Concerns with ‘GIPSA’ Rules Sent to OMB for Review

Randall Weiseman Cattle, Industry News Release, Livestock, Pork

The U.S. Department of Agriculture’s Grain Inspection, Packers and Stockyards Administration (GIPSA) last week sent to the White House Office of Management and Budget (OMB) for review three rules related to the buying and selling of livestock and poultry. They include: an interim final rule addressing the “scope” of sections of the Packers and Stockyards Act (PSA) related to meat packers using unfair, unjustly discriminatory or deceptive practices and giving undue or unreasonable preferences or advantages to producers; a proposed rule defining unfair practices and undue preferences; and a proposed rule addressing poultry grower ranking systems. But there are concerns in the livestock industry, including some from the National Pork Producers Council and National Cattlemen’s Beef Association.

From the National Pork Producers Council:

WASHINGTON, D.C., Oct. 14, 2016 – The National Pork Producers Council today expressed concern about U.S. Department of Agriculture regulations on the buying and selling of livestock and poultry. USDA today sent to the White House Office of Management and Budget (OMB) for review three rules – the “Farmer Fair Practices Rules” – that, according to the agency, would “help balance the relationships between livestock producers, swine production contract growers, and poultry growers and the packers, swine contractors, and live poultry dealers with whom they interact.”

Issued by USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) as an interim final rule and two proposed rules, the regulations are supposedly revisions of rules first proposed by GIPSA in 2010 to implement provisions Congress included in the 2008 Farm Bill.

The 2010 rules, however, went well beyond the congressional mandates of the Farm Bill and would have had a significant negative effect on the livestock industry, according to an analysis conducted by Informa Economics, which found they would have cost the U.S. pork industry more than $330 million annually. (An update of the analysis found that today it would cost the pork industry $420 million a year to comply with the rules.)

As a result, tens of thousands of comments, including 16,000 from pork producers, were filed in opposition to the 2010 rules, and Congress several times included riders in USDA’s annual funding bill to prevent the agency from finalizing the regulations. But no rider was included in the fiscal 2016 agricultural funding bill, and USDA earlier this year indicate it would move forward with new rules.

“Pork producers are concerned that, like the 2010 proposed rules, the ones sent to OMB would have a negative effect on the pork industry, from producers to packers and ultimately consumers,” said NPPC CEO Neil Dierks. “While the specifics of the actual rules are not yet clear, we’re worried about their impact on the ability of producers to secure financing and to innovate and about them potentially leading to greater vertical integration without offering positive advantages to the industry and consumers.”

Of particular concern, Dierks said, is the interim final rule on the “scope” of sections of the Packers and Stockyards Act (PSA) related to meat packers using “unfair, unjustly discriminatory or deceptive practices” and giving “undue or unreasonable preferences or advantages” to producers. While NPPC has yet to see the language of that rule, the 2010 version was overly broad, and most of the cost of complying with the 2010 rules would have come from that regulation.

Agriculture Secretary Tom Vilsack, in a letter sent this week to NPPC and to other agricultural organizations, said the interim final rule will “establish our interpretation of the [PSA] statute, which will then be entitled to judicial deference.”

NPPC’s fear is that the interpretation apparently will be that producers no longer will need to prove that a meat packer’s action injured or diminished competition in a “marketplace.” They only will need to show that a practice was “unfair” to them or that an “undue” or “unreasonable” preference or advantage was given to another producer or producers.

The Senate considered and rejected such a “no competitive injury” provision during debate on the 2008 Farm Bill. Additionally, eight federal appeals courts have held that it must be proved that competition in a marketplace was harmed for an action to be a violation of the PSA.

“The interim final rule will create legal uncertainty for producers and packers,” said Dierks, who pointed out that because the regulation is “final,” it will become effective as soon as it’s published in the Federal Register.

USDA will accept public comments on the interim final rule and on the two proposed rules once they are published in the Federal Register.

From the National Cattlemen’s Beef Association:

WASHINGTON (Oct. 14, 2016) – In a letter to the National Cattlemen’s Beef Association, USDA acknowledged that the agency would continue the rulemaking process on the 2010 Grain Inspection, Packers and Stockyards Act proposed rules. The proposed rulemaking was initially undertaken in 2010 and quickly defunded by Congress which recognized them as a flawed concept that limits producers’ marketing options while adding layers of bureaucracy and opening the door to litigation. NCBA President Tracy Brunner said these provisions were troubling in 2010 and remain a major concern six years later.

“The GIPSA rules, as they pertain to cattle producers, are extremely troubling to our industry at a time when we are already grappling with volatile futures markets and a fragile cash market,” said Brunner. “Rather than working to help ensure producers have accurate price information in a productive way, like ensuring Mandatory Price Reporting is a critical government function, unaffected by future government shutdowns; USDA is expending time and resources to push forward outdated rules to regulate an industry that never requested their assistance. These rules were flatly rejected by cattle producers six years ago and a strong bi-partisan majority in Congress expressed their continual disapproval through a half-decade of defunding.”

USDA has announced the GIPSA rules include an interim final rule on competitive injury and two proposed rules to address undue preference and the poultry grower ranking system. The agency has said they will provide additional opportunity for public comment on all the rules and will announce if any amendments will be made.

“NCBA and our members have been engaged with USDA, even while the implementation of these rules was defunded,” said Brunner. “Unfortunately, once again, this Administration has disregarded producer input and moved forward with regulations that would cause irreparable harm. USDA’s opportunity for future comment is a hollow offer when they should have engaged with the industry before moving forward.”

While USDA notes they will exclude marketing arrangements from these rules, these provisions are outweighed by the competitive injury provisions of the GIPSA rule that do not require a showing of injury in order to claim a violation of the Packers and Stockyards Act.

“We know that regulation and legislation always come with unintended consequences,” said Brunner. “We don’t see any changes that could be made to the competitive injury and undue preference provisions that wouldn’t diminish marketing opportunities for producers. The fact is that value-added programs have supported higher prices and premiums for producers even when markets are weak. The GIPSA rules would jeopardize the future of these programs and add litigation costs. Absent a required showing of economic harm to claim preference, these rules disregard a central tenant of our legal system and set out a regulatory framework for harassment based solely on the subjective appearance of preference.”

In 2010, NCBA submitted comments on the GIPSA rules citing concerns. These concerns remain as relevant today as they were six years ago.

“These rules are not about fairness, and to call them ‘Farmer Fair Practices Rules’ is nothing but political spin to disguise the real intent,” said Brunner. “These rules are another government solution in search of a problem. They will limit producer marketing options, compel buyers to offer lower bids across the board to avoid the appearance of preference and create an environment ripe for baseless legal challenge. We have always said that the GIPSA rules set out a trial lawyer’s bonanza and that is as true today as it was in 2010.”

NCBA calls on USDA to immediately withdraw the GIPSA rules and work with the industry to address the Administration’s concerns with livestock marketing.