New rules

Jun 25, 2010
New rules

USDA released new amendments to the 1921 Packers and Stockyards Act (PSA). Those new rules were mandated by the 2008 Farm Bill. Congress’ wish was to provide basic protections for producers of livestock and poultry. However, USDA may have overinterpreted the intent of Congress on this one.

At the heart of the issue is competition in the livestock markets and an attempt to define fairness and discrimination in livestock transactions, production and marketing contracts. The term “fair” means many things to many different people. The rules claim that a livestock buyer must keep a loose written record regarding any perceived value differences paid to producers. USDA apparently wants more transparency in a market that already has mandatory price reporting.

Over the past few years, there have been several high profile lawsuits between packers and groups of producers which were tried by a jury, some of which producers won in hand-picked courts. Those wins were subsequently overturned by appellate courts because the plaintiffs couldn’t prove harm to the competitive nature of our market or prove any real damages to producers.

In USDA’s preamble, the proposed regulations say: “A number of U.S. Circuit Courts of Appeals have not given deference to USDA’s interpretation of the Act sections 202(a) and (b) consequently frustrating its enforcement capabilities. USDA has consistently held that under sections 202(a) and (b) of the Act that an unfair practice can be proven with out proof of predatory intent, competitive injury, or the likelihood of competitive injury. The courts decisions that require proof of harm or likelihood of harm to competition in order to prove any violation of the Act creates an unreasonable standard that may be difficult to meet.”

They claim that “many practices can be unfair and never have an anti-competitive implication.” That’s a mouth full that doesn’t really tell us where the boundaries are.

The National Meat Association points out that USDA’s preamble glosses over the fact that despite several attempts to submit amicus curiae briefs, each attempt to define USDA’s interpretation of the PSA has ultimately been rejected by the court hearing the case.

USDA essentially wants to get rid of the case law that has been established and rewrite the rules which will make it easier for livestock producers to sue when they feel they have been treated unfairly. Many cattle industry organizations have claimed that this is a big win for livestock producers.

This statement may be unpopular with many cattle producers, but the way USDA has written these new rules has also opened the regulations up to a pile of lawsuits which will be filed to simply determine the definitions of “fair” and “unfair.” As far as I can tell, several of these regulations can go either way between buyer and seller.

USDA said: “... to the extent that the courts failed to defer to USDA’s interpretation of the statute because that interpretation was not enshrined in regulation. The proposed regulations would constitute a material change in circumstances that would warrant judicial reexamination of this issue.” It still isn’t enshrined.

These regulations are highly discriminatory toward the meat packing industry and forward contracting, which is the equivalent of “captive supply” to some. Many producers remember the old days when there were more packers processing cattle and they want to go back to those “good old days,” despite the fact that the market was highly inefficient. Today, the top four beef packers are processing 78 percent of the fed steers and heifers and there are extensive capital requirements which prevent more packers from entering the business. The hope for more packers may be a bit unrealistic.

There are several parts of the proposal that I don’t have much of a problem with, but the idea that the government is better at defining what constitutes a violation of the PSA with these regulations is a fantasy. The only people who will benefit from these regulations will be attorneys. The definitions are so vague and undefined that long legal battles will be the only result of these regulations. But, then again, what would you expect from a bunch of regulations written by attorneys.

It’s clear that USDA did a little more than Congress asked them to. But in today’s government, you can expect to see more government agencies go a bit further than they should. — PETE CROW