[Federal Register Volume 74, Number 231 (Thursday, December 3, 2009)]
[Rules and Regulations]
[Pages 63271-63277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-28947]



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  Federal Register / Vol. 74, No. 231 / Thursday, December 3, 2009 / 
Rules and Regulations  

[[Page 63271]]



DEPARTMENT OF AGRICULTURE

Grain Inspection, Packers and Stockyards Administration

9 CFR Part 201

RIN 0580-AA98


Poultry Contracts; Initiation, Performance, and Termination

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Agriculture's Grain Inspection, Packers and 
Stockyards Administration (GIPSA) is amending the regulations issued 
under the Packers and Stockyards P&S Act, 1921, as amended, (7 U.S.C. 
181 et seq.) (P&S Act) regarding the records that live poultry dealers 
must furnish poultry growers, including requirements for the timing and 
contents of poultry growing arrangements.
    The amendments to the regulations will require that live poultry 
dealers timely deliver a copy of an offered poultry growing arrangement 
to growers; include information about any Performance Improvement Plans 
(PIP) in poultry growing arrangements; include provisions for written 
termination notices in poultry growing arrangements; and 
notwithstanding a confidentiality provision, allow growers to discuss 
the terms of poultry growing arrangements with designated individuals.

DATES: Effective Date: January 4, 2010.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Director, Policy and 
Litigation Division, P&SP, GIPSA, 1400 Independence Ave., SW., 
Washington, DC 20250, (202) 720-7363, [email protected].

SUPPLEMENTARY INFORMATION: As the Grain Inspection, Packers and 
Stockyards Administration (GIPSA), one of our functions is the 
enforcement of the Packers and Stockyards Act of 1921, as amended. 
Under authority granted to us by the Secretary of Agriculture 
(Secretary), we are authorized (7 U.S.C. 228) to make those regulations 
necessary to carry out the provisions of the P&S Act. Section 201.100 
of the regulations (9 CFR 201.100) specifies the terms of the poultry 
growing arrangement that must be disclosed to poultry growers by 
poultry companies.
    We believe that the failure to disclose certain terms in a poultry 
growing arrangement constitutes an unfair, discriminatory, or deceptive 
practice in violation of section 202 (7 U.S.C. 192) of the P&S Act.
    It is common knowledge in the industry that because of vertical 
integration and high concentration, live poultry dealers normally 
present poultry growers with poultry growing arrangements on a ``take 
it or leave it'' basis. The poultry growers do not realistically have 
the option of negotiating more favorable poultry growing arrangement 
terms with another live poultry dealer because there may be no other 
live poultry dealers in the poultry grower's immediate geographic area 
or there may be significant differences in equipment requirements among 
live poultry dealers. There is considerable asymmetry of information 
and an imbalance in market power. Growers sometimes do not know or 
understand the full content of their own poultry growing arrangement 
with the poultry companies and are constrained by confidentiality 
clauses from discussing their poultry growing arrangement with business 
advisers. This final rule ensures that all poultry growers are fully 
informed and can make sound business decisions prior to entering into a 
poultry growing arrangement with a live poultry dealer. In addition, 
growers often have much of their net worth invested in poultry houses, 
which have limited value for purposes other than raising and caring for 
poultry. At the same time, live poultry dealers may have a staff of 
accountants, economists, attorneys and other business advisors whose 
job is to perform market research and advise the live poultry dealers' 
management on how poultry growing arrangements with poultry growers 
should be structured to protect the live poultry dealers' financial 
interests. Growers who have invested heavily in poultry houses may face 
the choice of signing a poultry growing arrangements in which 
disclosure of terms is incomplete and/or not provided in a timely 
fashion or facing financial difficulties, including possibly exiting 
the poultry growing business or going bankrupt. In some cases, live 
poultry dealers already provide complete information in a timely 
fashion. This final rule, however, will level the playing field by 
requiring that all live poultry dealers adopt fair and transparent 
practices when dealing with poultry growers.
    The failure of a live poultry dealer to deliver a written poultry 
growing arrangement in a timely manner is considered by GIPSA to be an 
unfair and deceptive practice because growers could not otherwise know 
what the poultry growing arrangement terms will be or whether the terms 
accurately reflect the agreement reached between the parties. This 
practice could also be considered discriminatory if some growers 
receive written poultry growing arrangements in a timely fashion and 
others do not. A live poultry dealer's failure to include written 
notice of termination procedures in the poultry growing arrangement and 
failure to provide a written notice of termination is also considered 
unfair, discriminatory and deceptive for the same reasons.
    A live poultry dealer's failure to include information about 
Performance Improvement Plans (PIPs) is similarly unfair and 
discriminatory if some growers receive this information and others do 
not, and deceptive if growers are unaware that such a program exists 
until they fail to meet a minimum performance threshold that was not 
specified in their poultry growing arrangement.
    GIPSA considers prohibiting growers from discussing poultry growing 
arrangement terms with business advisers unfair because growers are not 
typically attorneys or accountants. Depriving growers of professional 
advice before they commit to a poultry growing arrangement, 
particularly when the live poultry dealers have access to such advice 
in drafting their poultry growing arrangements, is considered unfair as 
well.

Current Poultry Contracting Practices

    The market for poultry is vertically integrated and highly 
concentrated. For example, USDA-GIPSA reported in

[[Page 63272]]

2005 that the top four poultry slaughterers represented 53 percent of 
the total market share based on volume of production.\1\ A majority of 
the nation's 20,637 poultry growers essentially receive poultry growing 
arrangements on a ``take it or leave it'' basis from a small number of 
live poultry dealers.\2\ While this concentration of live poultry 
dealers represents certain economies of scale, it also represents a 
potential for asymmetrical information and a lack of transparency that 
can lead to market inefficiencies.
---------------------------------------------------------------------------

    \1\ ``Assessment of the Livestock and Poultry Industries, FY 
2006 Report'' http://archive.gipsa.usda.gov/pubs/06assessment.pdf.
    \2\ Data compiled from live poultry dealer annual reports filed 
with GIPSA.
---------------------------------------------------------------------------

    Live poultry dealers accept much of the short term financial risk. 
Poultry growers take the longer term financial risk by investing in the 
poultry houses and equipment. Live poultry dealers often use a 
tournament or bonus compensation system in which poultry growers 
compete with each other over a given period of time. Growers, who in 
the opinion of the live poultry dealer consistently underperform, may 
be placed on a PIP, have their current poultry growing arrangement 
terminated, or not be offered a new poultry growing arrangement or have 
their existing poultry growing arrangement extended.
    The current contracting process may involve verbal agreements that 
are made prior to delivery of a written poultry growing arrangement. 
The process by which new poultry growers are recruited can be informal 
word-of-mouth, although some poultry companies solicit new growers via 
their Web site. Prospective poultry growers must have a line of credit 
sufficient to finance the construction of poultry houses in order to be 
a successful applicant. A live poultry dealer typically inspects a 
prospective grower's property to verify that the grower has sufficient 
space and suitable soil conditions on which to place the houses, has 
right of way capable of supporting truck traffic, and has means to 
dispose of dead birds and bird waste. The discussion between a live 
poultry dealer and prospective poultry growers to verify these 
conditions often involves verbal commitments, and therefore growers may 
not have a comprehensive grasp of all their rights and obligations. 
Likewise, growers with existing poultry growing arrangements may make 
similar verbal commitments for poultry house improvements to the live 
poultry dealer. Currently, a poultry grower may receive specifications 
for the poultry houses from a live poultry dealer and use those 
specifications to obtain a construction loan from a lender prior to 
receiving a written poultry growing arrangement from the poultry 
company. While most new growers typically receive written poultry 
growing arrangements at about the same time they receive the 
specifications for the poultry houses, some live poultry dealers do not 
provide growers with written poultry growing arrangements until after 
construction of the poultry houses has already started.
    The regulations issued under the P&S Act currently protect poultry 
growers by requiring that the poultry growing arrangement include, for 
example, the per unit charges for feed and other inputs furnished by 
each party, the duration of the poultry growing arrangement and 
conditions for its termination, and the factors to be used when 
grouping or ranking poultry growers.
    The requirements contained in this final rule are intended to help 
both poultry growers and live poultry dealers by providing the growers 
with more information about the poultry growing arrangement at an 
earlier stage. This final rule will ``level the playing field'' by 
requiring live poultry dealers to include these provisions in all 
poultry growing arrangements. Growers will have more information upon 
which to decide whether to accept the terms of the poultry growing 
arrangement. Growers will benefit from a freer flow of information and 
better pricing efficiencies because they are able to discuss the terms 
of their poultry growing arrangement with business and financial 
professionals before committing to building or upgrading poultry 
houses. With these requirements, poultry growers will be informed of 
the criteria used to place them on a PIP. Live poultry dealers will 
benefit from having growers who better understand the obligations of 
their poultry growing arrangement and benefit further by having more 
specific contract language to resolve performance issues and the 
termination of their poultry growing arrangements.

Notice of Proposed Rulemaking

    GIPSA published a Notice of Proposed Rulemaking in the Federal 
Register on August 1, 2007, (72 FR 41952) seeking comments on amending 
the regulations issued under the P&S Act to require that poultry 
companies timely deliver a copy of an offered poultry growing 
arrangement to growers; to include information about any PIPs in 
poultry growing arrangements; to include provisions for written 
termination notices in poultry growing arrangements; and 
notwithstanding a confidentiality provision, allow growers to discuss 
the terms of poultry growing arrangements with designated individuals. 
The comment period ended on October 30, 2007, and we received 449 
comments on the proposed rule. Based on these comments, GIPSA will 
modify three of the four amendments proposed.

Discussion of Comments

    We received 237 postcards containing identical comments from 
poultry growers. While all of these commenters supported adoption of 
the four amendments in the proposed rule, six commenters added wording 
of their own in the margins of the postcards. Three of the six written 
comments referenced housing specification requirements and two 
commenters suggested that we extend the duration of poultry growing 
arrangements for longer periods than typically stated in existing 
poultry growing arrangements. Because these issues are not raised in 
the four amendments in our proposal, we are making no change to the 
final rule based on these five comments.
    We received 92 letters containing identically worded comments from 
individuals identifying themselves as ``taxpayer(s).'' All comments 
were in support of the proposed rule, and made no suggestions for 
modifying the proposal.
    We received 82 identical comments advocating:
     Expanding the phrase ``business advisor'' as used in the 
proposed rule, to include appraisers, realtors or other growers for the 
same company,
     Adding a provision prohibiting live poultry dealers from 
adding riders to poultry growing arrangements or otherwise changing the 
terms of poultry growing arrangements after the grower ``sees the first 
[poultry growing arrangement],''
     Prohibiting the placing of growers on PIPs for factors 
beyond their control,
     Requiring poultry growing arrangements to include 
information regarding the financial consequences of placement on PIPs, 
and
     Requiring that live poultry dealers give poultry growers 
at least 180 days written notice of termination.
    We received 38 additional comments from individuals and trade 
associations which varied in their response to our proposed amendments. 
These 120 additional comments are discussed below.
    As stated above, commenters advocated expanding the phrase 
``business advisor'' as used in proposed

[[Page 63273]]

Sec.  201.100(b) to include appraisers, realtors, or other growers for 
the same live poultry dealer. We are not in favor of adding appraisers 
and realtors to the list of those with whom growers may discuss their 
poultry growing arrangements. We believe that appraisers and realtors 
should not look to a current grower's poultry growing arrangement for 
guidance on property values.
    We see no benefit for a live poultry dealer to forbid its growers 
from discussing the terms of their poultry growing arrangements with 
each other. To do so would impede the growers' ability to determine 
whether they have been treated unfairly or discriminated against in 
violation of the P&S Act. We will therefore include poultry growers who 
have entered into poultry growing arrangements with the same live 
poultry dealer in the final rule based on the comment received.
    One commenter suggested that we add family members, banks and 
anyone on a need-to-know basis to the list of ``business advisors'' in 
proposed Sec.  201.100(b). Another suggested that we allow growers to 
discuss their contracts with attorneys and farmer organizations. 
Section 10503 of the Farm Security and Investment Act of 2002 (7 U.S.C. 
229b) clearly sets forth that a party to the poultry growing 
arrangement shall not be prohibited from discussing any terms or 
details of the poultry growing arrangement with: (1) A Federal or State 
agency; (2) a legal advisor to the party; (3) a lender to the party; 
(4) an accountant hired by the party; (5) an executive or manager of 
the party; (6) a landlord of the party; or (7) a member of the 
immediate family of the party. We believe that, with the exception of 
farmer organizations and poultry growers who have entered into poultry 
growing arrangements with the same live poultry dealer, the groups 
enumerated in the proposed regulation encompass those named by the 
commenters. While we are not including farmer organizations in the 
final rule, we are adding poultry growers who have entered into poultry 
growing arrangements with the same live poultry dealer. The remaining 
individuals and groups named in the regulation reflect those named in 
the statute. We consider ``Immediate family'' to means an individual's 
father, mother, stepfather, stepmother, brother, sister, stepbrother, 
stepsister, son, daughter, stepson, stepdaughter, grandparent, 
grandson, granddaughter, father-in-law, mother-in-law, brother-in-law, 
sister-in-law, son-in-law, daughter-in-law, the spouse of the 
foregoing, and the individual's spouse in accordance with the 
definition under the Federal crop insurance program, administered by 
USDA's Farm Service Agency.
    Commenters suggested that we add a provision to proposed Sec.  
201.100(a) to prohibit live poultry dealers from adding riders to 
poultry growing arrangements or otherwise changing the terms of poultry 
growing arrangements after the grower ``sees the first one.'' We 
believe that the switching of poultry growing arrangements after the 
grower ``sees the first one'' is not a common problem in the poultry 
industry. The final rule, however, will require that live poultry 
dealers give growers a ``true written copy'' of the offered poultry 
growing arrangement. Some poultry growing arrangements are flock-to-
flock agreements. A true written copy of a poultry growing arrangement 
must cover the production of at least one flock. If a live poultry 
dealer makes changes to the original poultry growing arrangement, or 
substitutes a new poultry growing arrangement for the ``true written 
copy'' that was provided at the same time as the house specifications, 
but prior to picking up a new grower's first flock, there is a basis 
for questioning whether the original poultry growing arrangement is the 
``true written copy'' of the parties' agreement. Based on the above 
analysis of these comments, we believe that no change to the final rule 
is necessary.
    A comment received from a poultry grower organization requested 
that we require a live poultry dealer to disclose fully the existence 
(or the lack thereof) of the company's PIP program in its poultry 
growing arrangements. A comment filed by another suggested that all 
original poultry growing arrangements disclose fully a live poultry 
dealer's PIP information. The commenter stated that a live poultry 
dealer should not be able to add riders containing PIP clauses to 
existing poultry growing arrangements. We have reviewed our proposal 
and agree with the comments. We will therefore modify Sec.  201.100(c) 
in the final rule to require that a live poultry dealer specifically 
disclose in all future poultry growing arrangements whether it has a 
PIP program in existence and the guidelines for the program.
    Commenters advocated prohibiting live poultry dealers from placing 
growers on PIPs for factors beyond their control. We acknowledge that 
all growers run the risk of having a flock perform poorly for reasons 
they may not control. We have found that placement on a PIP, however, 
generally does not occur unless a grower performs poorly over an 
extended period of time. If a poultry grower believes a live poultry 
dealer systematically has manipulated inputs to the grower's 
disadvantage, GIPSA can investigate the grower's complaint. However, 
prohibiting live poultry dealers from placing growers on PIPs because 
of factors beyond the control of growers is vague and could result in 
both growers and live poultry dealers being uncertain of when PIPs are 
justified, and are so subjective that GIPSA might be asked to 
investigate every PIP placement made. Moreover, it is impractical for 
us to attempt to list every possible factor not under the control of 
growers that could negatively affect performance. We are therefore 
making no change to Sec.  201.100(c) in the final rule based on these 
comments.
    Comments received recommended that we require that live poultry 
dealers state in their poultry growing arrangements the financial 
impact poultry growers would face if placed on a PIP. We have found 
that live poultry dealers often place smaller flocks on the farms of 
poultry growers on PIPs. This may allow these growers to manage a flock 
more easily and efficiently. Poultry growers on PIPs may experience 
other adjustments to normal practices intended to help them prepare 
fully for raising and caring for poultry. These changes, while helping 
to improve performance, may reduce payouts to PIP growers. We believe 
that poultry growers need to know what changes to normal practices will 
occur when placed on a PIP so they may better judge how placement on a 
PIP will affect them.
    One association commented that advanced notice of termination would 
be especially problematic and impractical to implement for growers on 
PIPs. In most cases, they said, the decision to terminate a grower 
could not be made until the last flock had been picked up, processed 
and the results analyzed. This rule would allow the live poultry dealer 
to follow through on the PIP, including picking up and processing the 
flock before making a decision regarding whether the grower met the 
conditions of the PIP. If the grower did not meet the conditions of the 
PIP, the live poultry dealer would then provide notice of termination. 
The notification that the grower did not meet the PIP and the 
termination notice would be sent at the same time. Allowing a live 
poultry dealer to provide written termination notices to a grower on a 
PIP after picking up the last flock would not allow the PIP grower 
sufficient time to establish business relationships with other live 
poultry dealers. GIPSA believes poultry growers on PIPs should receive 
advance written notice of termination in the same

[[Page 63274]]

manner prescribed for poultry growers not on PIPs. Therefore, GIPSA 
will make no change to the final rule based on the above comment.
    Commenters requested that we modify our proposal to require that 
poultry growers receive written notice of termination at least 180 days 
in advance of the date the termination would be effective. The majority 
of the comments submitted recommended that poultry growers receive a 
minimum of 180 days written termination notice. Another commenter wrote 
that he/she typically receives only 10 days notice of termination, but 
the commenter did not specifically suggest what the minimum number of 
days should be. The minimum number of days of advance written notice of 
termination recommended by other commenters ranged from 30 days to 2 
years. Lastly, one commenter recommended that we prohibit the 
termination of poultry growing arrangements for growers with federally 
guaranteed loans.
    Most poultry growing arrangements contain clauses that state that 
the live poultry dealer will provide written notice of termination to 
growers. We have found in most cases that these clauses provide a 
minimum number of days advance notice of termination that a grower will 
receive under the poultry growing arrangement. The minimum number of 
days varies from 3 to 30 days prior to picking up the final flock, or 
prior to the anticipated delivery date for the next flock.
    The majority of comments to the notice of proposed rulemaking 
indicate 30 days advance notice of termination is insufficient to allow 
poultry grower's time to make other business arrangements. The majority 
of the commenters recommended that we change the time period for 
requiring advance written notice of termination from 30 days to 180 
days. On review, we agree that 30 days is not sufficient enough time to 
provide an opportunity for a live poultry dealer or grower to make 
business adjustments. However, we believe that 180 days is too long and 
may be a burden on the party that intends to terminate the agreement. 
In reviewing the concerns raised by the comments that advocated the 180 
day period, we believe that 90 days advance written notice of 
termination should be adequate in order to give the affected parties 
time to make adjustments in their business operations. This is 
especially important given the long-term financial risks that an 
affected party may face. This change will provide the grower with more 
time to work with the live poultry dealer to improve his/her 
performance, obtain legal and/or financial advice or guidance, obtain a 
new contract with a new live poultry dealer, and/or sell his/her 
poultry growing business. We are therefore changing Sec.  201.100(h) in 
the final rule based on the comments discussed above to require that 
written termination notices be provided by one party to the other at 
least 90 days prior to the effective date of termination of the poultry 
growing arrangement.
    Many commenters suggested that we expand the requirements for 
written termination notices to include situations in which a live 
poultry dealer discontinues an existing poultry growing arrangement, or 
elects not to renew or replace an expiring poultry growing arrangement. 
The commenters said that the requirement for written termination 
notices should encompass all situations where one party ends the 
poultry growing relationship. In our reviews of agreements, we have 
found that poultry growing arrangements have a set duration, such as 1-
year or flock-to-flock. We believe that our proposed amendment works 
well in situations where one party chooses to end the poultry growing 
arrangement before the termination date noted in the arrangement. A 
live poultry dealer could also end its relationship with a grower by 
simply allowing a poultry growing arrangement to expire without renewal 
or offer of replacement. A live poultry dealer may also discontinue the 
use of an established poultry growing arrangement and offer a different 
agreement in its place--one that the poultry grower may or may not 
accept. Requiring written notice of termination in all situations where 
one party elects to end the poultry growing relationship would ensure 
that a grower is informed when termination is imminent no matter what 
manner or reason is used for termination. Under these circumstances, we 
will modify Sec.  201.100(h) in the final rule to require written 
notice of termination in instances of a poultry growing arrangement's 
termination, expiration, non-renewal and non-replacement.
    Many commenters recommended that we remove language referencing 
``pen and paper'' in proposed Sec.  201.100(h). The commenters believe 
that the reference to ``pen and paper'' is confusing and that the term 
``written'' is sufficient. We agree with the commenters that the phrase 
could be confusing and will modify the amendment in the final rule to 
delete the phrase ``pen and paper.''
    Commenters also urged GIPSA to require that the delivery of written 
termination notices be made by certified mail, return receipt 
requested. The commenters argued that e-mail terminations were not 
acceptable because verifying that an e-mail was sent and received is 
difficult.
    Our proposal requires that live poultry dealers ``provide'' poultry 
growers with written termination and does not favor one mode of 
delivery over another. We believe that any mode of delivery, whether it 
is by regular mail, certified mail, registered mail, overnight mail, e-
mail, facsimile, or personal service is acceptable as long as notice is 
``provided.'' Proof that written notice was ``provided'' is the 
responsibility of the live poultry dealer. GIPSA's past poultry 
investigations reveal that most live poultry dealers send written 
termination notices by verified delivery means. We believe that live 
poultry dealers should not be restricted to a specific mode of delivery 
of a notice of termination. Therefore, we are making no change to the 
final rule based on the above comments.
    One comment suggested that growers should receive less than 30 days 
written advance notice of termination. That commenter was concerned 
that once a live poultry dealer gave notice of the termination of a 
poultry growing arrangement for cause, the grower would neglect the 
flocks in its possession. Poultry growing arrangements contain clauses 
allowing live poultry dealers to enter upon the property of poultry 
growers in order to raise and care for flocks that the live poultry 
dealer believes may not be receiving adequate care. Once written 
termination notice is provided to the poultry grower, if the live 
poultry dealer believes the poultry grower is not providing sufficient 
care, the live poultry dealer can exercise its right to raise and care 
for the flock. We will therefore not modify Sec.  201.100(h) in the 
final rule to permit a shorter period for advance notice of termination 
as suggested.
    According to one commenter, growers should have 14 days to accept 
or reject a new or the renewal of an existing poultry growing 
arrangement. We believe that a 14-day rejection period is unnecessary 
provided that the grower receives a true written copy of the offered 
poultry growing arrangement from the live poultry dealer at the time 
that the grower receives the poultry house specifications for the 
offered poultry growing arrangement. This should give the grower 
sufficient time to read the poultry growing arrangement, consult with 
advisors, and decide whether to sign the poultry growing arrangement 
before committing to loans. Therefore, we are making no change to the 
final rule based on the comment.

[[Page 63275]]

    The commenter agreed with the proposed rule for timely delivery of 
poultry growing arrangements to growers presented in the August 1, 2007 
notice. The commenter, however, suggested in this same section that we 
also require that subsequent changes to poultry growing arrangements, 
whether in oral or written form, be incorporated into a new true 
written complete copy and presented as a new offer of a poultry growing 
arrangement, not as a unilateral change to the existing poultry growing 
arrangement. Because this suggestion is outside the scope of our 
proposal for the timely delivery of poultry growing arrangements to 
growers, we are making no change to the final rule based on the 
comment.
    One commenter recommended that we require that live poultry dealers 
provide growers with a letter of intent or written approval of a grower 
in addition to the poultry growing arrangement. Another commenter 
recommended that we also require delivery of letters of intent or 
written grower approvals at the same time the live poultry dealer 
provides the poultry house specifications. While a letter of intent is 
a written record of a live poultry dealer's intention to sign or enter 
into a poultry growing arrangement with a grower, we believe that the 
poultry growing arrangement would contain the substantive information 
that a grower would need in order to decide if he/she will grow poultry 
for a live poultry dealer. Also, linking the delivery of poultry 
growing arrangements with receiving a letter of intent would not 
necessarily guarantee that the prospective grower would receive his/her 
poultry growing arrangement before committing to a construction loan 
for poultry houses. We believe that the delivery of a poultry growing 
arrangement should instead be linked to the receipt of the poultry 
house specifications so that a grower is assured of his/her contractual 
relationship with the live poultry dealer prior to financing a 
construction loan. We are therefore making no changes to Sec.  
201.100(c) in the final rule based on these comments.
    One comment argued that it is not necessary to require that live 
poultry dealers deliver poultry growing arrangements at the time 
written house specifications are delivered. The commenter said that 
provisions for delivery are normally addressed in poultry growing 
arrangements between live poultry dealers and growers. Since we have 
received numerous complaints regarding the slow delivery of poultry 
growing arrangements, we continue to believe that our proposed 
amendment regarding the timing of the delivery of poultry growing 
arrangements is needed. We are therefore making no change to the final 
rule based on that comment.
    One organization said that we should require that live poultry 
dealers give growers information about the feed and medications 
supplied to them. They also wanted growers on PIPs to have the right to 
reject flocks. One individual argued that live poultry dealers should 
be required to let growers see the hatchery and mortality records of 
other growers in their settlement groups so they could judge the 
fairness of the performance rankings. We are not requiring that live 
poultry dealers provide information on feed, medications, hatchery 
origins or mortality rates of poultry growers by other growers. If a 
poultry grower believes a live poultry dealer has systematically 
manipulated inputs to the grower's disadvantage, the grower may choose 
to report their complaint to GIPSA for investigation. Furthermore, 
these issues go beyond the scope of the subject matter of the proposed 
rule. We are therefore making no change to the final rule based on this 
comment.
    Finally, the amendments in the proposed rule for ``Written 
Termination Notice; furnishing, contents'' listed three items that 
termination notices must contain. In addition, the phrase, ``In the 
case of termination * * *.'' was inadvertently included in the proposed 
regulatory text and will be removed from Sec.  201.100(h) in the final 
rule. The authority citation in the proposed rule has also been revised 
in the final rule to reference the entire P&S Act (7 U.S.C. 181-229c) 
as the authorizing statute. The authority citation has been further 
revised in the final rule to delete references to 7 CFR 2.22 and 2.81, 
which refer to the delegation of authority of the Secretary of 
Agriculture to administer the P&S Act to the Under Secretary for 
Marketing and Regulatory Programs, and to further delegate that 
authority to the Administrator of GIPSA, respectively. For clarity and 
consistency with the statutory definition of a poultry growing 
arrangement, we are also replacing the term ``contract'' with the term 
``poultry growing arrangement'' everywhere the word ``contract'' 
appears throughout the final rule. In addition, proposed new paragraph 
(h) has been revised in the final rule into (h), (h)(1), (h)(1)(i), 
(h)(1)(ii), (h)(1)(iii), and (h)(2) in order to make the regulatory 
text clearer.

Executive Order 12866 and Regulatory Flexibility Act

    This final 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.
    We have prepared an economic analysis for this final rule. The 
economic analysis provides a cost-benefit analysis, as required by 
Executive Order 12866. The provision in this final rule addresses the 
records that live poultry dealers must furnish poultry growers, 
including the requirements for the timing and contents of poultry 
growing arrangements. Vertical integration and high concentration in 
the poultry industry cause considerable asymmetry of information, lack 
of transparency, and an imbalance in market power.
    The asymmetry of information at the time of contract negotiation, 
and the initial fixed investments poultry growers must pay to enter 
into the poultry growing business, make the typical grower vulnerable 
to hold-up costs.\3\ Hold-up costs arise in poultry production because 
of the relatively high fixed costs incurred by poultry growers for 
poultry houses that have no value outside of poultry production.\4\ For 
example, without full and timely information, the poultry grower may 
not be able to negotiate compensation rates that effectively cover all 
costs, including annualized depreciation on its fixed investment. An 
incentive exists for the live poultry dealer to compensate the grower 
at a rate that covers all but a portion of the grower's annualized 
depreciation cost.\5\ The poultry grower has no recourse after signing 
a contract with a live poultry dealer but is responsible for a large 
investment. The poultry grower cannot likely sell the investment and 
leave the business because a poultry house has no value outside the 
poultry business. If the poultry grower chooses to stay in business, 
however, the grower may

[[Page 63276]]

learn too late that its earnings will not cover as much of the costs as 
originally expected.
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    \3\ Nigel Key and Jim M. MacDonald. ``Local Monopsony Power in 
the Market for Broilers? Evidence from a Farm Survey'' selected 
paper American Agri. Economics Assn. meeting Orlando, FL, July 27-
29, 2008.
    \4\ The empirical evidence for hold-up costs is discussed by T. 
Vukina and P. Leegomonchai in ``Oligopsony Power, Asset Specificity, 
and Hold-up: Evidence from the Broiler Industry'', Amer. J. of Agri. 
Economics, pp. 589-605, Aug., 2006. A general discussion of the 
hold-up problem by Paul Milgrom and John Roberts is found in 
``Economics, Organization, and Management'' pg. 136, 1992.
    \5\ Rachael E. Goodhue, Gordon C. Rausser, and Leo K. Simon 
discuss poultry contracts and grower compensation issues in: 
``Understanding Production Contracts: Testing Agency and Theory 
Model'' selected paper American Agric. Economics meetings Salt Lake 
City, UT, May 15, 1998.
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    Poultry growers have few options for negotiating more favorable 
contract terms among live poultry dealers because of geographic 
distance or equipment requirements. Growers often have much of their 
net worth invested in poultry houses, which have limited value for 
purposes other than raising and caring for poultry. And, without full 
and timely information, growers sometimes do not know or understand the 
full content of their own poultry growing arrangements with the live 
poultry dealers and are constrained by confidentiality clauses from 
discussing their terms with business advisers. These factors combined 
lead to market failures that cannot be resolved through private treaty 
negotiation to achieve an efficient market solution.\6\ GIPSA believes 
that Sec.  201.100(b) of this final rule will free poultry growers from 
these constraints by allowing them to discuss the terms of their 
poultry growing arrangements with business and financial advisors. By 
fostering the flow of business and financial information to growers, 
this final rule will lead to greater pricing efficiencies in the 
poultry industry.
---------------------------------------------------------------------------

    \6\ Paul Milgrom and John Roberts discuss market failure arising 
in the context of property rights imperfection as developed here in 
``Economics, Organization, and Management'', 1992, Chap. 9, 
Ownership and Property Rights. Note, for perfectly efficient 
property rights structures resources must be privately held and 
entitlements completely specified. All benefits and costs of 
ownership accrue to the owner. All property rights are transferable 
from one owner to another in voluntary exchange. And all rights from 
ownership are enforceable and secure from involuntary seizure.
---------------------------------------------------------------------------

    GIPSA has considered and collected input on potential alternative 
and believes that no viable alternatives to this final rule exist. This 
final rule imposes on live poultry dealers primarily office costs (e.g. 
revising poultry growing arrangements). GIPSA believes that these costs 
will be significantly less than the benefits that will be achieved from 
a reduction in general market inefficiencies.
    Copies of the analysis are available by contacting the person 
listed under FOR FURTHER INFORMATION CONTACT or on the Regulations.gov 
Web site (see ADDRESSES above for instructions for accessing 
Regulations.gov).
    The Small Business Administration (SBA) defines small businesses by 
its North American Industry Classification System Codes (NAICS).\7\ The 
affected entities and size threshold under this final rule are defined 
by the SBA under NAICS codes, 112320 and 112330, broiler and turkey 
producers, respectively, if sales are less than $750,000 per year. Live 
poultry dealers, NAICS code 31165, are considered small businesses if 
they have fewer than 500 employees.
---------------------------------------------------------------------------

    \7\ See: http://www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.
---------------------------------------------------------------------------

    GIPSA maintains data on live poultry dealers from the annual 
reports that these firms file with the agency. Currently, there are 140 
live poultry dealers (all but 16 are also poultry slaughterers and 
would be considered poultry integrators) that will be subject to this 
final rule. According to U.S. Census data on County Business Patterns, 
there were 64 poultry slaughters firms that had more than 500 employees 
in 2006. The difference yields approximately 75 poultry slaughters/
integrators with fewer than 500 employees and would be considered as 
small business that will be subject to this final rule.
    Another factor, however, which is important in determining the 
economic effect of the regulations, is the number of poultry growing 
arrangements held by a live poultry dealer. Poultry growers enter into 
a poultry growing arrangement with one live poultry dealer, whereas a 
live poultry dealer may have a number of poultry growing arrangements 
with many growers. While growers may have sophisticated growing 
facilities, many are independent family owned businesses that are 
focused on growing poultry to the specifications outlined in their 
poultry growing arrangements. Most live poultry dealers, however, are 
much larger integrated commercial entities that breed, hatch, slaughter 
and process poultry for the retail market. Given the business size 
differential between a poultry grower and a live poultry dealer and the 
regional monopsony power a live poultry dealer may have, the live 
poultry dealer has much more information to consider when establishing 
the terms of and entering into a poultry growing arrangement. The live 
poultry dealer is much more likely to have a staff of financial and 
business advisors on which to rely. By contrast, the poultry grower 
operating under an existing poultry growing arrangement may not be 
allowed to share the terms of the poultry growing arrangement with its 
advisors.
    GIPSA records for 2007 indicated that there were 20,637 poultry 
growing arrangements of which 13,216, or 64 percent, were held by the 
largest 6 live poultry dealers, and 95 percent (19,605) were held by 
the largest 21 live poultry dealers. These 21 live poultry dealers are 
all in SBA's large business category, whereas the 19,605 poultry 
growers holding the other side of the poultry growing arrangement are 
all small businesses by SBA's definitions. The situation in general for 
the nation's poultry growers operating under poultry growing 
arrangements is that the growers are almost all small businesses with a 
poultry growing arrangement held by one of the very large live poultry 
dealers. To illustrate the magnitude in size differences between the 
growers and the live poultry dealer, using grower gross sales revenue 
of $750,000 per year and the average gross sales revenue of three of 
these very large live poultry dealers, yields a ratio of roughly 
1:23,000. We believe that providing poultry growers with the ability to 
discuss the terms of their poultry growing arrangements with business 
and financial advisors will enable the growers to make more informed 
decisions as they negotiate the terms of their poultry growing 
arrangements with the live poultry dealer. This final rule will help to 
level the playing field for poultry growers by providing them with 
access to financial and business information and advice that is 
accessible to live poultry dealers, and therefore will help to balance 
market asymmetric inequities.
    Although the costs and benefits are largely intangible, GIPSA 
believes that the costs to both poultry growers and live poultry 
dealers firms will be essentially negligible. This final rule does not 
impose significant additional requirements on the actions firms must 
enact; merely the timeliness of those actions. While this final rule 
requires that poultry growers and live poultry dealers commit in 
writing to terms and conditions that are already in effect, it does not 
mandate what those terms and conditions must be. Thus, the only 
additional cost is simply the cost of producing and transmitting the 
printed document. GIPSA did not receive any comments from live poultry 
dealers or others that suggested that there would be any significant 
costs of implementing the provisions in this final rule.
    Collectively, the provisions in this final rule mitigate potential 
asymmetries of information between poultry growers and live poultry 
dealers, which lead to better decisions on the terms of compensation 
and reduce the potential for expressions of anti-competitive market 
power. The provisions in this final rule achieve this primarily through 
improved quality and timeliness of information to poultry growers, and 
to some extent to live poultry dealers as well. Benefits will accrue to 
growers from an improved basis for making the decision about whether to 
enter into a poultry growing arrangement, and from

[[Page 63277]]

additional time available to plan for any adjustments in instances when 
the grower is subject to termination of a poultry growing arrangement. 
GIPSA also believes that live poultry dealers will also benefit from 
this final rule because all live poultry dealers will be required to 
provide poultry growers the same information in a full and timely 
manner. Disclosure of this information between the live poultry dealer 
and the poultry grower will lead to greater transparency in the poultry 
industry and promote fairer competition among live poultry dealers. In 
addition, GIPSA believes that net social welfare will benefit from 
improved accuracy in the value (pricing) decisions involved in 
transactions between poultry growers and live poultry dealers as they 
negotiate poultry growing arrangements.
    Based on the discussion in the analysis above, GIPSA therefore has 
determined that the effect on all small businesses will not have a 
significant economic impact on a substantial number of small business 
entities as defined in the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.).

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. These actions are not intended to have 
retroactive effect. This final rule will not pre-empt state or local 
laws, regulations, or policies, unless they present an irreconcilable 
conflict. There are no administrative procedures that must be exhausted 
prior to any judicial challenge to the provisions of this final rule.

Paperwork Reduction Act

    This final rule does not contain new or amended information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(44 U.S.C. 3501 et seq.). It does not involve collection of new or 
additional information by the federal government.

Government Paperwork Elimination Act Compliance

    We are committed to compliance with the Government Paperwork 
Elimination Act, which requires Government agencies provide the public 
with the option of submitting information or transacting business 
electronically to the maximum extent possible.

List of Subjects in 9 CFR Part 201

    Contracts, Poultry and poultry products, Trade practices.

0
For the reasons set forth in the preamble, we amend 9 CFR part 201 to 
read as follows:

PART 201--REGULATIONS UNDER THE PACKERS AND STOCKYARDS ACT

0
1. The authority citation for part 201 continues to read as follows:

    Authority: 7 U.S.C. 181-229c.


0
2. Amend Sec.  201.100 to redesignate paragraphs (a), (b), (c), (d), 
and (e) as (c), (d), (e), (f) and (g); add new paragraphs (a), (b), 
(c)(3), and (h); remove ``and'' at the end of newly designated 
paragraph (c)(1), remove ``.'' at the end of newly designated paragraph 
(c)(2)(v), add ``; and'' at the end of newly designated paragraph 
(c)(2)(v), and revise the introductory text of newly designated 
paragraph (c) to read as follows:


Sec.  201.100  Records to be furnished poultry growers and sellers.

    (a) Poultry growing arrangement; timing of disclosure. As a live 
poultry dealer who offers a poultry growing arrangement to a poultry 
grower, you must provide the poultry grower with a true written copy of 
the offered poultry growing arrangement on the date you provide the 
poultry grower with poultry house specifications.
    (b) Right to discuss the terms of poultry growing arrangement 
offer. As a live poultry dealer, notwithstanding any confidentiality 
provision in the poultry growing arrangement, you must allow poultry 
growers to discuss the terms of a poultry growing arrangement offer 
with:
    (1) A Federal or State agency;
    (2) The grower's financial advisor or lender;
    (3) The grower's legal advisor;
    (4) An accounting services representative hired by the grower;
    (5) Other growers for the same live poultry dealer; or
    (6) A member of the grower's immediate family or a business 
associate. A business associate is a person not employed by the grower, 
but with whom the grower has a valid business reason for consulting 
with when entering into or operating under a poultry growing 
arrangement.
    (c) Contracts; contents. Each live poultry dealer that enters into 
a poultry growing arrangement with a poultry grower shall furnish the 
grower with a true written copy of the poultry growing arrangement, 
which shall clearly specify:
* * * * *
    (3) Whether a performance improvement plan exists for that grower, 
and if so specify any performance improvement plan guidelines, 
including the following:
    (i) The factors considered when placing a poultry grower on a 
performance improvement plan;
    (ii) The guidance and support provided to a poultry grower while on 
a performance improvement plan; and
    (iii) The factors considered to determine if and when a poultry 
grower is removed from the performance improvement plan and placed back 
in good standing, or when the poultry growing arrangement will be 
terminated.
* * * * *
    (h) Written termination notice; furnishing, contents.
    (1) A live poultry dealer that ends a poultry growing arrangement 
with a poultry grower due to a termination, non-renewal, or expiration 
and subsequent non-replacement of a poultry growing arrangement shall 
provide the poultry grower with a written termination notice at least 
90 days prior to the termination of the poultry growing arrangement. 
Written notice issued to a poultry grower by a live poultry dealer 
regarding termination shall contain the following:
    (i) The reason(s) for termination;
    (ii) When the termination is effective; and
    (iii) Appeal rights, if any, that a poultry grower may have with 
the live poultry dealer.
    (2) A live poultry dealer's poultry growing arrangement with a 
poultry grower shall also provide the poultry grower with the 
opportunity to terminate its poultry growing arrangement in writing at 
least 90 days prior to the termination of the poultry growing 
arrangement.

J. Dudley Butler,
Administrator, Grain Inspection, Packers and Stockyards Administration.
[FR Doc. E9-28947 Filed 12-2-09; 8:45 am]
BILLING CODE 3410-KD-P