What’s left out of the GIPSA rule

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USDA today issued its long-awaited, final GIPSA rule, lacking many of the provisions favored by some beef cattle groups and opposed by others. The rule focuses primarily on contract arrangements between poultry and hog growers, companies and packers, leaving out, for now, some of the most contentious provisions relating to beef cattle marketing.

From the final rule, the following is a summary of “provisions not being finalized.”

Value-Added Production and Premiums

The proposed rule included several provisions related to the potential use of price premiums and related types of contracts such as marketing agreements in a manner that are potential violations of the P&S Act. However, comments identified a number of concerns raised by the proposed regulations related to price premiums and defining certain production arrangements. Specifically, many felt that, taken together, the proposed regulations would increase the potential for litigation thereby jeopardizing the continued use of these agreements. The rapid growth of value-added segments of the livestock industry based on alternative marketing agreements (e.g. breed certifications, source verification, production method certification) has been beneficial for many producers and supported by consumer demand. GIPSA did not intend to limit the use of such arrangements and we determined this final rule would not include sections relating to price premiums and marketing agreements.

Recordkeeping

Section 201.94(b) of the proposed rule that would have required packers, swine contractors and live poultry dealers to retain records justifying differential pricing decisions is not included in this final rule. As with sections related to price premiums, many comments suggested this requirement would contribute to a potential unintended consequence of eliminating or reducing the practice of offering price premiums. While many comments indicated this requirement would have required the creation of new records, this was not the intention of the proposed rule. While this final rule does not contain the proposed changes regarding recordkeeping, this does not change the existing recordkeeping requirements. We expect covered entities to continue to comply with the existing requirements of 7 U.S.C. 221.

Packer-to-Packer Sales and Relationships with Dealers

Section 201.212 related to packer-to-packer sales and packer relationships with dealers will not be finalized. Although some comments supported inclusion of these provisions, many comments raised serious concerns about potential adverse effects on the marketplace, such as encouraging further vertical integration and reducing the number of dealers and other buyers. While this section will not be finalized, we expect covered packers and dealers to continue to comply with the related portions of the Act (7 U.S.C. 192 c-g) and existing regulations (9 CFR 201.69-70).

Prohibitions and Requirements Related to Capital Investments

While section 201.217 of the proposed rule establishing specific requirements related to capital investments is not included in this final rule, the criteria required by the 2008 Farm Bill are being finalized, in modified form. Considering the variation that exists with respect to capital investments and payment terms in contracts, we believe stating criteria that the Secretary may use to determine whether certain terms in arrangements and contracts are in violation of the P&S Act is more appropriate. The associated definition of “Capital Investment” (proposed section 201.2(n)) will also not be included in this final rule.

Definition of Competitive Injury and Likelihood of Competitive Injury

Sections 201.2(t) and (u) of the proposed rule provided definitions for “competitive injury” and “likelihood of competitive injury” in an attempt to provide more clarity on the meaning of these terms. These definitions are not necessary for the purposes of this final rule and therefore are not included.

Applicability of Contracts

We believe this paragraph is unnecessary considering the sections related to price premiums and discounts are not included in the final rule. To avoid confusion over whether GIPSA regulations cover transactions between non-subject entities, we are deleting this paragraph from this final rule.

Scope of Section 202(a) and (b)

Comments were sharply divided with respect to proposed provision 201.3(c) with respect to harm to competition. Those supporting the proposal pointed out it would provide legal relief for farmers and ranchers who suffer because of unfair actions, such as false weighing and retaliatory behavior, without having to show competitive harm. Opposing comments relied heavily on the fact that several of the United States Courts of Appeals have ruled that harm to competition (or the likelihood of harm to competition) is a required element of a violation of sections 202(a) and (b)4 of the P&S Act.

Unfair, Unjustly Discriminatory, and Deceptive Practices or Devices

Section 201.210 of the proposed rule listed examples of conduct GIPSA considers to be unfair, unjustly discriminatory or deceptive practices or devices, in violation of section 202(a) of the P&S Act.

Undue or Unreasonable Preference or Advantage

Section 201.211 established criteria the Secretary may consider in determining if conduct would violate section 202(b) of the P&S Act. While many commenters provided examples of similarly situated poultry growers and livestock producers receiving different treatment, several comments asked for additional clarification about the language proposed and were concerned about the impacts of the provision on marketing arrangements and other beneficial contractual agreements.

Livestock and poultry contracts

Section 201.213 of the proposed rule required the submission and potential publication of sample contracts. Most supporting comments stated that implementation of this rule would assure fairness and market transparency which would allow farmers and ranchers the opportunity to make informed decisions, it would promote fair competition, and it would allow efficient and evenhanded enforcement of the P&S Act. Some comments expressed concern with the lack of clarity and the ambiguity of this section of the proposed rule.


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