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Meat Industry Criticizes USDA's GIPSA Rule

Meat Industry Criticizes USDA's GIPSA Rule
Ag Secretary says it's unfortunate Congress intervened and prevented rule from going further.

By Christopher Leonard

ST. LOUIS (AP) -The U.S. Department of Agriculture released a new but stripped-down antitrust rule Thursday regulating meat companies that's far less sweeping than initial reforms that ran into strong opposition from businesses and Congress.

The department published the final version of the rule after more than a year of heated debate that pitted the nation's biggest meat companies against many farmers and ranchers. Congress voted last month to prohibit the USDA from passing most portions of the reform. The companies had claimed the rule could increase costs and raise the price of meat.

"I think it's unfortunate that Congress chose to intervene in the process and prevent us from going further," Secretary of Agriculture Tom Vilsack said Wednesday in an interview with The Associated Press.

But Vilsack said the remaining provisions would help farmers.

"I think all of these steps we're taking are important," he said.

The final version requires that meat companies give farmers the right to opt out of mandatory arbitration clauses in their contracts. Those clauses have upset many farmers, who thought they should have the right to take poultry companies to court for alleged contract violations.

The other measures have been abandoned or changed into guidelines for the agriculture secretary to consider when judging if meat companies have violated a decades-old antitrust law called the Packers and Stockyards Act.

The scaled-back rule is a victory for the nation's biggest meat companies, which rely on a steady stream of chickens, cattle and hogs to keep their factories running. In recent decades, meat companies developed tightly coordinated relationships with farmers and ranchers, buying most animals through secret contracts rather than the open market, giving companies more control over prices. The original USDA rule would have redrawn those relationships, tilting the balance of power back toward the farm.

Tyson Foods spokesman Gary Mickelson said the company was disappointed in the final rule because it would impose millions of dollars in additional costs on the poultry industry. The USDA estimates it could cost the poultry industry between $9.8 million and $55.5 million a year. The cost to all industries could be between $21.3 million and $72.1 million a year, according to USDA.

"From the outset, we agreed with others that the GIPSA rule originally proposed in 2010 was bad for farmers, processors and consumers," Mickelson said in an email.

National Chicken Council President Mike Brown echoed those thoughts, and called the rule "especially burdensome" in light of the high costs companies are paying for grain.

Activists and farmer representatives who pushed for more regulations said they wished the rule had gone further.

"Clearly, the USDA has bowed to the pressure of the meatpackers and their allies who do not want USDA to oversee the unfair trade practices that are going on in our industry," said Bill Bullard, chief executive of R-CALF USA, a group that represents small to mid-sized cattle producers.

The original rule also would have made it much easier for farmers to sue companies under the Packers and Stockyards Act for manipulating prices, underpaying farmers or other violations. The rule would have required farmers only to prove the company's action harmed them rather than harmed competition in the entire industry.

The rule would have effectively banned a "tournament" system that poultry companies use to pay farmers. The companies rank farmers based on how efficiently they raise birds on a given amount of feed, paying less when a farmer does worse than others nearby.

The measure also would have barred meatpackers from forming special relationships with some feed lots, giving them a premium price while refusing to do business with others.

Now that the regulations have been defeated, companies can be assured of continued flexibility as they deal with poultry and livestock producers. Lobbyists said that flexibility helps drive down the price of meat. Farmer advocates and some consumer groups claimed it gives companies the power to depress farm prices even as meat gets more expensive in the grocery store.

The new USDA guidelines address the way poultry companies deal with contract farmers that raise chickens for them. The farmers often borrow hundreds of thousands of dollars to build factory-like chicken houses where the birds are raised, and depend on the company to supply them.

The new guidelines say poultry producers should give a farmer at least 90 days notice before suspending the delivery of birds. The guidelines also say it might be illegal if companies require farmers to borrow money to upgrade chicken houses as "the result of coercion, retaliation or threats of coercion."

While not as far-reaching as the original proposal, the guidelines will protect for chicken farmers, said Becky Ceartas, a spokeswoman for the farmer advocate group RAFI-USA

"The protections in this rule are an overdue and hard-won step in the right direction," Ceartas said in a statement.

Vilsack said the guidelines would deter companies from conducting those practices. But he said he's still worried about transparency and fairness in livestock markets.

"I'm paid to worry about that every day," he said.

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