Drafting Rules and Enforcing P&S Act

OMAHA (DTN) -- Some farm groups see gains within the Biden administration over competition and fair practices with poultry and livestock. Still, they are asking the White House and USDA to pick up the pace when it comes to writing new rules for the Packers and Stockyards Act.

Meanwhile, an antitrust attorney with the U.S. Department of Justice (DOJ) said DOJ has concerns about how livestock markets operate. Officials want to hear more from producers, but retaliation remains a risk.

BIDEN ASKED TO ACCELERATE EFFORTS

This past week, 62 groups wrote President Joe Biden asking to accelerate efforts to add more teeth to enforcement of the Packers and Stockyards Act. The letter came from several groups representing smaller producers, which included the National Farmers Union, the National Sustainable Agriculture Coalition and R-CALF-USA.

The groups pointed to the speed of new rules, stating they "are concerned about the slow pace of progress by USDA" on the P&S rules, which "could put them in jeopardy."

USDA has a final rule sitting at the White House Office of Management and Budget (OMB) since Oct. 17 -- the Inclusive Competition and Market Integrity Under the Packers and Stockyards Act -- that would spell out when certain conduct by packers, swine contractors or live poultry dealers is considered "unfair, preferential, unjustly discriminatory or deceptive."

NEEDS TO BE FINALIZED

Patty Lovera, policy advisor for the Campaign for Family Farms and the Environment, said the inclusive markets rule needs to be finalized and USDA still hasn't proposed a specific rule that would clarify that producers do not need to show "harm to competition" to bring a P&S case.

"It's complicated and there's a lot to do," she said. "We just hope they are catching up here and get it across the finish line. This has been a generation now trying to get USDA to enforce the Packers and Stockyards Act."

HOUSE BLOCK POSSIBLE

Currently, the proposed House appropriations bill for USDA would block the department from finalizing rules on unfair practices, undue preferences and harm to competition.

USDA noted to OMB that the livestock industry is divided about spelling out a specific list of practices that would be considered anticompetitive conduct.

Some major livestock groups called on Congress this year to halt any further P&S rules. Last May, leaders from the National Cattlemen's Beef Association (NCBA), National Pork Producers Council (NPPC), National Turkey Federation (NTF) and North American Meat Institute (NAMI) each criticized the impacts the livestock marketing regulations would have on their industries. The groups testified before the House Agriculture Subcommittee on Livestock.

"We've seen this same playbook employed by USDA several times over the past 15 years," said Todd Wilkinson, NCBA president. "If finalized, these rules would up-end decades of innovation and livestock marketing agreements and open the door to frivolous lawsuits. Simply put, the rules empower trial lawyers to impose regulation by litigation."

NFU AND DOJ TALKS

While USDA rules have moved slowly through the bureaucracy, some of the Biden administration's moves on market competition have increasingly involved the Department of Justice. At least some of that work was sparked more than two years ago when members of the National Farmers Union (NFU) started meeting with attorneys and staff from the Justice Department.

"That meeting two years ago had a ground-breaking effect with our staff," said Micheal Kades, a deputy assistant attorney general for Antitrust at the Justice Department.

Kades earlier this month talked about competition issues in agriculture at a South Dakota Farmers Union meeting in Huron, South Dakota, as part of a panel with producers.

"We have concerns about how livestock markets are operating and any time people think there is something untoward going on or suspicious, we want to hear about it," Kades said.

Following DOJ policy, however, Kades could not talk about ongoing investigations. Livestock groups have been asking since 2020 for DOJ to release a report on its findings into cattle markets after the Tyson fire in Kansas and the pandemic.

One problem in looking at market manipulation is there could be jurisdiction issues. Livestock issues can fall under USDA with the Packers & Stockyards Act, while manipulating futures contracts would fall under the Commodity Futures Trading Commission (CFTC), Kades noted. Kades credited President Biden's executive order on competition in July 2021 for forcing different federal agencies to work more closely on these issues.

"There is a lot less silo approach to these problems," Kades said.

POULTRY AND ANTITRUST

The Biden administration has focused more attention on the poultry industry in different ways.

Starting in February, a new USDA P&S rule goes into effect that adds new disclosures and information live poultry dealers must provide to growers. Contracts will have to spell out the guaranteed number of flocks a producer would receive and the minimum number of birds. The rule also includes providing new details about the tournament system and how growers are paid.

The National Chicken Council on Dec. 18 issued a news release pointing to bipartisan letters in both the House and Senate calling on USDA's Agricultural Marketing Service (AMS) to slow down the implementation of the tournament system rules because of "the massive disruption that will be caused if companies and growers must amend nearly every existing grower contract, especially if the same exercise must be done a second time in the event AMS issues additional Packers and Stockyards Act rules."

Going back to the Trump administration, the DOJ has brought multiple price-fixing cases against poultry executives. On the criminal side, the Justice Department failed to get criminal convictions for price fixing against industry executives.

"I've worked on a lot of cases across industries where I thought it was so obvious and then somehow the judge or a jury gets turned around the axle," Kades said. "We are committed to taking the tough fight but part of it also means doing it right."

Kades pointed to hospital mergers early in his career in which the federal government continued to lose cases or lose on appeals. It took time to start winning some of those cases, he said.

"It's understanding that these are hard problems and part of it is making sure we get our ducks in a row and pick the right cases," Kades added.

FIGURING OUT BEST STRATEGY

"From our perspective with these kinds of cases, it's not just understanding the issue in the end, but also figuring out the best strategy so that we can win in court," he said. "It's not like we're scared of the tough case, but we want to maximize our chances of winning that. But we also know time is of the essence."

DOJ has won some industry settlements. In 2022, DOJ sued and settled with Cargill, Sanderson Farms and Wayne Farms over worker wages and "deceptive practices" with the tournament system for paying growers. The deal basically got the companies to accept new restrictions on the tournament system under USDA P&S rules that had yet to be finalized.

"I think there's some proof of concept here that we're trying to bring more government resources to try to address the problem," Kades said.

A similar collaboration between DOJ and USDA involved a case against Koch Foods earlier this fall. Koch, another of the country's largest chicken processors, agreed to stop threatening farmers with "exit penalties" for trying to switch processors. DOJ required Koch to follow pending USDA rules against retaliation.

SENDS MESSAGE TO THE INDUSTRY

"It hopefully sends a message to the industry here that you can win and get courts to agree that are skeptical of regulation," Kades said, adding, "That's not going to end the issue, but we can still enforce on an individual case-by-case basis."

DOJ also is trying to delve deeper into how meatpackers collect and share market data. The Antitrust Division sued Agri Stats in September, an Indiana company that provides price and production information for the biggest players in the chicken, pork and turkey industries. Agri Stats also has been challenged in more than 100 industry lawsuits over the past decade, but the company has so far prevailed in court and denies allegations that it has helped meatpackers raise prices and protect profits.

RETALIATION ISSUES

The fear of retaliation remains a major reason why producers are reluctant to come forward. Sen. Deb Fischer, R-Neb., made that point in spring 2022 when she read a letter from the Nebraska Cattlemen's group that producers backed her livestock markets bill but weren't willing to "put themselves out front for fear of possible retribution by other market participants -- an unfortunate reality of today's cattle industry."

Since the Obama administration, USDA has tried to draft rules spelling out that retaliatory actions against individual producers also violate the Packers and Stockyards Act. Still, federal appeals courts have repeatedly ruled against producers who have sued packers over such issues.

Courts cite P&S provisions that actions against one or a small number of producers do not harm competition.

Producers know they are vulnerable. Farmers union leaders put a heavy emphasis on industry retribution when they met with Kades in Huron.

"The threat of retaliation is real and it's one of those impediments to getting strong testimony from producers," said Rob Larew, NFU president.

Scott Blubaugh, president of the Oklahoma Farmers Union, said cattle and poultry producers will share stories about unfair market practices, but if asked to meet with an investigator, "they get very, very scared very fast, and that's because they are still in business."

Dealing with unfair practices instead relies on older farmers who are ready to retire, Blubaugh said.

"The challenge is to find someone who is leaving the industry, getting out of the business, and they have nothing left to lose and they are willing to stick their neck out and testify. But if you are still in business and you are still trying to make it, these companies can put you out of business overnight if they wish to."

Pointing to the concerns about retaliation, Kades pointed to the Sanderson and Koch settlements that included language preventing the companies from taking retaliatory actions against poultry farmers.

"So that's another way we are trying to provide protection to folks going forward," Kades said.

USDA and DOJ have a website where producers can send their complaints anonymously to investigators: https://www.usda.gov/…

To see more DTN stories:

"Justice Department Sues Pork, Poultry Data Collection Firm Agri Stats,"

https://www.dtnpf.com/…

"DOJ Takes Action Against Penalizing Farmers for Switching Poultry Processors," https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

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