Transparency in Poultry Grower Contracting and Tournaments

Federal RegisterNov 28, 2023

Ask Donna

What actually matters in this document.

Text

DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-21-0044]

RIN 0581-AE03

Transparency in Poultry Grower Contracting and Tournaments

AGENCY:

Agricultural Marketing Service, USDA.

ACTION:

Final rule.

SUMMARY:

This final rule amends the regulations under the Packers and Stockyards Act, 1921 (Act), to add disclosures and information that live poultry dealers engaged in the production of broilers must furnish to poultry growers with whom dealers make poultry growing arrangements. The rule also establishes additional disclosure requirements for live poultry dealers engaged in the production of broilers who use poultry grower ranking systems to determine settlement payments for broiler growers. These requirements add targeted transparency to the market for grower services that will inhibit deceptive practices related to broiler contracting and performance. The Act protects fair trade, financial integrity, and competitive markets for livestock, meat, and poultry.

DATES:

This final rule is effective February 12, 2024.

FOR FURTHER INFORMATION CONTACT:

S. Brett Offutt, Chief Legal Officer/Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade Practices Program, 1400 Independence Ave. SW, Washington, DC 20250; Phone: (202) 690-4355; or email:

s.brett.offutt@usda.gov.

SUPPLEMENTARY INFORMATION:

At the beginning of the 20th century, a small number of meat packing companies dominated the industry and engaged in practices that were deemed anticompetitive and harmful to livestock producers. In response, Congress enacted the Packers and Stockyards Act, 1921 (Act), 7 U.S.C. 181

et seq.,

which seeks to promote fairness, reasonableness, and transparency in the livestock marketplace by prohibiting practices that are contrary to these goals. In the 100 years since the Act went into effect, livestock business practices have changed significantly, particularly in the poultry industry, for which provisions were added to the law in 1935 (Act of August 14, 1935, 49 Stat. 648).

Within the last 40 years, the poultry industry has become highly integrated, with most live poultry dealers operating as “integrators” who frequently own or control all segments of the production process except growout, where poultry growers raise young poultry to harvest size under poultry growing arrangements (contracts). Most integrators employ a relative performance or grower ranking system to determine grower payment, as explained later in this section. Thus, AMS's references to “integrator” in the discussion of this final rule refer specifically to those live poultry dealers who are vertically integrated and generally use a relative performance or grower ranking system to determine grower payment.

Over the same 40-year time span, the industry has also become more concentrated.

One measure of industry concentration is the four-firm concentration ratio, which is the combined market share of the four largest firms in the industry. A higher four-firm concentration ratio means a higher level of industry concentration. In 1963, the four firm concentration ratio for chickens was 14 percent.

By 1980, the four-firm concentration ratio for integrators processing broilers was 32 percent.

By 2022, the four-firm concentration ratio increased to 57 percent.

Concentration is even higher at the local level in which growers operate. In the last available survey of local markets, MacDonald and Key (2011) found that about one quarter of contract growers reported that there was just one live poultry dealer close enough to grow for; another quarter reported two; another quarter reported three; and the rest reported four or more.

One measures of industry concentration is the four-firm concentration ratio, which is the combined market share of the four largest firms in the industry. A higher four-firm concentration ratio means a higher level of industry concentration. Rapid increases in broiler productivity, an important factor driving consolidation, did not begin until after World War II. Charles R. Knoeber. “A Real Game of Chicken: Contracts, Tournaments, and the Production of Broilers.”

Journal of Law, Economics, & Organization,

Vol. 5, No. 2. (Autumn, 1989).

Michael Ollinger, James MacDonald, and Milton Madison.

Structural Change in U.S. Chicken and Turkey Slaughter.

U.S. Department of Agriculture, Economic Research Service. Agricultural Economic Report No. 787, September 2000, p. 7.

John M. Crespi, Tina L. Saitone, and Richard J. Sexton

Competition in U.S. Farm Product Markets: Do Long-Run Incentives Trump Short-Run Market Power?,

Applied Economic Perspectives and Policy (2012) volume 34, number 4.

WATT Poultry USA, March 2023. Companies ranked by weekly ready to cook pounds.

James M. MacDonald,

Technology, Organization, and Financial Performance in U.S. Broiler Production,

EIB-126, U.S. Department of Agriculture, Economic Research Service, June 2014: 30,

https://www.ers.usda.gov/webdocs/publications/43869/48159_eib126.pdf?v=0.

There are approximately 16,500 broiler (chicken grown for meat) growers—those who actually raise the chickens from chicks, often under contract with live poultry dealers—in the U.S.

Based on comments from the industry, broiler growers typically have no employees, but some may employ a handful of workers outside themselves and their families.

According to annual reports filed with the Department of Agriculture (USDA), there were 42 live poultry dealers engaged in broiler production in the U.S. in their fiscal year 2021.

Of those, 20 have fewer than 1,250 employees each, and have average annual sales of $77 million.

Fewer than 5 percent of approximately 20,000 U.S. broiler grower contracts are with these 20 dealers.

More than 95 percent of broiler grower contracts are with the 22 larger live poultry dealer companies that employ more than 1,250 employees each and have average annual sales of $3.6 billion.

Total U.S. chicken sales for these dealers was $58.6 billion in 2019.

USDA, NASS. 2017 Census of Agriculture: United States Summary and State Data. Volume1, Part 51. Issued April 2019.

AMS has no exact data on grower revenues but assumes most broiler growers are small businesses as defined by the Small Business Administration (SBA), with annual sales of less than $3.5 million.

All live poultry dealers are required to annually file PSD form 3002 “Annual Report of Live Poultry Dealers,” OMB control number 0581-0308. The annual report form is available to public on the internet at

https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.

Live poultry dealers annual report submissions PSD form 3002 “Annual Report of Live Poultry Dealers,” to AMS. OMB control number 0581-0308.

Ibid.

Most broiler growers raise poultry under a contractual growing arrangement commonly known as a tournament system.

Under this system, integrators use a relative performance or grower ranking system for settlement purposes,

i.e.,

to determine grower payment among a group of competing growers. Poultry growers in tournament systems find themselves competing for payment without access to information in the possession of the integrators that would allow growers to manage, as best they can, poultry production under the

payment systems established by the integrators.

Citing data from the 2011 ARMS survey, MacDonald states “97 percent of broilers were grown under contract, 94 percent of contracts included payment incentives tied to grower performance, and 93 percent of those contracts tied the incentives to relative performance—that is, performance compared to other growers.” See MacDonald, James M.

Technology, Organization, and Financial Performance in U.S. Broiler Production, EIB-126,

U.S. Department of Agriculture, Economic Research Service, June 2014: 27.

Live poultry dealers generally do not provide, and poultry growers and prospective poultry growers find themselves unable to negotiate access to, (1) critical information needed to properly assess farm revenue streams and the operation of poultry growing contracts, and (2) information related to the distribution of inputs delivered to growers affecting performance among tournament participants. Whether from a representation, omission or practice, the inability to secure this information exposes growers to deception and risks of deception that could be reduced or eliminated with the provision of the information. Additionally, live poultry dealers possess or are reasonably expected to possess this information and are able to provide it to growers with minimal costs. For more than two decades, USDA, through the Agricultural Marketing Service (AMS) and its Packers and Stockyards Division (PSD) which now administers the Act, and formerly through Grain Inspection Packers and Stockyard Administration (GIPSA), has received numerous complaints from poultry growers about poultry growing contracting in general and tournament systems particularly. While the complaints cover a range of concerns, a central concern is the gap between expected earnings and the ability to achieve those outcomes through reasonable efforts by the grower. This central concern is manifested specifically where live poultry dealers fail to make transparent the range of financial outcomes possible in these arrangements, where they exert high degrees of discretion that can and do adversely affect growers, and where they fail to provide information necessary for growers to understand and respond to changing factors (

i.e.,

input differences) in the operation of their contracts.

Among other things, the Act protects growers from deceptive practices wherein they can be misled through lack of information from live poultry dealers regarding both potential revenues and the risks growers assume in the course of making and operating their contracts. Accordingly, AMS is establishing rules that will increase transparency in broiler growing contracting, including tournament systems, targeted at key decision points for growers—at the time of contracting and housing upgrades, and at the provision of inputs during tournaments. These are points where live poultry dealers repeatedly and consistently either omit vital information or make misleading statements, which prevents growers from understanding the risks they are taking on. Such misrepresentations may inhibit growers' ability to choose amongst competing live poultry dealers on a level playing field.

This rulemaking sets forth enforceable transparency requirements under section 202(a) of the Packers and Stockyards Act that will secure a more level playing field for growers and foster a marketplace with fairer contracts and the fairer operation of those contracts under the contract production model. Deception undermines the integrity of the market and deprives producers of the true value of their livestock.

In addition to the prohibitions on deceptive practices set forth this final rule, AMS is also evaluating additional specific prohibitions and regulatory limitations. To facilitate additional input, data, and ideas that may inform further efforts to regulate the poultry tournament system, USDA put forward an Advance Notice of Proposed Rulemaking seeking stakeholder input. Based on that input, AMS has included in the Office of Management and Budget's Spring 2023 Regulatory Agenda an upcoming proposed rule entitled “Poultry Grower Payment Systems and Capital Improvement Systems.”

AMS welcomes engagement with interested stakeholders around ideas to be developed in that further rulemaking on poultry tournaments.

RIN: 0581-AE18, available at

https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202304&RIN=0581-AE18.

I. Overview

On June 8, 2022, AMS published in the

Federal Register

(87 FR 34980; Docket No. AMS-FTPP-21-0044) a proposal to amend the regulations implementing the Packers and Stockyards Act. AMS solicited comments on the proposed rule for an initial period of 60 days and extended the comment period 15 days on August 8, 2022 (87 FR 48091) through August 23, 2022. AMS received 504 comments, some with multiple signatories, from individual poultry growers, trade organizations representing producers, poultry companies, the meat industry, State- and national-level agriculture groups, other associations, and non-profit organizations. After consideration of all comments, AMS adopts the proposed rule, with modification. Section V details the regulatory changes made by this final rule. Modifications to the proposed rulemaking are discussed in Section VI. Public comments are discussed by topic in Section VII.

This rulemaking adds two new sections to PSD regulations under the Act, introducing new disclosure requirements that live poultry dealers engaged in the production of broilers must furnish to broiler growers with whom they establish broiler growing arrangements. In doing so, the final rule builds on existing disclosure concepts under the Act in

7 U.S.C. 197(a) through (c)

and in the regulations that effectuate the Act at

9 CFR 201.55; 9 CFR 201.56(d); 9 CFR 201.99;

and particularly

9 CFR 201.100,

with respect to the poultry industry, which provide for a range of disclosures such as settlement sheets and establish other regulatory requirements. The current disclosure framework has improved transparency in poultry contracting and has helped close the asymmetric information gap between the parties, thus reducing the market failure caused by asymmetric information.

However, the modern poultry industry, in particular the broiler chicken segment, now requires increasingly large capital investments; and under the tournament system, growers are subject to intense pressures to perform, as well as financial and operational risks that may exacerbate the dangers of deception.

The concept of asymmetric information and associated market failures is discussed in a seminal article: Akerlof, G.A. “The Market for `Lemons': Quality Uncertainty and the Market Mechanism.”

The Quarterly Journal of Economics

Vol. 84, No. 3 (August 1970).

Section 202(a) (7 U.S.C. 192(a)) of the Act prohibits live poultry dealers from engaging in deceptive practices. This rulemaking establishes prohibitions against specific deceptive practices, such as withholding important information on the economic, financial, and operational risks growers take when entering into and operating their growing agreements. Growers can make more informed business decisions when they know the economic, financial, and operational risks associated with poultry growing. A lack of transparency for growers in poultry growing arrangements also creates an environment where growers are more vulnerable to other marketplace abuses.

Live poultry dealers have possession of key information that is materially useful for growers as they make decisions. This information asymmetry can be exploited by dealers to impede growers' ability to understand, evaluate, and compare contracts offered by dealers, bargain efficiently with competing dealers where and to the extent possible given the highly concentrated nature of the poultry industry, and manage their farm effectively for the risks they confront.

This type of deceptive conduct denies growers the benefits of market and the full value of their services, and results in misallocation of grower resources, heightened live poultry dealer bargaining power, and significant financial risk to growers.

This rule adds a new § 201.102 to the regulations, adding to the list of required disclosures a live poultry dealer must make to broiler growers and prospective broiler growers in connection with poultry growing arrangements. By obtaining these disclosures prior to making the underlying capital investment, growers are better positioned to understand and evaluate growing arrangements. The rule further requires live poultry dealers to specify additional terms in broiler growing contracts about variables that are highly correlated with grower annual revenue. This information is not routinely shared with growers. AMS intends for these new requirements to improve transparency and inhibit deceptive practices in poultry growing arrangements.

Additionally, this rule adds a new § 201.104 to the regulations to require live poultry dealers to provide information related to the integrator-controlled input distribution to poultry growers paid under grower ranking systems (tournaments), where growers are paid based on their performance relative to a grouping of other growers. These disclosures allow growers to evaluate the distribution of inputs affecting performance such as poultry breed, gender ratio, and flock health—of their own flock and as compared to flocks of all tournament participants. These new data points will help growers better understand, evaluate, and compare the relationships between inputs, flock performance, and payment under their poultry growing arrangement. The requirements in this rule are intended to provide greater transparency and inhibit deceptive practices in the operation of poultry grower ranking systems.

Finally, this rule makes conforming changes to the regulations by adding to the list of definitions in § 201.2 to define terms used in new § 201.102 and new § 201.104.

Specifically, this final rule requires the following of live poultry dealers engaged in the production of broilers:

1. A Live Poultry Dealer Disclosure Document (Disclosure Document), to be provided to prospective or current broiler growers that contains critical information about the broiler growing arrangement when seeking to establish, renew, revise, or replace a broiler growing arrangement with the grower, including when a broiler growing arrangement would or might reasonably require a broiler grower to make an original or additional capital investment to comply with the live poultry dealer's housing specifications. A governance framework and CEO-certification enhances the accuracy and enforceability of the disclosures.

a. The Disclosure Document includes summaries of the dealer's litigation history with broiler growers and its bankruptcy filings over the past 5 years, the dealer's policies and procedures regarding sale of the grower's farm or assignment of the growing arrangement to another party, and the dealer's average annual turnover rate for broiler growers over the past five years.

b. The Disclosure Document describes the live poultry dealer's policies and procedures regarding certain instances of heightened discretion or unusual circumstances which would otherwise be opaque—specifically, increased layout times; sick or diseased flocks; natural disasters, weather-related events, or other events adversely affecting the physical infrastructure of the local complex or the grower facility; other events potentially resulting in massive depopulation of flocks affecting grower payments; feed outages including outage times; grower complaints relating to feed quality, formulation, or suitability; as well as any appeal rights growers may have relating to any of those items.

c. The Disclosure Document provides a more fulsome set of financial disclosures, including average annual gross payments to growers over the past 5 years broken out by quintiles to reflect the full range of outcomes, and a summary of information pertaining to grower variable costs inherent to broiler production.

2. Mandated disclosures in the contract that also set out the minimum number of placements to be delivered to the broiler grower's farm for each year of the broiler growing arrangement contract, as well as the minimum stocking density of each placement.

3. When a poultry grower ranking system is used, disclosures of critical information about the flock (

e.g.,

stocking density, breed names and ratios, breeder facility identifiers, and breeder flock age) placed with the grower must be disclosed within 24 hours of delivery.

4. When a poultry grower ranking system is used, dealers must provide settlement disclosures regarding critical information about each grower's ranking within the system, in particular the nature of the inputs received (

e.g.,

stocking density, breed names and ratios, breeder facility identifiers, and breeder flock age) and housing specifications for each growout period, without the identities of the growers to each other.

II. Background

A. Demand for This Rulemaking

For more than two decades, poultry growers have complained to USDA of abuses that arise in the contracting process and the operation of those contracts under poultry grower ranking systems, also known as the tournament system, a payment method which dominates the broiler chicken industry. To address these longstanding concerns regarding the fairness and competitive functioning of the market, Executive Order 14036 “Promoting Competition in the American Economy” (86 FR 36987; July 9, 2021), directs the Secretary of Agriculture (Secretary) to consider rulemaking to address, among other things, unfair treatment of farmers arising from certain practices related to poultry grower ranking systems. AMS has considered that direction in undertaking this rulemaking, as well as in undertaking an Advance Notice of Proposed Rulemaking around ideas to be developed in further rulemaking on poultry tournaments.

USDA's efforts to address grower complaints of malfeasance and abuses in the broiler industry now span more than a decade.

In 2010, USDA held a series of workshops in conjunction with the Department of Justice (DOJ) to hear from producers about concentration and trade practice issues in agriculture. At the workshop in Normal, Alabama, poultry growers complained that their success or failure is dependent on factors controlled by their integrators.

Further, growers were troubled by the lack of alternative integrators in many regional relevant markets, which further heightens the bargaining position of integrators.

Grower public comments at the workshop were consistent with numerous comments submitted to USDA in connection with previous rulemaking efforts, as well as on the June 8, 2022, proposed rulemaking.

See, generally,

Leonard, Christopher,

The Meat Racket

(2014).

Transcript, United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshop May 21, 2010, Normal, Alabama (

https://youtu.be/j11GXzvA7u0?t=1822

See Domina, David A. and Robert Taylor. “The Debilitating Effects of Concentration Markets Affecting Agriculture,”

Drake Journal of Agricultural Law

15 (May 2010): 61-108.

See also

Leonard, Christopher,

The Meat Racket

(2014).

Growers expressed concerns about contract dependency, uncertainty of

pay, and informational asymmetries related to farm revenues and debt. Poultry growers have indicated they lack information about certain crucial production factors controlled by live poultry dealers, such as the anticipated frequency and density of flock placements and bird target weight under poultry growing arrangements, which heavily influence grower payments on an individual flock basis and over the long term.

United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshop May 21, 2010; Normal, Alabama (

https://youtu.be/8CvEGyMQ9v8?t=2156

Growers cited the level of control and discretion reserved to integrators under their contracts, remarking how discretionary decisions controlled by integrators related to inputs quality, flock placements, housing specifications, tournament grouping, and other production factors can significantly affect grower revenue and profitability. Many growers were worried that contract terms did not cover the time required to repay the debt on their farms, noting that—sometimes unforeseen—additional capital investments, such as those necessitated by integrators' housing specifications, can plunge growers into further debt without assurances of adequate or stable returns.

Growers indicated they do not have adequate information with which to assess original and additional capital investments because pay rates alone are insufficient for long-term revenue estimates without assumptions related to integrator discretionary production decisions.

Growers have also raised concerns regarding the use of overly rosy “pro forma” financial estimates, including income projections, during the contracting process, which in the growers' experience are not realized.

United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama (

https://youtu.be/j11GXzvA7u0?t=2422

) (

https://youtu.be/j11GXzvA7u0?t=3032

United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama (

https://youtu.be/j11GXzvA7u0?t=2453

United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshops May 21, 2010; Normal, Alabama (

https://youtu.be/8CvEGyMQ9v8?t=4226; https://youtu.be/j11GXzvA7u0?t=3084; https://youtu.be/j11GXzvA7u0?t=3091

Finally, poultry growers complained to USDA about being prohibited by dealers from asserting their rights under the current regulations to discuss poultry growing contracts with USDA government representatives (including PSD), family members, lenders, and other business associates. Some growers allege they have been threatened or retaliated against by integrators for asserting those rights, including for responding to Federal Government requests for information—specifically, the 2010 DOJ Workshop.

USDA also received comments to the proposed rule that alleged some growers were harassed, intimidated, and retaliated against for refusing to make expensive upgrades to their growing operations.

United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshops May 2010; Normal, Alabama (

https://youtu.be/8QJ_K06lp5M?t=1051

Similar to the comments received during the 2010 workshop, comments received in response to this proposed rule specifically reaffirmed that one prevalent deceptive practice involves live poultry dealers' omission of key information in the contracts with growers. This omission of information caused growers to believe that they were signing up for a contract that in practice they did not end up receiving or provide providing services under. Numerous comments to the proposed rule described how dealers provide growers with inadequate information on settlement sheets, particularly related to payment, and how, without this information, growers could not make sound business decisions.

Commenters have noted live poultry dealers do not provide critical information about—

• typical upfront associated costs;

• revenues and the full range of possible outcomes thereto;

• sale-of-farm policies;

• dealer bankruptcy and litigation history with poultry growers;

• grower turnover rate;

• how dealers handle—and growers are affected by—depopulation, sick chicks, natural disaster, weather-related events, and impairments to the physical infrastructure of the local complex or the grower's facility; feed outages; feed quality, formulation, and suitability; and appeals processes related thereto;

• minimum flock numbers and stocking densities;

• information about inputs and any differences between them, such as about the breeds, chick weights, breeder facilities, breeder flock age, and bird sexing—both at delivery and at settlement; and

• at settlement, information about housing type. Growers expressed a strong need for such information, as they could use it when deciding how to manage their farms, grow chicks, and take on—or not take on—additional risks in growing broiler chicken.

B. Market Structure and Production Contracts

Integrated live poultry dealer firms typically own and manage local “complexes” of integrated operations that include hatcheries, feed mills, transportation systems, and processing facilities, and they contract with individual growers within a local region to raise birds for meat and hatchery eggs.

As explained earlier, these live poultry dealers that own and manage vertically integrated operations are referred to in the industry as “integrators.”

MacDonald, James M.

Technology, Organization, and Financial Performance in U.S. Broiler Production, EIB-126,

U.S. Department of Agriculture, Economic Research Service, June 2014.

Through vertical integration, integrators control the complete supply chain from the genetics of breeder stock to slaughter. While integrators own most of the inputs and manage the operation of the supply chain, they outsource the function and major costs of raising poultry to broiler growers—and control much of that process through production contracts. Contracting with individual growers to grow out broilers, rather than procuring broilers from company-owned farms, is advantageous to integrators for two reasons: (1) the rapid pace of technological change in broiler production since the 1950s requires ongoing significant capital investments, and (2) the use of tournaments to compensate growers insulates growers from common production risks (such as disease and extreme weather) and lowers transaction costs.

Charles R. Knoeber. “A Real Game of Chicken: Contracts, Tournaments, and the Production of Broilers.”

Journal of Law, Economics, & Organization,

Vol. 5, No. 2. (Autumn, 1989).

Through the poultry growing arrangement, broiler growers provide the growout facilities and the equipment, labor, and management associated with those facilities. Broiler growers are typically responsible for utilities, fuel, maintenance, and repairs. Growers are responsible for ensuring the equipment functions properly and the environment inside the poultry house is satisfactory at all times throughout placement, including waste removal and disposal of deceased birds. These activities are subject to significant discretion and control by the integrator through contract terms and integrator-supplied supervisors or service technicians who oversee growers. Integrators exert significant power over contract poultry grower operations

through individual production contracts and payment systems.

Grower revenue is a function of payment per flock multiplied by the number of flocks over a time period. While the specific formula for flock payment varies among integrators, it typically involves the evaluation of three variables: payrate, farm weight, and feed consumed. Where used to allocate payment, the tournament system is supposed to essentially rank growers on their efficiency in production, with payrates adjusted up or down based upon the growers' deviation from average performance of all growers over the growout period.

Growers' annual revenues are heavily dependent upon the annual number of flock placements and stocking density

of each placement, which are typically discretionary functions controlled by the integrator. Empty poultry houses do not produce revenue. Additionally, under tournament contract payments, flock performance—and therefore per flock payments—can be influenced by integrator discretionary decisions related to variation in input distributions like poultry breeds,

bird sex,

breeder stock age,

stocking density,

consistency of feed availability,

and the type and administration of veterinary medicines.

Often expressed as a ratio of birds per square foot, or pounds (target weight of poultry at harvest) per square foot, stocking density reflects the number of birds placed on a farm or in a poultry house.

Muir, W.M. and SE Aggrey.

Poultry Genetics, Breeding, and BioTechnology

(2003).

See Burke, William, and Peter J. Sharp. “Sex Differences in Body Weight of Chicken Embryos.”

Poultry Science

68.6 (1989): 805-810; and Beg, Mah, et al.

Effects of Separate Sex Growing on Performance and Metabolic Disorders of Broilers.

Diss. Faculty of Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural University, Dhaka, Bangladesh, 2016.

See Washburn, K.W., and R.A. Guill. “Relationship of Embryo Weight as a Percent of Egg Weight to Efficiency of Feed Utilization in the Hatched Chick.”

Poultry Science

53.2 (1974): 766-769; Weatherup, S.T.C., and W.H. Foster. “A Description of the Curve Relating Egg Weight and Age of Hen.”

British Poultry Science

21.6 (1980): 511-519; Wilson, H.R. “Interrelationships of Egg Size, Chick Size, Posthatching Growth and Hatchability.”

World's Poultry Science Journal

47.1 (1991): 5-20; Goodwin, K. “Effect of Hatching Egg Size and Chick Size Upon Subsequent Growth Rate in Chickens.”

Poultry Science

40 (1961): 1408-1409; Morris, R.H., D.F. Hessels, and R.J. Bishop. “The Relationship Between Hatching Egg Weight and Subsequent Performance of Broiler Chickens.”

British Poultry Science

9.4 (1968): 305-315; Peebles, E. David, et al. “Effects of Breeder Age and Dietary Fat on Subsequent Broiler Performance. 1. Growth, Mortality, and Feed Conversion.”

Poultry Science

78.4 (1999): 505-511. AMS notes additionally that research in this and related areas has limitations. It is older and results are mixed. AMS is concerned that publically available research has stagnated, despite the introduction of new breed strains in the intervening years. Because integrators now own the genetics companies, AMS has additional concerns that research has, in effect, been privatized, creating informational asymmeteries. Based on regulatory experience and on public comments, growers believe these factors affect performance, highlight its value to growers from disclosure.

Dozier III, W.A., et al. “Stocking Density Effects on Growth Performance and Processing Yields of Heavy Broilers,”

Poultry Science

84 (2005): 1332-1338; Puron, Diego et al. “Broiler performance at different stocking densities.”

Journal of Applied Poultry Research

4.1:55-60 (1995).

Dozier III, W.A., et al. “Effects of Early Skip-A-Day Feed Removal on Broiler Live Performance and Carcass Yield.”

Journal of Applied Poultry Research

11.3 (2002): 297-303.

Treatments may be necessary to mitigate disease within a single poultry house or an entire flock, or to boost the performance of suboptimal progeny from impaired breeder flocks, as described above. These treatments may affect the flock's growth rate or mortality. See Wells, R.G., and C.G. Belyawin. “Egg quality-current problems and recent advances.”

Poultry science symposium series.

No. 636.513 W4. 1987. (citing Spackman, D. “The Effects of Disease on Egg Quality.”)

Moreover, when integrators encounter problems in performing their contract obligation to provide inputs, they often seek to resolve them via discretionary functions reserved to the integrator under the contract. From growers' points of view, these are operational risks that can result in actual or perceived disparate treatment among growers. When natural disasters or weather events affect the integrators' ability to provide chicks and feed or other key physical infrastructure of the local complex or grower facility, growers are unlikely to be aware of the integrators' policies and procedures that dictate allocation of inputs or determine availability or supplemental pay. Similarly, if a disease outbreak or massive depopulation event affects growers, growers have a right to be informed of the policies and procedures that will be implemented to control the outbreak, assign payment, and reallocate inputs. As feed is a primary input for growout, growers must be made aware of policies and procedures to report issues of feed suitability and quality to company personnel. Integrators do not necessarily share these policies and procedures with growers and often use informal rules with respect to the above-mentioned issues. Without this critical information, growers' ability to understand and evaluate, as well as compare contracts among integrators, is impeded, and the potential for deception in contracting and deceptive practices in the operation of those contracts increases.

Due to market consolidation combined with certain natural factors (such as the fragility of birds, limiting their transport), many integrators operate as monopsonists

or oligopsonists

in their relevant regional market. Some research

shows a correlation in local markets between the number of available integrators and grower payments, with payments shrinking as the number of integrators decreases. In local markets, the lack of alternative integrators, coupled with integrator control and discretion over production contracts, leaves growers with little bargaining power to obtain reasonable contract assurances and transparency.

Merriam-Webster online dictionary: A monopsonist is one who is a single buyer for a product or service of many sellers.

https://www.merriam-webster.com/dictionary/monopsonist;

accessed 3/8/2022.

Merriam-Webster online dictionary: Oligopsony is a market situation in which each of a few buyers exerts a disproportionate influence on the market. An oligopsonist is a member of an oligopsonistic industry or market.

https://www.merriam-webster.com/dictionary/oligopsonist;

accessed 3/8/2022.

MacDonald, James M., and Nigel Key. “Market Power in Poultry Production Contracting? Evidence from a Farm Survey”.

Journal of Agricultural and Applied Economics

44 (November 2012): 477-490. See also, MacDonald, James M.

Technology, Organization, and Financial Performance in U.S. Broiler Production, EIB-126,

U.S. Department of Agriculture, Economic Research Service, (June 2014): 29-30.

Under the existing poultry industry market structure, growers are dependent on a live poultry dealer and receive only nominal assurances related to production levels and the variables composing farm revenue, while integrators set those production levels and have significantly more data related to grower payment variables, which generate costs integrators seek to minimize. The failure to provide critical information is deceptive given the conditions of asymmetrical information that compound as growers accumulate debt and operate in a tournament they do not control, both of which are discussed in greater detail below.

C. Grower Debt and Hold-Up Risk

Poultry growout operations require significant financial investments on the part of poultry growers, who typically provide the facilities (poultry housing and necessary equipment), utilities (electricity, gas, and water), manure management, compliance with environmental regulations, labor, and day-to-day management of growing poultry. One of the costliest investments is in poultry housing and equipment, the requirements of which are dictated to the poultry grower by the live poultry dealer through the contract. Throughout the term of the contract, live poultry dealers may encourage, incentivize, or even require a poultry grower, at the grower's expense, to upgrade existing

housing or equipment in order to renew or revise an existing contract. Revenue instability and continuing debt accumulation may explain the low returns to equity

in this space.

MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the

Agricultural Resource Management Survey—Version 4, Financial and Crop Production Practices, 2011,

and U.S. Census Bureau, 2011 Quarterly.

1. Construction Costs

A 2011 study estimated a cost of $924,000 for site preparation, construction, and necessary equipment for four 25,000-square-foot poultry houses (or $231,000 per house) in rural Georgia at that time, independent of the cost for the land.

Costs for establishing poultry houses have increased substantially since 2011, due to the advancement of new technologies in poultry housing and the increased cost of materials. AMS estimates current construction costs at nearly $500,000 per poultry house.

Cunningham, Dan L., and Brian D. Fairchild. “Broiler Production Systems in Georgia Costs and Returns Analysis 2011-2012.”

UGA Cooperative Extension Bulletin

1240 (November 2011), University of Georgia Cooperative Extension.

See, for example, Cunningham and Fairchild (November 2011) Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown,

Economic Impact of a New Broiler House in Alabama,

Alabama A&M & Auburn Universities Extension, March 1, 2019 (estimating a $479,160 construction cost for a 39,600 square foot broiler house).

Poultry growers can incur considerable debt to make the investments necessary for poultry production. Most new broiler housing is debt-financed. According to MacDonald, U.S. contract poultry growers' total debt amounted to $5.2 billion, or 22 percent of the total value of their assets, in 2011.

The research cited here found that debt loads—and exposure to liquidity risks, should flock placements and revenues fall—are closely related to the age of the operation, with newer farmers carrying greater debt relative to the value of farm assets. Farmers with fewer than six years of experience in broiler production carried debt equal to 51 percent of assets, on average, and one quarter of those farmers carried debt equal to at least 77 percent of assets.

MacDonald (June 2014) Op. Cit.

The weight of poultry grower debt load can be exacerbated by three additional factors: (1) the length, in terms of time, of a poultry growing arrangement is rarely long enough to cover the grower's debt repayment period, and can be as short as one flock; (2) growers may be encouraged or required by live poultry dealers to invest in facility upgrades, which may lead to additional debt; and (3) poultry housing is a specific-use asset with little salvage or repurpose value.

In other words, the grower is unlikely to be able to use or sell the facilities for a different purpose should the poultry growing contract be terminated. These “term,” “upgrade,” and “specific use” problems are rooted in asymmetrical information problems at the contracting stage, where live poultry dealers have knowledge and control of production and technical/equipment needs over the useful life of the poultry farm and growers do not. Combined, these factors create classic hold-up risk, where live poultry dealers make contract renewal dependent on further grower investments not disclosed at the time of the original agreements.

Poultry growing facilities are often characterized by certain expensive attributes, such as temperature and other habitat control systems. A fully equipped poultry growing facility repurposed, for example, as a hay barn or other storage is unlikely to generate the revenue necessary to meet a grower's $400,000 mortgage obligation. Nor is repurposing it for an alternative livestock usage, such as hogs or dairy cows, possible, at least without retrofitting that would essentially demolish the growout facility. The grower's return on investment is tied to using the facility as intended.

Vukina, Tom, and Porametr Leegomonchai. “Oligopsony Power, Asset Specificity, and Hold-Up: Evidence from the Broiler Industry.”

American Journal of Agricultural Economics

88 (2006).

Grower debt problems are exacerbated by the limited number of live poultry dealers in most localities and by complex dealer-specific requirements that inhibit grower movement between dealers, particularly for growers with older poultry houses. For example, a grower who currently produces smaller birds for one live poultry dealer may desire to move to a different dealer that wants larger birds. The grower could be required to upgrade their poultry growing facility to include more cooling capacity in order to accommodate larger birds. However, such upgrades may not be economically feasible for the grower, so the grower stays with their current live poultry dealer. Growers also may encounter problems trying to sell their farm to exit the industry. Banks commonly require that a prospective buyer secures a contract with a live poultry dealer to be approved for financing the farm, making the availability of the poultry growing contract a critical element to the farm's sale. Growers have often expressed frustration with live poultry dealer refusals to offer contracts to interested buyers, thwarting farm sales. Growers need to understand how live poultry dealer policies and procedures affect their ability to sell their poultry operation.

Grower debt and dependance on live poultry dealers contribute to additional risks that are enhanced by other informational disparities. For example, dealers are not required to provide growers information related to the financial condition of the dealer or complex. Complexes that are underperforming financially may be subject to closure or reduced production levels, resulting in negative effects on grower revenue and potential contract termination. Growers also lack insight into other growers' satisfaction with a dealer and how often growers and dealers are involved in disputes, legal or otherwise. Dissension between a grower and their dealer can often result in contract termination and/or litigation between the parties. Dealers have readily available access to information concerning their financial health, grower churn,

and frequency of litigation with growers. Disclosure of these items is critically useful information for growers to understand and evaluate risk and compare contracts among competing live poultry dealers. A live poultry dealer's failure to disclose this information to growers is deceptive.

Grower churn

refers to changes in grower make up at a given complex. This metric reflects growers who have been terminated or left on their own accord.

2. Returns to Equity

The substantial debt accumulation, hold-up risk, and lack of competition for grower services, in an environment of opacity and asymmetrical information, is reflected in low grower returns to equity. In 2011, data drawn from a nationally representative sample of growers showed that the median payment received by contract growers was 5.55 cents per pound of farm weight. However, 10 percent of growers earned at least 7.02 cents per pound, while 10 percent earned less than 4.32 cents per pound.

The sample data ranged across all growers and all contract types, but research has also shown that payments can range widely within specific contract types and within individual grower pools, creating revenue uncertainty for growers.

MacDonald (June 2014) Op. Cit.

Knoeber, Charles R. and Walter N. Thurman. “Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production.”

Journal of Labor Economics

12 (April 1994). Levy, Armando and Tomislav Vukina. “The League Composition Effect in Tournaments with Heterogeneous Players: An Empirical Analysis of Broiler Contracts.”

Journal of Labor Economics

22 (2004).

Perhaps even more concerning than the range of grower contract payments are the low returns on equity for poultry operations. According to USDA's Economic Research Service (ERS),

special survey conducted in 2011 showed mean returns on equity were negative for operations with one to two poultry houses, and increased with the size of the operation to positive 2.7 percent among operations with six or more houses. These figures were below mean rates of return on equity for large and midsize U.S. farms.

In AMS's experience, growers are experiencing the ongoing harm of contracting practices that omit critical information, such as certain dealer policies and procedures, input differences, information needed to evaluate returns across quintiles, and more.

MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the

Agricultural Resource Management

Survey—Version 4, Financial and Crop Production Practices, 2011,

and U.S. Census Bureau, 2011 Quarterly Financial Report (QFR): Manufacturing, Mining, Trade, and Selected Service Industries.

https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf;

accessed 1/19/2022.

MacDonald (June 2014) Op. Cit. p. 40.

D. Tournaments

The majority of growers producing poultry under production contracts are paid under a poultry grower ranking or “tournament” pay system.

Under poultry grower ranking systems, the contract between the live poultry dealer and the poultry grower provides for payment to the grower based on a grouping, ranking, or comparison of poultry growers delivering poultry to the dealer during a specified period based on metrics

created by the integrator. Per flock performance payments under tournament contracts generally depend on three variables: pay rate, farm weight, and feed consumed. In a simplified example, the live poultry dealer places flocks with ten growers under contract to deliver the same size of finished poultry to the dealer's processing plant at the end of a specified growout period. Upon harvest, each grower's performance (

e.g.,

farm weight and feed conversion) is determined by an integrator-determined formula. The integrator then compares individual grower results against average results for all growers in the group, and ranks individual growers according to their relative performance within the group of ten growers. Grower contract payrate is adjusted up or down in relation to the grower's deviation from the average within the tournament grouping for that specific growout period.

MacDonald (June 2014) Op. Cit. See footnote 20 on page 27 citing ARMS data from 2011 that reported 97% of broilers are grown under contract, with 93% of contracts tied to relative performance.

Metrics are typically associated with “costs”. Formulas to calculate the metric vary among integrators. A high “cost” grower would be a poor performance, as a low “cost” grower would have performed well.

Grower experience and skill, the technical specifications and relative sophistication of the housing, and other factors, such as the makeup of tournament groupings or inconsistent grower effort, may all affect performance. However, integrator decisions about inputs provided to tournament growers can also impact growers' relative performance.

Under the tournament system, integrators control the source of inputs and the distribution of those inputs to growers. Key inputs provided by the integrator are not always uniform with respect to quality characteristics across complexes or across time, and variation in these quality characteristics may impact grower performance. Based on AMS's experience, live poultry dealers will select strategies around broad types of inputs to grow at certain complexes, in general, to target customer preferences or to meet product requirements relating to growout or slaughter efficiency. For example, certain genetically tailored birds will be used to grow out more meat in certain areas or with uniformity in larger or smaller sizes to help live poultry dealers tailor their production. Similarly, feed inputs may be tailored based on the availability of grains or to achieve other animal health goals. However, within these broader strategies, there are a wide range of differences to the inputs that growers state are material to the growout process—such as the sex and age of the chicks, age and health of breeder flocks, the feed mix overall based on different grain availability, and more. Timely performance by live poultry dealers and dispute resolution are also relevant to the growout process. For example, improper delivery of feed mix designed for different stages of growout or delayed delivery or pickup of inputs are all potentially relevant.

In comments, dealers have denied or downplayed the significance of input variability and its effect on bird performance. Grower commenters are concerned about input differences and prefer some level of parity in input allocations, or at least mitigation of any disparities. Growers, however, unlike integrators, do not have direct access to the specific input differences, which makes it difficult if not impossible for them to evaluate whether their compensation is related to management and skill or correlated with “favorable” inputs. The lack of information further enables an opaque market environment where integrators may provide different inputs with little check on those actions.

The omission of this known information by integrators—impedes growers' ability to understand, evaluate, and adjust their performance, management, and skill as growers. In the absence of this information, growers are deprived of known information necessary to understand their performance and payment in operation under contract.

E. Addressing the Omission of Information

As described above, live poultry dealers have engaged in a series of omissions in the contracting process and operation of those contracts that deprives growers of the ability to make contracting and investment decisions and manage the operation and risks of their farms. This rule addresses that deceptive practice with regulatory transparency mandates enforceable under the Act. Eliminating deception will increase the intensity of competition amongst live poultry dealers to the benefit of growers. Growers need this information to understand the market for grower services, to understand and evaluate their performance under the terms of the contract, and to make decisions about their investments and operations of their farms that may improve performance or mitigate risks under those contracts. The additional information will intensify competition in the market for grower services. As a result of more complete and transparent information for all market participants, live poultry dealers will have to compete more vigorously for grower services, allowing growers to benefit from the competition in the market.

The lack of this information further contributes to an opaque market environment that exposes growers to greater risks from actions by live poultry dealers. The deprivation of this information is a deceptive practice under the Act. The final rule addresses that ongoing deception with specific transparency requirements in the contracting process and during the ongoing operation of those contracts, consistent with the FTC's approach to similar problems in franchising. These transparency requirements, together with a governance framework designed to enhance the reliability of the disclosures, are enforceable under the Act by AMS and by growers under section 202(a)'s prohibition on live poultry dealers engaging in deceptive practices.

III. Authority

Congress enacted the Act to promote fairness, reasonableness, and transparency in the marketplace by prohibiting practices that are contrary to

these goals. In 1921, the Act's stated purpose was to “regulate interstate and foreign commerce in livestock, live-stock products, dairy products, poultry, poultry products, and eggs.” At that time, poultry was included in the definition of a “packer.” Amendments to the law in 1935 added a new type of entity under its jurisdiction, the “live poultry dealer.” The poultry industry of that time involved marketing of live animals in large population centers, accompanied by various unfair, deceptive, and fraudulent practices. The 1935 amendments required that live poultry handlers be licensed, and subjected them to criminal penalties for violations. Congress also made sec. 202 (7 U.S.C. 192) applicable to live poultry dealers.

The Poultry Producers Financial Protection Act of 1987 (Pub. L. 100-173), modified and replaced parts of the 1935 amendments. The new provisions further protected growers of live poultry by adding payment provisions (sec. 410), trust provisions (sec. 207), and adding and modifying the liability provisions (secs. 411, 412, and 308), including creating a private cause of action for violations of sec. 202 of the Act.

An Act to Amend the Packers and Stockyards Act, S. 12, 74th Cong. (1935).

AMS authority to regulate deception and deceptive practices is well-established.

Sec. 202(a) of the Act (7 U.S.C. 192(a)) prohibits live poultry dealers, with respect to live poultry, from engaging in or using deceptive practices or devices. Further, sec. 410(a) of the Act (7 U.S.C. 228b-1(a)) requires live poultry dealers obtaining live poultry under a poultry growing arrangement to make full payment for such poultry to the poultry grower from whom the dealer obtains the poultry on a timely basis. Sec. 407(a) of the Act (7 U.S.C. 228(a)) authorizes the Secretary to make rules and regulations as necessary to carry out the provisions of the Act. Such regulations are found, in part, at 9 CFR part 201.

See, e.g. . . . Philson

Cold Creek Farms, Inc.,

947 F. Supp. 197, 201 (E.D.N.C. 1996) (“[T]he violation of a regulation such as 9 CFR 201.82 is indisputably prohibited by the PSA . . . .”);

see also Stafford

Wallace,

258 U.S. 495, 515, 42 S. Ct. 397, 401, 66 L. Ed. 735 (1922) (finding the Act Constitutional);

O V Handy Bros Co

Wallace,

16 F. Supp. 662, 666 (E.D. Pa. 1936) (finding the regulation of live poultry dealers Constitutional).

Disclosure is a key component of the current regulations in place pursuant to the Act. The current regulations require disclosure of weights in the settlement of sales of livestock and live poultry,

disclosure of certain potential conflicts of interest in the consignment of livestock at auction,

and disclosures for poultry growers at contracting and on settlement, including the payment formula, performance plans, grading certificates, and more.

9 CFR 201.55 and 9 CFR 201.99.

9 CFR 201.56(d)

9 CFR 201.100(a).

Like sec. 202(a) of the Act, sec. 5 of the Federal Trade Commission (FTC) Act also prohibits deceptive practices.

The FTC has long implemented disclosure requirements under sec. 5 of the FTC Act for the purpose of providing adequate information necessary for parties in imbalanced business relationships to inhibit deceptive practices. In 1981, the FTC adopted a policy statement summarizing its longstanding approach to deception cases, which AMS takes notice of.

For example, FTC's Franchise Rule requires the franchising industry to provide prospective purchasers of franchises information necessary to weigh the risks and benefits of an investment by providing required disclosures in a uniform format.

This rule is designed to similarly provide current and prospective poultry growers with sufficient information prior to entering into an agreement.

For a discussion of the Act in relation to the FTC Act, see,

e.g.,

Kades, Michael. “Protecting Livestock Producers and Chicken Growers,” Washington Center for Equitable Growth, May 2022,

https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.

Federal Trade Commission, Policy Statement on Deception, 1983, available at

https://www.ftc.gov/system/files/documents/public_statements/410531/831014deceptionstmt.pdf.

16 CFR part 436; 84 FR 9051 (May 2019).

Additionally, disclosure requirements are commonly utilized in the regulation of financial markets, housing consumer protection, and other complex markets with significant information imbalances, to prevent deception and other abuses.

In those markets, disclosure commonly yields multiple benefits, starting with correcting the specific information asymmetries that give rise to deception.

For example, disclosure can also function to create reputational disincentives to counter potentially problematic behavior. This rule is designed in part with that in mind. Given the longstanding set of grower complaints about input differences, costly capital investments, and other problematic practices arising from live poultry dealers' high degree of control over growers under a poultry growing arrangement, transparency can reasonably be expected to contribute, at least in part, to improvements in fair dealing by market participants. Overall, disclosure is recognized as a cost-effective tool to prevent deception and improve market integrity.

D.W. Carlton and J.M. Perloff,

Modern Industrial Organization

(1994): 624.

Paula J. Dalley, “The Use and Misuse of Disclosure as a Regulatory System,” 34

Fla. St. U. L. Rev.

1089 (2007).

https://ir.law.fsu.edu/lr/vol34/iss4/2.

IV. Summary of the Proposed Rule

In the June 2022 proposal, AMS proposed to revise current regulations in 9 CFR 201.100 regarding the timing and contents of poultry growing contracts. Currently, that section sets forth the disclosures a live poultry dealer must make to poultry growers and prospective poultry growers in connection with poultry growing arrangements. The proposal would have revised § 201.100 by requiring dealers to disclose additional information to poultry growers and prospective poultry growers in connection with poultry growing arrangements. In the proposal, the regulations also would have required live poultry dealers to specify additional terms in poultry growing contracts to improve transparency and forestall deception in the use of poultry growing arrangements.

AMS also proposed to add a new § 201.214 to the regulations to require live poultry dealers to provide certain information to poultry growers in tournament pay systems about integrator-controlled inputs related to the poultry flocks growers receive for growout. Proposed new § 201.214 also would have added a new level of transparency to grower ranking sheets. The proposal was intended to enable poultry growers to evaluate the distribution of inputs among all tournament participants in order for poultry growers to assess the effect on grower payment.

Finally, AMS proposed to add to the list of definitions in § 201.2 to define terms used in the proposed revisions to § 201.100 and proposed new § 201.214.

Upon consideration of public comments on the proposed rule, AMS modified some of its proposed provisions in this final rule. An overview of the new or revised rule provisions follows in Section V, a discussion of changes from the proposed rulemaking is in Section VI, and a discussion of the public comments on the proposed rulemaking is in Section VII.

V. New or Revised Provisions

AMS addresses concerns related to market power imbalance and asymmetric information in poultry grower contracting by adding two new sections to 9 CFR part 201 that implements the Act. The first section addresses the lack of transparency and

associated deceptive practices in broiler grower contracting. The second section addresses the lack of transparency and associated deceptive practices in the use of poultry grower ranking systems to determine tournament grower payment settlements for broiler growers. In both cases, live poultry dealers are required to make disclosures that provide broiler growers more information with which to evaluate poultry growing arrangements.

This rule will better balance the quantity, quality, and type of critical information broiler growers, prospective broiler growers, and live poultry dealers engaged in the production of broilers have as they enter and operate under broiler growing arrangements. Through this rulemaking, the agency requires dealers to provide growers with critical information during the contracting process. This rule gives growers the ability to understand and evaluate contracts from dealers. The rule enhances the integrity of the marketplace overall, helps reduce the risk of other forms of problematical market practices, such as the inappropriate provision of different inputs to different growers, and prevents certain deceptive practices by dealers.

AMS also made conforming changes and changes for clarity in § 201.2, § 201.100(a), and § 201.100(b). This section provides an overview of the new and revised provisions.

A. Definitions

This rule amends § 201.2 by removing the paragraph designations within the section, reorganizing the definitions alphabetically, and adding definitions for new terms. The new terms are:

breeder facility identifier, breeder flock age,

broiler, broiler grower,

broiler growing arrangement, complex,

gross payments, grower variable costs,

housing specifications, inputs,

letter of intent, Live Poultry Dealer Disclosure Document,

minimum number of placements, minimum stocking density,

number of placements, original capital investment,

placement, poultry grower ranking system,

poultry growout, poultry growout period,

prospective broiler grower, prospective poultry grower,

and

stocking density.

Additionally, this rule incorporates into § 201.2 the statutory definitions of:

commerce, live poultry dealer,

poultry grower,

and

poultry growing arrangement.

B. Disclosure

To address concerns related to deception and deceptive practices by dealers in contracting for broiler growing arrangements and in the operation of such contracts, this final rule adds new, enforceable transparency requirements on live poultry dealers for the benefit of growers. Specifically, it adds a new section at § 201.102,—disclosures for broiler production, and makes conforming changes to § 201.100(a) and (b). Currently, 9 CFR 201.100 describes the documents that live poultry dealers must provide to poultry growers within certain timeframes. Paragraph (a) of § 201.100 requires a dealer to provide the grower with a true written copy of the offered poultry growing arrangement on the date the dealer provides poultry housing specifications to the grower. The final rule retains the requirement for all live poultry dealers but revises the language in paragraph (a) for clarity by replacing “house specifications” with “housing specifications,” replacing the personal pronoun “you” with “the dealer,” and by removing the word “as” from the beginning of the paragraph. Paragraph (b) of § 201.100 requires live poultry dealers to allow growers to discuss the terms of poultry growing arrangement offers with a Federal or State agency, the growers' legal and financial advisors and lenders, other growers for the same dealer, and family members or other business associates with whom growers have valid business reasons for consulting about the offered poultry growing arrangements. This final rule retains the requirement but revises the language to clarify that the right to discuss the terms of the poultry growing arrangement offer also applies to prospective poultry growers and, if applicable, to the accompanying Disclosure Document described in § 201.102. This rule also revises the language to remove the personal pronoun “you” and replace “must allow poultry growers to discuss the terms of a poultry growing arrangement offer” with “may not prohibit a poultry grower or prospective poultry grower from discussing the terms of a poultry growing arrangement offer” for clarity. The rest of § 201.100 remains unchanged.

This final rule adds new § 201.102—Disclosures for broiler production—establishing new disclosure requirements in addition to those required by § 201.100 for live poultry dealers engaged in the production of broilers. This rule adds new definitions to § 201.2 for:

broiler,

meaning any chicken raised for meat production;

broiler grower,

meaning a poultry grower engaged in the production of broilers;

broiler growing arrangement,

meaning a poultry growing arrangement pertaining to the production of broilers; and

prospective broiler grower,

meaning a person or entity with whom the live poultry dealer is considering entering into a broiler growing arrangement.

New paragraph 201.102(a)—Obligation to furnish information and documents—requires the live poultry dealer engaged in the production of broilers (“dealer”) to provide the prospective or current broiler grower with the Disclosure Document, as described in paragraph (b) of the section, in addition to the true written copy of the broiler growing arrangement, under three different scenarios.

First, under § 201.102(a)(1), a live poultry dealer engaged in the production of broilers seeking to renew, revise, or replace an existing broiler growing arrangement or to establish a new broiler growing arrangement that does not contemplate modifications to existing housing specifications will be required to provide both the broiler growing arrangement and the Disclosure Document to the grower at least 14 calendar days before the dealer executes the broiler growing arrangement, provided that the grower may waive up to 7 calendar days of that time period.

Housing specifications

is defined as a description of—or a document relating to—a list of equipment, products, systems, and other technical poultry housing components required by a live poultry dealer for the production of live poultry. A live poultry dealer will likely have multiple housing specifications that operate in concert to create housing tiers at a given complex. The housing specifications document or list should accurately reflect the minimum requirements for qualification under a specific housing tier. Growers agree to provide housing that meets the minimum requirements of a live poultry dealer.

Second, under § 201.102(a)(2), a live poultry dealer that requires the grower to make an original capital investment to comply with the dealer's housing specifications will be required to provide the grower simultaneously with four relevant documents. These documents are a true written copy of the broiler growing arrangement, the housing specifications, the Disclosure Document, and a letter of intent that can be relied upon to obtain financing for the original capital investment.

Finally, under § 201.102(a)(3), a live poultry dealer engaged in the production of broilers seeking to offer or impose modifications to existing housing specifications that could reasonably require the grower to make an additional capital investment will be required to provide the grower

simultaneously with four relevant documents. These documents are a true written copy of the broiler growing arrangement, modified housing specifications, the Disclosure Document, and a letter of intent that can be relied upon to obtain financing for the additional capital investment. AMS expects most growers will seek financing for additional capital investments. The simultaneous production of the three other documents will: (1) provide growers with improved information with which to assess the new capital investment and (2) allow growers to establish appropriate timelines for contemplating the investment.

The required contents and format of the Disclosure Document cover pages are provided in § 201.102(b)—Prominent disclosures. Paragraph 201.102(b) specifies the required elements for the cover pages of the Disclosure Document, including basic information about the live poultry dealer, key points in the broiler growing arrangement, and precise language for certain notices the dealer must make to the grower. AMS has developed downloadable instructions that contain the language required by § 201.102(b) for live poultry dealers. The instructions (Form PSD 6100 (Live Poultry Dealer Disclosure Document Form Instructions, OMB Control No. 0581-0308)) are intended to simplify compliance with these notification requirements and provide guidance for complying with § 201.102(c) and (d). Under § 201.102(b)(1), the required Disclosure Document cover page must include the title “LIVE POULTRY DEALER DISCLOSURE DOCUMENT” in capital letters and bold type. Section 201.102(b)(2) requires live poultry dealers engaged in the production of broilers to list their name, type of business organization, principal business address, telephone number, email address, and if applicable, primary internet website address.

Paragraph 201.102(b)(3) requires the dealer to specify the length of the term of the broiler growing arrangement. Including this information at the front of the Disclosure Document clearly identifies for growers the live poultry dealer and the associated broiler growing arrangement under consideration.

Under § 201.102(b)(4), the live poultry dealer engaged in the production of broilers must include a notice to the grower that highlights that grower income may be significantly affected by decisions made by live poultry dealers, and encourages growers to carefully review the information in the Disclosure Document. Then, under § 201.102(b)(5), the dealer must state the minimum number of poultry placements on the broiler grower's farm annually and the minimum stocking density for each flock to be placed under the broiler growing arrangement. The minimum stocking density is the ratio that reflects the minimum weight of poultry per facility square foot the live poultry dealer intends to harvest from the grower following each growout.

New broiler growers may not understand how the discretionary actions of live poultry dealers affect grower payments. Many broiler growers are paid based on farm weight multiplied by a feed conversion variable. A live poultry dealer exercising discretion in placements, stocking density, and target weight is directly affecting that farm weight basis. Cautioning growers about the potential impact of dealer-controlled inputs and providing growers with the minimum number of flocks and minimum stocking density of flocks to be placed with the grower annually under the broiler growing arrangement will help growers assess the projected baseline value of their broiler growing arrangement.

Under § 201.102(b)(6), the live poultry dealer engaged in the production of broilers must include one of two alternative statements depending on whether the offered broiler growing arrangement includes housing specifications that require or could reasonably require an original or additional capital investment. If the new, renewed, revised, or replacement broiler growing arrangement does not contemplate modifications to existing housing specifications, the dealer must include the statement in § 201.102(b)(6)(i) in the Disclosure Document cover pages. The dealer's statement explains the grower's right to read the Disclosure Document and all accompanying documents carefully, and notes that the live poultry dealer is required to provide the current or prospective broiler grower with the Disclosure Document and a copy of the broiler growing arrangement at least 14 calendar days before the dealer executes the broiler growing arrangement, provided that the grower may waive up to 7 calendar days of that time period. This timing has been amended to match the revised timing in the final rule, as explained above. Alternatively, if the dealer offers a new broiler growing arrangement that requires the current or prospective broiler grower to make an original capital investment, as in § 201.102(a)(2), or offers or imposes modifications to existing housing specifications that could reasonably require the current broiler grower to make an additional capital investment, as in § 201.102(a)(3), the dealer must include the statement in § 201.102(b)(6)(ii).

The statement in § 201.102(b)(6)(ii) explains the grower's right to read the Disclosure Document and all accompanying documents carefully, and notes that the live poultry dealer engaged in the production of broilers is required to simultaneously provide the broiler grower with the Disclosure Document, a copy of the broiler growing arrangement, the new or modified housing specifications, and the letter of intent. These required statements in the Disclosure Document cover pages will notify broiler growers of their rights under the regulations and indicate what documents they must receive from the live poultry dealer within the described timeframes.

Under § 201.102(b)(7), the live poultry dealer engaged in the production of broilers must include a statement notifying the broiler grower that the terms of the broiler growing arrangement will govern the grower's relationship with the live poultry dealer's company. The statement further notifies broiler growers of their right, notwithstanding any confidentiality provision in the broiler growing arrangement, to discuss the terms of the broiler growing arrangement and the Disclosure Document with a Federal or State agency; the grower's financial advisor, lender, legal advisor, or accounting services representative; other growers for the same live poultry dealer; and a member of the grower's immediate family or a business associate. The statement explains that a business associate is a person not employed by the broiler grower, but with whom the current or prospective grower has a valid business reason for consulting when entering into or operating under a broiler growing arrangement.

Finally, § 201.102(b)(8) requires the live poultry dealer engaged in the production of broilers to include the following statement in bold type in the Disclosure Document cover pages: “Note that USDA has not verified the information contained in this document. If this disclosure by the live poultry dealer contains any false or misleading statement or a material omission, a violation of Federal and/or State law may have occurred.” With this language, this rule clarifies that the Disclosure Document is not subject to agency review prior to submission to broiler growers, and that legal recourse may be available for some present and future controversies related to the

Disclosure Document and the broiler growing arrangement.

Paragraph 201.102(c)—Required disclosures following the cover page—specifies the information the live poultry dealer engaged in the production of broilers must provide in the Disclosure Document following the cover pages. Under § 201.102(c)(1), the dealer must provide a summary of litigation over the previous 5 years between the live poultry dealer and any broiler grower, including the nature of the litigation, its location, the initiating party, a brief description of the controversy, and any resolution. Information about a live poultry dealer's litigation with poultry growers within the relevant period, particularly the basis of the litigation and the volume of litigation relative to the number of growers with whom the dealer contracts, will help growers identify conflict origins and better assess potential risk of conflict.

Paragraph 201.102(c)(2) requires the live poultry dealer engaged in the production of broilers to provide a summary of all bankruptcy filings in the previous 5 years by the dealer and any parent, subsidiary, or related entity of the live poultry dealer. Bankruptcy of the live poultry dealer poses a very real financial risk to grower financial returns. Recent or current bankruptcy filing is an indicator of the financial health of the live poultry dealer, which a broiler grower may need to consider when deciding whether to enter or continue a contractual relationship with the dealer.

Paragraph 201.102(c)(3) requires the live poultry dealer engaged in the production of broilers to provide a statement that describes the dealer's policies and procedures regarding the potential sale of the broiler grower's farm or assignment of the broiler growing arrangement to another party. This information is important for broiler growers to have when considering a broiler growing arrangement because growers may choose or be forced to exit poultry farming for various reasons, such as the death or disability of the grower or the prospect of other occupational opportunities. However, in some situations, farm sales and assignments might be contingent on approval from the live poultry dealer. Growers informed of these policies and procedures can develop a coherent strategy, should they desire to exit poultry farming.

Paragraph 201.102(c)(4) contains new requirements for the live poultry dealer engaged in the production of broilers to disclose their policies and procedures, as well as any appeal rights, arising from increased lay-out time; sick, diseased, and high early mortality flocks; natural disasters, weather events, or other events adversely affecting the physical infrastructure of the local complex or the grower facility; other events potentially resulting in massive depopulation of flocks affecting grower payments; feed outages including outage times; and grower complaints relating to feed quality, formulation, or suitability. If no policy or procedure exists, the live poultry dealer must acknowledge “no policy exists” for each item listed in § 201.102(c)(4)(i)-(vi). The rule is not intended to require live poultry dealers to have polices for every listed occurrence, nor is the rule intended to have a legal consequence for simply not having a policy. Disclosing, however, that no policy exists is important to the poultry grower for risk assessment during the contracting process, and for protection against arbitrary undisclosed policies or procedures when the listed situations arise during the operation of the contract. The live poultry dealer will also be required to describe any policies on grower appeal rights associated with these events should a grower disagree with the live poultry dealer's actions or determinations.

Paragraph 201.102(c)(5) adds a new requirement for live poultry dealers engaged in the production of broilers to disclose broiler grower turnover data. Specifically, the live poultry dealer will be required to provide a table showing the average annual broiler grower turnover rates for the previous calendar year and the average broiler grower turnover rates of the 5 previous calendar years at both a company level and a local complex level. The broiler grower turnover rate is the number of grower separations during the time period divided by the average number of growers during the same period. The broiler grower turnover rate relates to the general risk of contracting with a live poultry dealer. Growers may compare the turnover rates of multiple live poultry dealers as a consideration in assessing relative risk when making contracting decisions. Instructions for calculating and normalizing table values are provided on Form PSD 6100 (OMB Control No. 0581-0308).

Under § 201.102(d)—Financial disclosures—live poultry dealers engaged in the production of broilers must provide certain additional information in the Disclosure Document. Under § 201.102(d)(1), live poultry dealers will be required to provide in the Disclosure Document tables showing quintiles of average annual gross payments to broiler growers at the local complex for each of the previous 5 years.

If there are nine or fewer growers at a local complex, live poultry dealers will not be required to report quintiles of average annual gross payments as this would result in the disclosure of the unique payment information of one or more growers. Unique payment information is considered confidential business information. For local complexes with nine or fewer growers, live poultry dealers will be required to report only the mean and one standard deviation from the mean of the average annual gross payment to growers at the local complex. Average payments must be shown in U.S. dollars per farm facility square foot. Further, the required tables must be organized by year, housing specification tier, and quintile or mean and standard deviation.

Instructions for calculating and normalizing table values are provided in Form PSD 6100. This rule adds to § 201.2 a definition for

complex,

meaning a group of local facilities under the common management of a live poultry dealer. The definition states that a complex may include, but not be limited to, one or more hatcheries, feed mills, slaughtering facilities, or poultry processing facilities.

The word “local” in this discussion is used to differentiate between the complex with which the grower may be considering a contract and all the other complexes a dealer may own.

Most dealers do not own or operate growout and breeder facilities, but they do own everything else around which the growout facilities are organized—

i.e.,

the complex. The complex commonly includes the processing plant and feed mill and may include other production facilities. Growers produce for a particular local complex, even though the dealer may own more than one local complex and other complexes around the country. Depending on the technical needs for optimizing poultry growth for each product type, the dealer may have multiple different housing specifications for growers who produce different products for the complex. Therefore, the required table will show average payments to growers in each of the different housing specifications at the complex.

The required disclosure of historical revenue information relating to growers in the same local complex will give the current or prospective broiler grower considering entering into a broiler growing arrangement a clear and accurate picture of potential earnings under the arrangement and help the grower evaluate whether those earnings are sufficient. Providing insights into the variability of cash flow within any given year will enable growers to make informed business decisions, manage risk, and improve farm management.

Paragraph 201.102(d)(2) provides that, if the housing specifications for poultry growers under contract with the live poultry dealer in the local complex are modified so that an additional capital

investment may be required, or if for some other reason annual gross payment averages for the previous 5 years do not accurately represent expected future grower payment averages, the Disclosure Document must provide additional information. The additional information includes annual payment projections by quintile or mean and standard deviation (depending on the number of growers at the local complex). The projections must reflect anticipated payments to growers under contract with the complex with the same housing specifications for the term of the applicable broiler growing arrangement. The dealer also must explain why the historical data does not provide an accurate representation of future earnings. Live poultry dealers engaged in the production of broilers considering or undertaking actions related to discretionary functions, such as changes in pay rates, pay systems, housing specifications, growout models, stocking densities, or number of annual placements, must provide grower payment projections to allow growers to determine the financial feasibility of the upgrades and make better-informed business decisions. Standardized grower payment projections will include realistic expectations about future earnings.

Paragraph 201.102(d)(3) requires the live poultry dealer engaged in the production of broilers to provide a summary of any information the dealer collects or maintains pertaining to grower variable costs inherent to broiler production. A conforming change, for clarity and emphasis purposes, to § 201.2 adds a definition for

grower variable costs

to mean those costs related to poultry production that may be borne by the poultry grower, which may include, but are not limited to, utilities, fuel, water, labor, repairs and maintenance, and liability insurance. The modified language is intended to help improve readability; the listed costs are not required to be treated as grower variable costs under a poultry growing arrangement if the parties choose to contract for them in some other manner. Receiving information on grower variable costs will allow broiler growers to make informed decisions about their participation in the broiler production business.

Finally, under § 201.102(d)(4), the live poultry dealer engaged in the production of broilers must supply the contact information for the State university extension service office or the county farm advisor's office that can provide relevant information to the current or prospective broiler grower about grower costs and broiler farm financial management in the grower's geographic area.

Paragraph 201.102(e)—Small live poultry dealer financial disclosures—exempts from the requirement to provide the Disclosure Document required under § 201.102(a)(1) live poultry dealers engaged in the production of broilers that, together with all companies controlled by or under common control with the dealer, slaughter fewer than 2 million live pounds of broilers weekly (104 million pounds annually). The exemption applies to these small operators as long as their housing specifications are static. If their housing specifications are modified, requiring an additional capital investment from growers, these smaller operators will be required to provide the complete Disclosure Documents, as specified in § 201.102(a)(2) or (a)(3), to balance any financial risk of the new investment. AMS proposed—and retains this exemption in the final rule—because, in general, smaller operators are in discrete market segments and not engaged in the same market practices that are as likely to deceive as larger live poultry dealers' practices, which reduces the risks to growers and the need for the disclosures mandated in this rule. Examples of such market practices include allowing growers to be responsible for providing some inputs (

e.g.,

feed), allowing growers to use older growout facilities, or granting growers more discretion in production decisions. Additionally, AMS will continue to monitor the impact of this rule on small businesses to ensure that its analysis is correct and to determine whether enforcement discretion may be appropriate.

This final rule adds new § 201.102(f)—Governance and certification, which requires the live poultry dealer engaged in the production of broilers to establish, maintain, and enforce a governance framework designed to review and ensure the accuracy and completeness of the Disclosure Document, and ensure the live poultry dealer's compliance with all its obligations under the Act and its regulations. The governance framework and anti-fraud protections require oversight by corporate officers and ensure legal accountability. Under § 201.102(f), the framework must be reasonably designed to audit the accuracy and completeness of disclosures under the Disclosure Document and ensure compliance with the Act and associated regulations. The principal executive officer of the live poultry dealer's company, or a person performing similar functions, must certify that the company complies with the governance framework requirement and that the Disclosure Document is accurate and complete. The certification requirement is tailored to ensure the soundness and accuracy of the procedures used to produce the Disclosure Document and the information contained therein.

Certification of regulatory compliance requirements is found in several regulatory regimes involving important market compliance protocols. These include section 302 of the Sarbanes-Oxley Act (Pub. L. 107-204; 116 Stat. 745) and Title XIII of the Bank Holding Company Act (12 U.S.C. 1851

et seq.

) and regulations thereunder, commonly known as the Volcker Rule, including revisions designed to simplify the rule. See “Subpart D—Compliance Program Requirements” (12 CFR 248.20 and discussion in 79 FR 5535); “Revisions to Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships With, Hedge Funds and Private Equity Funds” (84 FR 61974).

The framework requirement helps ensure that the company has in place specific steps that it will take to comply with this rule. It seeks to balance effectiveness at providing the internal controls necessary for reliable disclosure with some degree of flexibility to enable dealers to design a framework appropriate to manage the risks relating to the preparation of complete and accurate disclosures given their own particular operations.

As explained earlier, to simplify compliance with this requirement, AMS has developed instructions for compiling the Disclosure Document, Form PSD 6100, with standardized language that live poultry dealers can use. The language includes a certification statement the principal executive officer of the live poultry dealer's company, or a person performing similar functions, must sign.

Section 201.102(g)—Receipt by growers—requires a live poultry dealer engaged in the production of broilers to include in the Disclosure Document a signature page. The signature page includes a statement highlighting the requirements for timely delivery of the disclosure document, potential liability for a false or misleading statement or a material omission, and how to contact USDA to file a complaint at its website or by telephone.

The live poultry dealer must also obtain the current or prospective grower's dated signature on the signature page, or obtain alternative documentation to evidence delivery and that the dealer used best efforts to obtain grower receipt according to the specified timeframes. The dealer must provide a copy of the dated signature page or alternative documentation to the grower and retain a copy of the dated signature page or alternative documentation in the dealer's records

for 3 years following expiration, termination, or non-renewal of the broiler growing arrangement. Including the required statement informs growers that false or misleading statements or material omissions contained in the Disclosure Document may form a basis for legal action. Requiring live poultry dealers to collect and retain proof of compliance will ensure compliance with the regulation.

Paragraph 201.102(g) also contains new clear language and translation requirements for the document. Under § 201.102(g)(3), the Disclosure Document must be presented in a clear, concise, and understandable manner for growers, and it references Form PSD 6100 for guidance on the presentation of the information and required calculations. Under § 201.102(g)(4), the live poultry dealer must make reasonable efforts to ensure that growers are aware of their right to request translation assistance, and to assist the grower in translating the Disclosure Document at least 14 calendar days before the live poultry dealer executes the broiler growing arrangement that does not contemplate modifications to the existing housing specifications (provided that the grower may waive up to 7 calendar days of that time period). For a broiler growing arrangement that does contemplate modifications to the existing housing specifications, the translation assistance must be provided when the live poultry dealer provides the Disclosure Document to the grower.

Reasonable efforts include but are not limited to providing current contact information for professional translation service providers, trade associations with translator resources, relevant community groups, or any other person or organization that provides translation services in the broiler grower's geographic area. Reasonable efforts may also include allowing additional time to review the translated Disclosure Document. A live poultry dealer may not restrict a broiler grower or prospective broiler grower from discussing or sharing the Disclosure Document for purposes of translation with a person or organization that provides language translation services.

AMS also added a provision to § 201.100 preventing live poultry dealers from restricting growers from sharing the Disclosure Documents with legal counsel, accountants, family, business associates, and financial advisors or lenders.

Nothing in the rule prevents companies from providing a translation, provided it is complete, accurate, and not misleading. As indicated previously, this rule is intended to improve transparency in poultry production contracting by providing poultry growers with relevant information to make more informed business decisions. These new requirements will enable the prospective or current poultry grower to better understand the information provided in the disclosures.

C. Contract Terms

Currently, § 201.100(c)—Contracts; contents—specifies certain information that must be included in a poultry growing arrangement. The live poultry dealer is required to specify the duration of the contract and conditions for termination of the contract by each of the parties, all terms relating to the poultry grower's payment, and information about a performance improvement plan for the grower, if one exists. In the final rule, AMS did not reduce the requirements in § 201.100(c) for all live poultry dealers. AMS adds new § 201.102(h)—Contract terms—introducing additional requirements that apply exclusively to live poultry dealers engaged in the production of broilers. Paragraph 201.102(h) requires live poultry dealers engaged in the production of broilers to specify the minimum number of placements to be delivered to the broiler grower's farm annually in each year of the contract, as well as the minimum stocking density of each of those placements. The minimum number of placements and the minimum stocking density of each placement under the broiler growing arrangement directly impact broiler grower revenues. Both figures are crucial to a current or prospective grower's ability to evaluate potential earnings under the contract and their ability to meet financial obligations. Requiring live poultry dealers engaged in the production of broilers to include this information in broiler growing contracts will improve growers' ability to understand and evaluate contracts offered by dealers, and prevent deceptive practices in the contracting process. Providing such information may also allow lenders and guarantors to better evaluate the desirability of broiler loans they are asked to consider.

D. Poultry Grower Ranking Systems

AMS adds a new § 201.104—Disclosures for broiler grower ranking system payments. This new section applies exclusively to live poultry dealers engaged in the production of broilers who use a poultry grower ranking system to calculate broiler grower payments. New § 201.104 specifies the recordkeeping and disclosure requirements for such dealers. AMS amends § 201.2 to add definitions for terms used in new § 201.104. In addition, § 201.100(f) of the current regulations, which contains requirements for grouping or ranking sheets and which AMS proposed to remove in the proposed rule, is retained in the final rule to reflect that the existing grouping or ranking sheet requirements continue to apply to all live poultry dealers, while the additional grouping or ranking sheet requirements at § 201.104(c) apply exclusively to live poultry dealers engaged in the production of broilers.

Currently, live poultry dealers are required under the regulations at § 201.100(d) to furnish poultry growers in poultry grower ranking systems with settlement sheets that show the grower's precise position in the ranking for that tournament. AMS adds a requirement in new § 201.104(a)—Poultry grower ranking system records—that requires a live poultry dealer engaged in the production of broilers who calculates payment under a poultry grower ranking system to produce and maintain records showing how certain inputs were distributed among participants. Further, the dealer must maintain those records for 5 years. Maintaining records allows USDA or any other party with the proper legal authority to collect the records and access to records during an investigation or legal action. AMS adds to § 201.2 the term

poultry grower ranking system,

meaning a system where the contract between the live poultry dealer and the poultry grower provides for payment to the poultry grower based upon a grouping, ranking, or comparison of poultry growers delivering poultry during a specified period. AMS also adds the term

inputs

to § 201.2.

Inputs

is defined as the various contributions to be made by the live poultry dealer and the poultry grower as agreed upon by both under a poultry growing arrangement. The definition also states that such inputs may include, but are not limited to, animals, feed, veterinary services, medicines, labor, utilities, and fuel.

Paragraph 201.104(b)—Placement disclosure—requires a live poultry dealer engaged in the production of broilers who uses a poultry grower ranking system to calculate broiler grower payments to provide certain information about the flock placed with the broiler grower within 24 hours of the placement on the grower's farm. Specifically, the dealer must provide the flock's stocking density, expressed as the number of poultry per facility square foot; the names and ratios of breeds of the flock delivered; the ratios of male and female birds in the flock if the sex had been determined; the breeder

facility identifier; the age of the egg-laying breeder flock from which each broiler grower's placement is produced; information regarding any known health impairments of the breeder flock and of the poultry delivered to the broiler grower; and what, if any, adjustments will be made to grower pay to reflect any of these inputs. As explained earlier in this document, each of these inputs may influence farm weight and feed conversion. In some cases, a broiler grower may adjust management practices in response to potential impacts of inputs on flock performance. This requirement provides the broiler grower with basic, accurate information about the placement at the outset of each growout period that may inform the grower's management decisions during growout. Armed with this information, growers may be better able to efficiently allocate resources during flock growout and maximize their individual profitability.

This rule adds definitions to § 201.2.

Breeder facility identifier

is defined as the identification a live poultry dealer permanently assigns to distinguish among breeder facilities supplying eggs for the poultry placed at the poultry grower's facility. As permanent identifiers, these identifiers must be consistent flock to flock. Identifiers that remain the same from one growout period to the next allow growers to observe patterns, if any, related to the performance of flocks originating with different breeders. Live poultry dealers may assign alphabetic, numeric, or other identifiers to each farm to keep the identity of individual breeder facilities private.

Breeder flock age

means the age in weeks of the egg-laying flock that is the source of poultry placed at the poultry grower's facility. Depending on the type and breed of poultry being raised, the age of the breeder flock producing the eggs from which poultry for growout are produced may influence the grower's production decisions, for example, whether additional monitoring is necessary, or determining the appropriate height of waterers and feeders.

Under § 201.104(c)—Poultry grower ranking system settlement documents—a live poultry dealer engaged in the production of broilers employing a poultry grower ranking system to calculate settlement payments for broiler growers must provide every grower within the tournament ranking system with settlement documents that show certain information about each grower's ranking within the system, as well as the inputs each broiler grower received, for each growout period. Paragraph 201.104(c)(1) requires live poultry dealers engaged in the production of broilers to show the housing specifications for each grower grouped or ranked in the system during the specified growout period.

Paragraph 201.104(c)(2) requires live poultry dealers engaged in the production of broilers to make visible to all grower participants in the poultry grower ranking system the distribution of dealer-controlled inputs provided to all participants. Specifically, dealers must disclose the stocking density at each grower's placement, expressed as the number of poultry per facility square foot. The dealer must: disclose the names and ratios of the breeds of poultry and the ratios of male and female poultry, if the sex of the poultry has been identified (

i.e.,

“sexed”), placed at each broiler grower's farm; indicate with the use of breeder facility identifiers the source of poultry placed at each broiler grower's farm; disclose the age of the egg-laying breeder flock from which each broiler grower's placement is produced; and, report the number of feed disruptions of 12 hours or more each grower experienced during the growout period.

As mentioned above, live poultry dealers are currently required to provide settlement sheets showing each grower's ranking within the poultry grower ranking system and to show the actual figures used to rank poultry growers for settlement purposes. However, poultry growers, in particular broiler chicken growers, have complained to USDA that the limited information they receive does not allow them to effectively evaluate their performance compared to others because they do not know how the inputs they receive compare to the inputs other growers receive. Nor do they know how their performance relates to housing specifications. Further, some growers believe other growers within the same poultry grower ranking system receive superior inputs to their own.

The placement and settlement information required under § 201.104 will enable broiler growers to make factual comparisons about their performance relative to other growers' performance within the poultry grower ranking system.

E. Severability

AMS considers some but not all of the provisions of this final rule to be severable. Specifically, changes to § 201.100—Records to be furnished poultry growers and sellers, and the provisions of new §§ 201.102—Disclosures for broiler production, and 201.104—Disclosures for broiler grower ranking system payments, are generally severable within themselves and from each other. Thus, if a court were to find any of, some combination of, or some portion of those provisions to be unlawful or unenforceable, AMS intends that all other provisions as set forth in this rule would remain in effect to the maximum possible extent.

For example, if a court were to find one of the required disclosure items in § 201.102(c) or (d) unlawful, AMS would nevertheless intend the remaining disclosure requirements in § 201.102 to stand. However, provision of those disclosures to broiler growers is dependent upon the requirement to do so in § 201.102(a), so AMS would intend that paragraph (a) in § 201.102 is not severable from paragraphs (c) or (d). In another example, AMS intends that the reference to Form PSD 6100 instructions in § 201.102 (g)(3) is severable from the requirement in the same paragraph to present Disclosure Document information in a clear, concise, and understandable manner. Thus, if the reference to Form PSD 6100 were to be invalidated, live poultry dealers would nevertheless be required to include all the elements of the Disclosure Document as described § 201.102 in a clear, concise, and understandable manner.

AMS considers the provisions of § 201.104 to be severable, except that the requirement to maintain records related to broiler grower production for 5 years in § 201.104(a) is not intended to be severable from either paragraph (b) or (c) of that section. Records pertaining to the disclosures required in § 201.104(b) and (c) must be maintained and available to PSD for compliance and enforcement purposes.

AMS considers the changes to § 201.1—Terms defined, to be inseverable, inasmuch as the newly defined terms in that section are necessary for the clear application of the provisions of new §§ 201.102 and 201.104. The new definitions clarify the fundamental application of the rule to live poultry dealers, and cannot be severed from the policy effect of the rule.

VI. Changes From the Proposed Rule

After consideration of public comments, AMS determined to adopt the proposed changes with modification. This section provides an overview of how the final rule differs from the proposed rule. Additional discussion about AMS's consideration of public comments is presented in Section VII.

Two significant changes between the proposed rule and the final rule pertain

to the application of the new disclosure requirements and the placement of the new requirements within 9 CFR part 201. Under the proposed rule, AMS proposed additional disclosures that all live poultry dealers would be required to furnish to poultry growers with whom dealers make poultry growing arrangements. AMS also proposed to establish additional disclosure requirements for live poultry dealers who use a poultry ranking system to calculate grower payments. However, comments received noted that the proposed rule was largely based on research into the broiler industry and would be extremely difficult for turkey companies to implement due to differences between turkey and chicken production. AMS subject matter experts analyzed turkey production contracts from across the country and found more variability among them than in broiler contracts.

The variability reflects the biological differences found in turkeys and longer placement times with growers, which can impact outcomes for producers.

The variability in contracts results in less uniformity of grower compensation models in the turkey industry. Often, turkey grower compensation models are predicated on static square footage payments, and/or two-stage production, which reduce payment volatility and mitigate input variability. Much of the disclosed information would not be applicable or of significant value to turkey growers. While other turkey compensation models tend to rely on a relative ranking component similar to that for broilers, the benefit of disclosure is diluted, as discretionary dealer actions currently may have less impact on grower payments. As well, grower ranking systems account for a smaller percentage of grower payments.

This corresponds with Hyaena,

et. al.,

who state “There is . . . more variation among production contracts with respect to division of risks and profits from growing turkeys than in the broiler industry.” See M. Hayenga, T. Schroeder, J. Lawrence, D. Hayes, T. Vukina, C. Ward, and W. Purcell, “Meat Packer Vertical Integration And Contract Linkages in the Beef and Pork Industries: An Economic Perspective” (2003), available at

http://econ2.econ.iastate.edu/faculty/hayenga/AMIfullreport.pdf

(last accessed April 2023).

Turkey growers may only produce two flocks per year while broiler growers may produce five or more. See Poultry Industry Manual (2013) available at

https://www.aphis.usda.gov/aphis/ourfocus/animalhealth/emergency-management/CT_fadprep_Industry_Manuals.

Other commenters stated the new disclosure requirements are largely meant for the broiler industry where most complaints arise. AMS has received few turkey grower complaints. Other (non-broiler chicken) poultry growers have similarly not expressed concerns regarding practices in their industry. AMS will continue to evaluate the presentation and operation of contracts and pay systems in the turkey industry, and other forms of poultry production to ensure growers can understand, evaluate, and compare contracts. However, AMS has determined that additional proposed disclosure requirements are not warranted for all live poultry dealers at this time.

Thus, this final rule's new disclosure requirements cover only live poultry dealers engaged in the production of broiler chickens.

AMS underscores that the principles of full and fair disclosure by live poultry dealers to avoid deceptive practices apply throughout the industry, including with respect to turkey growers. Although the specific disclosure mandates of this rule will, at this time, apply only to the broiler chicken segment, AMS intends to continue to monitor the entire industry.

In the final rule, AMS did not revise § 201.100 to require all live poultry dealers to provide certain additional disclosures to prospective or current growers. Instead, disclosure requirements for dealers engaged in broiler production are provided in new § 201.102—Disclosures for broiler production—which applies exclusively to live poultry dealers engaged in the production of broilers. The final rule adds language in § 201.102(a) clarifying that in addition to complying with the existing requirements in § 201.100, live poultry dealers engaged in the production of broilers must comply with additional disclosure requirements in new § 201.102.

The proposed rule in § 201.100(a) would have required a live poultry dealer engaged in the production of broilers seeking to renew, revise, or replace an existing broiler growing arrangement or to establish a new broiler growing arrangement that does not contemplate modifications to existing housing specifications to provide both the broiler growing arrangement and the Disclosure Document to the grower at least 7 calendar days before the dealer executes the broiler growing arrangement. Several commenters from the grower and advocacy sectors said that this time period was inadequate, and urged AMS to require that the documents be provided 14 days or 30 days in advance of the broiler growing arrangement's execution, to enable adequate time for growers to review and act upon the information provided in the documents. AMS also identified ambiguity in whether 7 days was business days or calendar days.

This final rule revises the timing in § 201.102(a)(1) to require that live poultry dealers provide growers with the required documents at least 14 calendar days before the live poultry dealer executes the broiler growing arrangement, provided that the grower may waive up to 7 calendar days of that time period. AMS is making this change in response to some grower comments stating that growers need additional time to adequately review the documents. A central purpose of the Disclosure Document is to improve the understanding of production agreements to thwart deception, and adequate time to review the document is essential to the rule fulfilling its purpose. The 7-day waiver addresses other grower commenter concerns related to continuity of production. AMS does not wish to inadvertently insert unnecessary time delays into the grower's planning process during contracting, in particular as this provision exclusively addresses the circumstance where the grower is not contemplating modifications to the farm housing specifications. The final rule seeks to maximize the grower's ability to determine the length of time necessary to review the documents, whether that be a full 14 calendar days or a shorter time period if the grower determines that is more appropriate. The rule revises the review period to 14 calendar days, but provides growers the option to waive 7 of those days if they prefer. Seven calendar days remains the minimum review time to provide growers with a guaranteed time to review the documents and thus protects growers from coercion by live poultry dealers—a risk also identified by commenters. Absent the provision, live poultry dealers could press growers to waive their entire review period rights. In AMS's estimation, a 14-calendar-day period is useful to some growers to review and have the time to act on the documents in the circumstance of no contemplated housing modification, and that a 7-calendar-day period is minimally sufficient to enable growers to review the Disclosure Documents, and reduce the potential for coercive behavior where growers so choose that shorter time period.

Where a live poultry dealer contemplates modifications to the housing specifications—such as in the circumstance of a new or additional capital investment or a modification to the housing specification—this rule provides the grower with significantly more time to review the contract and the Disclosure Document than current practice. Currently, growers commonly do not receive their contract until after a capital investment has occurred. In this rule, by requiring notice to the

grower at the same time as the new housing specification, growers receive the critical information embedded in the contract and Disclosure Document

before

the grower decides to engage in any construction or borrowing to make the necessary housing modifications. Capital investments generally take months, not days, and the grower is well positioned to control his or her review of the documents in the course of making any decisions regarding whether to engage in borrowing, construction, or contracting in relation to the potential broiler growing arrangement.

Under proposed § 201.214, AMS proposed to establish recordkeeping and disclosure requirements for all live poultry dealers who use a poultry grower ranking system to calculate grower payments. Again, AMS determined the disclosure requirements proposed in § 201.214 are not warranted for all live poultry dealers who use a poultry grower ranking system to calculate grower payments based on its analysis of poultry contracts and grower complaints, as previously discussed. Therefore, in the final rule, AMS modified the proposed requirements to apply exclusively to live poultry dealers engaged in the production of broilers who use a poultry grower ranking system to calculate grower payments, moved the requirements from proposed new § 201.214 to new § 201.104, and renamed the section “Disclosures for broiler grower ranking system payments.” AMS also retained the requirements in § 201.100(f) of the current regulations, which it had proposed to move to new § 201.214 and modify in the proposed rule. AMS added language to § 201.104(c) to indicate that in addition to complying with the requirements of § 201.100, live poultry dealers engaged in the production of broilers who use a poultry grower ranking system to calculate grower payments must provide additional information in accordance with new § 201.104.

To limit §§ 201.102 and 201.104 in the final rule to broiler contracts, AMS added to § 201.2 the definitions of

broiler

to mean any chicken raised for meat production,

broiler grower

to mean a poultry grower engaged in the production of broilers,

broiler growing arrangement

to mean a poultry growing arrangement pertaining to the production of broilers, and

prospective broiler grower

to mean a person or entity with whom the live poultry dealer is considering entering into a broiler growing arrangement.

AMS proposed in § 201.100(b)(5) to require live poultry dealers to include in the Disclosure Document the minimum number of placements on the grower's farm annually and the minimum stocking density of each flock. In the final rule, AMS moved this requirement to § 201.102(b)(5), which only applies to live poultry dealers engaged in the production of broilers. AMS also revised the introductory statement in § 201.102(b)(5) of the final rule to add clarifying language.

AMS proposed to require live poultry dealers to disclose a summary of all litigation with any poultry grower over the prior 6 years, as well as of all bankruptcy filings over the prior 6 years for the dealer and any parent, subsidiary, or related entity. However, commenters representing the poultry industry noted that the 6-year disclosure period associated with these requirements was inconsistent with other disclosure requirements covering the prior 5 years. Therefore, to ensure the uniformity of recordkeeping obligations and to reduce the burden on regulated entities, AMS revised §§ 201.102(c)(1) and (2) to require live poultry dealers engaged in the production of broilers to disclose litigation with any broiler grower over the prior 5 years, as well as bankruptcy filings in the prior 5 years by the dealer and any parent, subsidiary, or related entity.

The proposed rule would have required live poultry dealers to make various financial disclosures to poultry growers, including a table showing “average annual gross payments” made to growers at all complexes owned or operated by the live poultry dealer for the previous calendar year, as well as to growers at the local complex. Poultry and meat trade associations suggested AMS require dealers to disclose average annual gross payments only for the grower's local complex. These commenters noted that complexes in different geographic areas face different economic conditions, arguing that information about payments at other complexes would not be useful and would potentially confuse growers. This final rule does not include the proposed requirement to disclose payment information for all complexes owned or operated by the dealer. This final rule does maintain the proposed requirement for live poultry dealers engaged in the production of broilers to disclose payment information only relating to the broiler grower's local complex at § 201.102(d)(1).

Both growers and live poultry dealers also requested that AMS provide more specificity on how to calculate average annual gross payments. While the proposed rule provided detail on calculations, the commenters felt the instructions lacked sufficient specificity to assure that live poultry dealers could comply and that poultry growers received adequate data on which to base business decisions. Therefore, AMS developed more in-depth instructions on how to calculate average annual gross payments, which are included in Form PSD 6100. This final rule provides that, if there are nine or fewer growers at a local complex, live poultry dealers will be required to report only the mean and one standard deviation from the mean of the average annual gross payment to growers at the local complex rather than average annual gross payments distributed by quintile. This modification from the proposed rule is necessary because disclosing average annual gross payments distributed by quintile in these circumstances would result in disclosure of the unique payment information of one or more growers, which AMS considers to be confidential business information.

AMS added to § 201.2 the definition of

gross payments

to mean the total compensation a poultry grower receives from the live poultry dealer, including but not limited to base payments, new housing allowances, energy allowances, square footage payments, extended lay-out time payments, equipment allowances, bonus payments, additional capital investment payments, poultry litter payments, etc., before deductions or assignments are made.

In the proposed rule, AMS requested comment on proposed disclosures regarding the financial health and integrity of the live poultry dealer, and whether those were adequate to enable growers to make sound business decisions. Commenters suggested that growers could utilize other information in addition to information specified in the proposed rule in making their business decisions. Specifically, commenters recommended that AMS also require disclosure of grower turnover data. Grower turnover rates are among the data growers may find valuable when making business decisions, as they relate to the risk of termination or non-renewal when contracting with a live poultry dealer. Just as growers will be able to rely on other required disclosures to contemplate their production and financial risks, this information would allow growers to compare the turnover rates of multiple live poultry dealers as a risk factor when making contracting decisions. Because grower turnover rates can be used in a manner similar to other required disclosures, AMS added a provision at § 201.102(c)(5) of the final rule requiring live poultry dealers engaged in the production of broilers to

disclose average annual broiler grower turnover rates for the previous calendar year and the average of the 5 previous calendar years at both the company level and the local complex level. Instructions for how to calculate average annual broiler grower turnover rates are included in Form PSD 6100.

AMS proposed requirements for several disclosures of specific data and information advising growers of their rights. AMS did not specifically propose to require live poultry dealers to disclose their policies on grower payment with respect to increased lay-out time, diseased flocks, natural disasters and other depopulation events, feed issues or outages, or policies on grower appeal rights and processes, although in the proposed rule, AMS asked whether the final rule should require disclosures on these types of topics. Multiple commenters suggested AMS include these disclosures. The commenters stated that these disclosures would aid growers in decision making and reduce confusion during times of disease or other disaster. Therefore, this final rule requires live poultry dealers engaged in the production of broilers to disclose policies and procedures on increased lay-out time; sick, diseased, or high early-mortality flocks; natural disasters, weather events, or other events adversely affecting the physical infrastructure of the local complex or the grower facility; other events potentially resulting in massive depopulation of flocks, affecting grower payments; feed outages including outage times; and grower complaints relating to feed quality, formulation, or suitability, as well as any appeal rights arising out of these events.

The proposed rule proposed to exempt live poultry dealers, including all parent and subsidiary companies, slaughtering fewer than 2 million live pounds of poultry weekly (104 million pounds annually) from the Disclosure Document requirements if the new, renewed, or replacement contract offered by one of these dealers does not include revisions to existing housing specifications that would require the grower to make new or additional capital investments. This final rule limits the proposed exemption to clarify that the exemption applies if the live poultry dealer engaged in the production of broilers that together with all companies controlled by or under common control with the dealer slaughter fewer than 2 million live pounds of poultry weekly (104 million pounds annually).

The proposed rule would have required dealers to establish, maintain, and enforce a governance framework reasonably designed to audit the accuracy and completeness of the disclosures in the Disclosure Document, which must include audits and testing, as well as reviews of an appropriate sampling of Disclosure Documents by the principal executive officer or officers. AMS determined that the requirement in § 201.102(f)(2) for the principal executive officer or officers to certify the governance framework and the accuracy of the Disclosure Document adequately covers the intended requirement for officers of this level to be focused on the effectiveness of the governance framework. AMS concluded that this level of detail about the audit process for the Disclosure Document was not necessary, because AMS finds the certification requirement regarding the governance framework to be sufficient to ensure a reasonable level of accuracy of these statements. The company will still need to maintain a governance framework for ensuring the reliability of the statements, which the certification attests to. The principal executive officer will need to tailor the framework to the particular levels of complexity of the company and its poultry business, its approach to internal controls, and other factors such as its track record of regulatory compliance, to ensuring the accuracy of statements.

In some circumstances, audit, testing, and reviews by senior officers may be necessary to ensure compliance, but that may not be the case in all circumstances. The requirements of this final rule place the opportunity—and the responsibility—on the principal executive officer to tailor the needs of the compliance program to the particulars of the business and its own compliance culture, as reflected in the governance framework. A “reasonably designed” framework depends on the particular facts and circumstances of the poultry company and its growers, with larger, more complex processors adopting more comprehensive systems appropriate to the scope of their operations. AMS will evaluate the effectiveness of the governance framework in part through examining the reliability of producing accurate disclosures but may also examine a dealer's internal controls and other factors relevant to the facts and circumstances of the dealer, such as its recent track record of compliance with relevant laws and regulations.

AMS will investigate questions of statement inaccuracy and may take enforcement actions against companies that do not maintain sufficient governance frameworks. Violations may result in issuance of a Notice of Violation or referral to the Attorney General of the United States for prosecution pursuant to Section 404 of the P&S Act, 7 U.S.C. 224. Growers may also bring private cases in response to inaccurate or misleading disclosures under the Act or under other laws. Therefore, AMS removed the requirement proposed in § 201.100(f)(1)(i) for audit, testing, and reviews of an appropriate sampling of Disclosure Documents by the principal executive officer or officers.

The proposed rule would have required dealers to include a statement on the Disclosure Document's grower signature page advising growers that a dealer's failure to deliver the document within the required timeframe, as well as false or misleading statements or material omissions within the Disclosure Document, may violate Federal and State laws, and that such violations could be determined to be unfair, unjustly discriminatory, or deceptive and unlawful under the Act. The proposed statement further informed growers that allegations of such violations could be reported to AMS's PSD. The final rule retains the required advisory statements; however, they have been modified to inform growers they may submit complaints to USDA's Farmer Fairness portal at

https://www.usda.gov/farmerfairness

or by telephone at 1-833-DIAL-PSD (1-833-342-3773) if they suspect a violation of the Act or any other Federal law governing fair and competitive markets, including contract growing, of livestock and poultry.

The proposed rule would have required live poultry dealers to obtain a poultry grower's signature to verify delivery of the Disclosure Document. Live poultry dealers noted that there may be instances in which obtaining a grower signature is not possible, such as grower unavailability or refusal to sign. AMS recognizes there is no mechanism to require growers to sign for receipt of the Disclosure Document. Commenters said it is appropriate in these instances to have other means available for the live poultry dealer to verify delivery of the Disclosure Document to the grower. AMS agrees it is necessary to have alternative methods of compliance. Therefore, this final rule allows flexibility for live poultry dealers engaged in the production of broilers to have alternative means to prove delivery and to demonstrate that best efforts were used to obtain grower receipt. In those circumstances, this final rule does not require a specific method of delivery but requires dealers to obtain and maintain evidence that the live poultry dealer

delivered the Disclosure Document to the grower or prospective grower in the required timeframe and that best efforts were used to obtain grower receipt.

Based on its experience, AMS expects live poultry dealers to engage in personal communications with the growers in the course of the contracting process, and so expects that best efforts include personal communication with growers in the course of delivering the Disclosure Document and seeking grower receipt. Where a grower refuses to sign or has made him or herself unavailable to the live poultry dealer, alternative documentation includes proof of delivery and statements or affidavits to support the communication and grower's refusal to sign receipt, or the circumstances of the grower's unavailability. AMS expects unavailability to be a rare circumstance requiring exceptional justification, given the nature of the contracting process between live poultry dealers and growers. The proof of delivery and best-efforts requirement, as an alternative, provide the best assurance possible in those circumstances that the grower receives and is able to evaluate in a timely manner the Disclosure Document. The grower receipt requirement, and this alternative, is important to AMS achieving the purposes of the rule because it minimizes the risk that live poultry dealer may deliver the Disclosure Document through means that may, in practice, not be read or noticed by the grower under the time frames provided, and so obstruct the purposes of ensuring the grower can evaluate the information before the grower makes significant decisions. AMS notes that grower and advocacy commenters supported the retention of the grower receipt requirement principally for those purposes.

The proposed rule would have required live poultry dealers to make several disclosures to poultry growers but did not include the exact language and wording they should use. Numerous commenters from the grower and live poultry dealer sectors said that these provisions should be in plain and unambiguous language to avoid discrepancies in interpretation among the various parties, regulators, and courts. One purpose of the Disclosure Document is to improve the understanding of production agreements to thwart deception; thus clear, concise, and understandable language is necessary. Therefore, this final rule adds a new § 201.102(g)(3) to the final rule to require live poultry dealers engaged in the production of broilers to present the information in the Disclosure Document in a clear, concise, and understandable manner for growers. Paragraph § 201.102(g)(3) also notes that dealers may refer to Form PSD 6100 for further instructions on the presentation of information and certain calculations.

Some commenters also indicated a need to ensure growers who are not native speakers of English can understand the disclosures. As noted by multiple commenters, non-native speakers of English are engaged in poultry growing. For example, in the early 2000s, large numbers of first-generation immigrant Hmong people, many of whom had been farmers in their native Laos, moved from urban areas in California, Minnesota, and North Carolina to the Ozark region in and around southwest Missouri and started growing poultry. Pew Research Center studies show that the English proficiency of the Hmong population in the U.S. in 2019 was only 68% and, among foreign-born Hmong, English proficiency is just 43%.

Data supports the concerns expressed by commenters regarding providing poultry growers information in a manner growers are able to understand. AMS agrees that providing documents in the language growers best understand ensures fairness and reduces the risk of deception. Therefore, AMS added new § 201.102(g)(4) to the final rule to require that live poultry dealers must make reasonable efforts to ensure that growers are aware of their right to request translation assistance and to assist the grower in translating the Disclosure Document. This must be provided at least 14 calendar days before the live poultry dealer executes the broiler growing arrangement that does not contemplate modifications to the existing housing specifications (provided that the grower may waive up to 7 calendar days of that time period). Where modifications to the existing housing specifications are contemplated, it must be provided when the live poultry dealer provides the grower with the Disclosure Document. The timing requirement aligns with the provision of the Disclosure Document by the live poultry dealer as set forth in § 201.102(a) as discussed above. Although they are not required to do so, nothing in the rule prevents companies from providing a translation, provided it is complete, accurate, and not misleading.

Abby Budimen, “Hmong in the U.S. Fact Sheet,”

Pew Research Center's Social & Demographic Trends Project

(May 24, 2022), available at

https://www.pewresearch.org/social-trends/fact-sheet/asian-americans-hmong-in-the-u-s/

(last accessed April 2023).

The final rule makes several other changes to the definitions proposed in § 201.2 of the proposed rule. It revises the definitions of

grower variable costs, growout,

and

growout period

and changes the latter two terms to

poultry growout

and

poultry growout period.

The proposed rule would have defined

grower variable costs

as “those costs related to poultry production that may be borne by the poultry grower, including, but not limited to, utilities, fuel, water, labor, repairs and maintenance, and liability insurance.” Commenters representing the grower sector shared concern that the definition would mandate that the costs listed were the only ones to potentially be borne by the grower. Commenters stressed that these costs are often the subject of negotiation between grower and live poultry dealer, with some costs being paid by the live poultry dealer. Therefore, AMS modified the definition in § 201.2 of the final rule to replace the words “including, but not limited to” with the words “which may include, but are not limited to.” While this does not substantively change the legal standard, this modification emphasizes that these are examples of costs, yet still retains a definition that allows the listed costs to be treated as grower variable costs under a poultry growing arrangement if the parties choose to contract for them in some other manner.

AMS also proposed to define

growout

as “the process of raising and caring for livestock or poultry in anticipation of slaughter” and

growout period

as “the period of time between placement of livestock or poultry at a grower's facility and the harvest or delivery of such animals for slaughter, during which the feeding and care of such livestock or poultry are under the control of the grower.” However, a commenter said the references to “livestock or poultry” in the proposed definition of

growout period

may have unintended consequences across other segments of the protein industry that do not use tournament pay systems, as the definition of

livestock

in the Act includes “cattle, sheep, swine, horses, mules, or goats.” Therefore, in the final rule, AMS modified the definitions of these two terms to remove references to livestock. In addition, AMS revised these terms to refer to

poultry growout

and

poultry growout period

to clarify that it intends these definitions to apply only in the poultry context for the purposes of this rule.

AMS also made a few minor changes for clarification purposes. One change is found in § 201.104(a), substituting the word “these” for “such” in reference to poultry growing ranking system records.

The change was made to add specificity for the records that are required to be maintained by live poultry dealers. Another change was made in § 201.102(b)(8), substituting the word “statement” for “sentence”. This is a clarifying change to both maintain uniformity in the language used throughout the regulatory text and to ensure dealers understand the entire statement provided by 201.102(b)(8) must be disclosed to growers.

Table 1 summarizes key differences between the proposed rule and the final rule.

Table 1—Key Differences Between the Proposed Rule and Final Rule

Provision

Proposed rule

Changes to final rule

Applicability

All proposed requirements related to disclosures and contract terms are in

§ 201.100—Disclosures and records to be furnished poultry growers and sellers

(existing section with proposed revision of heading)

Creates new section

§ 201.102—Disclosures for broiler production

covering requirements for live poultry dealers engaged in the production of broilers, while retaining requirements in current

§ 201.100 for all live poultry dealers.

§ 201.100(a)

All live poultry dealers must provide Live Poultry Dealer Disclosure Document and related documents to prospective or current poultry growers

§ 201.102(a)

Changes requirements to apply only to live poultry dealers engaged in the production of broilers.

Adds wording to emphasize that these requirements apply in addition to the existing requirements in § 201.100(a) for live poultry dealers engaged in the production of broilers.

Removes

§ 201.100(f)—Grouping or ranking sheets

of existing rule

Retains

§ 201.100(f).

§ 201.100(a)(1)

When no modifications to housing specifications are contemplated, a live poultry dealer must provide the poultry growing arrangement and the Disclosure Document at least 7 days before the live poultry dealer executes the poultry growing arrangement

§ 201.102(a)(1)

Changes the timing to 14 calendar days, provided that the grower may waive up to 7 calendar days of that time period.

Conforming changes made to the prominent disclosures to be provided the grower and to receipt by growers. § 201.102(b)(6)(i), § 201.102(g)(4).

§ 201.100(h)

Clarifies that the right to discuss the terms of the poultry growing arrangement offer also applies to prospective poultry growers and to the accompanying Disclosure Document

§ 201.100(b)

Revises wording to emphasize that the right for poultry growers or prospective poultry growers to discuss the terms of the poultry growing arrangement offer applies to the Disclosure Document if that document is applicable.

§ 201.100(i)(2)

All live poultry dealers must include minimum annual flock placements and minimum stocking density in contract

§ 201.102(h)

Moves requirements to § 201.102 and revises them to apply only to live poultry dealers engaged in the production of broilers.

All provisions related to disclosures upon flock placement or settlement are in proposed new

§ 201.214—Transparency in poultry grower ranking pay systems

Renumbers section and revises heading to

§ 201.104—Disclosures for broiler grower ranking system payments.

§ 201.214(b)

All live poultry dealers who use a poultry grower ranking system to calculate grower payments must provide certain disclosures upon flock placement

§ 201.104(b)

Changes requirements to apply only to live poultry dealers engaged in the production of broilers.

§ 201.214(c)

All live poultry dealers who use a poultry grower ranking system to calculate grower payments must provide certain disclosures upon settlement

§ 201.104(c)

Changes requirements to apply only to live poultry dealers engaged in the production of broilers.

Clarifies that these dealers also must comply with the existing grouping or ranking sheet requirements in retained § 201.100 and that disclosures need not show the names of other growers.

§ 201.214(c)(1)

Live poultry dealers who use a poultry grower ranking system to calculate grower payments must provide the grower a copy of a grouping or ranking sheet showing the grower's precise position for that period. This sheet does not need to show the names of other growers, but must show their housing specification and the actual figures the grouping or ranking for each grower in the group during the period is based on

§ 201.104(c)(1)

Removes requirements duplicated in retained § 201.100(f), leaving only the requirement for grouping or ranking sheets to show each grower's housing specification as applicable exclusively to live poultry dealers engaged in the production of broilers.

Terminology throughout rule refers to poultry, poultry growers, poultry growing arrangements, prospective poultry growers, and live poultry dealers

Updates terminology to specifically refer to broilers, broiler growers, broiler growing arrangements, prospective broiler growers, and live poultry dealers engaged in the production of broilers where necessary to describe which entities must comply with new requirements.

Required Disclosures Following the Cover Page (§ 201.102(c))

§ 201.100(c)(1)

Live poultry dealers must disclose summary of litigation with any poultry grower over the prior 6 years

§ 201.100(c)(2)

Live poultry dealers must disclose summary of bankruptcy filings by dealer and any parent, subsidiary, or related entity over the prior 6 years

§ 201.102(c)(1)

Live poultry dealers engaged in the production of broilers must disclose summary of litigation with any broiler grower over the prior 5 years.

§ 201.102(c)(2)

Live poultry dealers engaged in the production of broilers must disclose summary of bankruptcy filings by dealer and any parent, subsidiary, or related entity over the prior 5 years.

Not in proposed rule

§ 201.102(c)(4)

Adds requirement that live poultry dealers engaged in the production of broilers must include description of policies, procedures, and appeal rights in Disclosure Document.

Not in proposed rule

§ 201.102(c)(5)

Adds requirement that live poultry dealers engaged in the production of broilers must include grower turnover rate data in Disclosure Document.

Financial Disclosures (§ 201.102(d))

§ 201.100(d)(1)

As part of required financial disclosures, live poultry dealers must provide 1 year of average annual gross payments to growers for all complexes the dealer owns or operates

Removed from final rule.

§ 201.102(d)(1)

Revises paragraph to specify that live poultry dealers engaged in the production of broilers must only calculate average annual gross payments for growers at the local complex distributed by quintiles for complexes with 10 or more growers, and for complexes with nine or fewer growers, must calculate the mean payment and one standard deviation from the mean.

Small Live Poultry Dealer Financial Disclosures (§ 201.102(e))

§ 201.100(e)

A live poultry dealer, including all parent and subsidiary companies, slaughtering fewer than 2 million live pounds of poultry weekly (104 million pounds annually) is exempt from Disclosure Document requirements if contract does not contemplate revisions to existing housing specifications that would require poultry grower to make capital investments

§ 201.102(e)

Revises provision to provide that exemption applies for live poultry dealers engaged in the production of broilers if the dealer together with all companies controlled by or under common control with the dealer slaughters fewer than 2 million live pounds of broilers weekly (104 million pounds annually).

Governance and Certification (§ 201.102(f))

§ 201.100(f)(1)(i)

Live poultry dealer governance framework must include audits, testing, and review of sample of Disclosure Documents

Removed from final rule.

Receipt by Growers (§ 201.102(g))

§ 201.100(g)(1)

Disclosure Document must include grower signature page containing specific statement regarding grower rights related to document

§ 201.100(g)(1)

Adds language to statement regarding grower rights to state that growers may report potential violations to USDA and DOJ portal at

https://www.farmerfairness.gov

. or by phone at 1-833-DIAL-PSD (1-833-342-3773) and obtain further information on rights and responsibilities under the Act at

www.ams.usda.gov.

§ 201.100(g)(2)

Live poultry dealers must verify grower receipt by obtaining grower's dated signature on signature page of Disclosure Document

§ 201.102(g)(2)

Adds provision allowing live poultry dealers engaged in the production of broilers to obtain alternative documentation to evidence delivery and that best efforts were used to obtain grower receipt.

Not in proposed rule

§ 201.102(g)(3)

Adds requirements for live poultry dealers engaged in the production of broilers to ensure that the Disclosure Document is written in clear, concise, and understandable manner for growers.

Not in proposed rule

§ 201.102(g)(4)

Adds requirement that the dealer must make reasonable efforts to ensure that growers are aware of their right to request translation assistance, and to assist the grower in obtaining a translation or understanding the Disclosure Document at least 14 calendar days before executing a growing arrangement that does not contemplate modifications to the existing housing specifications (provided that the grower may waive up to 7 calendar days of that time period). Where modifications to the existing housing specifications are contemplated, it must be provided when the live poultry dealer provides the grower with the Disclosure Document.

Not in proposed rule

Adds definitions for

broiler, broiler grower,

broiler growing arrangement,

and

prospective broiler grower.

Not in proposed rule

Adds definition for

gross payments.

Grower variable costs

is defined as those costs related to poultry production that may be borne by the poultry grower, including, but not limited to, utilities, fuel, water, labor, repairs and maintenance, and liability insurance

Revises definition to refer to costs “which may include, but are not limited to” the listed costs rather than “including, but not limited to,” these costs.

Terms Defined (§ 201.2)

Growout

is defined as the process of raising and caring for livestock or poultry in anticipation of slaughter

Revises definition to refer to term as

poultry growout

and exclude livestock.

Growout period

is defined as the period of time between placement of livestock or poultry at a grower's facility and the harvest or delivery of such animals for slaughter, during which the feeding and care of such livestock or poultry are under the control of the grower

Revises definition to refer to term as

poultry growout period

and exclude livestock.

VII. Comment Analysis

AMS received 504 comments on the proposed rule, some with multiple signatories. Comments received were generally more supportive of the proposed rule than opposed. Many commenters generally agreed with the proposed rule's justification and implementation. These commenters stated that the proposed rule would be helpful because it would provide for fairer treatment of growers and enable growers to better understand, evaluate, and compare contracts among dealers, enhancing growers' ability to bargain efficiently. Commenters stated further that the proposed rule would reduce the power of large corporations in the industry, improve public trust in agriculture, and increase transparency regarding food products.

Other commenters were generally critical of the proposed rule. These commenters expressed general disagreement with AMS proposing a rule at all, arguing the current system is fair and efficient and that the tournament system rewards growers for efficiency, innovation, and raising the best birds possible. Several commenters stated the proposed rule is not fair and would result in a less efficient industry because it would reward less productive growers, disincentivize hard work, and add more paperwork.

The public comments are summarized by topic below and include AMS's responses.

A. Proposed Definitions

AMS proposed to revise § 201.2 containing relevant definitions by removing the paragraph designations within the section, reorganizing the definitions alphabetically, and adding definitions for new terms used in the proposed rule. In addition, to ensure a common understanding of the use and meaning of certain terms already used in the regulations and included in the revisions, AMS proposed to incorporate the statutory definitions for those terms.

Grower Variable Costs

AMS proposed defining

grower variable costs

Liability insurance may be a fixed cost for many growers, but we include it here because that may not be so in all circumstances, while the purpose of this rule is to provide enhanced information to all growers.

Comment:

Some commenters shared concern that the definition of

grower variable costs

creates the impression that it is a regulatory requirement or expectation that the costs listed therein are to be borne by the grower, thereby harming growers' ability to negotiate those terms. Commenters stressed that these costs are sometimes the subject of negotiation between grower and live poultry dealer, with some costs being paid by the live poultry dealer.

AMS response:

AMS modified the definition of

grower variable costs

to replace the words “including, but not limited to” with the words “which may include, but are not limited to.” The modification in the definition, in particular the use of the term “may,” underscores that the requirement to provide transparency for any grower costs, including those listed in the definition, do not create a mandate upon the live poultry dealer or grower with respect to who bears any of the specific listed costs. In many, if not most contracts today, based on AMS's experience, the listed examples would be considered grower variable costs.

But the rule does not prevent the parties from negotiating other arrangements, such as the live poultry dealer accepting responsibility for the payment of those cost items. This approach is consistent with the rule's general approach of enhancing transparency.

See Jennifer Rhodes, Extension Educator, et al, University of Maryland, “Broiler Product Management for Potential and Existing Grower,” Tables 1 and 2, available at Poultry Budgets, Enterprise Budgets, Agricultural and Resource Economics, North Carolina State University Extension,

https://cals.ncsu.edu/are-extension/business-planning-and-operations/enterprise-budgets/poultry-budgets/

(last accessed April 2023). Also see Dan L. Cunningham and Brian D. Fairchild, University of Georgia Cooperative Extension, “Broiler Production Systems in Georgia Costs and Returns Analysis 2011-2012,” Bulletin 1240, and Tomislav Vukina, “Vertical Integration and Contracting in the Poultry Sector,” Journal of Food Distribution Research (July 2001).

AMS considered whether to remove the list of potential variable costs, as requested by the commenter. AMS rejected that approach because it poses a risk of complexity or confusion in compliance, as live poultry dealers may not know which types of grower variable costs are generally required to be disclosed under most contracts today. AMS notes that the listing of any particular grower variable cost does not prevent the parties from contracting for other arrangements regarding who bears the burden of any particular grower variable costs.

Growout and Growout Period

AMS proposed to define

growout

as the process of raising and caring for livestock or poultry in anticipation of slaughter and

growout period

as the period of time between placement of livestock or poultry at a grower's facility and the harvest or delivery of such animals for slaughter, during which the feeding and care of such livestock or poultry are under the control of the grower.

Comment:

A meat and poultry industry trade association made up of processors commented that the references to “livestock or poultry” in the proposed definition of

growout period

may have unintended consequences across other segments of the protein industry that do not use tournament pay systems, as the definition of

livestock

in the Act includes “cattle, sheep, swine, horses, mules, or goats.” The commenter stated that it is not aware of uses of the tournament system in the production of these species and AMS has not provided any facts to suggest that those species have a

growout period

as the term would be employed in the poultry industry. The commenter recommended AMS revise this definition to eliminate “livestock” and review all definitions to avoid unintended consequences for other protein segments.

AMS response:

This final rule modifies the proposed definitions for

growout period

and

growout

to apply only to poultry. The references to livestock in the proposed definitions were offered to provide a more generally applicable definition but are not needed at this time and are therefore removed. To improve clarity, we also changed the proposed terms

growout

and

growout period

in § 201.2 to instead refer to

poultry growout

and

poultry growout period,

respectively.

Housing Specifications

AMS proposed to define

housing specifications

as a description of—or a document relating to—a list of equipment, products, systems, and other technical poultry housing components required by a live poultry dealer for the production of live poultry.

Comment:

A poultry industry trade association commented that the proposed definition of

housing specifications

is unnecessarily vague and lends itself to multiple interpretations. The commenter said there are endless combinations of equipment, products, systems, and other technical poultry housing components that could result in dealers having to organize dozens of housing specifications, adding significant complexity for the dealer, and creating confusion for the grower. The commenter stated that because farms are built with the technology in use at the time, the housing types and technology

in use generally correlate with the age of the facility.

To simplify the categorization of housing specifications in Disclosure Documents and settlement sheets, the commenter recommended that AMS revise the definition to clarify that live poultry dealers are permitted to devise their own categories of housing specification for the purposes of the Disclosure Documents and settlement sheets, which will allow dealers to prepare and present data based on the types of housing that their growers use to raise birds for them. The commenter noted, at the least, AMS should revise the definition to narrow the housing specification to key elements of housing, namely, the type of ventilation (for example, curtain or tunnel ventilation) and whether the house is a brood and growout house or only accommodates the growout stage.

AMS re

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.