By Paul Goeringer, Agricultural Law Education Initiative (ALEI) | University of Maryland
The Biden administration recently announced a proposed regulation to revise the Packers and Stockyards Act to require more disclosures to contract poultry growers. These regulations would fully replace the proposed regulations announced by the Trump administration. The regulations being proposed by USDA are to combat a concern by USDA that poultry growers are not fully aware of the financial risks associated with flock placements and the tournament system. At the same time, there is a concern that growers potentially are making financial decisions involving improvements to houses without fully understanding the financial risks. The proposed rules would assist in combating that. The current administration’s proposed regulations are similar to efforts made at the end of the Obama administration to create transparency in the tournament system. Proposed Federal RegulationUnder the proposed federal rule, a poultry integrator would be required to provide additional information to a poultry grower, including a Live Poultry Dealer Disclosure Document consisting of:
- Minimum number of flocks the grower can expect annually under the terms of the contract;
- Minimum stocking density for each flock that the grower can expect under the terms of the contract;
- Summary of all litigation over the previous six years involving the integrator and the integrator’s growers. This would include the nature of the litigation, initiating party, location, brief description of the controversy, and any resolution;
- Summary of all bankruptcy filings over the previous six years by the integrator, including any parent, subsidiary, or related entity by the integrator; and
- A statement describing the policies and procedures for the integrator regarding the sale of the grower’s facility or assignment of the poultry grower’s facility, or assignment of the contract to another grower.
Integrators would be required to get a grower’s signature to verify that the required disclosures were presented to the grower. The proposed rule would also allow growers to discuss the terms of the contract and disclosure document with others.
Additionally, the integrator would need to provide specific financial disclosures in the Poultry Dealer Disclosure Document, including:
- A table showing average annual gross payments to all poultry growers for the previous calendar year for all facilities the integrator operates. This would need to be organized by housing specifications, and the average payments would be expressed in U.S. dollars per farm facility square foot;
- A table showing average annual gross payments made to growers by the local facility for the past five years. This would also be expressed in U.S. dollars per farm facility square foot. The table would be organized by year, housing specification tier, and quintile. The proposed regulation also includes how this should be calculated.
If the grower’s housing specifications are modified to include an additional capital investment or if the five-year average annual gross payments do not accurately reflect projected grower gross annual payments for any reason, then the integrator will need to provide additional information:
- Tables with projections of average annual gross payments to growers under contract with the facility with the same housing specifications for the term of the contract at five quintile levels, expressed in dollars per farm facility square foot, and
- An explanation of why the five-year annual gross payment averages do not accurately reflect a projection of future payments. This explanation would need to include the basic assumptions being made in the projections.
- A summary of all information that the integrator will collect or maintain from the grower related to variable poultry production costs.
For the above requirements, you may contact a local state Extension office for information relevant to poultry production costs and financial management information.
Along with the required disclosures that would now be required by the proposed regulations, integrators utilizing the tournament system would need to provide additional documentation to increase transparency. This would include a placement disclosure within 24 hours of flock delivery to a grower. The integrator should provide the following information related to placement: stocking density, name and all ratios of breeds of poultry delivered, ratios of males to females (if available), breeder facility, breed flock age, information related to health impairments of the breeder flock/poultry delivered, and any adjustments the integrator might have to make to calculate the pay based on these factors.
At settlement, the integrator would need to provide the grower with all ranking system settlement documents These documents would include a copy of the grouping or ranking sheet showing the grower’s exact position in the grouping/ranking/comparison for that period. The sheet need not include the names of other growers but must show the growers’ housing specifics and the actual figures the ranking is based on. The growers in the ranking will need to see how inputs are distributed, including stocking density for each placement, names and ratios of breeds for each grower, the ratio of male to female birds (if available), all the breeder facilities, breeder flock ages, and the number of feed disruptions each grower endured during the grow out period.
The current administration is proposing these changes to increase transparency in the tournament system. At this point, USDA is accepting comments through August 8; you can make comments here. It’s important to note these are just proposed regulations at this time; the final regulations may include changes based on the public comments. The other issue is that once the final regulations go into effect, there may be litigation on enforcing the regulations.
Article courtesy of Delmarva Chicken Association. Dr. Jim MacDonald provided feedback on this article. The article is not a substitute for legal advice.
