[Federal Register Volume 65, Number 172 (Tuesday, September 5, 2000)]
[Proposed Rules]
[Pages 53653-53679]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-22393]


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DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration

9 CFR Part 206

[PSA-2000-01-a]
RIN 0580-AA71


Swine Packer Marketing Contracts

AGENCY: Grain Inspection, Packers and Stockyards Administration, USDA.

ACTION: Proposed rule.

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SUMMARY: The Grain Inspection, Packers and Stockyards Administration 
(GIPSA) is proposing to amend its regulations to implement the Swine 
Packer Marketing Contracts subtitle of the Livestock Mandatory 
Reporting Act of 1999. GIPSA is proposing new regulations to establish 
a library or catalog of types of swine marketing contracts used by 
packers to purchase swine and to make information about the types of 
contracts available to the public. GIPSA is also proposing new 
regulations to establish monthly reports of estimates of the numbers of 
swine committed for delivery to packers under types of existing 
contracts contained in the library or catalog.

DATES: Comments must be received on or before October 5, 2000. Comments 
on the information collection and recordkeeping requirements must be 
received on or before November 6, 2000.

ADDRESSES: Send comments to the Deputy Administrator, Packers and 
Stockyards Programs, GIPSA, USDA, Stop 3641, 1400 Independence Avenue, 
SW, Washington, DC 20250-3641. Comments may also be sent via facsimile 
to 202-205-3941 or via e-mail to [email protected]. Please 
state that your comment refers to Swine Packer Marketing Contracts 
(PSA-2000-01-a), RIN 0580-AA71. Comments received may be inspected 
during normal business hours in the Office of the Deputy Administrator, 
Packers and Stockyards Programs, room 3039 (same address as listed 
above).

FOR FURTHER INFORMATION CONTACT: Dr. Michael J. Caughlin, Jr., 
Director, Office of Policy/Litigation Support, (202) 720-6951.

SUPPLEMENTARY INFORMATION:

Background

    In recent years, the swine industry has undergone fundamental 
changes in its structure and marketing practices. In 1998, four firms 
slaughtered about 55 percent of all swine. On the producer side, about 
2000 large swine operations held about 47 percent of the swine 
inventory and the remaining 96,000 smaller operations held about 53 
percent in 1999 based on the December 1999 issue of Hogs and Pigs 
Report published by the National Agricultural Statistics Service 
(NASS).
    Many packers have entered into private contractual marketing 
arrangements, especially with larger producers. In the last few years, 
swine packers have begun procuring the majority of their livestock 
through such contractual arrangements rather than spot market 
transactions. With these procurement methods, such as forward 
contracts, formula pricing, and exclusive purchase agreements, prices 
and terms of sale are not publicly disclosed. Because prices and terms 
of sale are not publicly disclosed, these procurement methods make it 
difficult for producers, particularly smaller ones, to evaluate 
alternative marketing arrangements. Packers and larger producers have 
more resources to assemble market and pricing information, putting 
smaller producers at a disadvantage in negotiating the best possible 
marketing arrangements for their swine.
    In recent years, various industry, trade, and producer groups began 
to ask State and Federal lawmakers for mandatory reporting of 
information concerning the availability and terms of these 
arrangements. Many market participants claimed they were no longer able 
to obtain information, such as actual purchase prices of swine and 
other terms of marketing arrangements, on which to base their 
production and marketing decisions. Many large producers also indicated 
they were unable to evaluate and compare contracts because of the 
unknown premium and discount schedules,

[[Page 53654]]

which may be different in each marketing agreement. These circumstances 
prompted increased industry support for mandatory reporting of prices 
and information on contracts. Ultimately, Congress passed the Livestock 
Mandatory Reporting Act of 1999, \1\ which includes requirements for 
mandatory price reporting by packers and requirements for reporting of 
certain information on the types of contracts used by packers for 
procurement of swine for slaughter. Producers and other concerned 
parties have indicated they believe the information that would be 
submitted in compliance with the requirements of the Livestock 
Mandatory Reporting Act will provide more transparency in the price 
discovery process and equalize access to market information for all 
market participants, large and small.
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    \1\ Title IX of the Agriculture, Rural Development, Food and 
Drug Administration and Related Agencies Appropriation Act of 2000 
(Pub. L. 106-78).
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The Livestock Mandatory Reporting Act of 1999

    The stated purpose of the Livestock Mandatory Reporting Act of 1999 
(LMRA) amendments to the Agricultural Marketing Act of 1946 (7 U.S.C. 
1621 et seq.) (AMA) is to:

    Establish a program of information regarding the marketing of 
cattle, swine, lambs, and products of such livestock that--
    (1) provides information that can be readily understood by 
producers, packers, and other market participants, including 
information with respect to the pricing, contracting for purchase, 
and supply and demand conditions for livestock, livestock 
production, and livestock products;
    (2) improves the price and supply reporting services of the 
Department of Agriculture; and
    (3) encourages competition in the marketplace for livestock and 
livestock products.

    The program of information created by the LMRA is to be 
administered by the Agricultural Marketing Service (AMS), the Grain 
Inspection Packers and Stockyards Administration (GIPSA), and other 
agencies of the Department. AMS is responsible for implementing a 
program of mandatory reporting of market information (including 
transaction prices) on livestock and livestock products, which is 
contained in section 911 of the LMRA. This section of the LMRA amends 
the AMA by adding new sections 111 through 256. The proposed 
regulations to implement the mandatory reporting program have been 
published by AMS in a separate rulemaking.
    The LMRA also established a program of information regarding the 
marketing of swine. GIPSA is responsible for implementing this program 
of information. Section 934 of the LMRA, which amends the Packers and 
Stockyards Act (7 U.S.C. 181 et seq.) (P&S Act), requires the Secretary 
to establish and maintain a library or catalog of the types of 
contracts offered by certain packers to swine producers. The Secretary 
is also required to make information concerning those types of 
contracts available to producers and other interested parties. 
Additionally, the Secretary is to obtain information from certain 
packers concerning the estimated numbers of swine to be delivered under 
contractual arrangements for slaughter within the 6- and 12-month 
periods following each monthly report.

Swine Packer Marketing Contracts

    There is no legislative history to speak of to aid us in 
determining the intent of section 934 of the LMRA, which amends the P&S 
Act. This section of the LMRA imposes requirements upon the Secretary 
and also grants certain authority to the Secretary. We have reviewed 
the statutory language and the stated purpose of the LMRA, along with 
the known circumstances under which the LMRA was enacted and GIPSA's 
expertise in regulating the swine packing industry. As a result, we 
developed our interpretation of section 934 of the LMRA as follows.
    Section 934 of the LMRA amends the P&S Act by designating current 
sections 201 through 207 of Title II as Subtitle A--General Provisions, 
adding new sections 221 through 223, and designating them as Subtitle 
B--Swine Packer Marketing Contracts.
    The first section of Subtitle B, new section 221, provides a list 
of definitions. Title I of the P&S Act contains definitions of terms 
that appear throughout the P&S Act. New section 221 contains the 
definition of terms that are applicable only to new Subtitle B. Other 
terms in Subtitle B that are not defined in new section 221 are to have 
the meanings given those terms in new sections 212 or 231 of the AMA 
which were added by the LMRA. A more detailed discussion of the 
definitions in new section 221 follows below in the Definitions section 
of this document.
    New section 222(a) of the P&S Act reads as follows:

    (a) In General.--Subject to the availability of appropriations 
to carry out this section, the Secretary shall establish and 
maintain a library or catalog of each type of contract offered by 
packers to swine producers for the purchase of all or part of the 
producers' production of swine (including swine that are purchased 
or committed for delivery), including all available noncarcass merit 
premiums.

    New section 222(a) contains key terms, such as ``library'' and 
``catalog'' that are not defined in new section 221 of the P&S Act nor 
in new sections 212 or 231 of the AMA. Nor does the LMRA provide 
guidance on the intent of the word ``offered'' as it is used in this 
section. \2\ The library or catalog that this amendment requires the 
Secretary to establish would be the first of its kind. The undefined 
terms and lack of specific guidance permit us to interpret the language 
and determine what we believe to be the best means to institute the 
program of information contemplated by the LMRA.
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    \2\ In another subparagraph of new section 222, the wording 
raises a question as to whether the word ``offered'' is used 
synonymously with ``available.''
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    To establish a library of the types of contracts offered by packers 
for the purchase of swine, we would require packers to provide samples 
of each type of contract in effect when the final rule becomes 
effective. These contracts are considered ``existing'' contracts, a 
term that appears later in subsection (d) of section 222. Because 
existing contracts are the result of the acceptance of contracts that 
were ``offered,'' it is appropriate to begin the library with existing 
contracts. Once the library is established, packers would be required 
to report to GIPSA the ``offer'' of different or new types of contracts 
concurrently with making those contract offers to swine producers, 
without regard to whether these offers were accepted. Information from 
the contracts would be summarized and made available to the producers 
as described below in the Contract Library section of this document.
    Although the library or catalog mandated by subsection (a) 
necessitates the collection of information from packers, it is 
subsection (d) of new section 222 that indicates the means of, and 
authority for obtaining that information. New section 222(d)(1)(A) of 
the P&S Act requires the Secretary to obtain information from packers 
regarding types of contracts.
    Subsection (b) of new section 222 provides as follows:

    (b) Availability.--The Secretary shall make available to swine 
producers and other interested persons information on the types of 
contracts described in subsection (a), including notice (on a real-
time basis if practicable) of the types of contracts that are being 
offered by each individual packer to, and are open to acceptance by, 
producers for the purchase of swine.


[[Page 53655]]


    We find that this subsection requires information regarding the 
types of contracts contained in the library to be made available to the 
public. The subsection does not indicate that the Secretary should make 
the contracts themselves available to interested persons. Furthermore, 
the information regarding contract offers is to be made available on a 
``real-time basis if practicable.'' We find that this provision 
requires that notice of contract offers be made available in a time 
frame that allows the greatest number of producers to have the 
opportunity to take advantage of the offer, if such notice is 
practicable. The information we propose to make available to the public 
is described in the Contract Library section of this document.
    New subsection 222(c) indicates that the confidentiality 
protections of new section 251 of the AMA that are afforded to packers 
reporting price information shall be applicable to packers providing 
contract information pursuant to subsections (a) and (b) of new section 
222 of the P&S Act. Therefore, the information that would be made 
available pursuant to subsection (b) of this section shall not reveal 
the identities of parties to contracts or proprietary business 
information.
    Subsection (d) of new section 222 sets out the authority granted to 
the Secretary to collect the information that must be made available 
and reported to the public. New section 222(d) of the P&S Act requires 
the Secretary to provide specific information in a monthly report: 
information on the types of contracts available from each packer; types 
of existing contracts for each packer; provisions contained in packer 
contracts that provide for expansion of numbers of swine committed 
under contract; and estimates of the number of swine committed under 
contract; and estimates of the maximum number of swine possibly 
committed for the following 6- and 12-month periods. Packers would be 
required to provide information on both ``types of contracts 
available'' and ``types of existing contracts,'' which the Secretary 
would report on a monthly basis.
    Subsection (d)(1), entitled Information Collection, reads:

    (d) Information Collection.--
    (1) In General.--The Secretary shall--
    (A) obtain (by filing or other procedure required of each 
individual packer) information indicating what types of contracts 
for the purchase of swine are available from each packer; and
    (B) make the information available in a monthly report to swine 
producers and other interested persons.

    The information that the Secretary is required to make available is 
to be obtained by a filing or other procedure required of packers 
required to report. The authority to collect information from packers 
in subsection (d) would be employed to gather information regarding the 
types of contracts ``offered'' (new section 222(a)), ``available'' (new 
section 222(d)(1)(A)) and ``existing'' (new section 222(d)(2)(B)).
    Subsection (d)(1)(A) requires packers to provide information on the 
types of contracts that are ``available'' for the purchase of swine, 
while subsection (a) addressed the types of contracts ``offered'' to 
producers for the purchase of swine. Arguably, the types of contracts 
``offered'' to producers are the types of contracts ``available'' to 
producers, i.e., the words ``offered'' and ``available'' could be read 
as synonymous. However, since different words are used in different 
subsections of the amendments, and since Congress could have used the 
same word in both subsections if Congress had intended the meaning to 
be identical, we have given a different interpretation to each.
    We interpret ``types of contracts available'' to mean contracts 
that a packer currently is offering and that are open to acceptance by 
producers or that a packer is making available for renewal to producers 
currently under contract with that packer. We interpret ``types of 
existing contracts'' to mean the types of contracts that are currently 
in effect, i.e., contracts that have one or more producers providing 
swine to a packer under these types of agreements. We interpret ``types 
of contracts offered'' to mean all contracts that a packer has made 
available to swine producers for the purchase of swine, including those 
that currently are available or in effect and those that previously 
were offered but are no longer open for acceptance. ``Types of 
contracts offered'' includes both ``types of contracts available'' and 
``types of existing contracts.''
    Subsection (d)(1)(B) requires the Secretary to make the information 
obtained in subsection (d)(1)(A) available to producers and other 
interested parties by publication of a monthly report. This reporting 
requirement is separate from the requirement of subsection (b) to make 
information available regarding the types of contracts offered to 
producers. We interpret the monthly reporting requirement in subsection 
(d) and the availability requirement in subsection (b) to require us to 
provide information monthly on the types of contracts ``offered'' to 
producers and to provide notice regarding the types of contracts 
``available'' to producers on an on-going, ``real-time'' basis. As 
described below in the Contract Library section of this document, we 
would make information on ``offered'' contracts available to producers 
and other interested persons through the GIPSA homepage on the 
Internet. This information would also provide notice on the types of 
contracts ``available'' to producers. The notice of types of contracts 
``available'' to producers would be updated on a real-time basis, to 
the extent practicable. Therefore, this information would fulfill 
requirements in subsection (b) to make information available.
    Subsection (d)(2) describes the additional information the 
Secretary is required to report on a monthly basis and provides as 
follows:

    (2) Contracted Swine Numbers.--Each packer shall provide, and 
the Secretary shall collect and publish in the monthly report 
required under paragraph (1)(B), information specifying--
    (A) the types of existing contracts for each packer;
    (B) the provisions contained in each contract that provide for 
expansion in the numbers of swine to be delivered under the contract 
for the following 6-month and 12-month periods;
    (C) an estimate of the total number of swine committed by 
contract for delivery to all packers within the 6-month and 12-month 
periods following the date of the report, reported by reporting 
region and by type of contract; and
    (D) an estimate of the maximum total number of swine that 
potentially could be delivered within the 6-month and 12-month 
periods following the date of the report under the provisions 
described in subparagraph (B) that are included in existing 
contracts, reported by reporting region and by type of contract.

    Subsection (d)(2)(B) requires packers to provide and the Secretary 
to report the provisions in each type of contract that permit an 
expansion in the numbers of swine to be delivered to the packer in the 
following 6- and 12-month periods. The specific provisions used in 
contracts to permit an expansion in the numbers of swine to be 
delivered to the packer are numerous and it would be burdensome and 
onerous for packers to provide those provisions for each contract. We 
believe that these provisions fall into general categories that would 
provide adequate information to producers and other interested persons. 
Therefore, we interpret this subsection of the P&S Act amendment to 
require packers to indicate the types of existing contracts that 
contain a provision that permits the

[[Page 53656]]

expansion of the number of swine committed, and packers would 
categorize any such provision in general terms. Packers would indicate 
whether any contracts within each type of existing contract contain: 
(1) contractual terms that allow for a range of the number of swine to 
be delivered; (2) contractual terms that require a greater number of 
swine to be delivered as the contract continues; or (3) any other 
provisions that provide for expansion in the numbers of swine to be 
delivered. In the monthly report, the provisions for expansion of 
committed swine numbers and the estimates for maximum possible 
committed swine numbers for the following 6- and 12-month periods would 
be from existing contracts only.
    New section 222(d)(2) of the P&S Act requires the Secretary to 
collect and publish and packers to provide, among other things, 
estimates of the total number of swine committed under existing 
contracts and the maximum total number of swine that could be delivered 
under existing contracts within the following 6- and 12-month periods. 
Further, the Secretary is required to publish these estimates in 
monthly reports. New section 222 of the Act does not contain an 
explicit requirement that packers provide estimates for each month of 
the following 6 and 12 months. However, we believe that the Secretary 
would be unable to accurately report estimates for the following 6- and 
12-month periods unless packers compile and provide monthly data 
because we believe the estimates for the 6- and 12-month periods could 
vary each month. Therefore, the proposed rule would require packers to 
provide estimates of committed swine to GIPSA on a monthly basis.
    The information that packers are required to provide to the 
Secretary would be published in a monthly report categorized by type of 
contract and reporting region. Among the factors we would consider in 
defining a region are: (1) relevant marketing areas; (2) statutory 
requirements to maintain confidentiality and protect proprietary 
business information; and (3) AMS definitions of regions in its reports 
of swine prices. To maintain confidentiality, and protect proprietary 
business information, the regions may change over time.
    Subsection (e) of new section 222 provides:

    (e) Violations.--It shall be unlawful and a violation of this 
title for any packer to willfully fail or refuse to provide to the 
Secretary accurate information required under, or to willfully fail 
or refuse to comply with any requirement of, this section.

    This subsection of the P&S Act provides notice to packers that to 
willfully fail or refuse to provide accurate information would 
constitute a violation of this section of the P&S Act. However, the 
subsection is silent as to what happens if a violation occurs, what 
penalties accrue for a violation, and how a violation of this section 
would be prosecuted. Section 203 of the P&S Act sets forth the 
procedures that the Secretary is authorized to follow whenever there is 
reason to believe that any packer has violated or is violating any 
provision of Title II of the P&S Act and the civil penalties that may 
be assessed if the Secretary determines that a violation has occurred. 
As stated above, the LMRA amendments added new sections 221 through 223 
to Title II of the P&S Act. Therefore, we would follow the procedures 
set forth under section 203 of the P&S Act when there is reason to 
believe that a packer has violated any of the provisions in new 
sections 221 through 223.
    New section 223 of the P&S Act directs the Comptroller General of 
the United States to provide the Agriculture committees in Congress 
with a report describing the jurisdiction, powers, duties and 
authorities of the Secretary of Agriculture that relate to packers \3\ 
and those involved in the procuring, slaughtering or processing of 
swine covered by the P&S Act and other laws. GIPSA has no reporting 
obligations under this section of the Act.
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    \3\ ``Packer'' as defined in section 201 of the P&S Act, not as 
defined in new section 221.
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    The LMRA also includes a section on the expiration of the authority 
granted by its provisions. Section 942 of the LMRA states that:

    The authority provided by this title and the amendments made by 
this title terminate 5 years after the date of the enactment of this 
Act.

    The President signed the appropriations act for Agriculture and 
other agencies on October 22, 1999. Therefore, the LMRA and the related 
amendments to the P&S Act will expire on October 22, 2004.
    This proposed rule sets forth GIPSA regulations to implement 
section 934 of the LMRA. This regulatory program is intended to meet 
the purposes of providing to producers, packers and other market 
participants information that can be readily understood with respect to 
swine marketing contracts.

General Approach

    The amendments to the P&S Act made by the LMRA require the 
Secretary of Agriculture to establish a program of information dealing 
with swine packer marketing contracts. First, new sections 222(a) and 
(b) of the P&S Act require the Secretary to establish and maintain a 
library of types of swine marketing contracts and make available 
information on those types of contracts. Second, new section 222(d) of 
the P&S Act requires the Secretary to collect specific information from 
packers and publish that information in a monthly report to the public.
    We have reviewed contracts that packers use for the purchase of 
swine for slaughter obtained during previous GIPSA investigations. 
Based on our understanding of these contracts, we considered how to 
categorize them into ``types of contracts'' as required by the new 
subtitle of the P&S Act. A determining factor was the ability to 
collect and organize information in the library in a meaningful way to 
provide useful information. Another determining factor was to 
categorize the types of contracts broadly enough to be able to provide 
useful information for each region. In addition, the categories need to 
be flexible to adapt to changes in the way swine may be marketed for 
slaughter in the future.
    There are many different types of contracts that packers use for 
the purchase of swine for slaughter. One way of categorizing these 
contracts would be by the names by which the contracts are commonly 
known, such as, window contracts, forward contracts, and exclusive 
purchase agreements. These are descriptive names for some types of 
contracts that are used by packers and producers. For example, a window 
contract generally specifies a low and/or high price (also called a 
``floor'' and a ``ceiling'' price) that would be paid for swine. Window 
contracts sometimes use an accrual account or ledger to account for the 
difference in the contractual high or low price and a specified market. 
We determined that most producers know that packers in a region offer 
window contracts, forward contracts, or exclusive purchase agreements. 
Therefore, to categorize and report swine packer marketing contracts by 
these general descriptive names would not further the statutory goals 
of providing information on pricing, purchase contracting, or supply 
and demand conditions.
    Another way of categorizing these contracts would be to use the 
categories suggested in the definition in new section 221 of the P&S 
Act for ``type of contract'' which identify the market or other method 
used to determine the base price (base price determination), as 
follows: Swine or pork market formula purchases, other market formula

[[Page 53657]]

purchases, and other purchase arrangements. In addition, the definition 
in the amendments to the P&S Act specifies that the classification of 
contracts should specify the presence or absence of an accrual account 
or ledger. As described above, window contracts sometimes use accrual 
accounts or ledgers; further, window contracts may use any market or 
method to determine the base price. Therefore, if we classified 
contracts as window contracts, we would need to further classify the 
window contracts according to their base price determinations.
    We believe that it would be more useful and in keeping with the 
purpose of the amendments to the P&S Act to classify the contracts by 
the three categories of base price determination (swine or pork market 
formula purchases, other market formula purchases, and other purchase 
arrangements) and the presence or absence of an accrual account or 
ledger as provided in the definition of ``type of contract'' in new 
section 221 of the P&S Act. This would result in the following six 
types of contracts: (1) swine or pork market formula purchases with a 
ledger; (2) swine or pork market formula purchases without a ledger; 
(3) other market formula purchases with a ledger; (4) other market 
formula purchases without a ledger; (5) other purchase arrangements 
with a ledger; and (6) other purchase arrangements without a ledger.
    As mandated in new section 222(a) of the P&S Act, we would 
establish and maintain a library or catalog of each of these six types 
of contracts (contract library). New section 222 of the P&S Act does 
not specify what the contract library or catalog should be or how it 
should be established. A ``catalog'' could be a systematized list 
featuring descriptions of the listed types of contracts. A ``library'' 
could be a collection of materials that provide reference information 
for types of contracts. New section 222(a) of the P&S Act also mandates 
that the library or catalog of each type of contract offered by packers 
to swine producers for the purchase of swine for slaughter include all 
available noncarcass merit premiums. Noncarcass merit premiums (and 
discounts) are applied to the base price to calculate the actual price 
paid by the packer to the producer for swine. Noncarcass merit premiums 
(and discounts) are only some of the factors specified in contract 
terms that are used to calculate the actual price paid by packers for 
swine. Other factors that are essential to the calculation of the 
actual price include, but are not limited to, the determination and 
application of carcass merit premiums and discounts. We interpret the 
specific inclusion of all available noncarcass merit premiums in new 
section 222(a) of the P&S Act to mean that the library or catalog of 
the types of contracts offered by packers to swine producers should 
contain, and we should make available, information about contract terms 
(like noncarcass merit premiums) that may affect the calculation of the 
actual price paid to producers. We believe the best way to collect this 
information on contract terms would be for packers to submit copies of 
existing contracts to us. We would organize the submitted contracts by 
type of contract and use the submitted contracts as the reference 
materials to provide information to producers and other interested 
individuals on the types of contracts offered by packers, as required 
by new section 222(b) of the P&S Act. Therefore, we propose to require 
packers to submit copies of contracts that represent each of the types 
of contracts that they offered (as described in detail below in the 
Contract Library section of this document). This would enable us to 
establish a ``library'' of each type of contract offered by packers to 
swine producers for the purchase of swine for slaughter.
    We would require that packers first group their contracts by the 
six types of contracts. Further, we expect that the contracts within 
the same type of contract would vary in their specific terms. As stated 
earlier, one of the purposes of the LMRA is to provide information with 
respect to the pricing and contracting for purchase for livestock. 
Therefore, we would obtain information and report on contracts that 
vary in terms related to the pricing of swine. The contract types 
identify a market or other method on which the calculation for the 
price of the swine is based. There can be many other components 
specified in a contract to determine the price of swine purchased by a 
packer for slaughter. Within each type of contract, we would require 
packers to group their contracts by variations in the components that 
determine the price of swine purchased by a packer for slaughter. 
Specifically, contracts would be considered identical if they are 
identical with respect to all four of the following components: (1) The 
base price or the determination of base price; (2) the application of 
an accrual account or a ledger; (3) carcass merit premiums and 
discounts schedules; or (4) the use and amount of noncarcass merit 
premiums and discounts. Identical contracts would be represented by a 
single contract that we would use as an example contract. We would 
require each packer to submit example contracts for each of the types 
of contracts that they have with producers to purchase swine for 
slaughter.
    We would use this library of contracts as the resource for the 
information that new section 222(b) of the P&S Act requires the 
Secretary to make available to producers and other interested persons. 
We would not make available the contracts themselves or proprietary 
information in conformity with the confidentiality restrictions in new 
section 222(c) of the P&S Act and new section 251 of the AMA.
    In addition, as required by new section 222(d) of the P&S Act, we 
would collect specific information from packers and publish that 
information in a monthly report to the public. The information that 
would be reported includes the types of contracts available from each 
packer, the provisions contained in each type of contract that provide 
for expansion in the number of swine to be delivered under contract for 
the next 6 and 12 months, and estimates of the number of swine 
committed and the maximum number of swine that potentially could be 
delivered under contract within the next 6 and 12 months.
    All of this information could change from one month to the next. To 
ensure that the information in the monthly report is accurate and 
timely, we would require packers to file the required information 
monthly.
    The contract library would require packers to file a copy of an 
example of each swine packer marketing contract currently in effect or 
available and an example of each new contract when it is offered. The 
monthly report would require packers to identify the types of contracts 
that are currently in effect and those that are available and provide 
estimates of the number of swine that could be delivered under the 
existing contracts in the next 6 and 12 months.
    We would make both the information from the contract library and 
the monthly reports available on the GIPSA homepage (http://www.usda.gov/gipsa/) and at the GIPSA Packers and Stockyards Programs' 
Regional Office at Room 317, 210 Walnut Street, Des Moines, Iowa 50309 
during normal business hours of 7:00 a.m. to 4:30 p.m. Central Time. 
The same information, in the same format, would be available from the 
GIPSA homepage and at the Regional Office.
    We propose to implement the new sections of the P&S Act in 
regulations grouped in new Part 206 of Title 9 of the Code of Federal 
Regulations (the

[[Page 53658]]

regulations). The proposed regulations are described in detail below.

Definitions

    Proposed section 206.1 of the regulations would provide definitions 
of certain words and terms. The definitions proposed in Part 206 would 
apply only to the implementation of the Swine Packer Marketing 
Contracts amendment to the P&S Act (codified at 7 U.S.C. Secs. 198 and 
198a). The proposed definitions would not apply to other regulations 
issued under the P&S Act or to the P&S Act as a whole.
    New section 221 of the P&S Act specifies many of the definitions to 
be used in the implementation of the new sections to the P&S Act. New 
section 221(8) of the P&S Act requires that terms not specifically 
defined in new section 221 of the P&S Act have the meanings given to 
them in new sections 212 and 231 of the AMA. All of these definitions 
and any proposed clarifications of these definitions are explained 
below. The proposed definitions would be listed in alphabetical order 
and would constitute section 206.1 of the proposed regulations.
    We propose to define accrual account as: ``An account held by a 
packer on behalf of a producer that accrues a running positive or 
negative balance as a result of a pricing determination included in a 
contract that establishes a minimum and/or maximum level of base price 
paid. Credits and/or debits for amounts beyond these minimum and/or 
maximum levels are entered into the account. Further, the contract 
specifies how the balance in the account affects producer and packer 
rights and obligations under the contract. (Synonymous with ``ledger,'' 
as defined in this section.)'' The term ``accrual account'' is not 
defined in the LMRA amendments to the P&S Act or the AMA. The term, as 
used by swine packers and producers in the industry, is generally 
understood to refer to the same type of arrangement as a ``ledger.'' 
Therefore, we propose to define ``accrual account'' and ``ledger'' 
synonymously to conform to standard industry practice.
    Based on the use of the term ``accrual account'' in the definition 
of ``types of contract'' in new section 221(7)(B) of the P&S Act, we 
believe that the term ``accrual account'' needs to be defined for 
clarity. The definition of ``type of contract'' in the LMRA refers to 
accounts that must be repaid at the termination of the contract. 
However, contracts with accrual accounts may specify conditions that 
could change the rights and obligations of the contracting parties, 
including deferring the repayment of the balance in the account. 
Therefore, we propose to define arrangements that could defer payment 
or otherwise change rights and obligations under the contract based on 
the balance in the account as ``accrual accounts'' also.
    For purposes of reporting, the existence of an accrual account in a 
contract would be used to classify the type of contract. The 
application (or use) of an accrual account (e.g., the time frame for 
repaying the balance of the accrual account) would be used to determine 
whether a specific contract is a unique contract that the packer would 
be required to file with GIPSA under the proposed rule.
    We propose to define base price as: ``The price paid for swine 
before the application of any premiums or discounts, expressed in 
dollars per unit.'' New section 212 of the AMA defines base price as: 
``The price paid for livestock, delivered at the packing plant, before 
application of any premiums or discounts, expressed in dollars per 
hundred pounds of carcass weight.'' For purposes of implementing the 
swine contract library, we propose to exclude the requirement that the 
price be limited to the price paid for swine delivered at the packing 
plant because some contracts specify or allow swine to be delivered to 
another location, such as a buying station. We also propose to exclude 
the requirement that price be expressed in dollars per hundred pounds 
of carcass weight because some contracts do not express price in 
carcass weight units. Some purchase contracts express price in terms of 
live weight or grain prices, and in the future some may use pricing of 
other products, such as primal cuts. Therefore, to establish a library 
of types of contracts offered by packers to swine producers, we must 
obtain contracts without limiting the definition of base price to 
include only those contracts that express base price using plant 
delivered prices in terms of dollars per hundred pounds of carcass 
weight. In addition, the word ``livestock'' would be replaced with 
``swine'' because the new sections of the P&S Act concern only swine.
    In contracts for the purchase of swine by a packer, the base price 
is used as a starting point for determining the price that will be paid 
for the swine. A variety of factors can be included in determining the 
price paid for swine, such as how lean the meat is (where the carcass 
falls into the range of lean percent), the weight of the carcass, the 
time of delivery, and the market or formula used to determine the base 
price. As specified in the definition, the actual base price is a 
dollar amount. The adjusted base price, as generally understood by 
packers and producers, is the base price adjusted based on the 
application of carcass merit premiums or discounts. Generally, a 
contract will specify a schedule to be used to determine the amount of 
the premium or discount to be applied to the base price after the 
merits of the carcass have been identified. This schedule of carcass 
merit premiums or discounts is also known among packers and producers 
as a grid or matrix; in this document, we will use the term schedule. 
The schedule identifies the merits of the carcass that are used to 
determine the premiums and discounts and identifies the premiums and 
discounts for specific ranges of the identified carcass merits. For 
example, a schedule may specify premiums and discounts based on the 
lean percent of the carcass. In addition to specifying the merits of 
the carcass used in the schedule, the packer determines the method used 
to measure the merits of the carcass.
    We propose to define contract as: ``Any agreement, whether written 
or verbal, between a packer and a producer for the purchase of swine by 
a packer for slaughter, except a negotiated purchase (as defined in 
this section).'' Although the term ``contract'' is not defined in the 
LMRA, Part 206 would include the proposed definition to make it clear 
that the contract library would only include agreements that did not 
meet the definition of a ``negotiated purchase'' listed below. Market 
procurement methods that are sometimes called ``non-spot,'' such as 
forward contracts, formula pricing, and exclusive purchase agreements, 
would be considered contracts under this definition of contract. In 
negotiated purchases, the buyer-seller interaction that results in a 
transaction and the agreement on the actual base price occur on the 
same day and the swine are delivered less than 14 days after the buyer 
and seller agree on a transaction. In contrast, in contract purchases 
either the buyer-seller interaction that results in a transaction and 
the agreement on the actual base price occur on different days or the 
swine are delivered more than 14 days after the buyer and seller agree 
on a transaction. In addition to written agreements, the proposed 
definition of ``contract'' would include verbal agreements. Based on 
our recent review of swine procurement practices, we believe that many 
marketing contracts for the purchase of swine are verbal agreements. To 
accomplish the statutory requirement of establishing a library of

[[Page 53659]]

types of contracts offered by packers, verbal agreements must be 
included in the definition of ``contract.'' Therefore, packers would be 
required to provide written descriptions of the terms of all agreements 
for the purchase of swine for slaughter for which the parties did not 
execute a document to signify the existence of the agreement. The 
packer would be required to provide all terms of a verbal contract to 
GIPSA including, but not limited to, the base price determination, a 
schedule of any carcass merit premium and discount (including the 
manner of determining lean percent or other merits of the carcass that 
are used to determine the amount of the premiums and discounts and how 
those premiums and discounts are applied), noncarcass merit premiums 
and discounts, the application of a ledger or accrual account, and the 
length of the agreement.
    We propose to define formula price as: ``A price determined by a 
mathematical formula under which the price established for a specified 
market serves as the basis for the formula.'' The proposed definition 
would be taken verbatim from the AMA, new section 231(6). A ``specified 
market'' would be a market specified by the contract. The market may be 
a publicly reported market, such as the Iowa-Southern Minnesota Direct 
market, or may be a ``market'' that is not publicly reported, such as 
plant average prices paid. A formula price and the specified market 
would be identified in the base price determination.
    As explained above, we propose to define ledger and would define it 
to be synonymous with the proposed definition of ``accrual account.''
    We propose to define negotiated purchase as: ``A purchase, commonly 
known as a cash or spot market purchase, of swine by a packer from a 
producer under which: (1) The buyer-seller interaction that results in 
the transaction and the agreement on actual base price occur on the 
same day; and (2) The swine are scheduled for delivery to the packer 
not later than 14 days after the date on which the swine are committed 
to the packer.'' The proposed definition would be derived from new 
section 212(8) of the AMA. The word ``livestock'' would be replaced 
with ``swine'' because the new sections of the P&S Act concern only 
swine. The proposed definition would clarify the statutory phrase ``on 
a day'' to specify that a transaction would not be considered to be a 
``negotiated purchase'' unless the buyer-seller interaction that 
results in the transaction and the agreement on the actual base price 
occur on the same day. Negotiated purchases contrast with contracts, 
where either the buyer-seller interaction that results in the 
transaction and the agreement on the actual base price occur on 
different days, or the swine are delivered more than 14 days after the 
buyer and seller agree on a transaction. Although the definition for 
``negotiated purchase'' would be included in the new regulations for 
clarity, the new regulations would not apply to negotiated purchases.
    We propose to define noncarcass merit premium or discount as: ``An 
increase or decrease in the price for the purchase of swine offered by 
an individual packer or packing plant, based on any factor other than 
the characteristics of the carcass, if the actual amount of the premium 
or discount is known before the purchase and delivery of the swine.'' 
New section 231(9) of the AMA defines noncarcass merit premium as: ``An 
increase in the base price of the swine offered by an individual packer 
or packing plant, based on any factor other than the characteristics of 
the carcass, if the actual amount of the premium is known before the 
sale and delivery of the swine.'' For purposes of implementing the 
swine contract library, we propose to clarify the statutory definition. 
Because the noncarcass merit premium or discount is more accurately 
tied to the purchase price offered by the packer than the selling price 
offered by the producer, we propose to clarify the definition by 
replacing the word ``sale'' with the word ``purchase.'' In addition, we 
propose to replace the term ``base price'' with ``price'' because 
noncarcass merit premiums and discounts can be applied to the base 
price before or after carcass merit premiums or discounts have been 
applied. Finally, we propose to clarify the definition to include 
``noncarcass merit discounts'' because packers assess both premiums and 
discounts.
    We propose to define other market formula purchase as: ``A purchase 
of swine by a packer in which the pricing determination is a formula 
price based on any market other than the markets for swine, pork, or a 
pork product. The pricing determination includes, but is not limited 
to: (1) A price formula based on one or more futures or options 
contracts; (2) A price formula based on one or more feedstuff markets, 
such as the market for corn or soybeans; or (3) A base price 
determination using more than one market as its base where at least one 
of those markets would be defined as an ``other market formula 
purchase.'' New section 231(10) of the AMA defines other market formula 
purchase as: ``A purchase of swine by a packer in which the pricing 
mechanism is a formula price based on any market other than the markets 
for swine, pork, or a pork product. The term `other market formula 
purchase' includes a formula purchase in a case in which the price 
formula is based on one or more futures or options contracts.'' For 
purposes of implementing the swine contract library, we propose to 
clarify the statutory definition.
    A pricing ``mechanism'' is a formula or set of factors used to 
determine price; for clarity, in this definition and throughout the 
proposed regulation, we use the term ``pricing determination'' instead 
of ``pricing mechanism.'' The proposed definition would expressly 
include a contract that uses a market for feed for its pricing 
determination. In addition, the proposed definition also would 
explicitly classify a contract that uses more than one type of market 
in the price determination. For example, a contract in which the swine 
are sometimes priced from a swine market and sometimes priced from corn 
and soybean markets would be classified as an ``other market formula 
purchase.'' The proposed regulation would add this language to clarify 
how these contracts would be classified. Without this clarification, it 
would be unclear whether these mixed contracts would be classified as 
``swine or pork market formula contracts'' or ``other market formula 
contracts.'' Other market formula purchases with and without accrual 
accounts or ledgers would be two of the six categories for types of 
contracts that must be filed by packers.
    We propose to define other purchase arrangement as: ``A purchase of 
swine by a packer that is not a negotiated purchase, swine or pork 
market formula purchase, or other market formula purchase, and does not 
involve packer-owned swine.'' The proposed definition would be from new 
section 231(11) of the AMA. The ``other purchase arrangement'' category 
would include contracts that are not included in the ``swine or pork 
market formula purchases'' or ``other market formula purchases'' 
categories, as they are defined in this section. In addition, the 
definition specifies that ``other purchase arrangements'' would not 
include a ``negotiated purchase,'' as defined in this section. Other 
purchase arrangements with and without accrual accounts or ledgers 
would be two of the six categories for types of contracts that must be 
filed by packers.
    We propose to define packer as: ``Any person or firm engaged in the 
business of buying swine in commerce for purposes of slaughter, of 
manufacturing

[[Page 53660]]

or preparing meats or meat food products from swine for sale or 
shipment in commerce, or of marketing meats or meat food products from 
swine in an unmanufactured form acting as a wholesale broker, dealer, 
or distributor in commerce. The regulations in this part would only 
apply to a packer slaughtering swine at a federally inspected swine 
processing plant that meets either of the following conditions: (1) A 
swine processing plant that slaughtered an average of at least 100,000 
swine per year during the immediately preceding 5 calendar years, with 
the average based on those periods in which the plant slaughtered 
swine; or (2) Any swine processing plant that did not slaughter swine 
during the immediately preceding 5 calendar years that has the capacity 
to slaughter at least 100,000 swine per year, based on plant capacity 
information.''
    New section 231(12) of the AMA defines packer as: ``Any person 
engaged in the business of buying swine in commerce for purposes of 
slaughter, of manufacturing or preparing meats or meat food products 
from swine for sale or shipment in commerce, or of marketing meats or 
meat food products from swine in an unmanufactured form acting as a 
wholesale broker, dealer, or distributor in commerce, except that: (1) 
The term includes only a swine processing plant that is federally 
inspected; (2) For any calendar year, the term includes only a swine 
processing plant that slaughtered an average of at least 100,000 swine 
per year during the immediately preceding 5 calendar years; and (3) In 
the case of a swine processing plant that did not slaughter swine 
during the immediately preceding 5 calendar years, the Secretary shall 
consider the plant capacity of the processing plant in determining 
whether the processing plant should be considered a packer under this 
chapter.''
    The definition in section 231 of the AMA defines a ``packer'' as a 
``plant.'' For clarity, we propose to distinguish between packers and 
plants. When we use the term ``packer,'' we mean ``Any person or firm 
engaged in the business of buying swine in commerce for purposes of 
slaughter, of manufacturing or preparing meats or meat food products 
from swine for sale or shipment in commerce, or of marketing meats or 
meat food products from swine in an unmanufactured form acting as a 
wholesale broker, dealer, or distributor in commerce.'' When we the 
term ``plant,'' we mean an individual swine processing or packing 
plant. Under the proposed rule, a packer would be required to submit 
the required contract examples and monthly information for each swine 
processing or packing plant that it operates or at which it has swine 
slaughtered that has the slaughtering capacity specified in the 
definition of ``packer,'' and only those individuals defined as packers 
who use plants meeting the slaughtering capacity specified in the 
proposed definition of ``packer'' would be required to submit the 
required contract examples and the monthly information.
    We believe that the definition of ``packer'' in section 231 of the 
AMA is intended to identify all packers that slaughter at plants of the 
specified slaughtering capacity to ensure that these packers submit 
example contracts and monthly information. Most swine processing plants 
are owned and operated by packers. However, some packers contract with 
other swine processing plants to slaughter swine that the packer 
purchases. In these cases, the packer has a contract with the producer 
to purchase swine for slaughter. If we limit the reporting obligation 
to those packers who own or operate their own slaughtering facilities, 
the contract library would not include those contracts entered by 
packers whose swine is slaughtered or processed at plants owned and 
operated by other entities. Therefore, we propose to include all 
plants, even those that are not owned or operated by a packer, that 
meet the slaughtering capacity specified by in the definition of 
packer.
    The definition of ``packer'' in section 231 of the AMA includes a 
swine processing plant that slaughtered an average of at least 100,000 
swine per year during the immediately preceding 5 calendar years. 
Annual swine slaughter data for 1994 through 1998 show that some swine 
processing plants slaughtered more than 100,000 swine annually during 
one or more of those 5 years, but did not slaughter an average of 
100,000 for the 5-year period because they did not slaughter swine 
throughout every year. For example, there were several new plants that 
opened after 1994 that slaughtered more than 100,000 swine each year 
after they began operations. However, when the average number of 
slaughtered swine is calculated over the full 5-year period, these 
plants slaughtered less than 100,000 swine per year during the 
immediately preceding 5 calendar years. The same is true of plants that 
were used to slaughter swine at the beginning and end of this 5-year 
period, but not to slaughter swine throughout one or more of the 
intervening years. Consider a plant that does not operate in Year 1, 
Year 3 or Year 4 but slaughters 50,000 head in Year 2 and 250,000 head 
in Year 5. The average annual slaughtering capacity for this plant over 
the five year period (Years 1 through 5) would be 60,000 head per year 
(300,000 head divided by 5 years = 60,000 head per year). The average 
annual slaughtering capacity for this plant over the years in which it 
operated (Years 2 and 5) would be 150,000 head per year (300,000 head 
divided by 2 years = 150,000 head per year). Because we believe that 
the purpose of the new legislation is to obtain information from 
packers using plants of comparable size, the proposed rule would 
clarify that the average used to determine whether a packer is required 
to submit example contracts and monthly information for a specified 
plant would be based on the plant's average slaughtering capacity in 
the years during which the plant slaughtered swine, even if that period 
is less than five years.
    The definition of packer in section 231 of the AMA requires the 
Secretary to consider the plant capacity in determining whether a 
processing plant should be considered a ``packer'' for reporting 
requirements when the plant did not slaughter swine during the 
preceding 5 calendar years. The proposed regulatory definition reflects 
our determination that a swine processing plant that has the capacity 
to slaughter at least 100,000 swine per year would be comparable in 
slaughtering capacity to plants that meet the definition in the AMA. 
Packers know the capacity of their swine processing plants. Therefore, 
a packer would know if a plant would meet this capacity requirement. 
During the normal course of business of enforcing the P&S Act, we would 
become aware of the capacity estimates for new swine processing plants. 
Based on that capacity information, we would also know which plants 
would meet this definition and would notify the packer that owns or 
uses a qualifying plant if no report is filed.
    We propose to define producer as: ``Any person engaged, either 
directly or through an intermediary, in the business of selling swine 
to a packer for slaughter (including the sale of swine from a packer to 
another packer).'' The proposed definition would be derived from new 
section 212(11) of the AMA. We propose to specify that producers may 
sell swine to a packer either directly or indirectly through an 
intermediary, like a marketing cooperative or other market agency. In 
addition, we would replace the word ``livestock'' with ``swine'' 
because the new sections of the P&S Act concern only swine. With this 
definition, the regulations would explicitly exclude

[[Page 53661]]

producers who sell feeder pigs to another producer or to a packer for 
feeding.
    We propose to define swine as: ``A porcine animal raised to be a 
feeder pig, raised for seedstock, or raised for slaughter.'' The 
proposed definition would be taken verbatim from section 231(20) of the 
AMA.
    We propose to define swine or pork market formula purchase as: ``A 
purchase of swine by a packer in which the pricing determination is a 
formula price based on a market for swine, pork, or a pork product, 
other than a futures contract or option contract for swine, pork, or a 
pork product.'' The proposed definition is from section 231(21) of the 
AMA. Swine or pork market formula purchases with and without accrual 
accounts or ledgers would be two of the six categories for types of 
contracts that must be filed by packers.
    We propose to define type of contract as: ``The classification of 
contracts or risk management agreements for the purchase of swine 
committed to a packer by the determination of the base price and the 
presence or absence of an accrual account or ledger (as defined in this 
section). The type of contract categories are: (1) swine or pork market 
formula purchases with a ledger; (2) swine or pork market formula 
purchases without a ledger; (3) other market formula purchases with a 
ledger; (4) other market formula purchases without a ledger; (5) other 
purchase arrangements with a ledger; and (6) other purchase 
arrangements without a ledger.'' New section 221 of the P&S Act defines 
type of contract as: ``The classification of contracts or risk 
management agreements for the purchase of swine by: (1) The mechanism 
used to determine the base price for swine committed to a packer, 
grouped into practicable classifications by the Secretary (including 
swine or pork market formula purchases, other market formula purchases, 
and other purchase arrangements); and (2) The presence or absence of an 
accrual account or ledger that must be repaid by the producer or packer 
that receives the benefit of the contract pricing mechanism in relation 
to negotiated prices.'' For purposes of implementing the swine contract 
library, we propose that the statutory definition specify the 
categories that would be used for grouping contracts. In addition, we 
propose to simplify the definition to specify that the type of contract 
depends on the presence or absence of a ledger or accrual accounts.
    Within these six categories, any contract that differs from other 
contracts in the determination of base price, the application of a 
ledger or accrual account, carcass merit premium and discount schedules 
(including the manner of determining lean percent or other merits of 
the carcass that are used to determine the amount of the premiums and 
discounts and how those premiums and discounts are applied), or the use 
or amount of noncarcass merit premiums and discounts would be an 
example of a unique contract that must be filed by the packer and 
reported by GIPSA.
    The type of contract would specify the existence of a ledger or 
accrual account. Ledgers and accrual accounts can vary in the way in 
which they are used. Therefore, we would require packers to use the 
terms and conditions of the ledger or accrual account provisions as one 
of the four criteria for identifying unique contracts. Throughout this 
proposed rule, we use the term ``application of a ledger or accrual 
account'' to represent the terms and conditions of the ledger or 
accrual account provisions that would be specified in a contract to 
identify how the ledger or accrual account would function.

Contract Library

    Proposed section 206.2 of the regulations would address the 
criteria set out in new section 222 of the P&S Act for establishing and 
maintaining a swine packer marketing contract library. New section 
222(a) of the P&S Act states that the Secretary shall establish and 
maintain a library or catalog of each type of contract offered by 
packers to swine producers for the purchase of swine.
    As discussed above, we determined the best way to collect 
information for the library would be for packers to submit copies of 
contracts to us. Therefore, we needed to decide which contracts to 
require packers to file.
    We considered requiring packers to file every contract they have 
with each individual producer. This approach, however, would be 
burdensome to packers and repetitive contracts would not provide 
additional information on the range of contracts existing in the 
industry. Therefore, we decided to require packers to file example 
contracts.
    As specified in section 206.2(a), (b), and (c) of the regulations, 
we would require each packer to file an example of each unique contract 
within each type of contract category currently in effect or available 
and an example of each new contract that is offered at each plant at 
which the packer slaughters swine. To decide which contracts would 
serve as examples for similar or unique contracts, as specified in 
section 206.2(d) of the regulations, we propose to require packers to 
submit an example of each contract that varies in (1) the base price or 
the determination of base price; (2) the application of an accrual 
account or a ledger; (3) carcass merit premium and discount schedules 
(including the manner of determining lean percent or other merits of 
the carcass that are used to determine the amount of the premiums and 
discounts and how those premiums and discounts are applied); or (4) the 
use and amount of noncarcass merit premiums and discounts. For 
contracts that are identical in all four respects listed above, a 
packer would need to file only one example contract for each plant that 
uses that type of contract to purchase swine. This would meet the 
requirements in new sections 221 and 222 of the P&S Act.
    New section 221(7) (definition of ``type of contract'') of the P&S 
Act requires contracts to be grouped by the method of base price 
determination and whether a ledger exists. New section 222(a) of the 
P&S Act requires that the contract library also include all available 
noncarcass merit premiums. As discussed above, we determined that the 
contract library should also include information on noncarcass merit 
discounts, terms and conditions of the ledger or accrual account 
provisions, and carcass merit premium and discount schedules. The 
information on carcass merit premium and discount schedules would 
include the method the packer uses to determine the lean percent or 
other merits of the carcass that are used to determine the amount of 
the premiums and discounts, the amounts of the premiums and discounts, 
and how those premiums and discounts are applied. This information is 
essential to producers interested in the range of contracts existing in 
the industry because the carcass merit premiums and discounts are major 
factors in determining the actual price paid to producers for swine.
    To make the initial submission of example contracts currently in 
effect and available, packers would mail, or otherwise deliver, a copy 
of each example contract in use at any of its plants to our Regional 
Office in Des Moines, Iowa, as specified in section 206.2(e) of the 
regulations. For a packer with more than one plant that has the 
slaughtering capacity specified in the definition of ``packer,'' a 
separate package of example contracts would be submitted for each 
plant. Using this criterion, a packer that uses the same contract to 
purchase swine for slaughter at different plants will be required to

[[Page 53662]]

submit the same example contract in the package submitted for each 
plant.
    The initial submission would be due the first business day of the 
month following the determination that the plant has the slaughtering 
capacity specified in the definition of ``packer.'' For subsequent 
submissions, the packer would determine if a newly offered contract 
would be a new example contract for the plant. For offered contracts 
that represent a new example contract at that plant, the packer would 
send via mail, facsimile, or other delivery method a copy of the 
offered contract to our Regional Office in Des Moines, Iowa, on the 
same day the contract was offered. The information made available to 
the public from the contract library would be updated to reflect new 
contracts being offered.
    In addition to submitting example contracts, packers would need to 
notify us of any contract changes, expirations, or withdrawals to 
previously submitted example contracts. The packer's example contracts 
should represent each type of contract offered by the packer to swine 
producers for the purchase of swine for slaughter. If changes to a 
contract, the expiration of a contract, or the withdrawal of an offered 
contract result in a change, expiration, or withdrawal of the example 
contract, then, as specified in section 206.2(h) of the regulations, 
the packers must notify GIPSA. Specifically, if contract changes result 
in changes to any of the four criteria specified above to identify 
example contracts, then the packer must submit a new example contract. 
In addition, the packer must notify GIPSA that the new example contract 
replaces the previously submitted example contract. If an example 
contract no longer represents any existing or offered contracts, then 
the packer must notify GIPSA on the day that the contract expires or is 
withdrawn. In addition, this notification must specify the reason, for 
example, changes to a contract, expiration of an existing contract, or 
withdrawal of an offered contract.
    Various factors, such as the number of example contracts, the 
packer's method of maintaining contract information, and technological 
advances, would determine the most efficient method for submitting 
example contracts to GIPSA for the contract library. Therefore, we 
propose to allow packers to select, subject to approval by GIPSA, the 
submission method subject to the requirements for timely filing.
    Proposed section 206.2(f) specifies the information that would be 
made available from the contract library to producers and other 
interested persons. We would use the example contracts submitted by 
packers as the resource for the information required to be made 
available to producers and other interested persons by new section 
222(b) of the P&S Act.
    New section 222(b) of the P&S Act requires the Secretary to make 
available to swine producers and other interested persons information 
on the types of contracts collected for the swine contract library. 
When the packer submits example contracts, the packer would specify the 
``type of contract'' category applicable to each example contract. 
Within each of the six types of contract categories, example contracts 
would vary in contract terms for base price determination, the 
application of accrual accounts or ledgers, carcass merit premium and 
discount schedules, the use and amount of noncarcass merit premiums and 
discounts, and other contract terms. We would summarize information on 
contract terms from example contracts in the contract library as shown 
in the sample below. As specified in new section 222(c) of the P&S Act 
and new section 251 of the AMA, the information that we would make 
available would not disclose the identities of the parties to the 
contracts, including packers and producers. To ensure that 
confidentiality would be preserved regarding the identities of persons, 
including parties to a contract, and the proprietary nature of the 
information included in the contracts, we would present the contract 
library information without indications about how contract terms 
correspond to an example contract, packer, plant, or producer. The 
contract library information would provide a summary of the types of 
contract provisions that are available in each region.

BILLING CODE 3410-EN-U

[[Page 53663]]

[GRAPHIC] [TIFF OMITTED] TP05SE00.014

BILLING CODE 3410-EN-U

[[Page 53664]]

    As shown in the sample contract library report above, the contract 
library information would be provided by region and type of contract. 
Sample information is shown for swine or pork market formula contracts 
that use a ledger or accrual account. Under the base price 
determination, the sample shows how the base price would be determined 
under different available contracts using specified swine or pork 
markets (USDA Market News Western Cornbelt and USDA Market News Iowa-
Southern Minnesota Direct) and other components of the formulas 
specified in available contracts to calculate the base price. 
Specifically, in the first base price formula, the base price would be 
determined by adding one dollar to a specified price listed in the 
opening report of the USDA Market News Western Cornbelt region on the 
day the swine are delivered to the packer. The specified price, in this 
case, would be the price listed as the weighted average for a base 
market hog in the 49-51 percent lean range. The information listed for 
base price determinations would vary based on the formulas used in each 
of the example contracts. Since base price determination is one of the 
criteria used to identify example contracts, the contract library would 
contain each unique base price determination.
    The example contracts would provide the contract library with 
unique base price determinations, the application of ledgers or accrual 
accounts, carcass merit premium and discount schedules, and the use and 
amount of noncarcass merit premiums. Other contract terms that could be 
reported include a variety of terms that could affect producer's 
marketing decisions, such as quality and weight restrictions, length of 
contract, and use of packer specified genetics. These other contract 
terms would not be included in the criteria used to identify example 
contracts. Therefore, the information contained in the contract library 
on such other contract terms may not represent the full range of 
alternatives that packers are offering or have offered. We propose to 
summarize information on contract terms from the example contracts 
contained in the contract library to provide as much information about 
contract terms as possible, subject to the confidentiality protections.
    We anticipate that interested parties, primarily producers, would 
use the summarized information that we provide from the contract 
library to determine the range of options in contracts offered by 
packers. The producer could identify the contract provisions of 
interest and approach packers or plants within the region to negotiate 
a contract. Although producers would not know which packers are 
offering any of the provisions listed in the summarized information or 
how those provisions would be combined in any contract, we expect the 
knowledge that those provisions exist in the marketplace could result 
in the producer conducting additional searches for contracts, 
agreements, or provisions that result in a more favorable transaction 
for the producer.

Monthly Reports

    New section 222(d) of the P&S Act requires the Secretary to collect 
specific information from packers that are subject to this rule and 
publish the information in a monthly report. As directed in new 
sections 222(d)(1), (d)(2)(A), (d)(2)(B), (d)(2)(C), and (d)(2)(D) of 
the P&S Act, respectively, this monthly report would provide a summary 
of the types of contracts available from packers, types of existing 
contracts, provisions contained in packers' existing contracts that 
provide for an expansion in the number of swine committed under 
existing contract, and estimates of the number of swine committed under 
contract within the following 6- and 12-month periods, and estimates of 
the maximum number that could be committed under existing contracts for 
the following 6- and 12-month periods.
    We interpret the monthly report requirement as mandating that the 
Secretary publish as much information collected from packers each month 
as possible, subject to the requirement to maintain confidentiality as 
discussed above. We interpret ``types of contracts available,'' as 
specified in new section 222(d)(1) of the P&S Act, to mean all types of 
contracts that are available for acceptance by producers, whether or 
not actually accepted by a producer. We interpret ``types of existing 
contracts,'' as specified in new section 222(d)(2)(A) of the P&S Act, 
to mean all contracts that currently have one or more producers 
providing swine under these agreements because these contracts have 
been offered, accepted, and are in place. In the monthly report, the 
provisions for expansion of committed swine numbers and the estimates 
for maximum possible committed swine numbers for the next 6 and 12 
months would be from existing contracts only because there would be no 
estimates for contracts that had been offered, but not accepted. As 
specified in proposed section 206.3 of the regulations, packers would 
provide information on types of contracts available, types of existing 
contracts, and contract provisions that provide for expansion of 
committed swine numbers for each of their swine processing plants that 
has the slaughtering capacity specified in the definition of 
``packer.''
    New section 222(d)(2) of the P&S Act requires packers to provide, 
among other things, estimates of the total number of swine committed by 
contract and the maximum total number of swine that could be delivered 
within the 6- and 12-month periods following the date of the report. 
Although new section 222 of the P&S Act does not require that packers 
report information for each month of the following 6- and 12-month 
periods, we believe that packers would have to compile monthly data in 
order to prepare the required estimates. Proposed section 206.3(c)(3) 
of the regulations would require packers to provide information on 
swine committed for delivery under contracts for each of the next 12 
months. We would calculate the aggregate 6-and 12-month totals and 
publish them in the monthly report. We believe that collection of 
monthly data would enable GIPSA to better monitor the accuracy of the 
estimates. With monthly data, we would be able to develop better 
statistical measures of the precision of the estimates that would 
enhance their utility to producers and others who would use the 
information.
    New section 222(d)(2)(B) of the P&S Act requires packers to report 
on the provisions contained in each contract that provide for expansion 
in the numbers of swine to be delivered under contract for the next 6 
and 12 months. New section 222(d)(2)(D) of the P&S Act requires an 
estimate of the total number of swine that potentially could be 
delivered under contract. In proposed section 206.3 of the regulations, 
paragraphs (c)(3) and (c)(5) would require each packer to provide an 
estimate, by month, for the next 12 months, of the number of committed 
swine by the type of contract, as well as an estimate of what could 
potentially be delivered if all existing expansion clauses in contracts 
are exercised.
    Proposed section 206.3(d) of the regulations would require packers 
to estimate the number of swine that could be delivered under contracts 
that do not specify a number. Packers should be able to develop 
reasonably accurate estimates since they would normally do so for their 
own planning purposes.
    We propose to have packers use new PSP Form 341, shown below, to 
provide the information required for the monthly report. In monthly 
reports, the packer would provide information for all of the contracts 
for each of its plants that has the slaughtering capacity

[[Page 53665]]

specified in the definition of ``packer.'' Therefore, if a packer uses 
more than one plant subject to proposed 9 CFR Part 206, the packer 
would submit a separate monthly report for each plant. The packer would 
estimate the number of swine to be delivered under each of the 
contracts at the plant, aggregated by type of contract. The packer 
would be required to submit a report for each plant that has the 
slaughtering capacity specified in the definition of ``packer,'' even 
if a plant had no existing contracts for which to report estimated 
deliveries of swine.

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[[Page 53666]]

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[[Page 53667]]


    Although monthly estimates would be collected to allow GIPSA to 
generate the estimates for the following 6- and 12-month periods, 
release of such monthly data could risk violating confidentiality 
restrictions. The proposed release of aggregated 6- and 12-month totals 
would fulfill the requirements of new sections 222(d)(1)(B) and (d)(2) 
of the P&S Act without jeopardizing the sensitive nature of the 
underlying information. This aggregated information is expected to 
greatly increase the quantity and quality of available market 
information, and aid producers in making informed marketing decisions.
    The information in the monthly report received from all reporting 
packers would be aggregated and reported by GIPSA on a regional basis 
as shown in the example below.

[[Page 53668]]

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BILLING CODE 3410-EN-U

[[Page 53669]]

Reporting Regions

    To provide producers and other interested persons with the most 
valuable or useful information, the information made available by GIPSA 
would be presented on a regional basis, as specified in proposed 
sections 206.2(f) and 206.3(g)(2) of the regulations. Among the factors 
we would consider in defining a region are: (1) Relevant marketing 
areas; (2) statutory requirements to maintain confidentiality and 
protect proprietary business information; and (3) AMS definitions of 
regions in its reports of swine prices. For example, we would review 
the AMS regions for which AMS reports prices. If we determine that we 
could provide more precise estimates by splitting an AMS region into 
more than one region, then we would evaluate the information to 
determine if the information could be presented for smaller regions and 
maintain confidentiality. Alternately, if we determine that releasing 
information for an AMS region would not maintain confidentiality, then 
we would aggregate the information into regions that would maintain 
confidentiality.
    In order to ensure confidentiality, information will only be 
published if it is obtained from no fewer than three packers 
representing a minimum of three companies, and no packer represents a 
dominant portion of the region's total. The specific factor used to 
establish dominance will not be released, to further assure 
confidentiality by preventing anyone from using knowledge about the 
factor to reveal information that we will suppress. In any region or 
set of circumstances that leads us to be concerned about our ability to 
publish information while maintaining confidentiality, we will consult 
with USDA statisticians to ensure that confidentiality is maintained.
    To further maintain confidentiality, protect proprietary business 
information, and provide useful information, the regions may change 
over time. We propose that initially, based on our analysis of swine 
processing plants in the AMS regions, the regions would be reported as 
follows:

 Eastern Cornbelt--includes Illinois, Indiana, Ohio, Michigan, 
and Wisconsin
 Iowa-Minnesota--includes Iowa and Minnesota
 Mid-South--includes Alabama, Georgia, Kentucky, Mississippi, 
North Carolina, South Carolina, Tennessee, and Virginia
 Western Cornbelt--includes Iowa, Kansas, Minnesota, Missouri, 
South Dakota, and Nebraska
 Other--includes all states and U.S. territories not included 
in the other four regions.

    Iowa and Minnesota would be reported as a separate region and also 
be included in the Western Cornbelt region. This would be consistent 
with AMS reported regions and would allow producers and other 
interested parties to make direct comparisons between the contract 
information and prices reported by AMS in the USDA Market News.
    We would monitor changes in the swine industry, feedback from 
producers and other interested parties about the monthly report, and 
other information to determine if changes in reporting regions need to 
be considered.

Availability of Contract Library Information and Monthly Reports

    Although the basic reporting requirements are mandated by the 
legislation, we are proposing the method by which swine contract 
information would be made available to the public. We considered a 
number of alternatives for making the information available, including 
publishing printed reports, sending copies on request, making printed 
reports available at selected locations, and making information 
available on the GIPSA homepage on the Internet. We determined that 
publication and mailing of the information in printed reports or making 
a printed report available at selected locations would be costly, time 
consuming, and result in the information not being provided to 
producers in a timely manner. As specified in proposed sections 
206.2(g) and 206.3(g)(1) of the regulations, we would make the contract 
library information and monthly reports available on the Internet on 
the GIPSA homepage at http://www.usda.gov/gipsa/ and in the GIPSA 
Regional Office in Des Moines, Iowa at Room 317, 210 Walnut Street, Des 
Moines, IA 50309. The monthly reports would be available the 1st of 
each month (2 weeks following the packers' monthly submission). 
Initially, the contract information and monthly reports would be 
available 2 months after the final rule becomes effective (30 days 
after packers would be required to submit example contracts for each of 
their plants that has the slaughtering capacity specified in the 
definition of ``packer'' as specified in proposed section 206.1). 
Subsequent information on new example contracts offered by packers 
would be available on a real time basis, to the extent possible 
(packers must send GIPSA new example contracts on the same day they are 
offered). The method and time of delivery and the complexity of 
contract terms would determine how quickly GIPSA could make the 
information available.

Executive Order 12866 and Regulatory Flexibility Act

    This proposed rule has been determined to be significant for the 
purposes of Executive Order 12866, and therefore, has been reviewed by 
the Office of Management and Budget. The following is an economic 
analysis of the proposed rule that includes the cost-benefit analysis 
required by Executive Order 12866. The economic analysis also provides 
an initial regulatory flexibility analysis of the potential economic 
effects on small entities as required by the Regulatory Flexibility Act 
(5 U.S.C. 601 et seq.).
    These rules are proposed to implement Subtitle B of Title II of the 
P&S Act which requires packers to report information to the Secretary 
for each of their swine packing plants that has the slaughtering 
capacity specified in the definition of ``packer.'' The proposed rule 
would require the reporting of information on swine marketing contracts 
by packers for plants have the slaughtering capacity specified in the 
definition of ``packer'' measured by annual slaughtering capacity per 
plant.
    Packers would be required to report for their swine processing 
plants that slaughtered an average of 100,000 head of swine per year 
during any of the immediately preceding 5 calendar years based on those 
years in which the plant slaughtered swine. Based on data for 1998, the 
most recent year for which complete data are available, this would 
include a total of about 50 plants owned by approximately 29 swine 
packers. These 50 plants accounted for 6.6 percent of the 757 federally 
inspected swine slaughter plants in 1998 and accounted for 93 percent 
of swine slaughtered. Swine packers are not currently required to 
report information on marketing contracts.
    The proposed rules would establish a swine contract library and 
would require packers operating or utilizing plants of a specified 
slaughtering capacity to submit monthly reports that would provide 
information on contract terms and numbers of swine committed to packers 
under contract. We believe that the proposed regulations would benefit 
producers, especially small producers. The increase in available 
information could provide producers with additional leverage in 
obtaining favorable contract terms with packers,

[[Page 53670]]

as well as improve producers' and packers' ability to plan with 
improved knowledge of the volume of swine already contracted for 
slaughter.

Summary of Costs

    No costs would be imposed on producers as a result of the proposed 
regulations. Monthly reports and information from the contract library 
on types of contracts would be available on the GIPSA homepage on the 
Internet. Producers with Internet access would be able to access the 
reports at no additional cost beyond their normal Internet costs. We 
believe that many producer organizations and private news and 
information services would copy and redistribute these reports at no 
direct cost to producers as part of the services they already provide 
to producers.
    Packers required to report would face costs associated with 
submitting contracts for the contract library. The first component of 
these costs would be the initial cost of compiling and providing to 
GIPSA a copy of each example contract currently in use, available, or 
offered by the packer at each plant that has the slaughtering capacity 
specified in the definition of ``packer'' as specified in proposed 
section 206.1. This would include written contracts and descriptions of 
verbal contracts. The second component would be the cost of providing a 
copy of each new example contract subsequently offered by the packer. 
We estimate the hourly cost of these activities would average $20 per 
hour. Based on our experience reviewing swine packer contracts in the 
normal course of enforcing the P&S Act, we believe that the time 
required for a packer to review its contracts, identify an example of 
each type of contract, and submit those examples as a package would 
average 6.5 hours per plant for the initial submission, at a cost of 
$130.00 per plant ($20/hour  x  6.5 hours = $130). This estimate 
includes an initial 4 hours to review the files of contracts and 
identify examples of existing and offered contracts ($20/hour  x  4 
hours = $80). Packers would identify which contracts are identical for 
reporting purposes, as specified in proposed section 206.2(d) of the 
regulations, in order to determine which contracts need to be sent as 
examples. The estimate includes an additional 0.25 hours per plant to 
collect and submit each example to GIPSA. Based on our experience 
reviewing swine packer contracts, we have determined that some packers 
would only have one example contract to report for each plant, while 
other packers would have a variety of example contracts. For this 
analysis and to provide an upper estimate for the costs associated with 
the contract library and monthly reports, we estimated that, on 
average, packers would have 10 example contracts per plant to be 
submitted to GIPSA for the initial filing ($20/hour  x  0.25 hours  x  
10 examples = $50). The total one-time costs to compile the initial 
submission of example contracts for all 50 plants would be $6,500 ($130 
per plant  x  50 plants).
    After the initial submission, we estimate an average of about 1.25 
hours per year per plant would be required to submit an average of 5 
examples of offers of new contracts or changes to previously submitted 
example contracts, at a cost per plant of $25.00 per year ($20/hour  x  
1.25 hours = $25). In months when a plant does not offer a new contract 
or modify a previously submitted example contract, there would be no 
cost of compliance with contract library reporting requirements. 
Packers must notify GIPSA on the day that one of its example contracts 
no longer represents any existing or offered contracts. The costs for 
this notification are included in the estimate for changes to 
previously submitted contracts. The total annual recurring cost for all 
50 plants for the submission of examples of types of contracts would be 
$1,250 ($25 per plant  x  50 plants).
    Packers would also face costs in complying with the monthly 
reporting requirements. We believe that many packers already maintain 
the required information electronically for use in their own business 
planning and strategy. Based on our investigations and reviews of 
packers, we believe that all packers that are large enough to meet the 
statutory requirements for reporting already use computers in their 
business. Therefore, we do not anticipate that the packers would incur 
any additional costs for computer hardware to implement electronic 
submissions of monthly reports. For those packers who use computers but 
do not currently maintain contract information electronically, we 
estimate that at most 1 hour per plant, at an hourly cost of $50.00, 
would be required to set up a database or spreadsheet to maintain the 
necessary information. This estimate is based on our experience with 
creating spreadsheets and databases that would be similar in type and 
complexity. The higher hourly wage rate for this activity would be 
based on the use of personnel with specialized skills necessary to set 
up spreadsheets or databases. The creation of spreadsheets or databases 
to maintain the necessary information could be accomplished by in-house 
computer staff, or by other employees such as accountants or auditors 
who are responsible for operating the packer's electronic recordkeeping 
system. The total one-time cost for all 50 plants to set up a database 
or spreadsheet to maintain information for the monthly report would be 
$2,500 ($50 per plant  x  50 plants) if all 50 plants chose to submit 
reports electronically.
    An additional 2 hours per plant, at the hourly cost of $50.00 per 
hour for a total one-time cost of $100.00 per plant, would be required 
for personnel with similar skills in use of electronic recordkeeping 
systems to extract and format the required information from the 
packer's electronic information and develop methods for electronic 
transmission of the completed reports to GIPSA. Upon request, we would 
provide the necessary information for the interface to our system. 
Most, if not all, of these packers would be required to use an 
electronic system to provide information to AMS under mandatory 
livestock price reporting requirements in the AMA (7 U.S.C. 1636(g)). 
Packers that do not use electronic data transmission would not incur 
this initial set-up cost, but would not gain the advantage of potential 
savings from electronic recordkeeping and reporting as described below. 
The total one-time cost for all 50 plants to extract and format 
information and develop methods for electronic transmission for the 
monthly report would be $5,000 ($100 per plant  x  50 plants) if all 50 
plants chose to submit reports electronically.
    Once a recordkeeping and reporting system was established, 
additional time would be required to enter data into the database or 
spreadsheet each month. Packers who choose not to use an electronic 
system for maintaining and compiling data required for the monthly 
reports would have to manually compile the data on paper forms each 
month. The total time required for either method would depend on the 
number of contracts in effect. The initial monthly report may take 
somewhat longer, but subsequent reports would be expected to require 
less time.
    Based on our experience in working with similar documents and data 
entry processes, we estimate that it should take an average of 2 hours 
per month per plant to manually compile and report the figures needed 
for the monthly reporting provision. We estimate the cost per hour of 
this activity would average $20.00 per hour, for a total monthly cost 
per plant of $40.00 ($20/hour  x  2 hours = $40). Packers who use an 
electronic system to compile reports would face lower

[[Page 53671]]

monthly compliance costs than those who do not use an electronic 
system. We estimate that packers who utilize electronic systems would 
take an average of 1 hour per month per plant at a total cost per plant 
of $20.00 to compile and report the monthly estimates. The total annual 
recurring cost for a plant to compile and submit the monthly report 
would be $480 ($40 per month  x  12 months) if the plant chose to 
submit reports manually or $240 ($20 per month  x  12 months) if the 
plant chose to submit reports electronically. The total annual 
recurring cost for all 50 plants to compile and submit the monthly 
report would be $24,000 ($480 per plant  x  50 plants) if all 50 plants 
chose to submit reports manually or $12,000 ($240 per plant  x  50 
plants) if all 50 plants chose to submit reports electronically.
    The following table summarizes the estimated compliance costs for 
packers required to submit example contracts and monthly contract 
information for plants that are subject to the regulations in proposed 
9 CFR Part 206. As shown in the table, total first year costs for all 
50 plants to comply with the requirements of the contract library and 
monthly reports would be $31,750 if all 50 plants chose to submit 
reports manually or $27,250 if all 50 plants chose to submit reports 
electronically. The total first year costs include the start-up costs, 
therefore, the annual recurring costs would be lower and are estimated 
to be $25,250 if all 50 plants chose to submit reports manually or 
$13,250 if all 50 plants chose to submit reports electronically.

----------------------------------------------------------------------------------------------------------------
                                                                                 Total costs if   Total costs if
                                                 Costs per        Costs per      all 50 plants    all 50 plants
                                               plant, manual        plant,         use manual     use electronic
                                                                  electronic      methods \1\      methods \1\
----------------------------------------------------------------------------------------------------------------
               START-UP COSTS
Contract Library:
    Review contracts, identify examples of             $80.00       \2\ $80.00        $4,000.00        $4,000.00
     each type (4 hours  x  $20.00/hr)......
    Collect and submit examples (10 examples            50.00        \2\ 50.00         2,500.00         2,500.00
      x  0.25 hr.  x  $20.00 per hour)......
Monthly Report:
    Set up database or spreadsheet (1 hour                N/A            50.00              N/A         2,500.00
     x  $50.00).............................
    Development of transmission methods (2                N/A           100.00              N/A         5,000.00
     hours  x  $50.00)......................
                                             -------------------------------------------------------------------
        TOTAL START-UP COSTS................           130.00           280.00         6,500.00        14,000.00
                                             ===================================================================
           ANNUAL RECURRING COSTS
Contract Library:
    Collect and submit examples of each type            25.00            25.00         1,250.00         1,250.00
     of contract (5 examples  x  0.25 hr.  x
      $20.00 per hour)......................
Monthly Report:
    Enter data into database or spreadsheet,
     or tabulate on paper, and compile
     totals
    (electronic: 1 hour per month  x  12  x               N/A           240.00              N/A        12,000.00
     $20.00)................................
    (manual: 2 hours per month  x  12  x               480.00              N/A        24,000.00              N/A
     $20.00)................................
                                             -------------------------------------------------------------------
        TOTAL ANNUAL RECURRING COSTS........           505.00           265.00        25,250.00        13,250.00
                                             ===================================================================
        TOTAL 1st YEAR COST (Start-up costs            635.00           545.00        31,750.00       27,250.00
         plus annual recurring costs).......
----------------------------------------------------------------------------------------------------------------
\1\ Although we believe it is likely that most plants will use electronic methods, we do not have a basis for
  estimating the actual number of packers that will choose to use electronic versus manual methods. Thus,
  estimates are shown for the alternatives of all manual submissions versus all electronic submissions to
  provide a range of the likely total costs to packers.
\2\ We are not assuming any electronic submission of contracts for purposes of this analysis. Although facsimile
  transmission likely will be used by many packers, facsimile is not considered an electronic method according
  to definitions under the Paperwork Reduction Act.

    GIPSA would incur costs of operating the Swine Packer Marketing 
Contract Library, analyzing the monthly reports submitted by packers, 
ensuring that packers are in compliance, and making the information 
available at the Des Moines office and on the GIPSA homepage. We 
estimate that GIPSA would incur total costs of $400,000 per year for 
all activities associated with implementing the proposed regulations. 
We would monitor and review contracts submitted for the contract 
library and monthly reports filed by packers to assure completeness, 
consistency, and accuracy. In addition, we would conduct ongoing 
analyses of the data and information obtained from packers, and would 
explore ways to increase the usefulness of the data and information. 
Our projected costs include communication costs, travel expense for 
plant visits to monitor compliance with the P&S Act and regulations, 
costs for office supplies, computer hardware and software acquisition 
and maintenance, and an additional four full-time equivalent staff 
years. The increased staff years would be used for the activities 
outlined below, described in terms of individual staff year 
equivalents.
    We anticipate that our costs for providing assistance to packers 
and maintaining the contract library would decrease over time. As 
packers become familiar with the regulations, they would need less 
assistance from us. Once the analysis of the initial submission of 
contracts is complete, there would be fewer contracts coming in for 
analysis.
    One staff-year equivalent would be required to deal primarily with 
activities associated with the contract library. These activities would 
include reviewing and analyzing contracts to ensure consistency in the 
way in which packers categorize example contracts into types of 
contracts, distilling information from the contracts for the GIPSA 
homepage on the Internet, and filing and scanning contracts for 
recordkeeping. This staff-year equivalent would include the staffing 
hours required to answer questions from packers to help them comply 
with

[[Page 53672]]

statutory and regulatory requirements, and from users of the GIPSA 
homepage on the Internet. Finally, this staff-year equivalent would 
include contract library compliance issues such as spot investigations, 
plant visits, and correspondence with packers.
    A second staff-year equivalent would be required to deal primarily 
with activities associated with the monthly reports. These activities 
would include reviewing and analyzing monthly reports to ensure that 
all reports were complete and filed in a timely manner, entering data 
from the reports into a GIPSA system, verifying the data, and 
aggregating the data into the reports that we would make available. 
This staff-year equivalent would include the staffing hours required to 
respond to questions from packers to help them comply with statutory 
and regulatory requirements and from users of the GIPSA homepage on the 
Internet to answer any questions they may have concerning the public 
monthly reports that would be made available on the GIPSA homepage on 
the Internet. Finally, this staff-year equivalent would include monthly 
report compliance issues such as spot investigations, plant visits, and 
correspondence with packers.
    A third staff-year equivalent would be required to develop and 
operate automated information systems for the contract library and the 
monthly report. For the contract library, this would entail continually 
updating and maintaining the contract library homepage on the Internet 
with information provided by the staff person responsible for reviewing 
contracts and determining what information would be included in the 
library and providing assistance and guidance to packers for electronic 
submission. This staff-year equivalent would include the staffing hours 
required to support the automated information systems used for 
aggregating and otherwise processing the data included in the monthly 
reports filed by packers, and to post the public report on our homepage 
on the Internet.
    The final staff-year equivalent would involve a composite group of 
activities that would be performed by various people. This staff-year 
equivalent would include the staffing hours required to manage and 
oversee the operation of the contract library, including reviewing data 
and information to be released to see if releasing such data and 
information is consistent with USDA information release policies, and 
managing compliance issues. Additional activities would involve 
statistical analysis of the data on the monthly reports to determine 
ways to improve the quality of the reporting process and the usefulness 
of the information released to the public.

Summary of Benefits

    The primary economic benefit of the contract library would be to 
alleviate some of the current imbalance in information between 
producers and packers by increasing the amount of information available 
to producers and to provide the potential to improve overall production 
planning and marketing efficiency. Many producers report that they 
cannot obtain the information needed to compare contracts available 
from different packers, giving packers an advantage over producers in 
negotiations. Producers may have very limited information, especially 
about contracts and contracting practices, since producers are parties 
to a fewer number of contracts and have fewer resources for searching 
out this information than do packers. Based on GIPSA's contacts with 
producers, we believe that most producers currently do not search out 
contract terms among alternative packers. Rather, they tend to contract 
with and deliver their hogs to a single packer. Producers have 
indicated that they do not have enough knowledge about potential 
alternative contract terms available to them to encourage them to 
search out more favorable terms.
    This proposed rule would make information about contracts readily 
and easily available from a single source, specifically, the variety 
and types of contracts available in the marketplace, as well as the 
number of swine committed under contract by region. Availability of 
information from the contract library and monthly reports would serve 
to lower the search costs for producers and would enable producers to 
be more informed before entering the marketplace.
    This increased information would be beneficial to producers in 
making production plans and determining how to market swine. The 
increased information about types of contracts and contract terms would 
enable producers, knowing that specific contract terms are available in 
the marketplace, to seek the particular terms that a producer 
considered most favorable. For example, different packers often have 
different requirements for swine with given carcass characteristics, 
and the packers' premiums and discounts reflect their unique 
requirements.\4\ The information in the contract library will make 
producers aware of contract terms that better match the characteristics 
of the swine they produce. Although the monthly report would not 
identify which packers are offering specific contract terms, producers 
would know that specific terms are offered in identified regions. The 
information would encourage them to contact packers to find the one 
offering the most favorable terms. Under the current system, producers 
tend to be unaware when more favorable terms exist, and do not conduct 
such searches.
---------------------------------------------------------------------------

    \4\ For example, one analysis found that net prices paid by 
different packers for the same quality of hogs varied by up to $2.00 
per hundredweight. (``Factors That Influence Prices Producers 
Receive for Hogs: Statistical Analysis of Kill Sheet and Survey 
Data,'' John D. Lawrence, Staff Paper No. 279, Iowa State 
University. March 1996.)
---------------------------------------------------------------------------

    Additionally, the monthly report would provide producers with 
information on the number of contracted swine by region for the 
upcoming 6- and 12-month periods. Producers could use this information, 
in combination with data such as current inventories of swine on feed 
from the National Agricultural Statistics Service and projections of 
slaughter from land grant college extension services and other sources, 
to estimate the percentage of the region's swine slaughter requirements 
for the next 6 and 12 months that are being met by contracted swine. 
This would help producers to determine how many sows to breed, whether 
to search out packers in regions with lower volumes of swine already 
contracted, and to make other decisions related to the production and 
marketing of their swine. For example, knowledge of the volume of swine 
already contracted for delivery 12 months into the future would better 
enable producers to adjust their production plans to avoid situations 
such as occurred during a prolonged period in late 1998. During that 
period, extremely large supplies of swine for slaughter were out of 
balance with aggregate industry slaughter capacity and producers 
suffered losses in the billions of dollars.
    By lowering the cost of acquiring market information and increasing 
the amount of available information, information contained in the 
contract library and available from the monthly report would alleviate 
much of the current imbalance in information available to producers 
relative to packers. The benefits are difficult, if not impossible, to 
quantify, but available evidence indicates the benefits should be 
substantial. We believe that benefits to producers, from the 
availability of contract terms and packers' estimates of future 
deliveries, would include better

[[Page 53673]]

planning for their marketing decisions and could result in contracts 
with better terms for producers, especially small producers.
    We envision that the primary means of access to information from 
the contract library and monthly report would be through the GIPSA 
homepage on the Internet. The information would also be available in 
our Regional Office in Des Moines, Iowa. We believe that many producers 
have access to the Internet. Those who do not could get access through 
USDA agricultural extension offices or public libraries with Internet 
service. Therefore this method of providing the information should make 
it available to the widest possible audience in the most efficient way. 
We believe that many producer organizations and private news and 
information services would copy and redistribute these reports at no 
direct cost to producers as part of the services they already provide 
to producers.
    Although packers would bear the compliance costs of the proposed 
regulations, packers are not the primary beneficiaries of the contract 
library. The chief benefit to the packers would be from improved 
knowledge about aggregate supply based on information provided in the 
monthly reports of aggregate future supplies of swine contracted for 
slaughter and knowledge of contract terms being offered by other 
packers.
    In conclusion, the benefits to producers and other interested 
persons are not quantifiable and, therefore, difficult to compare to 
the costs that packers and GIPSA would incur to implement the contract 
library and monthly report requirements of the amendments to the P&S 
Act. We believe the contract library and monthly reports would provide 
useful information to GIPSA, producers, and other interested persons 
and the benefits would outweigh the costs. The total annual cost for 
GIPSA to implement the contract library and monthly reports would be 
$400,000. Although the total first-year costs would be higher for 
plants choosing to implement electronic methods, annual recurring costs 
thereafter would be substantially lower at an average of $265 per plant 
versus the $505 per plant for plants choosing to use manual methods. We 
believe all plants have the capability to use electronic methods. 
However, we do not have an estimate for how many plants will choose to 
use electronic versus manual methods. Thus, for purposes of comparing 
costs and benefits, we are conservatively using the highest cost, which 
is based on all plants using manual methods to submit monthly reports. 
Using this conservative estimate, the total first-year cost to the 
industry would be $31,750 and annual recurring costs thereafter would 
be $25,250. We are requesting comments on these estimates and on the 
likelihood that respondents will use electronic methods. Additionally, 
the benefits to the producer would be an increase in the knowledge 
about supply and contract terms that could result in better marketing 
decisions and more favorable contract terms. Because these benefits are 
difficult, if not impossible, to quantify, we are requesting comments 
to provide additional information on the benefits of this proposed 
regulation and the quantification of those benefits.

Effects on Small Entities

    The Small Business Administration (SBA) classifies producers' swine 
production enterprises as small businesses if they have annual sales of 
$500,000 or less. There were approximately 92,000 producers that would 
be classified as small businesses by this criteria, or 90 percent of 
all producers reporting sales of swine in the 1997 Census of 
Agriculture. The proposed rule would not impose any reporting 
requirement or other burden on producers of any size. We believe the 
proposed rule would provide significant benefits for all producers, as 
discussed in the section on Summary of Benefits above, and especially 
to small producers.
    According to the SBA size standard, a company that owns and 
operates a packing plant, including a swine processing plant, would be 
classified as a small business if the company has less than 500 
employees in total. It is common in the red meat industry for larger 
companies to own several plants. A packer that owns and operates one or 
more plants would be considered as a small business under the SBA 
definition only if the packer, at all plants combined, had fewer than 
500 employees.
    A total of about 29 pork packing companies (packers) owning 50 
plants that have the slaughtering capacity specified in the definition 
of packer in proposed section 206.1 would be required to report under 
the proposed regulation. The 50 plants for which packers would be 
required to report represent only 6.6 percent of all swine processing 
plants that slaughter swine in the United States. The remaining 93.4 
percent of swine processing plants would not have the slaughtering 
capacity required for reporting and, therefore, would not be required 
to report. Based on the SBA size standard, approximately 15, or about 
52 percent of the packers that own plants that would be required to 
report, would be considered small businesses. These small packers would 
bear some costs of compliance with the proposed regulation. The costs, 
as described above in Summary of Costs, would arise from the reporting 
and recordkeeping requirements for the small packers that are required 
to report. These are the same requirements that would be imposed on 
larger packers that have the slaughtering capacity required for 
reporting. However, we believe the burden of these requirements would 
be less on the packers classified as small businesses, as explained 
below under Reporting Burden on Small Business.

Projected Reporting Burden on Small Entities

    The proposed rule would require packers to report two types of 
information regarding contracts for purchase of swine for slaughter. 
The first type would be a copy of each example contract currently in 
use, available, or offered by packers at each plant required to report 
under proposed section 206.1, and would not require the completion of 
any type of reporting form. A copy of an example contract would only be 
submitted once for each plant. Based on prior contacts with packers by 
GIPSA personnel during the normal course of enforcing the P&S Act, we 
believe that small packers would have a relatively small number of 
example contracts that would have to be submitted. Packers would submit 
their example contracts by mail, facsimile, or another method that is 
convenient for them and approved by GIPSA. We would use the information 
in these contracts to prepare a report for public release that would 
describe the types of contracts and contract terms existing, offered, 
and available, but would not identify individual packers of any size, 
or release copies of actual individual contracts used by any packer. We 
would make the report with the information from the contract library 
available on the Internet and at our Des Moines Regional Office.
    The second type of information reported by packers would consist of 
a monthly report of the number of swine committed for delivery under 
each type of contract. The form for the monthly report would consist of 
up to 189 separate fields of information, including report date, 
packer, and plant identification information (9 fields); swine delivery 
estimates for 6 categories of types of contracts for 12 months (up to 
144 fields for committed and maximum estimates); an X for any currently 
offered contracts under a

[[Page 53674]]

category of contract type (up to 6 fields); codes for the types of 
expansion provisions in existing contracts to increase swine deliveries 
to the maximum estimate (up to 6 fields); and the dates for which the 
estimates are provided (24 fields). A packer would have to fill out 189 
fields of information for a plant that had one or more contracts under 
each of the 6 types of contracts. Packers would report this information 
once each month for each plant required to report under the proposed 
regulations. If 189 fields of information were required per submission, 
each plant would report 189 pieces of information each month. However, 
few if any packers would be expected to have contracts of such variety 
as to be required to complete all fields on any given monthly report. 
We expect that the average monthly report of packers of any size would 
require entry of data into 61 to 87 fields. Packers would compile and 
aggregate data from individual contracts to enter into these fields. 
Small packers that meet the minimum slaughtering capacity required for 
reporting would be expected to have a smaller number of contracts from 
which to compile data. Therefore, the total reporting burden for 
smaller packers should be less than that for the larger packers that 
are required to report.
    We would encourage packers to utilize electronic data transmission 
to submit the required information to GIPSA. We would provide packers 
the necessary information on procedures to submit the data to GIPSA 
electronically. We expect that packers would use a variety of methods 
to provide the data to GIPSA. For electronic data transmission, the 
methods would vary based on technology. Therefore, we would not specify 
a single transmission method. Packers could mail or otherwise deliver a 
computer diskette to GIPSA or e-mail the data. In addition, we are 
developing a system to allow packers to submit their data via the 
Internet through the GIPSA homepage.
    Those small businesses that choose not to use electronic submission 
methods for their contract information and monthly reports would send 
the information via facsimile or mail to GIPSA using the proposed 
standardized forms. However, they would have to meet the submission 
deadlines regardless of the method used for submission.

Projected Recordkeeping Burden on Small Entities

    Each packer that would be required to report information would be 
required to maintain such records as are necessary to compile the 
information reported and verify its accuracy. Current P&S Act 
recordkeeping requirements are set out in 9 CFR 201. The proposed rule 
would not require maintenance of records beyond those that packers are 
already required to maintain. Therefore, the rule would not create new, 
unduly burdensome recordkeeping requirements. Professional skills 
required for recordkeeping under the proposed rule would not be 
different than those already employed by the reporting entities. 
However, packers may need to extract and format the required 
information from their records for their submissions to GIPSA. We 
believe the skills needed to maintain such records are already in place 
in those small businesses affected by the proposed rule.

Alternatives

    We considered alternative methods by which the objectives of the 
regulations could be accomplished. The proposed regulations, as 
mandated by the Livestock Mandatory Reporting Act of 1999, require 
swine packing plants that slaughter a specified number of swine each 
year to provide certain information to the Secretary. There were few 
feasible alternatives possible with regard to obtaining the required 
information.
    The contract library requirement for filing types of contracts in 
use could be accomplished by requiring that packers file copies of all 
contracts, not just examples. However, we believe this would result in 
an overwhelming and unnecessary paperwork burden for both packers and 
GIPSA. It would require all packers required to report to mail multiple 
copies of the same example contract. It would also require a 
significant increase in expense to the government for the time required 
to review and classify all the contracts received.
    The monthly report requirement could be accomplished by GIPSA 
compiling all data necessary for the monthly report to determine each 
individual packer's projected deliveries of swine for slaughter for the 
following 6- and 12-month periods. This alternative would require that 
we also implement the first alternative discussed above (i.e., require 
packers to file all contracts), for GIPSA to have the necessary details 
to compile the data each month. In addition to the cost to the 
government of collecting all contracts, it would add significant 
additional costs to the government to tabulate data each month from all 
contracts submitted by packers.
    We also considered the option of requiring electronic submission of 
the information required to be published in the monthly report. 
However, in developing these proposed regulations, we decided that the 
reporting objectives could be accomplished by allowing packers to 
report the required information by facsimile or mail if they choose not 
to use electronic submission. Although we would encourage packers to 
utilize electronic data transmission, and we would provide to packers 
the necessary information on procedures to submit data to GIPSA 
electronically, we expect that packers would use a variety of methods 
to provide the data to GIPSA. For electronic data transmission, the 
methods would vary based on technology; to submit data electronically, 
packers could include mail or otherwise deliver the electronic data on 
a computer diskette or e-mail the data. In addition, we are 
implementing a system to allow packers to submit data via the Internet 
through the GIPSA homepage. Therefore, we would not specify a single 
transmission option.
    In conclusion, as shown above, it is difficult to quantify all of 
the economic impacts on small entities based on the alternative 
submission methods that small packers may choose and the anticipated 
benefits, especially for small producers. Small packers would incur the 
costs of complying with these proposed regulations; however, only 15 
small packers, representing a small percentage of all small packers in 
the United States would be required to comply with these regulations 
based on the slaughtering capacity of their plants. We believe that all 
of the approximately 92,000 small producers would accrue benefits at 
little or no cost. Therefore, we believe that the balance of the 
economic effects for small entities would be positive.

Executive Order 12988

    This proposed rule has been reviewed under E.O. 12988, Civil 
Justice Reform, and is not intended to have retroactive effect. This 
proposed rule would not pre-empt State or local laws, regulations, or 
policies unless they present an irreconcilable conflict with this rule. 
There are no administrative procedures that must be exhausted before 
this proposal can be challenged in court.

Paperwork Reduction Act

    The proposed rule contains recordkeeping and submission 
requirements that are subject to public comment and review by the 
Office of Management and Budget (OMB) under the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501 et seq.) (PRA). In

[[Page 53675]]

accordance with section 3507(d) of the PRA, the information collection 
and recordkeeping requirements included in this proposed rule have been 
submitted for approval to the Office of Management and Budget (OMB). In 
accordance with 5 CFR 1320, the reporting and recordkeeping 
requirements and an estimate of the annual burden on packers required 
to report information under the proposed rules are described below.
    Title: Swine Packer Marketing Contracts.
    OMB Number: New Collection.
    Type of Request: New.
    Abstract: The information collection and recordkeeping requirements 
in these regulations are essential to establishing and implementing a 
mandatory library of swine marketing contracts and a mandatory program 
of reporting the number of swine contracted for delivery. Based on 
information available, we have determined that under the proposed rule 
there are 29 packers that would be required to file contracts and 
report certain information on deliveries for a total of 50 plants that 
they operate or at which they have swine slaughtered.
    Packers would be required to report information for individual 
plants even in instances when a given company owned or used more than 
one plant. Estimates below on the information collection burden are 
based on time and cost requirements at the plant level, so packers that 
report for more than one plant would bear a cost that would be a 
multiple of the per-plant estimates.
    We believe the packers that are required to report have similar 
recordkeeping systems and business operating practices and conduct 
their operations in a similar manner. Based on past reviews of packers' 
use of marketing contracts and the records maintained by those packers, 
we believe that most information to be submitted under the proposed 
rule could be collected from existing data and recordkeeping systems 
and that these data and systems can be adapted to satisfy the proposed 
rule. We recognize that some information, such as the contract terms 
for verbal contracts, may not be kept in the manner in which we are 
requesting. Therefore, packers would need to reduce the essential terms 
of verbal contracts to writing when the proposed rule would require 
them to be submitted as example contracts as described earlier in this 
document.
    Under the proposed rule, the first information collection 
requirement would consist of submitting example contracts. Initially, a 
packer would submit example contracts currently in effect or available 
for each swine processing plant that would be subject to the 
regulations. Subsequently, a packer would submit example contracts for 
any offered, new, or amended contracts that varied from previously 
submitted contracts in the base price determination, the application of 
a ledger or accrual account, carcass merit premium and discount 
schedules (including the determination of the lean percent or other 
merits of the carcass that are used to determine the amount of the 
premiums and discounts and how those premiums and discounts are 
applied), or the use and amount of noncarcass merit premiums or 
discounts. The initial submission of example contracts would require 
more time than subsequent filings of new contracts or changes, as 
packers would initially need to review all their contracts to identify 
the unique types that would need to be represented by an example 
submitted to GIPSA. Thereafter, subsequent filings should require a 
minimal amount of effort on the part of packers, as only example 
contracts that represented a new type would need to be filed with 
GIPSA.
    The second information collection requirement would be for a 
monthly filing of summary information in the standard format of the 
proposed new PSP Form 341, Packer/Plant Report, Estimates of Swine 
Committed to Be Delivered Under Contract (see the sample shown in the 
Monthly Report section of this document). The proposed new form for the 
monthly filing would be simple and brief. Packers would be required to 
compile certain data in order to complete the form, but these data 
should be available in the packers' existing record systems. Electronic 
submission would be encouraged, and we would provide the necessary 
information on procedures to submit data to GIPSA electronically. 
Packers unable or choosing not to use electronic submission could 
submit the report on the proposed form using facsimile or mail.
    The estimates of time requirements used for the burden estimates 
below were developed in consultation with GIPSA personnel knowledgeable 
of the industry's recordkeeping practices. The estimates also reflect 
our experience in assembling large amounts of data during the course of 
numerous investigations involving use of data collected from the 
industry. Estimates of time requirements and hourly wage costs for 
developing electronic recordkeeping and reporting systems are based on 
our experience in developing similar systems, in consultation with our 
automated information systems staff.
(1) Submission of Contracts (No Form Involved)
    Estimate of Burden: Reporting burden for submission of contracts is 
estimated to include 4 hours per plant for an initial review of all 
contracts to categorize them into types and identify unique examples, 
plus an additional 0.25 hours per unique contract identified during the 
initial review to submit an example of that contract. After the initial 
filing, the reporting burden is estimated to include 0.25 hours per 
plant to submit an example of each new or amended contract.
    Respondents: Packers required to report information for the swine 
contract library.
    Estimated Number of Respondents: 29 packers (total of 50 plants).
    Estimated Number of Responses per Plant: Number of responses per 
plant would vary. Some plants would have no contracts, while others 
could have up to 50 contracts. We estimate an average of 10 example 
contracts per plant for the initial filing of examples of existing 
types of contracts, and an average of 5 example contracts per plant per 
year for offered contracts and amended existing or available contracts.
    Estimated Total Annual Burden on Respondents: Initial filing: 325 
total hours for the initial filing of examples of existing contracts by 
all plants combined. Calculated as follows:


(4 hours per plant for initial review)  x  (50 plants) = 200 hours for 
initial review;
(.25 hours per contract)  x  (10 example contracts per plant)  x  (50 
plants) = 125 hours;
(200 hours) + (125 hours) = 325 total hours.

Thereafter, 62.5 total hours annually for all subsequent filing of 
examples of offered or amended existing or available contracts by all 
plants combined, based on an average of 5 offered or amended existing 
or available contracts annually. Calculated as follows:

(.25 hours per contract)  x  (5 example contracts per plant)  x  (50 
plants) = 62.5 hours

    Total Cost: Initial filing $6,500.00 for all plants combined. 
Calculated as follows:

(325 hours)  x  ($20.00 per hour) = $6,500.00

Thereafter, $1,250.00 annually for all plants combined for submission 
of subsequent filings. Calculated as follows:

(62.5 hours)  x  ($20.00 per hour) = $1,250.00

[[Page 53676]]

(2) Submission of Monthly Swine Marketing Contract Report (Form 
341(draft))
    Estimate of Burden: The reporting burden for compiling data, 
completing and submitting the form is estimated to average 2.0 hours 
per manually prepared and submitted (via mail or facsimile) report and 
1.0 hour per electronically prepared and submitted report. There would 
be an estimated additional one-time set up burden of 1 hour at a cost 
of $50.00 per plant for a packer that chose to create a spreadsheet or 
database for recordkeeping and preparation of monthly estimates. There 
would be an estimated additional 2 hour burden at a cost of $50.00 per 
hour or $100.00 per plant total for a packer to develop procedures to 
extract and format the required information and to develop an interface 
between the packer's electronic recordkeeping system and GISPA's 
system. The hourly rate for development of electronic tools is assumed 
to be higher due to the need to use personnel with specialized computer 
skills.
    Respondents: Packers required to report information for the swine 
contract library.
    Estimated Number of Respondents: 29 packers (total of 50 plants).
    Estimated Number of Responses per Plant: 12 (1 per month for 12 
months).
    Estimated Total Annual Burden on Respondents: 1,200 hours for all 
plants combined if all plants used manual compiling, preparation, and 
submission. Calculated as follows:

(2.0 hours per response)  x  (50 plants)  x  (12 responses per plant) = 
1,200 hours;

    600 hours for all plants combined if all plants use electronic 
compiling, preparation, and submission. Calculated as follows:

(1.0 hour per response)  x  (50 plants)  x  (12 responses per plant) = 
600 hours.

    Total Cost: $24,000 annually for all plants combined if all use 
manual submission. Calculated as follows:

(1200 hours)  x  ($20.00 per hour) = $24,000.00

    $12,000 annually for all plants combined if all were to completely 
utilize electronic preparation and submission. Calculated as follows:

(600 hours)  x  ($20.00 per hour) = $12,000.00

    Additional $7,500 one-time set-up cost if all plants were to 
completely utilize electronic systems for preparation and submission. 
Calculated as follows:

(1 hour build spreadsheet/database) + (2 hours develop electronic 
interface) = 3 hours
(3 hours total development)  x  ($50.00 per hour)  x  (50 plants) = 
$7,500.00

    We believe that most entities would choose to use electronic 
recordkeeping and reporting methods. Thus, the cost burden to 
respondents would be at the lower end of the range provided. We 
estimate the range of costs in the first year for a packer reporting 
for one plant would be $545 using electronic submission and $635 for 
manual submission. In subsequent years, we estimate the range of costs 
would be $265 using electronic submission and $505 for manual 
submission.
    The PRA also requires GIPSA to measure the recordkeeping burden 
imposed by this proposed rule. Under the P&S Act and its existing 
regulations, each packer is required to maintain and make available 
upon request such records as are necessary to verify information on all 
transactions between the packer and producers from whom the packer 
obtains swine for slaughter. Records that packers are required to 
maintain under existing regulations would meet the requirements for 
verifying the accuracy of information required to be reported under the 
proposed rule. These records include original contracts, agreements, 
receipts, schedules, and other records associated with any transaction 
related to the purchase, pricing, and delivery of swine for slaughter 
under the terms of marketing contracts. We believe that additional 
annual costs of maintaining records would be nominal since packers are 
required to store and maintain such records as a matter of normal 
business practice and in conformity with existing regulations.
    We are soliciting comments from all interested parties concerning 
the information collection and recordkeeping requirements contained in 
the proposed rule. Comments are invited to:
    (1) Evaluate whether the proposed collection of information is 
necessary and would be useful;
    (2) Evaluate the accuracy of the GIPSA estimate of the burden of 
the proposed collection of information including the validity of the 
methodology and assumptions used;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who would be required to respond (such as through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology; e.g., 
permitting electronic submission of responses).
    Please send your written comment regarding information collection 
and recordkeeping requirements to the Office of Information and 
Regulatory Affairs, OMB, Attention: Desk Officer for GIPSA, Washington, 
DC 20503. Please state that your comment refers to Swine Packer 
Marketing Contracts (PSA-2000-01-a), RIN 0580-AA71. Also, please send 
one copy of your comment regarding information collection and 
recordkeeping requirements to each of the following: (1) Deputy 
Administrator, Packers and Stockyards Programs, GIPSA, USDA, Stop 3641, 
1400 Independence Avenue, SW, Washington, DC 20250-3641; E-mail: 
[email protected]; and (2) Clearance Officer, OCIO, USDA, Room 
404-W, 1400 Independence Avenue, SW, Washington, DC 20250. A comment to 
OMB is best assured of having its full effect if OMB receives it within 
30 days of publication of this proposed rule. All comments will become 
a matter of public record.

List of Subjects in 9 CFR Part 206

    Swine, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, GIPSA proposes to amend 
9 CFR Chapter II as follows:
    1. Add Part 206 to read as follows:

PART 206--SWINE PACKER MARKETING CONTRACTS

Sec.
206.1  Definitions.
206.2  Swine packer marketing contract library.
206.3  Monthly report.

    Authority: 7 U.S.C. 198, 198a, and 198b; 7 CFR 2.22 and 2.81.


Sec. 206.1  Definitions.

    The definitions in this section apply to the regulations in this 
part. The definitions in this section do not apply to other regulations 
issued under the P&S Act or to the P&S Act as a whole.
    Accrual account.(Synonymous with ``ledger,'' as defined in this 
section.) An account held by a packer on behalf of a producer that 
accrues a running positive or negative balance as a result of a pricing 
determination included in a contract that establishes a minimum and/or 
maximum level of base price paid. Credits and/or debits for amounts 
beyond these minimum and/or maximum levels are entered into the 
account. Further, the contract specifies how the balance in the account 
affects

[[Page 53677]]

producer and packer rights and obligations under the contract.
    Base price.The price paid for swine before the application of any 
premiums or discounts, expressed in dollars per unit.
    Contract. Any agreement, whether written or verbal, between a 
packer and a producer for the purchase of swine for slaughter, except a 
negotiated purchase (as defined in this section).
    Formula price.A price determined by a mathematical formula under 
which the price established for a specified market serves as the basis 
for the formula.
    Ledger. (Synonymous with ``accrual account,'' as defined in this 
section.) An account held by a packer on behalf of a producer that 
accrues a running positive or negative balance as a result of a pricing 
determination included in a contract that establishes a minimum and/or 
maximum level of base price paid. Credits and/or debits for amounts 
beyond these minimum and/or maximum levels are entered into the 
account. Further, the contract specifies how the balance in the account 
affects producer and packer rights and obligations under the contract.
    Negotiated purchase. A purchase, commonly known as a cash or spot 
market purchase, of swine by a packer from a producer under which:
    (1) The buyer-seller interaction that results in the transaction 
and the agreement on actual base price occur on the same day; and
    (2) The swine are scheduled for delivery to the packer not later 
than 14 days after the date on which the swine are committed to the 
packer.
    Noncarcass merit premium or discount. An increase or decrease in 
the price for the purchase of swine offered by an individual packer or 
packing plant, based on any factor other than the characteristics of 
the carcass, if the actual amount of the premium or discount is known 
before the purchase and delivery of the swine.
    Other market formula purchase. A purchase of swine by a packer in 
which the pricing determination is a formula price based on any market 
other than the markets for swine, pork, or a pork product. The pricing 
determination includes, but is not limited to:
    (1) A price formula based on one or more futures or options 
contracts;
    (2) A price formula based on one or more feedstuff markets, such as 
the market for corn or soybeans; or
    (3) A base price determination using more than one market as its 
base where at least one of those markets would be defined as an ``other 
market formula purchase.''
    Other purchase arrangement. A purchase of swine by a packer that is 
not a negotiated purchase, swine or pork market formula purchase, or 
other market formula purchase, and does not involve packer-owned swine.
    Packer. Any person or firm engaged in the business of buying swine 
in commerce for purposes of slaughter, of manufacturing or preparing 
meats or meat food products from swine for sale or shipment in 
commerce, or of marketing meats or meat food products from swine in an 
unmanufactured form acting as a wholesale broker, dealer, or 
distributor in commerce. The regulations in this part would only apply 
to a packer slaughtering swine at a federally inspected swine 
processing plant that meets either of the following conditions:
    (1) A swine processing plant that slaughtered an average of at 
least 100,000 swine per year during the immediately preceding 5 
calendar years, with the average based on those periods in which the 
plant slaughtered swine; or
    (2) Any swine processing plant that did not slaughter swine during 
the immediately preceding 5 calendar years that has the capacity to 
slaughter at least 100,000 swine per year, based on plant capacity 
information.
    Producer. Any person engaged, either directly or through an 
intermediary, in the business of selling swine to a packer for 
slaughter (including the sale of swine from a packer to another 
packer).
    Swine. A porcine animal raised to be a feeder pig, raised for 
seedstock, or raised for slaughter.
    Swine or pork market formula purchase. A purchase of swine by a 
packer in which the pricing determination is a formula price based on a 
market for swine, pork, or a pork product, other than a futures 
contract or option contract for swine, pork, or a pork product.
    Type of contract. The classification of contracts or risk 
management agreements for the purchase of swine committed to a packer 
by the determination of the base price and the presence or absence of 
an accrual account or ledger (as defined in this section). The type of 
contract categories are:
    (1) Swine or pork market formula purchases with a ledger,
    (2) Swine or pork market formula purchases without a ledger,
    (3) Other market formula purchases with a ledger,
    (4) Other market formula purchases without a ledger,
    (5) Other purchase arrangements with a ledger, and
    (6) Other purchase arrangements without a ledger.


Sec. 206.2  Swine packer marketing contract library.

    (a) Do I need to provide swine packer marketing contract 
information? Packers, as defined in Sec. 206.1, must provide 
information for the swine processing plants that they operate or at 
which they have swine slaughtered that has the slaughtering capacity 
specified in the definition of packer in Sec. 206.1.
    (b) What existing or available contracts do I need to provide and 
when are they due? Each packer must send and the Grain Inspection, 
Packers and Stockyards Administration (GIPSA) must receive an example 
of each contract it currently has with a producer or producers or that 
is currently available at each plant that it operates or at which it 
has swine slaughtered that meets the definition of packer in 
Sec. 206.1. This initial submission of example contracts is due to 
GIPSA on the first business day of the month following the 
determination that the plant has the slaughtering capacity specified in 
the definition of packer in Sec. 206.1.
    (c) What offered contracts do I need to provide and when are they 
due? After the initial submission, each packer must send GIPSA an 
example of each new contract it offers to a producer or producers on 
the day the contract is offered at each plant that it operates or at 
which it has swine slaughtered that meets the definition of packer in 
Sec. 206.1.
    (d) What criteria do I use to select example contracts? For 
purposes of distinguishing among contracts to determine which contracts 
may be represented by a single example, contracts will be considered to 
be the same if they are identical with respect to all of the following 
four criteria:
    (1) Base price or determination of base price;
    (2) Application of a ledger or accrual account (including the terms 
and conditions of the ledger or accrual account provision);
    (3) Carcass merit premium and discount schedules (including the 
determination of the lean percent or other merits of the carcass that 
are used to determine the amount of the premiums and discounts and how 
those premiums and discounts are applied), and
    (4) Use and amount of noncarcass merit premiums and discounts.
    (e) Where do I send my contracts? Packers must send the example 
contracts required in paragraphs (b) and (c) of this section to the 
GIPSA Regional

[[Page 53678]]

Office at Room 317, 210 Walnut Street, Des Moines, IA 50309.
    (f) What information from the swine packer marketing contract 
library will be made available to the public? GIPSA will summarize the 
information it has received on contract terms, including, but not 
limited to, base price determination and the schedules of premiums or 
discounts. GIPSA will summarize the information by region and type of 
contract as defined in Sec. 206.1. Geographic regions will be defined 
in such a manner as to avoid divulging data on individual firms' 
operations and the parties to contracts will not be identified.
    (g) How can I review the swine packer marketing contract library? 
The information will be available on the Internet on the GIPSA homepage 
(http://www.usda.gov/gipsa/) and in the GIPSA Regional Office in Des 
Moines, Iowa at Room 317, 210 Walnut Street, Des Moines, IA 50309. The 
information will be updated as GIPSA receives information and/or 
examples of new contracts from packers.
    (h) What do I need to do when a previously submitted example 
contract is no longer a valid example due to contract changes, 
expiration, or withdrawal? Packers must submit a new example contract 
when contract changes result in changes to the criteria specified in 
paragraph (d) of this section. Packers must notify GIPSA that the new 
example contract replaces the previously submitted example contract. 
Packers must notify GIPSA on the day that one of its example contracts 
no longer represents any existing or offered contracts. This 
notification must specify the reason, for example, changes to a 
contract, expiration of an existing contract, or withdrawal of an 
offered contract.


Sec. 206.3  Monthly report.

    (a) Do I need to provide swine packer marketing contract monthly 
reports? Packers, as defined in Sec. 206.1, must provide information 
for each swine processing plant that they operate or at which they have 
swine slaughtered that has the slaughtering capacity specified in the 
definition of packer.
    (b) What information do I need to provide and when is it due? Each 
packer must send a separate monthly report for each plant that has the 
slaughtering capacity specified in the definition of packer in 
Sec. 206.1. Packers must deliver the report to the GIPSA Regional 
Office in Des Moines, Iowa by the close of business on the 15th of each 
month. The GIPSA Regional Office closes at 4:30 p.m. Central Time. If 
the 15th day of a month falls on a Saturday, Sunday, or federal 
holiday, the monthly report is due no later than the close of the next 
business day following the 15th.
    (c) How do I make a monthly report? The monthly report that packers 
file must be reported on PSP Form 341 and must provide the following 
information:
    (1) Existing contracts. The types of contracts the packer currently 
is using for the purchase of swine for slaughter at each plant. Each 
packer must report types of contracts in use even if those types are 
not currently being offered for renewal or to additional producers. 
Existing contracts will be shown on the report by providing monthly 
estimates of the number of swine committed to be delivered under the 
contracts in each category of the types of contracts as defined in 
Sec. 206.1.
    (2) Available contracts. The types of contracts the packer is 
currently offering to producers, or is making available for renewal to 
currently contracted producers, for purchase of swine for slaughter at 
each plant. On the monthly report, a packer will indicate each type of 
contract, as defined in Sec. 206.1, that the packer is currently 
offering.
    (3) Estimates of committed swine. The packer's estimate of the 
total number of swine committed under contract for delivery to each 
plant for slaughter within each of the following 12 calendar months 
beginning with the 1st of the month immediately following the due date 
of the report. The estimate of total swine committed will be reported 
by type of contract as defined in Sec. 206.1.
    (4) Expansion provisions. Any conditions or circumstances specified 
by provisions in any existing contracts that could result in expansion 
in the estimates specified in paragraph (c)(3) of this section. Each 
packer will identify the expansion provisions in the monthly report by 
listing a code for the following conditions:
    (i) Contract terms that allow for a range of the number of swine to 
be delivered;
    (ii) Contract terms that require a greater number of swine to be 
delivered as the contract continues;
    (iii) Other provisions that provide for expansion in the numbers of 
swine to be delivered.
    (5) Maximum estimates of swine. The packer's estimate of the 
maximum total number of swine that potentially could be delivered to 
each plant within each of the following 12 calendar months, if any or 
all the types of expansion provisions identified in accordance with the 
requirement in paragraph (c)(4) of this section are executed. The 
estimate of maximum potential deliveries must be reported by type of 
contract as defined in Sec. 206.1.
    (d) What if a type of contract does not specify the number of head 
committed? To meet the requirements of paragraphs (c)(3) and (c)(5) of 
this section, the packer must estimate expected and potential 
deliveries based on the best information available to the packer. Such 
information might include, for example, the producer's current and 
projected swine inventories and planned production.
    (e) When do I change previously reported estimates? Regardless of 
any estimates for a given future month that may have been previously 
reported, current estimates of deliveries reported as required by 
paragraphs (c)(3) and (c)(5) of this section must be based on the most 
accurate information available at the time each report is prepared. 
Packers must update or change any previously reported estimates for any 
month(s) included on the current report to reflect accurate information 
on producers' plans, initiation of new contracts, or any other 
circumstances that cause changes in expected future deliveries.
    (f) Where and how do I send my monthly contract information? 
Packers may submit their monthly reports by either of the following two 
methods:
    (1) Electronic report. Information reported under this section may 
be reported by electronic means, to the maximum extent practicable. 
Electronic submission may be e-mail or by any other form of electronic 
transmission that has been determined to be acceptable to the 
Administrator. To obtain current options for acceptable methods to 
submit information electronically, contact GIPSA through the Internet 
on the GIPSA homepage (http://www.usda.gov/gipsa/) or at the GIPSA 
Regional Office at Room 317, 210 Walnut Street, Des Moines, IA 50309.
    (2) Printed report. Packers may deliver their printed monthly 
report to the GIPSA Regional Office at Room 317, 210 Walnut Street, Des 
Moines, IA 50309.
    (g) What information from monthly reports will be made available to 
the public and when and how will the information be made available to 
the public?
    (1) Availability. GIPSA will provide a monthly report of contract 
types and estimated deliveries as reported by packers in accordance 
with this section, for public release on the 1st business day of each 
month. The monthly reports will be available on the Internet on the 
GIPSA homepage (http://www.usda.gov/gipsa/) and in the GIPSA Regional 
Office at Room 317, 210 Walnut Street, Des Moines, IA 50309 during 
normal business hours of 7:00

[[Page 53679]]

a.m. to 4:30 p.m. Central Time, Monday through Friday.
    (2) Regions. Information in the report will be aggregated and 
reported by geographic regions. Geographic regions will be defined in 
such a manner as to avoid divulging data on individual firms' 
operations and may be modified from time to time.
    (3) Reported information. The monthly report will provide the 
following information:
    (i) The types of existing contracts for each geographic region.
    (ii) The types of contracts currently being offered to additional 
producers or available for renewal to currently contracted producers in 
each geographic region.
    (iii) The sum of packers' reported estimates of total number of 
swine committed by contract for delivery during the next 6 and 12 
months beginning with the month the report is published. The report 
will indicate the number of swine committed by geographic reporting 
region and by type of contract.
    (iv) The types of conditions or circumstances as reported by 
packers that could result in expansion in the numbers of swine to be 
delivered under the terms of expansion provisions in the contracts at 
any time during the ensuing 12 calendar months.
    (v) The sum of packers' reported estimates of the maximum total 
number of swine that potentially could be delivered during each of the 
next 6 and 12 months if all expansion provisions in current contracts 
are executed. The report will indicate the sum of estimated maximum 
potential deliveries by geographic reporting region and by type of 
contract.

    Dated: August 28, 2000.
JoAnn Waterfield,
Acting Administrator Grain Inspection, Packers and Stockyards 
Administration.
[FR Doc. 00-22393 Filed 9-1-00; 8:45 am]
BILLING CODE 3410-EN-P