The Grain Inspection, Packers and Stockyards Administration (GIPSA) of the U.S. Department of Agriculture (USDA) was directed in the Food, Conservation, and Energy Act of 2008 (the 2008 Farm Bill) to amend the Packers and Stockyards Act (PSA) of 1921.

Following a lengthy review of comments made on the proposed rule, GIPSA released the final revised rules with an implementation date set for February 7, 2012. Congress directed the Secretary of USDA to issue regulations that would establish criteria in five areas with respect to the Packers and Stockyards Act of 1921. The first area is found in section 11005 of the 2008 Farm Bill and directs establishment of “criteria that the Secretary will consider in determining whether the arbitration process provided in a contract provides a meaningful opportunity for the grower or producer to participate fully in the arbitration process.” Four additional regulations are found in the following section of the Farm Bill and direct the Secretary of USDA to issue regulations that would establish criteria with respect to the Packers and Stockyards Act of 1921:

1. whether an undue or unreasonable preference or advantage has occurred in violation ofsuch Act (this section was not included in the final rule);

2. whether a live poultry dealer provided reasonable notice to poultry growers of any suspension of the delivery of birds under a poultry growing arrangement;

3. when requirement of additional capital investment over the life of a poultry growing arrangement or swine production contract constitutes a violation of the PSA;


4. if a live poultry dealer has provided a reasonable period of time for a swine or poultry contract grower to remedy a breach of contract that could lead to termination of production contract.

The above list reflects the language used in the 2008 Farm Bill. In addition to these criteria, the 2008 Farm Bill also required livestock and poultry contracts to specifically disclose the right of the contract producer or grower to decline the requirement to use arbitration to resolve any controversy under the contract.

Many of the changes to the proposed rule reflect clarifications requested by commenter’s. The following list of terms defined in the proposed rule has been removed from the final rule:

1. Tournament systems
2. Capital investment
3. Forward contract
4. Marketing agreement
5. Production contract
6. Competitive injury
7. Likelihood of competitive injury.

Provisions not included in the final rule are:
1. Value-added production and premiums
2. Recordkeeping
3. Packer-to-packer sales and relationships with dealers
4. Prohibitions and requirement related to capital investment
5. Applicability of contracts
6. Unfair, unjustly discriminatory, and deceptive practices or devices
7. Undue or unreasonable preference or advantage
8. Livestock and poultry contract
9. Tournament systems.

As of this writing, Congress has blocked funding for further development of rules for the terms and provisions listed above. However, several of these provisions and terms remain under consideration by GIPSA.

Major Changes in the Wording of the Final Rule
Certain terms used in the statutory language of the PSA are defined in GIPSA’s regulations at title 9 of the Code of Federal Regulations (C.F.R.). GIPSA’s final rule indicates some modifications of these definitions at §201.2.While no changes were made to paragraph (m), “principal part of performance,” or paragraph (o), “suspension of delivery of birds,” there were some significant changes to the definition of “additional capital investment” which is paragraph (n). The threshold for additional capital investment has been lowered from a combined $25,000 to $12,500 and clarified with the addition of the phrase “per structure.” Previously, the definition for additional capital investment was vague, referencing “growing and raising facilities.” Maintenance and repair costs may not be included in calculating additional capital investments. Any recurring labor and operating costs that increase as a result of the additional capital investment may not be included as this clause was removed in the final rule. Anything related to the construction of additional structures or equipment appears to be included in the calculations to arrive at a combined value of $12,500 or more per structure.

Changes were also made to 9 C.F.R. §201.3 to clarify that these rules are clearly applicable only to the broiler chicken industry. Hens and pullets being raised for table egg production are excluded from the final rules as GIPSA does not have jurisdiction over table egg production.

Modifications were also made in 9 C.F.R. §201.215. Paragraph (c) was changed to allow an exception when a catastrophic/natural disaster or other emergency prevented reasonable notice on the suspension of delivery of live birds. Unforeseen bankruptcies are included in this clause which provides criteria on when reasonable notice has been provided to contract growers for suspension of delivery of birds. This paragraph previously allowed for a waiver to be sought in instances of a disaster or other emergency. Note this section does not apply to termination of contracts; it only applies to extended periods of time where the contract grower will not be raising birds for the live poultry dealer.

Important changes were made to 9 C.F.R. §201.216, titled “additional capital investment criteria.” All previous references to the term “capital investment” have been removed and replaced with “additional capital investment.” Paragraph (c) has been amended to include the phrase “or does” substantially reduce operations at the slaughter or processing facility within 12 months of requiring additional capital investments. Exemptions for this criterion are given for a catastrophic/natural disaster or emergency (unforeseen bankruptcy). Waivers will not need to be applied for in such instances as the rules allow for this possibility (natural/catastrophic disaster or unforeseen bankruptcy). Paragraph (h) of §201.216 in the final rule was not present in the proposed rules. This paragraph states that required equipment changes by the contractor could be considered a violation of the PSA if the equipment was working as intended, previously accepted by the contractor, and there is not adequate compensation incentives provided to the contract grower.

The major change to 9 C.F.R. §201.217 (§201.218 in the proposed rule) is the inclusion of wording that allows a breach of contract to occur if food safety or animal welfare is concerned. This section focuses on whether the packer, live poultry dealer, or swine contractor has provided a reasonable period of time for the contract grower to remedy a breach of contract. Parts of this section were reworded and clarified, but the addition of the food safety or animal welfare clause is the major change. Paragraph (c) states that contractors must consider the contract grower’s ongoing responsibilities related to the care of poultry or swine in their care “when establishing the date by which a breach should be remedied.” Previously in paragraph (d), 14 days were provided for a rebuttal to be submitted following the date of the breach of contract notice. This has been altered to “adequate time.” Paragraphs (e) through (h) included in the proposed rule are not included in the final rule.

The order of 9 C.F.R. §201.218 (§201.219 in the proposed rule) dealing with arbitration has been reorganized with the release of the final rule. What was paragraph (b) has now become paragraph (a) in the final rule. Contract growers who fail to choose whether or not they will be bound by arbitration when signing a production contract will be treated as if they decline arbitration set forth in the contract. The opportunity to decline arbitration must still appear in bold conspicuous print. References to the Federal Arbitration Act were removed as USDA has determined that violations of contract arbitration terms are more appropriately addressed in that statute than the PSA.

The rules described in this document primarily apply to poultry and swine production contract growers. However, the provisions on arbitration may apply to other livestock (e.g. cattle, goats, and sheep) when production is governed by production contract. This caveat goes back to the language contained in the 2008 Farm Bill. Rules described in this document only reflect criteria that the Secretary of USDA (or their designee) can use to determine if a violation of the Packers and Stockyards Act has occurred. Meeting the criteria does not necessarily mean a violation has occurred.

Source: J. Ross Pruitt, Assistant Professor, LSU and Shannon L. Ferrell, Assistant Professor, OSU