Agri-Pulse: USDA rolls out final GIPSA rule, sparking furious reaction from meat groups

USDA rolls out final GIPSA rule, sparking furious reaction from meat groups

By Spencer Chase

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, Dec. 14, 2016 – USDA has finalized a long-awaited rule that it says will protect a host of pork and poultry producers, but industry groups are crying foul.

As expected, USDA’s Grain Inspection, Packers and Stockyards Administration released its “Fair Farmer Practices” regulations Wednesday afternoon. The rollout included one interim final rule and two proposed rules, all intended to level the playing field for contract growers and the companies with which they work.

Among other things, the interim final rule sets standards for proof of harm for a violation of the Packers and Stockyards Act. USDA said the previous interpretation of the law was “overly broad” and required proof of harm across “the entire market.” Now, the rule is clarified to tell the court system that something can be in violation of the PSA without a legal finding of harm to competition.

Opponents of the rule say that by weakening the standards already in place, it will lead to a flurry of lawsuits because of lighter proof requirements for competitive injury.

Agriculture Secretary Tom Vilsack said the “common sense” rules are “about consistency” and now put the grower and the meatpacker on the same level.

“You shouldn’t have to show if you’ve been treated unfairly or in a discriminatory way, that somehow what’s happened to you harms competition to the entire industry,” Vilsack told reporters as the rules were released. “That’s just an unreasonably high burden for anyone to have to meet.”

Industry groups are, for the most part, not pleased. The National Pork Producers Council say the rules could potentially have the opposite of their intended effect and lead to more vertical integration in the sector as packers will be forced to produce more of their own hogs. NPPC CEO Neil Dierks said the rule “will be a boon to trial lawyers and a weapon (for) activist groups.”

“I can’t imagine a more devastating regulation on an industry,” Dierks said in a statement. “The rule, which creates legal uncertainty, will destroy opportunities for many in the U.S. pork industry, with no positive effect on competition, the regulation’s supposed goal.”

NPPC said the “illegitimate midnight rule” was “an apparent attack on rural America for its role in helping elect Donald Trump as president.” Vilsack called the allegations “absolutely absurd.”

“This has got nothing to do with the election of 2016,” Vilsack said, “this has everything to do with what’s fair to producers, and as long as I’m secretary, this department and this secretary is going to be on the side of producers.”

National Chicken Council President Mike Brown also came out against the rules. In a statement, he said the rules “could lead to rigid, one-size-fits-all requirements on chicken growing contracts that would stifle innovation, lead to higher costs for consumers, and cost jobs by forcing the best farmers out of the chicken business.” He added that the “vast majority” of U.S. chicken farmers “are happy and prosper raising chickens” and that the new interim final rule “would open the floodgates to frivolous lawsuits.”

The National Cattlemen’s Beef Association also was unsurprisingly upset. Tracy Brunner, NCBA’s president, said the new rules would limit how beef producers can market their livestock. The group also took issue with the timing of the rollout, saying the Obama administration and Vilsack shouldn’t be issuing these regulations as they were about to leave office.

“If USDA was interested in real solutions rather than increased government regulations, they wouldn’t have rushed these rules out the door at the very close of the administration’s term, bypassing any input from industry,” Brunner said. “Cattlemen and women don’t appreciate Secretary Vilsack throwing a grenade in the building as he abandons it.”

The rules were required by the 2008 farm bill, but hadn’t been implemented because of congressional appropriations riders that blocked their funding. In 2015, HBO comedian John Oliver spoke critically, to say the least, about the contract farming system on his “Last Week Tonight” program and called on Congress to stop including the so-called “GIPSA rider” in appropriations bills that fund USDA. That outcry and additional public sentiment led to that provision being omitted in the appropriations bill for FY 2016, allowing USDA to work on implementation of the rules.

In addition to the interim final rule on competitive injury, two proposed rules deal with the poultry grower ranking system – sometimes dubbed the tournament system – and unfair practices and undue preferences violations. The former would give GIPSA set criteria for determining whether a dealer who provides contract growers with young birds is compensating the growers fairly, while the latter clarifies what would be considered a violation of the Packers and Stockyards Act.

Opposition also flowed in from Capitol Hill. Senate Ag Committee Chair Pat Roberts, R-Kan., said the rules “will limit the economic freedom of America’s farmers and ranchers” and pledged to “take a hard look at the rule, but I have concerns based on the previous direction taken by USDA.” Rep. Mike Conaway, the chair of the House Ag Committee, struck a similar tone, saying he was disappointed to see the regulations published “despite assurances that they would be tabled for more thorough and appropriate consideration by the incoming administration.”

As strongly as groups like NPPC and NCC stand in opposition to the regulations, many groups are also in favor, including the American Farm Bureau Federation, the nation’s largest producer group.

AFBF President Zippy Duvall, a Georgia poultry producer, said the rules “take an important step toward leveling the playing field in the poultry industry by ensuring companies follow the law and treat farmers fairly, without disrupting beef and pork markets.”

Allan Sents, chair of the U.S. Cattlemen’s Association Marketing Committee, called the rules “an important step to advance competition and true price discovery in the cattle market.”

National Sustainable Agriculture Coalition Policy Specialist Paul Wolfe called the rules “basic and sensible.”

“The idea that contract farmers should have to prove injury to the whole sector in order to receive compensation for having been the victim of an anti-competitive practice is an impossible standard,” Wolfe said in a statement.

Bill Bullard, CEO of R-CALF USA, said the interim final rule “will empower cattle producers to monitor the meatpackers’ conduct and enforce the rules when meatpackers act inappropriately. Importantly, producers would no longer have to wait for the federal government to act before anticompetitive conduct is corrected.”

The release of the regulations late in the tenure of the Obama administration means the Trump administration will also have an opportunity to weigh in on the final regulations. But supporters of the rules are hopeful that Trump’s portrayal of himself as a populist will be helpful for smaller producers in their fight against large companies.

“Industry, big business, has its voice,” said National Farmers Union President Roger Johnson. “I think a lot of what (Trump) ran on as a candidate was saying ‘I’m for the little guy and I’m going to be your voice against the big multinationals.’ So we’ll see.”

Mike Weaver is the president of the Organization for Competitive Markets and a poultry producer from West Virginia. He said there is concern that Trump’s blanket approach to regulatory relief could catch these rules in the crossfire. He’s says there’s “no doubt” some regulations are deserving of the administrative ax, but he’s hopeful the GIPSA rules will be spared.

“These regulations are designed to protect American family farmers,” Weaver said. “American family farmers came out of the woodwork to support Trump, and we helped put him in office, and we need some consideration.”

The interim final rule and the two proposed rules will be subject to a 60-day comment period, which begins when they are published in the Federal Register.