May 26, 2022
In the first of three rulemakings to update changes to the Packers and Stockyards Act, USDA proposed a rule May 26 to protect poultry growers from being mistreated by poultry processors. The rule was announced as part of a broader strategy by the Biden administration to address concentration in the meat industry as well as agricultural markets in general.
“For too long, farmers and ranchers have seen the value and the opportunities they work so hard to create move away from the rural communities where they live and operate,” says Secretary of Agriculture Tom Vilsack. “The funding and new rule we’re announcing today ultimately will help us give farmers and ranchers a fair shake, strengthen supply chains and make food prices fairer.”
As part of the announcement, USDA released a new report on Promoting Competition in Agricultural Markets, as required by a previous executive order issued by President Biden. The report details USDA’s strategy for promoting competition in agricultural markets - including not only actions and initiatives to promote competition in meat and poultry markets, but also other key agricultural sectors like fertilizer and seeds. The report also discusses the negative impacts concentration in shipping has on the food supply chain and describes USDA’s efforts to work across the administration to use all available tools to promote competition.
The report includes the announcement of two new pro-competition initiatives—initiatives that go above and beyond those required by the executive order. First, USDA is announcing plans to complete a top-to-bottom review of its programs to ensure they promote competition. Second, USDA announced it will update guidance to strengthen the verification requirements for the most widely used “animal-raising claims” to ensure consumers are getting what they are paying for, USDA explains.
Poultry rule proposed
Vilsack says the poultry-specific rule is an effort to try to create greater transparency between integrators and producers, providing additional information to the producers before they enter into contracts. It is modeled after the Federal Trade Commission’s franchisee disclosure efforts and is designed to help producers be able to know more about who they’re doing business with before entering into a contract and better managing that risk.
“All of this is designed to avoid deception and to provide farmers with the ability to understand precisely what they’re getting into,” Vilsack shared with members of the Senate Agriculture Committee shortly after the announcement was rolled out.
The new rulemaking will require poultry processors to provide key information to poultry growers at several critical steps—increasing transparency and accountability in the poultry growing system. Currently, under poultry processors’ arrangement with contract growers, they provide inputs such as chickens and feed to the growers. Poultry growers often take on debt to build the poultry growhouses, yet they have limited visibility into the real range of outcomes and risks they face under these contracts, USDA explains.
Once in the contracts, the processors then determine the payments that poultry growers receive for their services by weighing the chickens and ranking farmers based on how much the chickens grew. Pay is generally determined based on how a farmer compares to other farmers, but farmers currently have little insight into this comparison, USDA adds. “For far too long, growers have complained that the ‘tournament’ system is ripe for abuse,” USDA notes in its release.
The rule proposes that processors would be required to disclose details of the inputs they provided to each farmer and information about the input differences among farmers being ranked. Furthermore, disclosures would cover the level of control and discretion exercised by the poultry processor and what financial returns the farmer can expect from the relationship based on the range of real experiences of other growers. Contracts would also be required to contain guaranteed annual flock placements and density. Poultry processor CEOs would be required to sign off on the compliance process for disclosure accuracy.
Simultaneously with issuing the proposed transparency rule, USDA is opening an inquiry into whether some practices of processors in the tournament system are so unfair that they should be banned or otherwise regulated. USDA says it seeks input from stakeholders to determine whether the current tournament-style system in poultry growing could be restricted or modernized to create a fairer, more inclusive marketplace.
The National Chicken Council says the proposed rule would “do nothing to lower food prices, increase competition or reduce inflation,” which are stated goals of the administration in proposing the rule.
“This is a solution in search of a problem,” says NCC President Mike Brown. “The last thing the Biden administration should be doing is pushing increased regulations, red tape and costs onto businesses at a time of record inflation and input costs, threatening food security and potentially raising grocery bills even further for Americans. There is a huge misunderstanding in this administration of how businesses operate. Everything this administration has touched has led to increased prices for consumers – whether its gas, home heating bills or infant formula. Chicken seems to be next.”
NCC states all chicken farmers are provided the same quality of chicks, the same feed, and access to veterinary care. Farmers who invest in more advanced facilities, as well as use the best management practices, will likely produce higher quality chickens more efficiently. Farmers receive a base pay per their contract and potentially a bonus, based on the health and quantity of the flock, the industry group adds.
“Raising chickens under contract is one of the best and most reliable sources of cash flow that helps keep families on the farm,” NCC says. “The contract provides farmers with guaranteed income, and insulation from market risks, such as feed costs, floods and droughts. That is why there are thousands of people right now on waiting lists wanting to apply for a contract to raise chickens.”
Brown says NCC is in the process of reviewing the 155-page proposed rule and looks forward to providing more detailed comments to the department in the near future.
“Poultry growers have endured an unfair contracting system for far too long, and all livestock producers continue to face heavily concentrated markets with insufficient protections from anti-competitive practices. We are glad that the first in a series of promised rules is being introduced,” says National Farmers Union President Rob Larew. “This rule will ensure poultry growers have a fair marketplace, free from retaliation. We will review the proposed rule and share further recommendations with USDA to help ensure the final rule provides the protections poultry growers deserve.”
Improving supply chains
On Wednesday, USDA announced it would begin accepting applications for the Commodity Container Assistance Program which currently includes a partnership with the Port of Oakland in California and the Northwest Seaport Alliance - a marine cargo operating partnership between the Port of Seattle and the Port of Tacoma in Washington State. Ongoing market disruptions have created logistical challenges associated with the availability and flow of shipping containers to transport agricultural commodities, which has prevented or delayed American-grown agricultural commodities from reaching their markets.
For the Port of Oakland, the Agricultural Marketing Service covered 60% of the start-up costs for the “pop up” site and under CCAP, the Farm Service Agency is providing a $125 per container payment to partially assist agricultural commodity owners for the additional logistical expenses associated with picking up empty shipping containers to be filled with agricultural commodities and products at the Port of Oakland. Under CCAP, FSA will also provide payments of $200 per dry container and $400 per refrigerated, or reefer, container to help cover additional logistical costs associated with moving the shipping container twice, first to the preposition site and then to the terminal loading the vessel, along with the cost of temporary storage.
Expanding meat processing capacity
USDA also announced it would be making $200 million available under the new Meat and Poultry Intermediary Lending Program to strengthen the food supply chain and create opportunities for small businesses and entrepreneurs in rural communities. These funds will provide much-needed financing to independent meat and poultry processors to start up and expand operations. By introducing competition at this key bottleneck point in the supply chain, these investments will help raise earnings for farmers and lower prices for consumers.
The MPILP will provide grants of up to $15 million to nonprofit lenders, including private nonprofits, cooperatives, public agencies and tribal entities. These intermediaries will use this funding to establish a revolving loan fund to finance a variety of activities related to meat and poultry processing. For example, businesses may use the loans to acquire land, build or expand facilities and modernize equipment.
Vilsack also announced $25 million in investments for workforce training programs for meat and poultry processing workers with American Rescue Plan Act Section 1001 funding. The targeted funding through new and existing National Institute of Food and Agriculture programs is designed to create and expand upon good-paying jobs that can strengthen the meatpacking industry by attracting and retaining employees.
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