Comments on Proposed Rules Related to Poultry Grower Payments Systems and Capital Improvement Systems

Abstract

The Agricultural Marketing Service (AMS) has proposed four additional rules to regulate certain aspects of the relationship between Live Poultry Dealers (LPD) and farmers who grow poultry for those LPDs. The Department of Agriculture (USDA) and AMS have the express authority under the Packers and Stockyards Act (PSA) to adopt rules to interpret and enforce the Act’s protections.1 The proposed rules would 1) restrict the use of the “tournament” system for compensating growers by requiring that there be a set rate of reasonable compensation that could not be varied even if additional compensation was offered based on variations in performance as determined by the LPD; 2) require consistent and reasonable standards for any variable compensation system; 3) impose additional disclosure requirements on an LPD in connection with any demand by it that a grower make additional capital investment (ACI) during the duration of a contract to continue as a grower for the LPD; and 4) a rule making all the rules and subparts of those rules in Subpart N severable in the event that the courts or congress determine that one or more specific rules or parts thereof should no longer be enforceable.
I offer these comments based on my long-standing scholarly interest in the problems confronting farmers engaged in the production of cattle, hogs, and poultry. In general, I strongly support these proposed rules because they will help ensure a better balance between poultry farmers and the LPDs for which they work. There are ways that the proposed rules can and could be strengthened to ensure that they can better achieve the objective of fair and reasonable compensation. In addition, these rules address only parts, albeit important parts, of the compensation system under which growers operate. AMS should, therefore, consider developing additional rules to constrain the abuse of discretion by LPDs with respect to other central facets of the economic relationship with growers.
I will first briefly review my own background with respect to the issues that the AMS proposals address. Second, I want to put the economic problems confronting poultry growers in context of the broader global problems arising in markets where monopsonistic power is persistent and unavoidable. Third, it is important to locate the specific proposals at issue in this rule making within the context of the range of economic risks that growers confront to emphasize the limits of these proposals. Fourth and finally, there are some specific comments on the four proposed rules which include responses to some of the specific questions that AMS has asked.