Poultry Grower Payment Systems and Capital Improvement Systems

<RULE> 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> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> This rule is effective July 1, 2026. </EFFDATE> <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. Background</FP> <FP SOURCE="FP-2">III. Summary of the Proposed Rule and Changes in the Final Rule</FP> <FP SOURCE="FP-2">IV. Provisions of the Final Rule</FP> <FP SOURCE="FP-2">V. Comment Analysis</FP> <FP SOURCE="FP-2">VI. Regulatory Analysis</FP> </EXTRACT> <HD SOURCE="HD1">I. Executive Summary</HD> 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 <E T="03">et seq.</E> ), 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 <E T="04">Federal Register</E> (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 carry out the provisions of the Act (7 U.S.C. 181 <E T="03">et seq.</E> ), and the Secretary has delegated the responsibility for administering the Act to AMS. <E T="03">See</E> 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 des ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 549k characters. 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