[Congressional Record Volume 153, Number 4 (Tuesday, January 9, 2007)]
[Senate]
[Pages S291-S293]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY (for himself, Mr. Feingold, Mr. Kohl, Mr. Harkin, 
        Mr. Hagel, and Mr. Leahy):
  S. 221. A bill amend title 9, United States Code, to provide for 
greater fairness in the arbitration process relating to livestock and 
poultry contracts; to the Committee on the Judiciary.
  Mr. GRASSLEY. Mr. President, I rise to re-introduce the Fair 
Contracts for Growers Act of 2007. This bill would simply instill 
fairness into contractual dealings between farmers and processors. It 
ensures that parties to a dispute related to agricultural contracts 
have a true choice of venues.
  I introduce this legislation because I believe that anti-competitive 
activity has become a grave threat to the family farmer. During the 
last Farm Bill debate, I brought this same bill forward, along with 
several others. Despite this policy passing the Senate, remarkably the 
final Farm Bill included no provisions to address concentration.
  So, earlier this year, I announced that I will be putting forward a 
package of bills that will focus on anti-competitive activity in the 
agriculture industry. This bill is the first step of my agriculture 
concentration agenda.
  Today's legislation is one piece of the puzzle to help stop the 
unfair impact that vertical integration is having on the family farmer. 
In the last several years we've seen a tremendous shift in agriculture 
toward contract production. Under many of these contract arrangements, 
large, vertically integrated agribusiness firms have the power to 
dictate the terms of ``take-it-or-leave-it'' production contracts to 
farmers.
  Then, when there is a dispute between the packer and the family 
farmer, and the contract between the two includes an arbitration 
clause, the family farmer has no alternative but to accept arbitration 
to resolve the dispute. These clauses limit farmers' abilities to 
pursue remedies in court, even when violations of Federal or State law 
are at issue. This mandatory arbitration process puts the farmer at a 
see disadvantage. Even in a situation where discrimination or fraud is 
suspected, a farmer's only recourse under such a contract is to submit 
to arbitration. The farmer cannot seek redress in court, even if the 
result is bankruptcy or financial ruin.
  Make no mistake, arbitration is very useful in certain situations. It 
reduces the load on our courts, and can save parties the expense of 
drawn-out litigation. This bill would not rule out arbitration-just 
forced arbitration.
  The Fair Contracts for Growers Act would amend the Packers and 
Stockyards Act to require that any contract arbitration be voluntarily 
agreed upon by both parties to settle disputes at the time a dispute 
arises, not when the contract is signed. This would allow farmers the 
opportunity to choose the best form of dispute resolution and not have 
to submit to the packers. It ensures that a farmer, most often the 
``little guy'' in these dealings, is able to maintain his 
constitutional right to a jury trial. It also gives him a chance to 
compel disclosure of relevant information, held by the company, which 
is necessary for a fair decision.
  During consideration of the Farm Bill, the Senate passed, by a vote 
of 64-31, the Feingold-Grassley amendment to give farmers a choice of 
venues to resolve disputes associated with agricultural contracts. I 
urge my colleagues to join with Senator Feingold and me, along with our 
other cosponsors, in supporting this important legislation.
  I ask unanimous consent that the text of the bill and letters of 
support be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                           Iowa Farmers Union,

                                        Ames, IA, January 3, 2007.
     Hon. Charles Grassley,
     U.S. Senate,
     Washington, DC.
       Dear Senator Grassley: I am writing on behalf of Iowa 
     Farmers Union, Women, Food and Agriculture Network (WFAN) and 
     the Iowa Chapter of National Farmers Organization to 
     reiterate our strong support for the Fair Contracts for 
     Growers Act, and to thank you for your leadership in 
     introducing this legislation.
       Contract livestock and poultry producers are being forced 
     to sign mandatory arbitration clauses, as part of a take-it-
     or-leave-it, non-negotiable contract with large, vertically 
     integrated processing firms. These producers forfeit their 
     basic constitutional right to a jury trial, and instead must 
     accept an alternative dispute resolution forum that severely 
     limits their rights and is often prohibitively expensive. 
     These clauses are signed before any dispute arises, leaving 
     farmers little if any ability to seek justice if they become 
     the victim of fraudulent or abusive trade practices.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control over the information needed for growers to argue 
     their case. In a civil court case, this evidence would be 
     available to a grower's attorney through discovery. In an 
     arbitration proceeding, the company is not required to 
     provide access to this information, thus placing the farmer/
     grower at an extreme disadvantage. Other standard legal 
     rights that are waived through arbitration are access to 
     mediation and appeal as well as the right to an explanation 
     of the decision.
       Many assume that arbitration is a less costly way of 
     resolving dispute than going to court, but for the producer, 
     the opposite is usually true. The high cost of arbitration is 
     often a significant barrier to most farmers. The up-front 
     filing fees and arbitrator fees can exceed the magnitude of 
     the dispute itself, with farmers being required to pay fees 
     in the thousands of dollars just to start the arbitration 
     process.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon. 
     Independent family farmers all over the U.S. will benefit 
     from a law that stops the abuse of arbitration clauses in 
     livestock and poultry contracts.
           Sincerely,
                                                   Chris Petersen,
     President.
                                  ____

                                                  January 4, 2007.
     Hon. Charles Grassley,
     U.S. Senate,
     Washington DC.
       Dear Senator Grassley, On behalf of the Campaign for 
     Contract Agriculture Reform, I would like to thank you for 
     your leadership in introducing the Fair Contracts for Growers 
     Act.
       With the rapid rise of vertically integrated methods of 
     agricultural production, farmers are increasingly producing 
     agricultural products under contract with large processors. 
     In many cases, particularly in the livestock and poultry 
     sector, the farmer never actually owns the product they 
     produce, but instead makes large capital investments on their 
     own land to build the facilities necessary to raise animals 
     for an ``integrator.''
       Under such contract arrangements, farmers and growers are 
     often given take-it-or-leave-it, non-negotiable contracts, 
     with language drafted by the integrator in a manner designed 
     to maximize the company's profits and shift risk to the 
     grower. In many cases, the farmer has little choice but to 
     sign the contract presented to them, or accept bankruptcy. 
     The legal term for such contracts is ``contract of 
     adhesion.'' As contracts of adhesion become more commonplace 
     in agriculture, the abuses that often characterize such 
     contracts are also becoming more commonplace and more 
     egregious.
       One practice that has become common in livestock and 
     poultry production contracts is the use of mandatory 
     arbitration clauses, where growers are forced to sign away 
     their constitutional rights to jury trial upon signing a 
     contract with an integrator, and instead accept a dispute 
     resolution forum that denies their basic legal rights and is 
     too costly for most growers to pursue.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control of the information needed for a grower to argue their 
     case. In a civil court case, this evidence would be available 
     to a growers' attorney through discovery. In an arbitration 
     proceeding, the company is generally not required to provide 
     access to this information, thus placing the farmer/grower at 
     an extreme disadvantage. Other standard legal rights that are 
     waived through arbitration are access to mediation and 
     appeal, as well as the right to an explanation of the 
     decision.
       In addition, it is often assumed that arbitration is a less 
     costly way of resolving dispute than going to court. Yet for 
     the farmer, the opposite is usually true. The high cost of 
     arbitration is often a significant barrier to most farmers. 
     The up-front filing fees and arbitrator fees can exceed the 
     magnitude of the dispute itself. For example, in one 
     Mississippi case, filing fees for a poultry grower to begin 
     an arbitration proceeding were $11,000. In contrast, filing 
     fees for a civil

[[Page S292]]

     court case are $150 to $250. Lawyer fees in a civil case are 
     often paid on a contingent-fee basis.
       In addition, the potential for mandatory arbitration 
     clauses to be used abusively by a dominant party in a 
     contract has also been recognized by Congress with regard to 
     other sectors of our economy. In 2002, legislation was 
     enacted with broad bipartisan support that prohibits the use 
     of pre-dispute, mandatory arbitration clauses in contracts 
     between car dealers and car manufacturers and distributors. 
     The Fair Contract for Growers Act is nearly identical in 
     structure to the ``car dealer'' arbitration bill passed by 
     Congress in 2002.
       Thank you again for introducing the Fair Contracts for 
     Growers Act, to assure that arbitration in livestock and 
     poultry contracts is truly voluntary, after mutual agreement 
     of both parties after a dispute arises. If used, arbitration 
     should be a tool for honest dispute resolution, not a weapon 
     used to limit a farmers' right to seek justice for abusive 
     trade practices.
       I look forward to working with you toward enactment of this 
     important legislation.
           Sincerely,

                                                Steven D. Etka

                                 Legislative Coordinator, Campaign
     for Contract Agriculture Reform.
                                  ____



                               National Family Farm Coalition,

                                  Washington, DC, January 9, 2007.
     Senator Charles Grassley,
     Hart Building,
     Washington, DC.
       Dear Senator Grassley; I am writing as president of the 
     National Family Farm Coalition to express our strong support 
     for the Fair Contracts for Growers Act, and to thank you for 
     your leadership in introducing this legislation. As you know, 
     the National Family Farm Coalition provides a voice for 
     grassroots groups on farm, food, trade and rural economic 
     issues to ensure fair prices for family farmers, safe and 
     healthy food, and vibrant, environmentally sound rural 
     communities. Our organization is committed to promoting 
     justice in agriculture, which is stymied by current practices 
     that give farmers unfair and unjust difficulties when they 
     wish to arbitrate a contract dispute.
       Therefore, the Fair Contracts for Growers Act is very 
     timely. With the rapid rise of vertically integrated methods 
     of agricultural production, farmers are increasingly 
     producing agricultural products under contract with large 
     processors. Under these contracts, it is common for farmers 
     and growers to be forced to sign mandatory arbitration 
     clauses, as part of a take-it-or-leave-it, non-negotiable 
     contract with a large, vertically integrated processing firm. 
     In doing so, the farmer is forced to give up their basic 
     constitutional right to a jury trial, and instead must accept 
     an alternative dispute resolution forum that severely limits 
     their rights and is often prohibitively expensive. These 
     clauses are signed before any dispute arises, leaving farmers 
     little if any ability to seek justice if they become the 
     victim of fraudulent or abusive trade practices.
       Because basic legal processes such as discovery are waived 
     in arbitration, it becomes very difficult for a farmer or 
     grower to prove their case. In these cases, the company has 
     control of the information needed for a grower to argue their 
     case. In a civil court case, this evidence would be available 
     to a growers' attorney through discovery. In an arbitration 
     proceeding, the company is not required to provide access to 
     this information, thus placing the farmer/grower at an 
     extreme disadvantage. Other standard legal rights that are 
     waived through arbitration are access to mediation and 
     appeal, as well as the right to an explanation of the 
     decision.
       In addition, it is often assumed that arbitration is a less 
     costly way of resolving dispute than going to court. Yet for 
     the farmer, the opposite is usually true. The high cost of 
     arbitration is often a significant barrier to most farmers. 
     The up-front filing fees and arbitrator fees can exceed the 
     magnitude of the dispute itself, with farmers being required 
     to pay fees in the thousands of dollars just to start the 
     arbitration process.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon.
       Thank you for your leadership in recognizing these 
     concerns, and your willingness to introduce common sense 
     legislation to stop the abuse of arbitration clauses in the 
     livestock and poultry contracts.
           Sincerely,
                                                    George Naylor,
     President.
                                  ____



                            Sustainable Agriculture Coalition,

                                  Washington, DC, January 8, 2007.
     Senator Chuck Grassley,
     Hart Senate Office Building,
     Washington, DC.
       Dear Senator Grassley: I am writing on behalf of the 
     Sustainable Agriculture Coalition in support of the Fair 
     Contract for Growers Act and to thank you for your leadership 
     in introducing this legislation.
       The Fair Contracts for Growers Act is necessary to help 
     level the playing field for our farmers and ranchers who 
     enter into production contracts with packers and processors. 
     The rapid rise of vertically integrated production chains, 
     combined with the high degree of concentration of poultry 
     processors and meatpackers, leaves farmers and ranchers in 
     many regions of the country with few choices, or only a 
     single choice, of buyers for their products. Increasingly, 
     farmers and ranchers are confronted with ``take-it-or-leave-
     it,'' non-negotiable contracts, written by the company. These 
     contracts require that farmers and ranchers give up the basic 
     constitutional right of access to the courts and sign 
     mandatory binding arbitration clauses if they want access to 
     a market for their products. These clauses are signed before 
     any dispute arises, leaving the producers little, if any, 
     ability to seek justice if they become the victim of 
     fraudulent or abusive trade practices.
       Arbitration can be a valid and effective method of dispute 
     resolution when agreed to voluntarily through negotiation by 
     two parties of similar power, but when used by a dominant 
     party to limit the legal recourse of a weaker party in a non-
     negotiable contract, it becomes an abusive weapon. Many basic 
     legal processes are not available to farmers and ranchers in 
     arbitration. In most agricultural production contract 
     disputes, the company has control of the information needed 
     for a grower to argue a case. In a civil court case, this 
     evidence would be available to the grower's attorney through 
     discovery. In an arbitration proceeding, however, the company 
     is not required to provide access to this information, thus 
     placing the grower at an extreme disadvantage. In addition, 
     in most arbitration proceedings, a decision is issued without 
     an opinion providing an explanation of the principles and 
     standards or even the facts considered in reaching the 
     decision. The arbitration proceeding is a private, closed to 
     effective public safeguards, and the arbitration decisions 
     are often confidential and rarely subject to public oversight 
     or judicia1 review.
       Moreover, there is a growing perception that the 
     arbitration system is biased towards the companies. This 
     private system is basically supported financially by the 
     companies which are involved repeatedly in arbitration cases. 
     The companies also know the history of previous arbitrations, 
     including which arbitrators generally decide in the 
     companies' favor. This arbitration history is rarely 
     available to a farmer or rancher involved in a single 
     arbitration proceeding.
       Arbitration is often assumed to be a less costly way of 
     resolving disputes than litigation. But this assumption must 
     be tested in light of the relative resources of the parties. 
     For most farmers and ranchers, arbitration is a significant 
     expense in relation to their income. One immediate financial 
     barrier is filing fees and case service fees, which in 
     arbitration are usually divided between the parties. A few 
     thousand dollars out of pocket is a minuscule expense for a 
     well-heeled company but can be an insurmountable barrier for 
     a farmer with a modest income who is in conflict with the 
     farmer's chief source of income. This significant cost 
     barrier to most farmers, when coupled with the disadvantages 
     of the arbitration process, can deny farmers an effective 
     remedy in contract dispute cases with merit.
       The Sustainable Agriculture Coalition represents family 
     farm, rural development, and conservation and environmental 
     organizations that share a commitment to federal policy 
     reform to promote sustainable agriculture and rural 
     development. Coalition member organizations include the 
     Agriculture and Land Based Training Association, American 
     Natural Heritage Foundation, C.A.S.A. del Llano (Communities 
     Assuring a Sustainable Agriculture), Center for Rural 
     Affairs, Dakota Rural Action, Delta Land and Community, Inc., 
     Future Harvest-CASA (Chesapeake Alliance for Sustainable 
     Agriculture), Illinois Stewardship Alliance, Institute for 
     Agriculture and Trade Policy, Iowa Environmental Council, 
     Iowa Natural Heritage Foundation, Kansas Rural Center, Kerr 
     Center for Sustainable Agriculture, Land Stewardship Project, 
     Michael Fields Agricultural Institute, Michigan Agricultural 
     Stewardship Association, Michigan Land Use Institute, Midwest 
     Organic and Sustainable Education Service, The Minnesota 
     Project, National Catholic Rural Life Conference, National 
     Center for Appropriate Technology, Northern Plains 
     Sustainable Agriculture Society, Ohio Ecological Food and 
     Farm Association, Organic Farming Research Foundation, 
     Pennsylvania Association for Sustainable Agriculture, Rural 
     Advancement Foundation International-USA, the Sierra Club 
     Agriculture Committee, and the Washington Sustainable Food 
     and Farming Network. Our member organizations included 
     thousands of farmers and ranchers with small and mid-size 
     operations, a number of whom have entered into agricultural 
     production contracts or are considering whether to sign these 
     contracts. As individuals, these farmers and ranchers do not 
     have the financial power or negotiating position that 
     companies enjoy in virtually every contract dispute. We agree 
     with Senator Grassley that, in the face of such unequal 
     bargaining power, the Fair Contract for Growers Act is a 
     modest and appropriate step which allows growers the choice 
     of entering into arbitration or mediation or choosing to 
     exercise the basic legal right of access to the courts.
       Thank you for your leadership in recognizing these 
     concerns, and your willingness to introduce commonsense 
     legislation to stop the abuse of mandatory arbitration 
     clauses in livestock and poultry contracts.
           Sincerely,
                                                  Martha L. Noble,
                                          Senior Policy Associate.

[[Page S293]]

     
                                  ____
                                 S. 221

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Fair Contracts for Growers 
     Act of 2007''.

     SEC. 2. ELECTION OF ARBITRATION.

       (a) In General.--Chapter 1 of title 9, United States Code, 
     is amended by adding at the end the following:

     ``Sec. 17. Livestock and poultry contracts

       ``(a) Definitions.--In this section:
       ``(1) Livestock.--The term `livestock' has the meaning 
     given the term in section 2(a) of the Packers and Stockyards 
     Act, 1921 (7 U.S.C. 182(a)).
       ``(2) Livestock or poultry contract.--The term `livestock 
     or poultry contract' means any growout contract, marketing 
     agreement, or other arrangement under which a livestock or 
     poultry grower raises and cares for livestock or poultry.
       ``(3) Livestock or poultry grower.--The term `livestock or 
     poultry grower' means any person engaged in the business of 
     raising and caring for livestock or poultry in accordance 
     with a livestock or poultry contract, whether the livestock 
     or poultry is owned by the person or by another person.
       ``(4) Poultry.--The term `poultry' has the meaning given 
     the term in section 2(a) of the Packers and Stockyards Act, 
     1921 (7 U.S.C. 182(a)).
       ``(b) Consent to Arbitration.--If a livestock or poultry 
     contract provides for the use of arbitration to resolve a 
     controversy under the livestock or poultry contract, 
     arbitration may be used to settle the controversy only if, 
     after the controversy arises, both parties consent in writing 
     to use arbitration to settle the controversy.
       ``(c) Explanation of Basis for Awards.--If arbitration is 
     elected to settle a dispute under a livestock or poultry 
     contract, the arbitrator shall provide to the parties to the 
     contract a written explanation of the factual and legal basis 
     for the award.''.
       (b) Technical and Conforming Amendment.--The table of 
     sections for chapter 1 of title 9, United States Code, is 
     amended by adding at the end the following:

``17. Livestock and poultry contracts.''.

     SEC. 3. EFFECTIVE DATE.

       The amendments made by section 2 shall apply to a contract 
     entered into, amended, altered, modified, renewed, or 
     extended after the date of enactment of this Act.
                                 ______