------
Sec. 201.106:
First-Year.................................................. $9,106,000 $4,974,000 $14,080,000
Ten-Year Total.............................................. 9,106,000 4,974,000 14,080,000
PV of Ten-Year Discounted at 2%............................. 8,928,000 4,876,000 13,804,000
Ten-Year Annualized at 2%................................... 994,000 543,000 1,537,000
Sec. 201.110:
First-Year.................................................. 5,742,000 0 5,742,000
Ten-Year Total.............................................. 41,996,000 0 41,996,000
PV of Ten-Year Discounted at 2%............................. 37,864,000 0 37,864,000
Ten-Year Annualized at 2%................................... 4,215,000 0 4,215,000
Sec. 201.112:
First-Year.................................................. 58,000 249,000 307,000
Ten-Year Total.............................................. 582,000 2,487,000 3,069,000
PV of Ten-Year Discounted at 2%............................. 523,000 2,234,000 2,757,000
Ten-Year Annualized at 2%................................... 58,000 249,000 307,000
Sec. Sec. 201.106, 110, and 112:
First-Year.................................................. 14,906,000 5,223,000 20,129,000
Ten-Year Total.............................................. 51,684,000 7,461,000 59,145,000
PV of Ten-Year Discounted at 2%............................. 47,314,000 7,110,000 54,425,000
Ten-Year Annualized at 2%................................... 5,267,000 792,000 6,059,000
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.
Estimated Costs and Expected Benefits of Sec. Sec. 201.106, 110, and
112--Proposed Rule Alternative
The expected benefits of proposed Sec. Sec. 201.106, 110, and 112
as analyzed in the proposed rule alternative have been described in the
discussion of benefits for the preferred option, final Sec. Sec.
201.106, 110, and 112, with the exception of Sec. 201.110(b)(2),
``Compliance review,'' which was removed from the proposed to final
rule. Proposed Sec. 201.110(b)(2) would require a written review of
each broiler complex at least every other year to ensure compliance
with the policies and procedures developed under this section. While
the proposed rule would not require that LPD documentation be
distributed to growers, it would be subject to USDA review to ensure
ongoing maintenance and compliance. This compliance review requirement
would not provide benefits separate from those generated by
establishing the duty in Sec. 201.110(a); however, documentation of
regular review of LPD procedures could assist in ongoing enforcement of
the proposed rule, thereby increasing the likelihood of compliance so
that benefits of the proposed rule are realized by growers.
All potential non-quantifiable benefits and indirect costs of final
Sec. 201.106(b) and (c) are excluded from the proposed rule
alternative. Net total costs and benefits to the industry from
Sec. Sec. 201.106, 110, and 112 in the proposed rule alternative
cannot be quantified in relation to the total value of industry
production. Thus, AMS cannot measure any impact or shift in total
industry supply or any corresponding indirect effects on industry
supply and demand, including price and quantity effects.
Comments from the proposed rule have been discussed and changes to
the final rule have been explained previously in this regulatory
analysis. Expected benefits and costs of adopting the proposed rule are
presented in this section as a third regulatory alternative to final
Sec. Sec. 201.106, 110, and 112. Estimated direct costs for the final
rule preferred alternative are decreased by removal of proposed Sec.
201.110(b)(2), ``Compliance review'' and increased by the addition of
Sec. 201.106(b) and (c). As a net result of all changes, estimated
direct costs are lower for the proposed rule alternative in comparison
to the final Sec. Sec. 201.106, 110, and 112. The proposed rule
alternative also excludes expected benefits and indirect costs of Sec.
201.106(b) and (c). As discussed previously, commenters on the proposed
rule expressed strong support for including these provisions. Under the
proposed rule alternative, growers would be denied protection against
excessive variation in compensation by establishing 25 percent as a
presumptively unfair percentage of performance-based pay. Without
protection during the transition period for implementation of these
rule provisions, growers would be vulnerable to reductions in
compensation by LPDs.
After considering all four regulatory alternatives, AMS determined
that the preferred alternative is the best alternative.
C. Regulatory Flexibility Act
As part of the regulatory process, a Regulatory Flexibility
Analysis (RFA) is conducted in order to evaluate the effects of this
final rule on small businesses.
AMS is adding final Sec. Sec. 201.106, 110, and 112 to the
regulations under the Packers and Stockyards Act. The regulations will
establish requirements for LPDs that produce broilers with grower
ranking contracts. LPDs that only produce turkeys, ducks, geese, or
other fowl will not be affected. Final Sec. 201.106 will require LPDs
to develop and implement new broiler grower contracts and grower
payment systems. Final Sec. 201.110 will impose a duty on LPDs that
produce broilers to establish and maintain compliance with written
processes for the design and operation of poultry growing ranking
systems consistent with a duty of fair comparison. Final Sec. 201.112
would require LPDs to produce and distribute disclosures when they
request growers to make additional capital investments.
Summary of the Final Rule
Final Sec. 201.106 will prevent LPDs reducing compensation rates
based on a grower's grouping, ranking, or comparison to others. All
payment adjustments related to grower performance will need to be
positive adjustments. LPDs are prevented from taking deductions based
on relative performance rankings.
[[Page 5207]]
Final Sec. 201.106 will also establish a presumptive unfairness
limitation on the share of grower payments that an LPD may determine by
a grower's grouping, ranking, or comparison to others. The Secretary
will presume that an LPD is in violation of the Act if a payment
associated with a grower's grouping, ranking, or comparison to others
is more than 25 percent of the total payments to growers in a calendar
year.
Final Sec. 201.106 also creates a transition period lasting three
years after the regulation becomes effective. During the transition
period, if an LPD reduces the price per pound, the LPD will be required
to forward to the AMS Administrator a copy of the prior and the
modified contract and any LPD Disclosure Document.
Final Sec. 201.110 will require LPDs to provide for fair
comparison among growers when basing compensation on a upon a grouping
or ranking of growers delivering during a specified period. Final Sec.
201.110 also lists factors that the Secretary will consider in
determining whether the system was designed to deliver a fair
comparison, which include: whether growers will be compared to growers
supplied with inputs or assigned production practices that result in
material differences in performance metrics used in payment
calculations, whether growers will be compared over appropriate time
periods, whether any non-comparison payment methods applied are
appropriate, whether the LPD has made reasonable efforts to timely
resolve concerns a grower raises regarding the LPD's design and
operation of its poultry grower ranking system, and any other factor
relevant to a fair comparison.
Final Sec. 201.110 will further require that when an LPD uses a
poultry grower ranking system and cannot conduct a fair comparison for
one or more growers, the LPD must compensate those growers through an
appropriate non-comparison method specified in the contract that
reflects reasonable compensation to the grower for its services.
Final Sec. 201.110 will also require LPDs to establish and
maintain written documentation of poultry grower ranking system
policies and procedures for the design and operation of a poultry
grower ranking system that is consistent with the duty of fair
comparison. The written documentation must include policies and
procedures regarding the manner in which LPDs will work to ensure a
fair comparison among contract growers taking into account the
distribution of inputs and assignment of production variables that are
controlled by the LPD, any flexibility the LPD has in performing these
comparisons, and how the LPD resolves concerns regarding the design and
operation of the poultry grower ranking system by the LPD.
Final Sec. 201.112 will require LPDs to provide a Capital
Improvement Disclosure Document any time the LPD requests or requires
existing broiler chicken growers to make an additional capital
investment that is $12,500 or more per structure excluding maintenance
or repair. The Capital Improvement Disclosure Document must include
information about the goal or purpose of the investment, all schedules
and deadlines for the investment, a description of changes to housing
specifications, and analysis of projected returns.
Comments on the Proposed Rule and Associated Changes to the Final Rule
AMS did not receive comments from small LPDs. AMS received comments
from trade associations that likely represent small LPDs, but none of
their comments specifically addressed issues concerning small LPDs.
After consideration of all the public comments, AMS chose to adopt the
proposed rule as a final rule with several modifications. Large LPDs
and trade associations commented that the regulation would be
particularly challenging if the period of time allowed for regulated
entities to comply with the provisions is too short.
To allow sufficient time for regulated entities to comply with the
final rule and avoid excess implementation costs, AMS is setting the
effective date for this rule at July 1, 2026, which is approximately 18
months following publication in the Federal Register. This extended
time frame will not impact the amount or timing for estimated costs of
the final rule because regulated entities are expected to incur costs
during the year preceding the effective date.
Industry trade organizations and large LPDs commented that the full
cost of implementing the proposed rule would be far greater than
estimated by AMS. The commenters asserted that AMS greatly
underestimated the costs that will be required for employing teams with
highly specialized legal and technical expertise to implement the
proposed rule by modifying or replacing grower contracts and
communicating changes to growers. Commenters suggested that AMS did not
adequately consider the total number of hours needed, but none provided
quantified estimates. Large LPDs also commented that hourly rates paid
to specialized industry professionals such as attorneys should be much
higher. Commenters also suggested that implementation of the rule would
require LPDs to hire and train additional staff and pull resources away
from other important activities.
For the time that small LPDs would require to comply with the rule,
AMS consulted auditors and supervisors as subject matter experts who
are familiar with LPDs and broiler complex operations from many years
of experience employed with AMS in auditing LPDs for compliance with
the Act. Small LPDs may need to hire new staff to implement the changes
required by final Sec. Sec. 201.106, 110, and 112, particularly in the
first year. Hourly rates used in cost analysis for the proposed rule
were based on averages within the agricultural sector as published and
annually updated by the U.S. Bureau of Labor Statistics.\119\ AMS
expects that average hourly rates provide an appropriate benchmark for
estimating industry average costs. While some LPDs commented that AMS's
estimates were too low, none of them recommended a different method of
estimating costs.
---------------------------------------------------------------------------
\119\ See U.S. Bureau of Labor Statistics, May 2023 National
Occupational Employment and Wage Estimates, May 2023. https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------
In preparation for the final rule AMS reviewed direct costs with
the subject matter experts. After doing so, AMS added modest amount of
time to account for the cost of IT work in preparing disclosures in
Sec. 201.112.
AMS received comments from growers, grower groups, government
agencies, and advocates in support of additional limitations on grower
risk from excessive variability in compensation. Based on these
comments, AMS has added provision Sec. 201.106(b), which establishes a
presumption that a regulated entity is in violation of the Act when
aggregate gross annual payments based upon a grouping, ranking, or
comparison of growers (performance pay) exceed of 25 percent of total
gross payments (including performance and all other types of grower
pay).
AMS added costs for LPDs to implement and monitor this new
provision, which are discussed and quantified as direct administrative
costs. Other expected additional benefits and indirect costs resulting
from this new provision cannot be quantified and are discussed
separately.
AMS also solicited comment in the proposed rule on whether there
was a need to protect growers against the risk
[[Page 5208]]
that LPDs might unfairly reduce broiler grower total compensation
during a transition period after implementation of the final rule.
Based on comments, AMS added Sec. 201.106(c), which will require LPDs
to submit copies of the prior and modified contracts and disclosures to
AMS if average gross grower payments at a complex show year-over-year
decline following a contract modification during the three calendar
years commencing with and including the effective date of the rule. AMS
will review the information provided by LPDs to identify any
potentially unfair practices related to broiler grower compensation.
AMS expects that requirements in final Sec. 201.106(c) will
increase direct administrative costs for LPDs relative to the proposed
rule. Final Sec. 201.106(c) may increase indirect costs as well, but
AMS does not have sufficient data to quantify the potential indirect
costs or benefits associated with final Sec. 201.106(c).
AMS received comments suggesting that some of the detailed
documentation requirements under proposed Sec. 201.110(b) were similar
to existing documentation requirements and might create unnecessarily
burdensome and complex paperwork. In response to these comments, AMS
made several changes to Sec. 201.110(b) in the final rule that
included consolidating and streamlining the documentation requirements
and removing some detailed requirements that were included in the
proposed rule. AMS expects these changes to modestly reduce the total
recordkeeping requirements or time cost of the information collection
for LPDs, but AMS is unable to estimate these effects with certainty.
To limit the potential for underestimating costs, AMS did not reduce
hours and accordingly these changes did not affect the estimation of
costs or benefits in the final rule relative to the proposed rule.
The proposed rule included Sec. 201.110(b)(2), ``Compliance
review,'' which required LPDs to conduct a required bi-annual review
process. AMS removed this requirement in response to comments that
self-audits would be burdensome for LPDs, and that elimination of this
requirement would not substantially diminish compliance with Sec.
201.110. Compliance will be enforced through regular AMS review of the
policies and procedures poultry dealers are required to establish and
maintain under Sec. 201.110(b). Removing the compliance reviews
reduced costs in the final rule relative to the proposed rule.
Based on comments received, AMS added a provision at Sec.
201.112(c) to require that the LPD make reasonable efforts to ensure
that growers are aware of their right to request translation assistance
and to assist the grower in translating the Capital Improvement
Disclosure Document. Reasonable efforts include, but are not limited
to, providing current contact information for professional translation
service providers, trade associations with translator resources,
relevant community groups, or any other person or organization that
provides translation services in the poultry grower's geographic area.
Reasonable efforts, depending on the facts and circumstances (such as
convenience, expense, and timeliness of the translation), may also
include allowing the grower access to a computer-generated translation
of the Disclosure Document and additional time to review any translated
Disclosure Document.
A similar requirement was established for LPDs in Sec. 201.102 of
the ``Transparency in Poultry Grower Contracting and Tournaments''
final rule.\120\ As LPDs already have all necessary information to make
reasonable efforts to assist growers in translating disclosure
documents and have made it available to growers who request the
information. Similarly, AMS did not increase grower review time for the
addition of Sec. 201.112 as growers who require translation assistance
already should be connected with the resources from Sec. 201.102.
---------------------------------------------------------------------------
\120\ 88 FR 83210, 83301 (Nov. 28, 2023).
---------------------------------------------------------------------------
Small Businesses Affected
The Small Business Administration (SBA) defines small businesses by
their North American Industry Classification System Codes (NAICS).\121\
SBA considers broiler producers small if sales are less than $3.5
million per year. LPDs, classified under NAICS 311615, are considered
small businesses if they have fewer than 1,250 employees.
---------------------------------------------------------------------------
\121\ 13 CFR 121.201.
---------------------------------------------------------------------------
AMS maintains data on LPDs from the Annual Reports these firms file
with PSD.\122\ Currently, 42 LPDs would be subject to the regulation.
Of these, 21 LPDs would be small businesses according to the SBA
standard. In their fiscal year 2023, LPDs reported that they had 18,806
production contracts with broiler growers. Small LPDs accounted for
1,208 contracts (6.0 percent).
---------------------------------------------------------------------------
\122\ All LPDs are required to annually file PSD form 3002
``Annual Report of Live Poultry Dealers,'' OMB control number 0581-
0308. The Annual Report form is available to the public at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------
Annual Reports from LPDs indicate they had 20,014 contracts, but a
poultry grower can have more than one contract. The 2022 Census of
Agriculture indicated that there were 14,144 contract broiler growers
in the United States.\123\ AMS does not regulate poultry growers and
has no record of the number of poultry growers that qualify as small
businesses but expects that nearly all of them are small businesses.
---------------------------------------------------------------------------
\123\ USDA, NASS. 2023 Census of Agriculture: United States
Summary and State Data. Volume 1, Part 51. Issued February 2024
Table 42. st99_1_042_044.pdf (usda.gov).
---------------------------------------------------------------------------
The typical size of broiler grow-out operations has trended larger
from the early 2000s--when a typical broiler farm consisted of a
80,000-100,000 square foot operation--to a typical new farm today which
``may have eight or more barns of over 30,000 square feet each on one
site.'' \124\ Projected gross revenue for a newer farm receiving
relatively high performance-based pay rates is $224,000 for two 36,000
square foot barns.\125\ Extrapolating these projections on a per house
basis, gross revenue for an eight barn 288,000 square foot operation
would total just under $900,000 and an operation with 30 barns could
still remain within the $3.5 million threshold for small business
classification. However, this same study notes that, ``still, 80,000 to
120,000 square feet of housing for most family farms is all a single
farmer can successfully operate while limiting hired labor.''
---------------------------------------------------------------------------
\124\ Brothers, D. Goeringer, P. Thompson, J. ``U.S. Broiler
Growers Face Increasing Challenges on the Family Farm,'' Choices
Magazine, December 2023. Available online at <https://www.choicesmagazine.org/choices-magazine/submitted-articles/us-broiler-growers-face-increasing-challenges-on-the-family-farm> last
accessed 11/6/2024.
\125\ Alabama A&M & Auburn University Extension ANR-2932,
February 2024. Available online at <https://www.aces.edu/wp-content/uploads/2022/10/ANR-2932_FarmTypesandEstimatedBusinessReturns_021924L-G.pdf> last
accessed 11/6/2024.
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Direct Costs of Final Sec. Sec. 201.106, 110, and 112
Direct costs of final Sec. Sec. 201.106, 110, and 112 to LPDs
would primarily consist of the time required to modify existing
contracts, develop and comply with new policies, and collect and
distribute it among the growers. Final Sec. Sec. 201.106, 110, and 112
would also cost poultry growers the value of the time they put into
reviewing and acknowledging receipt of new contracts and disclosures.
Expected direct costs are estimated as the total value of the time
required by LPDs to modify existing contracts, develop and comply with
new policies,
[[Page 5209]]
and collect and distribute required disclosures that would be required
by final Sec. Sec. 201.106, 110, and 112 as well as the time to create
and maintain any necessary additional records. Estimates of the amount
of time required to create and distribute the disclosure documents were
provided by AMS subject matter experts. These experts were auditors and
supervisors with many years of experience in auditing LPDs for
compliance with the Packers and Stockyards Act. Estimates for the value
of the time are U.S. Bureau of Labor Statistics Occupational Employment
and Wage Statistics estimate released May 2023.\126\ AMS marked up the
wages 41.79 percent to account for benefits.
---------------------------------------------------------------------------
\126\ See U.S. Bureau of Labor Statistics, May 2023 National
Occupational Employment and Wage Estimates, May 2023 https://www.bls.gov/oes/special.requests/oesm23all.zip.
---------------------------------------------------------------------------
AMS estimated one-time first-year investment to LPDs of updating
grower contracts and developing new grower payment systems, including
modifying information systems to include new calculations as well as
filing, and reporting to comply with Sec. 201.106 would require 2,448
legal hours at $139.96 per hour costing $342,000, 5,670 hours of
management time at $96.40 per hour costing $547,000, 1,440 hours of
administrative time at $49.36 per hour costing $71,000, and 2,160 hours
of information technology staff time at $95.58 per hour costing
$206,000. Aggregate total first-year setup costs are expected to be
$1,167,000 \127\ for final Sec. 201.106.\128\
---------------------------------------------------------------------------
\127\ 2,448 legal hours x $139.96 per hour + 5,670 management
hours x $96.40 per hour + 1,140 administrative hours x $49.36 per
hour + 2,160 information technology hours x $95.58 per hour =
$1,166,741.
\128\ Please note throughout the document that components may
not sum exactly to aggregate amounts due to rounding.
---------------------------------------------------------------------------
AMS expects that ongoing aggregate costs of implementation,
maintenance, monitoring, and compliance with final Sec. 201.106 would
annually require an additional 144 legal hours at $139.96 per hour
costing $20,000, 540 hours of management time at $96.40 per hour
costing $52,000, 144 hours of administrative time at $49.36 per hour
costing $7,000, and 288 hours of information technology staff time at
$95.58 per hour costing $28,000. Total aggregate ongoing costs to small
LPDs for final Sec. 201.110 are expected to be $107,000 annually.\129\
---------------------------------------------------------------------------
\129\ 144 legal hours x $139.96 per hour + 540 management hours
x $96.40 per hour + 144 administrative hours x $49.36 per hour + 288
information technology hours x $95.58 per hour = $106,845.
---------------------------------------------------------------------------
AMS estimated the total costs of developing new policies and
procedures, communications plans, and compliance review systems to
comply with final Sec. 201.110 would require a one-time first-year
aggregate investment of 480 legal hours at $139.96 per hour costing
$67,000, 3,894 hours of management time at $96.40 per hour costing
$375,000, 228 hours of administrative time at $49.36 per hour costing
$11,000, and 270 hours of information technology staff time at $95.58
per hour costing $26,000. Total aggregate first-year setup costs are
expected to be $480,000 \130\ for final Sec. 201.110.
---------------------------------------------------------------------------
\130\ 480 legal hours x $139.96 per hour + 3,894 management
hours x $96.40 per hour + 228 administrative hours x $49.36 per hour
+ 270 information technology hours x $95.58 per hour = $479,623.
---------------------------------------------------------------------------
AMS expects that ongoing aggregate costs of implementation,
maintenance, monitoring, and compliance with final Sec. 201.110 would
annually require an additional 240 legal hours at $139.96 per hour
costing $214,000, 2,856 hours of management time at $96.40 per hour
costing $95,000, 114 hours of administrative time at $49.36 per hour
costing $6,000, and 114 hours of information technology staff time at
$95.58 per hour costing $11,000. Total aggregate ongoing costs to small
LPDs for final Sec. 201.110 are expected to be $325,000 annually.\131\
---------------------------------------------------------------------------
\131\ 240 legal hours x $139.96 per hour + 2,856 management
hours x $96.40 per hour + 114 administrative hours x $49.36 per hour
+ 114 information technology hours x $95.58 per hour = $325,432.
---------------------------------------------------------------------------
Proposed Sec. 201.112 would require LPDs to provide a Capital
Improvement Disclosure Document any time the LPD requests existing
broiler chicken growers to make an additional capital investment.\132\
AMS estimated ongoing annual costs of final Sec. 201.112 to small LPDs
would require on average an additional 7 legal hours at $139.96 per
hour costing $1,000, 36 hours of management time at $96.40 per hour
costing $3,000, 7 hours of administrative time at $49.36 per hour
costing $400, and 9 hours of information technology staff time at
$95.58 per hour costing $900. Total aggregate ongoing costs to small
LPDs for final Sec. 201.110 are expected to be $6,000 annually.\133\
---------------------------------------------------------------------------
\132\ Based on information provided by subject matter experts,
AMS estimates that capital upgrades would be required at 5% of
complexes each year, triggering creation of a new disclosure
document for approximately 5% of growers annually.
\133\ 7 legal hours x $139.96 per hour + 36 management hours x
$96.40 per hour + 7 administrative hours x $49.36 per hour + 9
information technology hours x $95.58 per hour = $5,694.
---------------------------------------------------------------------------
Expected costs of final Sec. Sec. 201.106, 110, and 112 are
associated with developing, maintaining, updating, and complying with
policies and procedures that will be implemented at poultry growing
complexes and communicating changes, and producing and distributing
disclosure documents among contract growers. AMS expects that firms
with fewer contract types and those that contract with few growers will
have lower costs. Larger LPDs will tend to have larger numbers and
types of contracts and will likely have more costs. Final Sec. Sec.
201.106 and 201.110 only concern poultry grower ranking systems.
Smaller LPDs that do not have grower ranking or tournament contracts
will not have any of the costs associated with final Sec. Sec. 201.106
and 201.110. Some LPDs have few contracts with poultry growers and
raise poultry in their own facilities. Those dealers will have
relatively lower costs.
AMS does not regulate poultry growers, and, with the exception of
reviewing and signing contracts that have been updated by LPDs to meet
requirements of Sec. 201.106 and acknowledging receipt of Capital
Improvement Disclosure Documents at the time of capital investment
requests, the final rule imposes no requirements on poultry growers. To
benefit from the disclosures and to understand the updated contracts,
growers would need to review the new contracts and disclosure
information provided. Growers that do not expect a benefit from
reviewing the disclosure information likely would not review it.
AMS estimates aggregate growers' costs for reviewing updated
contracts and disclosures associated with final Sec. Sec. 201.106 and
201.112 combined to be $315,000 in the initial year. After an updated
contract has been reviewed and signed in the first year, AMS expects
the annual aggregate cost for reviewing disclosures by growers making
additional capital investments would be $15,000 each year. This amounts
to $400 per grower in the first year. The table below summarizes costs
of final Sec. Sec. 201.106, 110, and 112 to small LPDs and small
poultry growers.
Indirect Costs Associated With Final Sec. Sec. 201.106, 110, and 112
Final Sec. 201.106 will require all LPDs involved in broiler
production with tournament or grower ranking contracts to redesign the
way they pay broiler growers. It is likely that all LPDs will be
required to change their contracts to make all performance base
adjustments positive adjustments to the base prices. AMS does not have
sufficient data to determine how many LPDs will need to change
contracts to comply with the provision capping performance payments at
25 percent of total payments at a complex. AMS is aware
[[Page 5210]]
that some firms would currently be in compliance with a 25 percent cap,
and at least some firms will not.
Any firms that modify existing grower compensation structures at a
complex in response to this rule could experience increased production
costs if reductions in performance-based payments relative to total
payments adversely affect grower performance incentives and cause
growers to produce broilers less efficiently. In general, the
``tournament'' system of broiler grower compensation bases payments to
individual growers on their performance relative to other growers.
Performance payments provide an incentive for growers to optimize
factors under their control, such as effort and management, and to some
extent investment (subject to the concerns highlighted by this rule),
to improve their own relative performance efficiency and increase
income. Tournament systems have been described in economic literature
as ``particularly economical means to provide incentive.'' The strength
of individual performance incentives is directly related to the size of
expected grower performance payments, which will be limited by the
total amount of performance-based pay distributed among all growers.
Any firms that modify existing grower compensation structures at a
complex in response to this rule by decreasing the relative size of
performance payments available to growers at a complex might therefore
weaken performance incentives and could result in reduced grower
efficiency in broiler production.
Given the range of possible outcomes, AMS is unable to predict
effects with any degree of certainty. For example, if production
efficiency is reduced, economic principles suggest that cost of
production would increase at the impacted broiler complex, causing an
inward shift of a firm's marginal cost curve and an associated decrease
in broiler production at the impacted complex. A decrease in production
for a broiler complex would also be likely to reduce demand for broiler
growing services in the area and could result in LPDs lowering overall
rates of grower compensation and possibly terminating some marginal
growers.
AMS is not able quantify indirect costs related to capping
performance payments. However, if the cap has any significant effect on
grower productivity, it is likely that indirect costs of capping
performance payments will be considerably larger than the direct costs
that AMS has been able to estimate.
Table 4--Estimated Direct Costs to Small Businesses of Final Sec. Sec. 201.106, 110, and 112
----------------------------------------------------------------------------------------------------------------
Regulated live
Type of cost poultry Unregulated Total *
dealers growers
----------------------------------------------------------------------------------------------------------------
Final Sec. 201.106:
First-year Cost............................................. $1,167,000 $300,000 $1,467,000
First-year Cost per Firm.................................... 56,000 351 NA
PV of Ten-year Cost Discounted at 2%........................ 1,722,000 294,000 2,017,000
Ten-year Cost Annualized at 2%.............................. 192,000 33,000 225,000
Average Ten-Year Cost per Firm Annualized at 2%............. 9,000 38 N/A
Final Sec. 201.110:
First-year Cost............................................. 480,000 0 480,000
First-year Cost per Firm.................................... 23,000 0 NA
PV of Ten-year Cost Discounted at 2%........................ 3,074,000 0 3,074,000
Ten-year Cost Annualized at 2%.............................. 342,000 0 342,000
Average Ten-Year Cost per Firm Annualized at 2%............. 16,000 0 NA
Final Sec. 201.112:
First-year Cost............................................. 6,000 15,000 21,000
First-year Cost per Firm.................................... 271 18 NA
PV of Ten-year Cost Discounted at 2%........................ 51,000 135,000 186,000
Ten-year Cost Annualized at 2%.............................. 6,000 15,000 21,000
Average Ten-Year Cost per Firm Annualized at 2%............. 286 18 NA
Proposed Sec. Sec. 201.106, 110, and 112:
First-year Cost............................................. 1,652,000 315,000 1,967,000
First-year Cost per Firm.................................... 79,000 369 NA
PV of Ten-year Cost Discounted at 2%........................ 4,848,000 429,000 5,277,000
Ten-year Cost Annualized at 2%.............................. 540,000 48,000 587,000
Average Ten-Year Cost per Firm Annualized at 2%............. 26,000 56 NA
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.
** Totals do not include indirect costs to associated with possible changes in supply or demand. AMS was not
able to estimate indirect costs, but it is possible that they are larger than the direct costs in the table.
LPDs report net sales in Annual Reports to AMS. Table 5 below
groups small LPDs' net sales into quartiles, reports the average net
sales in each quartile, and compares average net sales to average
expected first-year direct costs per firm for each of final Sec. Sec.
201.106, 110, and 112 and total first-year direct costs.\134\ Estimated
first-year direct costs are higher than 10-year annualized costs, and
for the threshold analysis, first-year costs will be higher than
annualized costs as a percentage of net sales. Correspondingly, the
ratio of ten-year annualized direct costs to net sales is lower than
their corresponding first-year cost ratios listed in Table 5. If
estimated costs meet the threshold in the first year, they will in the
following years as well. AMS is able to perform a threshold analysis on
based on direct costs. However, AMS was unable to estimate indirect
costs associated with the final rule include indirect costs.
---------------------------------------------------------------------------
\134\ AMS expects that recordkeeping costs will be correlated
with the size of the firms. AMS ranked live poultry dealers by size
and grouped them into quartiles.
---------------------------------------------------------------------------
Estimated first-year direct costs per firm are less than 1 percent
of average net sales in the three largest quartiles. Total first-year
direct costs as a percent of net sales are estimated to be about 0.8
percent for the smallest quartile. However, average first-year cost per
entity in Table 5 is the average cost of
[[Page 5211]]
all of the small businesses. Costs for the LPDs in smallest quartile
will likely be less than the average for small businesses.
LPDs do not report to AMS whether any of their contracts are
tournament-style contracts but evaluating the number contracts that
LPDs listed in their Annual Reports to AMS, few of the LPDs in smallest
quartile contracted with a sufficient number of growers to implement
tournament contracts. It is unlikely that any of the LPDs in the
smallest quartiles had any tournament contracts. It is unlikely that
several of the smaller LPDs in the second quartile had any tournament
contracts either.
Since final Sec. Sec. 201.106 and 201.110 only apply to tournament
contracts, none of the LPDs in the smallest quartile are likely to
incur any costs from final Sec. Sec. 201.106 and 201.110. Their costs
are likely only costs associated with final Sec. 201.112, which, as
percentage of net sales would be 0.003 percent. Because the smallest
LPDs have fewer contracts than the other small LPDs, their costs
associated with final Sec. 201.112 are also likely less than average.
Costs in the threshold analysis do not include indirect costs,
which AMS was not able to quantify. The size of the indirect costs is
not known, and AMS cannot state with any confidence that the total
costs associated with final Sec. Sec. 201.106, 110, and 112 will be
insignificant for any LPD.
Table 5--Comparison of Small Live Poultry Dealers' Net Sales to Expected Annualized Direct Costs of Final Sec. Sec. 201.106, 110, and 112 *
--------------------------------------------------------------------------------------------------------------------------------------------------------
First-year costs First-year costs First-year costs
related to Sec. related to Sec. related to Sec. Total first-year
Quartile (%) Average net sales 201.106 as a 201.110 as a 201.112 as a costs as a
percent of net percent of net percent of net percent of net
sales (%) sales (%) sales (%) sales (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 25%................................................. $10,017,311 0.559 0.230 0.003 0.789
25 to 50%................................................ 34,567,539 0.162 0.067 0.001 0.229
50 to 75%................................................ 92,380,634 0.061 0.025 0.000 0.086
75 to 100%............................................... 226,958,521 0.025 0.010 0.000 0.035
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numbers in the table may not sum to one due to rounding.
** Costs do not include indirect costs to associated with possible changes in supply or demand. AMS was not able to estimate indirect costs, but it is
possible that they are larger than the direct costs in the table.
Direct Cost Associated With an Alternative Sec. Sec. 201.106, 110, and
112
AMS also estimated costs of the original proposed rule as an
alternative. Section 201.106(b) and (c) in the final rule were not
include in the proposed rule. AMS estimated that alternative Sec.
201.106 would require a one-time first-year investment of 1,728 legal
hours at $139.96 per hour costing $242,000, 2,970 hours of management
time at $96.40 per hour costing $286,000, 720 hours of administrative
time at $49.36 per hour costing $36,000, and 720 hours of information
technology staff time at $95.58 per hour costing $69,000. Aggregate
total first-year setup costs are expected to be $633,000. AMS does not
expect additional ongoing costs of implementing final Sec. 201.106
under the proposed rule alternative.
Under the proposed rule alternative, Sec. 201.110(b) includes a
section dealing with compliance reviews. AMS estimated that alternative
Sec. 201.110 would require a one-time first-year aggregate investment
of 696 legal hours at $139.96 per hour costing $97,000, 5,334 hours of
management time at $96.40 per hour costing $514,000, 300 hours of
administrative time at $49.36 per hour costing $15,000, and 504 hours
of information technology staff time at $95.58 per hour costing
$48,000. Total aggregate first-year setup costs for small LPDs under
the alternative are expected to be $675,000.
AMS expects alternative Sec. 201.110 would annually require an
additional 312 legal hours at $139.96 per hour costing $44,000, 3,576
hours of management time at $96.40 per hour costing $345,000, 150 hours
of administrative time at $49.36 per hour costing $7,000, and 204 hours
of information technology staff time at $95.58 per hour costing
$19,000. Total aggregate ongoing costs to small LPDs for final Sec.
201.110 are expected to be $415,000 annually.
All sections of Sec. 201.112 were included under the proposed rule
alternative. AMS estimated that first-year and ongoing annual costs of
final Sec. 201.112 to small LPDs would require on average an
additional 7 legal hours at $139.96 per hour costing $1,000, 36 hours
of management time at $96.40 per hour costing $3,000, 7 hours of
administrative time at $49.36 per hour costing $400, and 9 hours of
information technology staff time at $95.58 per hour costing $900.
Total aggregate ongoing costs to small LPDs for final Sec. 201.110 are
expected to be $6,000 annually.
The alternative would have a relatively small effect on costs to
poultry growers on a per grower basis, and growers will only review the
disclosures if they perceive that they are beneficial. AMS estimates
growers' aggregate costs for reviewing updated contracts and
disclosures associated with final Sec. Sec. 201.106 and 201.112
combined to be $315,000 in the initial year. AMS expects the annual
aggregate cost to growers making additional capital investments to be
$15,000 each year. Table 6 below summarizes costs of alternative
Sec. Sec. 201.106, 110, and 112 to small LPDs and small poultry
growers.
Table 6--Estimated Costs to Small Businesses of Alternative Sec. Sec. 201.106, 110, and 112
----------------------------------------------------------------------------------------------------------------
Regulated live
Type of cost poultry Unregulated Total *
dealers growers
----------------------------------------------------------------------------------------------------------------
Final Sec. 201.106:
First-year Cost............................................. $633,000 $300,000 $933,000
First-year Cost per Firm.................................... 30,000 351 NA
PV of Ten-year Cost Discounted at 2%........................ 620,000 294,000 914,000
Ten-year Cost Annualized at 2%.............................. 69,000 33,000 102,000
Average Ten-Year Cost per Firm Annualized at 2%............. 3,000 38 N/A
[[Page 5212]]
Final Sec. 201.110:
First-year Cost............................................. 675,000 0 675,000
First-year Cost per Firm.................................... 32,000 0 NA
PV of Ten-year Cost Discounted at 2%........................ 3,266,000 0 3,266,000
Ten-year Cost Annualized at 2%.............................. 364,000 0 364,000
Average Ten-Year Cost per Firm Annualized at 2%............. 17,000 0 NA
Final Sec. 201.112:
First-year Cost............................................. 6,000 15,000 21,000
First-year Cost per Firm.................................... 271 18 NA
PV of Ten-year Cost Discounted at 2%........................ 51,000 135,000 186,000
Ten-year Cost Annualized at 2%.............................. 6,000 15,000 21,000
Average Ten-Year Cost per Firm Annualized at 2%............. 286 18 NA
Final Sec. Sec. 201.106, 110, and 112:
First-year Cost............................................. 1,313,000 315,000 1,628,000
First-year Cost per Firm.................................... 63,000 369 NA
PV of Ten-year Cost Discounted at 2%........................ 3,937,000 429,000 4,366,000
Ten-year Cost Annualized at 2%.............................. 438,000 48,000 486,000
Average Ten-Year Cost per Firm Annualized at 2%............. 21,000 56 NA
----------------------------------------------------------------------------------------------------------------
* Rows may not sum to Total Costs due to rounding.
Net sales for small LPDs that would be required to make disclosure
under alternative Sec. Sec. 201.106, 110, and 112 averaged $91 million
for their fiscal year 2023. Expected first-year cost per LPD would be
well below 0.1 percent.\135\
---------------------------------------------------------------------------
\135\ The first-year cost per small live poultry dealer of
$63,000 divided by the average net sales for all small live poultry
dealers of $91 million is equal to 0.069 percent.
Table 7--Comparison of Small Live Poultry Dealers' Net Sales to Expected Annualized Costs of Alternative Sec. Sec. 201.106, 110, and 112
--------------------------------------------------------------------------------------------------------------------------------------------------------
First-year costs First-year costs First-year costs
related to Sec. related to Sec. related to Sec. Total first-year
Quartile Average net sales 201.106 as a 201.110 as a 201.112 as a costs as a
percent of net percent of net percent of net percent of net
sales (%) sales (%) sales (%) sales (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
0 to 25%................................................. $10,017,311 0.299 0.319 0.003 0.629
25 to 50%................................................ 34,567,539 0.087 0.093 0.001 0.182
50 to 75%................................................ 92,380,634 0.032 0.035 0.000 0.068
75 to 100%............................................... 226,958,521 0.013 0.014 0.000 0.028
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clearly, excluding Sec. 201.110(b)(1)(vi) and (b)(2) would reduce
cost to small LPDs. AMS prefers final Sec. Sec. 201.106, 110, and 112
because it reduces the amount of variation in payments that broiler
growers might receive and provides protection against lower contract
prices during the transition period of the first three years following
implementation of the final rule.
If direct costs were the only consideration, it is likely that
final Sec. Sec. 201.106, 110, and 112 would not have a significant
economic impact on a substantial number of small business LPDs. AMS
does not have sufficient information to make a quantified estimate of
the indirect costs associated with Sec. Sec. 201.106, 110, and 112,
but the indirect costs have the potential to be much larger than the
direct costs that AMS was able to quantify. If indirect costs are equal
to direct costs, total costs would be about 1.26 percent for LPDs in
the smallest quartile. It is possible that the indirect costs are
considerably larger than direct costs, in which case larger LPDs would
face significant costs. It is likely that costs will be significant for
a substantial number of small business LPDs.
Costs to growers will be limited to the time required to review and
acknowledge receipt of updated grower contracts and disclosures. AMS
expects that final Sec. Sec. 201.106, 110, and 112 will have effects
on a substantial number of growers. However, the costs will not be
significant for any of them. Because AMS does not regulate poultry
growers, AMS does not have information regarding the business sizes of
poultry growers similar to the information it has concerning LPDs.
Based on the above analyses, it is unlikely that final Sec. Sec.
201.106, 110, and 112 will create significant costs for a substantial
number of small business broiler growers. AMS was not able to quantify
indirect costs associated with final Sec. Sec. 201.106, 110, and 112
but the rulemaking could cause significant costs for a substantial
number of small LPDs.
D. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
chapter 35), AMS requested OMB approval of the new information
collection and recordkeeping requirements related to this final rule
when it was proposed in the Federal Register on June 10, 2024 (89 FR
49002). The proposed information collection was for a total of 59,182
hours for the first year, and 42,682 hours per year thereafter. The
comment period was open for 60 days and closed on August 9, 2024. Below
is a summary of the final rule's information collection requirements,
the comments AMS received relating to the information
[[Page 5213]]
collection requirements of the proposed rule, and any changes AMS made
in response to the comments. Additional detail can be found in the
Regulatory Impact Analysis (RIA).
Title: Poultry Growing Tournament Systems: Fairness and Related
Concerns.
OMB Number: 0581-0346.
Expiration Date of Approval: This is a NEW collection.
Type of Request: Approval of a New Information Collection.
Abstract: The information collection requirements in this request
are essential to improve transparency and forestall deception and
unfairness in the use of broiler growing arrangements, in accordance
with the purposes of the Packers and Stockyards Act, 1921. The
revisions to the Packers and Stockyards regulations would require that
live poultry dealers (LPDs) establish, maintain, and review written
documentation regarding their processes for the design and operation of
a poultry grower ranking system that is consistent with the LPD duty of
fair comparison, provide information through disclosures to growers
when requesting that growers make additional capital investments, and
submit contract and disclosure documentation to USDA when contract
modifications result in reduced annual grower compensation during a
transition period.
Under this final rule, LPDs must develop and document policies and
procedures for the design and operation of their tournament system
consistent with the duty of fair grower comparison. All LPD
documentation will be provided to USDA on request, maintained for no
less than five years, and used for ongoing internal compliance
activities. The final rulemaking requires that LPDs provide a Capital
Improvement Disclosure Document to growers when LPDs request that
growers make additional capital investments. In addition, for each of
the three years following the effective date, LPDs will be required to
provide the prior and modified contracts as well as all related LPD
Disclosure Documents to USDA if any contract modification or renewal
results in less than the prior annual-calendar year's complex-wide
average gross payment to the grower. The estimates provided below apply
only to LPDs when they are required to provide the information to
growers or create documentation for internal use and review. Poultry
growers would not be required to provide information but would be able
to use the information provided by LPDs to analyze additional capital
investment decisions.
Broiler Grower Compensation Design Under Sec. 201.106(c)
Estimate of Burden: Public burden for this collection of
information is estimated to average 0.01 hours per response (years two
through four), 0 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 20,014.
Estimated Number of Responses per Respondent: 477.
Estimated Total Annual Burden on Respondents: 0 hours in the first
year, and 194 hours per year thereafter for years two through four.
Operation of Broiler Grower Ranking Systems Under Sec. 201.110(a) and
(b)(1)(i) Through (v)
Estimate of Burden: Public burden for this collection of
information is estimated to average 193.33 hours per response (first
year), 169.61 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 184.
Estimated Number of Responses per Respondent: 4.
Estimated Total Annual Burden on Respondents: 35,572 hours in the
first year, and 31,208 hours per year thereafter.
Communication and Cooperation Under Sec. 201.110(b)(1)(vi)
Estimate of Burden: Public burden for this collection of
information is estimated to average 45.00 hours per response (first
year), 16.00 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 42.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 1,890 hours in the
first year, and 672 hours per year thereafter.
Broiler Grower Capital Improvement Disclosure Document Under Sec.
201.112
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 0.61 hours per response (first
year), 0.61 hours per year thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 42.
Estimated Number of Responses: 1,001.
Estimated Number of Responses per Respondent: 24.
Estimated Total Annual Burden on Respondents: 607 hours in the
first year, and 607 hours per year thereafter.
AMS estimates that 42 LPDs would each submit the prior and modified
contracts as well any LPD Disclosure Documents prepared with respect to
those contracts to AMS as required under final Sec. 201.106(c). AMS
arrived at its estimate that 477 responses would be produced per LPD
during each of years two, three, and four following the rule effective
date in complying with the new requirements during a transition period
following modification and renewal of broiler growing contracts by
dividing the 20,014 grower contracts with broiler growers that were
reported by 42 LPDs that filed fiscal year 2023 Annual Reports with
AMS. AMS does not have access to sufficient data and cannot predict the
number of complexes for which the annual calendar year's complex-wide
average gross payment to the grower will be less than the prior year.
Based on information provided by subject matter experts, AMS estimates
that LPDs would be able to submit the required documentation for all
contracts to USDA electronically once per year for a fixed annual time
cost per complex. As a result, the estimate that all LPDs will provide
477 responses per year in years two through four therefore likely
overestimates the burden by a substantial amount given that average
grower payments may not be less than the prior year at most complexes.
AMS estimates the annual cost of collecting and submitting required
contract documents in years two through four, including management,
legal, administrative, and information technology time, will require an
average 0.01 hours each. AMS arrived at the estimates of the number of
hours on an annual basis to submit required contract documentation by
dividing the number of hours to collect and submit the required
documents (184 hours in each of years two through four) by the annual
number of responses for all LPDs (20,014).
AMS estimates that 42 LPDs would each establish, maintain, and
review documentation of written processes for the design and operation
of a poultry grower ranking system that is consistent with a duty of
fair comparison as required under final Sec. 201.110.\136\ AMS arrived
at its estimate that four (4) responses would be produced per LPD in
complying with new requirements for
[[Page 5214]]
poultry grower ranking system fairness policies and procedures by
dividing the 184 broiler plants (or complexes) indicated in the fiscal
year 2023 Annual Report filed by 42 LPDs with broiler production.\137\
AMS estimates first-year development and production of Sec. 201.110
policies and procedures, including legal, management, administrative,
and information technology time, would require an average of 193.33
hours for each response, while ongoing annual maintenance, compliance
monitoring, production, and distribution would take 169.61 hours. AMS
estimates first-year development and production of Sec. 201.110
policies and procedures, including legal, management, administrative,
and information technology time, would require an average of 193.33
hours for each response, while ongoing annual maintenance, compliance
monitoring, production, and distribution would take 169.61 hours. AMS
arrived at the estimates of the number of hours per response on an
annual basis to set up, produce, distribute, monitor, review, and
maintain Sec. 201.110 policies and procedures by dividing the total
number of hours required (35,572 first-year hours and 31,208 ongoing
hours) by the annual number of responses for all LPDs (184).
---------------------------------------------------------------------------
\136\ Responses and costs related to final Sec.
201.110(b)(1)(vi), ``Communication and cooperation,'' are discussed
below separately from the other paragraphs of Sec. 201.110. Costs
associated with final Sec. 201.110(b)(2), ``Record retention,'' are
included in cost estimates for Sec. 201.110(b)(1).
\137\ All live poultry dealers are required to annually file PSD
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control
number 0581-0308. The Annual Report form is available to the public
at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------
AMS estimates that 42 LPDs would each develop and document one set
of processes that address communication and cooperation when resolving
grower concerns as required under final Sec. 201.110(b)(1)(vi). AMS
estimates first-year set-up and implementation of the plan, including
management, legal, administrative, and information technology time,
would require approximately 45.00 hours. AMS estimates ongoing annual
implementation of communication, cooperation, and dispute resolution
processes would require an average of 16.00 hours.
AMS estimates each of 42 LPDs would create and distribute an
average of 24 Broiler Grower Capital Improvement Disclosure Documents
each year for poultry growers relating to additional capital
investments, as required under final Sec. 201.112. AMS arrived at its
estimate of 24 developed disclosure documents per LPD per year from AMS
records which show 42 LPDs filed fiscal year 2023 Annual Reports with
AMS, and their reports indicate that they had 20,014 growing contracts
with broiler growers during fiscal year 2023. Based on information
provided by subject matter experts, AMS estimates that capital upgrades
would be required at 5 percent of complexes each year, triggering
creation of a new disclosure document for approximately 5 percent of
growers annually. AMS multiplied the 20,014 growing contracts by 5
percent and divided by the 42 LPDs to arrive at 24 disclosure documents
per LPD. LPDs would only be required to provide the Broiler Grower
Capital Improvement Disclosure Document to growers when requesting or
requiring the grower to make an additional capital investment. AMS
estimates first-year and ongoing development, production, and
distribution of the disclosure documents, including management, legal,
administrative, and information technology time, would require an
average 0.61 hours each. AMS arrived at the estimates of the number of
hours on an annual basis to set up, produce, and distribute the Broiler
Grower Capital Improvement Disclosure Documents by dividing the number
of hours to set up, produce, and distribute the disclosures (607 first-
year and annual ongoing hours) by the annual number of responses for
all LPDs (1,001).
Under Sec. 201.106(c) LPDs are required for a period for three
years following the effective date to submit to USDA copies of the
prior and modified contracts and any LPD Disclosure Documents prepared
under Sec. 201.102 if the annual-calendar year's complex-wide average
gross payments to growers at a complex of an LPD is less than the prior
annual-calendar year's complex-wide average gross payments to growers
at the complex.
Final Sec. 201.110 would require LPDs to provide a fair comparison
among growers when basing compensation on a grouping or ranking of
growers delivering during a specified period of time and would also
require LPDs to document how they comply with that duty of fair
comparison. The policies and procedures documentation required under
final Sec. 201.110 must describe the LPD's processes for the design
and operation of a poultry grower ranking system for broiler growers
that is consistent with the duty of fair comparison. The documentation
of processes under final Sec. 201.110, must also include a plan for
communication and cooperation between the LPD and growers. LPDs are
required to document, maintain, and comply with all policies and
procedures required under final Sec. 201.110 on an ongoing basis and
provide them to USDA upon request. LPDs must retain all written records
relevant to compliance with Sec. 201.110(b) for no less than 5 years
from the date of record creation.
Final Sec. 201.112 would require LPDs to provide a Broiler Grower
Capital Improvement Disclosure Document any time the LPD requests
existing broiler chicken growers to make an additional capital
investment ($12,500 or more per structure excluding maintenance or
repair). The Broiler Grower Capital Improvement Disclosure Document
must include information about the goal or purpose of the investment,
financial incentives and compensation for the grower associated with
the additional capital investment, all schedules and deadlines for the
investment, a description of changes to housing specifications, and
analysis of projected returns.
Costs of Final Sec. Sec. 201.106, 110, and 112
The combined costs to LPDs for compliance with the recordkeeping
and disclosure requirements of final Sec. Sec. 201.106, 110, and 112
are expected to be $3,807,000 in the first year, $3,181,000 in years
two through four, and $3,168,000 in subsequent years. The total hours
estimated for the LPDs to create, produce, distribute, and maintain
these documents are 38,069 in the first year, 32,671 in in years two
through four, and 32,487 in subsequent years. As stated previously, the
estimates provided apply only to LPDs who would be required to provide
the information to growers.
The amount of time required for recordkeeping and disclosure was
estimated by AMS subject matter experts. These experts were auditors
and supervisors with many years of experience in AMS's Packers and
Stockyards Division (PSD) conducting investigations and compliance
reviews of regulated entities.
AMS used the May 2023 U.S. Bureau of Labor Statistics (BLS)
Occupational Employment and Wage Statistics for the time values in this
analysis.\138\ BLS estimated an average hourly wage for general and
operations managers in animal slaughtering and processing to be $67.99
per hour; $34.81 per hour for administrative assistants; $67.41 per
hour for IT system managers; and $98.71 per hour for lawyers in food
manufacturing. In applying the cost estimates, AMS marked-up the wages
by 41.79 percent to account for fringe
[[Page 5215]]
benefits. The average hourly wage rates, adjusted to include the 41.79
percent markup for benefits, are as follows: $96.40 for managers,
$49.36 for administrative assistants; $95.58 for IT system managers,
and $139.96 for lawyers.
---------------------------------------------------------------------------
\138\ Estimates are available at U.S. Bureau of Labor
Statistics. Occupational Employment and Wage Statistics, available
at https://www.bls.gov/oes/special-requests/oesm23all.zip (accessed
9/14/2024). Featured OES Searchable Databases: U.S. Bureau of Labor
Statistics (bls.gov) (accessed September 2024).
---------------------------------------------------------------------------
Comments From the Proposed Rule and Changes to the Final Rule
After consideration of public comments, AMS determined to adopt the
proposed rule as a final rule with several modifications. This section
provides an overview of the comments made specifically on the costs and
benefits and how the final rule differs from the proposed rule in that
analysis.
Industry trade associations and LPDs commented that the full cost
of implementing the proposed rule would be far greater than estimated
by AMS. The commenters asserted that AMS greatly underestimated the
costs that will be required for employing teams with highly specialized
legal and technical expertise to implement the proposed rule by
modifying or replacing grower contracts and communicating changes to
growers. Commenters suggested that AMS did not adequately consider the
total number of hours needed, but none provided quantified estimates.
LPDs also commented that hourly rates paid to specialized industry
professionals such as attorneys should be much higher. Commenters also
suggested that implementation of the rule would require LPDs to hire
and train additional staff and pull resources away from other important
activities.
AMS consulted auditors and supervisors as subject matter experts
who are familiar with LPDs, integrators, and broiler complex operations
from many years of experience with AMS in auditing LPDs for compliance
with the Act. The final rule provides an extended period of
approximately 18 months following publication in the Federal Register
before the effective date, to permit sufficient time for
implementation. Hourly rates used in cost analysis for the proposed
rule were based on averages for legal, management, administrative, and
information technology labor categories specifically within the
agricultural sector as published and annually updated by the U.S.
Bureau of Labor Statistics. Although the largest corporations likely
employ lawyers and other specialists at hourly rates much higher than
the national average, contract development and review efforts at those
companies are spread across many complexes. AMS expects that average
hourly rates provide an appropriate benchmark for estimating industry
average costs. After further discussion with subject matter experts,
AMS added a modest amount of time to account for the cost of
information technology work in preparing Sec. 201.112 disclosures. AMS
subject matter experts confirmed that all other costs from the proposed
rule are accurate estimates and accordingly, AMS made no other changes
to the information collection requirements of the rule based on this
comment.
AMS also received comments on the proposed rule in support of
adding measures to protect growers against the risk that LPDs might
unfairly reduce broiler grower total compensation during a transition
period after implementation of the final rule. Based on comments
received, AMS added Sec. 201.106(c), which will require LPDs to submit
copies of the prior and modified contracts and disclosures to AMS if
average gross grower payments at a complex show year-over-year decline
following a contract modification during the three calendar years
commencing with and including the effective date of the rule. AMS will
review the information provided by LPDs to identify any potentially
unfair practices related to broiler grower compensation. AMS consulted
with its internal subject matter experts and added direct information
collection costs for LPDs to comply with this provision during the
three-year period.
AMS also received comments suggesting that some of the detailed
documentation requirements of proposed Sec. 201.110(b) were similar to
existing P&S documentation and disclosure requirements and might create
unnecessarily burdensome and complex paperwork that could burden
service technicians at broiler complexes and keep them from other
important responsibilities such as assisting growers. In response to
these comments, AMS made several changes to Sec. 201.110(b) in the
final rule that included consolidating and streamlining the
documentation requirements and removing some detailed requirements
delineated under subparagraphs in the proposed rule. AMS expects that
these changes in final Sec. 201.110(b) will add clarity and minimize
potential confusion about the documentation requirements, thereby
making them more effective. AMS expects these changes will somewhat
reduce total recordkeeping requirements for LPDs. Based on consultation
with internal subject matter experts, AMS determined that the precise
amount of time savings is difficult to estimate. AMS therefore chose a
cautious approach to avoid underestimating costs and did not reduce the
total recordkeeping requirements or the time cost of the information
collection for LPDs. Accordingly, these changes did not affect the
estimation of costs or benefits in the final rule.
The proposed rule included Sec. 201.110(b)(2), ``Compliance
review,'' which required LPDs to conduct a required bi-annual review of
the processes set out in Sec. 201.110(b)(1). AMS removed this
requirement from the final rule in response to comments that self-
audits would be burdensome for LPDs, and that elimination of this
requirement would not substantially diminish effective compliance with
Sec. 201.110. Compliance will be enforced through regular AMS review
of the policies and procedures LPDs are required to establish and
maintain under Sec. 201.110(b). Accordingly, removal of Sec.
201.110(b)(2) eliminated the burden of compliance review on LPDs and
reduced costs from the proposed to the final rule by the cost estimate
in the proposed rule for that provision.
Based on comments received, AMS added a provision at Sec.
201.112(c) to require that the LPD make reasonable efforts to ensure
that growers are aware of their right to request translation assistance
and to assist the grower in translating the Broiler Grower Capital
Improvement Disclosure Document. Reasonable efforts include, but are
not limited to, providing current contact information for professional
translation service providers, trade associations with translator
resources, relevant community groups, or any other person or
organization that provides translation services in the poultry grower's
geographic area. Reasonable efforts, depending on the facts and
circumstances (such as convenience, expense, and timeliness of the
translation), may also include allowing the grower access to a
computer-generated translation of the Disclosure Document and
additional time to review any translated Disclosure Document. A similar
requirement was established for LPDs in Sec. 201.102(g)(4). As LPDs
already have all necessary information to make reasonable efforts to
assist growers in translating disclosure documents and have made it
available to growers who request the information, AMS did not add any
time to its information collection cost estimates for LPDs to comply
with this new requirement.
E. Executive Order 12988--Civil Justice Reform
Executive Order 12988 instructs each executive agency to adhere to
certain
[[Page 5216]]
requirements in the development of new and revised regulations to avoid
unduly burdening the court system. This rule has been reviewed under
Executive Order 12988 and complies with these requirements. This rule
is not intended to have retroactive effect. This rule would not preempt
state or local laws, regulations, or policies, unless they present an
irreconcilable conflict with this rulemaking. There are no
administrative procedures that must be exhausted prior to any judicial
challenge to the provisions of this rule. Nothing in this rule is
intended to interfere with a person's right to enforce liability
against any person subject to the Act under authority granted in
section 308 of the Act.
F. 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
rulemaking also under the Act (Inclusive Competition and Market
Integrity Under the Packers and Stockyards Act (87 FR 60010, October 3,
2022)) 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
final rule. This final rule provides additional standards for
individual LPDs or growers, and AMS does not find that this rule
carries substantial direct effects on one or more Indian Tribes beyond
the purely legal issue raised during consultation.
AMS recognizes and supports the Secretary's desire to incorporate
Tribal 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.
G. Civil Rights Impact Analysis Statement
AMS has considered the potential civil rights implications of this
final 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, religion, sex,
gender identity (including gender expression), sexual orientation,
disability, age, marital status, family/parental status, income derived
from a public assistance program, political beliefs, reprisal or
retaliation for prior civil rights activity, in any program or activity
conducted or funded by USDA. This final 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 disparate impact analysis, using the
required calculations, which resulted in a finding that Asians and
Native Hawaiian or Other Pacific Islanders could be disproportionately
impacted by the rule, insofar as fewer farmers in those groups
participate in poultry production than would be expected by their
representation among U.S. farmers in general and therefore are less
likely to benefit, as a whole, from the protections provided by this
rule.\139\ However, the regulations would provide benefits equally to
all individual poultry growers across demographic characteristics, with
some demographic groups being more or less represented among poultry
growers. AMS will enhance efforts to notify the groups found to be more
significantly impacted of the regulations and their implications. AMS
will conduct mitigation and monitoring strategies and reach out to
several organizations that represent the interests of the impacted
groups.
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\139\ Among Asian and Native Hawaiian or Other Pacific Islander
growers, a smaller percent participates in livestock or poultry
agriculture (animal agriculture) than in other types of agriculture.
A larger percent of American Indian or Alaskan Native growers
participates in animal agriculture than in other types of
agriculture. The other demographic groups' participation in animal
agriculture tended to fall within 10 percentage points of their
participation in agriculture overall.
---------------------------------------------------------------------------
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 rule. This rule will not compel the expenditure in any one year
of $100 million or more (adjusted for inflation) by State, local, and
Tribal governments, in the aggregate, or by the private sector.
Therefore, a statement under 2 U.S.C. 1532 is not required.
J. Congressional Review Act
Pursuant to subtitle E of the Small Business Regulatory Enforcement
Fairness Act of 1996 (also known as the Congressional Review Act, 5
U.S.C. 801 et seq.), OMB's Office of Information and Regulatory Affairs
has determined that this rule does not meet the criteria set forth in 5
U.S.C. 804(2).
List of Subjects in 9 CFR Part 201
Confidential business information, Reporting and recordkeeping
requirements, Stockyards, Surety bonds, Trade practices.
For the reasons stated in the preamble, AMS amends 9 CFR part 201
as follows:
PART 201--ADMINISTERING THE PACKERS AND STOCKYARDS ACT
0
1. The authority citation for part 201 continues to read as follows:
Authority: 7 U.S.C. 181-229c.
0
2. Add Sec. 201.106 to subpart N to read as follows:
[[Page 5217]]
Sec. 201.106 Broiler grower compensation design.
(a) Rate transparency. When a broiler growing arrangement between
the live poultry dealer and the broiler grower compensates the grower
based upon a grouping, ranking, or comparison of growers delivering
poultry during a specified period, the live poultry dealer may not use
the grower's grouping, ranking, or comparison to others to reduce any
rate of compensation under the broiler growing arrangement.
(b) Excessive variability. The Secretary presumes that a live
poultry dealer violates the Act when aggregate gross annual payments
based upon a grouping, ranking, or comparison of growers exceed 25
percent of total gross payments to growers in a complex on an annual-
calendar year basis.
(c) Transition. For modified or renewed broiler growing
arrangements subject to paragraph (a) of this section, for each of the
three calendar years commencing with and including the year this
section becomes effective, if the annual-calendar year's complex-wide
average gross payments to growers at a complex of a live poultry dealer
is less than the prior annual-calendar year's complex-wide average
gross payments to growers at the complex, the live poultry dealer must
submit to the Secretary the following:
(1) A copy of the prior broiler growing arrangement and the
modified or renewed growing arrangement; and
(2) Any Live Poultry Dealer Disclosure Document prepared under
Sec. 201.102 with respect to the prior broiler growing arrangement and
the modified or renewed broiler growing arrangement for the growers at
the complex.
0
3. Add Sec. 201.110 to subpart N to read as follows:
Sec. 201.110 Operation of broiler grower ranking systems.
(a) Fair comparison.--(1) Duty of fair comparison. Live poultry
dealers providing compensation to broiler growers based upon a
grouping, ranking, or comparison of growers delivering poultry must
design and operate their poultry grower ranking system to provide a
fair comparison among growers.
(2) Fair comparison factors. In determining whether the live
poultry dealer reasonably designed or operated its poultry grower
ranking system to deliver a fair comparison among growers or whether
the live poultry dealer must utilize a non-comparison compensation
method, the Secretary shall consider the following:
(i) Whether the distribution of inputs by the live poultry dealer
causes material differences in performance, and whether appropriate
adjustments to grower compensation will be made.
(ii) Whether the assignment of flock production practices by the
live poultry dealer causes material differences in performance, and
whether appropriate adjustments to grower compensation will be made.
(iii) Whether the designated time period used in the live poultry
dealer's comparison is appropriate, including whether the live poultry
dealer uses one or more groupings, rankings, or comparisons of growers
to mitigate the effects of any differences in inputs over the
designated time period.
(iv) Whether conditions and circumstances outside the control of
the live poultry dealer render comparison impractical or inappropriate.
(v) Whether the live poultry dealer has made reasonable efforts to
timely resolve concerns a grower raises regarding the live poultry
dealer's design and operation of its poultry grower ranking system to
deliver a fair comparison among growers.
(vi) Any other factor relevant to a fair comparison.
(3) Non-comparison compensation method. When a live poultry dealer
uses a poultry grower ranking system and cannot conduct a fair
comparison for one or more growers, the live poultry dealer must
compensate those growers through a non-comparison method specified in
the contract that reflects reasonable compensation to the grower for
its services.
(b) Documentation.--(1) Policies and procedures. A live poultry
dealer must establish and maintain written documentation of its
processes for the design and operation of a poultry grower ranking
system for broiler growers that is consistent with the duty of fair
comparison. The written documentation must include the following:
(i) Inputs under live poultry dealer control. How and when the live
poultry dealer assigns, adjusts, or otherwise accounts for similarities
and differences of quality and quantity in the delivery of inputs to
growers.
(ii) Flock production practices. How and when the live poultry
dealer assigns, adjusts, or otherwise accounts for differences in
production practices.
(iii) League composition. How the dealer determines groupings of
growers for settlement.
(iv) Evaluation period. A reasonable time period over which the
dealer evaluates the duty of fair comparison.
(v) Non-comparison. When a live poultry dealer may remove growers
from a ranking group, and how the live poultry dealer compensates the
growers to satisfy the non-comparison compensation method under
paragraph (a)(3) of this section.
(vi) Communication and cooperation. How the live poultry dealer
resolves a grower's concerns with the design or operation of a poultry
grower ranking system for broiler growers that is consistent with the
duty of fair comparison, including the timeliness of the resolution.
(2) Record retention. The live poultry dealer must retain all
written records relevant to its compliance with this paragraph (b) for
no less than 5 years from the date of record creation.
0
4. Add Sec. 201.112 to subpart N to read as follows:
Sec. 201.112 Broiler grower Capital Improvement Disclosure Document.
(a) Disclosure requirement. When a live poultry dealer requests
that a broiler grower make an additional capital investment, the live
poultry dealer must provide the broiler grower with a Capital
Improvement Disclosure Document, as described in paragraph (b) of this
section.
(b) Disclosure contents. The Capital Improvement Disclosure
Document must disclose the following in a clear, concise, and
understandable manner:
(1) The purpose of the additional capital investment for both the
live poultry dealer and the grower, and a summary of all research and
other supporting material that the live poultry dealer has relied upon
in justifying the additional capital investment.
(2) All financial incentives and compensation for the grower
associated with the additional capital investment.
(3) All construction schedules related to the request for
additional capital investment.
(4) The housing specifications associated with the additional
capital investment.
(5) Any required or approved manufacturers or vendors, and all
financial benefits, if any, that the live poultry dealer or any
officer, director, decision-making employee, or close family member of
any such person, receives from the use of the required or approved
manufacturer or vendor.
(6) An analysis of projected returns the grower can expect related
to the additional capital investment, including any assumptions, risks,
or uncertainties, sufficient to allow the grower to make their own
projections.
(7) This statement that ``USDA has not verified the information
contained in
[[Page 5218]]
this document. If this disclosure by the live poultry dealer contains
any false or misleading statement or a material omission, a violation
of Federal and/or State law may have occurred. Violations of Federal
and State laws may be determined to be unfair, unjustly discriminatory,
or deceptive and unlawful under the Packers and Stockyards Act, as
amended. You may file a complaint at farmerfairness.gov or call 1-833-
DIAL-PSD (1-833-342-5773) if you suspect a violation of the Packers and
Stockyards Act or any other Federal law governing fair and competitive
marketing, including contract growing, of livestock and poultry.
Additional information on rights and responsibilities under the Packers
and Stockyards Act may be found at www.ams.usda.gov.''
(c) Translation. Upon delivery to the grower, the live poultry
dealer must make reasonable efforts to ensure that growers are aware of
their right to request translation assistance and to assist the grower
in translating the Capital Improvement Disclosure Document.
0
5. Add Sec. 201.290 to subpart N to read as follows:
Sec. 201.290 Severability.
If any provision of this subpart or any component of any provision
is declared invalid, or the applicability thereof to any person or
circumstances is held invalid, it is the Agricultural Marketing
Service's intention that the validity of the remainder of this subpart
or the applicability thereof to other persons or circumstances shall
not be affected thereby with the remaining provision, or component of
any provision, to continue in effect.
Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2025-00508 Filed 1-15-25; 8:45 am]
BILLING CODE P