When last seen at the end of 2010, the Grain Inspection, Packers and Stockyards Administration’s proposed rules to implement controversial changes in livestock markets had disappeared into the USDA for consideration of more than 64,000 public comments.  Since that time, the proposed rules became embroiled in — and stalled by — the debt-limit and budget-balancing wars that occupied Congress for nearly all of 2011.  As a result, the fierce debate that had raged over the proposed rules during 2010 was quieted for a year.

On Dec. 8, 2011, GIPSA extricated some of its proposed rules from this predicament by issuing a limited, bare-bones final rule that abandoned the agency’s original intent to radically reform livestock and poultry production and marketing contracts.  Let’s take a more detailed look at what happened behind the scenes.

Appropriations Bills in Congress

In the spring of 2011, the U.S. House of Representatives passed its 2012 Agricultural Appropriations Bill, prohibiting further work by GIPSA on the most controversial of the proposed rules.  However, the final Senate version of the bill did not contain these restrictions.

Work on agriculture appropriations was then interrupted during the summer of 2011 by the debt-ceiling impasse in Congress.  This dispute culminated in the creation of the Joint Select Committee on Deficit Reduction — more commonly known as the supercommittee. It was tasked with finding at least $1.5 trillion in deficit reductions by Nov. 21, 2011.

Thus, by the time a joint House/Senate conference committee addressed the conflicting versions of the agriculture appropriations bill, it did so in the context of more general deficit reduction by the supercommittee.  On Nov. 14, 2011, the conference committee agreed to cut $23 billion in spending on agriculture over 10 years and to take the House’s approach on the proposed GIPSA rules.  It addressed them on a section-by-section basis and eliminated the most aggressive of the proposed rules by expressly prohibiting any funding for further work on them.

Appropriations Bill Prohibitions

Most importantly, the bill approved by the conference committee quashed GIPSA’s attempt to overrule established authority in court decisions and to permit violations of the Packers and Stockyards Act without proof of adverse impact on competition.  Killing this part of the proposed rules would have avoided a prolonged legal battle over GIPSA’s authority to overrule the courts’ interpretation of the PSA and prevented a potential avalanche of new litigation against packers.  The conference committee bill specifically prohibited work on the following sections of GIPSA’s proposed rule:

  • § 201.3(c) stating that “a finding that the challenged act . . . adversely affects or is likely to adversely affect competition is not necessary in all cases”;
  • § 201.210 redefining “unfair, deceptive, unjustly discriminatory and deceptive practices or devices” in the PSA; and
  • §§ 201.2(t) and (u) defining “competitive injury” and “likelihood of competitive injury” for those rules.
  • In addition, the conference committee bill specifically prohibited work on the following proposed rules:
  • § 201.211 defining unreasonable preferences or advantages and the groups of producers to whom packers must offer any volume or premium pricing;
  • § 201.213 requiring packers to provide GIPSA with, and for GIPSA to publish, samples of all contracts that the packer enters with producers;
  • § 201.214 regulating live-poultry dealers’ operation of tournament payment systems (and § 201.2(l) defining “tournament systems” for that rule).

This whittling down of the proposed rules would have left GIPSA free to pursue limited subjects specifically authorized by the Farm Bill of 2008 and several other controversial proposals that would have serious impact on meatpackers’ businesses, including bans on packer-to-packer sales and use of a single dealer by multiple packers, and a requirement that packers keep records justifying a differential in prices they paid.         

Back into Limbo

When the supercommittee failed to reach agreement on an overall deficit reduction plan by its Nov. 21, 2011 deadline, the conference committee bill also died.  The agriculture committee leaders quickly withdrew the agriculture appropriations compromise, and congressional action on GIPSA’s proposed rules went back into limbo.

At that point, Congress was left back at square one with respect to agriculture appropriations bills for 2012.  On Dec. 7, 2011, a new joint House/Senate conference committee on Fiscal Year 2012 appropriations was appointed.  The portions of the proposed rules that the conference committee had excised wereback on the table, and GIPSA was free to pursue the full scope of its proposed restructuring.

The Minimalist Final Rules

On Dec. 8, 2011, GIPSA issued a final rule that rescued its rulemaking effort from this morass. Rather than engage Congress and its industry critics further in order to seek the broadest possible rule, GIPSA abandoned all but its least controversial proposals.  The result is a minimalist set of four rules restricted to subjects expressly authorized in the 2008 Farm Bill.  They are:

  • § 201.215 regulating live-poultry dealers’ suspension of delivery of birds and requiring them to give 90-day notice of any suspension;
  • § 201.216 defining what capital investments poultry or pork packers could reasonably require producers to make in their contracts;
  • § 201.217 (revision of proposed § 201.218) requiring packer-producer contracts to provide for notice and a reasonable period of time to remedy any breach of contract that could lead to termination; and
  • § 201.218 (revision of proposed § 201.219) requiring and regulating the terms of arbitration clauses in packer-producer contracts.

The revisions GIPSA made to reach these final rules also added a number of pro-industry caveats and exceptions to other sections.  One example of these new exceptions appears in § 201.215.  There, the final rule removes the proposed rule’s requirement that a poultry processor apply for and obtain a waiver from GIPSA in order to suspend delivery of birds on an expedited basis in case of a natural disaster or other emergency, and simply makes the emergency circumstance a criteria in GIPSA’s determination of whether notice was reasonable.  Other examples appear in final § 201.217, where the proposed rule (§ 201.218) had eight subparts, but the final version (§ 201.217) has only four, and in final § 201.217, which adds an exemption from that section’s restrictions on notice of breach and termination of contract when food-safety or animal-welfare issues are involved.

In issuing these rules, GIPSA acquiesced in removing all of the proposed provisions excluded by Congress in the conference committee bill, even though that compromise was never enacted.  In addition, GIPSA abandoned three other proposed rules, which the conference committee would not have limited:

  • § 201.94(b) requiring packers to keep written records justifying any differential pricing;
  • § 201.212 prohibiting packer-to-packer sales and use of a single livestock dealer by multiple packers; and
  • § 201.17 establishing specific, mandatory standards for contract terms requiring pork and poultry producers to make capital investments.

As a result, GIPSA has managed to issue at least some new rules that it believes will benefit livestock and poultry producers, but only at the cost of giving up entirely on its attempt to use this rulemaking to radically restructure livestock and poultry markets and the law governing them.  The result can be viewed as a victory for meatpackers and poultry processors, as well as for innovative producers who are adapting to ongoing business and market changes. PK

Editor’s note: You may contact these Faegre Baker Daniels attorneys through their corresponding e-mails: John Shively, john.shively@FaegreBD.com; Kim Walker, kim.walker@FaegreBD.com; Jacob Bylund, jacob.bylund@FaegreBD.com.