Poultry Grower Payment Systems and Capital Improvement Systems

DEPARTMENT OF AGRICULTURE <SUBAGY>Agricultural Marketing Service</SUBAGY> <CFR>9 CFR Part 201</CFR> <DEPDOC>[Doc. No. AMS-FTPP-22-0046]</DEPDOC> <RIN>RIN 0581-AE18</RIN> <SUBJECT>Poultry Grower Payment Systems and Capital Improvement Systems</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Agricultural Marketing Service, U.S. Department of Agriculture. <HD SOURCE="HED">ACTION:</HD> Proposed rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The U.S. Department of Agriculture's (USDA) Agricultural Marketing Service (AMS or the Agency) is soliciting comments on proposed revisions to its regulations under the Packers and Stockyards Act, 1921 (P&S Act or Act). The proposal would prohibit certain payment practices under poultry grower ranking systems (commonly known as tournaments) in contract poultry production for broiler chickens, require live poultry dealers (LPDs) to adopt policies and procedures for operating a fair ranking system for broiler growers, and require LPDs to provide certain information to broiler growers when the LPD requests or requires the grower to make additional capital investments (ACIs). AMS proposes these changes in response to numerous complaints from growers about the use of tournament systems. AMS intends for the proposed regulations to increase transparency and address deception and unfairness in broiler grower payments, tournament operations, and capital improvement systems. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments must be received by August 9, 2024. Comments on the information collection aspects of this proposed rule must be received by August 9, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Comments must be submitted through the Federal e-rulemaking portal at <E T="03">https://www.regulations.gov</E> and should reference the document number and the date and page number of this issue of the <E T="04">Federal Register</E> . All comments submitted in response to this proposed rule will be included in the record and will be made available to the public. Please be advised that the identity of individuals or entities submitting comments will be made public on the internet at the address provided above. A plain-language summary of this proposed rule is available at <E T="03">https://www.regulations.gov</E> in the docket for this rulemaking. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> 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: <E T="03">s.brett.offutt@usda.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Executive Summary</FP> <FP SOURCE="FP-2">II. Industry Background and Need for the Rulemaking</FP> <FP SOURCE="FP-2">III. Broiler Grower Compensation Design (Proposed § 201.106)</FP> <FP SOURCE="FP-2">IV. Operation of Broiler Grower Ranking Systems (Proposed § 201.110)</FP> <FP SOURCE="FP-2">V. Broiler Grower Capital Improvement Disclosure Document (Proposed § 201.112)</FP> <FP SOURCE="FP-2">VI. Severability (Proposed § 201.290)</FP> <FP SOURCE="FP-2">VII. Regulatory Notices and Analyses</FP> <FP SOURCE="FP-2">VIII. Request for Comments</FP> </EXTRACT> <HD SOURCE="HD1">I. Executive Summary</HD> On June 8, 2022, AMS published an advanced notice of proposed rulemaking (ANPR) in the <E T="04">Federal Register</E> titled, “Poultry Growing Tournament Systems: Fairness and Related Concerns” (87 FR 34814), to inform policy development and rulemaking under the P&S Act regarding improved fairness in poultry grower ranking systems in contract poultry production. <SU>1</SU> <FTREF/> In the ANPR, AMS solicited comment from the public on how to address potential unfairness arising from the use of poultry grower ranking systems under contracts to grow broiler chickens. As with past opportunities for input, commenters identified a lack of transparency regarding payments under tournament pay systems, fairness in tournament operations, and additional capital improvement requirements as ongoing concerns. These comments and AMS's Packers and Stockyards Division's (PSD) expertise provide the basis for this proposed rulemaking. <FTNT> <SU>1</SU>  The comment period ended September 6, 2022. In response to industry organizations' request for additional time to submit comments, AMS reopened the comment period on September 9, 2022 (87 FR 55319). That comment period closed September 26, 2022. </FTNT> Section 407(a) of the P&S Act (7 U.S.C. 228(a)) authorizes the Secretary of Agriculture to make rules and regulations as necessary to carry out the provisions of the Act (7 U.S.C. 181 <E T="03">et seq.</E> ). The Secretary has delegated the responsibility for administering the Act to AMS. Under this authority, AMS is issuing this proposed rule to carry out the provisions of section 407 of the Act, as well as sections 202(a) (which prohibits “any unfair, unjustly discriminatory, or deceptive practice or device”), 401 (which requires an LPD to “keep such accounts, records, and memoranda as fully and correctly disclose all transactions involved in his business”), and 410 (which bans the failure to pay “the full amount due [to the] poultry grower on account of such poultry”). The Federal Trade Commission (FTC)'s extensive experience enforcing prohibitions against unfair practices, unfair methods of competition, and deceptive practices arising under the FTC Act has also informed aspects of this proposed rule. <SU>2</SU> <FTREF/> <FTNT> <SU>2</SU>  Letter from FTC Chair Lina Khan to AMS, “Poultry Grower Tournament Systems: Fairness and Related Concerns,” Docket No. AMS-FTPP-22-046, at <E T="03">https://www.regulations.gov/comment/AMS-FTPP-22-0046-0143;</E> Michael Kades, “Protecting livestock producers and chicken growers,” Washington Center for Equitable Growth (May 2022). </FTNT> AMS is proposing to amend 9 CFR part 201, subpart N, by adding new § 201.106 regarding LPD responsibilities for the design of broiler grower compensation arrangements; new § 201.110 regarding the fair operation of broiler grower ranking systems; new § 201.112 regarding disclosure requirements for LPDs when requesting additional capital investments from broiler growers; and new § 201.290 regarding severability. In particular, the Agency is proposing to: • Prohibit 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. • Establish 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 including the distribution of inputs and flock production practices, the time period of the comparison, the conditions and circumstances for the comparison, and the reasonableness of efforts to resolve disputes. • Require 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, review their compliance with these processes not less than once every two years, and retain all relevant written records for five years. • Require LPDs to provide a grower with a Capital Improvement Disclosure Document when an LPD requests that the grower make an additional capital investment. • Introduce a severability clause that would permit for certain parts of the regulations to remain in effect even if others are deemed unenforceable. If the proposed rule is adopted, USDA would enforce the regulations through referral to the Department of Justice (DOJ) for appropriate action or, where failure to pay is implicated, through administrative action. Injured individuals would also have a right to proceed in Federal court. AMS would also conduct compliance reviews of adherence to the proposed regulatory requirements and would investigate suspected violations. Additionally, growers can always file a complaint or tip at <E T="03">farmerfairness.gov</E> or by calling 1-833-DIAL-PSD (1-833-342-5773) if they suspect a violation of the Act or any other Federal law or regulation governing fair and competitive marketing, including contract growing, of livestock and poultry. <HD SOURCE="HD1">II. Industry Background and Need for the Rulemaking</HD> <HD SOURCE="HD2">A. Overview</HD> The current broiler chicken industry is susceptible to both unfairness and deception. To build or upgrade chicken barns, growers both initially and periodically incur substantial debt in loans that typically last 15 years. To meet those obligations and earn a reasonable return, the grower is then dependent on the LPD that provides the chickens (both the number and frequency), the feed, and other inputs. Grower contracts with the LPD are commonly much shorter than the length of the loans. Growers often have little, if any, ability to negotiate their contracts with LPDs or opportunity to switch to alternative LPDs. LPDs' bargaining and market power, premised on lack of competitive alternative LPDs locally, creates significant risk to growers. Most large LPDs today include a tournament component as part of the compensation arrangement with growers under contract. If a grower's feed conversion performance is above the average, the grower receives a bonus; if the grower is below average, the LPD reduces the grower's compensation. 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 has many problems. For example, if an LPD treats i ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 365k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━