Inclusive Competition and Market Integrity Under the Packers and Stockyards Act

Federal RegisterMar 6, 2024

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-21-0045]

RIN 0581-AE05

Inclusive Competition and Market Integrity Under the Packers and Stockyards Act

AGENCY:

Agricultural Marketing Service, Department of Agriculture (USDA).

ACTION:

Final rule.

SUMMARY:

The U.S. Department of Agriculture's (USDA or Department) Agricultural Marketing Service (AMS or the Agency) amends its Packers and Stockyards Act, 1921, regulations to prohibit undue prejudice and unjust discrimination against individuals on a prohibited basis unrelated to the quality of the service or product provided. The rule also identifies retaliatory practices that interfere with lawful communications, assertion of rights, and associated participation, among other protected activities, as unjust discrimination prohibited by the law. Finally, the rule identifies deceptive practices that violate the Packers and Stockyards Act with respect to contract formation, contract performance, contract termination, and contract refusal. The purpose of this rule is to promote inclusive competition and market integrity in the livestock, meats, poultry, and live poultry markets.

DATES:

This rule is effective May 6, 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; Telephone: (202) 690-4355; or email:

s.brett.offutt@usda.gov

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary

II. Background

A. Current Market Structure

B. Risks and Implications for Producers

C. Need for This Rulemaking

III. Authority

IV. Summary of the Proposed Rule

V. Changes From the Proposed Rule

A. Market Vulnerable Individual (MVI) to Prohibited Bases

B. Prohibited Actions Taken on a Prejudicial Basis

C. Exceptions to the Prohibited Bases

D. Retaliation Provisions

E. Technical Changes

VI. Provisions of the Final Rule

A. Definitions (§ 201.302)

B. Undue Prejudice and Unjust Discrimination (§ 201.304(a))

C. Retaliation (§ 201.304(b))

D. Recordkeeping (§ 201.304(c))

E. Deceptive Practices (§ 201.306)

F. Severability (§ 201.390)

VII. Comment Analysis

A. Definitions (§ 201.302)

B. Applicability

C. Undue Prejudices and Unjust Discrimination (§ 201.304(a))

D. Specific Actions Constituting Prejudice or Disadvantage (§ 201.304(a)(2))

E. Retaliation (§ 201.304(b))

F. Recordkeeping (§ 201.304(c))

G. Deceptive Practices (§ 201.306)

H. Severability (§ 201.390)

I. Effective and Compliance Dates

J. Regulatory Notices & Analysis & Executive Order Determinations

K. Comments on Legal Authority or Other Legal Issues

L. Other Comments Related to the Proposed Rule

VIII. Regulatory Analysis

A. Paperwork Reduction Act

B. Executive Orders 12866, 13563, and 14094; Regulatory Impact Analysis; and the Regulatory Flexibility Act

C. Executive Order 13175—Consultation and Coordination With Indian Tribal Governments

D. Civil Rights Impact Statement

E. Executive Order 12988—Civil Justice Reform

F. E-Government Act

G. Unfunded Mandates Reform Act

H. Congressional Review Act

I. Executive Summary

The rise of concentration and changes in contracting practices in livestock and poultry markets over the last four decades have facilitated and exposed producers and growers (hereafter, producers unless otherwise noted) to increasing economic harms from exclusionary, prejudicial, or otherwise discriminatory conduct, as well as deceptive conduct, by packers, swine contractors, and live poultry dealers (hereinafter regulated entities, unless otherwise noted). The regulatory toolkit embodied in the Packers and Stockyards Act, 1921, as amended (P&S Act or the Act) (7 U.S.C. 181

et seq.

), authorizes USDA to issue regulations to address these issues. This final rule seeks to address a discrete but important set of those wrongfully exclusionary or deceptive practices that undermine inclusive competition and market integrity: specifically, (1) discriminatory prejudices on certain bases relating to the producer's characteristics, (2) retaliation for engaging in certain acts as part of being a livestock or poultry producer or grower, and (3) false or misleading statements or material omissions in certain contexts. These practices deny producers opportunities to compete in the marketplace and earn the full value of their livestock sales or poultry growout services.

On October 3, 2022, AMS published in the

Federal Register

(87 FR 60010) a proposal to amend the regulations implementing the Act located in title 9, part 201, of the Code of Federal Regulations (CFR) by adding a new subpart O titled “Competition and Market Integrity.” AMS solicited comments on the proposed rule for an initial period of 60 days, and extended the comment period for an additional 45 days on November 30, 2022 (87 FR 73507). AMS received 446 comments from industry trade associations, non-profit organizations, individuals, State attorneys general, farm bureaus, academic/research institutions, and other groups. After consideration of all comments, AMS is adopting the proposed rule, with modifications designed to increase specificity and, therefore, certainty and enforceability.

AMS is issuing these regulations to enhance basic protections that modern livestock and poultry producers need to promote inclusive competition and market integrity. Specifically, this final rule will:

• Prohibit, as undue prejudices or disadvantages, actions that inhibit market access or actions that are otherwise adverse to covered producers on the basis of race, color, religion, national origin (including ethnicity), sex (including sexual orientation and gender identity, as well as pregnancy), disability, marital status, or age; or because of the covered producer's status as a cooperative, with certain narrow exceptions such as the provision of religious meats and the functions of Tribal governments;

• Prohibit, as unjust discrimination, retaliatory and adverse actions that interfere with lawful communications, assertion of rights, associational participation, and other protected activities;

• Prohibit, as deceptive practices, regulated entities employing false or misleading statements or omissions of material information in contract formation, performance, and termination; and prohibit regulated entities from providing false or misleading representations regarding refusal to contract; and

• Require recordkeeping to support USDA monitoring, evaluation, and enforcement of compliance with aspects of this rule.

AMS is adopting this final rule to promote inclusive competition and market integrity, as rational decision-making, so critical to economic success, can most effectively occur in a market free of the practices prohibited by this

rule. This final rule also affirms the importance of a clear and direct regulatory framework with respect to prohibited conduct, thus protecting producers in the marketplace. This rule does not address every possible way in which producers may be wrongfully excluded or deceived under the Act. Producers who believe their rights under the Act have been violated—whether specifically under this final rule, or in other circumstances—can report a violation to AMS.

For some matters in poultry, USDA further refers the case to the U.S. Department of Justice (DOJ) for enforcement.

Producers may also enforce the law and its regulations through private rights of action under the Act. Penalties under the Act depend upon the nature of the particular violation, including the particular animal species, and range from monetary penalties to injunctive relief.

Parties may report tips or complaints to

farmerfairness.gov.

Additional information is available at

https://www.ams.usda.gov/services/enforcement/psd/reporting-violations.

7 U.S.C. 181, including sections 203-205, 404, and 308 of the Act.

This final rule is effective 60 days after publication in the

Federal Register

. AMS has chosen this effective date because it believes that compliance with this final rule will not require significant administrative or financial obligations for regulated entities. The low cost, coupled with minimal process changes regulated entities will be required to make to comply, support an effective date 60 days after publication. Sixty days will provide adequate time for regulated entities to be informed of the specified conduct this final rule prohibits as well as make changes to comply with the final rule.

II. Background

A. Current Market Structure and Risks for Producers

Market abuses of discrimination, retaliation, and deception can occur in livestock and poultry markets. Such conduct is amplified and exacerbated under increasingly concentrated livestock and poultry markets. Such markets are dominated by a few large packers and live poultry dealers. Additionally, changes in contracting practices, specifically bilateral contracting and vertical contracting that reaches farther into the production aspects of livestock and poultry, have given processors greater control over producers. These changes can exacerbate the impacts of discriminatory, retaliatory, and deceptive conduct by packers and live poultry dealers, which inhibits producers from fully participating in livestock and poultry markets or obtaining the full value of their livestock and poultry products and services. With few marketing options in concentrated markets, producers are more likely to suffer long lasting harm from market abuses by packers and live poultry dealers than would be the case in a marketplace that is more competitive.

A review of the historical structure of livestock and poultry markets shows how the risk of worsened competitive conditions or materially adverse effects to producers at the hands of a few large processors (livestock packers and live poultry dealers) has grown over time. In the late 1800s to early 1900s, the “Big Five”

large meat packers dominated the livestock market by working cooperatively to jointly set prices and divide territories amongst themselves.

4 5

In 1921, Congress enacted the Packers and Stockyards Act, 7 U.S.C. 181-229, to promote effective competition and integrity in livestock, meat, and poultry markets because it believed that the large packers employed anticompetitive or abusive practices that harmed producers and consumers.

The objective of the P&S Act is “to assure fair trade practices in the livestock marketing . . . industry in order to safeguard farmers and ranchers against receiving less than the true market value of their livestock.”

After the enactment of the P&S Act, several decades of relatively more competitive conditions in the livestock markets prevailed; however, structural shifts in the industry defined by technological and productivity advances and mergers and acquisitions by meat processors led to fewer and larger meat processors—increased market concentration—in the latter half of the 20th century. This transformation led to much larger sized packing plants, multi-plant packers and live poultry dealers; raised barriers to entry; reduced the number of meat processor competitors; and reduced competition. Today, greater use of bilateral and vertical contracting in the livestock and poultry industries also gives regulated entities greater practical ability to cause these harms in ways that are hard for producers to avoid.

Swift & Company, Armour and Company, The Cudahy Packing Company, Wilson & Co., Inc., and Morris & Company, Rosales, W.E., 2005. Dethroning economic kings: The Packers and Stockyards Act of 1921 and its modern awakening.

Journal of Agricultural & Food Industrial Organization, 3

(2). Accessed at

https://www.degruyter.com/document/doi/10.2202/1542-0485.1118/html

on 01-09-2024.

See also,

David Gordon, The Beef Trust: Antitrust Policy and the Meat Packing Industry, 1902-1922, at 230, 290 (1983) (Ph.D. Dissertation, Claremont Graduate School) (on file with the Wisconsin Historical Society Library) (referring to the “Big Five” and the “Beef Trust” interchangeably).

https://www.proquest.com/openview/b8fb565a39cdb1190b7b80e932cb8495/1?cbl=18750&diss=y&pq-origsite=gscholar&parentSessionId=XHRnq%2FulA9IQvIv3F8HNW40SbD8BIeNZTdBAIYAD8bQ%3D.

Rosales, William E. “Dethroning Economic Kings: The Packers and Stockyards Act of 1921 and its Modern Awekening”

Journal of Agricultural & Food Industrial Organization

3, no. 2, access Feb. 1, 2024, (2005),

https://doi.org/10.2202/1542-0485.1118.

Christopher Leonard, “The Meat Racket,” (2015) and Witt, Howard. “Hmong poultry farmers cry foul, sue” Chicago Tribune. May 15, 2006. Available online at:

https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.

The Packers and Stockyards Act: An Overview, National Agricultural Law Center, access Feb. 1, 2024,

https://nationalaglawcenter.org/overview/packers-and-stockyards/

Bruhn's Freezer Meats

U.S. Dep't of Agric.,

438 F.2d 1332, 1337 (8th Cir. 1971), cited in

Van Wyk

Bergland

, 570 F.2d 701, 704 (8th Cir. 1978) in AGRICULTURE DECISIONS Volume 72 Book One Part Two (P & S) Pages 371-434, page 13, access Feb. 1, 2024,

https://www.usda.gov/sites/default/files/documents/Vol%2072%20Book%201%20Part%202.pdf.

The following table shows the level of concentration in the livestock and poultry slaughtering industries for 1980-2020 using four-firm Concentration Ratios (CR4).

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The data are estimates of four-firm concentration ratios at the national level, but the relevant economic markets for livestock and poultry may be regional or local, where concentration may be higher than at the national level. The following figure shows the relative access that producers have to slaughter plants within various draw areas.

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Meat, Poultry and Egg Product Inspection Directory by Establishment Name, by Number, and Demographic Data, USDA Food Safety Inspection Service, available at

https://www.fsis.usda.gov/inspection/establishments/meat-poultry-and-egg-product-inspection-directory.

Big Meat Acquisition Datasets, Yale Thurman Arnold Project, access Feb. 1, 2024, (2021),

https://som.yale.edu/centers/thurman-arnold-project-at-yale/agriculture-and-antitrust.

Haines, Michael, Fishback, Price, and Rhode, Paul. United States Agriculture Data, 1840-2012, Inter-university Consortium for Political and Social Research [distributor], access Feb. 1, 2024, (2018),

https://doi.org/10.3886/ICPSR35206.v4

(County-level census data from 1978-2012). USDA Census of Agriculture Large Datasets, USDA National Agricultural Statistics Services, access at Feb. 1, 2024,

https://www.nass.usda.gov/datasets/

(Livestock data from 1997-2017). Ward, C.E., Meatpacking plant capacity and utilization: Implications for competition and pricing, access at Feb. 1, 2024, (1990),

https://doi.org/10.1002/1520-6297(199001)6:1%3C65::AID-AGR2720060107%3E3.0.CO;2-V

(Estimating travel distances for cattle to be around 100 miles). MacDonald, James M. & Ollinger, Michael & Nelson, Kenneth E. & Handy, Charles R., 2000, “Consolidation In U.S. Meatpacking,” Agricultural Economic Reports 34021, United States Department of Agriculture, Economic Research Service, access at Feb. 1, 2024, (2020),

https://www.ers.usda.gov/

webdocs/publications/41108/18011_aer785_1_.pdf?v=0.

Smith, Timothy L., Andrew L. Goodkind, Tae-Gon Kim, Rylie E. O. Pelton, Kyo Suh, and Jennifer Schmitt, (2017). “Subnational mobility and consumption-based environmental accounting of us corn in animal protein and ethanol supply chains”, Proceedings of the National Academy of Sciences (38), 114, access at Feb. 1, 2024,

https://doi.org/10.1073/pnas.1703793114

(Estimating travel distances for broilers to be 48 miles on average; and for pigs and cattle, ~115 miles). Beam, A.L. & Thilmany, Dawn & Pritchard, R.W. & Garber, L.P. & Metre, DC & Olea-Popelka, F.J.. (2015). Beam, A.L., D.D. Thilmany, R.W. Pritchard, L.P. Garber, DC Van Metre, and F.J. Olea-Popelka. “Distance to Slaughter, Markets and Feed Sources Used by Small-Scale Food Animal Operations in the United States.” Renewable Agriculture and Food Systems 31, no. 1, access at Feb. 1, 2024, (2016): 49-59.

https://doi.org/10.1017/S1742170514000441.

(Estimating transportation distances of 90 miles for 95 percent of percent of small-scale livestock operations). (Analysts filtered for plants that slaughtered beef, pork, and chicken. Analysts joined firm name appearing in directory to likely parent firm name by constructing a name lookup using merger data published by Yale Thurman Arnold Project; and manual internet search for poultry and livestock firms' mergers and acquisitions. Analysts obtained geographic coordinates from establishment address. For each establishment per animal class, analysts calculated the distance from the centroids of all U.S. counties to all plant establishments; and filtered for distances within 50 miles (broiler) and 115 miles (hog, cattle), based on estimates of travel distances for each animal obtained from literature search. Analysts calculated number of counties reachable by the travel distance for each animal species,

i.e.:

geographic draw area for each plant. Analysts produced for each county the number of plants appended with the parent firm name derived from the historic merger dataset described above. Analysts present as the summary figure the total number of unique parent firm names located within 90 (broilers) and 115 (hog, cattle) miles of county centroids that contain, for the purposes of this county-level analysis, the total number farm operations of each animal type in the county. Analysts summarized the number of counties, inventory, and operations with hog, broiler, and cattle sales, for all counties from 2017 NASS county-level dataset; and, for farm operations, filtered only for farm operations above the smallest class size,

e.g.:

for hog, above 25 head; for cattle, above 10 head; for broilers, above 2,000 head. This smallest class size is not likely to be utilizing the slaughter plants).

Half of all broiler growers have two or fewer processors for which they can grow broilers.

The following table is a modification of a table in MacDonald (2012),

adding the market concentration measure, the Herfindahl-Hirshman Index (HHI)

indices to MacDonald's calculations of the integrators,

i.e.,

live poultry dealers who typically have vertically integrated production, in the broiler grower's geographic region. The HHIs in the table assume equal market share for each integrator and, as such, are the minimum HHIs possible (at least with 2 to 4 growers). They show that 88.4 percent of growers are facing an integrator HHI of at least 2,500. The data suggest that most contract broiler growers in the U.S. are thus in markets where the live poultry dealers have the potential to exercise market power.

MacDonald, J.M. and Key, N., 2012, Market power in poultry production contracting? Evidence from a farm survey,

Journal of Agricultural and Applied Economics, 44

(4), pp.477-490, access at Feb. 1, 2024, (2012),

https://www.proquest.com/scholarly-journals/market-power-poultry-production-contracting/docview/1183766436/se-2.

Ibid.

The Herfindahl-Hirschman Index, HHI, is a “commonly accepted measure of market concentration. The HHI is calculated by squaring the market share of each firm competing in the market and then summing the resulting numbers.” U.S. Department of Justice, “Herfindahl-Hirschman Index,” accessed Feb. 1, 2024, (2018),

https://www.justice.gov/atr/herfindahl-hirschman-index.

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By the late 20th century and early 21st century, contracting practices were also changing. Bilateral and vertical contracting were becoming the increasingly dominant means to coordinate live animal supplies.

Today, most poultry production and about 98 percent of hog production fall under production contracts, and roughly 70 percent of cattle procurement falls under marketing contracts.

Bilateral and vertical contracting have benefits

and disadvantages for both processors and producers. However, the exercise of market power through the contracting practices occurring in concentrated livestock and poultry markets have left producers susceptible to the conduct this rule aims to prohibit.

Lauck,

J. K. (1998).

Competition

in the

Grain Belt Meatpacking Sector After World

War. II. The annals of Iowa, 57(2),

https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/

(Finding that in 1984, only 7 percent of livestock were marketed through terminal markets. By this time, many packers made vertical contracts with farmers or feedlots). “Structural Change in Livestock: Causes, Implications, Alternatives,” Research Institute on Livestock Pricing 232728, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics, access at Feb. 1, 2024, (1990), available at

https://ideas.repec.org/p/ags/vtrilp/232728.html.

See James M. MacDonald and Christopher Burns, “Marketing and Production Contracts Are Widely Used in U.S. Agriculture,” Economic Research Service, (July 2019), available at

https://www.ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/

(For a producer to successfully bring an animal to processing, they must secure a source of animals to raise, feed, medicine, and processing services, among other needs. In contract production, regulated entities typically control the inputs and processing and distribution channels, and therefore can largely block market access for independent producers seeking to bypass these tightly controlled, vertically contracted supply chains).

USDA ERS, J. M. MacDonald and C. Burnes, (July 1, 2019), Marketing and Production Contracts Are Widely Use in U.S. Agriculture,

Amber Waves.

(In 2017, 49 percent of the value of livestock production was raised under contract agreements—usually between farmers and processors. Most poultry is produced under contract, and what is not produced under contracts between processors and growers is raised in facilities operated directly by processors. See graph for data on hogs.)

https://ers.usda.gov/amber-waves/2019/july/marketing-and-production-contracts-are-widely-used-in-us-agriculture/;

See also, USDA Packers and Stockyards Division (PSD), (2020), Packers and Stockyards Division Annual Report 2020, access at Feb. 1, 2024,

https://www.ams.usda.gov/sites/default/files/media/PackersandStockyardsAnnualReport2020.pdf.

One of the notable structural changes over the course of the 20th century was the improvement in refrigeration technology. Refrigeration enabled meat packers to move away from the from Great Lakes and the Upper Midwest, where they could source large quantities of ice and build facilities closer to the centers of livestock production.

Slaughterhouse and fabrication plants, therefore, could and did move away from urban areas to remote rural locations. As technology and the ability to scale operations also grew in the latter half of the 20th century, plants also grew in size.

David I. Smith, (Spring 2019), 19th Century Development of Refrigeration in The American Meat Packing Industry, access at Feb. 1, 2024,

https://scholarworks.harding.edu/cgi/viewcontent.cgi?article=1118&context=tenor.

(“Development of refrigeration and transportation in Chicago led the city to become the meat packing center of the world,” p. 100 from Howard Copeland Hill, “The Development of Chicago as a Center of the Meat Packing Industry,” Mississippi Valley Historical Review 10, no. 3 (1923): 253). (And, “Refrigerator cars “enabled dressed beef to be slaughtered in Chicago and shipped to the East at a lower cost than livestock,” p. 103, from Mary Yeager Kujovich, “The Refrigerator Car and the Growth of the American Dressed Beef Industry,” The Business History Review 44, no. 4 (1970): 460.); Warren, Wilson, (2009), Tied to the Great Packing Machine: The Midwest and Meatpacking, Bibliovault OAI Repository, the University of Chicago Press, access at Feb. 1, 2024,

https://books.google.com/books?hl=en&lr=&id=f-CAclXhhCYC&oi=fnd&pg=PR7&dq=history+of+meat+packing&ots=oFnnxzABzR&sig=gp3eackbDY2CzAdcz8Q67cg0pvQ#v=onepage&q=history%20of%20meat%20packing&f=false

(Wilson notes that in the late 19th century plants were starting to move closer to livestock; and, by the 1950s, the industry hit the end of its third phase (1920s to 1950s) of packers buying direct from feedlots/producers and the decline of terminal markets.).

MacDonald, J.M., Ollinger, M., Nelson, K.E. and Handy, C.R., (2000), Consolidation in US meatpacking. Economic Research Service, U.S. Department of Agriculture. Agricultural Economic Report No. 785, access at Feb. 1, 2024,

https://www.ers.usda.gov/webdocs/publications/41108/18011_aer785_1_.pdf?v=0#:~:text=Consolidation%20in%20slaughter%20features%20three,the%20location%20of%20animal%20feeders.

These changes had two implications over time. First, as processing plants moved from urban to rural areas, producers were more vulnerable to an exercise of monopsony power because the local and regional markets became more concentrated.

Second, instead of terminal (auction) stockyards aggregating livestock for sales to packers, packers and producers increasingly entered into bilateral contractual relationships to buy livestock.

When producers utilized stockyards for their livestock sales, they could rely for protection on the provisions of title III under the Act, which established robust nondiscrimination protections for producers (in sec. 312), as well as a DOJ Consent Decree in 1920 with the major packers, which established that the stockyards had to be structurally separate from packers.

For example, in 1968 USDA issued a Statement of General Policy under the Packers and Stockyards Act to clarify that the prohibitions against unjust discrimination under sec. 312 governing “just and reasonable stockyard services” prohibited discrimination on the basis of race, religion, color, or national origin. However, as the industry structure evolved and livestock were increasingly sold through bilateral, vertical contracts, producers were no longer protected by sec. 312 of the Act. Instead, the sales were governed by title II of the Act, under which sec. 202(a) and (b) prohibits unjust discrimination and undue prejudice.

This final rule seeks to articulate the necessary protections around unjust discrimination and deception under those provisions of the Act.

Willard Williams, “Small Business Problems in the Marketing of Meat and Other Commodities (Part 4, Changing Structure of Beef Packing Industry),” Hearings before the Subcommittee on SBA and SBIC Authority and General Small Business Problems of the Committee on Small Business, House, 96th Cong., 1st sess. (Washington, DC, 1979), 3; “Structural Change in Livestock: Causes, Implications, Alternatives,” Research Institute on Livestock Pricing 232728, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics, access at Feb. 1, 2024, (1990), available at

https://ideas.repec.org/p/ags/vtrilp/232728.html;

Lauck, J. K., (1998), Competition in the Grain Belt Meatpacking Sector After World War. II. The annals of Iowa, 57(2), access at Feb. 1, 2024, available at

https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/;

Marion, Bruce W., “Restructuring of Meat Packing Industries: Implications for Farmers and Consumers,” Working Papers 204107, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group (1988), available at

https://ideas.repec.org/p/ags/uwfswp/204107.html;

Aduddell, Robert M. & Cain, Louis P., “The Consent Decree in the Meatpacking Industry, 1920-1956,” Business History Review, Cambridge University Press, vol. 55(3) 1981; Aduddell, Robert M., and Louis P. Cain. “A Strange Sense of Deja Vu: The Packers and the Feds, 1915-82.” Business and Economic History 11 (1982): 49-60.

http://www.jstor.org/stable/23702755

(Documenting the historic shift from terminal auctions, in which around 90 percent of livestock were marketed in the 1920s; to 75 percent in the 1940s; to just 7 percent by 1984 (Lauck 1998; Aduddell 1981). In terminal auctions, market participants, including producers, new independent packers, and retailers enjoyed the benefits of transparent pricing and many possible marketing channels. The number of terminal auctions doubled every decade from 1935-1955 (Aduddell 1981). In the latter half of the 20th century, a new generation of large packers located closer to producers; and built new facilities to process larger numbers of animals which they purchased directly from increasingly larger feedlots (Williams 1978). Various researchers during the time period documented how direct purchases from these packers accounted for a larger share of the industry's sales; and contributed to decreasing numbers of market transactions and bids in terminal markets. For example, for cattle, the number of single bid transactions for cattle increased by 64 percent from 1982 to 1987; and by 38 percent for hogs (Purcell 1990). In turn, producers facing fewer buyers often reported lower prices paid (Marion 1988).

Lauck, J.K., (1998),

Competition

in the

Grain Belt Meatpacking Sector After World

War. II. The annals of Iowa, 57(2), access Feb. 1, 2024, available at

https://pubs.lib.uiowa.edu/annals-of-iowa/article/id/10311/;

Unknown (W. Purcell, editor), (1990), “Structural Change in Livestock: Causes, Implications, Alternatives,”

https://ideas.repec.org/p/ags/vtrilp/232728.html.

Research Institute on Livestock Pricing Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics, available at

https://ideas.repec.org/p/ags/vtrilp/232728.html;

Dickes, L.A. and Dickes, A.L. (2002), “Oligopolists then and now: a study of the meatpacking industry,” In

Allied Academies International Conference. Academy for Economics and Economic Education. Proceedings

(Vol. 5, No. 1, p. 15). Jordan Whitney Enterprises, Inc.

https://www.proquest.com/openview/919b243381c017244c764591d3d50a90/1?pq-origsite=gscholar&cbl=38640.

Aduddell 1981,

supra.

7 U.S.C. 192(a) and (b).

The broiler industry also grew quickly after the Second World War. Early on it adopted a production model in which live poultry dealers contracted with poultry growers to grow-out broilers, rather than a model of independent producers selling broilers on the open market. With most broiler growing contracts, the live poultry dealer provides the chicks, the feed, and veterinary services, while the grower provides labor, facilities, equipment, and energy necessary to turn the chicks into slaughter-ready birds. At first, live poultry dealers were often feed suppliers, but now most processors act as live poultry dealers. Overall, the reality is that live poultry dealers have extensive control over production through the contracting practices.

Furthermore, it is important to acknowledge the impact of a consolidating farm production landscape overall. With the livestock and poultry farming sectors consolidating over the last several decades, the aggregate number of producers has declined significantly, even as total production is stable or growing. Many factors driving the loss of producers in the marketplace are the same factors underlying the market changes referenced above and include productivity growth wrought by scientific and technological advances, economies of scale, and transportation improvements. As shown in Figures 2 and 3 below, over the last 60 years, changes in animal production have corresponded to declines on the order of

hundreds of thousands of producers in nearly every size class except the largest, which increased by only hundreds of producers.

Haines, Michael, Fishback, Price, and Rhode, Paul. United States Agriculture Data, 1840-2012, Inter-university Consortium for Political and Social Research [distributor], (2018),

https://doi.org/10.3886/ICPSR35206.v4

(County-level census data from 1978-2012). USDA Census of Agriculture Large Datasets, USDA National Agricultural Statistics Services, available at

https://www.nass.usda.gov/datasets/

(Livestock data from 1997-2017).

USDA Census of Agriculture Historical Archive, USDA National Agricultural Statistics Services, available at

https://agcensus.library.cornell.edu/

(National-level statistics from 1978-2012); USDA Census of Agriculture 2017, USDA National Agricultural Statistics Services, available at

https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/

(National-level statistics for 2017) (Analysts obtained the total number of operations with sales for each animal size class from historic national-level statistics from 1978-2017. Analysts summed the number of operations of every class other than the largest size class for each animal species, compared to the largest size class; and excluded the very smallest size class in each summary because the smallest size is not likely to receive slaughter services by regulated entities).

ER06MR24.003

ER06MR24.004

In the figure above, the intensity of shading indicates the magnitude of decrease (left) or increase (right), with shading intensity scaled individually to each map panel. Generally, the number of cattle and hog operations for every size class except the largest decreased in many counties across the U.S., while the number of operations for the largest size class increased in only a few counties. Owing to the limitations of available county-level data, the above map for cattle operations include both feedlot and cow-calf operations, of which only the first sell directly to packers in most instances. Feedlots and packers tended to locate closer to producers in the latter half of the 20th century. As feedlots became larger and more concentrated, the number of farms with fed cattle sales declined. For example, McBride found that from 1978-1992, as the distribution of cattle feedlots became geographically tighter, the number of counties contributing to half of cattle sales decreased from 73 counties in 1978 to just 44 counties in 1992, with a fourth

of sales coming from 13 counties. The number of feedlots declined from approximately 175,155 in 23 states in 1970 to 27,000 feedlots in 2020, with half of all fed cattle from just 132 of them.

MacDonald, J.M., Dong, X., & Fuglie, K. (2023), Concentration and competition in U.S. agribusiness (Report No. EIB-256), U.S. Department of Agriculture, Economic Research Service, available at

https://doi.org/10.32747/2023.8054022.ers.

McBride, William D. (1997). “Change in U.S. Livestock Production, 1969-92,” Agricultural Economic Reports 262047, United States Department of Agriculture, Economic Research Service, available at

https://www.ers.usda.gov/webdocs/publications/40794/32767_aer754fm.pdf?v=1657.7.

“Final Estimates for 1970-1975,” USDA (1978), available at

https://downloads.usda.library.cornell.edu/usda-esmis/files/sq87bt648/7w62fc32q/qf85nf445/cattleest_Cattle_-_Final_Estimates__1970-75.pdf.

Data from Figure 3 clearly indicate a shift in livestock and poultry raising to larger farms. This shift has occurred in concert with an increase in bilateral and vertical contracting. Bilateral and vertical contracting facilitate the conditions in which discrimination and retaliation are more likely to restrict market opportunities of producers and cause them to earn less than the full value of their animals. It is harder to discriminate in the aggregated market of the stockyard than through bilateral contracting regimes. When producers are locked into long-term agreements with a single buyer, it is easier for buyers to discriminate on prohibited bases or retaliate in response to protected activities because they exercise considerably more leverage over producers. Buyer-seller relationships are more fixed, providing much less flexibility for producers. Furthermore, with the number of farms declining in number, the economic harms of discrimination and retaliation are more likely to be permanent as being denied a long-term contract may lead to permanent exclusion from the market. Smaller farms in particular may be more likely to be permanent casualties of discriminatory or retaliatory behavior in a consolidated farm context as buyers gravitate toward larger suppliers to more easily satisfy their volume requirements. Discriminatory or retaliatory behavior is more likely to harm producers economically because it is much harder to find alternative buyers in a world with fewer, bigger farms and fewer, bigger packers and live poultry dealers. This rule is not directly addressing consolidation at the farm level or concentration at the processor level, but in providing more protections to producers from discriminatory and retaliatory conduct, it is helping to prevent market exclusion.

A long-time scholar of these markets stated as early 2004 that the livestock and poultry markets appear to be by “invitation only.”

That statement underscores the power of incumbent entities to control access to the market and, in many ways, the destiny of what had been multigenerational successful operations of producers and smaller competitors.

This final rule addresses some of the ways that livestock and poultry markets unfairly exclude producers or otherwise limit their ability to obtain the full value of their animals. This final rule does not address all the factors contributing to market exclusion. However, it does address several practices that exclude producers and, in doing so, violate the Packers and Stockyards Act. AMS recognizes that creating inclusive and competitive markets with integrity requires multiple legal, regulatory, and programmatic strategies to mitigate the potential harmful effects of concentration and vertical contracting; build up alternatives through investments in regional meat and poultry processing;

and protect the rights of producers to develop producer organizations that advance farmer welfare, rural prosperity, and quality food. Thus, this rulemaking is one key piece to AMS's strong commitment to mitigating the factors that restrict market access for livestock and poultry producers.

C. Robert Taylor, “The Many Faces of Corporate Power in the Food System.” Presented at DOJ/FTC Workshop on Merger Enforcement, February 2004, available at

https://www.justice.gov/sites/default/files/atr/legacy/2007/08/30/202608.pdf.

See,

e.g.,

Jon Lauck, “Toward an Agrarian Antitrust: A New Direction for Agricultural Law,” 75 N. D. L. Rev. 449 (1999); Peter C. Carstensen, “Buyer Power and the Horizontal Merger Guidelines,” 14 U. Penn. J. Bus. L. 775 (2012); Peter. C. Carstensen, “Buyer Power, competition policy, and antitrust: the competitive effect of discrimination among suppliers,” The Antitrust Bulletin: Vol. 53, No. 2/Summer 2008; Kenneth E. Boulding, “Towards a Pure Theory of Threat Systems,” The American Economic Review, May, 1963, Vol. 53, No. 2, 424-434.

https://www.usda.gov/media/press-releases/2023/04/19/usda-announces-funding-availability-expand-meat-and-poultry.

B. Discrimination, Retaliation, and Deception

The P&S Act is a remedial statute enacted to address problems faced by farmers, producers, and other participants in the markets for livestock, meats, meat food products, livestock products in unmanufactured form, poultry, and live poultry; to protect the public from predatory practices; and to protect freedom for farmers and businesses to engage in the flow of commerce.

Thus, as academics and courts have noted, the Act has “tort-like provisions that are concerned with unfair practices and discrimination” that fulfill a “market facilitating function,” which Congress designed to prevent “market abuse.”

AMS interprets and implements the Act to achieve its core statutory purposes.

Stafford

Wallace,

258 U.S. 495 (1922).

Bruhn's Freezer Meats of Chicago, Inc.

U. S. Dep't of Agric.,

438 F.2d 1332, 1337-38 (8th Cir. 1971) (quoting H.R. Rep. No. 1048, 85th Cong., 1st Sess. (1957), U.S. Code Cong. & Admin. News 1958, p. 5213). Public Law 99-198, 99 Stat. 1535, 7 U.S.C. 1631 (Section 1324 of the Food Security Act). Fed. Trade Comm'n, Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part I (Extent and Growth of Power of the Five Packers in Meat and Other Industries); Fed. Trade Comm'n, Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part II (Evidence of Combination among Packers); Fed. Trade Comm'n, Report of the Fed. Trade Comm'n on the Meat-Packing Industry, Part III (Methods of the Five Packers in Controlling the Meat-Packing Industry) (1919) (Finding that the purpose of the combination of Big Five packers was to “monopolize and divide among the several interests the distribution of the food supply not only of the United States but of all countries which produce a food surplus, and, as a result of this monopolistic position, to extort excessive profits from the people not only of the United States but a large part of the world”).

Herbert Hovenkamp, “Does the Packers and Stockyards Act Require Antitrust Harm?” (2011). Faculty Scholarship at Penn Carey Law. 1862.

https://scholarship.law.upenn.edu/faculty_scholarship/1862

(“subsections (a) and (b) appear to be tort-like provisions that are concerned with unfair practices and discrimination, but not with restraint of trade or monopoly as such”); Peter Carstensen, The Packers and Stockyards Act: A History of Failure to Date, CPI Antitrust Journal 2-7 (April 2010) (“Congress sought to ensure that the practices of buyers and sellers in livestock (and later poultry) markets were fair, reasonable, and transparent. This goal can best be described as market facilitating regulation.”); Michael C. Stumo & Douglas J. O'Brien, “Antitrust Unfairness vs. Equitable Unfairness in Farmer/Meat Packer Relationships,” 8 Drake J. Agric. L. 91 (2003); Michael Kades, “Protecting livestock producers and chicken growers,” Washington Center for Equitable Growth (May 2022),

https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf

(“Section 202's prohibitions on unjust discrimination and undue preference are not limited to conduct that destroys or limits competition or creates a monopoly. These provisions address conduct that impedes a well-functioning market and deprives livestock and poultry producers of the true value of their animals. Taken together, these provisions seek to prevent market abuses.”).

See

Bowman

U.S. Dep't of Agric.,

363 F.2d 81 at 85 (5th Cir. 1966).

AMS finds that current regulations under the Act do not sufficiently address the many unduly prejudicial, unjustly discriminatory, and deceptive practices in the livestock and poultry industry. As discussed above, the combination of increased concentration and use of vertical contracts in livestock and poultry markets enhances regulated entities' ability to unjustly discriminate against or deceive market participants and effect significant harm upon

producers. With bilateral contracts where one side has significant market power, regulated entities can target specific individuals, whether because of their personal characteristics (prejudice) or because of they have engaged in certain activities (retaliation). With market concentration, producers have limited options in the marketplace with which to avoid the harms. Vertical contracts where regulated entities have greater control over producers' operations also enable certain forms of discrimination, such as in the provision of inputs, as live poultry dealers particularly have heightened control and involvement in the growers' poultry operations. The provision of accurate and not misleading information also takes on heightened importance in these markets. In markets where producers are exiting, it is especially difficult for producers to reenter after being excluded, and the harms from exclusion are significant.

i. Discrimination and Prejudice

Discrimination and prejudice harm market participants and overall market integrity and efficiency. Discrimination is economically inefficient.

The prejudicing entity that pays a producer below market value for his or her cattle or hogs because the producer belongs to a protected class causes that producer to not receive the full economic value of his or her animals; this discrimination also prevents the market from reaching an optimal allocation of wages and labor, contributing to a deadweight loss for the economy at large.

Likewise, a regulated entity's refusal to buy from a producer of a protected class offering animals of comparable quality to those being sold by other producers to that same buyer in the same time-frame may cause that disfavored producer to exit the market.

If an entity refuses to purchase product from a producer of a particular class who offers identical product, such as cattle, that disfavored producer may face a lower price, resulting in a loss to the producer that may discourage the producer from continuing to operate or would-be producers of that class from entering the market.

Using non-economic characteristics of the livestock or poultry producers to dictate patterns of production thwarts efforts by producers to accurately assess market conditions and make sound business decisions.

Stiglitz, J. “Approaches to the Economics of Discrimination,”

American Economic Review,

vol. 63/2, May 1973: 287-295 (Discussing how discrimination in markets produces an economic inefficiency: “If all firms are profit maximizers, then all will demand the services of the low-wage individual, bidding their wages up until the wage differential is eliminated. Why does this not occur?”).

Ibid.

U.S. Department of Justice & U.S. Department of Agriculture, Public Workshops Exploring Competition in Agriculture, Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado, available at

https://www.justice.gov/media/1244701/dl?inline; https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885

(Producers described how packers could “pick . . . large entities” as part of marketing agreements to procure supply. In turn, this drove up an excess supply and drove down prices for producers or suppliers who did not receive such an agreement in the cash-negotiated market. One producer said that this discrimination had the effect of “controlling . . . inventory;” another said that this conduct had the effect of “tens of thousands of independent producers being purged out of the business or going into bankruptcy . . . exited out of agriculture”).

U.S. Department of Justice & U.S. Department of Agriculture, Public Workshops Exploring Competition in Agriculture, Livestock Industry Agenda, August 27, 2010, Fort Collins, Colorado, available at

https://www.justice.gov/media/1244701/dl?inline; https://youtu.be/Ygerhjjp0Is?si=2L7OQh0I87fc1n1I&t=1885

(Producers described how packers could “pick . . . large entities” as part of marketing agreements to procure supply. In turn, this drove up an excess supply and drove down prices for producers or suppliers who did not receive such an agreement in the cash-negotiated market. One producer said that this discrimination had the effect of “controlling . . . inventory”; another said that this conduct had the effect of “tens of thousands of independent producers being purged out of the business or going into bankruptcy . . . exited out of agriculture”).

In comments to the proposed rule, multiple organizations spoke of the widespread economic harms resulting from discrimination and prejudice in livestock and poultry markets.

A producer advocacy organization reported that “discrimination, retaliation, and deception have become common features of livestock and poultry markets, leading to widespread fear and anxiety among producers.”

Another commenter wrote, “The current ability to exclude marginal competitors and exploit covered producers, rather than producing meaningful price discovery and transparency in the production and sales of livestock, meat and poultry, has greatly injured not only those involved in production but has restricted consumers from accessing reliable, affordable sources of protein.”

We acknowledge that these comments addressed what commenters viewed as a range of discrimination that could be covered by the proposed rule, and some that we are not addressing in this rule. Comments relating to these topics are discussed further in Section V—Changes from the Proposed Rule, and in Section VII—Comment Analysis.

Government Accountability Project, Comments on Proposed Rule: Inclusive Competition and Market Integrity, (AugJan. 20232), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427

(“Many of these Vietnamese growers were enticed to sell profitable businesses and family homes and take out huge loans to enter broiler production contracts. Bearing all the same burdens of other broiler producers, they were further victimized by language barriers, cultural differences, and blatant mockery and exploitative behavior. In some cases, to keep their contracts, Vietnamese growers were asked to do additional work that was not required of white counterparts. Many of the Vietnamese farmers we have spoken to have likened the abusive and threatening behavior of their integrators to the communist government from which they fled”).

Rural Advancement Foundation International—USA, Comments on Proposed Rule: Inclusive Competition and Market Integrity, (AugJan. 20232), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0437

(“They don't have to cut you off, they can just bleed you dry. The barn we're sitting in here hatched flocks with salmonella issues. They can send those compromised flocks to growers they want to bleed.” “My main concern is that [my integrator] operates on fear and threatening tactics to make every grower they have scared they are going to lose their contract every single day. No human being should have to live every single day in fear that their livelihood and only source of income can be taken away from them. I am sick of it, someone needs to do something to help us! I love to grow chickens and feed the world, but I do not like to live as if under a dictatorship.” “When I filed a complaint with the Packers and Stockyards Division about a weight issue, in which I was proven right, I was punished with bad tournament grouping for a year. Also, I have been told by my integrator, after receiving a really bad flock of birds, that they would be sure to not let it happen next time—so they know how to make it happen!”).

Food & Water Watch, “Comment on AMS-FTPP-21-0045: Inclusive Competition and Market Integrity Under the Packers and Stockyards Act,” (Jan. 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.

Rocky Mountain Farmers Union, “RMFU Comment for the Proposed Rule Inclusive Competition and Market Integrity Under the Packers and Stockyards Act” (Jan. 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441.

As previously noted, this rule does not address every form of discrimination or prejudicial exclusion or disadvantage in the marketplace but focuses on providing clarity regarding certain specific discriminatory and prejudicial practices that AMS has identified in this final rule as essentially unjust, which offer no benefits to the competitive market or producers, and which undermine competition on the merits of the products and services that producers offer. Additionally, although the descriptive analyses set forth below do not address the prevalence or degree or prejudice for each and every prohibited basis, owing to the limitations of available data, AMS believes that leaving out any of the bases listed in this rule would be inappropriate. Not only would that be inconsistent with the Department's approach toward discrimination in other contexts, as repeatedly endorsed by Congress, but the resulting uncertainty could also open the door to those forms of discrimination in livestock, poultry, and related markets under the Act, which would be contrary to the purposes of this regulation and

the Act, which prohibits “undue prejudice . . . in any respect.”

a. Discrimination and Prejudice on Personal Characteristics and Status

AMS (including its predecessor agencies) has received complaints over the years of discrimination against producers, in particular in the poultry industry, and especially on the basis of race. The Agency has not always been able to act on these complaints for a variety of reasons. The Agency also believes that some complaints may have been suppressed due to the risks of retaliation, which are discussed below. As highlighted below, comments to this rulemaking affirmed the prevalence and remaining challenge of discrimination on prohibited bases.

Researchers have documented the history of discrimination against racial and ethnic minorities in agricultural markets. Multiple factors have contributed to the decline of non-white-owned farms, specifically to the decline of Black-owned farms, including the Homestead Act of 1862, the Morrill Land Grant Act of 1862, lack of legal protections for heirs' property, and limited access to capital through discriminatory lending practices.

For example, in the earlier part of the 20th century, the Federal government and agricultural landholders restricted land sales, engaged in predatory and fraudulent lending practices, and denied farm support programs to Black farmers and ranchers,

which has resulted in the loss of Black economic security and land loss.

38 39 40 41

A 1959 paper reported “significant market discrimination” against Black American producers in the Southern United States.

Discrimination by the Federal government and private sector also caused Hispanic people and American Indian people farming on reservations to lose farmland and decline in number.

43 44

More recently, some news reports have documented that companies may present contract terms to non-native English speaking immigrant communities who may not understand them, and have spotlighted the treatment of Asian American and Pacific Islander poultry growers in particular.

McKinsey & Company. November 10, 2021. Black Farmers in the U.S: The Opportunity for Addressing Racial Disparities in Farming. Accessed at Black farmers in the US: The opportunity for addressing racial disparities in farming | McKinsey on 10/04/2023; and

https:/www.archives./gov/milestone-documents/morrill-act https://www.archives.gov/milestone-documents/morrill-act

(see,

e.g.,

“People of color were often excluded from these educational opportunities due to their race.”).

Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell, Nathan A. Rosenberg, and Bryce Wilson Stucki. “Black Land Loss: 1920-1997.” In AEA Papers and Proceedings, vol. 112, pp. 38-42. American Economic Association, 2022.

U.S. Department of Agriculture, National Agricultural Library, “Heirs' Property,”

https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property

(last accessed Aug. 2022).

Mitchell, Thomas W. 2019. Historic Partition Law Reform: A Game Changer for Heirs' Property Owners. In Heirs' property and land fractionation: fostering stable ownership to prevent land loss and abandonment.

https://www.fs.usda.gov/treesearch/pubs/58543

(last accessed 8/9/2022).

U.S. Commission on Civil Rights. 1965. Equal Opportunity in Farm Programs: An Appraisal of Services Rendered by Agencies of the U.S. Department of Agriculture.

https://files.eric.ed.gov/fulltext/ED068206.pdf

US Commission on Civil Rights. 1982. “The Decline of Black Farming in America.”

https://eric.ed.gov/?id=ED222604.

Feder, J. and T. Cowan. 2013. “

Garcia

Vilsack:

A Policy and Legal Analysis of a USDA Discrimination Case,” Congressional Research Service report number 7-5700, February 22, 2013.

Tang, Anthony M. “Economic development and changing consequences of race discrimination in Southern agriculture.”

Journal of Farm Economics

41, no. 5 (1959): 1113-1126.

Casey, Alyssa R. Racial Equity in U.S. Farming: Background in Brief 2021. Congressional Research Service.

https://crsreports.congress.gov/product/pdf/R/R46969

(Finding that the percent of American Indian and Hispanic producers increased by 1.3 and 2.4 percent between the early 1900s to 2017, compared to White producers which increased by 9 percent).

Horst, M., Marion, A. “Racial, ethnic and gender inequities in farmland ownership and farming in the U.S.”

Agric Hum Values

36, 1-16 (2019), available at

https://doi.org/10.1007/s10460-018-9883-3.

Christopher Leonard, “The Meat Racket,” (2015) and Witt, Howard. “Hmong poultry farmers cry foul, sue” Chicago Tribune. May 15, 2006. Available online at:

https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.

Researchers have also documented some of the adverse outcomes, including economic outcomes, caused by discrimination. In the livestock sector, the results of historical prejudice and the risk of present-day prejudice are apparent when looking at data from the 2017 Census of Agriculture, which show that a small fraction of livestock farms with production contracts are operated by Black, Asian, American Indian, or Native Hawaiian producers (Figure 1).

In Figure 1, the checkered bars represent the share of racial and ethnic groups among all livestock and poultry farms, and the colored bars indicate the share of production contracts received by each group. As indicated in Figure 1, American Indian, Black, Native Hawaiian, and Hispanic producers receive less than a proportional share of livestock and poultry production contracts relative to their respective populations. For example, Black producers and growers account for 1.6 percent of U.S. farms by race and ethnicity and receive a disproportionately lower 0.5 percent of livestock and poultry contracts. White producers and growers, meanwhile, represent 91 percent of all farms, but 98 percent of hog contracts and 97 percent of cattle contracts—a greater than proportionate share of livestock contracts, and at 90 percent, a lower than proportionate share of poultry contracts. Non-white racial and ethnic groups constitute a very small share of contracted livestock and poultry producers, which can be attributed to limited access to land and capital,

having on average smaller operations, and discrimination.

Most production contracts are held by poultry growers and less so by packers. A production contract, according to USDA NASS, “is an agreement between a producer or grower and a contractor (integrator) setting terms, conditions, and fees to be paid by the contractor to the operation for the production of crops, livestock, or poultry.” In contrast, many packers hold marketing contracts which, according to NASS, are “based strictly on price.” USDA NASS, No Date. “Appendix B. General Explanation and Census of Agriculture Report Form.” usappxb.pdf (

usda.gov

), accessed 8/12/23.

See, generally, Congressional Research Service, “Racial Equity in Farming,” Nov. 2021, available at

https://crsreports.congress.gov/product/pdf/R/R46969;

Economic Research Service, USDA, “Access to Farmland by Beginning and Socially Disadvantaged Farmers: Issues and Opportunities,” Dec. 2022, available at

https://www.ers.usda.gov/publications/pub-details/?pubid=105395.

ER06MR24.005

Disparities are also found in income across racial and ethnic groups. It is difficult to disentangle historical discrimination—whether that be prejudicial administration of USDA farm policies, racial segregation laws, or discriminatory private lending policies, from current discrimination practiced by livestock and poultry companies. Figure 5 shows the percentage of livestock and poultry farms (omitting nonfamily farms) by the reported race or ethnicity, and categorized by the lowest level of Gross Cash Farm Income (GCFI), which is annual income before expenses, including cash receipts, farm-related cash income, and government payments.

These data indicate that livestock and poultry farms with producers who identify as American Indian, Black, Native Hawaiian, and Hispanic are more likely to be in the lowest income category (measured by GCFI <$150,999) than their white counterparts. Those farms with producers who identify as Asian are less likely than their White counterparts to fall into the lowest income group, which might be a factor of being relatively recent immigrants and not facing past discrimination.

The fact that Black, Native Hawaiian, Native American, and Hispanic livestock and poultry farmers are more likely to be in the lower income GFCI category could be an effect of past discrimination, and it also could make such producers more vulnerable to current discriminatory behavior by packers. Markets dominated by one or a few large packers or live poultry dealers may also be less accessible to these lower income farms, which have limited financial or other economic resources with which to engage.

USDA ERS, No date. Farming and Farm Income. Available at

https://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/farming-and-farm-income/

(last accessed 9/8/23). GCFI income categories incude <$149,900, $150,000-$349,999, $350,000-$999,999, and ≥$1,000,000.

Pew Research Center. June 19, 2012. The Rise of Asian Americans. Accessed at

https://www.pewresearch.org/social-trends/2012/06/19/the-rise-of-asian-americans/

on 10-13-23.

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Recent research conducted by the USDA's Office of the Chief Economist and presented at the Agricultural & Applied Economics Association

suggests that certain ethnic or racial groups are receiving lower prices compared to White producers from regulated entities in livestock and poultry contracts. In some cases, the research showed statistically significant differences in prices received for livestock (cattle and hogs) and broiler products across ethnic or racial groups after controlling for variables such as farm size, region, type of marketing contract or channel, organic certification status, distance to closest packer, and size of closest packer. Specifically, Black and American Indian cattle producers, Black contract broiler producers, and Black and American Indian hog producers all received lower prices for their livestock products relative to White producers. However, the effect of many animal quality variables, such as weight per animal, dressing percentage, and yield grade, cannot be controlled for under this analysis because the data is not in the Census of Agriculture or other data sets organized by race and ethnicity. Thus, endowment differences, such as better land and more capital, that represent the legacy of historical discrimination may account for a portion of these price differentials.

Breneman, V., Cooper, J. Nemec Boeme, R. and Kohl, M., “Competition and Discrimination—is there is a relationship between livestock prices received and whether the grower is in a historically underserved group?” 2023 AAEA Annual Meeting, Washington, DC, July 23-July 25.

Differences in livestock and broiler prices could also be due, at least in part, to discrimination. Due to current data deficiencies, however, it is impossible to tell whether differences in prices received across ethnic or racial groups are due to current discriminatory practices, historic discrimination, or some combination thereof. These omitted variables may be correlated with race or ethnicity, and thus may account for a substantial portion of the price differentials. Additional data collection efforts may shed light on the role of omitted variables, such as animal size, thus helping to distinguish economic effects arising from current racial discrimination from disparate economic outcomes due to historical discrimination.

Gender is also a basis of discrimination in livestock and poultry markets. According to the 2017 Census, livestock and poultry operations where principal operators are female received significantly lower market value for the livestock and poultry they sell. Female principal operators in livestock and poultry earned 53 cents per operation for every dollar earned by male principal operators per operation. By comparison, in the broader U.S. population, females earn 77 to 82 cents for every dollar earned by men in 2022.

Figure 6 shows that the difference in livestock and poultry sales by gender is about $117,000 less per operation for female principal operators, or 47 percent less, compared to male principal-operated farms. Disproportionately more female operators are found in the lower income classes relative to males, and a disproportionately higher number of male operators are found in the highest income classes. The value of livestock and poultry production per total acres owned by males and females is $0.22 per acre for males and $0.18 per acre for females, or $0.82 per acre for female operators relative to every $1 per acre earned by male operators. Together, these data suggest that female

producers—in livestock and poultry markets—achieve poorer economic outcomes than male producers.

The Pew Research Center. March 1, 2023. “The Enduring Grip of the Gender Pay Gap.” Accessed at

https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/

on 09-25-2023, and World Economic Forum. July 2023. Global Gender Gap Report 2023 Accessed at WEF_GGGR_2023.pdf (

weforum.org

) on 09-225-2023.

ER06MR24.007

AMS also utilized a regression analysis showing support for disparities in income across different protected classes. Table 3 presents the empirical results of multivariate regression analysis of the 2017 Agricultural Census and other data by the USDA Office of the Chief Economist. Black and American Indian cattle and broiler producers, and Black and American Indian hog producers of owned hogs (hogs not sold under production contracts) all received lower prices for their livestock products relative to White producers. For example, Black and American Indian producers received around 5 percent lower broiler prices but no statistically significant decrease in payments for hogs delivered under production contracts. However, the effect of many animal quality variables, such as weight per animal, dressing percentage, and yield grade, cannot be controlled for under this analysis because the data is not in the Census of Agriculture or other data sets organized by race and ethnicity. Thus, endowment differences, such as better land and more capital, that represent the legacy of historical discrimination may account for a portion of these price differentials. Hawaiian contract hog producers received 68 percent higher prices even though producer location was controlled for in the analysis, but the analysis cannot control for some unknown factors associated with this relatively small cohort of producers that may account for this relatively large price effect.

ER06MR24.008

The results of an analysis presented in Table 3 found there is a statistically significant and positive relationship between female operators and price received for the owned-hog market, which includes producers of both contracted and owned hogs (the regression accounted for whether the producer was on a production contract or not through an explanatory variable), but which examines the price impact only on owned-hogs sold.

However, for the production contract-only hog market, which makes up about 70 percent of all hogs produced, this relationship becomes negative, though not at a statistically significant level (non-statistically significant results are shown as zero values in the table). From regression results not shown in Table 3, it appears that female contract hog producers who also produce owned hogs receive a higher price for owned hogs than female farmers who only produce owned hogs. This finding suggests that females with hog contracts face preferential prices relative to those females that do not hold contracts.

From the Agricultural Census data, some farmers who produce under production contracts also report some owned production as well.

The regression analysis used above to study the effect of sex on prices received in livestock and poultry markets also found a statistically significant negative relationship between age of a farm operator and price received in poultry and owned-hog markets, as well as a statistically significant negative relationship between the experience of a farm operator and price received in the contract hog market. That is, as producers and growers age in the owned-hog and poultry markets and gain experience in the contract hog market, average price received declines. However, the same finding was not evident in cattle markets, where the relationship between increasing producer age and price is positive and statistically significant.

2022.

Figure 7 shows that the difference in livestock and poultry sales by gender is about $117,000 less per operation for female principal operators, or 47 percent less, compared to male principal-operated farms. Disproportionately more female operators are found in the lower income classes relative to males, and a disproportionately higher number of male operators are found in the highest income classes. The value of livestock and poultry production per total acres owned by males and females is $0.22 per acre for males and $0.18 per acre for females, or $0.82 per acre for female operators relative to every $1 per acre earned by male operators. Together, these data suggest that female producers in livestock and poultry markets achieve lesser economic outcomes than male producers.

The Pew Research Center. March 1, 2023. “The Enduring Grip of the Gender Pay Gap.” Accessed at

https://www.pewresearch.org/social-trends/2023/03/01/the-enduring-grip-of-the-gender-pay-gap/

on 09-25-2023, and World Economic Forum. July 2023. Global Gender Gap Report 2023 Accessed at WEF_GGGR_2023.pdf (

weforum.org

) on 09-225-2023.

ER06MR24.009

Producers have also been targeted by processors that discriminate or retaliate against them for forming or being members of a cooperative because of the check on dominant firm bargaining power that cooperatives provide.

Growers and experts on agricultural cooperatives have reported numerous instances of live poultry dealers taking adverse actions against producers for their participation in agricultural cooperative activities.

USDA, Publications for Cooperatives, available at

https://www.rd.usda.gov/resources/publications-for-cooperatives

(See generally USDA's published research reports that document the history and importance of agricultural cooperatives that allow farmers to negotiate collectively for prices on product either sold or bought by input or buyer entities. For example, USDA in

Farm Bargaining Cooperatives: Group Action, Greater Gain

(1994) describes one harrowing instance in which members of a cooperative initially hesitated in bringing a complaint against a processor that allegedly punished them by refusing to buy their fruit due to their association with the cooperative; but eventually successfully brought the complaint and, after a lengthy legal process, won punitive damages and the processor's agreement to buy product); Vaheesan, S. and Schneider, N., 2019. Cooperative Enterprise as an Antimonopoly Strategy.

Penn St. L. Rev., 124,

p.1. Accessed at

https://elibrary.law.psu.edu/cgi/viewcontent.cgi?article=1000&context=pslr

(Oct. 2023).

Baldree

Cargill, Inc.

and

United States

Cargill, Inc., et al.,

758 F.Supp.704 (M.D.Fla. 1990).

Arkansas Valley Industries, Inc., Ralston Purina Company, and Tyson's Foods, Inc.,

27 Ag. Dec. 84 (January 23, 1968), and

In Re: Curtis Davis, Leon Davis, and Moody Davis d/b/a Pelahatchie Poultry Company,

28 Ag. Dec. 406 (April 3, 1969).

For the purposes of this preamble, a cooperative is an incorporated or unincorporated association of producers, with or without capital stock, formed for mutual benefit of its members. Farm cooperatives are formed under State, not Federal law, even though cooperatives have Federal protections.

See

James B. Dean & Thomas Earl Geu,

The Uniform Limited Cooperative Association Act: An Introduction,

13 Drake J. Agric. L. 63, 67 (2008) (“There is, however, no single type of cooperative. Although much of the law that has developed around cooperatives has developed with respect to agricultural cooperatives, cooperatives exist in many areas . . . including housing, insurance, banking, health care, and retail sales, among others.”). Cooperatives can both be buyers and sellers of agricultural products. Cooperatives made up of sellers, because they jointly fix the prices of their goods, are legally permitted to market the products they produce when the cooperative organization meets the requirements of the Capper-Volstead Act (see 7 U.S.C. 291)7 U.S.C. 291) or the Clayton Act (see 15 U.S.C. 17).15 U.S.C. 17).

Regulated entity resistance to producer cooperatives is not difficult to understand—and indeed has been the basis for congressional action in the past. The increased bargaining power that cooperatives give to their members makes them a target for opposition or curtailment by regulated entities. In a market characterized by concentration of larger market intermediaries, cooperatives

can assist producers in promoting equal access to the market

and enhance the bargaining power of smaller producers. At the same time, cooperatives are responsive to the needs of regulated entities and the market for greater volume, as opposed to negotiating with many smaller producers.

Yet precisely that presence of enhanced bargaining power, which cooperatives give to their members, makes them a target for opposition or curtailment by regulated entities. Congress has affirmed that cooperatives are necessary to protect the marketing and bargaining position of individual farmers and that interference with this right is not only contrary to the public interest but damaging to the free market.

As stated in the Congressional Record “. . . wherever waste and uneconomic practices are discovered they should be eliminated, and whenever improvement can be made by cooperative effort these improvements should be sanctioned and adopted by those interested in our marketing system. . . .”

At least some of the drafters of the Act fully expected the Act to be consonant to the goals of cooperatives: “My own conviction is that the cooperative effort of producers and consumers to get closer together in an effort to reduce the spread between them is the most favorable tendency of our time, so far as the question of marketing and distribution is concerned.” 61 Cong. Rec. 1882 (1921).

7 U.S.C. 2301.

61 Cong. Rec. 1882 (1921).

Producers have indicated to AMS that increased use of cooperatives is necessary because of the rise of abusive conduct aggravated by concentration in the markets and the decline in marketing options for smaller producers. For example, small cattle producers have expressed their concern to AMS about packers' disparate treatment of large and small producers. Large packers have commonly shown limited interest in dealing with producers that operate on a smaller capacity. Packers often prefer to buy large numbers of animals at once to lower transaction costs,

and if a single producer is unable to meet such demand, that producer is unable to compete in the industry. Smaller livestock producers can join together through cooperatives to achieve scale and meet buyers' volume requirements. Thus, cooperatives can help smaller producers gain business they would otherwise be unable to compete for in light of the current market structure. Moreover, Congress has encouraged the formation of agricultural cooperatives and, under the AFPA, has provided enhanced protection for them in the marketplace. Given that policy and statutory judgment, AMS interprets the Act to reinforce that objective. Accordingly, discriminating against a cooperative, absent a legitimate basis set forth under this final rule, is unjust and violative of the Act.

U.S. Department of Justice & U.S. Department of Agriculture, Public Workshops, Exploring Competition Issues in Agriculture Livestock Workshop: A Dialogue on Competition Issues Facing Farmers in Today's Agricultural Marketplaces, Fort Collins, Colorado August 27, 2010. Available at

https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf.

Additionally, cooperatives counterbalance the ability of regulated entities to exert market power against smaller or more vulnerable producers. Facing the threat of such a counterbalance, regulated entities have over time stymied producers' ability to form and utilize cooperatives. AMS has heard numerous reports of regulated entities terminating growers' or producers' contracts for their attempts to form cooperatives, as well as reports of the chilling effect such action has on any future attempts to do so.

More recently, cooperatives in the cattle sector have been frustrated in their effort to negotiate collectively. In recent years, the number of livestock and poultry cooperatives has declined, as shown in the figure below. While many reasons for that decline are unconnected to the discrimination prohibited in this rule, AMS believes cooperatives serve a crucial function in the marketplace and need protection against unjust discrimination by regulated entities. This final rule will protect producers who wish to form cooperatives and will strengthen the marketing and bargaining position of smaller or more vulnerable producers by enabling them to pool resources, coordinate, compete more effectively, and negotiate for fair and appropriate terms in the open market without fear of prejudice or discrimination from larger market intermediaries.

United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshops, (2010), available at

https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305; https://youtu.be/8CvEGyMQ9v8?si=_tvtJVtlNmWDxedQ&t=3675; https://youtu.be/8QJ_K06lp5M?si=VGhP8lzw3f6tdM4B&t=305

(In which poultry growers discussed numerous instances of regulated entities terminating their contracts, reducing the quality of their feed, or otherwise intimidating them for participating in cooperative activities).

ER06MR24.010

Numerous public comments on the proposed rule supported the prohibition of undue prejudice based on protected bases such as those described above. In expressing support for the proposed “market vulnerable individual (MVI)” approach to addressing undue prejudices, several agricultural advocacy groups recommended that AMS explicitly enumerate protected bases in its definition of MVI. MVI, as defined in the proposed rule, is a person who is a member, or who a regulated entity perceives to be a member, of a group whose members have been subjected to, or are at heightened risk of, adverse treatment because of their identity as a member or perceived member of the group without regard to their individual qualities. The organizations said these protected bases should include, but not be limited to, the protected classes of race, color, national origin, religion, sex, sexual orientation, disability, age, income derived from a public assistance program, and political beliefs.

An agricultural advocacy group commented in support of a protected-bases approach, saying that “fair access to markets for growers, farmers, and ranchers should be based on their farming and business skills, not on their membership in any of the above groups.”

Another advocacy group added that defining protected bases “will be an appropriately flexible concept with which to enforce enhanced protections against discrimination in the marketplace.”

The group continued: “Given the history of discrimination that farmers of color have faced over the course of American history, these producers should not be made to relitigate their status as market vulnerable in any given complaint.”

Government Accountability Project, Comments on Proposed Rule: Inclusive Competition and Market Integrity, (AugJan. 2022),

https://www.regulations.gov/comment/AMS-FTPP-21-0045-042720232

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0427

(Describing instances in which some producers described racially prejudicial treatment received from regulated entities, including requirements to do additional work, mockery, and exploitative behavior). Farm Action, Comments on Proposed Rule: Inclusive Competition and Market Integrity, (AugJan. 20232),

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0435

(Listing Supreme Court and lower court cases finding these forms of discrimination to be essentially unjust).

Agricultural Advocacy Group. “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434. https://www.regulations.gov/comment/AMS-FTPP-21-0045-0434.

Agricultural Advocacy Group. “Comment on AMS-FTPP-21-0045: Inclusive Competition and Market Integrity Under the Packers and Stockyards Act,” available at

Regulations.gov.

Agricultural Advocacy Group. “Comment on AMS-FTPP-21-0045: Inclusive Competition and Market Integrity Under the Packers and Stockyards Act,” available at

Regulations.gov.

Multiple commenters from the meat and poultry industry who opposed the MVI approach nevertheless indicated that they would support rules targeting discrimination on specific prohibited bases.

A livestock industry association said discrimination on these types of bases is “reprehensible and should be remediated using the appropriate legal avenues.”

Several national and State farm bureaus expressed support for the rule's action to protect producers facing undue prejudice and unjust discrimination.

See, e.g.,

Meat Industry Trade Association, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424;

Industry Trade Association, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424

Live Poultry Dealer;, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0419.

Industry Trade Association, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418.

See, e.g.,

Farm Bureau, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426;

Other Association or Non-Profit, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0426;

Other Association or Non-Profit, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0416;

Other Association or Non-Profit, “Comment

on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0441.

Discrimination on the bases of race, color, religion, national origin, sex (including sexual orientation and gender identity),

disability, marital status, or age is recognized throughout economic markets as impermissible, yet commonly occurring, bases for discrimination.

AMS recognizes the other Federal laws and authorities that justify these bases, finds that these bases are consistent with its understanding drawn from complaints and in the field, and accordingly adopts these bases as part of this rule.

Removing prejudicial barriers to the market will enhance producers' economic bargaining power, support investment in rural America, assure the next generation that taking over the farm can be a wise economic decision, and otherwise enhance economic opportunity and vitality in communities facing higher business and labor market concentration and the conduct addressed by this rule.

140 S. Ct. at 1737, available at

https://www.supremecourt.gov/opinions/19pdf/17-1618_hfci.pdf

(The Supreme Court has held that the prohibition on discrimination “because of . . . sex” covers discrimination on the basis of gender identity and sexual orientation).

See,

e.g.,

U.S. Department of Justice, “The Attorney General's 2021 Annual Report to Congress on Fair Lending Enforcement,” available at

https://www.justice.gov/media/1259491/dl?inline.

15 U.S.C. 1691; 7 U.S.C. 2301

et seq.

(See below section, Provisions of the Final Rule—Undue Prejudice and Unjust Discrimination, that discusses the adoption of other Federally listed bases as part of this rule).

AMS finds that discrimination continues to occur through adverse actions described in the inexhaustive list offered in the final rule. The list includes offering contract terms that are less favorable than those generally or ordinarily offered, refusing to deal, performing under or enforcing a contract differently than with similarly situated producers, requiring modifications to contracts on terms that are less favorable than the existing contract with the covered producer or only offering to renew contracts on terms that are less favorable than those of the existing contract with the covered producer, and terminating or not renewing a contract.

As discussed further in Section VII—Comment Analysis, producers have indicated that regulated entities continue to engage in these types of discriminatory actions.

ii. Retaliation as Discrimination

Many producers across all animal species have expressed concerns about being retaliated against for engaging in legitimate business and advocacy activities inextricably linked to livestock and poultry markets. Contract poultry growers and hog producers have expressed to USDA that they have experienced—and consistently fear—retaliation from live poultry dealers and packers for communicating with each other, with their dealer's and packer's competitors, and with governmental officials, as well as for forming associations and cooperatives, exercising contract or legal rights, or being a witness in proceedings against the regulated entity.

Cattle producers have similarly expressed fear that packers will refuse to offer bids on livestock, or purchase livestock from disfavored producers, and they have highlighted other, more subtle retaliatory behaviors, like delaying delivery or shipment, for engaging in similar activities.

Producers believe the ability to communicate with others, to form associations and cooperatives, to exercise legal rights, and to witness against regulated entities are critical to free participation in the livestock and poultry markets. Inhibition of these freedoms jeopardizes producers' ability to obtain the full value of their livestock and poultry products and services. Indeed, producers have reported to AMS over the years that retaliation by regulated entities—or threat thereof—for producers' exercise of these rights is significant enough to place a producer's entire farm at risk. This reported conduct is the type of behavior AMS aims to prohibit through this rulemaking.

U.S. Department of Justice & U.S. Department of Agriculture, Public Workshops Exploring Competition in Agriculture, Poultry Workshop, May 21, 2010, Alabama A&M University Normal, Alabama. Available at

Poultry Workshop Transcript (justice.gov)

(

https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656; https://youtu.be/8QJ_K06lp5M?si=C1HA0i84opqaoIn8&t=1051

U.S. Department of Justice & U.S. Department of Agriculture, Public Workshops Exploring Competition in Agriculture, Livestock Industry, August 27, 2010, Fort Collins, Colorado, Available at

https://www.justice.gov/atr/events/public-workshops-agriculture-and-antitrust-enforcement-issues-our-21st-century-economy-10

(

https://youtu.be/j11GXzvA7u0?si=6YNtz2SJH5T81FJZ&t=2656https://youtu.be/Ygerhjjp0Is?si=WMS4YGdAjNtIsBgH&t=1833; https://youtu.be/tF4Dr-O-l8s?si=BZJQYN-rkp-qqvjN&t=1158;

numerous producers, including the previous president of the Kansas Cattlemen's Association, discussed instances in which they experienced retaliation from the largest packers. For example, one producer described how they decided to allow other packer buyers first opportunity to buy cattle in response to the packer not selecting them for a contracting agreement. The producer said that the packer told “his buyer to quit coming into our yard.” Another producer agreed, describing an incident in which they perceived that one of the largest packers possibly retaliating against them for previous litigation: the producer described how the packer hung a “No Trespassing” sign on the producer's door and began offering a “five-minute window” to buy cattle).

Lina Khan, “Obama's Game of Chicken,”

Wash. Monthly

(2012),

https://washingtonmonthly.com/magazine/novdec-2012/obamas-game-of-chicken/

(Recounting testimony by Tom Green, an Alabama farmer who contested a contract and lost their farm: “We did not give up a fundamental right to access the public court . . . which is guaranteed by our Constitution, regardless of price. I had flown too many combat missions defending that Constitution to forfeit it. It was truly ironic that protecting one right, we lost another. We lost the right to property”). Isaac Arnsdorf, “How a Top Chicken Company Cut Off Black Farmers, One by One,” Propublica (June 26, 2019),

https://www.propublica.org/article/how-a-top-chicken-company-cut-off-black-farmers-one-by-one

(Describing how one farmer participated in the 2010 USDA-DOJ workshops and “. . . never got another chicken after going to that meeting over there in Alabama. . . They put me slap out of business”).

This is a persistent problem. As recently as April 2022, threats and fear of retaliation interfered with witness testimony at each of the House and Senate Agriculture Committees' hearings on livestock competition practices. In his opening remarks, House Agriculture Committee Chair David Scott noted, “We were supposed to have a 4th witness, a rancher, on our panel, but due to intimidation and threats to this person's livelihood, to this person's reputation, they chose not to participate out of fear. Witness intimidation is unacceptable. . . .”

House Chair David Scott D-GA, opening remarks, U.S. House, Committee on Agriculture, “An Examination of Price Discrepancies, Transparency, and Alleged Unfair Practices in Cattle Markets,” April 27, 2022, (14 min: 24 sec), available at

https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies--Transparency--and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk.

The day before, Senator Deborah Fischer had stated, “I wish we had a Nebraska producer here, but as is noted in their letter, none of our producer members we encouraged to testify were willing to put themselves out front for fear of possible retribution from other market participants, an unfortunate reality of today's cattle industry.”

U.S. Senate Committee on Agriculture, Nutrition, and Forestry, “Legislative hearing to review S. 4030, the Cattle Price Discovery and Transparency Act of 2022, and S. 3870, the Meat and Poultry Special Investigator Act of 2022,” April 26, 2022, (1 hour 39 min), available at

https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022.

In response to the proposed rule, commenters expressed support and opposition for the proposal to establish prohibitions against retaliatory practices. Several industry associations opposed the proposed rule, indicating it is duplicative and therefore not necessary. These commenters contended the conduct addressed in the

proposed rule is not a widespread problem and is already prohibited under the Act. Other commenters supported the rule. One organization cited a recent anonymous survey of contract growers it had conducted. Multiple respondents had experienced retaliation from integrators and said integrators regularly terminate contracts with farmers who engage in whistleblowing activities. These contract terminations leave growers with substantial debt tied up in specialized, single-use structures built as a condition of their contractual agreements. Although comments in response to the proposed rule differ greatly regarding the need for this rule, commenters generally do not disagree that discriminatory and retaliatory conduct is harmful to producers and offers no procompetitive benefits. For these reasons, AMS needs to use its statutory authority to provide a regulatory framework for prohibiting retaliatory behavior by regulated entities against covered producers. Establishing regulatory protections to prohibit regulated entities from retaliating against producers engaging in lawful activity will help promote fair trade practices and competitive markets.

In recent years, producers have been increasingly vulnerable to harms from retaliatory behavior due to the market power afforded regulated entities under contracts that can reach further down into livestock and poultry production and/or are bilateral. This is in contrast to past circumstances where these relationships were intermediated through an institution such as a stockyard (auction) subject to heightened regulatory duties around nondiscrimination.

As regulated entities have obtained greater control over the input industries, particularly in poultry, producers are increasingly dependent upon regulated entities for success. That dependence, in combination with high levels of debt, leaves producers vulnerable to the retaliation that regulated entities can exact through input distribution and in other ways. Growers have for years reported punitive delivery of inputs to deter their exercise of a wide range of legal rights and remedies that would enable them to earn the full value of their services.

77 78

Poultry Workshop Transcript (justice.gov);

see also Lina Khan, “Obama's Game of Chicken,”

The Washington Monthly,

Nov. 2012, available at

Oscar Hanke, ed.,

American Poultry History,

1823-1973 (Madison, Wisc., 1974), 384-85. Fite, Cotton Fields No More, 201; Peck, A, (2006), “State regulation of production contracts.” University of Arkansas National Center for Law Research and Information, available at

http://nationalaglawcenter.org/wp-content/uploads/assets/articles/peck_contractregulation.pdf;

Stephen F. Strausberg,

From Hills and Hollers: Rise of the Poultry Industry in Arkansas

(Fayetteville, Ark., 1995), 136; Heffernan, W. D., (1984),

Constraints in the U.S. poultry industry. Research in Rural Sociology and Development,

1, 237-260 (Researchers have documented the increased incidence of producers' complaints and decreasing satisfaction in the industry beginning in the 1980s, which coincided with increasing concentration of the industry. Weinberg writes how, in 1960, 19 firms processed 30 percent of total US poultry processed and that producers who entered the business tended to achieve upward mobility. In the 1970s, only 8 firms processed the same percent of poultry. This trend accompanied an increased incidence of grower dissatisfaction. Gordy notes how “loss of independence and lower incomes caused some growers to become disenchanted.” Fite observed how poultry farmers were “controlled and sometimes exploited by their suppliers.” Peck notes how dissatisfaction by growers prompted State attorneys general to propose a 3-day right of review in a model producer protection act in the early 2000s. In 2010, the USDA and DOJ hosted a series of workshops in which growers raised concerns about retaliation in the industry. These trends, which occurred alongside increased productivity gains and use of technology, coincided with exits in the industry. As Weinberg documented, in Georgia, in 1950, 1176 Hall County farms sold 6.8 million chickens; in 1992, only 192 sold 44.3 million chickens).

Based on complaints and industry experience, AMS is aware that retaliation by regulated entities may take many forms, such as canceling contracts, selectively enforcing contract terms, refusing to deal or negotiate, or otherwise impairing an individual's or group of producers' ability to operate.

In contrast, in more competitive markets, producers facing retaliation can more easily avoid or mitigate adverse impacts by simply finding other entities with whom to do business. Without choices, producers are at the mercy of the types of abuses the Act was designed to prevent—market abuses that inhibit producers' ability to get the full value of their products and services. Ultimately, regulated entities may retaliate for various reasons, but none have any role in or benefit to the competitive functioning of the market.

See,

e.g.,

https://youtu.be/8CvEGyMQ9v8?t=3135

(in which poultry growers described how companies seemingly arbitrary mandated expensive upgrades).

Fehr, Ernst, and Simon Gächter. “Fairness and retaliation: The economics of reciprocity.”

Journal of economic perspectives

14, no. 3 (2000): 159-181.

As discussed below in Section VII—Comment Analysis, in response to the proposed rule, commenters expressed extensive agreement with the need to establish prohibitions against retaliatory practices.

iii. Deceptive Practices

The Packers and Stockyards Act has long recognized that integrity and honesty are vital to the marketing of livestock and, therefore, to the efficiency with which these markets supply meat to the American consumer.

This rulemaking is a response, in part, to the range of complaints lodged with USDA, Congress, and the media over the years regarding inaccurate, incomplete, or otherwise false or misleading statements, or omission of material information that affects decision-making or access to markets by producers. These complaints reflect, in part, changed industry contracting norms or a market environment where the prevalent norms result in more acute harms to producers. For example, packers and industry representatives have routinely indicated that producers may choose the form of pricing mechanism for their transactions. However, as cash-negotiated markets have declined, producers have increasingly complained to USDA that they are not provided such a choice, and are commonly given a take-it-or-leave-it offer to buy their cattle off of a pricing formula provided by the company.

Producers have complained they have been told that packers refuse to buy their cattle on the grounds they are not of sufficiently high quality or that formula market arrangements are necessary to incentivize such quality, when the cattle being offered were of no less quality than those the packer procured under other marketing arrangements.

See, e.g., Midwest Farmers

United States,

64 F. Supp. 91, 95 (D. Minn. 1945);

In re: Frosty Morn Meats, Inc.,

7 B.R. 988, 1020 (M.D. Tenn. 1980).

Other Association or Non-Profit, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.

C. Robert Taylor, “Harvested Cattle, Slaughtered Markets,” April 27, 2022, 7-9, available at

https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/.

Poultry producers have complained to USDA over the years regarding unfavorable provision of inputs made to certain producers despite statements by live poultry dealers that there are no differences in treatment. Producers have also complained to USDA of terminations, suspensions, or reductions in flocks on pretexts—

i.e.,

on the provision of false or misleading information such as claims of animal

welfare contractual violations—when other reasons may exist for the adverse actions, including the discrimination and retaliation noted previously, or other unreasonable bases, such as a preference for family or friends of the local agent of a live poultry dealer or for a poultry grower connected to a senior executive of a live poultry dealer.

Contract termination puts the grower at severe risk of significant economic loss. A production broiler house often has significant long-term financial obligations. The potential loss includes not only the loss of production income, but financing for construction, which often comes from mortgages on the grower's farm or family home. Pretextual cancellation may make even the sale or transfer of the broiler production house impossible because purchasers may be unable to determine whether the broiler houses have value.

Wheeler

Pilgrim's Pride,

536 F.3d 455 (5th Cir. 2008); United States Department of Justice, United States Department of Agriculture, Public Workshops Exploring Competition in Agriculture: Poultry Workshop May 21, 2010; Normal, Alabama,

https://www.justice.gov/sites/default/files/atr/legacy/2010/11/04/alabama-agworkshop-transcript.pdf,

last accessed 8/14/23.

As discussed in Section VII—Comment Analysis, comments underscored the need to address deceptive practices in this rulemaking.

III. Authority

Congress enacted the Act to promote fairness, reasonableness, and transparency in the marketplace by prohibiting practices that are contrary to these goals. AMS is issuing these regulations under the Act's provisions prohibiting undue prejudice, unjust discrimination, and deception to provide for clearer, more effective standards to govern the modern marketplace and to better protect, through compliance and enforcement, individually harmed producers.

Enacted in 1921 “to comprehensively regulate packers, stockyards, marketing agents and dealers,”

the Act, among other things, prohibits actions that hinder integrity and competition in the livestock and poultry markets. Section 202(a) of the Act states that it is unlawful for any packer, swine contractor, or live poultry dealer to engage in or use any unfair, unjustly discriminatory, or deceptive practice or device.

Section 202(b) of the Act states that it is unlawful for any packer, swine contractor, or live poultry dealer to make or give any undue or unreasonable preference or advantage to any particular person or locality, or subject any particular person or locality to any undue or unreasonable prejudice or disadvantage in any respect.

Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498 F.2d 925, 927 (10th Cir. 1974).

7 U.S.C. 192(a).

Section 407 of the Act provides that the Secretary “may make such rules, regulations, and orders as may be necessary to carry out the provisions of this [Act].” (7 U.S.C. 228(a)) The Secretary has delegated the responsibility for administering the Act to AMS. Within AMS, the Packers and Stockyards Division (PSD) of the Fair-Trade Practices Program has responsibility for the day-to-day administration of the Act. The current regulations implementing the Act are found in title 9, part 201, of the CFR. Therefore, based on the authority delegated to USDA by Congress to administer the Act, AMS is promulgating this rulemaking to amend part 201 to specifically clarify that discriminatory, deceptive, and retaliatory conduct, as defined in this rule, are violations of the Act.

Executive Order (E.O.) 14036, “Promoting Competition in the American Economy” (86 FR 36987, July 9, 2021), directs the Secretary to further the vigorous implementation of the Act. Accordingly, this final rule addresses the unfair treatment of farmers and improves competitive conditions in markets. This rule adds clarity to USDA's regulations concerning unjustly discriminatory practices, deceptive practices, and undue or unreasonable prejudices or disadvantages. E.O. 14036 underscored that “it is unnecessary under the... Act to demonstrate industry-wide harm to establish a violation of the Act and that the `unfair, unjustly discriminatory, or deceptive' treatment of one farmer” violates the Act. Among other policy goals in the E.O., this final rule is specifically intended to address the unfair treatment of farmers and make it easier for them to garner the full value of their animals. The Act is a remedial statute enacted to address problems faced by farmers, producers, and other participants in the markets for livestock, meats, meat food products, livestock products in unmanufactured form, poultry, and live poultry; to protect the public from predatory practices; and to help ensure a stable food supply. Thus, as academics and courts have noted, the Act has “tort-like provisions that are concerned with unfair practices and discrimination” that fulfill a “market facilitating function,” which Congress designed to prevent “market abuse.”

AMS interprets and implements the Act to achieve its core statutory purposes.

Herbert Hovenkamp, “Does the Packers and Stockyards Act Require Antitrust Harm?” (2011). Faculty Scholarship at Penn Carey Law. 1862.

https://scholarship.law.upenn.edu/faculty_scholarship/1862

(“subsections (a) and (b) appear to be tort-like provisions that are concerned with unfair practices and discrimination, but not with restraint of trade or monopoly as such”); Peter Carstensen, The Packers and Stockyards Act: A History of Failure to Date, CPI Antitrust Journal 2-7 (April 2010) (“Congress sought to ensure that the practices of buyers and sellers in livestock (and later poultry) markets were fair, reasonable, and transparent. This goal can best be described as market facilitating regulation.”); Michael C. Stumo & Douglas J. O'Brien, Antitrust Unfairness vs. Equitable Unfairness in Farmer/Meat Packer Relationships, 8 Drake J. Agric. L. 91 (2003); Michael Kades, “Protecting livestock producers and chicken growers,” Washington Center for Equitable Growth (May 2022),

https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf

See

Bowman

U.S. Dep't of Agric.,

363 F.2d 81 at 85 (5th Cir. 1966).

IV. Summary of the Proposed Rule

In the October 2022 proposal, AMS proposed amending 9 CFR 201 by adding a new subpart O, titled “Competition and Market Integrity,” and containing §§ 201.300 through 201.390. AMS proposed adding a Definitions section, § 201.302, containing the terms

covered producer, livestock producer, market vulnerable individual,

and

regulated entity.

AMS also proposed adding § 201.304, titled “Undue prejudices or disadvantages and unjust discriminatory practices,” to prohibit regulated entities from discriminating against a market vulnerable individual or a cooperative, detailing in proposed paragraph (a) types of prohibited actions. Paragraph (b) of the proposed regulation would prohibit regulated entities from retaliating against a covered producer because of the covered producer's participation in a producer association, protected activities, including assertion of rights under the Act, and lawful communication. Proposed paragraph (b) also provided examples of prohibited retaliatory actions. Proposed paragraph (c) included a requirement that regulated entities retain records of compliance with paragraphs (a) and (b) for no less than five years from the date of record creation.

AMS also proposed adding § 201.306, titled “Deceptive practices,” prohibiting a regulated entity from employing a false or misleading statement or omission of material information necessary to make a statement not false or misleading during contract formation,

performance, and termination. Section 201.306 also proposed to prohibit a regulated entity from providing false or misleading information concerning a refusal to contract. The proposal was designed to prohibit regulated entities from specified deceptive practices in contracting, which are of particular concern because of the power of the regulated entities over their vertical contracting relationships. As stated in the proposal, AMS intended this proposed regulation to address broad areas of specific concern, not exhaustively identify all deceptive practices that would violate sec. 202(a) of the Act.

Finally, AMS proposed adding § 201.390, titled “Severability.” This provision was intended to inform reviewing courts that if any provision of subpart O was declared invalid, or if the applicability of any of its provisions, or any components of any provisions, to any person or circumstances was held invalid, the validity of the remaining provisions of subpart O or their applicability to other persons or circumstances would not be affected. Severability provisions are typical in modern AMS regulations. AMS regulations often cover several different topics in a subpart. This provision was added because the regulations in subpart O are designed to address several different types of violations under the Act. Because these violations address similar underlying developments in the livestock and poultry markets—namely, abusive practices facilitated by increased vertical integration and horizontal concentration—these violations were suitable for joining in a single rulemaking. However, each could be viewed as its own stand-alone rulemaking and therefore should be severable.

Upon consideration of public comments on the proposed rule, AMS modified some of its proposed provisions to derive this final rule. These changes are outlined below.

V. Changes From the Proposed Rule

AMS is making the following changes to the proposed rule based on the agency's analysis of the issues raised by commenters.

A. Market Vulnerable Individual (MVI) to Prohibited Bases

With respect to the proposed regulations regarding undue prejudice and unjust discrimination, § 201.304, several commenters expressed concern that the definition of “market vulnerable individual (MVI)” as the basis for prohibiting undue prejudice and discrimination was too broad and ambiguous and could lead to an avalanche of litigation. To simplify this section, the final rule uses a delineated set of protected bases against undue prejudice and discrimination that were discussed in the proposed rule: race, color, national origin, religion, sex, sexual orientation, gender identity, age, disability, and marital status. These delineated bases reflect the Statement of General Policy Under the Packers and Stockyards Act published by USDA in 1968 (9 CFR 203.12(f)) and USDA's Conducted Programs Statement, and reflect a general congressional policy as indicated in other statutory sources (discussed below).

The final rule retains status as a cooperative as a protected basis against undue prejudice and discrimination, which reflects the principles set forth in the Agricultural Fair Practices Act of 1967.

(For the avoidance of doubt, AMS notes that discrimination against a member of a cooperative is prohibited under the provisions of paragraph (b)(2)(iii).) Accordingly, AMS has removed the term

market vulnerable individual

from the list of terms defined for subpart O in § 201.302.

7 CFR 15d.3; U.S. Department of Agriculture, “Nondiscrimination in Programs or Activities Conducted by the United States Department of Agriculture,” 79 FR 41406, July 16, 2014.

Public Law 90-288.

AMS is adopting the aforementioned specific bases, as opposed to MVI, because the specific prohibited bases offer clearer, more workable standards to achieve the same goal set forth and specifically articulated in the proposed rule, but in a manner that will facilitate compliance by regulated entities and better enable producers to exercise their rights under the Act. As AMS explained in the proposed rule, the principal purpose of the MVI approach was to address prejudices in the marketplace against producers that are more vulnerable to such treatment and to stop unjust discrimination. AMS views vulnerability to adverse marketplace treatment to include, but not be limited to, exclusion or disadvantage on the basis of race, color, religion, national origin, sex (including sexual orientation and gender identity), disability, marital status, or age, or on the basis of the covered producer's status as a cooperative. AMS initially adopted the MVI approach because it believed that the proposed rule's flexible approach to resolving marketplace vulnerabilities offered producers protection in an ever-evolving market. The proposed approach had the advantage of being responsive to the particular facts of given cases and particular markets over time.

As part of the rulemaking process, however, AMS sought comment on whether this was the best approach. AMS requested comment on whether it should “delineate specific categories of vulnerable producers on the basis of membership in groups that have historically been subject to adverse treatment owing to racial, ethnic, gender, or religious prejudices.” (87 FR 60010, Oct. 3, 2022) AMS also sought comment on “whether this regulation should ban discrimination against specific classes, such as on the basis of race, color, national origin, religion, sex, sexual orientation, gender identity, age, disability, marital status, or family status. Such an approach would differ from the market vulnerable individual approach and would instead more closely follow the civil rights laws that prohibit prejudicial discrimination against certain protected classes.”

After considering the comments on both the MVI approach and on specific delineated bases, AMS determined that MVI is not sufficiently clear enough to meet the objectives of this regulation. The enumeration of specific prohibited bases provides more clarity and certainty by limiting the scope of the rule to prohibited adverse actions against all producers on the basis of their membership of a protected class, in line with existing civil rights requirements. Commenters, such as a meat industry trade association, a poultry industry trade association, and a live poultry dealer, criticized the proposed rule's MVI definition for being vague and ambiguous and potentially exposing their businesses to an unworkable standard that could potentially encompass a wide range of covered producers far beyond what the Agency appeared to be contemplating in the proposed rule. In contrast, these commenters indicated that an approach based on specific classes, such as race, sex, sexual orientation, or religion, would be clearer and would follow the precedent of civil rights laws already in place while protecting all producers.

Several meat and poultry industry commenters who opposed use of the MVI approach stressed that they do not engage in discrimination on the specific bases set forth in this final rule and oppose such discrimination.

See, e.g.,

“Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424;

“Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-04249; https://www.regulations.gov/comment/AMS-FTPP-21-0045-0424;

“Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://

www.regulations.gov/comment/AMS-FTPP-21-0045-0419.

See,

e.g.,

National Cattlemen's Beef Association, “Comment on AMS-FTPP-21-0045: Inclusive Competitive and Market Integrity Under the Packers and Stockyards Act” (received Jan. 17, 2023), available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0418

(Deception, discrimination, or retaliation on the basis of race, ethnicity, sexual orientation, gender identity, ability, religion/spirituality, nationality and/or socioeconomic status is reprehensible and should be remediated using the appropriate legal avenues, including legislative changes where necessary).)

Multiple agricultural advocacy organizations also expressed approval of these protected classes as the prohibited bases for discrimination when responding to the proposed rule's solicitation of responses on this issue, saying discrimination against individuals in these groups should be clearly recognized so those individuals do not have to continually prove discrimination and prejudice against them based on the characteristic that makes them vulnerable in the market. AMS agrees that the bases adopted in the final rule reflect genuine vulnerability to market exclusion and have no competitive benefit.

AMS also notes that some commenters interpreted the MVI approach as potentially providing protection to small producers on the basis that small producers were vulnerable to discrimination in the form of the same kinds of adverse treatment proposed to be prohibited in this rule. While AMS is sympathetic to the plight of small producers' challenges in accessing fair markets, AMS did not intend this rule to address those concerns (as also discussed below in Section VII—Comment Analysis). Basing the rule on a term that gave rise to such disparate interpretations underlined the necessity of utilizing the more specific bases set forth in the proposed rule's alternative formulation.

Additionally, AMS notes that these prohibited bases are now widely accepted standards of non-discrimination at USDA and in the U.S. economy more broadly. AMS adopted many of these as part of its 1968 Statement of General Policy.

Together with the Agricultural Fair Practices Act of 1967, these bases also apply to AMS enforcement of the Equal Credit Opportunity Act (ECOA) under the Act, to USDA programs through its Conducted Programs Statement, and, more recently, to the terms of USDA's debt relief under section 22007 of the Inflation Reduction Act.

The terms are also widely accepted bases in other laws that prohibit discrimination, such as in housing and employment.

The prohibited bases defined in the final rule have become so widely accepted as prohibited bases of discrimination that it would be notable and arbitrary for the Agency to pick some of the terms and not others. Quite simply, “

unjust

discrimination” and “

undue

prejudices” cannot be read but to include these widely accepted non-discrimination terms.

9 CFR 203.12(f).

USDA, Discrimination Financial Assistance Program, “Eligibility,”

https://22007apply.gov/eligibility.html

(last accessed Oct. 2023) (“This program covers discrimination based on different treatment you experienced because of: Race, color, or national origin/ethnicity (including status as a member of an Indian Tribe); Sex, sexual orientation, or gender identity; Religion; Age; Marital status; Disability; Reprisal/retaliation for prior civil rights activity”).”)

See, generally, DOJ, Civil Rights Division. The Attorney General's Annual Report to Congress on Fair Lending Enforcement (2021), available at

https://www.justice.gov/d9/pages/attachments/2022/11/14/ecoa_report_2021_final_0.pdf

(In 2001 to 2021, there were 496 fair lending referrals to DOJ, of which 163 were on the basis of race and national origin. Other noted referrals, and then cases, in 2019 and 2020 were discrimination based on age and gender.)

Accordingly, to achieve the same goal that the Agency set forth in the proposed rule through both MVI and the alternative formulation, AMS is now adopting the alternative formulation: race, color, religion, national origin, sex (including sexual orientation and gender identity), disability, marital status, or age of the covered producer; or because of the covered producer's status as a cooperative.

B. Prohibited Actions Taken on a Prejudicial Basis

In § 201.304(a)(2), AMS made three changes to the provisions regarding prohibited actions taken on a prejudicial basis. First, in paragraphs (a)(2)(i) through (iii), AMS proposed to prohibit offering contracts that are less favorable than those generally or ordinarily offered, refusing to deal, and differential contract performance or enforcement, when each occurred on a prohibited basis. AMS is revising each of these provisions to provide clarity and uniformity across this final rule with respect to a comparison to similarly situated producers and also to ensure parallel language with the retaliation adverse actions under § 201.304(b)(3). Paragraph (a)(2)(i) is revised to read “Offering contract terms that are less favorable than those generally or ordinarily offered to similarly situated producers; paragraph (a)(2)(ii) is revised to read “Refusing to deal with a covered producer on terms generally or ordinarily offered to similarly situated covered producers”; and paragraph (a)(2)(iii) in the final rule is revised to read “performing under or enforcing a contract differently

than with similarly situated covered producers

” [emphasis added]. “Similarly situated,” is a phrase commonly used by commenters and by AMS in the proposed rule when discussing producer groups.

Including this concept in the final regulation provides more context for a comparison of what differential performance or enforcement would look like, and therefore provides more specificity to the regulation. This revision also mirrors a revision made to language in a similar provision in the retaliation section (§ 201.304(b)(3)(ii) and (iv)). The addition of “with a covered producer” in paragraph (a)(2)(ii)—Refusal to deal, is similarly designed to align with the parallel provision for paragraph (b)(3)(iv) as was set out in the proposed rule and retained in the final rule. The final rule adds “on terms generally or ordinarily offered to similarly situated producers” as well, in response to comments (as discussed below) to provide similar clarity of application that refusal to deal is not simply an absolute boycott or making a sham or nominal offer, but includes failure to bid, negotiate, and otherwise make a reasonable attempt to contract on terms generally or ordinarily offered to similarly situated producers

when done on the prohibited basis.

See also Central Railroad Co. of New Jersey

United States,

257 U.S. 247 (1921) (“They can be held jointly and severally responsible for unjust discrimination only if each carrier has participated in some way in that which causes the unjust discrimination, as where a lower joint rate is given to one locality than to another similarly situated”).

Second, AMS is adding a new paragraph (a)(2)(iv), which prohibits—when it occurs on a prohibited basis—“requiring a contract modification or renewal on terms less favorable than similarly situated covered producers.”

The new provision expands on the concept encompassed in paragraph (a)(2)(i), which prohibits “offering contract terms that are less favorable than those generally or ordinarily offered to similarly situated covered producers.” The new provision prohibits regulated entities from making contract terms less favorable for producers once they are under contract and have incurred financial obligations because of that contract. The new provision mirrors a new provision

added to the retaliation section (§ 201.304(b)(3)(iii)) in response to public comment on the proposed retaliation regulations. AMS also uses a similar approach in the retaliation section on refusing to deal (§ 201.304(b)(3)(iv)), as requested by public commenters, by adding “with a covered producer on terms generally or ordinarily offered to similarly situated covered producers” after “deal,” for the same reasons—this language helps prevent evasion. Commenters requested that AMS provide more protection so that regulated entities cannot formulate new ways of harming producers in contracting—a crucial component of a producer's financial well-being. Commenters suggested an additional provision regarding specific contract terms, including contract modification, be added to the regulations. While AMS did not adopt the suggested provision in whole, AMS recognizes the importance of specifically prohibiting unfavorable contract modifications or renewals that occur on a prohibited basis, considering the detrimental financial impact this can have on producers already under contract. In making these changes, the final rule provides a greater degree of specificity regarding the type of conduct the rule prohibits. AMS will review the facts and circumstances of each case and the regulated entity's justifications for any modification or renewal to determine whether the regulated entity has violated this rule.

Proposed paragraph (a)(2)(iv), which prohibited termination or non-renewal of a contract on a prohibited basis, is renumbered in the final rule as paragraph (a)(2)(v).

Third, AMS is adding a new paragraph (a)(2)(vi), which prohibits regulated entities from taking “any other action that a reasonable covered producer would find materially adverse.” This provision represents a logical outgrowth from the proposed rule, which had indicated that the “prejudice or disadvantage with respect to paragraph (a)(1) of this section includes the following actions.” As AMS explained in the proposed rule, AMS believes that the type of harm to a producer will not be difficult to identify when it occurs based upon the facts and circumstances, and thus provided an exemplary list to aid in identification and enforcement under the rule. Such a list was not intended to be all encompassing. However, in response to comments, AMS has recognized that such an open-ended approach may create too much uncertainty and undermine compliance and enforcement. AMS is replacing the use of “includes” with an additional, more flexible provision that provides a broader yet not unlimited range of possible harms. AMS's approach is in response to comments that adverse treatment of producers by regulated entities can occur outside the confines of the contractual relationship. Such conduct could include, for example, interference by a regulated entity into regulatory matters of significant material importance to producers. Several public commenters wanted more producer protections incorporated into § 201.304(a)(2). This provision provides a broad and flexible approach to these prohibitions and allows for “material” to be determined by the facts and circumstances of each case while staying within the scope of the proposed rule's intent around harms to producers under unjust discrimination and undue prejudice deriving from adverse actions.

C. Exceptions to the Prohibited Bases

Commenters suggested that AMS include exceptions to the prohibition on undue prejudice and unjust discrimination. In response to these comments and the shift from MVI to identifying specific prohibited bases, AMS decided to provide specific exceptions from the prohibition in two circumstances. New § 201.304(a)(3) states that the following actions by a regulated entity do not prejudice, disadvantage, inhibit market access, or constitute adverse action under § 201.304(a)(1): (i) fulfilling a religious commitment relating to livestock, meats, meat food products, livestock products in unmanufactured form, or live poultry; (ii) a Federally-recognized Tribe, including its wholly or majority-owned entities, corporations, or Tribal organizations, performing its Tribal governmental functions.

In shifting from MVI toward specific prohibited bases, AMS identified the need to provide certain exceptions from the prohibition. The proposed MVI was a flexible standard that permitted the Agency to evaluate the facts and circumstances of a particular case and whether the exclusion or disadvantageous contracting arrangement was based on the characteristics of the producer. Specifying delineated prohibited bases provides greater clarity, yet in doing so, it eliminates a degree of flexibility that could be valuable in a small set of circumstances. Accordingly, the Agency is adopting two specific exceptions to recognize circumstances that do not give rise to unjust discrimination. AMS asked questions about both areas in the proposed rule, highlighting to commenters that the Agency recognized the potential for additional adjustments to be made in those areas.

First, AMS is providing a specific exception to recognize the important role ritual slaughter plays in certain religious traditions and ensure that religiously significant meats—such as kosher, halal, and Amish meats—are not impacted by the rule's prohibition on discrimination on the basis of the producer's religion. According to AMS subject matter experts, halal slaughterers, for example, express a legitimate, religiously grounded preference for livestock and poultry raised by operators of faith,

e.g.,

the Muslim or the Amish Christian group, that maintain particular animal husbandry practices. In adopting its prohibition on prejudice on the basis of religion, AMS is principally focused on access to the broad livestock markets for persons where religion has no legitimate business purpose. In contrast, where religion is relevant to the livestock and meat itself, AMS is not seeking to disturb the religiously based determinations in what is a relatively discrete market segment. Therefore, when administering the Act, AMS must allow discriminatory conduct directed toward fulfilling religious commitments surrounding livestock care and meat production.

To ensure clarity in its application, this rule respects longstanding jurisprudence surrounding Tribal sovereignty and the political relationship that a Tribe has with its members that secures the right for Tribal entities to preference Tribal members. To ensure that it is not read in contradiction with existing jurisprudence, the rule explicitly specifies that Tribal governments can engage in practices related to livestock, poultry, and meats with respect to non-Tribal entities or non-Tribal descendants. The prohibition on discrimination on the basis of race or color would be read to protect a person from discrimination for being of Native American descent, but not on preferential treatment given to Tribal members based on their political classification. This matter was specifically raised by, and is responsive to, Tribal governments during the Tribal consultation that AMS conducted and is described below under “VII.C.—Executive Order 13175—Consultation and Coordination with Indian Tribal Governments.”

AMS recognizes that this rulemaking cannot foresee the range of unique or extenuating circumstances that may present in agricultural markets. Commenters stated that rapidly changing livestock and poultry markets may require an exception to the prohibition against undue prejudice or disadvantage on a protected basis. However, AMS did not identify, from the comments or based on its

experience, any other specific circumstances in the livestock and poultry industries where a prejudice against a producer on a prohibited basis was justified under the Act. To the extent that unforeseen circumstances could arise that would justify creating the need to allow for additional exceptions to this rule, AMS believes that those circumstances are likely to be rare and tailored to narrow circumstances. Accordingly, AMS believes that prosecutorial discretion will provide it with adequate flexibility to offer relief on a case-by-case basis. Of course, if following implementation of this rule it becomes evident that additional exceptions should exist in regulation, AMS may amend this regulation through the ordinary rulemaking process.

D. Retaliation Provisions

AMS proposed in § 201.304(b)(1) to prohibit retaliation against a covered producer that occurs because of the covered producer's participation in protected activities “to the extent that these activities are not otherwise prohibited by Federal or state law, including antitrust laws.” In the final rule, AMS modified the language of this provision to move the exception for Federal or State law, including antitrust laws, to paragraph (b)(2) and to add Tribal law to the types of law identified in this exception. AMS is adding this language to make explicit the applicability of Tribal law in this circumstance. Additionally, AMS changed “because of” to “based upon” both in response to comments and to align with its approach in § 201.304(a) and embodied in § 201.304(c). AMS proposed “based upon” in § 201.304(a) and “by employing” in § 201.304(c) to capture actions where the prohibited bases form a material part of the action—discrimination or prejudice, or as part of the deceptive practice. Section 201.304(b) is designed to achieve the same goal. AMS also received comments recommending broad protections for covered producers from retaliatory actions, including where the retaliation was a part of the decision to take an adverse action. AMS further underscores that “based upon the covered producer's participation in an activity . . .” covers threats that would reasonably dissuade or chill a covered producer from participating in the activities.

Under proposed § 201.304(b)(2)(i), AMS proposed to establish as a protected activity a producer's communication with a government agency on matters related to livestock, meats, or live poultry or petitions for redress of grievances before a court, legislature, or government agency. Commenters requested that AMS clarify that this protection covers communication with any sector or level of government, including State governments. AMS intends for this regulation to include protections for communications with any level of government, including any government committee or official. In this final rule, AMS is aligning the use of the terms “court, legislature, or government agency” and simplifying the language to say, “government entity or official.” This change ensures that protected communications may occur with any of the three branches of government, any level of government, and with individual government officials, including committees and members of a legislature.

AMS requested public comment on whether the final rule should protect producers who choose not to participate in protected activities. In response to public comment supporting this proposal, AMS has revised § 201.304(b)(2)(ii) to protect a producer's right to refuse a regulated entity's request to engage in communication with a government entity or official that is not required by law, and § 201.304(b)(2)(iii) to protect a producer's right to form or join, or to refuse to form or join, a producer or grower association or organization. Proposed § 201.304(b)(2)(ii), which protected a producer's assertion of any of the rights granted under the Act or this part, or assertion of contract rights, is renumbered as paragraph (b)(2)(vii) in the final rule.

AMS proposed in § 201.304(b)(2)(v) to protect producer communication or negotiation with a regulated entity for the purpose of exploring a business relationship. In response to public comment, AMS added in the final rule protection for communicating; negotiating; or contracting with a regulated entity, another covered producer, or with a commercial entity or consultant; for the purposes of exploring or entering into a business relationship. Commenters asserted that, as proposed, the protected activity was “unreasonably narrow” and that expanding this protection would “help ensure that covered producers may

explore

all their business opportunities.”

The Act is intended to ensure an inclusive market to protect and promote the ability for covered producers to compete.

Such competition may also take the form of exploring or entering into opportunities for enhanced price discovery through market intermediaries, such as listing cattle for competitive bidding on a publicly transparent exchange or selling at an auction barn or through a cooperative or other commercial entity that facilitates the marketing of livestock by the covered producer. The provision covers both the ability to negotiate or contract with the commercial entity or consultant serving as an intermediary or other facilitating the marketing or platform for marketing, such as the exchange or auction barn; and also the ability to negotiate or contract with other packers during the exchange or auction process. This is protected because both elements may be necessary parts of securing those opportunities to engage in price discovery and enhance the choice and competitive opportunities for covered producers to earn the full market value of their goods and services. The provision also covers consideration of alternative uses for farm property. As with all protected activities under this final rule, the regulated entity may not present an obstacle to engaging in these activities, whether written in a contract, verbally asserted, or otherwise, as those are impermissible under the Act.

“Comment on AMS-FTPP-21-0045: Inclusive Competition and Market Integrity Under the Packers and Stockyards Act,” available at

https://www.regulations.gov/comment/AMS-FTPP-21-0045-0423.

See,

e.g.,

U.S. Department of Justice, “Justice Department Files Lawsuit and Proposed Consent Decree to Prohibit Koch Foods from Imposing Unfair and Anticompetitive Termination Penalties in Contracts with Chicken Growers,” Nov. 9, 2023, available at

https://www.justice.gov/opa/pr/justice-department-files-lawsuit-and-proposed-consent-decree-prohibit-koch-foods-imposing.

Under proposed § 201.304(b)(3), AMS identified types of prohibited retaliatory conduct. Commenters expressed concern regarding the lack of clarity of these proposed prohibitions, with some saying the prohibitions were too broad, some arguing that the rule should provide even more flexibility, and some supporting the introduction of a “catch-all clause” to provide additional protection against retaliatory behavior. The final rule adds language to paragraph (b)(3)(ii) to prohibit performing under or enforcing a contract differently than with

similarly situated producers

[emphasis added]. This language, “similarly situated,” was commonly used by commenters and AMS in the proposed rule when discussing producer groups. The addition of “similarly situated” language provides greater specificity regarding the scope of the regulation by providing more context for a comparison of what differential

performance or enforcement would look like.

The final rule also revises the provision prohibiting a regulated entity from refusing to deal with a covered producer by adding the language, “on terms generally or ordinarily offered to similarly situated covered producers” (paragraph (b)(3)(iv) in the final rule). In response to comments, AMS agrees that the rule as proposed provided too great a latitude for a regulated entity to engage in retaliation because a regulated entity could, for example, satisfy the proposed rule by simply offering highly unfavorable terms to the covered producer. AMS believes that this revision provides broader coverage regarding the most common circumstances that producers may encounter in their business dealings in which regulated entities may attempt to exact retaliation. It would also cover circumstances where the “similarly situated producer” was the covered producer's own prior status quo circumstance with the regulated entity before the covered producer engaged in the protected activity. AMS is also aligning refusal to deal under paragraph (a)(2)(ii) to address the similar risk of evasion.

Similarly, commenters requested that AMS add a regulation regarding contract modification, or contract renewal. AMS has amended proposed § 201.304(b)(3) to add a new paragraph (b)(3)(iii) to clarify that requiring a contract modification or a renewal on terms less favorable than for similarly situated producers is covered.

100

This provision covers any adverse change to the covered producer's contract terms if they are done in retaliation to a producer's engaging in protected activities. Additionally, in response to comments requesting AMS clarify that prohibited adverse actions “includes but is not limited to” the list in proposed § 201.304(b)(3), AMS has added a new paragraph (b)(3)(vi) to prohibit “any other action that a reasonable covered producer would find materially adverse.” AMS designed this rule to protect producers broadly from adverse actions based upon the rule's prohibitions. The regulatory text of the proposed rule set forth an exemplary list, specifically denoting that “retaliation includes the following actions” (paragraph (b)(2). Several public commenters wanted more producer protections, such as discriminatory conduct against producers by regulated entities through means outside of contractual devices. AMS agrees that adverse, retaliatory treatment of producers by regulated entities can occur through a wide range of means, including outside the confines of contractual devices, or through contractual means that are not easily delineated in a specific list. Such conduct could, for example, include interference by a regulated entity into regulatory matters of significant material importance to producers. Based on AMS's regulatory experience, regulated entities may interfere in covered producers' water rights, which are exemplary of harms that would be considered retaliation even if they occur outside the confines of contractual relationships. Or, conduct could include retaliation during the contracting process for protected activities that occurred prior to the covered producer's attempt to form a business relationship with the regulated entity. Such examples might not be clearly covered under §§ 201.304(b)(3)(i) through (v) of the proposed rule's protections relating to contracts but were covered within the scope of the proposed rule's intent around broad-ranging adverse actions that harm producers. AMS also intends the list of retaliatory activities to be broad enough to capture the fullest range of materially adverse harms encompassed under unjust discrimination and undue prejudice—including in comparison to either their prior circumstances or to similarly situated producers—and threats of such harms that are designed to deter or punish producers from participating in the activities protected by this final rule. Therefore, § 201.304 (b)(3)(vi) has been added to the final rule to cover other types of adverse treatment. This provision provides a broad and flexible approach to these prohibitions and allows for “material” to be determined by the facts and circumstances of each case.

100

Proposed paragraphs (b)(3)(iii) and (iv) are accordingly renumbered as paragraphs (b)(3)(iv) and (v) in the final rule.

In making these changes, the final rule provides a greater degree of specificity regarding the type of conduct the rule prohibits. AMS is not, however, providing the degree of specificity requested by commenters regarding unfavorable contract terms because it is impractical to name every action a malicious actor could use to retaliate against a producer, and providing this level of detail is not necessary to enforce the rule.

E. Technical Changes

AMS made editorial changes to the text of several proposed regulations to improve clarity and readability. For instance, in the definition of

livestock producer,

AMS revised the proposed definition by removing multiple prepositions, so that the definition in the final rule reads more simply: from “

Livestock producer

means any person engaged in the raising and caring for livestock by the producer or another person, whether the livestock is owned by the producer or by another person, but not an employee of the owner of the livestock” to “

Livestock producer

means any person, except an employee of the livestock owner, engaged in the raising of and caring for livestock.” Additionally, AMS revised the syntax of several proposed regulations. For example, in § 201.304(b)(3)(i), which lists prohibited retaliatory actions, AMS revised the phrasing of the prohibition from “Termination of contracts or non-renewal of contracts” to “Terminating or not renewing a contract” to place emphasis on the action being prohibited rather than the subject of that action.

AMS also made several non-substantive clarifying changes to the wording of prohibited contractual deceptive practices in paragraphs (b) and (c) of § 201.306—Deceptive practices. These changes are identical under

contract formation, performance, and termination

and include the removal of the phrase “pretext” and “fact” and the inclusion of the term “information” in place of “fact.” The term “pretext” was removed because it is not needed to accomplish the objectives of § 201.306. The conduct this rule aims to prohibit is more directly defined through use of the following language: “

false or misleading statement or representation, or omission of material information.

” By changing the term “fact” to “information” certain conduct that may not be considered or defined as “factual” under the Act, yet is still deceptive, will be covered.

Lastly, AMS made a technical change to the table of contents for subpart O. To avoid confusion, AMS is including §§ 201.303 and 201.305 in the table of contents as reserved sections to indicate the gaps between §§ 201.302, 304, and 306 are deliberate and that sections have not been inadvertently omitted.

VI. Provisions of the Final Rule

Under the authority of the Act, this rule adds a new subpart O to AMS's regulations in 9 CFR 201, titled “Competition and Market Integrity,” and consisting of §§ 201.300 through 201.390. This section summarizes the substantive provisions of the new subpart.

A. Definitions (§ 201.302)

Section 201.302 defines three terms for subpart O:

covered producer, livestock producer,

and

regulated entity.

covered producer

is defined as a livestock producer (as defined in § 201.302) or swine production contract grower or poultry grower as defined in section 2(a) of the P&S Act (7 U.S.C. 182(8), (14)). Under section 2(a) of the Act, swine production contract grower means any person engaged in the business of raising and caring for swine in accordance with the instructions of another person. A live poultry grower is defined under section 2(a) of the Act as any person engaged in the business of raising and caring for live poultry for slaughter by another, whether the poultry is owned by such person or by another, but not an employee of the owner of such poultry. AMS is adopting this definition to facilitate a focus in this rule on protecting livestock producers (and other parties included in the definition of covered producer) because the harms of discrimination, retaliation, and deception that are addressed in this rule are directed toward and experienced by those persons. Therefore, even though the Act does not contain a definition for livestock producers, AMS has included livestock producers under the definition of

covered producer;

and provided a definition for the term

livestock producer

in this section.

Livestock producer

is defined for the purposes of subpart O as being any person, except an employee of the livestock owner, engaged in the raising of and caring for livestock. AMS aligned its definition of the term

livestock producer

with phrasing used in the Act for the terms poultry grower and swine production contract grower. In response to comment to the proposed rule, AMS revised its definition by removing unnecessary and potentially confusing phrasing. Employees are specifically excluded as they typically lack direct financial interest in the livestock themselves.

AMS defines

regulated entity

as a swine contractor or live poultry dealer as defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a packer as defined in section 201 of the Act (7 U.S.C. 191). A swine contractor is defined in the Act as any person engaged in the business of obtaining swine under a swine production contract for the purpose of slaughtering the swine or selling the swine for slaughter, if (a) the swine is obtained by the person in commerce or (b) the swine (including products from the swine) obtained by the person is sold or shipped in commerce. Live poultry dealers, the vast majority of whom are organized in a vertical structure with common ownership interest in inputs, often referred to as poultry integrators, are defined in the Act as any person engaged in the business of obtaining live poultry by purchase or under a poultry growing arrangement for the purpose of either slaughtering it or selling it for slaughter by another, if poultry is obtained by such person in commerce, or if poultry obtained by such person is sold or shipped in commerce, or if poultry products from poultry obtained by such person are sold or shipped in commerce. A packer is defined in the Act as any person engaged in the business (a) of buying livestock in commerce for purposes of slaughter; or (b) of manufacturing or preparing meats or meat food products for sale or shipment in commerce; or (c) of marketing meats, meat food products, or livestock products in an unmanufactured form acting as a wholesale broker, dealer, or distributor in commerce.

B. Undue Prejudice and Unjust Discrimination (§ 201.304(a))

Section 201.304(a) addresses the unique and often difficult to prove discriminatory conduct that has long existed in the agricultural sector by prohibiting specific bases of prejudicial action. Paragraph (a) also lists prohibited actions taken on a prejudicial basis and provides clarification on the types of actions that do not constitute prohibited action taken on a prejudicial basis. In doing so, AMS is clarifying the application of the Act, better empowering producers to protect themselves, and encouraging companies to adopt more robust compliance practices to snuff out conduct prohibited by the Act in its incipiency, before it can distort markets in the aggregate. In particular, this rule addresses the longstanding and often difficult to counter forms of exclusion that have plagued the agricultural sector for decades. AMS intends for this rule to support positive trends toward inclusivity in the marketplace. Prejudices and disadvantages based upon the producer's protected characteristics or status as a producers' cooperative have no place in today's modern agricultural markets.

The Act, through section 202(a) and (b), broadly prohibits certain practices or devices, including undue or unreasonable prejudices and disadvantages and unjust discrimination. Section 202(a) and (b) of the Act identifies several prohibited actions with respect to livestock, meats, meat food products, or livestock products in unmanufactured form, or for any live poultry dealer with respect to live poultry. In this rule, AMS is prohibiting specific undue and unreasonable prejudices and disadvantages, and unjust discrimination against any covered producer on the basis of certain categories of characteristics or attributes broadly and firmly established as unjust in a modern economy. This regulatory action implements Congress's intent, expressed through the Act, to stop unjust discrimination and undue prejudice by packers and live poultry dealers against livestock producers and poultry growers.

In enacting the Act, Congress cast a wide net to capture all acts of unjust discrimination and undue or unreasonable prejudice against any particular person. There is no indication that Congress intended to exempt any discriminatory conduct taken by regulated entities against producers covered under the Act.

101

The Act's prohibition of unjustly discriminatory or unreasonably prejudicial actions against a particular person was not a new statutory concept, as the Interstate Commerce Act of 1887 (or ICA) also banned unreasonable prejudices and unjust discriminatory practices well before the enactment of the Act. While the ICA does not define the scope of the Act, the comparison is nevertheless useful, especially with respect to the structure and design of provisions governing undue prejudices. A comparison is provided in Table 4 below.

101

See

7 U.S.C. 193.

C.f. Mitchell

United States,

313 U.S. 80, 94 (1941).

Mitchell

United States,

102

the Supreme Court of the United States held that the ICA prohibited discrimination based on race; such discrimination was “essentially unjust.” The Court held that “it is apparent from the legislative history of the ICA that not only was the evil of discrimination the principal thing aimed at, but that there is no basis for the contention that Congress intended to exempt any discriminatory action or practice of interstate carriers affecting interstate commerce which it had authority to reach.”

103

Further, the Court isolated a section of the ICA and noted that, “Paragraph 1 of Section 3 of the Act says explicitly that it shall be unlawful for any common carrier subject to the Act `to subject

any particular person to any undue or unreasonable prejudice or disadvantage

in any respect whatsoever.' ”

104

The Court found that unreasonable prejudice against an individual based on race was a violation and concluded that, “the Interstate Commerce Act expressly

extends its prohibitions to the subjecting of `any particular person' to unreasonable discriminations.”

105

102

313 U.S. at 94.

103

Id.

at 94.

104

Id.

at 95 (emphasis added).

105

Id.

at 97.

The Act contains similar, but broader, language than sec. 3 of the ICA. Section 202 of the Act reads, “It shall be unlawful for any packer or swine contractor with respect to livestock, meats, meat food products, or livestock products in unmanufactured form, or for any live poultry dealer with respect to live poultry, to: (a) Engage in or use any unfair, unjustly discriminatory, or deceptive practice or device; or (b) Make or give any undue or unreasonable preference or

advantage to any particular person

or locality in any respect,

or subject any particular person

or locality to any

undue or unreasonable prejudice or disadvantage

in any respect . . .” [emphasis added]. Table 4 illustrates where the text between the two acts is similar, and also how the Act is broader.

106

For more on the relationship between the Interstate Commerce Act and the Act in this area,

see

Michael Kades, “Protecting Livestock Producers and Chicken Growers,” Washington Center for Equitable Growth, at 66 (May 2022) discussing

Wheeler

Pilgrim's Pride Corp.,

591 F.3d 355, 368-369 (5th Cir 2009) (en banc) (J. Jones concurring): “In all the cases discussed by the co

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