USDA Releases New Rule to Increase Transparency in Poultry Contracting
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On Thursday the U.S. Department of Agriculture released the first in a promised set of rules to curtail power imbalances between farmers and meatpackers under the Packers and Stockyards Act. The USDA’s proposed rule would require that chicken companies provide more information to their contract growers about the birds, feed, and other inputs growers receive, plus more detailed earnings projections before signing a contract.
Poultry companies so thoroughly control contract growers’ inputs and business decisions that one lawsuit recently alleged that contract growers are not even independent businesses, but misclassified employees. As a result, growers complain that they have little control over their success; and companies can send them into bankruptcy by delivering poor quality birds or feed or requiring costly barn upgrades. Growers are also paid through an unpredictable tournament system that ranks their performance against neighboring growers and pays top performers a bonus at the expense of poor performers, who get a pay cut. Growers on the losing end of this system may struggle to pay off the debts on their chicken houses. When half of chicken farmers report only having one or two processors in their area to work with, farmers have few choices for finding better contract terms or treatment when abused.
“The tournament system is a deceptive, yet brilliant mechanism used by poultry companies to shift economic risks from themselves onto growers, all the while telling the growers the exact opposite,” said Steve Etka, policy director for the Campaign for Contract Agriculture, in a statement. “Farmers put up all of the capital costs to produce the chickens, with no control over the process, and very low rate of return on their investments.”
These proposed rules would require chicken companies to provide farmers with more relevant and complete earnings projections before they sign a contract. Earnings projections would need to include a grower’s full range of possible incomes based on the earnings spread of other farms in their area. Poultry contracts would also need to guarantee that farmers receive a minimum quantity of birds annually. Since farmers are paid per pound of chicken they raise, farmers can make less than expected if poultry companies drop off fewer birds than they initially promised.
Poultry corporations would also have to disclose all the inputs that they gave to other farmers in a tournament group when settling rankings and final payment. They’d also have to provide more information about incoming flocks of chicks before delivering them to farmers. With this anonymized information, farmers can see if differences in provided inputs, such as the quality of chicks or timing of feed deliveries, helped a neighbor rank higher in the tournament system (or if another factor, like housing design, played a role).
Such disclosures could create a paper trail of any unequal treatment between contract growers and ensure greater accountability for chicken companies to provide quality inputs. If chicken companies do not actually provide the quantity and quality of inputs as disclosed, farmers can challenge them for deception under the Packers and Stockyards Act.
The rules do not take steps to ensure that farmers receive a fair base pay in tournament systems nor do they ban tournament-based payment altogether, which some farmers’ advocates have asked for. Instead, the USDA also issued an advanced notice of proposed rulemaking to gather more information about “whether some practices of processors in the tournament system are so unfair that they should be banned or otherwise regulated.”
After years of advocating for new Packers and Stockyards rules to protect contract growers from manipulation and mistreatment by powerful chicken corporations, the reactions to this first new rule were conditionally optimistic.
“We’ve long advocated for the USDA to rule that any tournament system or formula payment arrangement that bases grower compensation on factors outside their control to be an unfair practice,” said Aaron Johnson, RAFI-USA’s challenging corporate power program manager, in a statement. “While this rule stops short of that standard, if finalized, it takes many important steps toward giving contract poultry growers the information they need to better advocate for themselves, while significantly increasing transparency in the industry.”
"This is a big step in the right direction, however, the work is not done,” said Sarah Carden, policy advocate at Farm Action. “The tournament system is grossly unfair and must be banned unless the contract contains a firm base price [that] the poultry grower will be paid."
What We’re Reading
As the Biden administration prepares more Packers and Stockyards Act rules, the Washington Center for Equitable Growth put out a set of recommendations for reinvigorating PSA enforcement. (Report)
Sens. Elizabeth Warren and Mike Rounds introduced a resolution last week asking the Federal Trade Commission to investigate alleged price-fixing by beef companies. (Reuters)
With one plant reportedly producing as much as 20% of all baby formula in the U.S., monopoly power and corporate greed were leading drivers of the current baby formula shortage. (Bloomberg / More Perfect Union / NPR)