[Federal Register Volume 72, Number 156 (Tuesday, August 14, 2007)]
[Notices]
[Pages 45415-45416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-15814]


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DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration


Guideline Change Involving Volume Discounts in Tariffs

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

ACTION: Notice.

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SUMMARY: We are announcing a change in policy to accept non-tiered 
volume-based rate discounts in tariffs.

DATES: Effective Date: August 14, 2007.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Director, Policy and 
Litigation Division, Packers and Stockyards Program, Grain Inspection, 
Packers and Stockyards Administration, 1400 Independence Ave., SW., 
Washington, DC 20250, (202) 720-7363, [email protected].

SUPPLEMENTARY INFORMATION: 

Background

    The Grain Inspection, Packers and Stockyards Administration (GIPSA) 
enforces the Packers and Stockyards Act, 1921 (7 U.S.C. 181-229) (P&S 
Act). Under the P&S Act, market agencies selling on commission (market 
agencies) at stockyards posted by GIPSA as public livestock sales 
facilities operating in interstate commerce (posted stockyards) must 
file a tariff with GIPSA. These tariffs list the rates charged for 
stockyard services the market agency provides, including selling 
commissions (7 U.S.C. 207(a)). The use of discriminatory rates in 
tariffs is prohibited (7 U.S.C. 206). Neither the Packers and 
Stockyards Act, nor regulations promulgated thereunder, describe 
specifically what constitutes a discriminatory rate. Since 1978, GIPSA 
has investigated the reasonableness of rates only in response to 
specific complaints or other compelling circumstances. This general 
policy with regards to GIPSA investigation of rates is published at 9 
CFR 203.17.

Current Policy

    Currently, GIPSA policy permits volume-based rate discounts in 
tariffs, but the policy historically has considered non-tiered volume 
discounts to be discriminatory and therefore prohibited. Tiered 
discounts involve commission rate structures with lower selling 
commission rates per head above a specified number of head threshold, 
or lower selling commissions above a certain dollar threshold of gross 
proceeds. For example, in a tiered volume-based discount rate system, 
the commission would be the standard rate for the first 10 cows, then a 
discounted rate for the next ten, or it might be the standard rate for 
the first $10,000 in gross proceeds, then a discounted rate for the 
next $10,000 in gross proceeds. GIPSA currently requires that the 
discounted rate be applied only to that portion of a consignment above 
the specified number of head or dollar threshold, although GIPSA 
doesn't set what the threshold must be. The current policy is that 
those animals in the same consignment group below the specified number 
or dollar threshold must be assessed the non-discounted rate. Allowing 
the application of non-tiered volume-based discounted rates to all the 
animals consigned in large consignments could in some circumstances 
result in large volume consignors paying less in total selling 
commissions than small volume consignors. For example, a standard 
commission rate of $10 per cow for 10 cows and a non-tiered discounted 
rate of $9 per cow for larger sales could result in the seller of 11 
cows paying less in commission ($99) than the seller of 10 cows ($100). 
Historically, GIPSA believed this practice to be discriminatory. The 
prohibition on non-tiered application of volume-based rate discounts 
prevented a reduction in the total amount of commissions paid as the 
number of animals consigned increased.

New Policy

    Representatives from livestock industry groups including the 
Livestock Marketing Association requested that GIPSA examine its 
prohibition of non-tiered commission discounts. Allowing the non-tiered 
commission discounts to all animals consigned in large groups affords 
qualifying consignors significant reductions in selling cost on a per 
head basis. Livestock industry stakeholders have presented a number of 
reasons why allowing non-tiered volume discounting of commissions would 
benefit the industry as a whole. Primarily, the argument presented by 
industry groups in favor of the new policy is that non-tiered discounts 
are fair because they more accurately reflect the market agencies' 
actual cost of the transaction. Most of the cost accrued by the market 
agency is per transaction, not per animal. Also, the industry groups 
argue that stockyards now face competition from markets that did not 
exist in 1921, such as satellite video and internet auctions, which are 
not required to file tariffs with GIPSA. Livestock industry groups 
believe that prohibiting non-tiered volume discounts discriminates 
against market agencies at posted stockyards.
    Stakeholders have told us that small volume consignors are not 
harmed when consignors of larger groups of animals receive volume-based 
discounts even if the discount is applied in a non-tiered manner 
because the same volume-based discounts are available to small volume 
consignors whenever they have the opportunity to consign in larger 
volumes. An examination of tiered tariffs conducted by the GIPSA 
Midwest regional office found that in some cases, the threshold for 
obtaining the volume discount was as small as five (5) head or $3000. 
Market agencies stated that the effort and cost to sell a large group 
of animals as a unit is comparable to that for small consignments, 
which is why they are willing to offer a discount on a per-animal basis 
for volume consigners. Market agencies also stated that large

[[Page 45416]]

groups of livestock of uniform quality and size help attract large 
volume buyers to sales at posted stockyards. They posit that this 
increases the level of competition among all buyers benefiting both 
small and large consignors. Finally, market agencies operating at 
posted stockyards argue they are under increasing pressure to compete 
with market agencies selling videotaped herds of cattle by satellite 
telecast or over the Internet. Video and Internet cattle sales tend to 
attract and draw consignments of large groups of cattle away from 
posted stockyards. Market agencies at posted stockyards feel the non-
tiered volume-base rate discounts will help them compete more 
effectively for large consignment business.
    GIPSA has examined its policy on non-tiered volume-based commission 
rate discounting and the arguments presented by livestock industry 
groups and market agencies. GIPSA has determined that it will change 
its policy to allow the use of non-tiered volume-based commission rate 
discounting methods in tariffs submitted for approval. GIPSA policy 
will not attempt to differentiate between levels of discounting but 
will rely on competition among markets and marketing systems to set 
rate levels that are fair to market agencies and livestock producers. 
However, GIPSA still will consider non-tiered volume-based rate 
discounts to be discriminatory if a market agency does not provide the 
same discount to all qualifying consignors.

Rate Regulation Investigations and Compliance

    GIPSA will continue to investigate the validity of complaints 
alleging discriminatory rates for stockyard services (9 CFR 203.17(c)). 
Under the P&S Act (7 U.S.C. 207(e)), GIPSA can suspend the use of new 
rates believed to be unlawful. With or without complaints received, 
GIPSA may conduct an investigation and provide an opportunity for a 
hearing on a rate tariff set for stockyard services and if a rate is 
deemed in violation of the P&S Act (7 U.S.C. 205, 206, 207), GIPSA can 
establish a different rate and order the market agency to cease using 
the rate (7 U.S.C. 211).

Effective Date

    This notice becomes final upon publication in the Federal Register.

    Authority: 7 U.S.C. 203, 205, 206, 207, 211, 228.

James E. Link,
Administrator, Grain Inspection, Packers and Stockyards Administration.
 [FR Doc. E7-15814 Filed 8-13-07; 8:45 am]
BILLING CODE 3410-KD-P