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Proposed GIPSA rule: HighlightsProposed GIPSA rule: Highlights

Daryll E. RayUniversity of Tennessee

Agricultural Policy Analysis Center

Organization of Competitive Markets Annual MeetingOmaha, NebraskaAugust 10, 2010

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2008 Farm Bill Amendments to the 2008 Farm Bill Amendments to the Packers and Stockyards Act…Packers and Stockyards Act…

• Established new requirements for participants in the livestock and poultry industries

• Required the Sec. of Ag. to establish criteria that can be used to determine violations.

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Three Categories of Proposed Three Categories of Proposed GIPSA RuleGIPSA Rule

• Unfair, unjustly discriminatory and deceptive practices

• Undue or unreasonable preference or advantage

• Arbitration

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Unfair, Unjustly Discriminatory Unfair, Unjustly Discriminatory and Deceptive Practicesand Deceptive Practices

• Reiterates GIPSA’s and Department of Justice’s position that…– Harm to competition is always SUFFICIENT

to establish a violation of the P&S Act or section thereof

– BUT harm to competition is NOT NECESSARY to establish a violation

• The long-held GIPSA & Department of Justice position has not been buttressed by the courts

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Unfair, Unjustly Discriminatory and Unfair, Unjustly Discriminatory and Deceptive PracticesDeceptive Practices

• Violation/breach of a contractual duty- Action or omission that would be generally

considered unscrupulous, deceitful or in bad faith

• Retaliation by packer, swine contractor, or live poultry dealer- Including coercion, intimidation, etc.

• Refusal to supply statistical information to contractor used to determine compensation

– Including feed conversion, feed analysis, other factors that affect performance and revenue

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Unfair, Unjustly Discriminatory and Unfair, Unjustly Discriminatory and Deceptive Practices (cont.)Deceptive Practices (cont.)

• Payments of premiums or applying discounts without documenting reasons/justifications

• Termination of contracts because of allegations of failure to comply with law/rule…- Relevant law enforcement officials should handle

such violations if they are grounds for termination

• Misleading information regarding a material condition or terms of a contract or an arrangement

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Additional GIPSA Actions Under the Additional GIPSA Actions Under the “Unfair, Unjustly Discriminatory and Deceptive “Unfair, Unjustly Discriminatory and Deceptive

Practices” HeadingPractices” Heading• Prohibit packers from purchasing livestock

from other packers- New subsection designed to reduce potential price

manipulation influencing prices that then become market-benchmark prices

• Provide notice to poultry contractors of any suspension of delivery of birds at least 90 days prior to suspension of delivery

• If capital investment is required, contract length should allow recouping of (at least) 80 percent of the capital investment

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Additional GIPSA Actions Under the Additional GIPSA Actions Under the “Unfair, Unjustly Discriminatory and Deceptive “Unfair, Unjustly Discriminatory and Deceptive

Practices” Heading (cont.)Practices” Heading (cont.)• GIPSA to provide the opportunity for growers

to make the case for rejecting a proposed capital investment made by poultry dealer - Example might be a capital investment that

provides no benefits—financial or otherwise—only increases costs

• GIPSA to provide procedures for terminating a contract with a grower due to a breach of contract• Must provide time to remedy the breach before

taking action to terminate

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Undue or Unreasonable Preference or Undue or Unreasonable Preference or AdvantageAdvantage

• GIPSA to establish criteria to ensure– that identical contract terms are offered– to all producers – who can provide the required volume, kind,

and quality of livestock• Tournament System

– Require that no poultry grower be paid less than the base pay

– Must be configured among poultry growers with the same type of poultry houses

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Undue or Unreasonable Preference or Undue or Unreasonable Preference or Advantage (cont.)Advantage (cont.)

• Disparate treatment of grower must be based on business reasons

- Records must be maintained to justify differing treatment of growers

• Packers are prohibited from entering into exclusive purchase agreements with any dealer except its own dealers

• Require submission of samples of each type of contract to GIPSA, which would be put on its Web site for public viewing

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ArbitrationArbitration• GIPSA would standardize the way the

arbitration option, as a means to resolve disputes, is offered to producers in contracts

• Growers would be allowed to reject arbitration

• GIPSA would provide criteria to evaluate fairness of the arbitration option– Cost– Time to completion– Access to information by growers– Reasoned opinion by arbitrator

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Agricultural Policy Analysis Center The University of Tennessee 310 Morgan Hall 2621 Morgan Circle Knoxville, TN 37996-4519

www.agpolicy.org

Thank YouThank You