2019 Packers and Stockyards Act Update
As a result of a recent OCM lawsuit, the U.S. Department of Agriculture released a notice of proposed rulemaking indicating that in the summer of 2019 the agency will begin writing rules critical to protecting livestock and poultry farmers from illegal and unfair corporate business practices including retaliation. The new rule will seek to clarify Section 202(b) of the Packers and Stockyards Act, which was passed into law in 1921 in response to rampant abuses in the meatpacking industry. The rule release will be followed by a 60-day public comment period. We are demanding the USDA craft strong Packers and Stockyards Act safeguards to give farmers a fighting chance.
Section 202(b) of the P&S Act
It shall be unlawful for any packer or swine contractor with respect to livestock, meats, meat food products, or livestock products in unmanufactured form, or for any live poultry dealer with respect to live poultry to:
(b) Make or give any undue or unreasonable preference or advantage to any particular person or locality in any respect, or subject any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect
USDA must restore producer protection safeguards under the Packers and Stockyards Act by issuing new rules that meet or exceed the demands that are outlined by Senators Tester and Grassley along with Congresswoman Kaptur in their recent letter to USDA:
a. Clarify the long-standing USDA position that the Packers and Stockyards Act does not require a producer to demonstrate harm to competition across the entire sector in order to bring a claim.
b. Ensure packers are not providing preferential marketing arrangements to only a select group of large livestock feeders, while excluding opportunities for smaller, independent feeders to remain profitable.
c. Protect the rights of farmers to join together in producer associations to advocate for themselves, free from retribution.
d. Grower payment systems (tournament) should be objective, transparent, and reward growers for their management skills, not penalize them for factors outside of their control.
Why a Strong Packers and Stockyards Act Matters
Since 1980, 90% of U.S. hog farmers and 41% of U.S. cattle producers have gone out of business, and over one million U.S. family farmers have been driven off the land. Today, 71% of America’s poultry growers live below the federal poverty level. A huge contributor is the fact that an almost 100-year-old antitrust, anti-predatory market practices law is not being enforced, and farmers are not protected from abuses by the largest livestock and poultry packing and processing companies.
Heavy consolidation by the top four companies both in the processing/packing sector as well as the retail sector is a major contributor to the demise of America’s family farm agriculture. The practical outcome of heavy consolidation is that even though independent family farmers and ranchers still exist and own their farms, they often have only one or two processors in their market area to sell their goods to, and these large companies have the power to dictate the terms and conditions of the deal – most importantly, price. Because contract farmers are responsible for the land, buildings, equipment, labor, and other production costs, the farmer takes on all the risk. If the terms of their contract from the big packer do not pay the mortgage and leave the farmer with a livable wage, there is not much they can do about it. Meat packing and processing companies are able to dictate unfair prices, pit farmers against each other, and retaliate against farmers if they speak out.
History of the Packers and Stockyards Act and Why It Isn’t Working
Packers and Stockyards Act of 1921
This is not the first time our country has faced this crisis. Almost a century ago, in 1917, President Woodrow Wilson ordered an investigation of the entire food system as a result of an outcry from American farmers as well as Wilson’s concern that the increased cost of living for all Americans was the result of the five largest meat packers – Armour, Cudahy, Morris, Swift and Wilson (Big 5) – having a stranglehold on the market. Wilson feared the Big 5 were manipulating the market and causing artificially higher prices for consumers and lower payments to farmers. Wilson ordered an investigation to determine if there were any “manipulations, controls, trusts, combinations or restraints out of harmony with the law or the public interest.” The investigative report was issued in 1919 and did declare that the Big 5 were manipulating the market, defrauding consumers and farmers, and “profiteering.”
In 1921, in an attempt to right the market and to ensure consumers and farmers were treated fairly, the U.S. Congress passed the Packers and Stockyards Act (P&S Act). This act prohibited meat packers and processors from engaging in unfair and deceptive practices, manipulating prices, creating monopolies and engaging in other anti-competitive market behavior. With the enforcement of this new law, by 1976 the Big 4 meat companies only controlled about 25% of the market and it was functioning as a fair and transparent marketplace (see Agriculture and Applied Economics Association journal report).
Courts Weaken P&S Act Enforcement
Unfortunately, following this success story, the Reagan administration replaced the definition used to determine anti-competition, moving away from anti-competitive factors to factors to determine “efficiency” in the market. Following this lead, the courts have narrowed the enforcement ability of the P&S Act. While the U.S. Supreme Court upheld the act right after its passage (see Stafford v. Wallace, 1922), the same court struck down Monfort’s attempt to stop Cargill from purchasing a joint competitor, Spence Foods (see Cargill v Monfort, 1986). Following this decision, the Big 4 meat companies’ control of the marketplace went from 50% to over 62%, and by the mid-90’s the Big 4 controlled about 80% of the market.
This began several farmer-led court actions focusing on the anti-competitive nature of the market due to heavy consolidation of the Big 4. However, two U.S. Appeals Courts found against farmers and in favor of the packers in the cases, leaving the P&S Act enforcement mechanism toothless.
The first of these cases was in 2004: following a lower court’s $1.2 billion award for damages under the P&S Act to cattle producers, one of whom was Organizations for Competitive Markets co-founder and board member, Mike Callicrate, the United States Court of Appeals of the Eleventh Circuit ruled for the packer, finding the packer had a legitimate business interest to limit competition (Pickett v. Tyson Fresh Meats Inc.).
Then, in 2009, following a federal district court’s determination that the company Pilgrim’s Pride had given unfair market advantages to the founder of Pilgrim’s Pride as compared to other farmers raising chickens for the company, the United States Court of Appeals for the Fifth Circuit ruled for the packer stating that any claim brought pursuant to the P&S Act had to demonstrate an adverse impact to competition across the industry had occurred, and not just harm to the person bringing the case. Known as competitive injury, this was a hurdle that proved too high for any producer to clear. Meat packers and processors used this false interpretation of the P&S Act to avoid responsibility for damages caused to farmers when they could not prove harm to the entire sector. OCM’s General Counsel and three other attorneys initiated an appeal to the U. S. Supreme Court (Alton T. Terry v. Tyson Farms, Inc.) in an effort to settle the matter, but the high court declined to hear the appeal.
Grain Inspection, Packers and Stockyards Administration (GIPSA) Rules
To address these problems, the 2008 Farm Bill during the end of the Bush administration required USDA to write regulations to restore protections for farmers under the P&S Act. By December 2009, the USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) proposed rules that addressed the minimum needs for contract poultry growers. In 2010, the Obama administration held a series of joint Department of Justice and USDA hearings around the country. OCM member Dudley Butler was appointed administrator of GIPSA, and in June of 2010, new GIPSA antitrust proposed rules were published. The rules included provisions lowering the standards a producer needed to prove to make a claim, provisions that made it more difficult for packers to price fix by trading among themselves, producer protections, and other anti-competition protections.
These victories were short-lived as GIPSA announced the final rules would not include the price fixing measures. Before the watered-down final rule could even be published, the Congress, under pressure from the meat and poultry industry, defunded the implementation of most of the rules in November 2011 through an appropriations rider, known as the “GIPSA rider.” Shortly thereafter, in frustration, Dudley Butler resigned his administrator position at GIPSA. Through 2015, the Congress was successful in passing GIPSA riders in the appropriations bill, successfully blocking any marketplace protections for family farmers.
Farmer Fair Practices Rules
During the 2014 Farm Bill debate, supporters of the GIPSA rules were able to stop industrial agriculture special interest groups’ attempts to permanently kill the GIPSA rules in the Farm Bill. Then, the 2016 GIPSA defund-rider failed in Congress following a powerful exposé by John Oliver, opening the door for the adoption of at least a portion of the GIPSA rules which were first proposed in 2009.
On December 14, 2016, at the end of President Obama’s term, OCM joined with USDA in the release of three new proposed Farmer Fair Practices Rules that would restore the original intent of the P&S Act. However, the rules were soon delayed multiple times by the incoming Trump administration. Then, on October 17, 2017, USDA withdrew the Farmer Fair Practices Interim Final Rule, and announced it would take no further action on the proposed rule, Unfair Practices and Undue Preferences in Violation of the Packers and Stockyards Act. Thus far, no action has been announced regarding the proposed rule, Poultry Grower Ranking Systems.
With the help of Democracy Forward Foundation, OCM sued USDA in December 2017 for illegally rolling back the Farmer Fair Practices Rules in violation of the 2008 Farm Bill mandate. In the courtroom, the USDA pledged that it was working on new rulemaking to be released in 2019.
We continue to urge the administration and Congress to swiftly enact these marketplace safeguards to strengthen the P&S Act. The fight for justice and freedom is never a sprint; it is a never-ending marathon, and we must continue the fight.
For a comprehensive review of the issues family farmers face and why there is such a need to implement the rules as suggested here, see:
Lina Kahn’s article, Obama’s Game of Chicken
Christopher Leonard’s book, The Meat Racket