USDA Proposes to Regulate Chicken Tournament Systems
The U.S. Department of Agriculture recently proposed a new rule to regulate, but not ban, the controversial “tournament system” that meatpackers use to pay chicken farmers.
As it stands, when a farmer signs a contract to raise chickens for a company like Tyson or Perdue, they aren’t guaranteed a set price per pound for the chicken they raise. Instead, their compensation changes with every flock based on how efficiently their birds (which are provided by the packer) convert feed (also provided by the packer) into pounds of flesh. Farmers with an above average “feed conversion” receive a bonus, but that bonus is paid for off the backs of other farmers whose pay is docked for falling below the average feed conversion.
This zero-sum system stabilizes prices for meatpackers because on net they buy all their chicken for the tournament price average. But for individual farmers, pay varies wildly. A survey by USDA found that in 2020 the bottom 20% of farmers received just 5 cents per pound or less, while the top 20% received nearly 9 cents or more.
For decades, farmers have complained about this payment system because so many of the factors that can land them in the top or bottom of the tournament are beyond their control. Studies show that chicks born to hens of a certain age put on weight more efficiently than chicks from young or old hens. Chicken companies determine farmers’ feed mix and drop it off for them, and one late delivery or bad feed mix can set farmers back. Companies also determine how many pounds of chicken a farmer could possibly produce because they decide how many birds each farmer raises.
Further, chicken companies can change the goalposts for performance by manipulating the tournament pool. If a group of especially efficient farmers all end up in the same tournament, half of them still must receive below average pay.
Corporations claim that they treat all their farmers the same and deliver them equal quality chicks, feed, and veterinary care, but farmers say otherwise. A survey of 105 poultry growers by the Rural Advancement Foundation International (RAFI) found that 92% experienced flock health problems, 83% experienced a 12-hour feed disruption, 75% received an incorrect feed mix, 72% had chicken companies give them fewer birds, and 88% struggled with chicken companies picking up flocks at suboptimal times.
Based on information submitted through public comment, the USDA determined that the tournament system, as it stands, violates the Packers and Stockyards Act, which bans meatpackers from using unfair and deceptive practices. The USDA did not propose to ban tournament systems altogether, but its three-part rule would regulate some of tournaments’ worst abuses.
First, the proposal would prevent chicken companies from deducting farmers’ pay below the stated base price. USDA’s review of poultry contracts found that “the largest chicken companies use the term ‘base’ pay when they are referring to average pay, not minimum pay.” This practice misleads farmers and makes it challenging for growers to estimate the minimum earnings they can expect. “The tournament system obscures the true income potential of a contract, especially for perspective growers,” explains Aaron Johnson, the policy co-director for RAFI. “That [minimum annual income] is a key thing [for growers] to have to then assess, does this cash flow, does this let me make the living I want to make while paying off the debt I’m taking on.”
Going forward, growers would still be able to receive bonuses for good performance, but chicken companies could not deduct pay for falling below average. The Department of Justice already mandated that Cargill, Sanderson, and Wayne Farms adopt this standard as a part of an antitrust consent decree when Cargill acquired Sanderson and Wayne. The DOJ also mandated that the pay variance between Sanderson-Wayne’s farmers could not be greater than 25%. The USDA did not cap maximum pay variance between contract poultry growers in this proposal, but the agency requested public input on whether it should.
The second part of the rule would require chicken companies to restructure their tournament systems to “provide a fair comparison among growers.” Chicken companies would need to name and document the inputs and practices they control that could impact a farmer’s performance. Then the companies must design a method for comparing growers that accounts for the variation in these inputs and practices. For example, a chicken company would need to adjust a farmer’s performance ranking to account for the fact that they received lower quality chicks from an older flock. Chicken companies would also need to show that they have systems in place to resolve growers’ concerns with company actions that could affect their compensation, like a late feed delivery. Companies would need to conduct a compliance review of these policies at least every two years and the USDA would have ultimate authority to determine if company policies meet the fair comparison standard or not.
Companies would also need to offer farmers a non-comparison payment option when factors beyond the farmers’ and company’s control make a fair comparison impossible. For instance, when extreme weather makes late feed delivery or timely flock pick up unavoidable, or when the company provides an incurably sick flock. Some chicken companies already have systems to pay farmers based on their average performance over the past year, instead of their tournament ranking. However, in public comments, farmers said this practice is not universal and depends on the goodwill of the company and their local complex manager. This rule would mandate that companies provide this option.
Finally, the third part of the proposed rule would require chicken companies to provide more information when they ask growers to make capital investments in their chicken barns. New equipment can help farmers place higher in tournament systems, but continual mandated investments can also make it hard for growers to pay off their debts, especially when the upgrade doesn’t increase earnings. The proposal would make chicken companies justify the requested capital investment and provide documentation to demonstrate how it will help growers as well as the risks and uncertainties of the investment.
RAFI’s Johnson notes that this proposal, in concert with other new Packers and Stockyards rules from USDA, would rein in some of the most deceptive and abusive parts of the tournament system. However, the proposal relies heavily on the discretion of USDA and active enforcement of the law, which could vary from administration to administration. “The big caveat is going to be contingent on a new level of ambition on the part of the regulatory apparatus, but the framework is there to lean in in a way that could do a lot of good,” he said.
What We’re Watching
On Wednesday, Open Markets and the producers of Food Inc. 2 hosted a roundtable discussion on how monopolies took over our food system and what policymakers can do to break them up.
Featuring Eric Schlosser, producer of Food Inc. 2 and author of Fast Food Nation, Max Miller, attorney advisor to Federal Trade Commissioner Alvaro Bedoya, and Claire Kelloway, food program manager for the Open Markets Institute (and writer of Food & Power).
The conversation was moderated by Marcia Brown, food and agriculture reporter at POLITICO.