On December 14, 2016, 95 years after Congress passed the Packers and Stockyards Act - a law designed to end abusive practices in the meatpacking industry - the USDA has released a set of rules that will finally make key parts of the law enforceable. The three rules published, one interim final rule and two proposed rules, will provide protections against unfair, abusive and anticompetitive practices for contract farmers working in the poultry and livestock industry.
A System that Hurts Farmers
One of the proposed rules will address issues related to the tournament pricing system used in poultry industry by meatpackers to control contract farmers and pay them unfairly. Even though contract farmers are often promised a minimum base pay by the meatpackers that they have contracts with, the farmers often find that their income actually depends on how big their chickens are in relation chickens raised by other farmers. Theoretically this system is supposed to create competition between farmers and incentivize them to raise the biggest, healthiest birds, but in reality the system is used to reward some farmers and punish others that speak out against the system - a system that ends up entirely benefitting the meatpacking industry and hurting the farmers.
According to Christopher Leonard's 2014 book The Meat Racket: The Secret Takeover of America's Food Business, there's no price or contract transparency in the tournament system, and meatpackers use it to turn farmers against one another. It's also common for producers performing in the lower half of the tournament to lose their contracts after three or four consecutive low rankings. The first proposed rule will help stop some of the worst aspects of this tournament system by identifying and stopping retaliatory practices against farmers like giving them sick chicks to raise or low quality food to use on their farms.
The second proposed rule defines criteria for what would amount to unjustified preference for one farmer over another, and it also defines unfair practices against farmers. However, under the rule, meat and poultry companies will reserve the right to claim a reasonable business justification for their actions in the case that a complaint is brought against them.
The interim final rule will affirmatively establish the USDA's long time position that it is not necessary for a farmer to demonstrate that an unfair practice harms the entire livestock market to prove a violation of the Packers and Stockyards Act. Such overly broad interpretations have put family farmers at a disadvantage for decades when pursuing their rights under the Act.
All three rules are subject to a 60 day public comment period that will begin as soon as the rules are published in the Federal Register.
What is GIPSA?
The Grain Inspection, Packers and Stockyards Administration (GIPSA) is the US Department of Agriculture's agency that markets livestock, poultry, meat, cereals, oilseeds and related agricultural products, and promotes fair and competitive trading practices for the overall benefit of consumers and American agriculture.
GIPSA's Packers and Stockyards Program (P&SP) promotes fair business practices and competitive environments to market livestock, meat and poultry. The P&SP evolved from the Packers and Stockyards Administration, which was established in 1921 under the Packers and Stockyards Act. The organization was founded to regulate livestock marketing activities at public stockyards and the operations of meat packers and live poultry dealers. Through its oversight activities, including monitoring programs, reviews and investigations, P&SP fosters fair competition, provides payment protection and guards against deceptive and fraudulent trade practices that affect the movement and price of meat animals and their products. P&SP's work protects consumers and members of the livestock, meat and poultry industries.
Why Is Enforcing GIPSA Rules Important for Farmers?
Since the 1970s, the meatpacking industry has consolidated and vertically integrated rapidly as small firms have left the industry. In the beef, pork and poultry industries, the top four companies control 85, 74 and 50 percent of the markets respectively. Today, the slaughterhouses that are left are in the hands of just a few corporations who often own not only the meat processing facility but also many of the chickens and hogs they're slaughtering through unfair contract agreements with livestock and poultry producers. Greater consolidation in the meat industry means more power for the handful of meat packers left, which allows companies to charge whatever price they want for meat, eating away at farmers' incomes and hurting rural economies.
In response to this problem, Congress, as part of the 2008 Farm Bill, directed USDA to write rules to enforce key provisions of the Packers and Stockyards Act, a 1921 law designed to prohibit meat packers from engaging in unfair and deceptive practices, manipulating prices, creating a monopoly or illegally conspiring. The Act also forbids stockyards from dealing in the livestock they handled. In 2010, the USDA issued proposed rules to help the Grain Inspection Packers and Stockyard Administration (GIPSA) enforce the law, and since that time, lobbyists from big meat and poultry corporations have kept the rules tied up through legislative riders to the annual agriculture appropriations bills.
Image "20120106-OC-AMW-0690" by U.S. Department of Agriculture on Flickr used under a Creative Commons Attribution-NoDerivs 2.0 Generic license.