[Federal Register Volume 87, Number 110 (Wednesday, June 8, 2022)]
[Proposed Rules]
[Pages 34980-35031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11997]



[[Page 34979]]

Vol. 87

Wednesday,

No. 110

June 8, 2022

Part III





Department of Agriculture





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Agricultural Marketing Service





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9 CFR Part 201





Transparency in Poultry Grower Contracting and Tournaments; Proposed 
Rule

  Federal Register / Vol. 87 , No. 110 / Wednesday, June 8, 2022 / 
Proposed Rules  

[[Page 34980]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

 9 CFR Part 201

[Doc. No. AMS-FTPP-21-0044]
RIN 0581-AE03


Transparency in Poultry Grower Contracting and Tournaments

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Agricultural Marketing Service is soliciting comments on 
proposed revisions to the regulations under the Packers and Stockyards 
Act, 1921. The proposal would revise the list of disclosures and 
information live poultry dealers must furnish to poultry growers and 
sellers with whom dealers make poultry growing arrangements. The 
proposal would establish additional disclosure requirements in 
connection with the use of poultry grower ranking systems by live 
poultry dealers to determine settlement payments for poultry growers. 
The proposals are intended to promote transparency in poultry 
production contracting and to give poultry growers and prospective 
poultry growers relevant information with which to make business 
decisions.

DATES: Comments must be received by August 8, 2022. Comments on the 
information collection aspects of this proposed rule must be received 
by August 8, 2022.

ADDRESSES: Comments must be submitted through the Federal e-rulemaking 
portal at https://www.regulations.gov and should reference the document 
number and the date and page number of this issue of the Federal 
Register. All comments submitted in response to this proposed rule will 
be included in the record and will be made available to the public. 
Please be advised that the identity of individuals or entities 
submitting comments will be made public on the internet at the address 
provided above.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade 
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250; 
Phone: (202) 690-4355; or email: [email protected].

SUPPLEMENTARY INFORMATION: At the beginning of the 20th century, a 
small number of meat packing companies dominated the industry and 
engaged in practices that were deemed anticompetitive and harmful to 
producers. In response, Congress enacted the Packers and Stockyards 
Act, 1921 (Act), 7 U.S.C. 181 et seq., which seeks to promote fairness, 
reasonableness, and transparency in the marketplace by prohibiting 
practices that are contrary to these goals. In the 100 years since the 
Act went into effect, business practices changed significantly, 
particularly in the poultry industry, for which provisions were added 
to the law in 1935.
    Within the last 40 years, the poultry industry has become 
increasingly concentrated, both horizontally and vertically, with the 
use of the poultry grower ranking or ``tournament'' pay system 
increasingly predominant throughout. With vertical integration, live 
poultry dealers frequently own or control all segments of the 
production process except growout, where poultry growers raise young 
poultry to harvest size under poultry growing arrangements (contracts). 
Under this system, poultry grower investment is substantial and 
growing, yet they may face a market dominated by only one or two live 
poultry dealers for which they can grow.
    We will explain in this document how poultry growers and 
prospective poultry growers may find themselves unable to negotiate for 
(1) access to critical information needed to properly assess farm 
revenue streams, and (2) information related to the distribution of 
inputs affecting performance among tournament participants. The 
inability to secure this information may expose growers to various 
risks of deception that could be reduced or eliminated with the 
provision of the information. Additionally, we will establish that live 
poultry dealers possess this information and are able to provide it to 
growers.
    Most chicken growers and some turkey growers raise poultry under a 
growing arrangement commonly known as a tournament system. Under this 
system, live poultry dealers use a relative performance or grower 
ranking system for settlement purposes, i.e., to determine grower 
payment among a group of competing growers. We will explain in this 
document how poultry growers in tournament systems may find themselves 
competing for payment without access to information that would allow 
them to optimize poultry production and payment or manage the risks 
related thereto.
    Over the past several years, the Department of Agriculture (USDA) 
has received numerous complaints from poultry growers about poultry 
growing contracting in general and tournament systems particularly. 
While the complaints cover a range of concerns, a central concern is 
the gap between expected earnings and the ability to actually achieve 
those outcomes through reasonable efforts by the grower. Accordingly, 
AMS is proposing rules that would increase transparency in all poultry 
growing contracting, including tournament systems, targeted at key 
inflection points for growers--at the time of contracting and housing 
upgrades, and at the provision of inputs during tournaments. In this 
rulemaking, we are seeking to utilize transparency to secure a more 
level playing field for growers and enable a marketplace with fairer 
contracts and the fairer operation of those contracts under the 
contract production model.

Outline of the Notice of Proposed Rulemaking

I. Background
    A. Previous Rulemaking
    B. Relevant Terms and Definitions
    C. Industry Background
    1. Market Structure
    2. Poultry Housing Construction and Grower Debt
    3. Poultry Grower Compensation
    4. Integrator Inputs
    a. Stocking Density and Flock Placement Frequency
    b. Breed
    c. Gender
    d. Breeder Flock Age
    e. Breeder Flock Health
    f. Feed Disruptions
    g. Medications
II. Poultry Growing Arrangements
    A. Incomplete Contracts
    B. Market Power and Risks to Growers
    C. Poultry Grower Earnings and Returns on Equity
    D. Asymmetrical Information
    E. Poultry Grower Concerns
III. Poultry Grower Payment Systems
    A. Fixed-Performance Pay Systems
    B. Tournament Pay Systems
IV. Poultry Grower Ranking Systems
    A. Tournament Settlements
    B. Tournament Payments as a Measure of Grower Skill, Effort, and 
Innovation
    C. Distribution of Inputs Among Tournament Participants
    D. Input Variability and Grower Payments
    1. Stocking Density
    2. Breed Ratios
    3. Gender Ratios
    4. Breeder Flock Age
    5. Breeder Flock Health
    6. Feed Disruptions
    7. Medications
    E. The Need for Transparency
V. Proposed Regulations
    A. Definitions
    B. Disclosure
    C. Contract terms
    D. Poultry Grower Ranking Systems
VI. Regulatory Analyses
    A. Executive Order 12988--Civil Justice Reform

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    B. Executive Order 13175--Consultation and Coordination With 
Indian Tribal Governments
    C. Civil Rights Impact Analysis
    D. Paperwork Reduction Act
    E. E-Government Act
    F. Executive Orders 12866 and 13563
    G. Regulatory Impact Analysis
    H. Regulatory Flexibility Analysis
VII. Request for Comments
    Amendatory Text
    Appendices

I. Background

    Among other things, sec. 202(a) of the Act (7 U.S.C. 192) prohibits 
live poultry dealers, with respect to live poultry, from engaging in or 
using deceptive practices or devices. Further, sec. 410(a) of the Act 
(7 U.S.C. 228b-1) requires live poultry dealers obtaining live poultry 
under a poultry growing arrangement to make full payment for such 
poultry to the poultry grower from whom the dealer obtains the poultry 
on a timely basis. Sec. 407(a) of the Act authorizes the Secretary of 
Agriculture (Secretary) to make rules and regulations as necessary to 
carry out the provisions of the Act. Such regulations are found, in 
part, in the Code of Federal Regulations (CFR) at 9 CFR part 201.
    This proposed rule builds on existing disclosure concepts under the 
Packers and Stockyards Act in 7 U.S.C 197(a) through (c) and 9 CFR 
201.100. The current disclosure framework has improved transparency in 
poultry contracting. However, the modern poultry industry now requires 
larger, and growing, capital investments, and growers need additional 
information with which to make business decisions. Growers have 
consistently expressed concerns about the inadequacy of some production 
contract terms and the discretionary functions exercised by live 
poultry dealers under those contracts, which they assert have exposed 
them to deception and other abuses. AMS agrees many production 
contracts do not provide enough information for growers to assess their 
expected value, and important information relating to live poultry 
dealer obligations and practices should be better illuminated. The 
purpose of this proposed rule is to provide growers with this type of 
relevant information. This proposal reflects AMS's desire to build on 
existing Packers and Stockyard Act disclosure concepts to ensure 
poultry growers have the tools and information they need to be 
successful in their pursuits.
    Disclosure has been a staple \1\ of the Act's regulatory scheme and 
is required under the regulations. Moreover, disclosure for the primary 
purpose of providing adequate information necessary for parties in 
asymmetrical business relationships to make informed business decisions 
and risk assessments has long been the subject of Federal Trade 
Commission (FTC) regulation under section 5 of the FTC Act, which, like 
section 202(a) of the Packers and Stockyards Act, addresses deception. 
For example, the Federal Trade Commission's Franchise Rule requires the 
franchising industry to provide prospective purchasers of franchises 
information necessary to weigh the risks and benefits of an investment 
by providing required disclosures in a uniform format.\2\ This proposed 
rule is designed to similarly provide current and prospective poultry 
growers with sufficient information prior to entering into an 
agreement.
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    \1\ For example, see current 9 CFR 201.100(a)--Poultry growing 
arrangement, timing of disclosure.
    \2\ 16 CFR part 436; 84 FR 9051 (May 2019).
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    This proposed rule would revise Sec.  201.100 of the regulations by 
adding certain items to the list of required disclosures a live poultry 
dealer must make to poultry growers and prospective poultry growers in 
connection with poultry growing arrangements. The proposal would 
further require live poultry dealers to specify additional terms in 
poultry growing contracts. AMS intends these proposed revisions to 
improve transparency and forestall deception in the use of poultry 
growing arrangements.
    This proposed rule would also add a new Sec.  201.214 to the 
regulations that would require live poultry dealers to provide certain 
information to poultry growers in tournament pay systems about 
integrator-controlled inputs related to the poultry flocks growers 
receive for growout. The proposed provisions also would add a new level 
of transparency to grower ranking sheets, ensuring that poultry growers 
can evaluate the distribution of inputs among all tournament 
participants and better assess the effect on grower payment. AMS 
intends the proposed requirements to provide greater transparency and 
forestall deception in the use of poultry grower ranking systems.
    Finally, this proposed rule would make conforming changes to the 
regulations by adding to the list of definitions in Sec.  201.2 to 
define terms used in revised Sec.  201.100 and new Sec.  201.214. 
Specifics of each of these proposals are provided later in this 
document.

A. Previous Rulemaking

    USDA has made previous attempts to address grower concerns arising 
from the use of poultry growing arrangements and poultry grower ranking 
systems. Two such attempts were made by USDA's Grain Inspection, 
Packers and Stockyards Administration (GIPSA), which previously 
administered the provisions of the Act. GIPSA issued a proposed rule in 
2010 (75 FR 35338; June 22, 2010) that would have, among other things, 
identified as unfair, unjustly discriminatory, and deceptive specific 
practices related to poultry contracting. The 2010 proposed rule would 
have required live poultry dealers--when paying growers under poultry 
grower ranking systems--to pay growers the same base pay for growing 
the same type and kind of poultry. The 2010 proposed rule further would 
have required that tournament system growers be settled in groups with 
other growers with similar house types. After considering comments on 
the 2010 proposal, GIPSA elected not to finalize certain provisions 
related to poultry contracting, so it modified the original proposal 
and published a second proposed rule in 2016 (81 FR 92723; December 20, 
2016). The 2016 proposed rule would have identified criteria that the 
Secretary could consider when determining whether a live poultry 
dealer's use of a system for ranking poultry growers for settlement 
purposes is unfair, unjustly discriminatory, or deceptive or gives an 
undue or unreasonable preference, advantage, prejudice, or 
disadvantage. The proposed amendments would also have clarified that, 
absent demonstration of a legitimate business justification, failing to 
use a poultry grower ranking system in a fair manner after applying the 
identified criteria is unfair, unjustly discriminatory, or deceptive 
and a violation of the Packers and Stockyards Act, regardless of 
whether it harms or is likely to harm competition. The original 60-day 
public comment period for the 2016 proposed rule was extended an 
additional 30 days, consistent with the memorandum of January 20, 2017, 
to the heads of executive departments and agencies from the Assistant 
to the President and Chief of Staff entitled ``Regulatory Freeze 
Pending Review.''
    In November 2017, responsibility for GIPSA activities was 
transferred to AMS, which now administers the Act and regulations, and 
which has assumed responsibility for this rulemaking. In its review of 
public comments on the 2016 proposed rule, AMS found that many of

[[Page 34982]]

the comments--both supportive and opposed--identified reasonable 
concerns regarding the proposed regulation's structure and language. 
AMS recognized further that the proposed rule may not have adequately 
addressed information imbalances between contracting parties. AMS 
determined that the 2016 proposed rule was unable to address many of 
the commenters' concerns without material changes and elected to 
withdraw the 2016 proposed rule and develop a new regulatory proposal 
pertaining to information imbalances in poultry grower contracting and 
grower ranking systems. The 2016 proposed rule was withdrawn on 
November 4, 2021 (86 FR 60779).
    Executive Order 14036--Promoting Competition in the American 
Economy (86 FR 36987; July 9, 2021) directs the Secretary of 
Agriculture to address unfair treatment of farmers and improve 
conditions of competition in their markets by considering rulemaking to 
address, among other things, certain practices related to poultry 
grower ranking systems. AMS has considered that direction in 
undertaking this rulemaking. While the discussions in this rule focus 
largely on broiler (chicken) production, the industry concepts 
presented--and the proposed regulations--are intended to apply to the 
commercial production of all poultry species where the proposed 
regulatory requirements are relevant. The bulk of available research 
and information currently available to AMS specifically addresses 
broiler production. Nevertheless, AMS believes that body of research 
and information is relevant to other poultry species, given the absence 
of material differences in their commercial production.

B. Relevant Terms and Definitions

    For this preamble, section 2(a) of the Act (7 U.S.C. 182) provides 
various useful definitions: A live poultry dealer is any person engaged 
in the business of obtaining live poultry by purchase or under a 
poultry growing arrangement for the purpose of either slaughtering it 
or selling it for slaughter by another. A poultry grower is any person 
engaged in the business of raising and caring for live poultry for 
slaughter by another, whether the poultry is owned by such a person or 
by another, but not an employee of the owner of such poultry. A poultry 
growing arrangement is any growout contract, marketing agreement, or 
other arrangement under which a poultry grower raises and cares for 
live poultry for delivery, in accord with another's instructions, for 
slaughter.

C. Industry Background

    In this section, we explain how high levels of vertical integration 
in U.S. commercial poultry production have influenced the poultry 
production contracting process and the production contracts themselves. 
We also illustrate how the effects of market concentration limit 
poultry growers' options in relation to dealers with whom they can 
contract to produce poultry. When they have few or no alternative 
options, growers lack the bargaining power to negotiate for, among 
other things, better information symmetry, which gives rise to the risk 
of deception at a series of points in the relationship. We also 
describe some of the factors that affect grower payments as they relate 
to the information imbalances we are proposing to remedy.
1. Market Structure
    Some live poultry dealer firms own and manage local ``complexes'' 
of integrated operations that include hatcheries, feed mills, 
transportation systems, and processing facilities, and they contract 
with individual growers within a local region to raise birds for meat 
and hatchery eggs.\3\ These live poultry dealers that own and manage 
vertically integrated operations are referred to in the industry as 
``integrators.'' Other industries may follow this model to some extent 
(for example, some firms manage multiple aspects of hog production), 
but it is used in almost all broiler chicken production \4\ and is 
fairly common in turkey production.
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    \3\ MacDonald, James M. Technology, Organization, and Financial 
Performance in U.S. Broiler Production, EIB-126, U.S. Department of 
Agriculture, Economic Research Service, June 2014.
    \4\ In a 2011 survey of 17 sample states, 97% of broiler 
production was done by contract growers. MacDonald (June 2014) Op. 
Cit.
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    Through vertical integration, integrators control the complete 
supply chain from poultry genetics to slaughter. Integrators also own 
most of the inputs and manage the operation of the supply chain. 
However, integrators outsource the function and major costs of raising 
the poultry to broiler growers, while controlling much of that process 
through their production contracts. Through the poultry growing 
arrangement, broiler growers provide the growout facilities and the 
equipment, labor, and management associated with those facilities. 
Broiler growers are responsible for utilities, fuel, maintenance, and 
repair. The growers' tasks include ensuring the equipment functions 
properly and the environment inside the house is satisfactory at all 
times. The grower is responsible for waste removal and disposal of dead 
birds. These activities are subject to significant direction and 
control by the integrator or integratory subsidiary. Integrators exert 
significant power over contract poultry grower operations through 
individual production contracts, payment systems, and control of 
certain production variables, such as poultry breeds, breeder stock 
age, frequency of flock placements, stocking density, length of the 
growout periods (the number of days birds are housed on the grower's 
farm), feed quality and delivery, and the type and administration of 
veterinary medicines.
    Market consolidation combined with certain natural factors (such as 
the fragility of birds limiting their transport), many integrators 
operate as monopsonists \5\ or oligopsonists \6\ in their relevant 
regional market. Some research \7\ shows a correlation in local markets 
between the number of available integrators and grower payments, with 
payments shrinking as the number of integrators decreases. In local 
markets, the lack of alternative integrators coupled with integrator 
control and discretion over production contracts leaves growers with 
little market power to demand reasonable contract transparency. As 
discussed in the following section, growers' plights are aggravated 
further by the substantial investment required to enter the poultry 
business.
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    \5\ Merriam-Webster online dictionary: A monopsonist is one who 
is a single buyer for a product or service of many sellers. https://www.merriam-webster.com/dictionary/monopsonist; accessed 3/8/2022.
    \6\ Merriam-Webster online dictionary: Oligopsony is a market 
situation in which each of a few buyers exerts a disproportionate 
influence on the market. An oligopsonist is a member of an 
oligopsonistic industry or market. https://www.merriam-webster.com/dictionary/oligopsonist; accessed 3/8/2022.
    \7\ MacDonald, James M., and Nigel Key. ``Market Power in 
Poultry Production Contracting? Evidence from a Farm Survey''. 
Journal of Agricultural and Applied Economics 44 (November 2012): 
477-490. See also, MacDonald, James M. Technology, Organization, and 
Financial Performance in U.S. Broiler Production, EIB-126, U.S. 
Department of Agriculture, Economic Research Service, (June 2014): 
29-30.
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2. Poultry Housing Construction and Grower Debt
    Poultry growout operations require significant financial 
investments on the part of poultry growers, who typically provide the 
facilities (poultry housing and necessary equipment), utilities 
(electricity, gas, and water), manure management, compliance with 
environmental regulations, labor, and day-to-day management of the 
growing poultry. One of the costliest investments

[[Page 34983]]

is in poultry housing and equipment. A poultry growing contract 
includes the live poultry dealer's specifications for the poultry 
housing and equipment the growers are required to supply under the 
contract. At times, the live poultry dealer may encourage, incentivize, 
or even require a poultry grower to upgrade existing housing or 
equipment in order to renew or revise an existing contract.
    A 2011 study estimated a cost of $924,000 for site preparation, 
construction, and necessary equipment for four 25,000-square-foot 
poultry houses (or $231,000 per house) in rural Georgia at that time, 
independent of the cost for the land.\8\ Costs for establishing poultry 
houses have increased substantially since 2011, due to the advancement 
of new technologies in poultry housing and the increased cost of 
materials. AMS estimates current construction costs at $350,000 to 
$400,000 per poultry house.\9\
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    \8\ Cunningham, Dan L., and Brian D. Fairchild. ``Broiler 
Production Systems in Georgia Costs and Returns Analysis 2011-
2012.'' UGA Cooperative Extension Bulletin 1240 (November 2011), 
University of Georgia Cooperative Extension.
    \9\ See, for example, Cunningham and Fairchild (November 2011) 
Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown, Economic 
Impact of a New Broiler House in Alabama, Alabama A&M & Auburn 
Universities Extension, March 1, 2019 (estimating a $479,160 
construction cost for a 39,600 square foot broiler house).
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    Poultry growers can incur considerable debt to make the investments 
necessary for poultry production. Most new broiler housing is debt-
financed. According to MacDonald, U.S. contract poultry growers' total 
debt amounted to $5.2 billion, or 22 percent of the total value of 
their assets, in 2011.\10\ The research cited here found that debt 
loads--and exposure to liquidity risks, should flock placements and 
revenues fall--are closely related to the age of the operation, with 
newer farmers carrying greater debt relative to the value of farm 
assets. Farmers with fewer than six years of experience in broiler 
production carried debt equal to 51 percent of assets, on average, and 
one quarter of those farmers carried debt equal to at least 77 percent 
of assets.
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    \10\ MacDonald (June 2014) Op. Cit.
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    The weight of poultry grower debt load can be exacerbated by three 
additional factors: (1) The length, in terms of time, of a poultry 
growing arrangement is rarely long enough to cover the grower's debt 
repayment period, and can be as short as one flock; (2) growers may be 
encouraged or required by live poultry dealers to invest in facility 
upgrades, which may lead to additional debt; and (3) poultry housing is 
a specific-use asset with little salvage or repurpose value.\11\ In 
other words, the grower is unlikely to be able to use or sell the 
facilities for a different purpose should the poultry growing contract 
be terminated.
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    \11\ Poultry growing facilities are often characterized by 
certain expensive attributes, such as temperature and other habitat 
control systems. A fully equipped poultry growing facility 
repurposed, for example, as a hay barn or other storage is unlikely 
to generate the revenue necessary to meet a grower's $400,000 
mortgage obligation. Nor is repurposing it for an alternative 
livestock usage, such as hogs or dairy cows, possible, at least 
without retrofitting that would essentially demolish the growout 
facility. The grower's return on investment is tied to using the 
facility as intended.
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    Grower debt problems are exacerbated by the limited number of live 
poultry dealers in most localities and by dealer-specific requirements 
that inhibit grower movement between dealers. For example, a grower who 
currently produces smaller birds for one live poultry dealer may desire 
to move to a different dealer that wants larger birds. The grower could 
be required to upgrade their poultry growing facility to include more 
cooling capacity in order to accommodate larger birds. However, such 
upgrades may not be economically feasible for the grower, so the grower 
stays with the current live poultry dealer.
3. Poultry Grower Compensation
    Poultry growers are compensated on the growout of individual 
flocks. Most growers are paid on the basis of the weight of the 
finished poultry, adjusted by a feed conversion factor. Live poultry 
dealers calculate feed conversion by dividing the total pounds of 
poultry feed used during growout by the total pounds of finished 
poultry at the end of growout. The feed conversion factor is expressed 
as a ratio of pounds of feed to pounds of finished poultry. For 
example, a feed conversion ratio of 1.93 means an average of 1.93 
pounds of poultry feed were needed to produce each pound of finished 
poultry. The live poultry dealer uses the feed conversion factor to 
measure poultry grower efficiency. Specific poultry growing 
arrangements may provide for a variety of nuanced cost and payment 
formulas, and may include supplemental fuel and square footage bonus 
payments. However, the greatest portion of grower compensation is 
determined according to the following simplified equation:

Farm Weight (in pounds) x Feed Conversion (in dollars) = Grower Pay

    Under a typical scenario, birds are caught at the end of the 
growout period, loaded onto trucks, and delivered to the processing 
facility, where they are weighed. The sum of all weights of all loads 
originating from a grower's farm is the ``farm weight.'' ``Feed 
conversion,'' as described above, is determined by formula and 
converted to a monetary value.
    Alternatively, growers may receive partial or full compensation 
based on their growing facility square footage. For instance, some 
growers may receive square footage supplements as incentives to offset 
new costs for housing. Or in rare cases, compensation is based strictly 
on facility square footage. In either of these situations, square 
footage compensation is based on the size of the poultry growing 
facility, regardless of the number or weight of birds produced.
    Growers seeking to maximize farm returns would naturally prefer to 
keep their facilities in a near-constant state of production, receiving 
as many individual flock placements as possible over a relevant time 
period, with minimal idle or lay-out time between flocks.\12\ If they 
are paid on a farm-weight basis, growers seeking to maximize individual 
flock returns will naturally strive to maximize farm weight.
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    \12\ Growers views and practices may vary with respect to their 
preferred times between flocks for the purposes of appropriate 
maintenance and sanitation activities.
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4. Integrator Inputs
    Two important factors affecting poultry grower compensation are the 
timing and quality of certain inputs controlled by the live poultry 
dealer. In this section we describe those inputs and explain how their 
timing and variation can impact farm weight and feed conversion, and 
thus grower payments.
a. Stocking Density and Flock Placement Frequency
    Often expressed as a ratio of birds per square foot, or pounds 
(target weight of poultry at harvest) per square foot, stocking density 
reflects the number of birds placed on a farm. The target weight 
informs a range of stocking densities that may result in optimal bird 
performance. Integrators set both stocking density and target weight.
    For example, one approach \13\ recommends the following range of 
stocking densities:
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    \13\ National Chicken Council. National Chicken Council Animal 
Welfare Guidelines and Audit Checklist For Broilers, pp. 11-12, 
(September 2020). https://www.nationalchickencouncil.org/wp-content/uploads/2021/02/NCC-Animal-Welfare-Guidelines_Broilers_Sept2020.pdf; 
accessed 1/3/2022.
    Other approaches include those set forth by the Better Chicken 
Commitment, which will set a maximum stocking density of 6.0 lbs./
sq. foot starting in 2024, available at https://betterchickencommitment.com/policy/ (last accessed March 2022).

[[Page 34984]]



------------------------------------------------------------------------
         Maximum bird weight range            Maximum stocking density
------------------------------------------------------------------------
Below 4.5 lbs. liveweight.................  6.5 pounds per sq. ft
4.5 to 5.5 lbs. liveweight................  7.5 pounds per sq. ft.
5.6 to 7.5 lbs. liveweight................  8.5 pounds per sq. ft.
More than 7.5 lbs. liveweight.............  9.0 pounds per sq. ft.
------------------------------------------------------------------------

    Stocking density has critical implications for poultry growers 
because--up to a certain point--farm weight can increase as the number 
of birds per facility square foot increases. Because stocking densities 
can impact payments based on farm weights, growers desire the maximum 
stocking density that does not result in performance impairments.\14\ 
Integrators dictate the stocking density of each placement, and 
generally prefer maximum stocking densities to maximize production 
volume. Of course, complex-level supply factors may affect integrator 
decision making, and integrators may not place as many birds with 
growers as growers could accommodate and would like for maximum growout 
efficiency. Consumer, environmental, and animal welfare factors may 
also affect stocking density decisions by integrators. However, being 
able to anticipate the minimum size of flocks that will be placed for 
growout on their farms each year allows growers to make appropriate 
farm management and financial decisions. This is challenging because 
many poultry growing arrangements do not specify the minimum stocking 
density of flocks that will be placed with the grower.
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    \14\ Dozier III, W.A., et al. ``Stocking Density Effects on 
Growth Performance and Processing Yields of Heavy Broilers,'' 
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler 
performance at different stocking densities.'' Journal of Applied 
Poultry Research 4.1:55-60 (1995).
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    Obviously, maximum efficiency is also achieved when a grower's 
facility is in production for as many days as possible during the year. 
Depending on the term of the poultry growing arrangement between the 
live poultry dealer and the poultry grower, the dealer may schedule the 
placement of one or more flocks at the grower's facility over the 
course of a year, with gaps (lay-out or idle time) for necessary 
cleanup and maintenance between placements. Being able to anticipate 
the number of flocks that will be placed for growout on their farms 
each year allows growers to make appropriate farm management and 
financial decisions. However, many poultry growing arrangements do not 
specify the number of flocks per year that will be placed with the 
grower.
b. Breed
    Modern chicken breeds are the result years of evolution by means of 
natural selection, to which artificial selection for commercial 
objectives has been applied. At the highest level, the pure-breeding 
lines are owned and controlled by the breeding companies. These lines 
are subjected to full scale selection programs; it is from these lines 
that all of a company's broiler products have descended.\15\ The great-
grandparent stocks, which are produced from the pure-bred lines, are 
subjected to mass selection for selected traits. Specific grandparent 
lines are cross bred to produce the parent stock, which are then 
distributed to breeder growers. The final step of the intensive 
artificial selection is the crossbreeding of these hybrids (parent 
stock) to give rise to the production broilers, which are raised for 
slaughter by contract growers.
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    \15\ Muir, W.M. and SE Aggrey. Poultry Genetics, Breeding, and 
BioTechnology (2003).
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    Growth rate has consistently been the prime selection trait since 
the 1950s, with more recent emphasis placed on the yield and other 
attributes of breast meat, limiting mortality, and feed use 
efficiency.\16\ \17\ Much progress has been made in artificial 
selection technologies in order to increase growth rate and feed use 
efficiency. In the production of broilers, different breeds may be used 
within each target weight category. Breeds with higher and faster 
growth rates may result in heavier farm weights, with the inverse also 
being true.
---------------------------------------------------------------------------

    \16\ Muir and Aggrey (2003) Op. Cit.
    \17\ Laughlin, Ken, ``The Evolution of Genetics, Breeding, and 
Production. Temperton Fellowship Report 15 (2007).
---------------------------------------------------------------------------

    To illustrate, the following comparison uses information from the 
breed performance and nutrition guides published by the companies 
themselves.\18\
---------------------------------------------------------------------------

    \18\ See: Cobb500TM Broiler Performance & Nutrition 
Supplement (2022), Cobb-Vantress; Cobb700TM Broiler 
Supplement, Cobb-Vantress, 2022; Ross 308/Ross 308FF Broiler 
Performance Objectives 2019, Aviagen Ross, http://eu.aviagen.com/tech-center/download/1339/Ross308-308FF-BroilerPO2019-EN.pdf, 
accessed March 25, 2022.

----------------------------------------------------------------------------------------------------------------
                                                                                       Breed
                                                                 -----------------------------------------------
                                                                     Cobb 500        Cobb 700     Ross 308/308FF
----------------------------------------------------------------------------------------------------------------
42nd Day:
    Weight:.....................................................            7.23            6.28           6.914
    Cumulative Feed Conversion Rate:............................           1.555           1.597           1.596
56th Day:
    Weight:.....................................................           10.23            9.07          10.115
    Cumulative Feed Conversion Rate:............................           1.842           1.849           1.914
----------------------------------------------------------------------------------------------------------------

c. Gender
    The gender of poultry placed on a grower's farm facility may impact 
the flock's growth rate and final farm weight, and thus grower payment. 
Differences between the growth rates of male and female broilers have 
been reported by many researchers. Under similar management conditions, 
males grow faster and achieve marketable weight earlier than females. 
According to Burke and Sharp,\19\ the mean body weight of a male embryo 
was significantly greater than that of a female at 11, 13, and 18 days 
of incubation. Male broilers have been reported to grow faster and 
heavier than females under various rearing conditions. Growth rate 
reflects metabolic activity, which is strongly influenced by sex, age, 
nutritional status, and homogeneity. It also has been reported that 
male chickens showed better performance than females in terms of more 
weight gain.\20\ The majority of integrators use ``straight-run'' birds 
to supply farms. Straight-run

[[Page 34985]]

birds are not sexed and are randomly grouped for growout.
---------------------------------------------------------------------------

    \19\ Burke, William and Peter J. Sharp. ``Sex Differences in 
Body Weight of Chicken Embryos.'' Poultry Science 68.6 (1989): 805-
810.
    \20\ Beg, Mah, et al. Effects of Separate Sex Growing on 
Performance and Metabolic Disorders of Broilers. Diss. Faculty of 
Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural 
University, Dhaka, Bangladesh, 2016.
---------------------------------------------------------------------------

d. Breeder Flock Age
    Breeder facilities are populated with select poultry breeds whose 
purpose is to produce eggs and ultimately chicks that will go into 
broiler production. The age of breeder flocks may also influence the 
size and quality of eggs and chicks, bird mortality, and feed 
conversion, and ultimately the weight of poultry at harvest and thus 
grower payments. Older hens lay larger eggs that hatch into larger 
chicks,\21\ \22\ \23\ and egg weight and hatching weight of chicks are 
correlated with market age weight.\24\ \25\ Small chicks from young 
hens have higher mortality after placement and reach market weight at a 
later age, thus theoretically requiring more time in growout and more 
feed to achieve market weight.
---------------------------------------------------------------------------

    \21\ Washburn, K.W., and R.A. Guill. ``Relationship of Embryo 
Weight as a Percent of Egg Weight to Efficiency of Feed Utilization 
in the Hatched Chick.'' Poultry Science 53.2 (1974): 766-769.
    \22\ Weatherup, S.T.C., and W.H. Foster. ``A Description of the 
Curve Relating Egg Weight and Age of Hen.'' British Poultry Science 
21.6 (1980): 511-519.
    \23\ Wilson, H.R. ``Interrelationships of Egg Size, Chick Size, 
Posthatching Growth and Hatchability.'' World's Poultry Science 
Journal 47.1 (1991): 5-20.
    \24\ Goodwin, K. ``Effect of Hatching Egg Size and Chick Size 
Upon Subsequent Growth Rate in Chickens.'' Poultry Science 40 
(1961): 1408-1409.
    \25\ Morris, R.H., D.F. Hessels, and R.J. Bishop. ``The 
Relationship Between Hatching Egg Weight and Subsequent Performance 
of Broiler Chickens.'' British Poultry Science 9.4 (1968): 305-315.
---------------------------------------------------------------------------

    USDA research \26\ indicates breeder facility flocks are typically 
populated and depopulated on an all-in and all-out basis. That is, the 
majority of birds in each breeder flock are all the same age. Each 
breeder flock is entirely depopulated (slaughtered) when it reaches a 
certain age where egg and progeny quality diminish.
---------------------------------------------------------------------------

    \26\ Video-conference interview with Joseph L. Purswell, Ph.D., 
PE, Agricultural Engineer, Dr. Katie Elliot, Hatchery Research 
Scientist, Dr. Klint McCafferty, Nutrition Research Scientist, 
Agricultural Research Service, U.S. Department of Agriculture (Sept. 
2, 2021).
---------------------------------------------------------------------------

    Composed of a high female-to-male ratio, a typical broiler breeder 
flock's productive life cycle ranges from 21 weeks to 65 weeks. Studies 
suggest that broiler offspring from hens between 35 and 51 weeks of age 
perform best at different periods during growout.\27\ However, research 
results concerning feed efficiency and weights of broilers at market 
age have been mixed. Feed efficiency has been shown to be 
positively,\28\ negatively,\29\ or not \30\ correlated to weight of 
broilers at market age. Even with the benefit of static growth rates, 
poultry grown from smaller chicks are unlikely to match the weight of 
poultry grown from chicks of more mature breeder flocks in identical 
time frames.
---------------------------------------------------------------------------

    \27\ Peebles, E. David, et al. ``Effects of Breeder Age and 
Dietary Fat on Subsequent Broiler Performance. 1. Growth, Mortality, 
and Feed Conversion.'' Poultry Science 78.4 (1999): 505-511.
    AMS notes additionally that research in this and related areas 
has limitations. It is older and results are mixed. AMS is concerned 
that publically available research has stagnated, despite the 
introduction of new breed strains in the intervening years. Because 
integrators now own the genetics companies, AMS has additional 
concerns that research has, in effect, been privatized, creating 
informational asymmeteries. Based on regulatory experience and on 
public comments, growers believe these factors affect performance, 
highlight its value to growers from disclosure.
    \28\ O'Neill, J.B. ``Relationship of Chick Size to Egg Size and 
its Effect Upon Growth and Mortality.'' Poultry Science 29 (1950): 
774.
    \29\ Wyatt, C.L., W.D. Weaver Jr, and W.L. Beane. ``Influence of 
Egg Size, Eggshell Quality, and Posthatch Holding Time on Broiler 
Performance.'' Poultry Science 64.11 (1985): 2049-2055.
    \30\ Guill, R.A., and K.W. Washburn. ``Genetic Changes in 
Efficiency of Feed Utilization of Chicks Maintaining Body Weight 
Constant.'' Poultry Science 53.3 (1974): 1146-1154.
---------------------------------------------------------------------------

e. Breeder Flock Health
    Various diseases \31\ and conditions can adversely affect egg 
production and quality either directly, by affecting the reproductive 
system, or indirectly, by affecting the overall health of the bird. 
According to Spackman,\32\ many of the diseases originating in breeder 
flocks can result in suboptimal offspring performance.
---------------------------------------------------------------------------

    \31\ Examples include: Bacterial (pullorum and gallinarum), 
Mycoplasma, and Avian encephalomyelitis (AE).
    \32\ Wells, R.G., and C.G. Belyawin. ``Egg quality-current 
problems and recent advances.'' Poultry science symposium series. 
No. 636.513 W4. 1987. (citing Spackman, D. ``The Effects of Disease 
on Egg Quality.''
---------------------------------------------------------------------------

    The progeny flocks from impaired breeder flocks may be associated 
with higher mortality, higher morbidity, and decreased growth rates, 
resulting in decreased farm weight or lower feed conversion, which 
impact grower payment. Disease outbreaks can generally be traced to an 
individual breeder farm, but growers have no control or knowledge 
regarding the source of young poultry placed at their facilities for 
growout.
f. Feed Disruptions
    Poultry diets are formulated by integrators to optimize bird 
weight. Integrators are responsible for ensuring feed is consistently 
delivered to growout facilities. However, feed disruptions--where 
poultry go without feed for a certain length of time--may occur for any 
number of reasons, such as feed mill power outages, ingredient supply 
shortages, or transportation problems, and they may result in 
suboptimal poultry weight gain. A study by Dozier and others \33\ 
indicated that broiler body weights decreased when feed was removed. 
Depending upon the timing and duration of a feed outage, a broiler may 
be able to recoup any weight loss. Regardless of their cause, feed 
disruptions have the potential to affect bird weights, result in less 
farm weight, and affect grower payments.
---------------------------------------------------------------------------

    \33\ Dozier III, W.A., et al. ``Effects of Early Skip-A-Day Feed 
Removal on Broiler Live Performance and Carcass Yield.'' Journal of 
Applied Poultry Research 11.3 (2002): 297-303.
---------------------------------------------------------------------------

g. Medications
    A live poultry dealer may find it necessary to supply one or more 
flocks with veterinary medicines or supplements during flock growout. 
Such treatments may be necessary to mitigate disease within a single 
poultry house or an entire flock, or to boost the performance of 
suboptimal progeny from impaired breeder flocks, as described above. 
These treatments may affect the flock's growth rate or mortality and, 
therefore, grower payments.

II. Poultry Growing Arrangements

    In this section, we explain the operation of poultry growing 
arrangements in general, as well as some of the risks growers face in 
connection with those arrangements. We also summarize comments we've 
received from growers expressing their concerns about contracting with 
live poultry dealers to produce poultry.

A. Incomplete Contracts

    As explained earlier in this document, a poultry growing 
arrangement or production contract reflects the arrangement between a 
live poultry dealer and a poultry grower, under which the grower is 
compensated for raising live poultry for delivery to the dealer for 
slaughter. Such a contract may be viewed as complete if the terms 
include the substantive legal, practical, and economic promises, 
obligations, and contingencies needed to operate in a poultry growing 
arrangement. Additionally, those terms should be verifiable by a third-
party and legally enforceable. Incomplete contracts may arise when 
practically important terms do not meet those conditions. Incomplete 
contracts may magnify risks with respect to the performance of the 
contractual counterparty and lead to other potential 
inefficiencies.\34\ In particular, at least one party may have

[[Page 34986]]

discretionary latitude to deviate from expectations.\35\ For example, 
poultry production contracts often do not guarantee the number of 
flocks a grower will receive, even under long-term contracts, although 
this is a critical datapoint for understanding the value of the 
contract to the grower.\36\ The following sections will highlight areas 
and terms where AMS believes typical poultry growing arrangements are 
deficient or incomplete from an economic or operational standpoint, 
inhibiting growers' ability to properly assess the expected value of 
the contract.
---------------------------------------------------------------------------

    \34\ Wu, S. 2014. ``Adapting Contract Theory to Fit Contract 
Farming''. American Journal of Agricultural Economics, Volume 96, 
Issue 5 (October 2014): 1241-1256.
    \35\ Steven Y. Wu and James MacDonald, ``Economics of 
Agricultural Contract Grower Protection Legislation,'' Choices, 
Third Quarter, 2015, pp 1-6.
    \36\ MacDonald (June 2014) Op. Cit.
---------------------------------------------------------------------------

B. Market Power and Risks to Growers

    Live poultry dealers often operate as monopsonists \37\ or 
oligopsonists \38\ in a local market. According to MacDonald and 
Key,\39\ about one quarter of contract growers reported that there was 
just one live poultry dealer in their area; another quarter reported 
two; another quarter reported three; and the rest reported four or 
more. Owing to their greater negotiating power than that of the poultry 
growers with whom they contract, live poultry dealers set the terms of 
the contracts. Consequently, most poultry growers have little or no 
influence over the frequency of individual flock placements they 
receive over any particular time period. A growout period is based on 
the target weight of finished poultry, as determined by the live 
poultry dealer. The amount of time between flocks is also decided by 
the dealer.
---------------------------------------------------------------------------

    \37\ Merriam-Webster online dictionary: A monopsonist is one who 
is a single buyer for a product or service of many sellers. https://www.merriam-webster.com/dictionary/monopsonist; accessed 3/8/2022.
    \38\ Merriam-Webster online dictionary: Oligopsony is a market 
situation in which each of a few buyers exerts a disproportionate 
influence on the market. An oligopsonist is a member of an 
oligopsonistic industry or market. https://www.merriam-webster.com/dictionary/oligopsonist; accessed 3/8/2022.
    \39\ MacDonald, James M., and Nigel Key. ``Market Power in 
Poultry Production Contracting? Evidence from a Farm Survey''. 
Journal of Agricultural and Applied Economics 44 (November 2012): 
477-490. See also, MacDonald, James M. Technology, Organization, and 
Financial Performance in U.S. Broiler Production, EIB-126, U.S. 
Department of Agriculture, Economic Research Service, (June 2014): 
29-30.
---------------------------------------------------------------------------

    Grower payments are also influenced by live poultry dealer market 
power. In the study cited above, grower payments (per pound, 
controlling for bird size) were lower in markets with fewer dealers: 
going from four integrators to one lowered grower payments by eight 
percent (8%). This imbalance of negotiating power also exposes poultry 
growers to other risks.
    For example, the considerable expense associated with building, 
maintaining, and upgrading poultry growing facilities places growers at 
financial risk if they are unable to realistically predict future 
income under a poultry growing arrangement and meet their financial 
obligations. Growers typically make investments in long-term assets--
poultry houses that can last 20 years or more, and they typically take 
on long-term liabilities, in the form of 15-year mortgages, to finance 
those assets. However, live poultry dealers write production contracts 
for substantially shorter terms, with contract durations ranging from a 
few weeks (the time needed to raise one flock) to five years. 
Substantial disparities exist between the periods of time covered by 
the contracts and the mortgages on poultry housing, creating 
uncertainty around whether growers will be able to repay their debt and 
recoup their investments, and introducing ``hold-up'' risk problems.
    Hold-up is the risk growers face at the time of contract renewal 
when live poultry dealers make contract renewal dependent on further 
grower investments not disclosed at the time of the original 
agreements.\40\ This is of particular concern in production contracts 
because the capital requirements related to growing poultry are 
significant and highly specialized (that is, they have little value 
outside of growing poultry). As a result, growers entering the market 
are tied to growing poultry to pay off the financing of the capital 
investment. Growers have reported that they must accept unfavorable 
contract terms because they are tied to production to pay off lenders 
and they have few, if any, alternative dealers with whom they can 
contract. Long term, this behavior may result in underinvestment in 
broiler production. The hold-up problem is a manifestation of both 
market power and incomplete information.
---------------------------------------------------------------------------

    \40\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony Power, 
Asset Specificity, and Hold-Up: Evidence from the Broiler 
Industry.'' American Journal of Agricultural Economics 88 (2006).
---------------------------------------------------------------------------

C. Poultry Grower Earnings and Returns on Equity

    Poultry growing is an intensive capital investment endeavor where 
returns can be unstable and fail to meet reasonable grower 
expectations. Grower capital investment is substantial, and contract 
payments received by U.S. poultry growers vary widely. Lack of 
transparency in returns to grower investment can create underinvestment 
and overinvestment problems. In 2011 data drawn from a nationally 
representative sample of growers, the mean payment received by contract 
growers was 5.77 cents per pound of farm weight. However, 10 percent of 
growers earned at least 7.02 cents per pound, while 10 percent earned 
less than 4.32 cents per pound.\41\ The sample data ranged across all 
growers and all contract types, but research has also shown that 
payments can range widely within specific contract types and within 
individual grower pools, creating revenue uncertainty for growers.\42\
---------------------------------------------------------------------------

    \41\ MacDonald (June 2014) Op. Cit.
    \42\ Knoeber, Charles R. and Walter N. Thurman. ``Testing the 
Theory of Tournaments: An Empirical Analysis of Broiler 
Production.'' Journal of Labor Economics 12 (April 1994). Levy, 
Armando and Tomislav Vukina. ``The League Composition Effect in 
Tournaments with Heterogeneous Players: An Empirical Analysis of 
Broiler Contracts.'' Journal of Labor Economics 22 (2004).
---------------------------------------------------------------------------

    Perhaps even more concerning than the range of grower contract 
payments are the low returns on equity for poultry operations. 
According to USDA's Economic Research Service (ERS),\43\ a special 
survey conducted in 2011 showed average returns on equity were negative 
for operations with one to two poultry houses, and increased with the 
size of the operation to a maximum of 2.7 percent among operations with 
six or more houses. These figures were well below rates of return on 
equity reported for manufacturing, mining, and trade corporations in 
the Quarterly Financial Reports of the U.S. Census Bureau for the same 
period. They were also below average rates of return on equity for 
large and midsize U.S. farms.
---------------------------------------------------------------------------

    \43\ MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the 
Agricultural Resource Management Survey--Version 4, Financial and 
Crop Production Practices, 2011, and U.S. Census Bureau, 2011 
Quarterly Financial Report (QFR): Manufacturing, Mining, Trade, and 
Selected Service Industries. https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf; accessed 1/19/2022.
---------------------------------------------------------------------------

    Growers must be able to evaluate their return on equity--a measure 
of a business's profitability relative to the equity invested in it--to 
remain solvent. However, many factors, including monopsonistic and 
oligopsonistic market structures, incomplete contracts, uncertainty 
about the required level of skill and involvement, and asymmetrical 
information, make calculation of return on equity difficult for 
growers. The structure of the contracts themselves results in such a 
wide range of potential grower financial outcomes that it is difficult 
for growers to make reliable profitability

[[Page 34987]]

projections. Absent such information, growers face an ongoing risk of 
deception in their contracting and operational decisions, risks which 
AMS believes can be mitigated through the provision of the information 
and transparency provided under this rule.

D. Asymmetrical Information

    As explained earlier, one symptom of incomplete contracts is 
asymmetrical information. This occurs when one party to a contract has 
more and/or better critical information than the other party. For 
example, because live poultry dealers determine grower pay, they have 
access to records of the payments made to each grower, and have 
information regarding the complete range of payments across growers 
with birds delivered for processing in each week. The individual 
grower--both existing and prospective--however, lacks the same ready 
access to this information. Additionally, dealers have information 
related to (and also control) strategic decision making that may 
include placement frequency, stocking densities, and input quality and 
distribution--factors that influence the weight and performance 
elements that comprise individual flock payments and influence grower 
payments in the long term. It is unlikely that poultry growers are 
privy to information about the range of grower payments or dealers' 
strategic decision making. As a result, they lack key information 
needed to make informed decisions with respect to the range of 
financial risks they face.
    Prospective growers can draw upon information provided by poultry 
specialists in state cooperative extension services and by lenders, but 
those sources do not have live poultry dealers' internal data on the 
full range of payments or their frequencies and, as a result, typically 
base financial modeling and advice on average levels of payments 
received by growers, not on the full range of payments.\44\ Existing 
growers know what they have been paid, and may elicit further 
information from other growers, but likewise lack complete integrator 
information on the range of grower payments, making it difficult for 
them to accurately project future earnings based on the past experience 
of similarly situated growers and, as such, to gauge their ability to 
meet financial obligations.
---------------------------------------------------------------------------

    \44\ See, for example, Doye, Damona Grace, et al. ``Broiler 
Production: Considerations for Potential Growers'' Oklahoma 
Cooperative Extension Service, (March 2017); Rhodes, Jennifer and 
Jonathan Moye. ``Broiler Production Management for Potential and 
Existing Growers'', University of Maryland Extension, (October 
2017); and Cunningham, Dan L., and Brian D. Fairchild. ``Broiler 
Production Systems in Georgia, Costs and Returns Analysis 2011-
2012.'' University of Georgia Cooperative Extension (June 2011).
---------------------------------------------------------------------------

    Some live poultry dealers provide pro forma income estimates to 
prospective growers and lenders. Grower advocate groups have complained 
these estimates are generally based on simple ``average pay'' 
projections, which are insufficient given fluctuations in grower 
payments, particularly under the tournament system.\45\ AMS has 
observed these projections lack standardization making it difficult for 
growers to compare estimates among multiple dealers. Additionally, the 
assumptions underlying the projections such as number of placements, 
stocking densities, target weight are subject to dealer discretion and 
in many cases the estimates themselves are expressly disclaimed in the 
production agreement.
---------------------------------------------------------------------------

    \45\ ``A Poultry Grower's Guide to FSA Loans,'' Rural 
Advancement Foundation International, July 2017, available at 
https://www.rafiusa.org/blog/a-poultry-growers-guide-to-fsa-loans/.
---------------------------------------------------------------------------

    These risks are particularly acute when growers must make key 
investment decisions for their operation, such as whether or not to 
enter the poultry business and whether or not take on or invest in new 
or expanded facilities, all of which can be expected to involve 
incurring debt. AMS believes that the provision of the information in 
this rule will reduce the risks of these information asymmetries and 
enable growers to improve their decision-making and risk-management.
    USDA's Farm Services Agency (FSA), which manages a loan guarantee 
program, has also recognized repayment reliability concerns related to 
informational asymmetries and their effect on poultry grower payments 
and total revenues.
    In order to reduce FSA's exposure under the loan guarantee program, 
the FSA Handbook requires the following of poultry production contracts 
in order to assess their ``dependability.'' \46\ Contracts must:
---------------------------------------------------------------------------

    \46\ USDA Farm Service Agency, Guaranteed Loan Making and 
Servicing 2-FLP (Revision 1) pp. 8-86 (October 2008). https://www.fsa.usda.gov/internet/FSA_File/2-flp.pdf; accessed 1/3/2022.

 be for a minimum period of 3 years
 provide for termination based on objective ``for cause'' 
criteria only
 require that the grower be notified of specific reasons for 
cancellation
 provide assurance of the grower's opportunity to generate 
enough income to ensure repayment of the loan by incorporating 
requirements such as a minimum number of flocks per year, minimum 
number of bird placements per year, or similar quantifiable 
requirements.

    Enhanced and more reliable transparency in the poultry production 
contracting process is likely to assist FSA's in effectuating the 
mandates under the loan guarantee program as set forth in its handbook.

E. Poultry Grower Concerns

    In 2010, USDA held a series of workshops in conjunction with the 
Department of Justice to hear from producers about concentration and 
trade practice issues in Agriculture. Normal, Alabama, hosted one such 
session with an emphasis on the poultry industry. Globally, growers 
complained that their success or failure is dependent on factors 
controlled by their integrators. Further, growers are troubled by the 
lack of choice among integrators in many regional relevant markets, 
which further enhances the bargaining position of integrators.\47\ 
Grower public comments at the workshop were consistent with numerous 
comments submitted to USDA on the 2010 and 2016 GIPSA rules and 
identified specific areas of concern in the poultry industry.
---------------------------------------------------------------------------

    \47\ See Domina, David A. and Robert Taylor. ``The Debilitating 
Effects of Concentration Markets Affecting Agriculture,'' Drake 
Journal of Agricultural Law 15 (May 2010): 61-108. See also Leonard, 
Christopher, The Meat Racket (2014).
---------------------------------------------------------------------------

    Growers expressed concerns about contract dependency, uncertainty 
of pay, and informational asymmetries related to farm revenues and 
debt. Poultry growers have indicated they lack control over and even 
information about certain crucial production factors controlled by live 
poultry dealers, such as the anticipated frequency and density of flock 
placements and bird target weight under poultry growing arrangements, 
factors that heavily influence grower payments on an individual flock 
basis and over the long term.\48\
---------------------------------------------------------------------------

    \48\ Transcript, United States Department of Justice, United 
States Department of Agriculture, Public Workshops Exploring 
Competition in Agriculture: Poultry Workshop May 21, 2010; Normal, 
Alabama.
---------------------------------------------------------------------------

    Growers cited the level of control and discretion reserved to 
integrators under their contracts, remarking how discretionary 
decisions related to flock placements, housing specifications, 
tournament grouping,\49\ and other production factors can significantly 
affect grower revenue and profitably. Many growers were worried that 
contract terms did not cover the time required to repay the debt on 
their farms, noting that additional capital investments, such as those 
necessitated

[[Page 34988]]

by integrator's housing specifications, can plunge growers into further 
debt without assurances of adequate or stable returns. Growers 
indicated they do not have adequate information with which to assess 
original and additional capital investments because pay rates alone are 
insufficient for long-term revenue estimates without assumptions 
related to integrator discretionary production decisions.\50\ Concerns 
have also been raised regarding the use of deficient and unreliable 
``pro forma'' financial estimates during the contracting process.
---------------------------------------------------------------------------

    \49\ The effect of tournament groupings, or league composition, 
is an area requiring additional exploration and research. It is not 
directly addressed in this proposal.
    \50\ Transcript, United States Department of Justice, United 
States Department of Agriculture, Public Workshops Exploring 
Competition in Agriculture: Poultry Workshop May 21, 2010; Normal, 
Alabama.
---------------------------------------------------------------------------

    Finally, poultry growers have complained to USDA about being 
prohibited by dealers from asserting their rights under the current 
regulations to discuss poultry growing contracts with government 
representatives, family members, lenders, and other business 
associates. Some growers allege they have been threatened or retaliated 
against for asserting those rights.
    As explained in section II.A., AMS believes that poultry growing 
arrangements are often incomplete contracts that may be deceptive when 
omissions or inadequate descriptions of key terms mislead, camouflage, 
conceal, or otherwise inhibit growers' ability to assess the financial 
feasibility and expected value of investment. For example, for a grower 
to estimate future revenues, it is necessary for the grower to know how 
many flocks the dealer will place with the grower over a given time 
period. When contract terms do not establish the number of flocks a 
grower will receive during that time period, the grower could be misled 
or deceived into believing he will receive an optimistically high 
number of placements, which might increase the grower's willingness to 
contract with the dealer. This risk is particularly acute if the 
financial statements or estimates provided to the grower paint only the 
most optimistic picture possible regarding the returns that may be 
possible under complex and opaque payment arrangements, such as the 
commonly used tournament ranking system, rather than the range of 
realistically expected outcomes. If poultry contracts contain more 
material terms relating to revenue over the life of the agreement, we 
believe the potential for deception is reduced significantly.
    AMS considers this imbalance of information, or ``asymmetrical 
information,'' as described in the previous section, an important 
consideration for this rulemaking. We recognize that neither dealers 
nor growers can predict market conditions far into the future. Yet 
given the substantial investment from the grower, together with the 
greater ability for dealers to monitor market trends, adjust 
contracting, and otherwise hedge risks, we believe these upfront and 
ongoing information asymmetries could be effectively mitigated through 
the disclosure regime that will be outlined later in this rule.
    AMS believes that by providing critical information that addresses 
the risks that growers face, the rule would encourage greater certainty 
and confidence among growers, encourage investment, and enhance the 
overall competitive market for grower services. As for growers' ability 
to assert their rights without fear of retaliation, we note that the 
current regulations, at 9 CFR 201.100(b), already require live poultry 
dealers to allow poultry growers to discuss the terms of their 
contracts with government agencies, family members, and business 
associates and advisors, regardless of confidentiality provisions in 
the contracts. However, it may be appropriate to shed more light on 
those rights. AMS believes the proposed transparency enhancements would 
further aid growers in identifying illicit conduct of this type.

III. Poultry Grower Pay Systems

    As discussed in section I.C.3.--Poultry Grower Compensation, the 
majority of poultry growers are paid on an individual flock basis, 
where the calculation for grower payments can be expressed as: Farm 
Weight (in pounds) x Feed Conversion (in dollars) = Grower Pay. Farm 
weight is a nearly universal measure among all poultry grower pay 
systems; however, the metrics and formulas for determining feed 
conversion vary among pay systems and between integrators.
    Poultry grower pay systems can be categorized as either ranking or 
non-ranking. The most common non-ranking pay system is called ``fixed-
performance.'' Pay systems that rank growers are called ``poultry 
grower ranking systems'' or ``tournaments.'' In this section we focus 
on the characteristics of--and challenges associated with--tournament 
pay systems, but we begin with a brief description of fixed-performance 
pay systems for comparison.

A. Fixed-Performance Pay Systems

    Under fixed-performance production contracts, growers are paid a 
base rate for each animal or for the farm weight delivered to the 
processor. These contracts generally adjust payments based on fixed 
performance standards. For example, farmers with lower animal mortality 
or higher conversion of feed to live weight might receive higher pay. 
These are called fixed performance contracts because although 
compensation may fluctuate, the performance elements are tied to fixed 
standards.\51\ In contrast, under grower ranking pay systems, 
performance elements are relative standards tied to the performance of 
other growers.
---------------------------------------------------------------------------

    \51\ Tsoulouhas, Theofanis, and Tomislav Vukina. ``Regulating 
Broiler Contracts: Tournaments Versus Fixed Performance Standards.'' 
American Journal of Agricultural Economics 83 (2001).
---------------------------------------------------------------------------

B. Tournament Pay Systems

    The majority of growers producing poultry under production 
contracts are paid under a poultry grower ranking or ``tournament'' pay 
system.\52\ Under poultry grower ranking systems, the contract between 
the live poultry dealer and the poultry grower provides for payment to 
the grower based on a grouping, ranking, or comparison of poultry 
growers delivering poultry to the dealer during a specified period. In 
a simplified example, the live poultry dealer places flocks with ten 
growers under contract to deliver the same size of finished poultry to 
the dealer's processing plant at the end of a specified growout period. 
Upon harvest, each grower's performance (e.g., farm weight and feed 
conversion) is determined. The dealer then compares individual grower 
results against average results for all growers in the group, and ranks 
individual growers according to their relative performance within the 
group of ten growers. Grower base pay rate is adjusted by the grower's 
deviation from average within the tournament grouping for that specific 
growout period. For example, a contract-based pay rate of $.06 per 
pound might be adjusted to $.0725 for an above average grower, while a 
below average grower may be paid $.048.
---------------------------------------------------------------------------

    \52\ MacDonald (June 2014) Op. Cit. See footnote 20 on page 27 
citing ARMS data from 2011 that reported 97% of broilers are grown 
under contract, with 93% of contracts tied to relative performance.
---------------------------------------------------------------------------

    Payments under tournament contracts still vary with flock mortality 
and feed conversion, but in tournament contracts, the performance 
elements are not fixed targets. The performance elements are compared 
to average performance results from a tournament group, which is group 
of growers delivering poultry to the plant during the same time period 
(usually within a week). Growers who exceed the group's average 
performance get higher payment, while growers who

[[Page 34989]]

fall short of the group average receive lower pay. The grower payment 
equation's feed conversion variable is modified by its deviation from 
average performance, and a specific grower's pay varies with his/her 
ranking against the average. Grower pay rates vary depending on the 
performance of other growers, even if a specific grower's performance 
remains unchanged or even improved compared to their performance in 
previous growout periods.

IV. Poultry Grower Ranking Systems

A. Tournament Settlements

    9 CFR 201.100(d) and 9 CFR 201.100(f) are important parts of the 
existing tournament payment disclosure regime under the Packers and 
Stockyards Act. This proposal builds on the existing disclosure 
concepts by incorporating new transparency into the distribution of 
inputs, which is an area of particular concern to growers.
    Currently, 9 CFR 201.100(d) requires all live poultry dealers to 
prepare and furnish a settlement sheet to a poultry grower at the time 
of settlement. Under that regulation, the settlement sheet must contain 
all information necessary to compute the grower's payment, including, 
if applicable, the number of birds marketed, the total weight and 
average weight of the birds, and the payment per pound. Further, Sec.  
201.100(f) requires live poultry dealers who pay growers under a 
tournament system to furnish growers with a grouping or ranking sheet 
at the time of settlement that shows the grower's precise position in 
the grouping or ranking sheet for that period. Currently, the grouping 
or ranking sheet need not disclose names of other growers, nor the 
housing specifications for each tournament participant, but must show 
the actual figures used to compute each grower's position within the 
ranking for that period. Neither section currently requires the live 
poultry dealer to provide information about the distribution or nature 
of integrator inputs among settlement participants.
    The tournament ranking sheet required under Sec.  201.100(f) 
provides growers with numeric data comparing their performance and the 
performance of other growers in the tournament. While the numeric data 
describes the relationship between grower performance, as assessed by 
the integrator, and settlement payments, its value is limited without 
information about the distribution of integrator inputs among 
tournament participants. Poultry grower commenters on the 2010 and 2016 
GIPSA rules stated that without knowing how inputs they receive compare 
to inputs provided to other growers within their tournaments, growers 
cannot determine whether differences in pay are due strictly to grower 
skill or to other factors beyond their control.

B. Tournament Payments as a Measure of Grower Skill, Effort, and 
Innovation

    In comments submitted to USDA on the 2010 and 2016 GIPSA rules, 
live poultry dealers suggested that tournament systems benefit poultry 
growers by offering financial incentives and rewards to growers who 
invest time and effort into their poultry growing operations. They 
asserted that the competition inherent in tournaments fosters grower 
innovation and increased efficiency, and rewards those growers who are 
the most efficient and provide the best services. They also stated that 
tournament pay systems reward above-average growers that are willing to 
take risks or improve their production systems. One poultry processing 
company stated that contract broiler growers are paid for their 
services based on a formula that rewards efficiency, ingenuity, and 
good animal welfare and animal husbandry practices.
    Comments from some poultry growers and others associated with the 
industry concurred with those of processors, indicating that the 
opportunity to earn higher compensation for superior performance under 
tournament systems motivates above-average growers to work hard, invest 
in their facilities, and utilize innovative technology.
    At the same time, other growers dispute this. Indeed, growers often 
comment on wide swings in grower rankings from flock to flock, where 
the same individual grower ranks high in one tournament and much lower 
in another. One available analysis confirms significant volatility in 
grower rankings from flock to flock,\53\ This suggests that while 
grower experience and skills can lend to consistently successful 
individual flock performance, a grower's relative success in 
tournaments might be attributed to other factors.
---------------------------------------------------------------------------

    \53\ Taylor, C. Robert, and David A. Domina, ``Restoring 
Economic Health to Contract Poultry Production.'' Report prepared 
for the Joint U.S. Department of Justice and USDA/GIPSA Public 
Workshop on Competition Issues in the Poultry Industry (May 2010).
---------------------------------------------------------------------------

    Input variability is commonly cited by grower commenters as a key 
explanation for ranking volatility. We discuss the distribution of 
inputs and the effects of input variability on tournament rankings and 
grower payments in the following sections.

C. Distribution of Inputs Among Tournament Participants

    Grower experience and skill, the technical specifications and 
relative sophistication of the housing, and other factors, such as the 
makeup of tournament groupings or inconsistent grower effort, may all 
affect performance. In this section, we explain how integrator 
decisions about inputs provided to tournament growers can also impact 
growers' relative performance.
    Under the tournament system, dealers control the source of inputs 
and the distribution of those inputs to growers. In section I.C.4.--
Live Poultry Dealer Inputs--AMS has provided evidence that the range of 
inputs is nonhomogeneous. The range of inputs is selected to satisfy 
customer or product requirements, as well as efficiency in the 
slaughter process, presumably at the lowest costs. Input distribution 
has not been studied extensively, and little information is available 
in the public domain. In response to prior USDA rulemaking efforts, 
dealers have denied or downplayed the significance of input variability 
and its effect on bird performance. The existence of non-homogeneity 
and the persistence of grower complaints raise questions about dealer 
input allocation practices and the extent to which tournament parity 
and cost efficiency are balanced, or whether other factors may also be 
at play.
    For example, if a complex has three breeder farms with different 
aged flocks, it may be costly or even impracticable for integrators to 
evenly distribute chicks from the three breeder flocks in identical 
ratios to all settlement participants. Similar cost considerations 
might play a role in distribution where breed and sex variation are 
present. In another example, supply considerations may play a role in 
stocking density differences among settlement participants. As a 
result, growers settled together could be allocated flocks with some 
level of variance in attributes. None of those input variances would be 
materially affected by incentives for uniformity of product or 
processing plant efficiency; they would be premised cost efficiencies.

D. Input Variability and Grower Payment

    Tournament payments are based on relative measurements, including 
poultry mortality, morbidity, feed use efficiency, and growth rate, 
among tournament participants. As discussed earlier, the attributes of 
various integrator-controlled inputs can affect those measurements. 
Therefore,

[[Page 34990]]

variability between the inputs provided to growers in a tournament can 
affect relative outcomes. Here we briefly review those inputs and 
explain how uneven distribution of inputs may affect tournament grower 
rankings and payments.
    1. Stocking Density: Variability in stocking densities among 
poultry growers in settlement pools are likely to result in farm weight 
and feed conversion disparities among settlement participants. If one 
or more growers in a tournament receive flocks with fewer birds than 
what would be optimal, and those flocks do not achieve optimal feed 
conversion efficiency, those growers may not rank as high as their 
tournament competitors who receive flocks of optimal stocking 
density.\54\ Thus, the input variability has the potential to affect 
tournament grower payments.
---------------------------------------------------------------------------

    \54\ Stocking density is a function of the desired weight of 
uniformly sized birds at harvest. A placement with a specified 
number of smaller birds would have the same density as a placement 
with the same number of larger birds. Smaller birds would just take 
somewhat longer to get there.
---------------------------------------------------------------------------

    2. Breed Ratios: As described in section I.C.4.b., different 
poultry breeds convert feed to weight gain with varying efficiency. 
Thus, differences between the breeds or ratios of breeds of poultry 
flocks placed with individual growers within a tournament group may 
ultimately affect each grower's relative performance and tournament 
ranking. Depending on the specific breeds involved, USDA has connected 
variances in the distribution of poultry breeds or breed ratios with 
farm weight disparities,\55\ affecting grower pay.
---------------------------------------------------------------------------

    \55\ Tyson Farms, Inc. 71 Agric. Dec. 1065, 1160 (U.S.D.A. 
2012).
---------------------------------------------------------------------------

    3. Gender ratios: As explained in section I.C.4.c., The majority of 
integrators use straight-run (not sorted by gender) flocks to supply 
farms. AMS would not view the placement of randomized straight-run 
flocks as an input variability if all tournament growers received 
randomized straight-run flocks, since the ratio of males to females in 
each flock would be randomized and not dictated by the integrator. 
However, integrators placing sexed flocks, or integrators supplementing 
straight-run flocks with sexed flocks, may create input variability in 
the distribution of birds that could result in farm weight and feed 
conversion disparities.
    4. Breeder Flock Age: As discussed in section I.C.4.d., the age of 
breeder flocks is correlated with egg and chick size, mortality, and 
eventual weight gain. Variability between the ages of breeder flocks 
producing the young poultry placed with different growers in a 
tournament may result in farm weight and feed conversion disparities at 
the end of growout, which may impact the rankings and payments to 
individual growers in that tournament.
    5. Breeder Flock Health: Placing birds from breeder flocks of 
varying health with tournament participants may affect each flock's 
performance and thus each grower's ranking and pay. Other factors, such 
as variations between facility sanitation practices and performance may 
exist among breeder facilities within the same complex, and may impact 
progeny growout performance, creating an input variability when poultry 
sourced from multiple breeder farms are settled together.
    6. Feed Disruptions: As described in section I.C.4.f., bird growth 
may be affected by feed disruptions (where poultry go without feed for 
a certain length of time), possibly resulting in less farm weight, 
which affects grower tournament rankings and payments. Feed disruptions 
for any cause, if they do not affect all growers equally, may 
constitute an input disparity that can affect grower ranking and pay.
    7. Medications: The integrator may find it necessary to supply one 
or more flocks with veterinary medicines or supplements during flock 
growout. Such treatments, when provided on a flock-by-flock basis, may 
impact relative flock performance and grower pay.
    As described in the previous section, an integrator's input 
allocation decisions are impacted by cost efficiencies that may be 
inconsistent with individual growers' interests, including risk 
management and earnings maximization. But variability in integrator-
provided inputs among settlement participants can ultimately influence 
settlement rankings and payments. Thus, tournament participants prefer 
some level of parity in input distributions, or at least mitigation of 
any disparities, in order to evaluate whether grower compensation is 
related to grower management and skill or correlated with ``favorable'' 
inputs.

E. The Need for Transparency

    Input variability among settlement participants have long been a 
point of contention between growers and integrators because growers are 
not involved in input distribution decisions, and any balancing between 
cost efficiency and parity is not transparent. With respect to this 
input variability, growers have repeatedly complained in public forums 
and to USDA of retaliation, discrimination, and other disputes arising 
in connection with distributions of inputs, including in ways that 
result in significant economic harm to growers.\56\
---------------------------------------------------------------------------

    \56\ See, e.g., Transcript, United States Department of Justice, 
United States Department of Agriculture, Public Workshops Exploring 
Competition in Agriculture: Poultry Workshop May 21, 2010, Normal, 
Alabama; Leonard, Christopher, The Meat Racket (2014).
---------------------------------------------------------------------------

    AMS has not identified research regarding whether variability in 
inputs between tournament growers affects grower outcomes. However, 
some existing research establishes the effects of certain inputs on 
poultry growth and feed conversion.
    We believe growers' assertions regarding the connection have merit. 
AMS is aware that integrators collect input information for private 
use,\57\ although we do not know whether it includes information about 
how inputs are distributed among individual growers. Nevertheless, 
growers complain that this information, which could be useful to them 
in flock management, is not generally provided to them.
---------------------------------------------------------------------------

    \57\ For example, integrators may contract with Agristats, a 
chicken, turkey, commercial egg, and swine industry research 
company, to collect input information and compare such information 
against similar organizations in the industry. Agri Stats, Inc. 
Partnership and Services, https://www.agristats.com/partnership.
---------------------------------------------------------------------------

    At the 2010 Normal, Alabama, workshop referenced earlier, contract 
poultry growers further raised significant concerns regarding the 
design and operation of tournament systems. Commenters asserted that 
the high degree of integrators' control over the inputs, the reliance 
that growers have on the inputs for outcomes under the system, and the 
opacity of the tournament calculations fostered a range of risks, 
including risks relating to deception. These include the inability to 
verify the accuracy of payments, the inability to measure and manage 
risks, and the ways in which tournament systems can mask or facilitate 
hard-to-detect forms of discrimination or retaliation for disputes 
arising under the poultry growing arrangement.
    These concerns reflect similar issues of market power and 
information asymmetry discussed earlier. Where integrators have made 
business decisions to procure and distribute inputs in a manner that 
most suits their cost structure and business strategies, poultry 
growers have limited- or no ability to negotiate, including for 
information that would enable them to avoid, mitigate, or manage the 
risks arising from the integrator's decisions. Growers may or may not 
be able to discern from a visual inspection of the flocks certain 
important information,

[[Page 34991]]

such as breeder age, to which the integrator is privy. Other 
information, such as bird sex, may be more readily available to the 
integrator than to the grower.
    Their lack of information at the time of placement about the 
specific inputs delivered to growers exposes them to the performance 
risks described in section IV.D. associated with the variability of 
those inputs. Those performance risks may manifest in in tournament 
ranking. Similarly, the absence of input distribution information at 
the time of settlement undermines growers' ability to manage their 
operations to address those performance risks. In both cases, growers 
are disadvantaged in their performance by a lack of information outside 
of their control. Conversely, the ability of growers to monitor and 
measure input differences is especially important for mitigating risks 
relating to the accuracy of payments and the ways in which tournament 
systems may mask or facilitate hard-to-detect forms of discrimination 
or retaliation for disputes.\58\
---------------------------------------------------------------------------

    \58\ One example of deception risk is the alleged practice of 
dealers offering more lucrative contracts to attract new growers but 
then reducing the pay once the grower is secured and in debt, 
(Taylor and Domina 2010; Vukina and Leegomonchai 2006). See also 
Vukina, T. 2001. Vertical integration and contracting in the US 
poultry industry. Journal of Food Distribution Research 81: 61-74.
---------------------------------------------------------------------------

    AMS believes that tournament growers need information about input 
distribution--particularly at the stage where the input is provided--
when they could apply, to the extent possible, their experience and 
skills to the adjustment of flock management as necessary in response. 
For example, a grower is informed he has received a salmonella infected 
broiler flock, which will present with loose, runny stools that can 
cause floors to cake quickly, leading to burnt paws and increased 
coccidiosis. A grower aware of the condition can manage the flock 
through use of migration fences early in flock and with increased 
ventilation to remove excess ammonia and to help dry floors. These 
management adjustments may be departures from normal growout procedure, 
but could lower mortality, decrease condemnations, and result in higher 
farm weights and feed efficiency. Thus, improved outcomes would benefit 
growers and integrators alike.
    Further, growers seek transparency regarding flock input 
distribution among tournament participants so they can individually 
assess the relationships between input variability, grower management 
and skills, and tournament payments. Such information is also 
particularly important, when shown together with housing 
specifications, for growers to assess the relative value and necessity 
of making additional capital investments. Put another way, failure to 
make this information available to growers puts them at risk of making 
very expensive investments with very little insight into their value 
and risks involved.
    For both at placement and settlement disclosures, growers have 
expressed a mistrust of live poultry dealers when information about 
flock placements is not transparent. Improving transparency is intended 
to reduce concerns relating to input distribution and may help 
establish a higher degree of trust in the integrity of the marketplace.
    Finally, relative ranking systems (tournament) premised on grower 
skill, effort, and innovation should measure and compensate based upon 
those merits. Pay systems highly correlated with individual input 
variability may be inconsistent with the merit premise and demonstrate 
misrepresentations and deception in the operation of tournament pay 
systems.

V. Proposed Regulations

    AMS proposes to address concerns related to market power imbalance 
and asymmetrical information in poultry grower contracting by revising 
the regulations at 9 CFR part 201 that effectuate the Packers and 
Stockyards Act. AMS intends the proposals to better balance the 
quantity, quality, and type of critical information poultry growers, 
prospective poultry growers, and live poultry dealers have as they 
enter into and operate under poultry growing arrangements. AMS expects 
that these proposed rules would improve transparency and reduce the 
risk of deception in the contracting process. This section provides 
detailed descriptions and explanations for the proposals.

A. Definitions

    Section 201.2--Terms defined--of 9 CFR part 201 provides 
definitions for terms used in the regulations. AMS proposes to revise 
Sec.  201.2 by removing the paragraph designations within the section, 
reorganizing the definitions alphabetically, and adding definitions for 
new terms used in the proposed rule. Proposed additions to the list of 
terms defined in Sec.  201.2 are described as conforming changes in 
connection with the proposed regulatory changes described below.
    Additionally, to ensure a common understanding of the use and 
meaning of certain terms already used in the regulations and in the 
proposed regulatory revisions, AMS proposes to incorporate into Sec.  
201.2 the statutory definitions for those terms. Specifically, the term 
poultry grower means any person engaged in the business of raising and 
caring for live poultry for slaughter by another, whether the poultry 
is owned by such person or by another, but not an employee of the owner 
of such poultry. The term live poultry dealer means any person engaged 
in the business of obtaining live poultry by purchase or under a 
poultry growing arrangement for the purpose of either slaughtering it 
or selling it for slaughter by another, if poultry is obtained by such 
person in commerce, or if poultry obtained by such person is sold or 
shipped in commerce, or if poultry products from poultry obtained by 
such person are sold or shipped in commerce. The term commerce means 
commerce between any State, Territory, or possession, or the District 
of Columbia, and any place outside thereof; or between points within 
the same State, Territory, or possession, or the District of Columbia, 
but through any place outside thereof; or within any Territory or 
possession, or the District of Columbia. Finally, the term poultry 
growing arrangement means any growout contract, marketing agreement, or 
other arrangement under which a poultry grower raises and cares for 
live poultry for delivery, in accord with another's instructions, for 
slaughter.
    AMS invites comments on proposed additions to the list of 
definitions, including those described later in this section. Please 
explain fully all views and suggestions, supplying examples and data or 
other information to support your views where possible.

B. Disclosure

    To address concerns identified in the section on Poultry Growing 
Arrangements earlier in this document, including industry concerns 
related to dealer transparency in poultry growing arrangements, AMS 
proposes to amend Sec.  201.100--Records to be furnished poultry 
growers and sellers. Currently, 9 CFR 201.100 describes the documents 
that live poultry dealers must provide to poultry growers within 
certain timeframes. Paragraph (a) of Sec.  201.100 requires a dealer to 
provide the grower with a true written copy of the offered poultry 
growing arrangement on the date the dealer provides poultry housing 
specifications to the grower. Paragraph (b) requires live poultry 
dealers to allow growers to discuss the terms of poultry growing 
arrangement offers with a Federal or State agency, the growers' legal 
and financial advisors and lenders, other growers for the same dealer, 
and

[[Page 34992]]

family members or other business associates with whom growers have 
valid business reasons for consulting about the offered poultry growing 
arrangements. Paragraph (c) specifies required contents of the poultry 
growing arrangement, including contract terms and information about 
payment calculations and performance improvement plans. Paragraph (d) 
requires dealers to furnish growers with settlement sheets and 
supporting documents showing how grower pay is calculated. Paragraph 
(e) requires dealers to obtain USDA condemnation or grading 
certificates for poultry and to provide copies to growers at 
settlement. Paragraph (f) requires dealers to provide growers in a 
poultry grower ranking system copies of grouping or ranking sheets that 
show growers their precise positions within the grouping or ranking for 
that period, as well as the actual figures rankings are based upon. 
Paragraph (g) requires dealers who purchase live poultry to provide 
detailed purchase invoices, including applicable USDA condemnation or 
grading certificates, to poultry sellers at the time of settlement. 
Finally, paragraph (h) requires dealers to provide notices regarding 
termination or non-renewal of poultry growing arrangements to affected 
growers at least 90 days before termination. Under paragraph (h), 
dealers must provide the reason for a termination, the effective date 
of the termination, and information about grower appeal rights with the 
dealer. Further, dealers must provide the opportunity for growers to 
notify dealers in writing at least 90 days before the scheduled 
termination of a poultry growing arrangement of the grower's intent to 
terminate the arrangement.
    Specifically, AMS proposes to amend Sec.  201.100 by revising 
paragraph (a); redesignating paragraphs (b) through (h) as paragraphs 
(h) through (n), respectively; moving current paragraph (f) to a new 
regulatory section that addresses poultry grower ranking systems 
specifically; adding new paragraphs (b) through (g); and revising 
redesignated paragraph (i).
    Proposed revisions to Sec.  201.100(a) would modify the heading to 
read ``Disclosures and records to be furnished poultry growers and 
sellers'' and would require the dealer to provide the prospective or 
current poultry grower with the Live Poultry Dealer Disclosure Document 
(the Disclosure Document), as described in proposed new paragraph (b) 
of the section, in addition to the true written copy of the poultry 
growing arrangement, under three different scenarios. A proposed 
conforming change to Sec.  201.2 would define the term prospective 
poultry grower to mean a person or entity with whom the live poultry 
dealer is considering entering into a poultry growing arrangement. AMS 
would add this definition to distinguish between a current or existing 
poultry grower who has previously entered into a poultry growing 
arrangement with the dealer and a grower who has not signed a contract. 
The proposed requirements for live poultry dealers are somewhat 
different depending on the status of growers with whom they are 
working.
    Under the first scenario, provided in proposed new Sec.  
201.100(a)(1), a dealer seeking to renew, revise, or replace an 
existing poultry growing arrangement (or newly establish a poultry 
growing arrangement) that does not contemplate modifications to 
existing housing specifications would be required to provide both the 
poultry growing arrangement and the Disclosure Document at least seven 
days before the dealer executes the poultry growing arrangement. This 
proposal is intended to give growers adequate time to consider all the 
information provided and consult with others as needed before 
committing to the new, revised, or replacement poultry growing 
arrangement. Because this scenario involves growers already familiar 
with their dealers, and because in this scenario the contract renewal 
does not involve additional capital investment, we believe seven days 
would provide time for adequate review. AMS proposes to exempt certain 
small businesses from this requirement, as described in the discussion 
about proposed new Sec.  201.100(e)below.
    AMS proposes a conforming change to Sec.  201.2 to add a definition 
for housing specifications to mean a description of--or document 
relating to--a list of equipment, products, systems, and other 
technical poultry housing components required by a live poultry dealer 
for the production of live poultry. Live poultry dealers commonly 
develop multiple housing specifications. Accordingly, by defining this 
term, AMS does not intend to limit live poultry dealers to a single 
housing specification. Another proposed definition would define Live 
Poultry Dealer Disclosure Document to mean the complete set of 
disclosures and statements that the live poultry dealer must provide to 
current or prospective poultry growers.
    Under a second scenario, as described in proposed new Sec.  
201.100(a)(2), a dealer seeking to enter into a poultry growing 
arrangement that would require the grower to make an original capital 
investment to comply with the dealer's housing specifications would be 
required to provide the grower with a true written copy of the poultry 
growing arrangement, the housing specifications, the Disclosure 
Document, and a letter of intent simultaneously. Because the Disclosure 
Document and letter of intent would be required to accompany the 
housing specifications, growers would have more information with which 
to assess economic and financial considerations prior to obtaining 
financing for the original capital investment. This proposal is 
intended to give the grower and their lender adequate time to consider 
all the information provided and consult with others as needed, and to 
provide assurance with which to move forward with the necessary 
financing. A letter of intent would signal to the prospective poultry 
grower and their prospective lender that the dealer's contract offer is 
earnest and that the preliminary terms of the agreement should be 
assessed to determine practical and financial feasibility. Further, 
having the letter of intent would allow the poultry grower to discuss 
proposed or required upgrades to existing housing specifications with 
lenders and other advisors while considering whether to make those 
modifications and financial investments. Growers, working with their 
lenders, can establish an appropriate period to review and assess the 
disclosure document and letter of intent prior to undertaking the 
investment.
    A proposed conforming change to Sec.  201.2 would add a definition 
for letter of intent to mean a document that expresses a preliminary 
commitment from a live poultry dealer to engage in a business 
relationship with a prospective poultry grower and that includes the 
chief terms of the agreement.
    Another proposed revision to Sec.  201.2 would add a definition for 
original capital investment to mean the initial investment for 
facilities used to grow, raise, and care for poultry or swine. The 
proposed definition for original capital investment uses similar 
language as the existing definition for additional capital investment, 
and is intended to help differentiate between situations where a new or 
prospective grower would be required to make an initial capital 
investment for poultry housing in order to become a poultry grower and 
where a current grower has already made a capital investment related to 
poultry housing requirements.
    Finally, under the third scenario, as described in proposed new 
Sec.  201.100(a)(3), a live poultry dealer seeking to offer or impose 
modifications to existing housing specifications that

[[Page 34993]]

could reasonably require the current poultry dealer to make an 
additional capital investment would be required to provide the grower 
simultaneously with a true written copy of the poultry growing 
arrangement, modified housing specifications, the Disclosure Document, 
and a letter of intent. AMS expects the majority of growers will seek 
financing for additional capital investments, and the simultaneous 
production of the three documents is designed to (1) provide growers 
with improved information with which to assess the new capital 
investment, and (2) allow growers to establish appropriate timelines 
for contemplating the investment. Additional capital investment, as it 
pertains to poultry production, is defined in the current regulations 
at Sec.  201.2(n) as a combined amount of $12,500 or more per structure 
paid by a poultry grower over the life of the poultry growing 
arrangement beyond the initial investment for facilities used to grow, 
raise, and care for poultry. The term includes the total cost of 
upgrades to the structure, upgrades of equipment located in and around 
each structure, and goods and professional services that are directly 
attributable to the additional capital investment. The term does not 
include costs of maintenance or repair.
    The requirement in current Sec.  201.100(a) to provide true written 
copies of the poultry growing arrangement, whether to establish a new 
arrangement or to renew, revise, or replace an existing arrangement, 
helps improve transparency in the new or ongoing relationship between 
the live poultry dealer and the prospective or current poultry grower, 
which mitigates the information asymmetries and other deception-related 
concerns discussed above. AMS would retain that requirement under the 
proposed rule. AMS believes providing written documents helps ensure 
that both parties have the opportunity to read and understand all the 
terms of the poultry growing arrangement. Further, the requirement in 
current Sec.  201.100(a) to provide a copy of the poultry growing 
arrangement at the same time housing specifications are disclosed 
ensures transparency about the dealer's expectations regarding the 
grower's responsibility under the arrangement. Under the proposed 
revisions to Sec.  201.100(a), and in the three scenarios described 
above, the required documents and the timelines for providing them are 
determined according to whether new or revised housing specifications 
are involved.
    In each of the three scenarios presented above, the live poultry 
dealer must provide the grower with the Disclosure Document. The 
Disclosure is a set of documents prepared by the live poultry dealer. 
AMS believes providing the Disclosure Document to growers along with 
the true written copy of the poultry growing arrangement, housing 
specifications, and letter of intent, where applicable, would help 
mitigate the asymmetric information problem described earlier in this 
document by giving growers more information with which to assess 
poultry growing arrangements and efficiently allocate resources.
    The contents and format of the Disclosure Document cover pages 
would be provided in proposed new Sec.  201.100(b)--Prominent 
disclosures. Proposed Sec.  201.100(b) would specify the elements to be 
included with the cover pages of the Disclosure Document, including 
basic information about the live poultry dealer, key points in the 
poultry growing arrangement, and precise language for certain notices 
the dealer must make to the grower. In conjunction with the requirement 
to include specific language in the Disclosure Document, AMS is 
requesting Office of Management and Budget (OMB) approval of a new 
information collection, as described more fully in the Paperwork 
Reduction Act section of this proposed rule. AMS is proposing to 
provide a downloadable and printable electronic form containing the 
required language described in proposed Sec.  201.100(b). The proposed 
form is for the use of live poultry dealers and is intended to reduce 
the burden of creating such a form and simplify compliance with the 
requirement to make certain notifications to poultry growers.
    Proposed new Sec.  201.100(b)(1) would require the Disclosure 
Document cover page to include the title ``LIVE POULTRY DEALER 
DISCLOSURE DOCUMENT'' in capital letters and bold type. Proposed Sec.  
201.100(b)(2) would require the live poultry dealer to list their name, 
type of business organization, principal business address, telephone 
number, email address, and if applicable, primary internet website 
address. Proposed Sec.  201.100(b)(3) would require the dealer to 
specify the length of the term of the poultry growing arrangement. 
Including this information at the front of the Disclosure Document 
clearly identifies for growers the live poultry dealer and the 
associated poultry growing arrangement under consideration.
    Under proposed Sec.  201.100(b)(4), the live poultry dealer would 
be required to include a notice to the grower that, ``The income from 
your poultry farm may be significantly affected by the number of flocks 
placed on your farm each year, the stocking density or number of birds 
placed with each flock, and the target weight at which poultry is 
caught. The poultry company may have full discretion and control over 
these and other factors. Please carefully review the information in 
this document.'' Then, under proposed Sec.  201.100(b)(5), the dealer 
would be required to state the minimum number of poultry placements and 
the minimum stocking density, which is the ratio that reflects the 
minimum weight of poultry per facility square foot the live poultry 
dealer intends to harvest from the grower following each growout.
    New poultry growers may not understand how the discretionary 
actions of live poultry dealers affect grower payments. The majority of 
poultry growers are paid on the basis of farm weight multiplied by a 
feed conversion variable. A live poultry dealer exercising discretion 
in placements, stocking density, and target weight is directly 
affecting that poultry weight basis. Cautioning growers about the 
potential impact of dealer-controlled inputs and providing growers with 
the minimum number of flocks and minimum stocking density of flocks to 
be placed with the grower annually under the poultry growing 
arrangement would help growers assess the projected baseline value of 
their poultry growing arrangement. As discussed above, the provision of 
this information would mitigate the information asymmetries and other 
deception-related risks AMS has identified. It would enable growers to 
more accurately measure their financial commitments and risks based on 
information that they would otherwise be unable to obtain. It would 
also mitigate the risks of being attracted by the integrator or any 
other party into a poultry growing arrangement, or an additional 
capital expenditure in furtherance of one, based on overly optimistic 
scenarios.
    AMS proposes to make conforming changes to Sec.  201.2 by adding 
definitions for the terms placement, minimum number of placements, 
growout, stocking density, and minimum stocking density. Placement 
would be defined as the delivery of a poultry flock to the poultry 
grower for growout. Minimum number of placements would mean the least 
number of flocks of animals the live poultry dealer will deliver to the 
grower for growout annually under the terms of the poultry growing 
arrangement. Growout would be defined as the period of time between 
placement of livestock or poultry on a farm and the harvest or delivery 
of such animals for

[[Page 34994]]

slaughter, during which the feeding and care of such livestock or 
poultry are under the control of the farmer. Stocking density would be 
defined to mean a ratio that reflects the number of birds in a 
placement, generally expressed as head or pounds per square foot of the 
poultry growing facility or facilities. Minimum stocking density would 
be defined to mean the ratio that reflects the minimum weight of 
poultry per facility square foot the live poultry dealer intends to 
harvest from the grower following each growout.
    Under proposed Sec.  201.100(b)(6), the live poultry dealer would 
be required to include one of two alternative statements, depending on 
whether the offered poultry growing arrangement includes housing 
specifications that require or could reasonably require an original or 
additional capital investment under one of the scenarios described 
earlier in connection with proposed Sec.  201.100(a). If the new, 
renewed, revised, or replacement poultry growing arrangement does not 
contemplate modifications to existing housing specifications, the 
dealer would include the statement in proposed Sec.  201.100(b)(6)(1) 
in the Disclosure Document cover pages. The statement explains the 
grower's right to read the Disclosure Document and all accompanying 
documents carefully, and notes that the live poultry dealer is required 
to provide the current or prospective poultry grower with the 
Disclosure Document and a copy of the poultry growing arrangement at 
least seven calendar days before the dealer executes the poultry 
growing arrangement. Alternatively, if the dealer offers a new poultry 
growing arrangement that would require the current or prospective 
poultry grower to make an original capital investment, as in proposed 
Sec.  201.100(a)(2), or offers or imposes modifications to existing 
housing specifications that could reasonably require the current 
poultry grower to make an additional capital investment, as in proposed 
Sec.  201.100(a)(3), the dealer would be required to include the 
statement in proposed Sec.  201.100(b)(6)(ii). The statement explains 
the grower's right to read the Disclosure Document and all accompanying 
documents carefully, and notes that the live poultry dealer is required 
to provide the poultry grower with the Disclosure Document, a copy of 
the poultry growing arrangement, the new or modified housing 
specifications, and the letter of intent simultaneously. Inclusion of 
one of these statements in the Disclosure Document cover pages is 
intended to notify poultry growers of their rights under the 
regulations and indicate what documents they should receive from the 
live poultry dealer within the described timeframes.
    Under proposed Sec.  201.100(b)(7), the live poultry dealer would 
be required to include a statement notifying the poultry grower that 
the terms of the poultry growing arrangement will govern the grower's 
relationship with the live poultry dealer's company. The proposed 
statement would further notify the poultry grower of their right, 
notwithstanding any confidentiality provision in the poultry growing 
arrangement, to discuss the terms of the poultry growing arrangement 
and the Disclosure Document with a Federal or State agency; the 
grower's financial advisor, lender, legal advisor, or accounting 
services representative; other growers for the same live poultry 
dealer; and a member of the poultry grower's immediate family or a 
business associate. The proposed statement would explain that a 
business associate is a person not employed by the poultry grower, but 
with whom the current or prospective grower has a valid business reason 
for consulting when entering into or operating under a poultry growing 
arrangement.
    AMS believes requiring this statement in the Disclosure Document 
cover pages would help growers understand their rights under the Act 
and the regulations and avert deception of growers. In the past, 
industry stakeholders have reported to USDA that they believed the 
terms of their poultry growing arrangements forbid growers from 
discussing those arrangements with Federal and State agencies, other 
growers for the same live poultry dealer, and other advisors. 
Commenters on previous proposed rulemakings have reported fearing 
reprisals from live poultry dealers for discussing their poultry 
growing arrangements with others, although the current regulations 
specify, at Sec.  201.100(b), that live poultry dealers must allow 
poultry growers to do so. The proposed requirement to include this 
statement in the Disclosure Document cover pages would advise poultry 
growers that they have the right to discuss the terms of the poultry 
growing arrangement with the entities listed, regardless of 
confidentiality provisions that may be included in the arrangement. 
Further, AMS is proposing to redesignate Sec.  201.100(b) as Sec.  
201.100(h) and to revise the language to provide that the live poultry 
dealer cannot prohibit current or prospective poultry growers from 
discussing the terms of a poultry growing arrangement offer or the 
accompanying Live Poultry Disclosure Document with the entities listed 
above. The remainder of redesignated Sec.  201.100(h) would remain 
unchanged.
    Finally, proposed Sec.  201.100(b)(8) would require the live 
poultry dealer to include the following sentence in bold type in the 
Disclosure Document cover pages: ``Note that USDA has not verified the 
information contained in this document. However, if it contains any 
false or misleading statement or a material omission, a violation of 
federal and/or state law may have occurred.'' With this language, AMS 
intends to clarify that the Disclosure Document is not subjected to 
agency review prior to submission to poultry growers, and that legal 
recourse may be available for some present and future controversies 
related to the Disclosure Document and the poultry growing arrangement.
    Proposed Sec.  201.100(c)--Required disclosures following the cover 
page--would specify the information live poultry dealer must provide in 
the Disclosure Document following the cover pages. Under proposed Sec.  
201.100(c)(1), the dealer would be required to provide a summary of 
litigation over the previous six years between the live poultry dealer 
and any poultry grower, including the nature of the litigation, its 
location, the initiating party, a brief description of the controversy, 
and any resolution. Information about a live poultry dealer's 
litigation with poultry growers within the relevant period, 
particularly the basis of the litigation and the volume of litigation 
relative to the number of growers with whom the dealer contracts, would 
help growers identify conflict origins and better assess potential risk 
of conflict.
    Proposed Sec.  201.100(c)(2) would require the live poultry dealer 
to provide a summary of all bankruptcy filings in the previous six 
years by the dealer and any parent, subsidiary, or related entity of 
the live poultry dealer. Bankruptcy of the live poultry dealer poses a 
very real financial risk to grower financial returns. It is unclear to 
AMS to what extent lenders analyze these issues. While bankruptcy 
proceedings should be public, that does not mean growers would be aware 
of the proceedings or where the live poultry dealer might be in an 
ongoing process. Recent or current bankruptcy filing is an indicator 
relating to the financial health of the live poultry dealer, which a 
poultry grower may need to consider when deciding whether to enter or 
continue a contractual relationship with the dealer.
    Proposed Sec.  201.100(c)(3) would require the live poultry dealer 
to provide a statement that describes the

[[Page 34995]]

dealer's policies and procedures regarding the potential sale of the 
poultry grower's farm or assignment of the poultry growing arrangement 
to another party. AMS believes it is important for poultry growers to 
have this information when considering a poultry growing arrangement, 
because growers may encounter future scenarios where they choose or are 
forced to exit poultry farming. These scenarios might include the 
unfortunate death or disability of the grower or the prospect of other 
occupational opportunities, etc. However, in some situations, farm 
sales and assignments might be contingent on approval from the live 
poultry dealer. Growers informed of these policies and procedures would 
have the opportunity to develop a coherent strategy, should they desire 
to exit poultry farming.
    Under Sec.  201.100(d)--Financial disclosures--of this proposed 
rule, live poultry dealers would be required to provide certain 
additional information in the Disclosure Document. Under proposed Sec.  
201.100(d)(1), dealers would be required to provide a table showing 
average annual gross payments to poultry growers for the previous 
calendar year. The table would be organized by housing specification as 
required for growers in each complex located in the United States that 
is owned or operated by the live poultry dealer.\59\ The table would be 
required to express average payments on the basis of U.S. dollars per 
farm facility square foot. Under Sec.  201.100(d)(2), live poultry 
dealers would be required to provide tables showing quintiles of 
average annual gross payments to poultry growers at the local complex 
for each of the previous five years.\60\ Again, average payments would 
be expressed on the basis of U.S. dollars per farm facility square 
foot. Further, the required tables would be organized by year, housing 
specification tier, and quintile. The proposed provision would describe 
the process dealers should use to calculate and normalize table values. 
A proposed conforming change to Sec.  201.2 would add a definition for 
complex, meaning a group of local facilities under the common 
management of a live poultry dealer. The definition would explain 
further that a complex may include, but not be limited to, one or more 
hatcheries, feed mills, slaughtering facilities, or poultry processing 
facilities.
---------------------------------------------------------------------------

    \59\ Most dealers do not own or operate growout facilities, but 
they do own everything else around which the growout facilities are 
organized--i.e., the complex. The complex commonly includes the 
processing plant and feed mill, and may include other production 
facilities. Growers produce for a particular local complex, even 
though the dealer may own more than one local complex and other 
complexes around the country. Depending on the technical needs for 
optimizing poultry growth for each product type, the dealer may have 
multiple different housing specifications for growers who produce 
different products for the complex. So, the required table would 
show average payments to growers in each of the different housing 
specifications at the complex.
    \60\ The word ``local'' in this discussion is used to 
differentiate between the complex with which the grower may be 
considering a contract, and all the other complexes a dealer may 
own.
---------------------------------------------------------------------------

    AMS is proposing to require live poultry dealers to provide recent 
average revenue information relating to growers at all the live poultry 
dealer's U.S. complexes to illuminate the range of payments to growers 
throughout the country. This information would allow growers to better 
assess housing specifications and related payment variability elsewhere 
in relation to what is offered at the local complex. AMS is proposing 
to require dealers to provide historical revenue information relating 
to growers in the same local complex because the information would give 
the current or prospective poultry grower considering a poultry growing 
arrangement a fairer picture of potential earnings under the 
arrangement and would help the grower evaluate whether those earnings 
would be sufficient to meet personal and business financial 
obligations. As described earlier, research shows poultry grower 
payments range widely above and below the mean received by contract 
growers. As well, payments range widely between specific contracts and 
grower pools. AMS believes providing quintiles for the previous five 
years, as proposed, organized by housing specification tier and 
normalized by square footage payments, would give growers information 
with which to better assess projected payments under the poultry 
growing arrangement. We believe that providing insights into the 
variability of cash flow within any given year would enable growers to 
make informed business decisions, manage risk, and improve farm 
management.
    Proposed Sec.  201.100(d)(3) would provide that if the housing 
specifications for poultry growers under contract with the live poultry 
dealer in the local complex may be modified so that an additional 
capital investment may be required, or if for some other reason annual 
gross payment averages for the previous five years do not accurately 
represent expected future grower payment averages, the live poultry 
dealer also would be required to provide the grower annual payment 
projections for the term of the poultry growing arrangement under 
consideration by housing specification and quintile, as under proposed 
Sec.  201.100(d)(2). The dealer would also be required to explain why 
the historical data does not provide an accurate representation of 
future earnings. AMS is proposing this conditional requirement because 
there are situations in which historical data may not accurately 
reflect future projections. For example, changes in pay rates, pay 
systems, housing specifications, growout models, stocking densities, or 
number of annual placements are generally discretionary functions of 
the live poultry dealer. These decisions can directly impact grower 
payments. Live poultry dealers considering or undertaking actions 
related to the aforementioned functions would be obligated to provide 
grower payment projections to allow growers to determine the financial 
feasibility of the upgrades and make better informed business 
decisions. Standardized grower payment projections would include 
realistic expectations about future earnings. Nothing in the proposed 
provision would prohibit a live poultry dealer from providing grower 
payment projections even if they were not required to do so under Sec.  
201.100(d)(2).
    Under proposed Sec.  201.100(d)(4), the live poultry dealer would 
be required to provide a summary of any information the dealer collects 
or maintains pertaining to grower variable costs inherent to poultry 
production. A proposed conforming change to Sec.  201.2 would add a 
definition for grower variable costs to mean those costs related to 
poultry production that may be borne by the poultry grower, including, 
but not limited to, utilities, fuel, water, labor, repairs and 
maintenance, and liability insurance. Based on discussions with 
integrators and other in the industry, AMS has found that many 
integrators collect this data to inform grower pay rates. Thus, AMS 
believes that live poultry dealers routinely collect and maintain this 
information, and that providing such information to poultry growers 
considering a poultry growing arrangement would help growers make 
informed decisions about their participation in the poultry production 
business.
    Finally, under proposed Sec.  201.100(d)(5), the live poultry 
dealer would be required to supply the contact information for the 
State university extension service office or the county farm advisor's 
office that can provide relevant information to the current or 
prospective poultry grower about grower costs and poultry farm 
financial management in the grower's geographic area. AMS believes that 
growers can benefit from the expertise and

[[Page 34996]]

experience, as well as the information publicly available, from these 
sources, if they choose to access it.
    Proposed Sec.  201.100(e)--Small live poultry dealer financial 
disclosures--would exempt live poultry dealers who, in conjunction with 
any or all of the parent or subsidiary companies, slaughter fewer than 
2 million live pounds of poultry weekly (104 million pounds annually) 
from the requirement to provide the Disclosure Document under proposed 
Sec.  201.100(a)(1). Eighty-nine live poultry dealers file annual 
reports with AMS, and that number includes non-integrated processors 
and integrators who do not use the contract production model. According 
to AMS data, of that number, 47 live poultry dealers could be exempt 
under certain circumstances from the requirement to provide the 
Disclosure Document because they slaughter fewer than 2 million pounds 
of poultry weekly or 104 million pounds annually. The exemption would 
apply only if the new, renewed, or replacement contract offered by one 
of these dealers does not include revisions to existing housing 
specifications that would require the grower to make new or additional 
capital investments. AMS is proposing this exemption in order to ease 
the burden on smaller live poultry dealers. Often smaller operators 
have a smaller pool of growers, and many of those growers are using 
facilities that have been in production for many years, and are 
unlikely to be required to make changes. AMS believes the risk and 
impact of deception is reduced in this context and may not justify the 
effort and expense to develop the Disclosure Document required of 
larger business entities.
    AMS is proposing to add new Sec.  201.100(f)--Governance and 
certification, which would require the live poultry dealer to 
establish, maintain, and enforce a governance framework that is 
reasonably designed to review and ensure the accuracy and completeness 
of the Disclosure Document, and ensure the live poultry dealer's 
compliance with all its obligations under the Act and the regulations. 
We believe a governance framework and anti-fraud protections would help 
ensure sufficiently high-level corporate attention and legal 
accountability. Under proposed Sec.  201.100(f), the framework must 
include audits and testing, as well as reviews of an appropriate 
sampling of Live Poultry Dealer Disclosure Documents by the principal 
executive officer or officers. The principal executive officer, or a 
person performing similar functions, of the live poultry dealer's 
company would be required to certify that the company complies with the 
governance framework requirement and that the Disclosure Document is 
accurate and complete. Current civil and criminal actions \61\ related 
to price fixing in the poultry industry, including admissions of 
guilt,\62\ suggest the potential for a conspiracy of deception among 
live poultry dealers. AMS believes that an audit and testing 
requirement, combined with officer reviews and certification are 
appropriately tailored to ensure the procedures used to produce the 
Disclosure Document and the information contained therein are sound and 
accurate.\63\ The framework retains flexibility to enable integrators 
to design a framework appropriate to manage the risks relating to the 
preparation of compete and accuracy disclosures. As explained earlier, 
AMS is proposing to develop and provide a disclosure form with 
standardized language, which live poultry dealers can download and 
print. The proposed form would include a certification statement the 
dealer must sign.
---------------------------------------------------------------------------

    \61\ ``Four Executives and Company Charged with Price Fixing in 
Ongoing Investigation into Broiler Chicken Industry''. Justice News, 
U.S. Department of Justice Office of Public Affairs, July 29, 2021. 
Press Release. (referencing indictments against Koch Foods and 
former Pilgrim's Pride executives).
    \62\ Department of Justice Press Release No. 21-172. ``One of 
the Nation's Largest Chicken Producers Pleads Guilty to Price Fixing 
and is Sentenced to a $107 Million Criminal Fine''. February 23, 
2021.
    \63\ Audits, testing, and executive review and certification of 
regulatory compliance requirements are found in several regulatory 
regimes involving important market compliance protocols. These 
include section 302 of the Sarbanes-Oxley Act (Pub. L. 107-204; 116 
Stat. 745) and the Title XIII of the Bank Holding Company Act (12 
U.S.C. 1851 et seq.) and regulations thereunder, commonly known as 
the Volcker Rule, including revisions designed to simplify the rule. 
See, ``Subpart D--Compliance Program Requirements'' (12 CFR 248.20, 
and discussion in 79 FR 556); ``Revisions to Prohibitions and 
Restrictions on Proprietary Trading and Certain Interests in and 
Relationships With, Hedge Funds and Private Equity Funds'' (84 FR 
61974).
---------------------------------------------------------------------------

    Under proposed Sec.  201.100(g)--Receipt by growers--a live poultry 
dealer would be required to include in the Disclosure Document a 
signature page. The signature page would be required to include this 
statement: ``If the live poultry dealer does not deliver this 
disclosure document within the time frame specified herein, or if this 
disclosure document contains any false or misleading statement or a 
material omission (including any discrepancy with other oral or written 
statements made in connection with the poultry growing arrangement), a 
violation of federal and state law may have occurred. Violations of 
federal and state laws may be determined to be unfair, unjustly 
discriminatory, or deceptive and unlawful under the Packers and 
Stockyards Act, as amended. Allegations of such violations may be 
reported to the Packers and Stockyards Division of USDA's Agricultural 
Marketing Service.'' The live poultry dealer would further be required 
to obtain the current or prospective grower's dated signature on the 
signature page as evidence that the dealer provided the required 
documents according to specified timeframes. The dealer would be 
required to provide a copy of the dated signature page to the grower 
and would be required to retain a copy of the dated signature page in 
the dealer's records for three years following expiration, termination, 
or non-renewal of the poultry growing arrangement. AMS believes growers 
should be able to rely on the Disclosure Document for its intended 
purpose to further inform poultry growers of items related to their 
poultry growing arrangement. Growers should be aware that false or 
misleading statements and/or material omissions contained in the 
Disclosure Document may form a basis for legal action. AMS has an 
interest in ensuring poultry growers receive the Disclosure Document 
and accompanying documents in the appropriate timeframe, which would 
afford growers time to review all pertinent documents and information 
before they are required to sign binding contracts. Requiring live 
poultry dealers to collect and retain proof of compliance would ensure 
compliance with the proposed regulation.
    In presenting this information to current and prospective growers, 
the disclosure document is expected to reduce information asymmetry and 
the risk of deception. AMS believes the proposed disclosure document 
would make growers better aware of risks related to the poultry growing 
arrangement and furnish growers with information that may currently be 
available only to dealers. The disclosure document would clarify for 
growers the high degree of control and influence the live poultry 
dealer exerts over critical production factors that affect the business 
success of growers' operations. Additionally, it would help prospective 
growers assess the degree to which their own skill and effort may or 
may not influence their pay.
    AMS invites comments on various aspects of the proposal to require 
live poultry dealers to disclose specific information to prospective 
and current poultry growers in the Disclosure Document as described 
above. Please fully explain all views and alternative solutions or 
suggestions, supplying

[[Page 34997]]

examples and data or other information to support those views where 
possible. While comments on any aspect of the Disclosure Document are 
welcome, AMS specifically solicits comments on the following:
    1. Would the amount and type of information required help poultry 
growers make informed business decisions and better understand the 
poultry growing arrangement, or otherwise better address deception 
risks that growers may face in the poultry contracting process and in 
the operation of a poultry growing arrangement?
    2. What items might be added to or deleted from the proposed 
requirements to make the Disclosure Document most useful? Is any of the 
required information extraneous? Is any material information relevant 
to the poultry contracting process, including the terms in and risks of 
poultry growing arrangements, missing and should be added? Please 
explain what and why.
    3. What specific challenges or burdens might dealers face in 
collecting and disseminating the information to be included in the 
Disclosure Document? Would this require dealers to modify their 
business model? What specific modifications would be required and why?
    4. Do the proposed timelines for providing the Disclosure Document 
enable a grower to make an informed decision? Do these timelines create 
challenges for dealers or growers? If so, please explain why and 
suggest a more appropriate length of time.
    5. Are there additional instances where a revision to the 
Disclosure Document would be appropriate? If so, please explain.
    6. Is the wording of the proposed Disclosure Document and the 
disclosures that may be expected to arise under it readily 
understandable? If not, please suggest changes for improvement, 
including means to ensure that any disclosures in the Disclosure 
Document are readily understandable.
    7. Are there circumstances in which the dealer should be required 
to provide the Disclosure Document in a language other than English? 
Are other business materials provided in other languages already? If 
so, please describe those circumstances and comment on the benefits and 
additional burden of such a requirement.
    8. Are the proposed Disclosure Document statements regarding a 
poultry grower's right to read the Disclosure Document and to share the 
document and consult with certain other entities about the contents 
useful for growers? Or, for example, should growers be given additional 
notifications regarding where they can find out more about their legal 
rights under the Packers and Stockyards Act, such as a USDA summary of 
or a link to those rights? Or, would less information be appropriate? 
Why or why not?
    9. Are there additional advisories to poultry growers that should 
be required in the Disclosure Document cover pages? If so, please 
explain why and suggest appropriate language for such notices.
    10. Are there other risks inherent to poultry production about 
which growers should be informed prior to making major business 
decisions? If so, please explain and suggest appropriate language for 
such advisories.
    11. Are the proposed disclosures regarding the financial health and 
integrity of the live poultry dealer adequate to enable growers to make 
sound business decisions? Why or why not?
    12. Are there certain legal violations or other matters which could 
call into question the financial health or integrity of the live 
poultry dealer such that they should be disclosed?
    13. Is the proposed disclosure regarding the dealer's policy on 
sale-of-farm circumstances adequate to ensure transparency and 
effective grower decision making?
    14. Should we require dealers to disclose policies and procedures 
for determining whether disaster or sick flocks are caused by the 
integrator or grower and how growers will be compensated under each 
scenario? Or, where a dealer maintains policies that do not remove sick 
flocks from the tournament, should we require additional disclosures 
regarding sick flock risks to the grower? Why or why not?
    15. Should we require dealers to disclose the contractual grounds 
for termination or suspension of the poultry growing arrangement? Why 
or why not?
    16. Are there any other policies and procedures that dealers should 
be required to disclose? For example, should we require disclosure of 
policies and procedures around tournament groupings, compensation 
incentives of the dealers' representatives, or how growers may appeal 
or report determinations or actions?
    17. Are the proposed disclosures relating to grower payment history 
and projections adequate to enable poultry growers to make sound 
business decisions, are the proposed metrics appropriate, and is the 
local complex the appropriate standard? What, if any, other information 
should be required, and why? If so, how should it be provided?
    18. Is our estimation of the recordkeeping burden related to 
disclosing grower payment history appropriate? Why or why not?
    19. Could certain types of financial disclosures facilitate harmful 
coordination by integrators? Why or why not? If so, how could the risk 
of harmful coordination be mitigated?
    20. What effect, if any, would the required financial disclosures 
have on the lending system and on the provision of credit to growers?
    21. Would the provision of information about grower variable costs 
benefit growers? Why or why not?
    22. Have we listed the appropriate items regarding the grower 
variable costs dealers should enumerate and disclose to growers? For 
example, should we specify that dealers disclose information about 
costs related to compliance with environmental regulations, energy, 
water, and waste disposal? Are the timing of housing upgrades, 
including financing costs, reasonably predictable enough by dealers 
such that those costs should be considered part of grower variable 
costs during the poultry growing arrangement? Why or why not?
    23. Is the estimated burden to dealers related to providing 
information about grower variable costs justified by the value to 
growers of having the information? Why or why not?
    24. What types of information about grower variable costs do 
dealers currently collect? Are or how could dealers be incentivized to 
collect any information that they do not collect, or otherwise obtain 
such information in a reasonable manner?
    25. How else can USDA refine and improve the disclosure regime 
outlined in this proposal? For example, would additional detail around 
the scope or definition of deception under the Packers & Stockyards Act 
be useful for implementing this disclosure regime--for example, a 
definition such as ``Deception shall mean a material representation, 
omission, or practice that is likely to mislead a reasonable livestock 
or poultry producer or grower''? Why or why not?
    26. Is the proposed exemption from the Disclosure Document 
requirements for small businesses under certain circumstances 
appropriate? What risks or benefits are there in providing such 
exemptions? Are there other approaches--such as different thresholds--
we should consider that could be appropriately tailored to small live 
poultry dealers?

[[Page 34998]]

    27. Is the proposed governance structure appropriate and sufficient 
for ensuring the accuracy of information provided in the Disclosure 
Document? Why or why not?
    28. Is the proposed governance structure appropriate for dealers? 
Please explain the burden and how it could be mitigated while providing 
sufficient accountability.
    29. Are there other ways AMS could sufficiently ensure the 
completeness and accuracy of the Disclosure Document, and if so, should 
these replace or be added to any of the proposed provisions?
    30. Should AMS specify the format (e.g., electronic or machine-
readable) in which disclosure records should be maintained? Why or why 
not?
    31. Should AMS collect disclosure data, and if so, how might we use 
such data to enhance compliance and accuracy and monitor for possibly 
deceptive practices?
    32. As proposed, the Disclosure Document requirement would apply to 
live poultry dealers in all segments of the poultry production 
industry. How appropriate are the proposed requirements for all types 
of poultry production? Should the requirement to provide the Disclosure 
Document be limited in application to broiler and turkey production, or 
is it appropriate to apply it to other types of poultry?

C. Contract Terms

    Currently, Sec.  201.100(c)--Contracts; contents--specifies certain 
information that must be included in a poultry growing arrangement. The 
live poultry dealer is required to specify the duration of the contract 
and conditions for termination of the contract by each of the parties, 
all terms relating to the poultry grower's payment, and information 
about a performance improvement plan for the grower, if one exists. As 
mentioned earlier in this document, AMS is proposing to redesignate 
current Sec.  201.100(c) as Sec.  201.100(i). Under this proposed rule, 
AMS would further revise new paragraph (i) by requiring the live 
poultry dealer to specify the minimum number of placements to be 
delivered to the poultry grower's farm annually in each year of the 
contract, and the minimum stocking density of each of those placements. 
As explained earlier, the minimum number of placements and the minimum 
stocking density of each placement under the poultry growing 
arrangement directly impact poultry grower revenues. Both figures are 
crucial to a current or prospective grower's ability to evaluate 
potential earnings under the contract and their ability to and meet 
financial obligations. AMS believes requiring live poultry dealers to 
include this information in poultry growing contracts would improve 
transparency and reduce the risk of deceptive inducement in the 
contracting process. As well, providing such information may allow 
lenders and insurers to better evaluate the desirability of poultry 
loans they are asked to consider.
    AMS does not intend, in this rule, to restrict or influence the 
values provided under these mandatory provisions, but simply to require 
their transparent inclusion in production contracts. Knowing the 
minimum stocking density would allow the grower to predict baseline 
farm weight on a per flock basis. Using the baseline farm weight, the 
grower could calculate a baseline annual income based on the annual 
minimum number of flocks. We believe that requiring live poultry 
dealers to include these two terms in poultry growing arrangements 
would enable poultry growers to better estimate potential baseline 
returns from their operations and assess the expected value of the 
poultry growing arrangements overall, which could in turn foster 
improved debt management and cash flow. Having this information may 
also enable growers, as well as their lenders (private lending 
institutions and public entities that guarantee loans, including FSA), 
to better estimate and manage risks inherent in poultry production, 
including facilitating the acquisition of external insurance and risk 
management products.
    Finally, AMS believes improving transparency in this regard would 
assist growers in better identifying and mitigating deception-related 
risks, including relationship frictions, conflicts of interest, and 
inappropriate conduct, including potential retaliation or 
discrimination. A grower's ability to estimate a contract's expected 
value and appropriately assess its financial feasibility is paramount 
to operational planning and risk management, including managing 
expectations and avoiding poor business decisions. Further, 
establishing a baseline against which to compare the integrator's 
performance under the contract would help growers identify deviations 
from contractual expectations. The rationale for such deviations might 
be contested. However, added transparency would reduce the risk that 
adverse actions by integrators against growers could be hidden and 
growers deceived about whether integrators are fulfilling their 
contractual obligations. Clearer contractual guarantees in particular 
would counter the ability for integrators to strategically reduce 
supply by limiting placements or cutting stocking densities and 
negatively impacting the earnings of growers without the growers being 
able to measure, in a reliable and effective manner, the harm they have 
in fact suffered. Transparency also would discourage the integrator 
from engaging in discriminatory or retaliatory conduct against growers 
because the adverse actions would no longer be hidden. Fortunately, as 
noted above, a more transparent baseline may provide a common floor 
against which both integrator and grower can work together to manage 
and mitigate meaningful market risks.
    The remainder of redesignated Sec.  201.100(i) would remain 
unchanged. As well, the text of redesignated paragraphs (j), (k), (l), 
and (m) of Sec.  201.100 (currently Sec.  201.100(d), (e), (g), and 
(h), respectively), would remain otherwise unchanged under this 
proposed rule.
    AMS solicits comments on the proposal to require a live poultry 
dealer to specify in a poultry growing arrangement the minimum number 
of flocks to be placed with the grower each year under the contract and 
to specify the minimum stocking density of each flock. Please fully 
explain all views and alternative solutions or suggestions, supplying 
examples and data or other information to support those views where 
possible. While comments on any aspect of the revisions to contract 
terms are welcome, AMS specifically solicits comments on the following:
    1. Do the proposed requirements to specify an annual minimum number 
of flocks and a minimum stocking density for each flock under the 
poultry growing arrangement adequately address the need for 
transparency to avoid deception in poultry growing arrangements? Why or 
why not?
    2. Are there alternative solutions we should consider? For example, 
in relation to the guaranteed minimum number of flocks per year, would 
it be more useful to growers and simpler for integrators to express 
that value as a guaranteed number, or range, of days between flocks? 
Why or why not?

D. Poultry Grower Ranking Systems

    To address concerns identified in the section on Poultry Grower 
Ranking Systems earlier in this document, AMS proposes to add a new 
Sec.  201.214--Transparency in poultry grower ranking pay systems. The 
new section would specify the recordkeeping and disclosure requirements 
for live poultry dealers when they group or rank poultry growers 
delivering poultry to the dealer during a specified period for the

[[Page 34999]]

purpose of determining payment to poultry growers. Conforming changes 
would be made to Sec.  201.2 to add definitions for terms used in new 
Sec.  201.214.
    Currently, live poultry dealers are required under the regulations 
at 9 CFR 201.100(d) to furnish poultry growers in poultry grower 
ranking systems with settlement sheets that show the grower's precise 
position in the ranking for that tournament. As explained earlier, 
under this proposed rule, that paragraph would be redesignated Sec.  
201.100(j), retaining the requirement to provide settlement sheets. AMS 
proposes to add a requirement in new Sec.  201.214(a)--Poultry grower 
ranking system records--that would require a live poultry dealer who 
calculates payment under a poultry grower ranking system to produce and 
maintain records showing how certain inputs were distributed among 
participants. Further, the dealer would be required to maintain those 
records for five years. Maintaining records allows USDA or any other 
party with the proper legal authority to collect them for review in the 
course of an investigation or legal action. The term poultry grower 
ranking system, meaning a system where the contract between the live 
poultry dealer and the poultry grower provides for payment to the 
poultry grower based upon a grouping, ranking, or comparison of poultry 
growers delivering poultry during a specified period, would be added to 
Sec.  201.2. The term inputs, would also be added to Sec.  201.2 and 
would be defined as the various contributions to be made by the live 
poultry dealer and the poultry grower as agreed upon by both under a 
poultry growing arrangement. The proposed definition would further 
provide that such inputs may include, but are not limited to, animals, 
feed, veterinary services, medicines, labor, utilities, and fuel.
    Proposed Sec.  201.214(b) would require a live poultry dealer to 
provide certain information about the flock placed with the poultry 
grower within 24 hours of the placement on the grower's farm. 
Specifically, the dealer would be required to provide the flock's 
stocking density, expressed as the number of poultry per facility 
square foot; the ratios of breeds of the flock delivered; the ratios of 
male and female birds in the flock, if the sex of the poultry had been 
determined; the breeder facility identifier; the breeder flock age; 
information regarding any known health impairments of the breeder flock 
and of the poultry delivered to the poultry grower; and what, if any 
adjustments will be made to grower pay to reflect any of these inputs. 
As explained earlier in this document, each of these inputs may 
influence farm weight and feed conversion. In some cases, a poultry 
grower may adjust management practices in response to potential impacts 
of inputs on flock performance. This requirement is intended to equip 
the poultry grower with basic, accurate information at the outset of 
each growout period about the placement that may inform the grower's 
management decisions during growout. Growers armed with this 
information may be better able to efficiently allocate resources during 
flock growout and maximize their individual profitability.
    As conforming changes, AMS proposes to add the following terms and 
their definitions to Sec.  201.2. Breeder facility identifier would be 
defined to mean the identification a live poultry dealer assigns to 
distinguish among breeder facilities supplying eggs for the poultry 
placed in poultry growout operations. These identifiers should be 
permanent, remaining the same from one growout period to the next, so 
that growers can observe patterns, if any, related to the performance 
of flocks originating with different breeders. Live poultry dealers may 
assign alpha or numeric or some other identifier to each farm to keep 
the identity of individual breeder facilities private. Breeder flock 
age would be defined to mean the age of the egg-laying flock that is 
the source of poultry placed on the poultry grower's farm. Depending on 
the type and breed of poultry being raised, the age of the breeder 
flock producing the eggs from which poultry for growout are produced 
may influence the grower's production decisions.
    Under proposed Sec.  201.214(c)--Settlement documents--a live 
poultry dealer employing a poultry grower ranking system to calculate 
settlement payments for poultry growers would be required to provide 
every grower within the tournament ranking system settlement documents 
that show certain information about each grower's ranking within the 
system, as well as the inputs each poultry grower received, for each 
growout period. Proposed Sec.  201.214(c)(1) would reflect language in 
current Sec.  201.100(f) that requires the live poultry dealer to 
provide each poultry grower a copy of a grouping or ranking sheet that 
shows the grower's precise position in the grouping or ranking for that 
growout period. Additionally, the live poultry dealer would be required 
to show the housing specifications and the actual figures upon which 
the grouping or ranking is based for each grower grouped or ranked in 
the system during the specified growout period.
    Under proposed Sec.  201.214(c)(2), live poultry dealers would be 
required to make visible to all grower participants in the poultry 
grower ranking system the distribution of dealer-controlled inputs 
provided to all participants. Specifically, live poultry dealer would 
be required to disclose the stocking density at each grower's 
placement, expressed as the number of poultry per facility square foot. 
The dealer would be required to disclose the ratios of the breeds of 
poultry and the ratios of male and female poultry, if poultry are 
sexed, placed at each poultry grower's farm. The live poultry dealer 
would be required to indicate with the use of breeder facility 
identifiers the source of poultry placed at each poultry grower's 
facility. The dealer would be required to disclose the age of the egg 
laying breeder flock from which each poultry grower's placement is 
produced. The dealer would also be required to report the number of 
feed disruptions of 12 hours or more each grower experienced during the 
growout period. Finally, the live poultry dealer would be required to 
identify any growers' flocks that received any other inputs (such as 
medication) delivered or administered to the poultry on the 
participating growers' facilities during the growout period.
    As mentioned above, live poultry dealers are currently required to 
provide settlement sheets showing each grower's ranking within the 
poultry grower ranking system and to show the actual figures used to 
rank poultry growers for settlement purposes. However, poultry growers 
have complained to USDA that the limited information they get does not 
allow them to effectively evaluate their performance compared to others 
because they don't know how the inputs they receive compare to the 
inputs other growers receive. Nor do they know how their performance 
relates to housing specifications. Further, some growers believe other 
growers within the same poultry grower ranking system receive superior 
inputs to their own.
    AMS believes the settlement information provided under proposed 
Sec.  201.214 would enable growers to make factual comparisons about 
their performance relative to other growers' performance within the 
poultry grower ranking system. As well, growers may begin to recognize 
patterns. For instance, a poultry grower might observe that those 
growers who experienced one or more lengthy feed disruptions ranked 
lower than growers without feed disruptions. Based on that observation, 
the grower might determine

[[Page 35000]]

to place feed orders with the live poultry dealer earlier than they 
have in the past to ensure future flocks have consistent feed supplies. 
Or perhaps growers may identify patterns in performance in relation to 
housing specifications, and make evaluations regarding the relative 
impact of skills and effort versus housing design and adjust their 
business strategies accordingly. Such evaluations and patterns would 
reduce deception risks such as those associated with misplaced efforts 
by growers or over- or underinvestment by growers in attempts to 
operate successfully within the tournament system as designed and 
managed by the integrator.
    The disclosures in proposed Sec.  201.214 could potentially affect 
the poultry grower's business decisions in various ways. For instance, 
poultry growers currently may have limited access to information about 
the poultry breeds, breeder stock age, stocking density, type and 
administration of veterinary medicines, and transportation or other 
integrator inputs provided to themselves and other growers in their 
tournament group. With disclosures under the proposed rule, growers may 
be able to adjust management practices to optimize growout performance 
if they know the poultry's breed or have information about the age and 
health of the breeder flock for their own placements. Additionally, if 
they have information about feed disruptions, different stocking 
densities, veterinary treatments, and other different inputs among all 
growers in the settlement group, poultry growers in tournament systems 
may be better able to recognize performance patterns and reallocate 
their resources to optimize their own growout performance. Poultry 
growers would still receive settlement sheets as currently provided 
under Sec.  201.100(d), which helps growers verify accuracy of 
payments, but they would have the added advantage of being able to 
measure and manage risks and detect possible retaliation or 
discrimination.
    AMS invites comments on the proposed addition of new Sec.  201.214 
to the regulations and on the proposed requirements to provide poultry 
growers in tournament systems with information about inputs both at the 
time of placement and at settlement. Please fully explain all views and 
alternative solutions or suggestions, supplying examples and data or 
other information to support those views where possible. While comments 
on any aspect of the proposed new section are welcome, AMS specifically 
solicits comments on the following:
    1. Is the proposed period for maintaining records relating to the 
distribution of inputs to tournament participants appropriate?
    2. How long such records should be maintained and why?
    3. What burdens does this recordkeeping create for dealers?
    4. How well does the proposed requirement to supply input 
information about each placement to growers at the time of placement 
respond to grower requests for such information?
    5. Is the type or amount of information required appropriate, or 
should certain items be added to or deleted from the list, or otherwise 
modified? More particularly, should information about the contents and 
origin (or mix) of the feed supplied or the provision of veterinary 
services be disclosed to all tournament participants or not? Why or why 
not?
    6. Is the required information useful to a grower's operations or 
not, including in managing risks and otherwise in preventing deception? 
Why or why not?
    7. What benefits or costs may be associated with this requirement, 
and would those benefits or costs be justified?
    8. What specific burdens or challenges might dealers encounter in 
collecting information for placement disclosures?
    9. Would the requirement to provide placement disclosures affect 
dealers' business practices? If so, how?
    10. How well does the requirement to provide input distribution 
information, along with settlement payment information, for all members 
of the tournament respond to grower requests to improve transparency, 
address information asymmetry, and reduce the chance of deception in 
the tournament payment system?
    11. Does the requirement to disclose the housing specifications 
along with settlement payment information improve transparency, address 
information asymmetry, and reduce the chance of deception in the 
tournament payment system? Why or why not?
    12. Would the proposed settlement information help growers evaluate 
and improve, if necessary, their performance, make informed business 
decisions, or mitigate risks? Why or why not?
    13. Is there other information or another way of presenting the 
information that would be better?
    14. Do growers face any obstacles to sharing or discussing 
placement or settlement information with others that should be 
addressed; if so, what are those obstacles and how should they be 
addressed? Should rights to discuss the terms of poultry growing 
arrangement offer apply to all the disclosures proposed by this rule? 
Why or why not?
    15. What specific burdens or challenges would dealers encounter in 
implementing the settlement disclosure, and what strategies might help 
mitigate those burdens or challenges?
    16. How would the proposed changes to settlement disclosures affect 
dealers' business practices?
    17. Under existing regulation 201.100(f), live poultry dealers are 
not required to disclose the names of other growers on ranking sheets. 
Under 201.214 of this proposal live poultry dealers would disclose a 
breeder farm identifier in the settlement disclosures but would not be 
required to disclose the name of breeder farms. Should we reevaluate 
our position on this issue? Why or why not?
    18. Currently, dealers are not required to disclose the names of 
all competing growers on ranking sheets. Should we require dealers to 
disclose the names of all competing growers in settlement documents? 
Why or why not?
    19. Are there other ways of expressing grower identity information 
that would be useful to growers and balance privacy and confidentially 
concerns?
    20. We propose to require dealers to disclose the number of feed 
disruptions each poultry grower endured during the growout period, 
where the grower was completely out of feed for 12 hours or more. Is 
this an appropriate length of disruption to trigger reporting? Should 
we require a shorter time, such as 6 hours? Please explain your views.

VI. Regulatory Analyses

A. Executive Order 12988--Civil Justice Reform

    This proposed rule has been reviewed under Executive Order 12988--
Civil Justice Reform. This proposed rule is not intended to have 
retroactive effect. This proposed rule would not preempt 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 prior to any judicial challenge to the provisions of 
this rule. Nothing in this proposed rule is intended to interfere with 
a person's right to enforce liability against any person subject to the 
Act under authority granted in section 308 of the Act.

[[Page 35001]]

B. Executive Order 13175--Consultation and Coordination With Indian 
Tribal Governments

    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175--Consultation and Coordination with Indian Tribal 
Governments. Executive Order 13175 requires Federal agencies to consult 
with tribes on a government-to-government basis on policies that have 
tribal implications, including regulations, legislative comments or 
proposed legislation, and other policy statements or actions that have 
substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes or the 
distribution of power and responsibilities between the Federal 
Government and Indian tribes.
    This proposed rule may impact individual members of Indian tribes 
that operate as live poultry dealers or poultry growers; however, it 
would not have a direct effect on tribes or the relationship or 
distribution of power and responsibilities between the Federal 
Government and Indian tribes. Therefore, consultation under Executive 
Order 13175 is not required at this time. If a Tribe requests 
consultation, AMS will work with OTR to ensure meaningful consultation 
is provided where changes, additions, and modifications identified 
herein are not expressly mandated by Congress. AMS will also extend 
outreach to ensure tribe members are aware of the requirements and 
benefits under this proposed rule once final.

C. Civil Rights Impact Analysis

    AMS has considered the potential civil rights implications of this 
proposed rule on members of protected groups to ensure that no person 
or group would be adversely or disproportionately at risk or 
discriminated against on the basis of race, color, national origin, 
gender, religion, age, disability, sexual orientation, marital or 
family status, or protected genetic information. This rule does not 
contain any requirements related to eligibility, benefits, or services 
that would have the purpose or effect of excluding, limiting, or 
otherwise disadvantaging any individual, group, or class of persons on 
one or more prohibited bases. In fact, the proposed regulation would 
create means by which AMS may be able to address potential civil rights 
issues in violation of the Act.
    In its review, AMS conducted a disparate impact analysis, using the 
required calculations, which resulted in a finding that Asian 
Americans, Pacific Islanders, and Native Hawaiians were 
disproportionately impacted. The proposed regulations would provide 
benefits to all poultry growers. AMS will institute enhance efforts to 
notify the groups found to be more significantly impacted of the 
regulations and their implications. AMS outreach will specifically 
target several organizations that regularly engage with or otherwise 
may represent the interests of these impacted groups.

D. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), AMS has requested OMB approval of new information 
collection and recordkeeping requirements related to this proposed 
rule. AMS invites comments on this new information collection. All 
comments received on this information collection will be summarized and 
included in the final request for OMB approval. Below is summary 
information on the burdens of these new information collection and 
recordkeeping requirements. Additional detail can be found in the 
Regulatory Impact Analysis (RIA). Comments on this section or the 
details in the RIA will be considered in the final rule analysis.
    Title: Transparency in Poultry Grower Contracting and Tournaments.
    OMB Number: 0581-NEW.
    Expiration Date of Approval: This is a NEW collection.
    Type of Request: Approval of a New Information Collection.
    Abstract: The information collection requirements in this request 
are essential to improve transparency and forestall deception in the 
use of poultry growing arrangements, in accordance with the purposes of 
the Packers and Stockyards Act, 1921. Proposed revisions to the Packers 
and Stockyards regulations would require live poultry dealers to 
provide certain disclosures to poultry growers in advance of entering 
into production contracts. Under the proposal, dealers would have the 
option of using the Live Poultry Dealer Disclosure Form provided by AMS 
to meet the requirements for the cover page that must accompany 
additional dealer-generated disclosure documents as required. 
Alternatively, dealers could develop their own cover page to meet the 
requirement, as long as all the required information is included. 
Poultry growers could use the disclosure information to evaluate the 
accuracy of proposed contracts and make informed business decisions 
regarding financial investments related to poultry production.
    The proposed rule would also require live poultry dealers who group 
and rank poultry growers for settlement purposes to disclose essential 
information to poultry growers about the flocks placed with individual 
growers at the time of placement. Dealers would also be required to 
disclose information about the flocks and associated production inputs 
delivered to all growers in the settlement group, as well as each 
grower's ranking within the group, at the time of settlement. The 
estimates provided below apply only to live poultry dealers who would 
be required to provide the information to growers. Poultry growers 
would not be required to provide information, but would be able to use 
the information provided by live poultry dealers to improve flock 
management practices and evaluate grower treatment under poultry grower 
ranking systems.
Live Poultry Dealer Disclosure Document
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 0.87 hours per response (first 
year), 0.26 hours thereafter.
    Respondents: Live poultry dealers.
    Estimated Number of Respondents: 89.
    Estimated Number of Responses: 23,047.
    Estimated Number of Responses per Respondent: 259.
    Estimated Total Annual Burden on Respondents: 19,993 hours first 
year, 6,066 thereafter.
Poultry Grower Ranking System Records
    Estimate of Burden: Public reporting burden for the collection of 
information is estimated to average 0.29 hours per response (first 
year), 0.10 hours thereafter.
    Respondents: Live poultry dealers.
    Estimated Number of Respondents: 89.
    Estimated Number of Responses: 32,011.
    Estimated Number of Responses per Respondent: 360.
    Estimated Total Annual Burden on Respondents: 9,253 hours first 
year, 3,201 thereafter.
    Comments: Comments are invited on: (1) Whether the proposed 
collection of the information is necessary for the proper performance 
of the functions of the agency, including whether the information will 
have practical utility; (2) the accuracy of the agency's estimate of 
the burden of the proposed collection of information; (3) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (4) ways to minimize the burden of the collection of 
information on those who

[[Page 35002]]

are to respond; including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    AMS estimates each of 89 live poultry dealers would develop an 
average of 259 Live Poultry Dealer Disclosure Documents for poultry 
growers relating to new, renewed, revised, or updated poultry growing 
arrangements, as required under proposed Sec.  201.100. AMS arrived at 
its estimate of 259 developed Disclosure Documents per live poultry 
dealer from AMS records which show 89 live poultry dealers filed annual 
reports with AMS, and their reports indicate that they had 23,047 
growing contracts with poultry growers during their fiscal year 2020. 
AMS divided the 23,047 growing contracts by the 89 live poultry dealers 
to arrive at 259 Disclosure Documents per live poultry dealer. Dealers 
with current contracts with poultry growers would not be required to 
provide the Disclosure Document to those growers unless the dealer is 
proposing modifications to the poultry housing specifications under the 
contract. AMS estimates first year development, production, and 
distribution of the Disclosure Documents, including management, legal, 
administrative, and information technology time, would require an 
average 0.87 hours each, while ongoing annual production and 
distribution of each Disclosure Document would take 0.26 hours. AMS 
arrived at the estimates of the number of hours on an annual basis to 
set up, produce, distribute, and maintain each Disclosure Document by 
dividing the annual number of responses for all live poultry dealers 
(23,047) by the number of hours to set up, produce, and distribute the 
disclosures (19,993 first year hours and 6,066 ongoing hours). AMS 
estimated the number of hours for all live poultry dealers to develop, 
produce, distribute, and maintain each Disclosure Document from the 
number of hours estimated and the expected cost estimates in Tables 1 
and 2 in Appendix 1.
    AMS estimates 89 live poultry dealers would each provide placement 
and settlement records to an average of 360 poultry growers under 
tournament ranking systems, as required under proposed Sec.  201.214. 
AMS estimated the annual number of placement and settlement records by 
multiplying the number of slaughter plants in AMS records from the 
reports that live poultry dealers file with AMS (228) by the average 
number of tournaments at each plant per week from AMS subject matter 
experts (1.35) by 52 weeks. This product is then multiplied by two to 
account for both placement and settlement records. AMS then divided the 
estimated annual number of responses (32,011) by the number of live 
poultry dealers (89) to arrive at its estimate of 360 placement and 
settlement disclosure records for each live poultry dealer on an annual 
basis.
    AMS estimates first year development, production, and distribution 
of the required placement and settlement records, as required under 
proposed Sec.  201.214, including management, legal, administrative, 
and information technology time, would require approximately 0.29 
hours. AMS estimates ongoing annual production and distribution of 
required tournament placement and settlement information would require 
an average of 0.10 hours. AMS arrived at the estimates of the number of 
hours to set up, produce, and distribute, and maintain each Disclosure 
Document on an annual basis by dividing the annual number of responses 
for all live poultry dealers (32,011) by the annual number of hours to 
set up, produce, distribute, and maintain the placement and settlement 
disclosures (19,993 first year hours and 6,066 ongoing hours). AMS 
estimated the number of hours for all live poultry dealers to develop, 
produce, and distribute each placement and settlement Disclosure 
Document from the number of hours estimated and the expected cost 
estimates in Tables 1 and 2 in Appendix 1.
    Under proposed Sec.  201.100(f), live poultry dealers would be 
required to certify as to the accuracy of the Disclosure Document and 
would be required to maintain records relating to the Disclosure 
Document for three years following expiration of the poultry growing 
arrangement. Under proposed Sec.  201.214, live poultry dealers would 
be required to maintain records related to poultry grower tournament 
placements and settlement for five years.
    The required disclosures under proposed 201.100 would include 
essential information about the contract, the live poultry dealer's 
business history, and financial projections the grower could use to 
evaluate entering into the contract. Under the proposal, live poultry 
dealers would be required to provide the Live Poultry Dealer Disclosure 
Document, which includes specified information and boilerplate grower 
notifications. AMS would make available a form--the Live Poultry Dealer 
Disclosure Form--dealers could download from the AMS website as the 
cover pages for Disclosure Document, or they could create their own 
cover pages, as long as all the required information is included. Live 
poultry dealers would be required to obtain grower signatures as 
evidence of compliance with the disclosure requirements, and would be 
required to retain the signature page for three years following 
contract expiration.
    Proposed Sec.  201.214 would also require live poultry dealers who 
group or rank poultry growers for settlement purposes to disclose 
information about each flock of poultry placed with growers for growout 
at the time of placement. Additionally, dealers would be required to 
provide to each poultry grower in the group, at the time of settlement, 
information about the flocks placed with every grower in the group, as 
well as each grower's performance ranking within the group. Growers 
could use placement disclosures to inform flock management decisions 
during growout, and could use settlement disclosures to evaluate their 
growout performance, potentially improve future performance, and 
evaluate whether group members are treated fairly. Live poultry dealers 
would be required to maintain records related to these disclosures for 
five years following settlement.
Costs of Proposed Sec. Sec.  201.100 and 201.214
    The combined costs to live poultry dealers for compliance with the 
reporting and recordkeeping requirements of proposed Sec. Sec.  201.100 
and 201.214 are expected to be $2,436,964 in the first year, and 
$733,609 in subsequent years. The total hours estimated for the live 
poultry dealers to create, produce, distribute, and maintain these 
documents are 29,246 in the first year, and 9,267 in subsequent years. 
Complete details showing how AMS arrived at these cost estimates appear 
in Tables 1 and 2 in Appendix 1.

E. E-Government Act

    USDA is committed to complying with the E-Government Act by 
promoting the use of the internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

F. Executive Orders 12866 and 13563

    AMS is issuing this proposed rule in conformance with Executive 
Orders 12866--Regulatory Planning and Review and 13563--Improving 
Regulation and Regulatory Review, which direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is

[[Page 35003]]

necessary, to select regulatory approaches that maximize net benefits, 
including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity. Executive Order 13563 
emphasizes the importance of quantifying both costs and benefits, 
reducing costs, harmonizing rules, and promoting flexibility.
    In the development of this proposed rule, AMS considered several 
alternatives, which are described in the Regulatory Impact Analysis, 
below.
    The proposed rule is not expected to provide, and AMS did not 
estimate, any environmental, public health, or safety benefits or 
impacts associated with the proposed rule. We request comment on 
potential environmental, public health, or safety impacts of the 
proposed rule as well as data sources and approaches to measure their 
economic implications.
    This proposed rule has been determined to be significant for the 
purposes of Executive Order 12866 and, therefore has been reviewed by 
OMB. Details on the estimated costs of this proposed rule can be found 
in the rule's economic analysis.
    AMS is proposing to amend 9 CFR part 201 by adding new definitions 
to Sec.  201.2, adding contract and disclosure requirements for live 
poultry dealers in Sec.  201.100, and adding new Sec.  201.214 
regarding live poultry dealer responsibilities when they use poultry 
grower ranking systems to settle payments for poultry growers. Based on 
its familiarity with the industry, AMS's Packers and Stockyards 
Division (PSD) prepared an economic analysis of the proposed rule as 
part of the regulatory process. The economic analysis includes a cost-
benefit analysis of the proposed rule. PSD then discusses the impact on 
small businesses.

G. Regulatory Impact Analysis

    As a required part of the regulatory process, AMS prepared an 
economic analysis of the costs and benefits of the proposed Sec. Sec.  
201.100 and 201.214.
    The poultry industry is highly vertically integrated. That is, a 
single entity owns or controls nearly all the steps of poultry 
production and distribution. Poultry production contracts reduce the 
costs for integrators of negotiation with individual growers over the 
purchase of individual flocks of poultry and relieve integrators from 
the burden and risks of owning and maintaining poultry houses. The 
growout portion of production is largely accomplished through contract 
growers, who bear these burdens and risks. Most poultry, and 
particularly broilers, are grown under production contracts.
    The Agricultural Census reported that 96.3 percent of broilers and 
69.5 percent of turkeys were raised and delivered under production 
contracts in 2017. Live poultry dealers place chicks in barns owned by 
contract growers. Typically, live poultry dealers provide young 
poultry, feed, medication, and harvest and transportation services to 
these poultry growers, who house, feed, and tend the growing birds.
    In order to grow poultry on a commercial scale, a poultry grower 
must invest in housing. The investment is substantial. As discussed 
above, it may take $350,000 to $400,000 or more to build one grow 
house, and most farms have multiple houses. The total investment 
required can easily exceed $1 million. Also, the housing is built and 
equipped specifically for the purpose of growing poultry. The costs of 
adapting the housing for any other purpose can be prohibitive.\64\ 
Because the integrators control most aspects of a grower's production, 
growers are dependent upon the actions of the integrators to recoup the 
grower's substantial and specific investment. This puts growers in a 
particularly precarious position where market concentration has led to 
there being only a small number of integrators with whom to do 
business--as is the case in almost all geographic markets.
---------------------------------------------------------------------------

    \64\ For a discussion of the difficulty in adapting of broiler 
grow houses for other purposes, see Vukina and Leegomonchai 2006, 
Op. Cit.
---------------------------------------------------------------------------

    The vertical integration of the industry leads to many risks borne 
by contract poultry growers. Some of these risks are discussed above. 
Notably, because of the large investment required of poultry growers, 
the financial risk of protecting that investment is substantial. 
Because integrators maintain such heavy influence over many aspects of 
growers' production, growers have significant exposure to liquidity 
risks, should flock placements and revenues fall.
    Thus, contract poultry growers are subject to numerous risks 
associated with integrator control over specific aspects of their 
operations, such as the frequency and density of flock placements, and 
the related risks of not having control over the genetic quality or 
health of the chicks that are placed. Integrators control the 
scheduling of feed deliveries, which also can impact feed conversion 
and thus grower pay. Also, production variables such as target weights 
of birds and the growout periods of birds are determined by the 
integrator, further adding to the risks borne by contract poultry 
growers. Because integrators control most aspects of grower performance 
and compensation, that control could be used as a means of retaliation 
or discrimination. If, for example, a grower has made complaints 
against the integrator, the integrator may provide fewer or poorer 
quality inputs, resulting in lower pay.
    Integrators benefit from poultry growing contracts by having 
control over the quality and supply of inputs (birds) into the 
processing plant while remaining free from many of the risks related to 
capital investments in growing capacity, where those costs and 
associated risks are borne by the growers. On the other hand, contracts 
shift other risks from the grower to the integrator. With integrators 
responsible for chick genetics, feed quality, and other inputs (with 
the possible exception of fuel), changes in input prices do not 
directly affect growers. Growers also do not bear the risks (or enjoy 
the benefits) of price changes in the value of live poultry or poultry 
meat, as they do not own the poultry or poultry meat and thus do not 
sell it. Research on poultry growing contracts in the broiler market 
has shown them to shift that variation in input costs and output 
prices, which comprises up to 84 percent of the variation in returns to 
broiler production.65 66
---------------------------------------------------------------------------

    \65\ Knoeber, C.R. and W.N. Thurman. 1995. ``Don't Count Your 
Chicken. . . : Risk and Risk Shifting in the Broiler Industry.'' 
American Journal of Agricultural Economics 77, 486-496.
    \66\ This research is regularly cited and reaffirmed in the 
current economics literature including Tsoulouhas and Vukina (2001) 
and McDonald (2014) that we cite elsewhere.
---------------------------------------------------------------------------

    The most common form of a poultry growing contract is a ``relative 
performance'' contract, also known as a ``tournament'' contract in the 
industry. Under tournament contracts, the integrator assigns each 
grower to a settlement pool, which consists of all the growers given 
flocks that the integrator processed in a given week. The integrator 
provides the grower with the production inputs of an initial supply of 
chicks and feed and veterinary support throughout the growing period; 
The grower provides the inputs of housing, water, electricity, labor 
and management. At the time of processing, the integrator collects the 
finished birds and calculates an average performance metric for the 
settlement pool, typically the feed-conversion ratio or similar metric. 
The grower's compensation under the tournament contract, is the sum of 
a base payment, which typically depends on the total liveweight of the 
finished birds (less feed and chick costs), and a payment or deduction 
based on the average

[[Page 35004]]

performance metric for the settlement pool. For most tournaments, the 
payment or deduction formula is the difference between the grower's 
performance metric and the settlement's average, subject to a scaling 
multiplier. Production periods for poultry are sufficiently short that 
a grower will typically be in several tournaments in a year. Tournament 
contracts can have advantages and disadvantages for both integrators 
and poultry growers.
    Agricultural production is an inherently risky endeavor, and 
returns have some level of risk no matter the marketing channel or 
structural arrangement. However, researchers have noted that in 
addition to mitigating the risks of input cost and output price 
variation, the tournament system also helps insulate poultry growers 
from some aspects of what are known as common production risks. These 
are systematic risks common to all growers in a tournament such as 
weather or widespread disease, feed quality, or genetic strains. This 
academic research finds that since those risks are likely to affect all 
growers in a region, compensation is less likely to be adversely 
affected under a tournament contract than it would be on a simple price 
per unit of weight contract.\67\ For example, if an unusual heat wave 
caused all growers in a tournament to experience poorer feed 
conversion, all tournament growers may require more feed and a longer 
grow period for their flocks to reach the target weight. They would 
receive the same pay for the weight produced, while not being penalized 
for the higher feed costs incurred to produce that weight.
---------------------------------------------------------------------------

    \67\ See, for example, Tsoulouhas, Theofanis and Tomislav 
Vukina. ``Regulating Broiler Contracts: Tournaments Versus Fixed 
Performance Standards''. American Journal of Agricultural Economics 
83 (2001): 1062-1073.
---------------------------------------------------------------------------

    As noted, no contract type will protect growers from all market 
risks, and tournament contracts still leave growers exposed to some 
common risks. For example, when plants had to reduce processing 
capacity due to the Covid pandemic, growers experienced reduced 
compensation to the extent that they received fewer or less dense 
placements from the integrators.
    Tournament systems do not insulate growers from the other risks of 
contracts discussed above such as the financial risk, liquidity risk, 
the risk from incomplete contracts, and the lack of control over inputs 
and production variables. And tournaments introduce new categories of 
risks to growers: Group composition risk and added risks of settlement-
related deception or fraud. The risks of deception or fraud as 
discussed above include the inability of growers to verify the accuracy 
of payments, and to detect discrimination or retaliation.
    Group composition risk is the risk associated with the composition 
and performance of other growers in their settlement groups. A 
particular grower's pay is impacted by the performance of others in the 
tournament. Growers have no control over the other tournament members' 
effort and performance, nor over with which other growers they are 
grouped. An individual grower's effort and performance can be static, 
and yet that grower's payments could fluctuate based on the grower's 
relative position in the settlement group. Further, changes in payment 
may not be commensurate with the changes in grower's effort and 
performance. These characteristics of the tournament system can add to 
the variability of pay and affect the ability of growers to plan and 
measure their own effort and performance. On the other hand, the system 
is designed to incentivize participants to do their best in the hopes 
of gaining higher rewards.
    The integrators also determine which growers are in each settlement 
group. While growers in a group must have similar flock finishing 
times, a live poultry dealer could move a grower into a different 
grouping by altering layout times to change the week that a grower's 
broilers are processed. An individual grower may perform consistently 
in an average performing pool, but if the integrator places that grower 
in a pool with more outstanding growers, those outstanding growers 
raise the group average and reduce the fees paid to the individual. At 
its discretion or per the poultry growing arrangement, an integrator 
may remove certain growers it considers to be outliers from a 
settlement pool. This would likely affect the average performance 
standard for the settlement and affect the remaining growers' pay. 
Group composition risk can be more relevant to some growers when a 
tournament's settlement group contains growers with different quality 
or ages of grow houses.
    In addition, the current documentation of tournament terms provides 
little to no information on the expected variation between individual 
payments over time. Providing the settlement formula alone does not 
give growers a means by which they can predict total income over a 
meaningful period. More generally, an individual grower cannot estimate 
the variance in pay across periods with the same accuracy as the 
integrator with whom he or she contracts. Information that would be 
provided pursuant to this rule would address this issue. Also, growers 
do not currently receive information that allows them to understand the 
impact of many integrator decisions made during the growout period that 
may affect grower incomes. For example, integrators may switch the 
genetics of chicks supplied to growers or change a feed ration or 
supplier. Increased information required in settlement disclosure 
regarding inputs and other factors will make it easier for growers to 
assess the impacts of these decisions and improve their ability to 
protect themselves against any systematic issues related to those 
decisions.
    Integrators benefit from tournaments systems, because they provide 
integrators more control and certainty of the total pay to all the 
growers in a settlement group. They also benefit from a system that 
disincentivizes shirking with respect to production efficiency. 
However, the incentive to avoid shirking can be imparted in a fixed 
performance standard contract as well.
    There is asymmetry in the information available to live poultry 
dealers and the growers with whom they contract. Some of the 
information held by live poultry dealers would be valuable to growers 
because it influences grower compensation in tournament contracts and 
might help growers in negotiating contract terms and making decisions 
about capital investments and flock management.
    The contracts themselves are often incomplete and exhibit asymmetry 
in the information available to live poultry dealers and contract 
growers. Because live poultry dealers supply most of the inputs, much 
of the production information is available only to the grower from the 
live poultry dealer. For example, the contract grower may not know 
precisely how much feed it used, or how much weight the flock gained 
under his or her care, unless the live poultry dealer provides the 
information.
    Growers may lack negotiating leverage with integrators to demand 
transparency and completeness in contracts. Most growers have few live 
poultry dealers in their area with whom they can potentially contract. 
The table below shows the number of integrators that broiler growers 
have in their local areas by percent of total farms (number of 
growers), total birds produced (number of birds), and by total 
production (pounds of birds produced).

[[Page 35005]]



                               Table 1--Integrator Choice for Broiler Growers \68\
----------------------------------------------------------------------------------------------------------------
                                                                                                 Can change to
                                                                                Production          another
  Integrators in grower's area\69\    Farms (percent of  Birds (percent of     (percent of         integrator
                                            total)             total)             total)          (percent of
                                                                                                     farms)
----------------------------------------------------------------------------------------------------------------
Number
    1...............................               21.7               23.4               24.5                  7
    2...............................               30.2               31.9               31.7                 52
    3...............................               20.4               20.4               19.7                 62
    4...............................               16.1               14.9               14.8                 71
    >4..............................                7.8                6.7                6.6                 77
    No Response.....................                3.8                2.7                2.7                 Na
----------------------------------------------------------------------------------------------------------------

    The data in the table show that 52 percent of broiler growers 
(Farms), accounting for 56 percent of total production and 55 percent 
of birds produced, report having only one or two integrators in their 
local areas. This limited integrator competition may accentuate the 
contract risks. Even where multiple growers are present, there are high 
costs to switching, owing to the differences in technical 
specifications that integrators require. To switch, the growers likely 
would need to invest in new equipment and learn to apply different 
operational techniques due to different breeds, target weights and 
growout cycles.
---------------------------------------------------------------------------

    \68\ MacDonald. (June 2014) Op. Cit.
    \69\ MacDonald. (June 2014) Op. Cit. (Percentages were 
determined from the USDA Agricultural Resource Management Survey 
(ARMS), 2011. ``Respondents were asked the number of integrators in 
their area, which was subjectively defined by each grower. They were 
also asked if they could change to another integrator if they 
stopped raising broilers for their current integrator.'' The 7 
percent of those facing a single integrator assert that they could 
change, presumably through longer distance transportation to an 
integrator outside the area. Ibid. p. 29 and 30.)
---------------------------------------------------------------------------

    Live poultry dealers hold information on how individual poultry 
growers perform under a variety of contracts. The average number of 
contracts for the live poultry dealers filing annual reports \70\ with 
AMS in 2020 was 251. The largest live poultry dealers contracted with 
several thousand growers. Because live poultry dealers provide most of 
the inputs to all the growers in each tournament, the live poultry 
dealers have information about the quality of the inputs, while each 
grower can know only what he or she can observe. Due to a lack of 
scales and tools to evaluate feed quality, a grower may not be able to 
weigh, measure or evaluate the inputs it received such as chicks and 
feed, and it almost certainly will not know about the inputs received 
by other growers. Live poultry dealers also have historical information 
concerning growers' production and income under many different 
circumstances for all the growers with which it contracts, while an 
individual grower, like most other producers, has information 
concerning only its own production and income.
---------------------------------------------------------------------------

    \70\ All live poultry dealers are required to annually file PSD 
form 3002 ``Annual Report of Live Poultry Dealers,'' OMB control 
number 0581-0308. The annual report form is available to public on 
the internet at https://www.ams.usda.gov/sites/default/files/media/PSP3002.pdf.
---------------------------------------------------------------------------

    New growers entering the industry may have little or no experience 
from which to draw information for forming expectations for future 
input and maintenance costs or for evaluating the value of initial 
capital expenditures. Experienced growers entering into new contracts 
are limited to their own past experience to draw upon. Live poultry 
dealers have information from all its contractors about performance, 
costs, and expenditures.
    There are concerns that compensation based on relative performance 
when growers are not in control of many of the inputs of production 
creates opportunities for manipulation by integrators. It is also 
difficult, especially for new growers, to understand how compensation 
is likely to vary over time as a result of tournaments and other terms 
that may not currently be present in all contracts such as placement 
frequency and flock density. This problem of incomplete contracts, the 
core concepts of which were discussed in the preamble, is of particular 
concern due to the cost and lifespan of the capital required to be a 
poultry grower.
    With incomplete contracts, at least one party will have 
discretionary latitude to deviate from expectations.\71\ For example, 
poultry production contracts often do not guarantee the number of 
flocks a grower will receive even with long-term contracts, even though 
this is critical information for understanding the value of the 
contract to the grower.\72\ The type and frequency of required upgrades 
to existing equipment and housing are often left to the discretion of 
the live poultry dealer.
---------------------------------------------------------------------------

    \71\ Steven Y. Wu and James MacDonald, ``Economics of 
Agricultural Contract Grower Protection Legislation,'' Choices, 
Third Quarter, 2015, pp 1-6.
    \72\ MacDonald (June 2014) Op. Cit.
---------------------------------------------------------------------------

    Hold-up, discussed in the preamble, is a problem that occurs in 
poultry production contracts because the poultry grower's outlay of the 
significant capital requirements of growing chickens results in 
specialized equipment and facilities (that is, they have little value 
outside of growing chickens). As a result, growers entering the market 
are tied to growing chickens to pay off the financing of the capital 
investment. Growers might fear that they will be forced to accept 
unfavorable contract terms because they are tied to production to pay 
off lenders and have few, if any, alternative integrators with whom 
they can contract. This fear can lead to underinvestment in the capital 
necessary to grow broilers.
    This fear is amplified by a historical lack of transparency and 
incomplete contracts in poultry contracting. It is particularly 
difficult for a grower making investment or contract decisions to 
develop a clear estimate of their expected returns because there are a 
number of important variables that are either not in the contract or 
difficult or impossible for a grower not already working with a 
particular integrator to evaluate. Besides not knowing the number of 
flocks and required capital upgrades as discussed above, it may also be 
difficult or impossible for a potential grower to determine how much 
their compensation is likely to vary based on the outcome of 
adjustments to compensation pursuant to the outcome of a tournament 
system and to capital improvements of peer growers. Making information 
that allows growers considering capital investments more readily 
available and easier to understand at the time important business 
decisions are made could help reduce the risks and level of concern 
related to hold-up and lead to better business decisions.
    The current market structure and practices lead to a range of harms 
and risks to growers and to market

[[Page 35006]]

efficiency. Data and information available to AMS regarding the 
marketplace is imperfect and incomplete, which may in part reflect the 
structure of the market itself, as well as concerns regarding 
retaliation against growers and others for attempting to raise 
concerns.\73\ However, as set out in detail in section II of the 
preamble, AMS notes a number of market impacts that underscore our 
concerns. While grower investment in assets, including housing and 
equipment, is substantial and growing, they are recruited to, or 
upgrade, poultry growing in reliance, substantially, on financial 
analyses and promises from integrators. Moreover, in part with the 
assistance from integrators, growers generally finance long-term assets 
against much shorter term production contracts, exposing them to 
heightened risks and uncertainty around debt repayment and the 
recoupment of their investments. Production contracts lack completeness 
around key terms needed to value those contracts, and operationally, 
the contracts lead to a wide range in grower payments. In many cases, 
returns to equity may be low. In particular, many growers have only one 
or two integrators in their local area from which to choose, limiting 
their market power to demand improved symmetry of information or 
changes to market practices. Indeed, decades of grower comments to USDA 
highlight concerns regarding persistent deception in poultry 
contracting and the operation of the tournament system, as well as 
ongoing fears of retaliation for speaking out about it. We also note 
that disclosure is commonly utilized across multiple markets, in 
particular where investment and risk exposure is taken by a party with 
substantially less power in a market or a transaction, such as consumer 
borrowers or franchisees.
---------------------------------------------------------------------------

    \73\ As recently as April 2022, retaliation against potential 
witnesses was raised in both House and Senate hearings on livestock 
market competition. Retaliation was also asserted to have followed 
the 2010 listening sessions regarding poultry and has been 
repeatedly raised by growers around the need for USDA Packers and 
Stockyards Act rulemakings. Fear of retaliation has even been 
asserted as adversely affecting data collection by USDA in the 
poultry markets and the ability for growers to work with the 
Extension service.
---------------------------------------------------------------------------

    AMS requests comment on impacts from current market practices and 
structures, including qualitative and quantitative data. Do impacts 
vary across different parts of the market or across different market 
participants? If so, how and why? Please also discuss implications for 
market efficiency, competition, supply chain resiliency, rural 
economies, or other general economic or community matters. We also 
invite comment on the impacts of disclosure when applied in other 
markets, and the relevance of those lessons for poultry markets.
    AMS expects proposed Sec. Sec.  201.100 and 201.214 to mitigate 
costs associated with asymmetric information by requiring live poultry 
dealers to disclose more and potentially valuable information to 
growers. Proposed Sec.  201.100 would require live poultry dealers to 
make disclosures before entering into new contracts, renewing existing 
contracts, or requiring growers to make additional capital investments. 
Proposed Sec.  201.214 would require live poultry dealers to disclose 
additional information at the placement and settlement of each flock.
    AMS considered three alternatives to the proposed Sec. Sec.  
201.100 and 201.214. The first is ``do nothing'' or the status quo. All 
regulations under the Packers and Stockyards Act would remain 
unchanged. It forms the baseline against which the second alternative, 
proposed Sec. Sec.  201.100 and 201.214 will be compared. The proposed 
rule would remove portions of the current Sec.  201.100, which already 
requires disclosure from live poultry dealers, and replaces them with a 
more extensive set of disclosure requirements. Not all the disclosure 
requirements in proposed Sec.  201.100 are new. Many of the provisions 
in the proposed Sec.  201.100 are already required in the current Sec.  
201.100. Since the cost and benefit analysis will be compared to the 
cost and benefits to the status quo, costs and benefits estimated here 
will reflect only cost and benefits associated with the new 
requirements in Sec.  201.100.
    AMS considered a third alternative similar to proposed Sec. Sec.  
201.100 and 201.214. The alternative would leave all of the 
requirements in proposed Sec. Sec.  201.100 and 201.214 the same, but 
entirely exempt live poultry dealers that process less than 2 million 
lbs. per week. This third alternative would exempt smaller live poultry 
dealers, some of which might not have sophisticated records. However, 
since larger growers do most of the contracting (as quantified later in 
this analysis), most poultry growers would still receive the 
disclosures. AMS then estimates and compares the costs and benefits of 
the alternatives and selects proposed Sec. Sec.  201.100 and 201.214 as 
the preferred alternative.

Discussion of the Benefits of the Proposed Regulations

    The primary purpose of the proposed rule is to make information 
available to growers when that information would be most important in 
decision-making. Currently, most production contracts are incomplete, 
and providing more information would likely lower the uncertainty the 
grower faces over their revenue and profit estimates. In addition, 
growers lack negotiating leverage with integrators to demand, among 
other things, transparency and completeness in contracts. A benefit of 
this proposed regulation would be that by providing prospective growers 
and those contemplating additional capital investments better 
information on expected returns, growers should be able to make more 
informed business decisions and can more readily avoid entering into 
contracts that are not financially sustainable. The proposed regulation 
would still retain the rights of poultry growers to discuss the terms 
of the poultry growing arrangement and the Live Poultry Dealer 
Disclosure Document with each other, advisors, and governmental 
agencies even if the poultry growing arrangement contains a 
confidentiality provision. This should facilitate better information 
sharing, decision making, and management of risk.
    Better information on integrator commitments should reduce hold-up 
concerns that may stifle investment. Better information and 
transparency on placements and settlements could reduce grower concerns 
over integrator manipulation of inputs and reduces the potential for 
deception or fraud, and the high degree of control and influence that 
the live poultry dealer has over many, if not most, of the critical 
inputs that will determine the business success of the grower's 
operation.
    Alternatively, the placement and settlement information could 
provide growers with concrete information they can use to support, 
individually or collectively, any grievances they might have with a 
particular integrator. At the same time, this proposed regulation 
provides growers a measure of protection against risks of retaliation 
or discrimination that may arise from disputes with integrators during 
the course of the poultry growing arrangement.
    The proposed Sec.  201.100 lays out the information that an 
integrator would be required to provide to growers contemplating a 
relationship with that integrator. The disclosure of information would 
be required whenever an integrator seeks to renew, revise, or replace 
an existing poultry growing arrangement. In addition, such disclosure 
would be required for any new contract as well as whenever an 
integrator is requiring an original capital investment or a change to 
existing housing specifications that would

[[Page 35007]]

require an additional capital investment. These are the times when the 
information would be most useful in informing growers of the potential 
implications of entering into a contract with the integrator or 
contemplating additional investment in capital stock. This information 
should allow potential growers to make more informed and financially 
sustainable business decisions.
    When a live poultry dealer requires capital investment, the dealer 
would be required to provide the grower with the capital specifications 
they are required to meet and with a letter of intent sufficient to 
seek financing, as well as a full disclosure of the terms of the 
agreement. This information would allow more informed investment 
decisions and help potential lenders accurately assess risk.
    The Disclosure Document would provide information on the length of 
the contract, number of guaranteed placements, stocking density, and 
notification of certain risks inherent in the agreement. All this 
information should help in evaluating the longer-term viability of the 
investment and reduce hold-up fears.
    Grower awareness of minimum flock placements and minimum stocking 
densities would enable growers to more accurately estimate the risks 
and returns associated with their operations, including debt 
management, cash flow, and other risks. It may enable growers, as well 
as financial institutions, to better estimate and manage risk, 
including potentially the acquisition of external insurance and risk 
management products.
    In addition to information about the specific terms of the 
contract, information would be provided that informs growers about the 
integrator's financial history and history of grievances with growers 
with whom they have contracted. This information too should improve the 
ability of the grower to evaluate its decision and the potential for 
hold-up related concerns.
    The Disclosure Document would include information on the level and 
distribution of payments made to growers under contract to the 
integrator. It describes past and expected future annual returns for 
similarly situated growers based on the complex and the integrator's 
other complexes on the particular housing specifications. This would 
make it much easier for potential growers to estimate their revenues 
from the contract because it presents returns at various levels of 
performance, as not all growers perform equally relative to the fixed 
cost of entry. The Disclosure Document would also provide insights into 
the variability of cash flow within any given year to enable the grower 
to improve business decision-making and manage risk. The increased 
information in the Disclosure Document on the expected levels and 
distributions of payments has the added benefit of lowering the 
uncertainty of revenue streams of contract poultry growers.
    The reliability of these disclosures would be reinforced by a 
governance framework and anti-fraud protections. In presenting this 
information to growers, the Disclosure Document would dramatically 
reduce information asymmetry and the risk of fraud and deception. As a 
result, prospective growers and those contemplating additional capital 
investments would have more confidence in the integrity of the 
information and consequently in their ability to make sound decisions.
    A live poultry dealer would be required to provide the Disclosure 
Document to growers prior to their entering into an agreement to allow 
time to discuss the terms of the agreement with advisors, lawyers, 
business associates, bankers, USDA, or other extension organizations to 
get assistance in evaluating the agreement.
    The proposed Sec.  201.214 would require additional ongoing 
disclosure of information related to poultry grower ranking pay systems 
(``tournaments''). This information would be focused on the actual 
distribution of inputs to growers at the time of placements and the 
outcomes of the ranking system. Some of this information would improve 
growers' ability to manage the flocks under their care, while other 
information helps growers to evaluate the factors affecting the outcome 
of the ranking system.
    Lack of transparency in the tournament calculations has led to 
risks by growers relating to the potential for fraud and deception. 
These include the inability of growers to verify the accuracy of 
payments, the inability to measure and manage risks, and the inability 
to detect possible discrimination or retaliation for disputes arising 
under the poultry growing arrangement. The provision of additional 
transparency around tournament systems in this proposed regulation is 
designed to address those risks. Provision of information regarding 
consistency of inputs (both at the time of placement and at the time of 
settlement), and any adjustments to methods or formulas, would foster 
more transparent, accurate, reliable, and widely accepted tournaments, 
and greater ability to monitor and hold live poultry dealers 
accountable for divergences from high standards of market integrity.
    Growers who participate in numerous tournaments over time would 
benefit from the added information they would receive at the time of 
placement and settlement, as they would gain valuable experience and 
knowledge useful in maximizing their growout performance. Because 
integrator-provided inputs may vary from flock-to-flock, grower 
knowledge may be enhanced and grower management practices and skills 
improved with access to input distribution information, particularly at 
the stage when the input is provided. The increased information in the 
settlement and placement disclosures would allow growers to assess the 
impacts of input variability on revenues over time, which would also 
serve to lower the uncertainty of revenue streams. Growers armed with 
this information may be better able to efficiently allocate resources, 
reduce uncertainty of revenue streams, and maximize their individual 
profitability.
    Confidentiality restrictions have historically prevented broiler 
growers from releasing details of contract pay and performance, thus 
limiting the availability of comprehensive data with which to consider 
the effects of alternative regulatory and institutional structures on 
market performance.\74\ Subsequently, the literature on these topics is 
insufficient to allow AMS to fully estimate the magnitude of the 
inefficiencies corrected by the proposed rule, nor the degree to which 
the proposed disclosure requirements and additional grower protections 
would address them. Though AMS is unable to completely quantify the 
benefits of the regulations, this analysis has explained numerous 
benefits derived from increased information, reduced information 
asymmetries, and reduction in risk of deception by live poultry 
dealers. Each of the disclosures required under Sec. Sec.  201.100 and 
201.214 of the proposal would provide information that should be useful 
to growers in making more informed decisions and reducing grower 
concerns resulting from lack of access to information.
---------------------------------------------------------------------------

    \74\ For instance, the analysis of MacDonald (2014), MacDonald 
and Key (2014), and Vukina and Leegomanchai (2006) (Op. Cit.) relies 
on data from grower surveys. Knoeber and Thurman (1995) relies on 
contract settlement data from a single integrator.
---------------------------------------------------------------------------

    AMS will estimate the industry benefits in two parts, one 
quantified and the other non-quantified. For the quantitative part, AMS 
will provide a minimum value of the benefit to poultry growers from the 
additional information in the disclosures required under

[[Page 35008]]

Sec. Sec.  201.100 and 201.214 and will refer to this minimum benefit 
as Gmin.
    The quantifiable minimum benefit of the financial, placement, and 
settlement disclosures, Gmin, arises from the additional 
information available to growers that serves to lower the uncertainty 
in revenue streams of contract growers. Lower uncertainty in revenue 
streams results in a reduction in revenue risks to growers. According 
to economic principles, a risk averse grower will benefit economically 
from a reduction in revenue risk.\75\ AMS quantifies the benefit to 
growers from the reduction in revenue risk by estimating the Risk 
Premium (RP) to contract poultry growers from reducing variability of 
their net revenues from the disclosures. AMS will then use RP as 
Gmin, the quantifiable minimum benefit of the disclosures.
---------------------------------------------------------------------------

    \75\ A risk averse grower prefers revenue streams with low 
uncertainty to revenue streams with high uncertainty when both have 
the same mean return.
---------------------------------------------------------------------------

    However, proposed Sec. Sec.  201.100 and 201.214 have additional, 
other non-quantified benefits to growers and live poultry dealers, 
referred to as BO.\76\ The other benefits would arise from a 
reduction in risk of retaliation by allowing growers to share 
information even if the growing arrangement contains a confidentiality 
provision and reducing the potential for fraud and deception by live 
poultry dealers by providing better, more accurate, and verifiable 
information to growers. These other benefits may lead to an improved 
allocation of capital and labor resources (such as increased capital 
investment through the reduction in perceived hold-up risk, and more 
informed decisions on whether and with whom to enter into a growing 
arrangement), leading to improved efficiencies and an improved 
allocation of resources for poultry growers and live poultry dealers.
---------------------------------------------------------------------------

    \76\ In the context of this analysis, ``non-quantified'' is 
defined to include measures which are quantitative in principle but 
in value which cannot be estimated at present.
---------------------------------------------------------------------------

    AMS refers to the total benefits to the industry as BT, 
which is the sum of the quantified Gmin, and the non-
quantified BO, benefits or, BT = Gmin 
+ BO. AMS is not able to fully quantify the total benefits, 
BT, from improved grower information, more informed 
decision-making, reduced revenue uncertainty, grower risk reductions, 
and an improved allocation of resources. The benefits AMS was able to 
quantify exceed the costs AMS was able to quantify. AMS requests 
comment on important categories of costs or benefits that may have been 
left out of this analysis and on means of estimating their magnitude.
    AMS expects that the effects on the industry from the proposed 
rules will be very small in relation to the total value of industry 
production. In other words, AMS expects the impacts on total industry 
supply to be immeasurably small, leading to immeasurably small indirect 
effects on industry supply and demand, including price and quantity 
effects.
Estimation of Costs and Benefits of the Proposed Regulations
    AMS estimates cost and benefits for two alternatives. The first is 
the proposed Sec. Sec.  201.100 and 201.214, which is the preferred 
alternative. The second alternative is the same as proposed Sec. Sec.  
201.100 and 201.214 with a complete exemption for live poultry dealers 
that process fewer than 2 million pounds per week. Both are compared 
against a baseline of status quo, which has no costs or benefits.
    The quantified costs of proposed Sec. Sec.  201.100 and 201.214 
primarily consist of the time required to gather the information and 
distribute it among the growers. The costs of the proposed rules would 
fall on live poultry dealers as they collect and disseminate the 
required information, and on poultry growers based on the value of the 
time they put into reviewing the disclosures. Though poultry growers 
are expected to incur costs in reviewing the information, they would be 
the primary beneficiaries of the information, which would be reflected 
in their ability to make more informed decisions. The growers must 
review the information in order to realize the benefits. This may 
result in a more efficient allocation of capital to the poultry growing 
industry.
    There are 89 live poultry dealers that file annual reports with 
AMS, and their reports indicate that they had 23,047 contracts with 
poultry growers during their fiscal year 2020.
    AMS expects the direct costs and benefits would be very small 
relative to overall production costs and would not measurably alter the 
poultry supply. AMS also expects that neither live poultry dealers nor 
poultry growers would measurably change any production practices that 
would impact the overall supply of poultry.
    Expected costs are estimated as the value of the time required to 
produce and distribute the disclosures required by Sec. Sec.  201.100 
and 201.214 as well as the time required to create and maintain any 
necessary additional records. AMS believes most live poultry dealers 
already keep nearly all of the required records. Therefore, the added 
costs of creating the records are expected to be relatively small. AMS 
also estimates the amount of time that growers would take to review the 
information provided to them by live poultry dealers. Estimates of the 
amount of time required by live poultry dealers to create and 
distribute the disclosures and for growers to review the information 
were provided by AMS subject matter experts. These experts were 
supervisors and auditors with many years of experience in working with 
growers and with auditing live poultry dealers for compliance with the 
Packers and Stockyards Act. Estimates for the value of the time are 
U.S. Bureau of Labor Statistics Occupational Employment and Wage 
Statistics estimated released May 2020.\77\
---------------------------------------------------------------------------

    \77\ See U.S. Bureau of Labor Statistics, May 2020 National 
Occupational Employment and Wage Estimates, May 2020. https://www.bls.gov/oes/current/oes_nat.htm#00-0000.
---------------------------------------------------------------------------

Costs of Proposed Sec.  201.100
    Proposed Sec.  201.100 lists a number of disclosure and record 
keeping requirements for live poultry dealers, but not all of them are 
new. Many of the requirements are included in current Sec.  201.100. 
Only the new requirements would create additional costs above the 
status quo.
    The new provisions in proposed Sec.  201.100 would require large 
live poultry dealers to disclose a true written copy of the growing 
agreement and a new Disclosure Document any time a live poultry dealer 
seeks to renew, revise, or replace an existing poultry growing 
arrangement that does not contemplate modifications to the existing 
housing specifications. Small live poultry dealers that process less 
than 2 million lbs. of poultry per week would be excluded from this 
disclosure requirement. Before a live poultry dealer enters a poultry 
growing arrangement that would require an original capital investment 
or requires modifications to existing housing, both large and small 
live poultry dealer must provide a copy of the growing agreement, the 
housing specifications, a letter of intent, and the new Disclosure 
Document.
    The Disclosure Document would require live poultry dealers to 
disclose summaries of litigation with any poultry growers, bankruptcy 
filings, and the live poultry dealer's policy regarding a grower's sale 
of the farm or assignment of the contract.
    Live poultry dealers would be required to disclose growers' 
variable costs if it collects the information. Live poultry dealers 
would be required to audit the information to ensure accuracy

[[Page 35009]]

and obtain and file signed receipts certifying that the live poultry 
dealer provided the required Disclosure Document.
    The Disclosure Document would require two separate financial 
disclosures to growers. The first disclosure would be a table showing 
average annual gross payments to poultry growers for the previous 
calendar year. The table should be organized by housing specification 
at each complex located in the United States that is owned or operated 
by the live poultry dealer and should express average payments on the 
basis of U.S. dollars per farm facility square foot. The second 
disclosure would be a set of tables showing average annual gross 
payments per farm facility square foot in each quintile to poultry 
growers for each of the five previous years, organized by housing 
specification at each complex.
    AMS estimates the aggregate one-time costs of setting up the 
Disclosure Document would require 6,786 management hours, 3,115 legal 
hours, 2,042 administrative hours, and 1,984 information technology 
hours costing $1,231,679 in the first year for live poultry dealers to 
initially set up the Disclosure Document.78 79 A more 
detailed explanation of the one-time first-year costs associated with 
Sec.  201.100 is in Table 1 in Appendix 1.
---------------------------------------------------------------------------

    \78\ Average hourly wage rates used to estimate dealer costs 
include a 41.56% markup for benefits and are as follows: 
Management--$93.20, Legal--$113.80, Administrative--$39.69, and 
Information Technology--$82.50.
    \79\ The one-time set-up costs are not equal to the first-year 
costs of proposed Sec.  201.100 because the first-year costs include 
the one-time set-up costs and the ongoing costs that would be 
incurred in the first year as contracts are renewed or revised.
---------------------------------------------------------------------------

    AMS expects the ongoing costs of updating and distributing the 
Disclosure Document to growers renewing or revising existing contracts, 
new growers entering into contracts, existing growers required to make 
additional capital investments to require in aggregate 3,230 management 
hours, 534 legal hours, 1,121 administrative hours, and 1,181 
information technology hours to produce and distribute to growers the 
gross payment disclosure information annually for an aggregate annual 
cost of $503,771. AMS expects the total cost of producing the annual 
gross payment disclosure information to consist of $1,231,679 in the 
first year to set up the systems and controls, plus $503,771 in costs 
the first year and annually thereafter to compile, distribute, and 
maintain the disclosure data and documents. Thus, the first-year 
aggregate total costs of proposed Sec.  201.100 are expected to be 
$1,735,450 and then $503,771 annually on an ongoing basis. A more 
detailed explanation of the ongoing costs associated with Sec.  201.100 
is in Table 2 in Appendix 1.
    With the exception of signing a receipt, the proposed rule would 
not impose any requirement on poultry growers to review the information 
provided by live poultry dealers, but to benefit from the Disclosure 
Document, growers would need to review the information provided. Based 
on AMS subject matter experts, poultry growers would spend the most 
time reviewing the Disclosure Document the first time they review them 
in order to understand the information and then spend less time 
reviewing subsequent disclosures. For Sec.  201.100 (a)(1), AMS expects 
that growers would take about one hour to review the documents each 
time documents are disclosed to them in the first year. Live poultry 
dealers processing fewer than an average of 2,000,000 pounds of poultry 
weekly would be exempt from the reporting requirements, but large live 
poultry dealers would be required to provide disclosures to growers for 
each of 22,312 \80\ contracts that come up for renewal in the first 
year. AMS expects that 74.71 percent of the contracts will require 
renewal in the first year. This includes all flock-to-flock contract, 
one-year contracts, and the portion of the longer-term contracts that 
will expire in the first year. At a wage of $70.94, AMS expects the 
requirements associated with Sec.  201.100 (a)(1) will cost about 
$1,182,607 \81\ in the aggregate in the first year. After the first 
year, as growers get familiar with the disclosures, AMS expects growers 
to spend less time reviewing the documents. AMS expects growers to take 
about five minutes reviewing each disclosure document for an aggregate 
cost of $98,551 \82\ per year.
---------------------------------------------------------------------------

    \80\ Live poultry dealers processing an average of more than 
2,000,000 pounds of poultry per week, reported a combined 22,312 
poultry contracts in their annual reports to AMS.
    \81\ 1 hour to review each disclosure x $70.94 per hour x 22,312 
contracts x 74.71 percent of the contracts renewed in the first year 
= $1,182,607.
    \82\ \1/12\ hour to review each disclosure x $70.94 per hour x 
22,312 contracts x 74.71 percent of the contracts renewed in the 
first year = $1,182,607.
---------------------------------------------------------------------------

    For the remaining contracts that will not be renewed in the first 
year, AMS expects that 5 percent of the contracts will be renewed in 
each of the next five years. At for a yearly cost of $79,136.\83\
---------------------------------------------------------------------------

    \83\ 1 hour to review each disclosure x $70.94 per hour x 22,312 
contracts x 5 percent of the contracts renewed per year = $79,136 
per year.
---------------------------------------------------------------------------

    Section 201.100 (a)(2) and (3) would only apply to growers that are 
new entrants and to growers making significant upgrades to poultry. AMS 
expects that each of these groups of growers will account for 5 percent 
of the 23,047 \84\ contracts live poultry dealers reported in their 
annual reports to AMS. If growers, require one hour at $70.94 per hour, 
growers' aggregate costs would be $81,714 \85\ for reviewing documents 
required in Sec.  201.100 (a)(2) and an additional $81,714 \86\ for 
reviewing documents required in Sec.  201.100 (a)(3) in the first year 
and in each successive year.
---------------------------------------------------------------------------

    \84\ Live poultry dealers reported a combined total of 23,047 
contracts for their fiscal year 2020. Smaller live poultry dealers 
would not be exempt from reporting requirements in Sec.  201.100 
(a)(2) or (3).
    \85\ 1 hour to review each disclosure x $70.94 per hour x 23,047 
contracts x 5 percent of growers that are new entrants = $81,743.
    \86\ 1 hour to review each disclosure x $70.94 per hour x 23,047 
contracts x 5 percent of growers that require significant housing 
upgrades = $81,743.
---------------------------------------------------------------------------

    AMS estimates growers' aggregate costs for reviewing and 
acknowledging receipt of disclosures associated with proposed Sec.  
201.100 to be $1,588,714 in the initial year, $341,172 through year 
five, and then $262,036 in each succeeding year.\87\ The costs would 
decline after year five because AMS expects that all contracts would 
have been renewed by the end of year five and that all growers would 
have reviewed the Disclosure Document at least one time by year six. 
The Agricultural Census reports that there were 16,524 contract poultry 
growers in the United States in 2017.
---------------------------------------------------------------------------

    \87\ The average hourly wage rate used to estimate poultry 
grower costs includes a 41.56% markup for benefits and is as 
follows: Management--$70.94.
---------------------------------------------------------------------------

    The ten-year total costs of proposed Sec.  201.100 to all 89 live 
poultry dealers are estimated to be $6,269,387 and the present value 
(PV) of the ten-year total costs to be $5,493,072 discounted at a 3 
percent rate and $4,689,377 at a 7 percent rate. The aggregate 
annualized costs of the PV of ten-year costs to live poultry dealers 
discounted at a 3 percent rate are expected to be $643,956 and $667,662 
discounted at a 7 percent rate.
    The ten-year aggregate total costs of proposed Sec.  201.100 to 
poultry growers are estimated to be $4,263,582 and the present value of 
the ten-year total costs to be $3,808,846 discounted at a 3 percent 
rate and $3,330,831 at a 7 percent rate. The annualized costs of the PV 
of ten-year costs to poultry growers discounted at a 3 percent rate are 
expected to be $446,513 and $474,235 discounted at a 7 percent rate.
    The ten-year aggregate total costs of proposed Sec.  201.100 to 
live poultry dealers and poultry growers are estimated to be 
$10,532,969 and the present value of the ten-year total costs

[[Page 35010]]

to be $9,301,918 discounted at a 3 percent rate and $8,020,209 at a 7 
percent rate. The annualized costs of the PV of ten-year costs to live 
poultry dealers and poultry growers discounted at a 3 percent rate are 
expected to be $1,090,469 and $1,141,897 discounted at a 7 percent 
rate. aggregate
Costs of Proposed Sec.  201.214
    Disclosures that would be required in proposed Sec.  201.214 are 
associated with tournament or relative performance contracts. At the 
time of placement, proposed Sec.  201.214 would require live poultry 
dealers to provide specific information concerning the inputs, 
including feed, chicks, medication, etc., that the live poultry dealer 
provided to the grower. At the time of settlement, it would require the 
live poultry to provide specific information about inputs provided to 
every other grower in the tournament or ranking pool within 24 hours of 
flock delivery. Similar information on inputs must also be disclosed at 
settlement.
    AMS estimates that the live poultry dealers' one-time aggregate 
costs of developing the placement and settlement disclosure documents 
would require 1,335 management hours, 979 administrative hours, and 
3,738 information technology hours costing $471,675 in the first year 
to initially set up the disclosure documents required by Sec.  
201.214.\88\ A more detailed explanation of the one-time first-year 
costs associated with proposed Sec.  201.100 is in Table 3 in Appendix 
1.
---------------------------------------------------------------------------

    \88\ IT staff will be required to modify integrator information 
systems to compile information from past settlements to calculate 
the information required to be disclosed to growers.
---------------------------------------------------------------------------

    AMS expects the Sec.  201.214 disclosure documents would require an 
additional 3,201 hours divided evenly among management, administrative, 
and information technology staff to produce, distribute, and maintain 
the disclosure documents each year on an ongoing basis for an aggregate 
annual cost of $229,838. A more detailed explanation of the ongoing 
costs associated with proposed Sec.  201.214 is in Table 4 in Appendix 
1.
    AMS expects the aggregate cost of producing the proposed Sec.  
201.214 pre-flock placement and settlement disclosure documents to 
consist of $471,675, in the first year to set up the systems and 
controls, plus $229,838 in costs the first year and annually thereafter 
to compile, distribute, and maintain the placement and settlement 
disclosure documents. Thus, the aggregate first-year total costs to 
live poultry dealers of proposed Sec.  201.214 are expected to be 
$701,513 and then $229,838 annually on an ongoing basis.
    Proposed Sec.  201.214 (a) concerns disclosures of inputs to 
growers in tournament settlement systems. Live poultry dealers would be 
required to disclose information about inputs, such as feed, 
medication, chick, etc. for each flock placed with a grower. AMS 
expects that for the first time a grower receives the disclosure 
document, he or she would require about 10 minutes to review each of 
the disclosure documents. At $70.94 per hour, the first disclosure 
document would cost growers $156,286.\89\ After the reviewing the 
documents the first time, AMS expects that growers would need only 5 
minutes to review successive disclosures. Since growers average 4.5 
flocks per year, AMS expects that reviewing the disclosure documents 
concerning inputs would cost in the aggregate an additional $273,500 
\90\ for the remaining 3.5 flocks in the first year and $351,000 \91\ 
for the 4.5 flocks in each successive year.
---------------------------------------------------------------------------

    \89\ \1/6\ hours x $70.94 per hour x 16,924 poultry growers x 80 
percent of poultry raised in tournament systems = $156,286.
    \90\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
3.5 additional flocks in the first year x 80 percent of poultry 
raised in tournament systems = $273,500.
    \91\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
4.5 flocks per year x 80 percent of poultry raised in tournament 
systems = $351,000 per year.
---------------------------------------------------------------------------

    Proposed Sec.  201.214 (c) concerns disclosures of about the group 
of growers in settlement groups in tournament settlement systems. Live 
poultry dealers would be required to disclose information about growers 
in each tournament for each flock settled in tournament system. AMS 
expects that the cost to growers associated with proposed Sec.  201.214 
(c) will be identical to the costs of reviewing the disclosures 
required in proposed Sec.  201.214 (a). Aggregate costs would be 
$156,286 \92\ for the disclosures reviewed. AMS expects that reviewing 
the disclosure documents would cost an additional $273,500 \93\ for the 
remaining 3.5 flocks in the first year and $351,000 \94\ for the 4.5 
flocks in each successive year.
---------------------------------------------------------------------------

    \92\ \1/6\ hours x $70.94 per hour x 16,924 poultry growers x 80 
percent of poultry raised in tournament systems = $156,286.
    \93\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
3.5 additional flocks in the first year x 80 percent of poultry 
raised in tournament systems = $273,500.
    \94\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
4.5 flocks per year x 80 percent of poultry raised in tournament 
systems = $351,000 per year.
---------------------------------------------------------------------------

    AMS estimates growers' aggregate costs for reviewing disclosures 
associated with proposed Sec.  201.214 to be $859,571 in the first year 
and $703,285 in each subsequent year. AMS expects that poultry growers 
would spend the most time reviewing the placement and settlement 
disclosures the first time in order to understand the information and 
then spend less time for each subsequent review.
    The ten-year aggregate total costs of proposed Sec.  201.214 to 
live poultry dealers are estimated to be $2,770,055 and the present 
value of the ten-year total costs to be $2,418,502 discounted at a 3 
percent rate and $2,055,104 at a 7 percent rate. The annualized costs 
of the PV of ten-year costs to live poultry dealers discounted at a 3 
percent rate are expected to be $283,522 and $292,601 discounted at a 7 
percent rate.
    The ten-year aggregated total costs of proposed Sec.  201.214 to 
poultry growers are estimated to be $7,189,136 and the present value of 
the ten-year total costs to be $6,150,898 discounted at a 3 percent 
rate and $5,085,641 at a 7 percent rate. The annualized costs of the PV 
of ten-year costs to poultry growers discounted at a 3 percent rate are 
expected to be $721,073 and $724,081 discounted at a 7 percent rate.
    The costs from proposed Sec.  201.214 would be higher for poultry 
growers than for live poultry dealers. There are two reasons for this. 
First, there are only 89 live poultry dealers while there 16,524 
poultry growers. Secondly, the primary costs to the live poultry 
dealers are the development of the placement and settlement 
disclosures, while the ongoing costs to distribute and maintain them 
are relatively small. Each poultry grower would receive and review both 
a placement and settlement disclosure for each flock placed and then 
settled in each tournament. Thus, there are many poultry growers who 
would receive and review the placement and settlement disclosure with 
each flock every year, which explains the higher cost relative to live 
poultry dealers. The relative higher cost to the poultry growers would 
be compensated for by the benefits of the extra information they can 
use to make financial business decisions. The benefits will be 
discussed in a later section.
    The ten-year aggregate total costs of proposed Sec.  201.214 to 
live poultry dealers and poultry growers are estimated to be $9,959,191 
and the present value of the ten-year total costs to be $8,569,399 
discounted at a 3 percent rate and $7,140,745 at a 7 percent rate. The 
annualized aggregate costs of the PV of ten-year costs to live poultry 
dealers and poultry growers discounted at a 3 percent rate are expected 
to be $1,004,595 and $1,016,681 discounted at a 7 percent rate. 
aggregate

[[Page 35011]]

Combined Costs of Proposed Sec. Sec.  201.100 and 201.214
    Combined costs to live poultry dealers for proposed Sec. Sec.  
201.100 and 201.214 are expected to be $2,436,964 million in the first 
year, and $733,609 in subsequent years. These combined costs are also 
reported above the Paperwork Reduction Act section as the combined 
costs to live poultry dealers for compliance with the reporting and 
recordkeeping requirements of proposed Sec. Sec.  201.100 and 201.214. 
The combined costs for non-exempt poultry growers are expected to be 
$2,448,284 in the first year, $1,044,457 in years two through five, and 
$965,231 after year five on an ongoing basis.
    The ten-year aggregate combined costs of proposed Sec. Sec.  
201.100 and 201.214 to live poultry dealers are estimated to be 
$9,039,442 and the present value of the ten-year total costs to be 
$7,911,574 discounted at a 3 percent rate and $6,744,481 at a 7 percent 
rate. The annualized aggregate combined costs of the PV of ten-year 
costs to live poultry dealers discounted at a 3 percent rate are 
expected to be $927,478 and $960,262 discounted at a 7 percent rate.
    The ten-year aggregate combined costs of proposed Sec. Sec.  
201.100 and 201.214 to poultry growers are estimated to be $11,452,718 
and the present value of the ten-year total costs to be $9,959,744 
discounted at a 3 percent rate and $8,416,473 at a 7 percent rate. The 
annualized aggregate combined costs of the PV of ten-year costs to 
poultry growers discounted at a 3 percent rate are expected to be 
$1,167,586 and $1,198,316 discounted at a 7 percent rate. The costs to 
poultry growers from proposed Sec. Sec.  201.100 and 201.214 would be 
higher for poultry growers than live poultry dealers for the reasons 
discussed above.
    The ten-year aggregate combined costs of proposed Sec. Sec.  
201.100 and 201.214 to live poultry dealers and poultry growers are 
estimated to be $20,492,160 and the present value of the ten-year 
aggregate combined costs to be $17,871,317 discounted at a 3 percent 
rate and $15,160,954 at a 7 percent rate. The annualized aggregate 
costs of the PV of ten-year costs to live poultry dealers and poultry 
growers discounted at a 3 percent rate are expected to be $2,095,064 
and $2,158,579 discounted at a 7 percent rate. aggregate
    Additionally, there may be costs associated with providing this 
information (such as decreases in profitability or increased risks to 
integrators).\95\ We request comment on whether there may be unintended 
adverse consequences of the expanded disclosure requirements and what 
data and methods might be available to estimate the magnitude of such 
costs.
---------------------------------------------------------------------------

    \95\ Knoeber and Thurman (1995) note that integrators experience 
relatively ``small risk-bearing costs,'' and we request comment on: 
(1) whether other analyses, including any using more recent data, 
reach similar conclusions and (b) how to quantify ``small'' for 
purposes of this regulatory impact analysis.
---------------------------------------------------------------------------

Benefits of Proposed Sec. Sec.  201.100 and 201.214
    As discussed above, AMS will estimate the industry benefits from 
proposed Sec. Sec.  201.100 and 201.214 in two parts, one quantified 
and the other non-quantified. For the quantified part, AMS will provide 
a minimum value of the combined benefit to poultry growers from the 
additional information in the disclosures required under proposed 
Sec. Sec.  201.100 and 201.214 and will refer to this minimum benefit 
as Gmin. AMS first estimates Gmin and then 
discusses the non-quantified benefits of the proposed rules.
    AMS estimates Gmin as the combined benefits to growers 
of proposed Sec. Sec.  201.100 and 201.214 from the reduction in profit 
uncertainty. AMS expects the majority of the benefits of reduced profit 
uncertainty will result from additional information in the financial 
disclosures under proposed Sec.  201.100 as these disclosures provide 
revenue projections at different performance percentiles over different 
housing types. AMS expects that the additional information received in 
placement and settlement disclosures under proposed Sec.  201.214 
regarding the effects of input variability on revenue variability will 
also result in reduced profit uncertainty, though to a lesser extent 
than the financial disclosures. AMS was not able to allocate the 
benefits between proposed Sec. Sec.  201.100 and 201.214 and presents 
just the total combined minimum quantifiable benefits of both proposed 
rules.
    A potential benefit of the contract disclosure rules providing 
increased transparency is that doing so could lower the uncertainty in 
a contract grower's revenue stream. According to economic principles, a 
risk averse producer will benefit economically from a reduction in 
revenue uncertainty. Given assumptions about the level of risk aversion 
of the producer, the distribution of a contract grower's revenue, and 
the grower's utility function,\96\ it is possible to calculate a 
grower's benefits of decreased revenue uncertainty associated with 
greater transparency. AMS relied on an empirical approach to estimate 
the minimum benefits, defined as a Risk Premium (RP), to contract 
poultry growers of a range of reductions in the variability of their 
net revenue.\97\
---------------------------------------------------------------------------

    \96\ A utility function is an economic concept that measures an 
individual's preferences over a set of goods and services.
    \97\ AMS prepared a technical appendix (Appendix 2) that 
provides an explanation of the empirical approach used to estimate 
the Risk Premium and is included at the end of this document.
---------------------------------------------------------------------------

    The following table presents the Gmin benefit estimates 
based on RP estimates for the first year for several scenarios of 
reduction in the variability of net revenue and two assumptions for a 
risk aversion premium (RAP) and two assumptions for how risk aversion 
changes with wealth. For the latter, constant absolute risk aversion 
(CARA) assumes that the grower's risk aversion does not change as 
wealth increases. Decreasing absolute risk aversion (DARA) assumes the 
grower's risk aversion increases as wealth decreases. Another 
possibility is that the grower's risk aversion is increasing in wealth 
(IARA). While no evidence exists one way or another for how the risk 
preference of poultry contract growers changes with wealth, the 
agricultural economics literature generally assumes DARA over IARA.

----------------------------------------------------------------------------------------------------------------
                                                     Reduction in coefficient of variation of net revenue \b\
Grower risk aversion (Risk aversion premium \a\) ---------------------------------------------------------------
                                                        1%              2%              5%              10%
----------------------------------------------------------------------------------------------------------------
                                                                          One year value
----------------------------------------------------------------------------------------------------------------
CARA, Moderate (20%)............................      $1,588,000      $3,158,000      $7,758,000     $15,057,000
CARA, High (40%)................................      $3,760,000      $7,480,000     $18,410,000     $35,820,000
DARA, High/Moderate.............................      $2,002,000      $3,977,000      $9,751,000     $18,866,000
----------------------------------------------------------------------------------------------------------------

[[Page 35012]]

 
                                                                 PV over 10 years discounted at 3%
----------------------------------------------------------------------------------------------------------------
Moderate (20%)..................................     $13,545,962     $26,938,381     $66,177,314    $128,439,264
High (40%)......................................     $32,073,563     $63,805,917    $157,041,034    $305,551,866
----------------------------------------------------------------------------------------------------------------
                                                                 PV over 10 years discounted at 7%
----------------------------------------------------------------------------------------------------------------
Moderate (20%)..................................     $11,153,447     $22,180,471     $54,488,946    $105,754,067
High (40%)......................................     $26,408,667     $52,536,390    $129,304,136    $251,584,691
----------------------------------------------------------------------------------------------------------------
\a\ The risk aversion premium (RAP) varies between 0 and 100 percent of the potential lost revenue, with higher
  values reflecting higher risk aversion. A value of 20 percent is considered a reasonable reflection of
  moderate aversion to risk and 40 percent being reflection of high-risk aversion.
\b\ The coefficient of variation of net revenue is a standardized measure of variability, and is defined as the
  standard deviation of net revenue divided by its mean.

    The RAP varies between 0 and 100 percent of the potential lost 
revenue, with higher values reflecting higher risk aversion. The RP 
estimates assume that mean net returns are unchanged, i.e., this 
exercise is solely valuing the reduction in grower revenue uncertainty. 
AMS estimates benefits under two CARA scenarios, one where the growers 
have moderate risk aversion, with one with a RAP of 20 percent and a 
high RAP of 40 percent, using contract producer revenue data for 2020. 
The parameters used for the DARA scenario are chosen such that the 
grower has a RAP of 40 percent when wealth is zero, and a RAP of 20 
percent at mean wealth.
    As the above table shows, one-year benefits range from $1.6 million 
with a 1 percent reduction in the variability of net revenue when 
moderate risk aversion is assumed to $36 million with a 10 percent 
reduction in the variability of net revenue when high risk aversion is 
assumed. AMS assumes growers will receive the same benefit of reduced 
variability of net revenue every year in which they contract. 
Discounting these annual values over ten years leads to a range in 
benefit estimates from $11 million to $306 million depending on the 
combination of risk aversion assumption, reduction in variability in 
net returns, and the discount rate.
    With assumptions of moderate risk aversion and that the proposed 
rules would lead to a two percent reduction in the coefficient of 
variation in net revenue, the benefit estimate is $22 million with a 
discount rate of seven percent PV. The analysis summarized in Table 2 
assumes that the grower maximizes an absolute risk aversion (ARA) 
utility function, whether CARA or DARA. The alternative to an ARA 
function is a relative risk aversion function (RRA) (see Appendix 2 for 
a discussion of ARA and RRA). We request comment on the additional 
data/information needed to calculate the risk premia using CRRA 
preferences likely to be pertinent to contract poultry growers.
    AMS now discusses the non-quantified benefits of the proposed rules 
that increase the benefits to growers above the minimum quantifiable 
benefit of Gmin, which is estimated by RP in the above 
table.
    As discussed above, proposed Sec. Sec.  201.100 and 201.214 have 
additional, other non-quantified benefits to the industry, referred to 
as BO. First, if growers did not expect to receive at least 
as much in benefits as it takes in time to review the disclosures, they 
would not review them. Some of these benefits are captured in the 
quantitative estimates of the value of reduction in revenue 
uncertainty, but there are others benefits the growers would likely 
expect from these disclosures. The other benefits would arise from a 
reduction in risk of retaliation and the potential for fraud and 
deception by live poultry dealers. The additional information to 
growers may lead to a more optimal allocation of capital and labor 
resources (such as increased capital investment through the reduction 
in perceived hold-up risk, and more informed decisions on whether and 
with whom to enter into a growing arrangement), leading to improved 
efficiencies across the entire industry. We request comment that would 
facilitate both quantification of the magnitude of benefits of a more 
optimal allocation of capital and labor resources and tracking of 
whether any such efficiency gains would be captured by growers, live 
poultry dealers (while also noting the as-yet-unquantified costs to 
dealers, as mentioned elsewhere in this analysis), or others in 
society.
    The combined minimum benefits for poultry growers, Gmin, 
from reduced revenue uncertainty are expected to be $3,158,000 in the 
first year and on an ongoing basis.\98\ The ten-year total minimum 
benefits of proposed Sec. Sec.  201.100 and 201.214 to poultry growers 
are estimated to be $31,580,000 and the present value of the ten-year 
total minimum benefits to be $29,938,381 discounted at a 3 percent rate 
and $22,180,471 at a 7 percent rate. The annualized PV of ten-year 
minimum benefits to poultry growers discounted at 3 and 7 percent rates 
are expected to be $3,158,000. The total benefits to the industry, 
BT, from proposed Sec. Sec.  201.100 and 201.214 would be 
the sum of the minimum benefits to all growers, Gmin, and 
the other non-quantified benefits to the industry from growers' risk 
reductions and a more efficient allocation of labor and capital, 
BO. The values appear in Table 3 in the next section. AMS 
expects the total benefits to the industry from the proposed rules--as 
is the case for total costs, noted above--will be very small in 
relation to the total value of industry production.
---------------------------------------------------------------------------

    \98\ All benefits estimates assume a moderate (20 percent) RAP 
and a 2 percent reduction in coefficient of variation of net 
revenue.
---------------------------------------------------------------------------

    Broiler chicken sales in the U.S. for 2019 were approximately $58.6 
billion. total quantified cost of proposed Sec. Sec.  201.100 and 
201.214 is estimated to be greatest in the first year at $4.9 million, 
or .00836 percent of revenues. A relatively small improvement in 
efficiency from improved allocation of capital and labor resources in 
the industry would more than outweigh the cost of this proposed rule.
Total Quantified Combined Costs and Benefits of Proposed Sec. Sec.  
201.100 and 201.214

[[Page 35013]]

    The cost and benefit estimates of proposed Sec. Sec.  201.100 and 
201.214 presented above appear in the following table.

             Table 3--Estimated Costs and Benefits \99\ of Proposed Sec.  Sec.   201.100 and 201.214
----------------------------------------------------------------------------------------------------------------
                                                       Cost                                  Benefits
                                 -------------------------------------------------------------------------------
      Preferred alternative        Live poultry                                     Individual
                                      dealer          Poultry     Industry total   grower (Gmin)  Total industry
                                   [deg]Dealers       growers                            *             (BT)
----------------------------------------------------------------------------------------------------------------
Sec.   201.100
    First-Year..................      $1,735,450      $1,588,714      $3,324,164            Gmin       Gmin + BO
    Ten-Year Total..............       6,269,387       4,263,582      10,532,969            Gmin       Gmin + BO
    PV of Ten-Year Discounted at       5,493,072       3,808,846       9,301,918            Gmin       Gmin + BO
     3 Percent..................
    PV of Ten-Year Discounted at       4,689,377       3,330,831       8,020,209            Gmin       Gmin + BO
     7 Percent..................
    Ten-Year Annualized at 3             643,956         446,513       1,090,469            Gmin       Gmin + BO
     Percent....................
    Ten-Year Annualized at 7             667,662         474,235       1,141,897            Gmin       Gmin + BO
     Percent....................
Sec.   201.214
    First-Year..................         701,513         859,571       1,561,084            Gmin       Gmin + BO
    Ten-Year Total..............       2,770,055       7,189,136       9,959,191            Gmin       Gmin + BO
    PV of Ten-Year Discounted at       2,418,502       6,150,898       8,569,399            Gmin       Gmin + BO
     3 Percent..................
    PV of Ten-Year Discounted at       2,055,104       5,085,641       7,140,745            Gmin       Gmin + BO
     7 Percent..................
    Ten-Year Annualized at 3             283,522         721,073       1,004,595            Gmin       Gmin + BO
     Percent....................
    Ten-Year Annualized at 7             292,601         724,081       1,016,681            Gmin       Gmin + BO
     Percent....................
Sec.  Sec.   201.100 and 201.214
    First-Year..................       2,436,964       2,448,284       4,885,248       3,158,000       Gmin + BO
    Ten-Year Total..............       9,039,442      11,452,718      20,492,160      31,580,000       Gmin + BO
    PV of Ten-Year Discounted at       7,911,574       9,959,744      17,871,317      26,938,381       Gmin + BO
     3 Percent..................
    PV of Ten-Year Discounted at       6,744,481       8,416,473      15,160,954      22,180,471       Gmin + BO
     7 Percent..................
    Ten-Year Annualized at 3             927,478       1,167,586       2,095,064       3,158,000       Gmin + BO
     Percent....................
    Ten-Year Annualized at 7             960,262       1,198,316       2,158,579       3,158,000       Gmin + BO
     Percent....................
----------------------------------------------------------------------------------------------------------------
* AMS estimates Gmin as the combined benefits to growers of proposed Sec.  Sec.   201.100 and 201.214.
[deg] Estimates do not include unquantified costs of risk increases.

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

    \99\ Ibid.
---------------------------------------------------------------------------

    The quantified costs and minimum quantifiable benefits to the 
industry in the first year are $4.885 million and $3.158 million, 
respectively. However, the minimum quantifiable benefits exceed the 
quantified costs in the ten-year total, the PVs on the ten-year totals, 
the annualized PV of ten-year totals. This is a function of quantified 
costs being higher at the beginning of the program and falling off over 
time while the quantified benefits remain constant over the entire 
estimation period. Thus, AMS concludes that the quantified benefits to 
growers from proposed Sec. Sec.  201.100 and 201.214 exceed the 
quantified costs of proposed Sec. Sec.  201.100 and 201.214. AMS 
requests additional information (including data and quantification 
methods) that could support or refute this conclusion.
    AMS expects that the net benefits to the industry from proposed 
Sec. Sec.  201.100 and 201.214 will be very small in relation to the 
total value of industry production. Thus, AMS expects the impacts of 
the net benefits on total industry supply to be immeasurably small, 
leading to immeasurably small indirect effects on industry supply and 
demand, including price and quantity effects.
Costs and Benefits of the Small Business Exemption Alternative
    AMS estimated costs and benefits for an alternative to the 
preferred option for the proposed rule. It would be the same as 
proposed Sec. Sec.  201.100 and 201.214, with the exception that the 
alternative would exempt live poultry dealers that process less than 2 
million pounds of poultry per week from all provisions of the two 
proposed rules. In the preferred alternative, small businesses would be 
exempt from the disclosure requirements in proposed Sec.  201.100(a)(1) 
only. The rest of the provisions of proposed Sec. Sec.  201.100 and 
201.214 would still apply.
    The costs associated with this alternative are similar, but smaller 
than the preferred option. According to PSD records, small live poultry 
dealers make up 52.8 percent of all live poultry dealers, but have only 
3.2 percent of poultry growing contracts. The estimation of the costs 
and benefits of the small business exemption alternative will follow 
the same format as the preferred alternative.
Costs of Proposed Sec.  201.100--Small Business Exemption Alternative
    AMS estimates the one-time costs for live poultry dealers of 
setting up the Disclosure Document for the small business exemption 
alternative would require 3,801 management hours, 1,470 attorney hours, 
1,124 administrative hours, and 1,376 information technology hours 
costing $679,627 in the first year for live poultry dealers to set up 
the Disclosure Document.\100\ A more detailed explanation of the one-
time first-year costs associated with the alternative Sec.  201.100 is 
in Table 1 in Appendix 3.
---------------------------------------------------------------------------

    \100\ As discussed previously, the one-time set-up costs are not 
equal to the first-year costs of proposed Sec.  201.100 because the 
first-year costs include the one-time set-up costs and the ongoing 
costs that would be incurred in the first year as contracts are 
renewed or revised.
---------------------------------------------------------------------------

    AMS expects the ongoing costs for live poultry dealers for the 
small business exemption alternative of updating and distributing the 
Disclosure Document to growers renewing or revising existing contracts, 
new growers entering into contracts, existing growers required to make 
additional capital investments to require 2,100 management hours, 252 
legal hours, 865 administrative hours, and 954 information technology 
hours to produce, distribute to growers, and maintain the gross payment 
disclosure information annually for an annual cost of $337,420. A more 
detailed explanation of the ongoing costs associated with the 
alternative Sec.  201.100 is in Table 2 in Appendix 3.

[[Page 35014]]

    AMS expects the total cost of producing the annual gross payment 
disclosure information to consist of $679,627 in the first year to set 
up the systems and controls, plus $337,420 in costs the first year and 
annually thereafter to compile and distribute the disclosure data and 
documents. Thus, the first-year total costs of proposed Sec.  201.100 
for live poultry dealers are expected to be $1,017,047 for the small 
business exemption alternative and then $337,420 annually on an ongoing 
basis.
    For alternative Sec.  201.100 (a)(1), AMS expects that growers 
would take about one hour to review the documents each time documents 
are disclosed to them in the first year. The alternative would exempt 
live poultry dealers processing fewer than an average of 2,000,000 
pounds of poultry weekly would be exempt from the reporting 
requirements, but large live poultry dealers would be required to 
provide disclosures to growers for each of 22,312 \101\ contracts that 
come up for renewal in the first year. AMS expects that 74.71 percent 
of the contracts will require renewal in the first year. This includes 
all flock-to-flock contract, one-year contracts, and the portion of the 
longer-term contracts that will expire in the first year. At a wage of 
$70.94, AMS expects the requirements associated with Sec.  201.100 
(a)(1) will cost about $1,182,607 \102\ in the first year in the 
aggregate. After the first year, as growers get familiar with the 
disclosures, AMS expects growers to spend less time reviewing the 
documents. AMS expects growers to take about five minutes reviewing 
each disclosure document for an aggregate cost of $98,551 \103\ per 
year.
---------------------------------------------------------------------------

    \101\ Live poultry dealers processing an average of more than 
2,000,000 pounds of poultry per week, reported a combined 22,312 
poultry contracts in their annual reports to AMS.
    \102\ 1 hour to review each disclosure x $70.94 per hour x 
22,312 contracts x 74.71 percent of the contracts renewed in the 
first year = $1,182,607.
    \103\ \1/12\ hour to review each disclosure x $70.94 per hour x 
22,312 contracts x 74.71 percent of the contracts renewed in the 
first year = $98,551.
---------------------------------------------------------------------------

    For the remaining contracts that will not be renewed in the first 
year, AMS expects that 5 percent of the contracts will be renewed in 
each of the next five years. At for a yearly cost of $79,136.\104\
---------------------------------------------------------------------------

    \104\ 1 hour to review each disclosure x $70.94 per hour x 
22,312 contracts x 5 percent of the contracts renewed per year = 
$79,136 per year.
---------------------------------------------------------------------------

    Section 201.100 (a)(2) and (3) would only apply to growers that are 
new entrants and to growers making significant upgrades to poultry. AMS 
expects that each of these groups of growers will account for 5 percent 
of the 22,312 contracts live poultry dealers reported in their annual 
reports to AMS. If growers, require one hour at $70.94 per hour, 
growers' aggregate costs would be $79,136 \105\ for reviewing documents 
required in Sec.  201.100 (a)(2) and an additional $79,136 \106\ for 
reviewing documents required in Sec.  201.100 (a)(3) in the first year 
and in each successive year.
---------------------------------------------------------------------------

    \105\ 1 hour to review each disclosure x $70.94 per hour x 
23,047 contracts x 5 percent of growers that are new entrants = 
$81,743.
    \106\ 1 hour to review each disclosure x $70.94 per hour x 
23,047 contracts x 5 percent of growers that require significant 
housing upgrades = $81,743.
---------------------------------------------------------------------------

    AMS estimates growers' aggregate costs for reviewing the Disclosure 
Document associated with proposed Sec.  201.100 for the small business 
exemption alternative to be $1,578,286 in the initial year, $335,958 
through year five, and then $256,822 in each succeeding year.
    The ten-year aggregate total costs of proposed Sec.  201.100 for 
the small business exemption alternative for the to live poultry 
dealers are estimated to be $4,053,825. The present value of the ten-
year aggregate total costs of proposed Sec.  201.100 to live poultry 
dealers are estimated to be $3,538,092 discounted at a 3 percent rate 
and $3,005,061 at a 7 percent rate. The annualized aggregate costs of 
the PV of ten-year costs to live poultry dealers discounted at a 3 
percent rate are expected to be $414,772 and $427,853 discounted at a 7 
percent rate.
    The ten-year aggregate total costs of proposed Sec.  201.100 for 
the small business exemption alternative for poultry growers are 
estimated to be $4,206,231. The present value of the ten-year total 
costs of Sec.  201.100 to poultry growers are estimated to be 
$3,759,309 discounted at a 3 percent rate and $3,289,339 at a 7 percent 
rate. The annualized aggregate costs of the PV of ten-year costs to 
poultry growers discounted at a 3 percent rate are expected to be 
$440,706 and $468,328 discounted at a 7 percent rate. The first-year 
aggregate total costs of proposed Sec.  201.100 for the small business 
exemption alternative for poultry growers and live poultry dealers are 
estimated to be $2,595,333 and the ten-year aggregate total costs of 
proposed Sec.  201.100 for the small business exemption alternative for 
live poultry dealers and poultry growers are estimated to be 
$8,260,056. The present value of the ten-year aggregate total costs of 
Sec.  201.100 to live poultry dealers and poultry growers are estimated 
to be $7,297,401 discounted at a 3 percent rate and $6,294,400 at a 7 
percent rate. The annualized costs of the PV of ten-year aggregate 
costs to live poultry dealers and poultry growers discounted at a 3 
percent rate are expected to be $855,478 and $896,181 discounted at a 7 
percent rate.
Costs of Sec.  201.214--Small Business Exemption Alternative
    AMS estimates that the aggregate one-time costs of developing the 
placement and settlement disclosure documents for live poultry dealers 
under the small business exemption alternative would require 630 
management hours, 462 administrative hours, and 1,764 information 
technology hours costing $222,588 in the first year to initially set up 
the placement and settlement disclosure documents. A more detailed 
explanation of the one-time first-year costs associated with the 
alternative Sec.  201.214 is in Table 3 in Appendix 3.
    AMS expects the disclosure document to require an additional 1,512 
hours divided evenly among management, administrative, and information 
technology staff to produce, distribute, and maintain the disclosure 
documents each year on an ongoing basis for an annual cost of $108,463. 
Thus, the aggregate first-year costs are estimated to be $331,051, 
including the one-time set up costs and the costs of producing and 
distributing the placement and settlement disclosures. A more detailed 
explanation of the ongoing costs associated with the alternative Sec.  
201.100 is in Table 4 in Appendix 3.
    For the alternative Sec.  201.214 (a) live poultry dealers would be 
required to disclose information about inputs, such as feed, 
medication, chick, etc. for each flock placed with a grower. AMS 
expects that for the first time a grower receives the disclosure 
document, he or she would require about 10 minutes to review each of 
the disclosure documents. At $70.94 per hour, the first disclosure 
document would cost growers $73,753 in the aggregate.\107\ After the 
reviewing the documents the first time, AMS expects that growers would 
only need 5 minutes to review successive disclosures. Since growers 
average 4.5 flocks per year, AMS expects that reviewing the disclosure 
documents concerning inputs would cost an additional $129,067 \108\ for 
the remaining 3.5 flocks in the first year and $165,944 \109\ for the 
4.5 flocks in each successive year.
---------------------------------------------------------------------------

    \107\ \1/6\ hours x $70.94 per hour x 16,924 poultry growers x 
80 percent of poultry raised in tournament systems x 47.2 percent of 
live poultry dealers that process more than 2,000,000 head per week 
= $73,753.
    \108\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
3.5 additional flocks in the first-year x 80 percent of poultry 
raised in tournament systems x 47.2 percent of live poultry dealers 
that process more than 2,000,000 head per week = $129,067.
    \109\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
4.5 flocks per year x 80 percent of poultry raised in tournament 
systems x 47.2 percent of live poultry dealers that process more 
than 2,000,000 head per week = $165,944 per year.

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

[[Page 35015]]

    Alternative Sec.  201.214 (c) concerns disclosures of about the 
group of growers in settlement groups in tournament settlement systems. 
Live poultry dealers would be required to disclose information about 
growers in each tournament for each flock settled in tournament system. 
AMS expects that the cost to growers associated with proposed Sec.  
201.214 (c) will be identical to the costs of reviewing the disclosures 
required in proposed Sec.  201.214 (a). Aggregate costs would be 
$73,753.\110\ for the disclosures reviewed. AMS expects that reviewing 
the disclosure documents would cost, in the aggregate, an additional 
$129,067 \111\ for the remaining 3.5 flocks in the first year and 
$165,944 \112\ for the 4.5 flocks in each successive year.
---------------------------------------------------------------------------

    \110\ \1/6\ hours x $70.94 per hour x 16,924 poultry growers x 
80 percent of poultry raised in tournament systems x 47.2 percent of 
live poultry dealers that process more than 2,000,000 head per week= 
$73,753.
    \111\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
3.5 additional flocks in the first-year x 80 percent of poultry 
raised in tournament systems x 47.2 percent of live poultry dealers 
that process more than 2,000,000 head per week = $129,067.
    \112\ \1/12\ hours x $70.94 per hour x 16,924 poultry growers x 
4.5 flocks per year x 80 percent of poultry raised in tournament 
systems x 47.2 percent of live poultry dealers that process more 
than 2,000,000 head per week = $165,944 per year.
---------------------------------------------------------------------------

    AMS estimates growers' aggregate costs for reviewing and 
acknowledging receipt of disclosures associated with proposed Sec.  
201.214 under the small business exemption alternative to be $405,640 
in the first year and $331,887 in each subsequent year. As discussed 
previously, AMS expects that poultry growers would spend the most time 
reviewing the placement and settlement disclosures the first time in 
order to understand the information and then spend less time for each 
subsequent review.
    The ten-year aggregate total costs of proposed Sec.  201.214 under 
the small business exemption alternative for live poultry dealers are 
estimated to be $1,307,217. The present value of the aggregate ten-year 
total costs of proposed Sec.  201.214 to live poultry dealers are 
estimated to be $1,141,315 discounted at a 3 percent rate and $969,824 
at a 7 percent rate. The annualized costs of the PV of aggregate ten-
year costs to live poultry dealers discounted at a 3 percent rate are 
expected to be $133,797 and $138,081 discounted at a 7 percent rate.
    The ten-year aggregate total costs of proposed Sec.  201.214 for 
the small business exemption alternative for poultry growers are 
estimated to be $3,392,626. The present value of the aggregate ten-year 
total costs of proposed Sec.  201.214 to poultry growers are estimated 
to be $2,902,671 discounted at a 3 percent rate and $2,399,966 at a 7 
percent rate. The annualized aggregate costs of the PV of ten-year 
costs to poultry growers discounted at a 3 percent rate are expected to 
be $340,282, and $341,701 discounted at a 7 percent rate.
    The first-year aggregate total costs of proposed Sec.  201.214 
under the small business exemption alternative for live poultry dealers 
and poultry growers are estimated to be $736,691 and the ten-year 
aggregate total costs are estimated to be $4,699,843. The present value 
of the ten-year aggregate total costs of proposed Sec.  201.214 to live 
poultry dealers and poultry growers are estimated to be $4,043,986 
discounted at a 3 percent rate and $3,369,790 at a 7 percent rate. The 
aggregate annualized costs of the PV of ten-year costs to live poultry 
dealers and poultry growers discounted at a 3 percent rate are expected 
to be $474,079 and $479,782 discounted at a 7 percent rate.
Combined Costs of Proposed Sec. Sec.  201.100 and 201.214--Small 
Business Exemption Alternative
    Aggregate combined costs to live poultry dealers for proposed 
Sec. Sec.  201.100 and 201.214 for the small business exemption 
alternative are expected to be $1,348,098 million in the first year, 
and $445,883 in subsequent years. The combined costs for poultry 
growers are expected to be $1,983,926 in the first year, $667,846 in 
years two through five, and $588,710 after year five on an ongoing 
basis.
    The aggregate ten-year combined quantified costs of proposed 
Sec. Sec.  201.100 and 201.214 for the small business exemption 
alternative for live poultry dealers are estimated to be $5,361,042 and 
the present value of the ten-year combined costs $4,679,407 discounted 
at a 3 percent rate and $3,974,885 at a 7 percent rate. The aggregate 
annualized costs of the PV of ten-year costs to live poultry dealers 
discounted at a 3 percent rate are expected to be $548,569 and $565,934 
discounted at a 7 percent rate.
    The aggregate ten-year combined costs of proposed Sec. Sec.  
201.100 and 201.214 for the small business exemption alternative for 
poultry growers are estimated to be $7,598,857 and the present value of 
the ten-year combined costs are estimated to be $6,661,980 discounted 
at a 3 percent rate and $5,689,305 at a 7 percent rate. The aggregate 
annualized costs of the PV of ten-year costs to poultry growers 
discounted at a 3 percent rate are expected to be $780,987 and $810,029 
discounted at a 7 percent rate. As under the preferred alternative, the 
costs to poultry growers from proposed Sec. Sec.  201.100 and 201.214 
under the small business exemption alternative would be higher for 
poultry growers than live poultry dealers for the reasons discussed 
above.
    The first-year aggregate combined costs of proposed Sec. Sec.  
201.100 and 201.214 under the small business exemption alternative for 
live poultry dealers and poultry growers are estimated to be $3,332,024 
and $1,113,728 in years two through five and $1,034,592 in years six 
and beyond. The aggregate ten-year combined costs of proposed 
Sec. Sec.  201.100 and 201.214 for the small business exemption 
alternative for live poultry dealers and poultry growers are estimated 
to be $12,959,899 and the present value of the ten-year combined costs 
are estimated to be $11,341,387 discounted at a 3 percent rate and 
$9,664,190 at a 7 percent rate. The aggregate annualized costs of the 
PV of ten-year costs to live poultry dealers and poultry growers 
discounted at a 3 percent rate are expected to be $1,329,557 and 
$1,375,963 discounted at a 7 percent rate.
    Additionally, there may be costs of bearing increased risk that AMS 
has not estimated of increasing transparency in poultry grower 
contracting and tournaments, which would have different effects on more 
or less diversified integrators. We request comment on distinguishing 
between large, highly diversified integrators and those that process 
less volume and are less diversified, for purposes of quantifying any 
such costs for these participants in the supply chain. Please include 
any comments on whether, and if so, how, a localized monopsony or 
oligopsony position of the integrators may also affect the ability of 
the integrator to control information, bear or manage risks, or shift 
those risks to other parties, and what implications that may have on 
any other costs and benefits that may be quantified or otherwise 
considered.
Combined Benefits of Proposed Sec. Sec.  201.100 and 201.214--Small 
Business Exemption Alternative
    According to PSD records, only 3.2 percent of poultry growing 
contracts are between small live poultry dealers and poultry growers. 
Thus, 96.8 percent of all poultry growers will receive the benefits of 
proposed Sec. Sec.  201.100 and 201.214 under the small business 
exemption alternative. To estimate the

[[Page 35016]]

minimum quantified benefits to poultry growers, Gmin, under 
the small business exemption alternative, AMS multiplied the minimum 
quantified benefits under the preferred alternative in Table 3 by 96.8 
percent.
    AMS estimates the aggregate minimum benefits to growers, 
Gmin, from proposed Sec. Sec.  201.100 and 201.214 under the 
small business exemption alternative from reduced profit uncertainty to 
be $3,057,287 in the first year and on an ongoing basis.\113\ The ten-
year total minimum benefits of proposed Sec. Sec.  201.100 and 201.214 
to poultry growers are estimated to be $30,572,871 and the present 
value of the ten-year total minimum benefits to be $26,079,279 
discounted at a 3 percent rate and $21,473,105 at a 7 percent rate. The 
annualized PV of ten-year minimum benefits to poultry growers 
discounted at 3 and 7 percent rates are expected to be $3,057,287.
---------------------------------------------------------------------------

    \113\ All benefits estimates assume a moderate (20 percent) RAP 
and a 2 percent reduction in coefficient of variation of net 
revenue.
---------------------------------------------------------------------------

    The total benefits to the industry, BT, from proposed 
Sec. Sec.  201.100 and 201.214, under the small business exemption 
alternative, would be the sum of the minimum benefits to all growers, 
Gmin, and the other benefits to the industry from growers' 
risk reductions and a more efficient allocation of labor and capital, 
BO. The values of the estimated benefits appear in Table 4 
in the next section. AMS expects the quantified minimum benefits to 
growers from proposed Sec. Sec.  201.100 and 201.214, combined with the 
other non-quantified benefits to growers, to exceed the costs of 
proposed Sec. Sec.  201.100 and 201.214 under the small business 
exemption alternative.
Combined Costs and Benefits of Proposed Sec. Sec.  201.100 and 201.214
    The aggregate cost and benefit estimates of proposed Sec. Sec.  
201.100 and 201.214 under the small business exemption alternative 
presented above appear in the following table. The quantified costs and 
minimum quantifiable benefits to the industry in the first year under 
the small business exemption alternative are $3.332 million and $3.057 
million, respectively.
    As with the preferred option, AMS expects that the net benefits to 
the industry from proposed Sec. Sec.  201.100 and 201.214 under the 
small business exemption alternative will be very small in relation to 
the total value of industry production. Thus, AMS expects the impacts 
of the net benefits on total industry supply under the small business 
exemption alternative to be immeasurably small, leading to immeasurably 
small indirect effects on industry supply and demand, including price 
and quantity effects.

  Table 4--Estimated Costs and Benefits of Proposed Sec.  Sec.   201.100 and 201.214--Small Business Exemption
----------------------------------------------------------------------------------------------------------------
                                                       Cost                                  Benefits
                                 -------------------------------------------------------------------------------
    Small business exemption                                                        Individual
           alternative             Live poultry       Poultry     Industry total      grower      Total Industry
                                   dealer [deg]       growers                        (Gmin)\*\         (BT)
----------------------------------------------------------------------------------------------------------------
Sec.   201.100
    First-Year..................      $1,017,047      $1,578,286      $2,595,333            Gmin       Gmin + BO
    Ten-Year Total..............       4,053,825       4,206,231       8,260,056            Gmin       Gmin + BO
    PV of Ten-Year Discounted at       3,538,092       3,759,309       7,297,401            Gmin       Gmin + BO
     3 Percent..................
    PV of Ten-Year Discounted at       3,005,061       3,289,339       6,294,400            Gmin       Gmin + BO
     7 Percent..................
    Ten-Year Annualized at 3             414,772         440,706         855,478            Gmin       Gmin + BO
     Percent....................
    Ten-Year Annualized at 7             427,853         468,328         896,181            Gmin       Gmin + BO
     Percent....................
Sec.   201.214
    First-Year..................         331,051         405,640         736,691            Gmin       Gmin + BO
    Ten-Year Total..............       1,307,217       3,392,626       4,699,843            Gmin       Gmin + BO
    PV of Ten-Year Discounted at       1,141,315       2,902,671       4,043,986            Gmin       Gmin + BO
     3 Percent..................
    PV of Ten-Year Discounted at         969,824       2,399,966       3,369,790            Gmin       Gmin + BO
     7 Percent..................
    Ten-Year Annualized at 3             133,797         340,282         474,079            Gmin       Gmin + BO
     Percent....................
    Ten-Year Annualized at 7             138,081         341,701         479,782            Gmin       Gmin + BO
     Percent....................
Sec.  Sec.   201.100 and 201.214
    First-Year..................       1,348,098       1,983,926       3,332,024       3,057,287       Gmin + BO
    Ten-Year Total..............       5,361,042       7,598,857      12,959,899      30,572,871       Gmin + BO
    NV of Ten-Year Discounted at       4,679,407       6,661,980      11,341,387      26,079,279       Gmin + BO
     3 Percent..................
    PV of Ten-Year Discounted at       3,974,885       5,689,305       9,664,190      21,473,105       Gmin + BO
     7 Percent..................
    Ten-Year Annualized at 3             548,569         780,987       1,329,557       3,057,287       Gmin + BO
     Percent....................
    Ten-Year Annualized at 7             565,934         810,029       1,375,963       3,057,287       Gmin + BO
     Percent....................
----------------------------------------------------------------------------------------------------------------
\*\ AMS estimates Gmin as the combined benefits to growers of proposed Sec.  Sec.   201.100 and 201.214.
[deg] Estimates do not include unquantified cost of risk increases.

    Though the small business exemption alternative would reduce costs 
to the industry, this alternative would deny the benefits offered by 
proposed Sec. Sec.  201.100 and 201.214 to poultry growers who contract 
with small live poultry dealers. While most poultry grown and are 
contracted with large business, there are many small growers who would 
be exempt from the proposed rules under the small business exemption 
alternative. Under the small business exemption alternative, these 
poultry growers would continue to be exposed to the informational 
asymmetries and associated costs discussed above. AMS considered all 
three regulatory alternatives and believes that the preferred 
alternative is the best alternative as the benefits of the regulations 
will be captured by all poultry growers, regardless of the size of the 
live poultry dealer with which they contract.

H. Regulatory Flexibility Analysis

    AMS is proposing amending Sec.  201.100 and adding new Sec.  
201.214 to the regulations under the Packers and Stockyards Act. The 
proposed amended Sec.  201.100 would require live poultry

[[Page 35017]]

dealers to make disclosures before entering into new contracts or 
renewing existing contracts. Proposed Sec.  201.214 would require live 
poultry dealers to disclose information at the settlement of each 
flock.
    Proposed Sec.  201.100 lists a number of disclosure and record 
keeping requirements for live poultry dealers, but not all of them are 
new. Many of the requirements are included in current Sec.  201.100. 
Only the new requirements would create additional costs above the 
status quo.
    The new provisions in proposed Sec.  201.100 would require large 
live poultry dealers to disclose a true written copy of the growing 
agreement and a new Disclosure Document any time a live poultry dealer 
seeks to renew, revise, or replace an existing poultry growing 
arrangement that does not contemplate modifications to the existing 
housing specifications. Small live poultry dealers that process less 
than 2 million lbs. of poultry per week would be excluded from this 
disclosure requirement. Before a live poultry dealer enters a poultry 
growing arrangement that would require an original capital investment 
or requires modifications to existing housing, both large and small 
live poultry dealer must provide a copy of the growing agreement, the 
housing specifications, a letter of intent, and the new Disclosure 
Document.
    The Disclosure Document would require live poultry dealers to 
disclose summaries of litigation with any poultry growers, bankruptcy 
filings, and the live poultry dealer's policy regarding a grower's sale 
of the farm or assignment of the contract.
    Live poultry dealers would be required to disclose growers' 
variable costs if it collects the information. Live poultry dealers 
would be required to audit the information to ensure accuracy and 
obtain and file signed receipts certifying that the live poultry dealer 
provided the required Disclosure Document.
    The Disclosure Document would require two separate financial 
disclosures to growers. The first disclosure would be a table 
indicating average annual gross payments to poultry growers for the 
previous calendar year. The table would be organized by housing 
specification at each complex located in the United States that is 
owned or operated by the live poultry dealer and should express average 
payments on the basis of U.S. dollars per farm facility square foot. 
The second disclosure would be a set of tables with the average annual 
gross payments per farm facility square foot in each quintile to 
poultry growers for each of the five previous years, organized by 
housing specification at each complex.
    Disclosures that would be required in proposed Sec.  201.214 are 
associated with tournament or relative performance contracts. At the 
time of placement, proposed Sec.  201.214 would require live poultry 
dealers to provide specific information concerning the inputs, 
including feed, chicks, medication, etc., that the live poultry dealer 
provided to the grower. At the time of settlement, it would require the 
live poultry to provide specific information about inputs provided to 
every other grower in the tournament or ranking pool within 24 hours of 
flock delivery. Similar information on inputs would also be disclosed 
at settlement.
    AMS expects the disclosure requirements in Sec. Sec.  201.100 and 
201.214 would mitigate effects associated with asymmetric information 
between poultry growers and live poultry dealers. Some of the 
information held by live poultry dealers would be valuable to growers 
because it influences grower compensation in tournament contracts and 
might help growers in negotiating contract terms and making decisions 
about capital investments.
    The contracts themselves are often incomplete and exhibit asymmetry 
in the information available to live poultry dealers and contract 
growers. Because live poultry dealers supply most of the inputs, much 
of the production information is available only to the grower from the 
live poultry dealer. For example, the contract grower may not know 
precisely how much feed it used, or how much weight the flock gained 
under his or her care, unless the live poultry dealer provides the 
information.
    The Small Business Administration (SBA) defines small businesses by 
their North American Industry Classification System Codes (NAICS).\114\ 
SBA considers broiler and turkey producers small if sales are less than 
$1,000,000 per year. Live poultry dealers, NAICS 311615, are considered 
small businesses if they have fewer than 1,250 employees.
---------------------------------------------------------------------------

    \114\ U.S. Small Business Administration. Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes. effective August 19, 2019. https://www.sba.gov/sites/default/files/2019-08/SBA%20Table%20of%20Size%20Standards_Effective%20Aug%2019%2C%202019.pdf.
---------------------------------------------------------------------------

    AMS maintains data on live poultry dealers from the annual reports 
these firms file with PSD. Currently, 89 live poultry dealers would be 
subject to the proposed regulation. Fifty-Four of the live poultry 
dealers would be small businesses according to the SBA standard. In 
their fiscal year 2020, live poultry dealers reported that they had 
23,054 production contracts with poultry growers. Small live poultry 
dealers accounted for 1,218 contracts (5 percent).
    Annual reports from live poultry dealers indicate they had 23,054 
contracts, but a poultry grower can have more than one contract. The 
2017 Census of Agriculture indicated that there were 16,524 poultry 
growers in the United States.\115\ AMS has no record of the number of 
poultry growers that qualify as small businesses but expects that 
nearly all of them are small businesses.
---------------------------------------------------------------------------

    \115\ USDA, NASS. 2017 Census of Agriculture: United States 
Summary and State Data. Volume 1, Part 51. Issued April 2019. p. 56. 
https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf.
---------------------------------------------------------------------------

    Costs of proposed Sec. Sec.  201.100 and 201.214 to live poultry 
dealers would primarily consist of the time required to gather the 
information and distribute it among the growers. Proposed Sec. Sec.  
201.100 and 201.214 would also cost poultry growers the value of the 
time they put into reviewing and acknowledging receipt of the 
disclosures.
    Expected costs are estimated as the total value of the time 
required to produce and distribute the disclosures that would be 
required by proposed Sec. Sec.  201.100 and 201.214 as well as the time 
to create and maintain any necessary additional records, although live 
poultry dealers already keep nearly all of the required records. 
Estimates of the amount of time required to create and distribute the 
disclosure documents were provided by AMS subject matter experts. These 
experts were auditors and supervisors with many years of experience in 
auditing live poultry dealers for compliance with the Packers and 
Stockyards Act. Estimates for the value of the time are U.S. Bureau of 
Labor Statistics Occupational Employment and Wage Statistics estimated 
released May 2020.\116\ AMS marked up the wages 41.56 percent to 
account for benefits.
---------------------------------------------------------------------------

    \116\ See U.S. Bureau of Labor Statistics, May 2020 National 
Occupational Employment and Wage Estimates, May 2020. https://www.bls.gov/oes/current/oes_nat.htm#00-0000.
---------------------------------------------------------------------------

    AMS estimated proposed Sec. Sec.  201.100 and 201.214 combined 
would require a one-time first year investment of 3,616 hours of 
management time at $93.20 per hour costing $337,000, 1,890 hours of 
attorney time at $113.80 per hour costing $215,000, 1,270 hours of 
administrative time at $39.69 per hour costing $50,000, and 843 hours 
of information technology staff time at $82.50 per hour costing 
$70,000.

[[Page 35018]]

Aggregate total first-year setup costs are expected to be $672,000. AMS 
expects proposed Sec.  201.100 would annually require an additional 
aggregate 1,402 hours of management time at $93.20 per hour costing 
$131,000, 312 hours of attorney time at $113.80 per hour costing 
$35,000, 493 hours of administrative time at $39.69 per hour costing 
$20,000, and 312 hours of information technology staff hours at $82.50 
per hour costing $26,000 to keep and maintain records and produce and 
distribute the disclosures. Total aggregate first-year costs to small 
live poultry dealers for proposed Sec.  201.100 are expected to be 
$883,000. After the first year AMS expects aggregate cost to small live 
poultry dealers to be $211,000 annually.
    AMS estimated proposed Sec.  201.214 would require a one-time first 
year aggregate investment of 810 hours of management time at $93.20 per 
hour costing $75,000, 594 hours of administrative time at $39.69 per 
hour costing $24,000, and 2,268 hours of information technology staff 
time at $82.50 per hour costing $187,000. Total aggregate first-year 
setup costs are expected to be $286,000. AMS expects proposed Sec.  
201.214 would annually require an aggregate additional 1,295 hours 
distributed evenly across management, administrative, and information 
technology staff at $93.30, $39.60, and $82.50 per hour, respectively, 
costing $60,000, $26,000, and $53,000 respectively to keep and maintain 
records and produce and distribute the disclosures. Total aggregate 
first-year costs to small live poultry dealers for proposed Sec.  
201.214 are expected to be $426,000. After the first year, aggregate 
costs are expected to be $139,000 annually.
    The proposed rule would regulate live poultry dealers' contracts. 
AMS expects that costs per live poultry dealer would be correlated with 
number of contracts. All expected costs of proposed Sec.  201.100 are 
associated with maintaining records and producing and distributing 
disclosure documents among contract growers. AMS expects that firms 
that contract with few growers will have lower costs. Larger live 
poultry dealers will tend to have more contracts and will likely have 
more costs. Proposed Sec.  201.214 only concerns relative performance 
or tournament contracts. Smaller live poultry dealers that do not have 
tournament contracts will not have any of the costs associated with 
proposed Sec.  201.214, and some live poultry dealers have few 
contracts with poultry growers and raise poultry in their own 
facilities. Those dealers will have relatively lower costs.
    AMS does not regulate poultry growers, and, with the exception of 
signing a receipt, the proposed rule has no requirements of poultry 
growers. To benefit from the disclosures, they would need to review the 
information provided. Growers are not required to review the disclosure 
information in proposed Sec. Sec.  201.100 and 201.214, and growers 
that do not expect a benefit from reviewing the disclosure information 
likely would not review it.
    AMS estimates aggregate growers' costs for reviewing disclosures 
associated with proposed Sec. Sec.  201.100 and 201.214 combined to be 
$608,000 in the initial year. After poultry growers become familiar 
with the disclosures, they would likely require less time to review the 
documents, and AMS expects annual aggregate costs to growers would be 
$445,000 for years two through five and $440,000 each year thereafter. 
This amounts to $508 per grower in the first year. The table below 
summarizes costs of proposed Sec. Sec.  201.100 and 201.214 to small 
live poultry dealers and small poultry growers.

            Table 5--Estimated Costs to Small Businesses of Proposed Sec.  Sec.   201.100 and 201.214
----------------------------------------------------------------------------------------------------------------
                                                                  Regulated live
                                                                      poultry       Unregulated        Total
                          Type of cost                                dealers         growers        (dollars)
                                                                     (dollars)       (dollars)
----------------------------------------------------------------------------------------------------------------
Proposed Sec.   201.100
    First-year Cost.............................................         883,000          86,000         970,000
    First-year Cost per Firm....................................          16,000              99              NA
    NPV of Ten-year Cost Discounted at 3 Percent................       2,456,000         205,000       2,661,000
    NPV of Ten-year Cost Discounted at 7 Percent................       2,113,000         180,000       2,293,000
    Ten-year Cost Annualized at 3 Percent.......................         288,000          24,000         312,000
    Ten-year Cost Annualized at 7 Percent.......................         301,000          26,000         326,000
    Average Ten-Year Cost per Firm Annualized at 3 Percent......           5,300              28              NA
    Average Ten-Year Cost per Firm Annualized at 7 Percent......           5,600              29              NA
                                                                                                             123
                                                                                                             217
Proposed Sec.   201.214
    First-year Cost.............................................         426,000         522,000         947,000
    First-year Cost per Firm....................................           8,000             489              NA
    NPV of Ten-year Cost Discounted at 3 Percent................       1,467,000       3,732,000       5,199,000
    NPV of Ten-year Cost Discounted at 7 Percent................       1,247,000       3,086,000       4,333,000
    Ten-year Cost Annualized at 3 Percent.......................         172,000         438,000         610,000
    Ten-year Cost Annualized at 7 Percent.......................         178,000         439,000         617,000
    Average Ten-Year Cost per Firm Annualized at 3 Percent......           3,200             501              NA
    Average Ten-Year Cost per Firm Annualized at 7 Percent......           3,300             503              NA
Proposed Sec.  Sec.   201.100 and 201.214
    First-year Cost.............................................       1,309,000         608,000       1,917,000
    First-year Cost per Firm....................................          24,000             505              NA
    NPV of Ten-year Cost Discounted at 3 Percent................       3,923,000       3,937,000       7,861,000
    NPV of Ten-year Cost Discounted at 7 Percent................       3,360,000       3,265,000       6,625,000
    Ten-year Cost Annualized at 3 Percent.......................         460,000         462,000         922,000
    Ten-year Cost Annualized at 7 Percent.......................         478,000         465,000         943,000
    Average Ten-Year Cost per Firm Annualized at 3 Percent......           8,500             529              NA
    Average Ten-Year Cost per Firm Annualized at 7 Percent......           8,900             532              NA
                                                                                                             387
                                                                                                             662
----------------------------------------------------------------------------------------------------------------


[[Page 35019]]

    Live poultry dealers report net sales in annual reports to AMS. 
Table 6 below groups small live poultry dealers' net sales into 
quartiles, reports the average net sales in each quartile, and compares 
average net sales to average expected first-year costs per firm for 
each of proposed Sec.  201.100 and proposed Sec.  201.214 and total 
first-year costs. Estimated first-year costs are higher than 10-year 
annualized costs, and for the threshold analysis, first-year costs will 
be higher than annualized costs as percentage of net sales. 
Correspondingly, the ratio of ten-year annualized costs to net sales is 
lower than their corresponding first-year cost ratios listed in Table 
6. If estimated costs meet the threshold in the first-year, they will 
in the following years as well.
    Estimated first-year costs per firm are less than 1 percent of 
average net sales in the three largest quartiles. Percentage of net 
sales are about 2.2 percent in the smallest quartile. However, average 
first year cost per entity in Table 6 is the average cost of all of the 
small businesses. Costs for the live poultry dealers in smallest 
quartile will likely be less than the average for small businesses.
    Live poultry dealers do not report to AMS whether any of their 
contracts are tournament style contracts, but evaluating the number 
contracts that live poultry dealers listed in their annual reports to 
AMS, few of the live poultry dealers in smallest quartile contracted 
with a sufficient number of growers to implement tournament contracts. 
It is unlikely that any of the live poultry dealers in the smallest 
quartiles had any tournament contracts. It is unlikely that several of 
the smaller live poultry dealers in the second quartile had any 
tournament contracts either. AMS encourages comments concerning whether 
small live poultry dealers make tournament-style contracts with 
growers, and AMS encourages comments concerning a minimum number of 
contracts necessary for a live poultry dealer to make tournament 
contracts with growers.
    Since proposed Sec.  201.214 only applies to tournament contracts, 
none of the live poultry dealers in the smallest quartile are likely to 
incur any costs from proposed Sec.  201.214. Their costs are likely 
only costs associated with proposed Sec.  201.100, which, as percentage 
of net sales would be 1.6 percent. Because the smallest live poultry 
dealers have fewer contracts than the other small live poultry dealers, 
their costs associated with proposed Sec.  201.100 are also likely less 
than average.

Table 6--Comparison of Small Live Poultry Dealers' Net Sales to Expected Annualized Costs of Proposed Sec.  Sec.
                                                201.100 and 201.214
----------------------------------------------------------------------------------------------------------------
                                                                    First year      First year
                                                                   costs related   costs related    Total first
                                                                      to Sec.         to Sec.      year costs as
                   Quartile                    Average net sales   201.100 as a    201.214 as a    a  percent of
                                                   (dollars)      percent of net  percent of net     net sales
                                                                       sales           sales         (percent)
                                                                     (percent)       (percent)
----------------------------------------------------------------------------------------------------------------
0 to 25 percent..............................          1,101,680           1.452           0.726           2.178
25 to 50 percent.............................          7,544,954           0.212           0.106           0.318
50 to 75 percent.............................         33,855,515           0.047           0.024           0.071
75 to 100 percent............................        160,414,027           0.010           0.005           0.015
----------------------------------------------------------------------------------------------------------------

    AMS also estimated costs of an alternative proposal that would 
exempt most small live poultry dealers from the requirements of the 
proposed regulations. The alternative would exempt all live poultry 
dealers that process less than 2 million pounds of poultry per week 
from all reporting requirements. The alternative would exempt all but 7 
of the firms that qualify as small businesses by the SBA standard.
    AMS estimated the alternative to proposed Sec.  201.100 would 
require a one-time first year aggregate investment of 634 hours of 
management time at $93.20 per hour costing $59,000, 245 hours of 
attorney time at $113.80 per hour costing $28,000, 200 hours of 
administrative time at $39.69 per hour costing $8,000, and 163 hours of 
information technology staff time at $82.50 per hour costing $13,000. 
Aggregate total first-year setup costs are expected to be $108,000. AMS 
expects the alternative proposal for Sec.  201.100 would annually 
require an additional aggregate 283 hours of management time at $93.20 
per hour costing $26,000, 42 hours of attorney time at $113.80 per hour 
costing $5,000, 77 hours of administrative time at $39.69 per hour 
costing $3,000, and 56 hours of information technology staff hours at 
$82.50 per hour costing $5,000 to keep and maintain records and produce 
and distribute the disclosures. Aggregate total first-year costs to 
small live poultry dealers for proposed Sec.  201.100 are expected to 
be $147,000. After the first year AMS expects aggregate costs to small 
live poultry dealers to be $39,000 annually.
    AMS estimated proposed alternative Sec.  201.214 would require a 
one-time first year aggregate investment of 630 hours of management 
time at $93.20 per hour costing $59,000, 462 hours of administrative 
time at $39.69 per hour costing $18,000, and 98 hours of information 
technology staff time at $82.50 per hour costing $8,000. Aggregate 
total first-year setup costs are expected to be $85,000. AMS expects 
proposed alternative Sec.  201.214 would annually require an additional 
aggregate 98 hours distributed evenly across management, 
administrative, and information technology staff at $93.30, $39.60, and 
$82.50 per hour, respectively, costing $3,000, $1,300, and $2,700 
respectively to keep and maintain records and produce and distribute 
the disclosures. Aggregate total first-year costs to small live poultry 
dealers for proposed alternative Sec.  201.214 are expected to be 
$92,000. After the first year, costs are expected to be $7,000 
annually.
    The proposed alternative would have a relatively small effect on 
costs to poultry growers on a per grower basis, and growers will only 
review the disclosures if they perceive that they are beneficial. AMS 
estimates growers' aggregate costs for reviewing and acknowledging 
receipt of disclosures associated with proposed Sec. Sec.  201.100 and 
201.214 to be $34,000 in the initial year. AMS expects annual aggregate 
costs to growers would be $63,000 for years two through five and 
$61,000 each year thereafter. Table 7 below summarizes aggregate costs 
of proposed alternative Sec. Sec.  201.100 and 201.214 combined to 
small live poultry dealers and small poultry growers.

[[Page 35020]]



      Table 7--Estimated Costs to Small Businesses of Proposed Alternative Sec.  Sec.   201.100 and 201.214
----------------------------------------------------------------------------------------------------------------
                                                                  Regulated live
                                                                      poultry       Unregulated        Total
                          Type of cost                                dealers         growers        (dollars)
                                                                     (dollars)       (dollars)
----------------------------------------------------------------------------------------------------------------
Alternative Sec.   201.100
    First-year Cost.............................................         147,000          34,000         181,000
    First Year-Cost Per Firm....................................          21,000              99              NA
    NPV of Ten-year Cost Discounted at 3 Percent................         436,000          81,000         518,000
    NPV of Ten-year Cost Discounted at 7 Percent................         374,000          71,000         445,000
    Ten-year Cost Annualized at 3 Percent.......................          51,000          10,000          61,000
    Ten-year Cost Annualized at 7 Percent.......................          53,000          10,000          63,000
    Average Ten-Year Cost per Firm Annualized at 3 Percent......           7,300              28              NA
    Average Ten-Year Cost per Firm Annualized at 7 Percent......           7,600              29              NA
                                                                                                              24
                                                                                                              42
Alternative Sec.   201.214
    First-year Cost.............................................          92,000          68,000         160,000
    First Year-Cost Per Firm....................................           8,000              99              NA
    NPV of Ten-year Cost Discounted at 3 Percent................         143,000         484,000         627,000
    NPV of Ten-year Cost Discounted at 7 Percent................         129,000         400,000         529,000
    Ten-year Cost Annualized at 3 Percent.......................          17,000          57,000          73,000
    Ten-year Cost Annualized at 7 Percent.......................          18,000          57,000          75,000
    Average Ten-Year Cost per Firm Annualized at 3 Percent......           2,400             164              NA
    Average Ten-Year Cost per Firm Annualized at 7 Percent......           2,600             164              NA
                                                                                                              31
                                                                                                              53
Alternative Sec.  Sec.   201.100 and 201.214
    First-year Cost.............................................         239,000         102,000         341,000
    First Year-Cost Per Firm....................................          24,000             295              NA
    NPV of Ten-year Cost Discounted at 3 Percent................         579,000         565,000       1,144,000
    NPV of Ten-year Cost Discounted at 7 Percent................         503,000         471,000         974,000
    Ten-year Cost Annualized at 3 Percent.......................          68,000          66,000         134,000
    Ten-year Cost Annualized at 7 Percent.......................          72,000          67,000         139,000
    Average Ten-Year Cost per Firm Annualized at 3 Percent......           9,700             191  ..............
    Average Ten-Year Cost per Firm Annualized at 7 Percent......          10,300             194              NA
                                                                                                              55
                                                                                                              95
----------------------------------------------------------------------------------------------------------------

    Net sales for small live poultry dealers that would be required to 
make disclosure under proposed alternative Sec. Sec.  201.100 and 
201.214 averaged $159 million for their fiscal year 2020. Expected 
first-year cost per live poultry dealer would be well below 0.1 
percent. Clearly, exempting live poultry dealers that process less than 
2 million pounds of poultry per week would reduce cost to small live 
poultry dealers, but the benefits of the rule would also be less. AMS 
prefers Sec. Sec.  201.100 and 201.214 as it proposed them because it 
considers the information in the disclosures to be important for 
poultry growers for making investment and production decisions and 
necessary for the efficient functioning of the market.
    AMS made considerations for small live poultry dealers in drafting 
proposed Sec. Sec.  201.100 and 201.214. Proposed Sec.  201.100 makes 
several exemptions for live poultry dealers producing less than 2 
million pounds of poultry per week. Many of the smallest live poultry 
dealers that do not participate in tournament style contracts would be 
unaffected by proposed Sec.  201.214.
    Although cost would be smaller with the alternative, the costs 
associated with proposed Sec. Sec.  201.100 and 201.214 are relatively 
small. The rule seeks only to require live poultry dealers to provide 
its contract growers with information relevant to their operations, and 
AMS made every effort to limit the disclosures to information that live 
poultry dealer already possessed. While proposed Sec. Sec.  201.100 and 
201.214 would have an effect on a substantial number (54) of small 
businesses, the economic impact would be significant for only few, if 
any, live poultry dealers.
    Costs to growers would be limited to the time required to review 
and acknowledge receipt of the disclosures. AMS expects that proposed 
Sec. Sec.  201.100 and 201.214 would have effects on a substantial 
number of growers however, the costs would not be significant for any 
of them. Because AMS does not regulate poultry growers, AMS does not 
have information regarding the business sizes of poultry growers 
similar to the information it has concerning live poultry dealers. AMS 
invites comments concerning the sizes of poultry growing businesses and 
whether the costs associated with proposed Sec. Sec.  201.100 and 
201.214 would have a significant effect on any of them. Based on the 
above analyses regarding proposed Sec. Sec.  201.100 and 201.214, this 
proposed rule is not expected to 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.). While confident in 
this assertion, AMS acknowledges that individual businesses may have 
relevant data to supplement our analysis. We would encourage small 
stakeholders to submit any relevant data during the comment period.

VII. Request for Comments

    AMS invites comments on this proposed rule. Comments must be 
submitted through the e-rulemaking portal at www.regulations.gov. 
Comments submitted on or before August 8, 2022 will be considered. 
Comments should reference Docket No. AMS-FTPP-21-0044 and the date and 
page number of this issue of the Federal Register.

List of Subjects in 9 CFR Part 201

    Confidential business information, Reporting and recordkeeping 
requirements, Stockyards, Surety bonds, Trade practices.


[[Page 35021]]


    For the reasons set forth in the preamble, AMS proposes to amend 9 
CFR part 201 as follows:

PART 201--ADMINISTERING THE PACKERS AND STOCKYARDS ACT

0
1. The authority citation for 9 CFR part 201 continues to read as 
follows:

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

0
2. Revise Sec.  201.2 to read as follows:


Sec.  201.2  Terms defined.

    The definitions of terms contained in the Act shall apply to such 
terms when used in Administering the Packers and Stockyards Act, 9 CFR 
part 201; Rules of Practice Governing Proceedings Under the Packers and 
Stockyards Act, 9 CFR part 202; and Statements of General Policy Under 
the Packers and Stockyards Act, 9 CFR part 203. In addition, the 
following terms used in these parts shall be construed to mean:
    Act means the Packers and Stockyards Act, 1921, as amended and 
supplemented (7 U.S.C. 181 et seq.).
    Additional capital investment means a combined amount of $12,500 or 
more per structure paid by a poultry grower or swine production 
contract grower over the life of the poultry growing arrangement or 
swine production contract beyond the initial investment for facilities 
used to grow, raise, and care for poultry or swine. Such term includes 
the total cost of upgrades to the structure, upgrades of equipment 
located in and around each structure, and goods and professional 
services that are directly attributable to the additional capital 
investment. The term does not include costs of maintenance or repair.
    Administrator or agency head means the Administrator of the 
Agricultural Marketing Service or any person authorized to act for the 
Administrator.
    Agency means the Agricultural Marketing Service of the United 
States Department of Agriculture.
    Breeder facility identifier means the identification that a live 
poultry dealer permanently assigns to distinguish among breeder 
facilities supplying eggs for the poultry placed at the poultry 
grower's facility.
    Breeder flock age means the age in weeks of the egg-laying flock 
that is the source of poultry placed at the poultry grower's facility.
    Commerce means commerce between any State, Territory, or 
possession, or the District of Columbia, and any place outside thereof; 
or between points within the same State, Territory, or possession, or 
the District of Columbia, but through any place outside thereof; or 
within any Territory or possession, or the District of Columbia.
    Complex means a group of local facilities under the common 
management of a live poultry dealer. A complex may include, but not be 
limited to, one or more hatcheries, feed mills, slaughtering 
facilities, or poultry processing facilities.
    Custom feedlot means any facility which is used in its entirety or 
in part for the purpose of feeding livestock for the accounts of 
others, but does not include feeding incidental to the sale or 
transportation of livestock.
    Department means the United States Department of Agriculture.
    Grower variable costs means those costs related to poultry 
production that may be borne by the poultry grower, including, but not 
limited to, utilities, fuel, water, labor, repairs and maintenance, and 
liability insurance.
    Growout means the process of raising and caring for livestock or 
poultry in anticipation of slaughter.
    Growout period means the period of time between placement of 
livestock or poultry at a grower's facility and the harvest or delivery 
of such animals for slaughter, during which the feeding and care of 
such livestock or poultry are under the control of the grower.
    Housing specifications means a description of--or a document 
relating to--a list of equipment, products, systems, and other 
technical poultry housing components required by a live poultry dealer 
for the production of live poultry.
    Inputs means the various contributions to be made by the live 
poultry dealer and the poultry grower as agreed upon by both under a 
poultry growing arrangement. Such inputs may include, but are not 
limited to, animals, feed, veterinary services, medicines, labor, 
utilities, and fuel.
    Live poultry dealer means any person engaged in the business of 
obtaining live poultry by purchase or under a poultry growing 
arrangement for the purpose of either slaughtering it or selling it for 
slaughter by another, if poultry is obtained by such person in 
commerce, or if poultry obtained by such person is sold or shipped in 
commerce, or if poultry products from poultry obtained by such person 
are sold or shipped in commerce.
    Letter of intent means a document that expresses a preliminary 
commitment from a live poultry dealer to engage in a business 
relationship with a prospective poultry grower and that includes the 
chief terms of the agreement.
    Live Poultry Dealer Disclosure Document means the complete set of 
disclosures and statements that the live poultry dealer must provide to 
the poultry grower.
    Minimum number of placements means the least number of flocks of 
poultry the live poultry dealer will deliver to the grower for growout 
annually under the terms of the poultry growing arrangement.
    Minimum stocking density means the ratio that reflects the minimum 
weight of poultry per facility square foot the live poultry dealer 
intends to harvest from the grower following each growout.
    Number of placements means the number of flocks of poultry the live 
poultry dealer will deliver to the grower for growout during each year 
of the poultry growing arrangement period.
    Original capital investment means the initial financial investment 
for facilities used to grow, raise, and care for poultry or swine.
    Packers and Stockyards Division (PSD) means the Packers and 
Stockyards Division of the Fair Trade Practices Program (FTPP), 
Agricultural Marketing Service.
    Person means individuals, partnerships, corporations, and 
associations.
    Placement means delivery of a poultry flock to the poultry grower 
for growout in accordance with the terms of a poultry growing 
arrangement.
    Poultry grower means any person engaged in the business of raising 
and caring for live poultry for slaughter by another, whether the 
poultry is owned by such person or by another, but not an employee of 
the owner of such poultry.
    Poultry grower ranking system means a system where the contract 
between the live poultry dealer and the poultry grower provides for 
payment to the poultry grower based upon a grouping, ranking, or 
comparison of poultry growers delivering poultry during a specified 
period.
    Poultry growing arrangement means any growout contract, marketing 
agreement, or other arrangement under which a poultry grower raises and 
cares for live poultry for delivery, in accord with another's 
instructions, for slaughter.
    Principal part of performance means the raising of and caring for 
livestock or poultry, when used in connection with a livestock or 
poultry production contract.
    Prospective poultry grower means a person or entity with whom the 
live poultry dealer is considering entering into a poultry growing 
arrangement.
    Regional director means the regional director of the Packers and 
Stockyards Division (PSD) for a given region or any

[[Page 35022]]

person authorized to act for the regional director.
    Registrant means any person registered pursuant to the provisions 
of the Act and the regulations in this part.
    Schedule means a tariff of rates and charges filed by stockyard 
owners and market agencies.
    Secretary means the Secretary of Agriculture of the United States, 
or any officer or employee of the Department authorized to act for the 
Secretary.
    Stocking density means the ratio that reflects the number of birds 
in a placement, expressed as the number of poultry per facility square 
foot.
    Stockyard means a livestock market which has received notice under 
section 302(b) of the Act that it has been determined by the Secretary 
to come within the definition of ``stockyard'' under section 302(a) of 
the Act.
    3. Amend Sec.  201.100 by,
    a. Revising the heading and paragraph (a);
    b. Redesignating paragraphs (b) through (e) as paragraphs (h) 
through (k), respectively;
    c. Removing paragraph (f);
    d. Redesignating paragraphs (g) and (h) as paragraphs (l) and (m), 
respectively;
    e. Adding new paragraphs (b) through (g);
    f. Revising redesignated paragraph (h) introductory paragraph; and
    g. Redesignating paragraphs (i)(2) and (3) as paragraphs (i)(3) and 
(4) and adding new paragraph (i)(2).
    The revisions and additions to read as follows:


Sec.  201.100  Disclosures and records to be furnished poultry growers 
and sellers.

    (a) Obligation to furnish information and documents. A live poultry 
dealer must provide the documents described in this paragraph (a) to a 
prospective or current poultry grower.
    (1) Except as provided in paragraph (e) of this section, when a 
live poultry dealer seeks to renew, revise, or replace an existing 
poultry growing arrangement, or to establish a new poultry growing 
arrangement that does not contemplate modifications to the existing 
housing specifications, the live poultry dealer must provide the 
following documents at least seven days before the live poultry dealer 
executes the poultry growing arrangement:
    (i) A true, written copy of the renewed, revised, replacement, or 
new poultry growing arrangement; and
    (ii) The Live Poultry Dealer Disclosure Document, as described in 
paragraphs (b), (c), and (d) of this section.
    (2) When a live poultry dealer seeks to enter a poultry growing 
arrangement with a poultry grower or prospective poultry grower that 
will require an original capital investment, the live poultry dealer 
must provide the following to the poultry grower or prospective poultry 
grower simultaneously with the housing specifications:
    (i) A copy of the poultry growing arrangement that is affiliated 
with the current housing specifications,
    (ii) The Live Poultry Dealer Disclosure Document, as described in 
paragraphs (b), (c), and (d) of this section, and
    (iii) A letter of intent that can be relied upon to obtain 
financing for the original capital investment.
    (3) When a live poultry dealer seeks to offer or impose 
modifications to existing housing specifications that could reasonably 
require a poultry grower or prospective poultry grower to make an 
additional capital investment, the live poultry dealer must provide the 
following to the poultry grower or prospective poultry grower 
simultaneously with the modified housing specifications:
    (i) A copy of the poultry growing arrangement that is affiliated 
with the modified housing specifications,
    (ii) The Live Poultry Dealer Disclosure Document, as described in 
paragraphs (b), (c), and (d) of this section, and
    (iii) A letter of intent that can be relied upon to obtain 
financing for the additional capital investment.
    (b) Prominent Disclosures. The Live Poultry Dealer Disclosure 
Document must include a cover page followed by additional disclosures 
as required in paragraphs (c) and (d) of this section. The order, form, 
and content of the cover page shall be and include:
    (1) The title ``LIVE POULTRY DEALER DISCLOSURE DOCUMENT'' in 
capital letters and bold type;
    (2) The live poultry dealer's name, type of business organization, 
principal business address, telephone number, email address, and, if 
applicable, primary internet web page address;
    (3) The length of the term of the poultry growing arrangement;
    (4) The following statement: ``The income from your poultry farm 
may be significantly affected by the number of flocks the poultry 
company places on your farm each year, the density or number of birds 
placed with each flock, and the target weight at which poultry is 
caught. The poultry company may have full discretion and control over 
these and other factors. Please carefully review the information in 
this document.''
    (5) The following:
    (i) The minimum number of placements on the poultry grower's farm 
annually under the terms of the poultry growing arrangement, and
    (ii) The minimum stocking density for each flock to be placed on 
the poultry grower's farm under the terms of the poultry growing 
arrangement.
    (6) The applicable of the following two statements:
    (i) ``This disclosure document summarizes certain provisions of 
your poultry growing arrangement and other information. You have the 
right to read this disclosure document and all accompanying documents 
carefully. At least seven calendar days before the live poultry dealer 
executes the poultry growing arrangement, the poultry company is 
required to provide you with: (1) this disclosure document, and (2) a 
copy of the poultry growing arrangement.'' OR
    (ii) ``This disclosure document summarizes certain provisions of 
your poultry growing arrangement and other information. You have the 
right to read this disclosure document and all accompanying documents 
carefully. The live poultry dealer is required to provide this 
disclosure document to you simultaneously with (a) a copy of the 
poultry growing arrangement, (b) any new or modified housing 
specifications that would require you to make an original or additional 
capital investment, and (c) a letter of intent.''
    (7) This statement: ``Even if the poultry growing arrangement 
contains a confidentiality provision, by law you still retain the right 
to discuss the terms of the poultry growing arrangement and the Live 
Poultry Dealer Disclosure Document with a Federal or State agency, your 
financial advisor or lender, your legal advisor, your accounting 
services representative, other growers for the same live poultry 
dealer, and your immediate family or business associates. A business 
associate is a person not employed by you, but with whom you have a 
valid business reason for consulting when entering into or operating 
under a poultry growing arrangement.'' and
    (8) The following sentence in bold type: ``Note that USDA has not 
verified the information contained in this document. If this disclosure 
by the live poultry dealer contains any false or misleading statement 
or a material omission, a violation of federal and/or state law may 
have occurred.
    (c) Required disclosures following the cover page. The live poultry 
dealer shall disclose, in the Live Poultry Dealer Disclosure Document 
following the cover page, the following information:
    (1) A summary of litigation over the prior six years between the 
live poultry dealer and any poultry grower;

[[Page 35023]]

including the nature of the litigation, its location, the initiating 
party, a brief description of the controversy, and any resolution.
    (2) A summary of all bankruptcy filings in the prior six years by 
the live poultry dealer and any parent, subsidiary, or related entity 
of the live poultry dealer; and
    (3) A statement that describes the live poultry dealer's policies 
and procedures regarding the potential sale of the poultry grower's 
facility or assignment of the poultry growing arrangement to another 
party, including the circumstances under which the live poultry dealer 
will offer the successive buyer a poultry growing agreement.
    (d) Financial Disclosures. The live poultry dealer must include in 
the Live Poultry Dealer Disclosure Document the following information:
    (1) A table showing average annual gross payments to poultry 
growers for the previous calendar year for all complexes owned or 
operated by the live poultry dealer, organized by housing 
specification, and expressing average payments on the basis of U.S. 
dollars per farm facility square foot.
    (2) Tables showing average annual gross payments to poultry growers 
at the local complex for each of the five previous years. The tables 
should express average payments on the basis of U.S. dollars per farm 
facility square foot. The tables should be organized by year, housing 
specification tier (lowest to highest), and quintile (lowest to 
highest). The step-by-step process for calculating table values is:
    (i) Group growers according to the housing specification affiliated 
with their poultry growing arrangement;
    (A) Include all growers under contract for a complete calendar year 
and growers under flock-to-flock poultry growing arrangements during 
that year, and
    (B) Exclude growers whose housing specifications changed during the 
calendar year from the calculation for that year.
    (ii) Sum all payments to each grower during the calendar year to 
determine each grower's total annual payments;
    (iii) Divide each grower's total annual payments by the square 
footage of the grower's farm facility to normalize annual payments to 
reflect dollars per farm facility square foot;
    (iv) Sort normalized annual payments into quintiles (smallest to 
largest); and
    (v) Sum all normalized annual payments within each quintile and 
divide the result by the number of growers in the quintile to determine 
an average annual gross payment to poultry growers for that quintile.
    (3) If poultry housing specifications for poultry growers under 
contract with the complex are modified such that an additional capital 
investment may be required, or if the five-year averages provided under 
paragraph (2) do not accurately represent projected grower gross annual 
payments under the terms of the applicable poultry growing arrangement 
for any reason, the live poultry dealer must provide the following 
additional information:
    (i) Tables providing projections of average annual gross payments 
to growers under contract with the complex with the same housing 
specifications for the term of the poultry growing arrangement at five 
quintile levels expressed as dollars per farm facility square foot, and
    (ii) An explanation of why the annual gross payment averages for 
the previous five years, as provided under (2), do not provide an 
accurate representation of projected future payments, including the 
basic assumptions underlying the projections provided under (i) of this 
paragraph.
    (4) A summary of information the live poultry dealer collects or 
maintains relating to grower variable costs inherent in poultry 
production.
    (5) Current contact information for the State university extension 
service office or the county farm advisor's office that can provide 
relevant information about poultry grower costs and poultry farm 
financial management in the poultry grower's geographic area.
    (e) Small Live Poultry Dealer Financial Disclosures. A live poultry 
dealer, including all parent and subsidiary companies, slaughtering 
fewer than 2 million live pounds of poultry weekly (104 million pounds 
annually) is exempt from the requirements in paragraph (a)(1) of this 
section.
    (f) Governance and Certification.
    (1) The live poultry dealer must establish, maintain, and enforce a 
governance framework that is reasonably designed to--
    (i) audit the accuracy and completeness of the disclosures required 
under (a), which shall include audits and testing, and which shall 
include reviews of an appropriate sampling of Live Poultry Dealer 
Disclosure Documents by the principal executive officer or officers;
    (ii) ensure compliance with all obligations under the Packers and 
Stockyards Act and regulations thereunder.
    (2) The principal executive officer or officers, or persons 
performing similar functions, shall certify in the Live Poultry Dealer 
Disclosure Document that the live poultry dealer has established, 
maintains, and enforces the governance framework and that based on the 
officer's knowledge, the Live Poultry Dealer Disclosure Document does 
not contain any untrue statement of a material fact or omit to state a 
material fact which would render it misleading.
    (g) Receipt by growers.
    (1) The Live Poultry Dealer Disclosure Document must include a 
poultry grower's signature page that contains the following statement: 
``If the live poultry dealer does not deliver this disclosure document 
within the time frame specified herein, or if this disclosure document 
contains any false or misleading statement or a material omission 
(including any discrepancy with other oral or written statements made 
in connection with the poultry growing arrangement), a violation of 
federal and state law may have occurred. Violations of federal and 
state laws may be determined to be unfair, unjustly discriminatory, or 
deceptive and unlawful under the Packers and Stockyards Act, as 
amended. Allegations of such violations may be reported to the Packers 
and Stockyards Division of USDA's Agricultural Marketing Service.''
    (2) The live poultry dealer must obtain the poultry grower's or 
prospective poultry grower's dated signature on the poultry grower's 
signature page in paragraph (1) as evidence of receipt. The live 
poultry dealer must provide a copy of the dated signature page to the 
poultry grower or prospective poultry grower and must retain a copy of 
the dated signature page in the dealer's records for three years 
following expiration, termination, or non-renewal of the poultry 
growing arrangement.
    (h) Right to discuss the terms of poultry growing arrangement 
offer. A live poultry dealer, notwithstanding any confidentiality 
provision in the poultry growing arrangement, may not prohibit a 
poultry grower or prospective poultry grower from discussing the terms 
of a poultry growing arrangement offer or the accompanying Live Poultry 
Dealer Disclosure Document with:
* * * * *
    (i) * * *
    (2) The following variables controlled by the live poultry dealer:
    (i) The minimum number of placements of poultry at the poultry 
grower's facility annually, and
    (ii) The minimum stocking density for each flock placed with the 
poultry grower under the poultry growing arrangement.
* * * * *

[[Page 35024]]

0
4. In subpart N, add Sec.  201.214 to read as follows:


Sec.  201.214  Transparency in poultry grower ranking pay systems.

    (a) Poultry grower ranking system records. If a live poultry dealer 
uses a poultry grower ranking system to calculate grower payments, the 
live poultry dealer must produce records in accordance with paragraphs 
(b) and (c) of this section. The live poultry dealer must maintain such 
records for a period of five years.
    (b) Placement Disclosure. Within 24 hours of flock delivery to a 
poultry grower's facility, a live poultry dealer must provide the 
following information to the grower regarding the placement:
    (1) The stocking density of the placement;
    (2) Names and all ratios of breeds of the poultry delivered;
    (3) If the live poultry dealer has determined the sex of the birds, 
all ratios of male and female poultry delivered;
    (4) The breeder facility identifier;
    (5) The breeder flock age;
    (6) Information regarding any known health impairments of the 
breeder flock or of the poultry delivered; and
    (7) Adjustments, if any, that the live poultry dealer may make to 
the calculation of the grower's pay based on the inputs in (1) through 
(6) of this paragraph.
    (c) Poultry grower ranking system settlement documents. A live 
poultry dealer must provide ranking system settlement documents that 
include the following information:
    (1) Grouping, ranking, or comparison sheets. The live poultry 
dealer must furnish the poultry grower, at the time of settlement, a 
copy of a grouping or ranking sheet that shows the grower's precise 
position in the grouping, ranking, or comparison sheet for that period. 
The grouping or ranking sheet need not show the names of other growers, 
but must show their housing specification and the actual figures upon 
which the grouping or ranking is based for each grower grouped or 
ranked during the specified period.
    (2) Distribution of inputs. The distribution of inputs among 
participants must be reported to all poultry grower ranking system 
participants. The grouping or ranking sheets required in paragraph (1) 
must disclose the following information relating to live poultry 
dealer-controlled inputs provided to each grower participant:
    (i) The stocking density for each placement;
    (ii) The names and all ratios of breeds of the poultry delivered to 
each poultry grower's facility;
    (iii) If the live poultry dealer has determined the sex of the 
birds, all ratios of male and female poultry delivered to each poultry 
grower's facility;
    (iv) All breeder facility identifiers;
    (v) The breeder flock age(s); and
    (vi) The number of feed disruptions each poultry grower endured 
during the growout period, where the grower was completely out of feed 
for 12 hours or more.

    Note: The following appendices will not appear in the Code of 
Federal Regulations.

Appendix 1. Details of the Estimated One-Time, First-Year Costs and On-
Going Annual Costs of Providing Disclosure Documents Required in 
Proposed Sec. Sec.  201.100 and 201.214 Under the Preferred Alternative

    Table 1 below provides the details of the estimated one-time, 
first-year costs of providing disclosure documents required in 
proposed Sec.  201.100. AMS expects that the direct costs will 
consist entirely of the value of the time required to produce and 
distribute the disclosures and maintain proper records. The number 
of hours the second column were provided by AMS subject matter 
experts. These experts were auditors and supervisors with many years 
of experience in auditing live poultry dealers for compliance with 
the Packers and Stockyards Act. They provided estimates of the 
average amount of time that would be necessary for each live poultry 
dealer to meet each of the elements listed in the ``Regulatory 
Requirements'' column. Estimates for the value of the time are U.S. 
Bureau of Labor Statistics Occupational Employment and Wage 
Statistics estimated released May 2020. Wage estimates are marked up 
41.56 percent to account for benefits. The ``Adjustment'' column 
allows for estimation of costs that will only apply to a subset of 
the poultry growers or to the live poultry dealers. A blank value in 
the Adjustment column indicates that no adjustments were made to the 
costs. Each adjustment is different and described in the relevant 
footnote. Expected costs for each ``Regulatory Requirement'' and are 
listed in the ``Expected Cost'' column. Summing the values in the 
``Expected Cost'' column provides the total expected first-year, 
one-time costs for setting-up and producing the disclosure documents 
associated with proposed Sec.  201.100.

                                    Table 1--Expected First-Year Direct Costs Associated With Proposed Sec.   201.100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Number of
          Regulatory requirement            hours required           Profession            Expected wage  Number of LPDs    Adjustment     Expected cost
                                             for each LPD                                       ($)                          (percent)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.100(b)(1)-(8).........................               1  Manager.....................              93              89  ..............           8,295
                                                         4  Lawyer......................             114              89  ..............          40,513
201.100(c)(1)-(3).........................              10  Manager.....................              93              89  ..............          82,951
                                                         5  Administrative..............              40              89  ..............          17,664
                                                        10  Lawyer......................             114              89  ..............         101,282
201.100(d)(1)(2)(i).......................              30  Manager.....................              93          \1\ 42          \2\ 90         105,692
                                                         8  Administrative..............              40          \1\ 42          \2\ 90          12,003
                                                        22  Information Tech............              83          \1\ 42          \2\ 90          68,608
201.100(d)(1)(2)(ii)-(v)..................              30  Manager.....................              93              89           \3\ 5          12,443
                                                         8  Administrative..............              40              89           \3\ 5           1,413
                                                        22  Information Tech............              83              89           \3\ 5           8,077
201.100(d)(1)(2)(vi)......................              30  Manager.....................              93              89           \4\ 5          12,443
                                                         8  Administrative..............              40              89           \4\ 5           1,413
                                                        22  Information Tech............              83              89           \4\ 5           8,077
201.100(d)(3).............................              20  Manager.....................              93              89           \5\ 5           8,295
                                                         5  Administrative..............              40              89           \5\ 5             883
                                                        15  Information Tech............              83              89           \5\ 5           5,507
201.100(d)(4).............................               6  Manager.....................              93              89  ..............          49,770
                                                         2  Administrative..............              40              89  ..............           7,065
201.100(d)(5).............................             0.5  Manager.....................              93              89  ..............           4,148
                                                       0.5  Administrative..............              40              89  ..............           1,766
201.100(f)(1)(2)..........................              40  Manager.....................              93              89  ..............         331,803

[[Page 35025]]

 
                                                        20  Lawyer......................             114              89  ..............         202,564
                                                        10  Administrative..............              40              89  ..............          35,327
                                                        10  Information Tech............              83              89  ..............          73,426
201.100(g)(1)(2)..........................               1  Manager.....................              93              89  ..............           8,295
                                                         1  Administrative..............              40              89  ..............           3,533
201.100(i)(2).............................               1  Manager.....................              93              89  ..............           8,295
                                                         1  Lawyer......................             114              89  ..............          10,128
                                           -------------------------------------------------------------------------------------------------------------
    Total Cost............................  ..............  ............................  ..............  ..............  ..............       1,231,679
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ 201.100(d)(1)(i) exempts live poultry dealers that process less than 2 million pounds of poultry per week.
\2\ Reduces estimated costs by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and
  5 percent for the estimated proportion of growers that enter a contract for the first time.
\3\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.
\4\ Estimates costs for only the 5 percent of growers that that enter contract for the first time.
\5\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.

    Table 2 provides the details of the estimated ongoing costs of 
providing disclosure documents required in proposed Sec.  201.100. 
Table 2 is laid out the same as Table 1. AMS subject matter experts 
provided estimates in the second column of the average amount of 
time that would be necessary for each live poultry dealer to meet 
each of the elements listed in the ``Regulatory Requirements'' 
column. Estimates for the value of the time are from U.S. Bureau of 
Labor Statistics Occupational Employment and Wage Statistics 
released May 2020. Wage estimates are marked up 41.56 percent to 
account for benefits. The ``Adjustment'' column allows for 
estimation of costs that will only apply to a subset of the poultry 
growers or to the live poultry dealers. Expected costs for each 
``Regulatory Requirement'' and are listed in the ``Expected Cost'' 
column. Summing the values in the ``Expected Cost'' column provides 
the total expected costs for producing and distributing the 
disclosure documents associated with proposed Sec.  201.100 on an 
ongoing basis.

                                     Table 2--Expected Ongoing Direct Costs Associated With Proposed Sec.   201.100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Number of
                                                hours                                                     Number of LPDs/
           Regulatory requirement              required             Profession             Expected wage     number of      Adjustment     Expected cost
                                               for each                                         ($)          contracts       (percent)          ($)
                                                 LPD
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.100(A)(a1).............................         0.08  Evenly distributed among             \1\ 71.80          22,312       \2\ 74.72          99,750
                                                           management, administrative,
                                                           and information tech.
201.100(A)(a2).............................         0.08  Evenly distributed among             \1\ 71.80          23,047           \3\ 5           6,895
                                                           management, administrative,
                                                           and information tech.
201.100(A)(a3).............................         0.08  Evenly distributed among             \1\ 71.80          23,047           \4\ 5           6,895
                                                           management, administrative,
                                                           and information tech.
201.100(b)(1)-(8)..........................          0.5  Manager.......................           93.20              89  ..............           4,148
                                                     0.5  Administrative................           39.69              89  ..............           1,766
201.100(c)(1)-(3)..........................            1  Manager.......................           93.20              89  ..............           8,295
                                                       1  Administrative................           39.69              89  ..............           3,533
                                                       1  Lawyer........................          113.80              89  ..............          10,128
201.100(d)(1)(2)(i)........................           15  Manager.......................           93.20          \5\ 42          \6\ 90          52,846
                                                       3  Administrative................           39.69          \5\ 42          \6\ 90           4,501
                                                       6  Information Tech..............           82.50          \5\ 42          \6\ 90          18,711
201.100(d)(1)(2)(ii)-(v)...................           15  Manager.......................           93.20              89           \7\ 5           6,221
                                                       3  Administrative................           39.69              89           \7\ 5             530
                                                       6  Information Tech..............           82.50              89           \7\ 5           2,203
201.100(d)(1)(2)(vi).......................           15  Manager.......................           93.20              89           \8\ 5           6,221
                                                       3  Administrative................           39.69              89           \8\ 5             530
                                                       6  Information Tech..............           82.50              89           \8\ 5           2,203
201.100(d)(3)..............................           10  Manager.......................           93.20              89           \9\ 5           4,148
                                                       2  Administrative................           39.69              89           \9\ 5             353
                                                       4  Information Tech..............           82.50              89           \9\ 5           1,469
201.100(d)(4)..............................         0.25  Manager.......................           93.20              89  ..............           2,074
                                                    0.25  Administrative................           39.69              89  ..............             883
201.100(d)(5)..............................         0.25  Manager.......................           93.20              89  ..............           2,074
                                                    0.25  Administrative................           39.69              89  ..............             883

[[Page 35026]]

 
201.100(f)(1)(2)...........................           20  Manager.......................           93.20              89  ..............         165,902
                                                       5  Lawyer........................          113.80              89  ..............          50,641
                                                       3  Administrative................           39.69              89  ..............          10,598
                                                       4  Information Tech..............           82.50              89  ..............          29,370
                                            ------------------------------------------------------------------------------------------------------------
    Total Cost.............................  ...........  ..............................  ..............  ..............  ..............         503,771
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ $71.80 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
  $93.20, $39.69, and $82.50 respectively.
\2\ 74.72 is the percentage of the existing poultry grower contracts that are expected to come up for renewal each year. It includes all flock-to-flock
  and single year contracts as well as longer term contracts that are expected to expire within a year.
\3\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\4\ Estimates costs for only the 5 percent of growers that that enter contract for the first time.
\5\ 201.100(d)(1)(i) exempts live poultry dealers that process less than 2 million pounds of poultry per week.
\6\ Reduces estimated cost by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5
  percent for the estimated proportion of growers that enter a contract for the first time.
\7\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\8\ Estimates costs for only the 5 percent of growers that that enter contract for the first time.
\9\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.

    Table 3 below provides the details of the estimated one-time, 
first-year costs of providing disclosure documents required in 
proposed Sec.  201.214. Like the previous tables, AMS subject matter 
experts provided estimates in the second column of the average 
amount of time that would be necessary for each live poultry dealer 
to meet each of the elements listed in the ``Regulatory 
Requirements'' column. Values in the ``Expected Wage'' column are 
taken from U.S. Bureau of Labor Statistics Occupational Employment 
and Wage Statistics released May 2020. Wage estimates are marked up 
41.56 percent to account for benefits. The number of LPDs is the 
number of live poultry dealers that filed annual reports with AMS 
for their 2020 fiscal years. ``Expected Cost'' is the estimate of 
the cost of each ``Regulatory Requirement.'' Summing the ``Expected 
Cost'' column provides the total expected first-year, one-time costs 
for setting-up and producing the disclosure documents associated 
with proposed Sec.  201.214.

                   Table 3--One Time First-Year Costs Associated With Proposed Sec.   201.214
----------------------------------------------------------------------------------------------------------------
                                    Number of
      Regulatory requirement        hours per        Profession       Expected wage   Number of    Expected cost
                                       LPD                                 ($)           LPDs           ($)
----------------------------------------------------------------------------------------------------------------
201.214(a).......................            2  Manager............           93.20           89          16,590
                                             4  Administrative.....           39.69           89          14,131
                                             2  Information                   82.50           89          14,685
                                                 Technology.
201.214(b).......................            5  Manager............           93.20           89          41,475
                                             2  Administrative.....           39.69           89           7,065
                                            18  Information                   82.50           89         132,167
                                                 Technology.
201.214(c).......................            8  Manager............           93.20           89          66,361
                                             5  Administrative.....           39.69           89          17,664
                                            22  Information                   82.50           89         161,537
                                                 Technology.
                                  ------------------------------------------------------------------------------
    Total Cost...................  ...........  ...................  ..............  ...........         471,675
----------------------------------------------------------------------------------------------------------------

    Table 3 below provides the details of the estimated ongoing 
costs of providing disclosure documents required in proposed Sec.  
201.214. AMS subject matter experts provided estimates in the second 
column of the average amount of time that would be necessary for 
each live poultry dealer to meet each of the elements listed in the 
``Regulatory Requirements'' column. They also provided the expected 
number of tournaments per plant. The number of poultry processing 
plants was tallied from the annual reports that live poultry dealers 
file with AMS. Values in the ``Expected Wage'' column were found in 
U.S. Bureau of Labor Statistics Occupational Employment and Wage 
Statistics released May 2020. Wage estimates are marked up 41.56 
percent to account for benefits. Multiplying across the row provides 
the ``Cost'' for each ``Regulatory Requirement,'' and summing the 
``Cost'' column provides the total expected costs for producing and 
distributing the disclosure documents associated with proposed Sec.  
201.214 on an ongoing basis.

                                         Table 4--Ongoing Expected Costs Associated With Proposed Sec.   201.214
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Number of
      Regulatory requirement          Hours            Profession            Number of      tournaments     Weeks in a     Avg. wage ($)     Cost ($)
                                                                              plants         per plant         year
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.214(b).......................          0.1  Evenly distributed among             228            1.35              52       \1\ 71.80         114,919
                                                 management,
                                                 administrative, and
                                                 information tech.

[[Page 35027]]

 
201.214(c).......................          0.1  Evenly distributed among             228            1.35              52       \1\ 71.80         114,919
                                                 management,
                                                 administrative, and
                                                 information tech.
                                  ----------------------------------------------------------------------------------------------------------------------
    Total Cost...................  ...........  ........................  ..............  ..............  ..............  ..............         229,838
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ $71.80 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
  $93.20, $39.69, and $82.50 respectively.

Appendix 2. Technical Overview of Estimates of the Economic Benefits of 
Reduction in Profit Uncertainty to Contract Growers With Rule Changes 
Promoting Greater Transparency in Returns

    A potential benefit of the contract disclosure rules providing 
increased transparency would be that doing so could lower the 
uncertainty in the contract grower's profit stream. According to 
economic principles, a risk averse producer will benefit 
economically from a reduction in profit risk, a component of the 
proposed rule's benefits, discussed above.
    Given assumptions about the level of risk aversion of the 
producer, the distribution of contract grower profit, and the 
grower's utility function (an economic concept that in this case 
measures the grower's preferences over a set of goods), it is 
possible to calculate the range of economic benefits to contract 
growers of decreased profit uncertainty associated with greater 
transparency. For this analysis, we assume that the producer 
maximizes an absolute risk aversion (ARA) utility function. The 
alternative to an absolute risk aversion (RRA) function is a 
relative risk aversion function. For the former, the coefficient of 
risk aversion is the negative of the ratio of the second to first 
derivatives of the utility function with respect to the good (e.g., 
wealth or consumption) while the latter multiples this ratio times 
the level of the good. We could find only two papers that used 
either RRA or ARA for examining North American poultry contract 
growers. Hu (2015) and Hegde and Vukina (2003) assume CARA for U.S. 
broiler contract growers. The former is an econometric exercise that 
does not provide sufficient information to obtain a risk aversion 
parameter for use in a scenario analysis and the latter is simply a 
simulation exercise of a wide range of arbitrary parameter values 
for the absolute risk aversion parameters without referring them to 
a given range of risk aversion premium (RAP) levels to provide 
context.
    A benefit of relative risk aversion is that the relative risk 
aversion parameter is scale free, which represents a convenience for 
analysis. We assume that one reason for the greater use of relative 
risk aversion compared to absolute risk aversion is that it saves 
the researcher the work of having to solve the nonlinear equations 
necessary to scale the risk parameters to the size of the risky bet. 
A nice property of the absolute risk aversion is that the 
preferences for risk aversion are directly reflective of where the 
researcher wants risk preferences to be on a 0%-100% percentage of 
the standard deviation of the gamble that a risk averter would pay 
to avoid the gamble altogether. With relative risk aversion in 
contrast, the researcher instead refers to say, ``typical'' values 
of the relative risk aversion coefficient. Relative risk aversion 
measure is sensitive to what is included or excluded when defining 
or measuring the outcome variable, e.g., whether wealth or profits 
(Meyer and Meyer, 2005). When the focus is on representing and 
measuring the risk preferences of the decision maker, as it is in 
the analysis of poultry growers, either relative or absolute risk 
aversion is sufficient as the basis for the analysis, and since 
simple arithmetic allows one to go from model to the other, only one 
of these approaches is needed (ibid.).
    Another decision to be made is how the producer's risk aversion 
changes with wealth. Under constant absolute risk aversion (CARA), 
the grower's risk aversion does not change as wealth increases. 
Decreasing absolute risk aversion (DARA) assumes that the grower's 
risk aversion increases as wealth increases. Another possibility is 
that the grower's risk aversion is increasing in wealth (IARA). 
While no evidence exists one way or another for the how risk 
preferences of poultry contract growers change with wealth, the 
agricultural economics literature generally assumes DARA over IARA. 
We have no information one way or another on how the risk aversion 
of contract growers changes with wealth, and hence, we use both CARA 
and DARA.
    First, we assume that the grower has constant absolute risk 
aversion (CARA) and makes management decisions to maximize the 
expected value of a negative exponential utility function over N 
simulated returns, or

U(w) = (1 - e-[lambda]w)

where [lambda] is the grower's absolute risk aversion coefficient 
and w is the grower's wealth that proxies for a set of goods and 
services. The higher is [lambda], the higher the grower's aversion 
variability in w. Wealth w is a stochastic variable defined as the 
grower's initial (fixed) wealth w0 plus the stochastic net returns. 
A negative exponential utility function conforms to the hypothesis 
that growers prefer less risk to more given the same expected, or 
average, return.
    The specific functional form in the equation above also assumes 
that growers view the riskiness of profit variability the same 
without regard for their level of wealth, i.e., CARA (e.g., Goodwin, 
2009). A risk averse grower will be willing to accept lower mean net 
returns in exchange for lower variability in returns w. Let U0 be 
the grower's current utility and U1 be the grower's utility with the 
new contract rules and their associated lower variability of w. 
Assuming mean w is constant between states, for the risk averse 
grower, U1 > U0. The question then becomes how to translate the 
benefit U1-U0 into a dollar value. We define the Risk Premium (RP), 
or the dollar benefit to growers of decreased profit risk, as the 
amount of mean profit they would be willing to give up such that U1 
= U0, i.e., such that they are indifferent between the two states 
(e.g., Sproul et al. 2013; Schnitkey et al., 2003).\117\
---------------------------------------------------------------------------

    \117\ This Risk Premium may be considered a special case of the 
compensating variation concept in economics. With the proposed rule 
changes leading to greater transparency in returns, the grower would 
be getting a decrease in revenue variability but would not have to 
pay to get this. Hence the Risk Premium is a measure of benefit to 
the grower of being under the new contract rules.
---------------------------------------------------------------------------

    The first step is to construct an empirical distribution of 
poultry grower profit or net revenue. Without much loss in 
generality for this exercise, broilers and turkey production are 
aggregated together. The market value of contracted share of 
broilers and turkey in 2020 was $24.5 billion given NASS data on 
their total value of production and the 96.3 and 69.5 percent 
shares, respectively, that are contract. Eleven percent of this 
value goes to contract growers, based on the ratio of the USDA's 
Livestock Indemnity Program (LIP) payment rate for contract growers 
divided by the rate for livestock owners, leading to a mean gross 
revenue of $2.7 billion for broiler and turkey growers. Variable and 
fixed costs are assumed to be non-stochastic and are set at 24 and 
19 percent of the 2020 mean gross revenue, based on the proportions 
from Table 1 in Maples et al. (2020), and net revenue is the gross 
revenue less the variable and fixed costs. Initial (non-stochastic) 
wealth w0 is set equal to 2020 mean net revenue.\118\ 
Grower net revenue is assumed to follow a normal distribution. A 
normal distribution of net revenue will approximate the distribution 
in

[[Page 35028]]

cumulative distribution function of net revenue in Figure 1 of 
Maples et al. (2020) with a coefficient of variation of revenue of 
0.16.\119\ Given this estimate of the coefficient of variation of 
net revenue, and the mean net revenue of $1.56 billion for broiler 
and turkey contract grower net revenue, the standard deviation can 
be simply found as the coefficient of variation of net revenue times 
this mean.
---------------------------------------------------------------------------

    \118\ The academic literature tends to be vague as to setting 
w0, with it either set at $0 or some unspecified amount. 
In principle, it could be set at the producer's net equity going 
into the year, but if one wants initial wealth for the proposes of 
utility analysis to be relative liquid assets, net equity maybe too 
high a value.
    \119\ To put this coefficient of variation of broiler revenue of 
0.16 in perspective, note that the lower-end estimate of the 
coefficient of variation of farm level revenue for major row crops 
is considerably higher one might expect, at 0.25 even with crop 
insurance (Cooper 2010; Belasco, Cooper, and Smith, 2019).
---------------------------------------------------------------------------

    The associated absolute risk aversion coefficient [lambda] is 
associated with a grower's risk aversion premium (RAP), a value that 
varies between 0 and 100 percent (of the potential loss) and 
reflects the amount the grower is willing to pay to avoid the 
potential loss, with higher values reflecting higher risk aversion. 
The [lambda] is linked to the RAP on a theoretical basis outlined in 
Babcock, Choi, and Feinerman (1993). The associated absolute risk 
aversion coefficient [lambda] is scaled to the standard deviation of 
net revenue using the approach in Babcock, Choi, and Feinerman 
(1993). Note that since [lambda] is scaled to the standard deviation 
of net revenue, the calculation of the total Risk Premium across all 
growers, or RP = [Sgr]i RPi, i = 1 . . . , G equal size growers is 
invariant to assumptions about the total number of growers G, 
whether set to an arbitrary value or to the 16,524 contract poultry 
growers per the 2017 Agricultural Census. The estimated value of 
[lambda] is 9.66E-10, 9.66E-07, and 9.37E-07 for G=1, 1,000, and 
10,000 equal sized growers, respectively, with an RAP of 20 
percent.\120\ A von Neumann-Morgenstern expected utility is 
estimated over N = 1,000 draws of wj where EU0 is
---------------------------------------------------------------------------

    \120\ For estimation, G = 10,000 is used to allow for a larger 
[lambda] and reduce the potential for machine error in rounding.
[GRAPHIC] [TIFF OMITTED] TP08JN22.010

    where w1j are draws from the normal distribution given an 
assumption for a lower coefficient of variation of gross revenue 
with the new rules, but with the same initial wealth, costs, and 
mean gross revenue as in the base case. The risk premium RP that 
solves EU1(w1) = EU0(w) is found using a numerical search routine.
    For the DARA scenario, we follow Hennessy (1998), and the CARA 
utility function becomes

U(w) = (1 - e-[lambda]w) + [beta]w
where [beta] is greater than zero. Let [rho](w) be the risk aversion 
coefficient under DARA, i.e., [rho](w) is decreasing in w. Hennessy 
(ibid.) shows that [rho](w) is a function of [lambda] and [beta] as
[GRAPHIC] [TIFF OMITTED] TP08JN22.011

    Per Hennessy (ibid.), we solve for the values of [lambda] and 
[beta] to simultaneously satisfy a [rho](w=0) associated with a RAP 
of 40 percent and a [rho](w=w) associated with a RAP of 20 percent. 
Like Hennessy (ibid.), we assume that the Babcock, Choi, and 
Feinerman approach to relate the risk coefficient to the RAP level 
holds approximately for DARA preferences. The rest of the approach 
for finding the risk premium RP that solves EU1(w1) = EU0(w) is the 
same as for the CARA scenarios. Appendix Table A1 summarizes the 
parameters and risk attitudes used in the analysis, with the RAP 
value denoted as u.

                              Appendix Table A1--Nature of Chosen Utility Functions
----------------------------------------------------------------------------------------------------------------
             Parameters and risk attitudes                  Low and CARA      High and CARA           DARA
----------------------------------------------------------------------------------------------------------------
[lambda]...............................................        9.37259E-06        2.05321E-05      2.0533761e-05
[beta].................................................                  0                  0      3.9580000e-09
[theta][w = 0].........................................               0.20               0.40               0.40
[theta][w = w].........................................               0.20               0.40               0.20
[rho][w = 0]...........................................        9.37259E-06        2.05321E-05      2.0529804e-05
[rho][w = w]...........................................        9.37259E-06        2.05321E-05      9.3707108e-06
----------------------------------------------------------------------------------------------------------------

References

Babcock, B.E. Choi, and E. Feinerman, ``Risk and Probability 
Premiums for CARA Utility Functions'', J. Agri. and Res. Econ, Vol 
18(1):17-24. 1993.
Belasco, Eric, Joseph Cooper, and Vincent Smith. ``The Development 
of a Weather-based Crop Disaster Program,'' American Journal of 
Agricultural Economics Vol. 102/1(August 2019):240-258.
Cooper, Joseph. ``Average Crop Revenue Election: A Revenue-Based 
Alternative to Price-Based Commodity Payment Programs,'' American 
Journal of Agricultural Economics, Vol. 92/4 (July 2010): 1214-1228.
Goodwin, B. ``Payment Limitations and Acreage Decisions Under Risk 
Aversion: a Simulation Approach,'' American Journal of Agricultural 
Economics, 91(1) (February 2009): 19-41.
Hegde, S. Aaron, and Tomislav Vukina. 2003. Risk Sharing in Broiler 
Contracts: A Welfare Comparison of Payment Mechanisms Paper prepared 
for presentation at the American Agricultural Economics Association 
Annual Meeting, Montreal, Canada, July 27-30, 2003.
Hennessy, D.A. 1998. ``The Production Effects of Agricultural Income 
Support Policies under Uncertainty.'' American Journal of 
Agricultural Economics 80:46-57.
Hu, W. (2015) The role of risk and risk-aversion in adoption of 
alternative marketing arrangements by the US farmers, Applied 
Economics 47:27, 2899-2912.
Hurley, T., P. Mitchell, and M. Rice. ``Risk and the Value of Bt 
Corn,'' Amer. J. Agr. Econ. Vol 82, no. 2 (May 2004): 345-358.
Maples, Joshua G., Jada M. Thompson, John D. Anderson, and David P. 
Anderson. ``Estimating Covid-19 Impacts on the Broiler Industry,'' 
Applied Economic Perspectives and Policy, September 9, 2020.

[[Page 35029]]

Mitchell, P.M. Gray, and K. Steffey. ``A Composed-Error Model for 
Estimating Pest-Damage Functions and The Impact of the Western Corn 
Rootworm Soybean Variant in Illinois,'' Amer. J. Agri. Econ., Vol 
86, no. 2 (May 2004): 332-344.
Schnitkey, Gary, Bruce Sherrick, and Scott Irwin. ``Evaluation of 
Risk Reductions Associated with Multi-Peril Crop Insurance 
Products,'' Agricultural Finance Review, Spring 2003: 1-21.
Sproul, Thomas, David Zilberman, and Joseph Cooper. ``Deductibles 
versus Coinsurance in Shallow-Loss Crop Insurance,'' Choices, 3rd 
Quarter 2013.

Appendix 3. Details of the Estimated One-Time, First-Year Costs and On-
Going Annual Costs of Providing Disclosure Documents Required in 
Proposed Sec. Sec.  201.100 and 201.214 Under the Small Business 
Exemption Alternative

    Costs for the alternative that would exempt live poultry dealers 
that produced and average of less than 2 million pounds of poultry 
per week were estimated similarly to cost for the proposed 
Sec. Sec.  201.100 and 201.214. AMS subject matter experts provided 
estimates of the average amount of time that would be necessary for 
each live to comply with each new requirements in Sec. Sec.  201.100 
and 201.214 and the hours were multiplied by wage estimates to 
arrive at an expected cost for each regulatory element. The tables 
are set up the same as before. Multiplying across row for each 
regulatory element provides the expected aggregate cost for the 
element. Summing the expected costs for element provides the total 
industry cost.
    Table 1 below provides the details of the estimated one-time, 
first-year costs of providing disclosure documents required in 
proposed Sec.  201.100. AMS expects that the direct costs will 
consist entirely of the value of the time required to produce and 
distribute the disclosures and maintain proper records. The number 
of hours the second column were provided by AMS subject matter 
experts. These experts were auditors and supervisors with many years 
of experience in auditing live poultry dealers for compliance with 
the Packers and Stockyards Act. They provided estimates of the 
average amount of time that would be necessary for each live poultry 
dealer to meet each of the elements listed in the ``Regulatory 
Requirements'' column. Estimates for the value of the time are U.S. 
Bureau of Labor Statistics Occupational Employment and Wage 
Statistics estimates released May 2020. The wage estimates are 
marked up 41.56 percent to account for benefits. The ``Adjustment'' 
column allows for estimation of costs that will only apply to a 
subset of the poultry growers or to the live poultry dealers. A 
blank value in the Adjustment column indicates that no adjustments 
were made to the costs. Each adjustment is different and described 
in the relevant footnote. Expected costs for each ``Regulatory 
Requirement'' and are listed in the ``Expected Cost'' column. 
Summing the values in the ``Expected Cost'' column provides the 
total expected first-year, one-time costs for setting-up and 
producing the disclosure documents associated with proposed Sec.  
201.100.

                                    Table 1--Expected First-Year Direct Costs Associated With Proposed Sec.   201.100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Number of
          Regulatory requirement            hours required           Profession            Expected wage  Number of LPDs    Adjustment     Expected cost
                                             for each LPD                                       ($)             \1\          (percent)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.100(b)(1)-(8).........................               1  Manager.....................              93              42  ..............           3,915
                                                         4  Lawyer......................             114              42  ..............          19,118
201.100(c)(1)-(3).........................              10  Manager.....................              93              42  ..............          39,145
                                                         5  Administrative..............              40              42  ..............           8,336
                                                        10  Lawyer......................             114              42  ..............          47,796
201.100(d)(1)(2)(i).......................              30  Manager.....................              93              42          \2\ 90         105,692
                                                         8  Administrative..............              40              42          \2\ 90          12,003
                                                        22  Information Tech............              83              42          \2\ 90          68,608
201.100(d)(1)(2)(ii)-(v)..................              60  Manager.....................              93              42           \3\ 5          11,744
                                                        16  Administrative..............              40              42           \3\ 5           1,334
                                                        44  Information Tech............              83              42           \3\ 5           7,624
201.100(d)(3).............................              20  Manager.....................              93              42           \4\ 5           3,915
                                                         5  Administrative..............              40              42           \4\ 5             417
                                                        15  Information Tech............              83              42           \4\ 5           2,599
201.100(d)(4).............................               6  Manager.....................              93              42  ..............          23,487
                                                         2  Administrative..............              40              42  ..............           3,334
201.100(d)(5).............................             0.5  Manager.....................              93              42  ..............           1,957
                                                       0.5  Administrative..............              40              42  ..............             834
201.100(f)(1)(2)..........................              40  Manager.....................              93              42  ..............         156,581
                                                        20  Lawyer......................             114              42  ..............          95,592
                                                        10  Administrative..............              40              42  ..............          16,671
                                                        10  Information Tech............              83              42  ..............          34,650
201.100(g)(1)(2)..........................               1  Manager.....................              93              42  ..............           3,915
                                                         1  Administrative..............              40              42  ..............           1,667
201.100(i)(2).............................               1  Manager.....................              93              42  ..............           3,915
                                                         1  Lawyer......................             114              42  ..............           4,780
                                           -------------------------------------------------------------------------------------------------------------
    Total cost............................  ..............  ............................  ..............  ..............  ..............         679,627
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Annual reports filed by live poultry dealers indicated 42 processed an average of more than 2 million pounds of poultry per week.
\2\ Reduces estimated costs by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and
  5 percent for the estimated proportion of growers that enter a contract for the first time.
\3\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
\4\ Estimates costs for the 5 percent of the growers that require upgrades to poultry housing.

    Table 2 provides the details of the estimated ongoing costs of 
providing disclosure documents required in proposed Sec.  201.100. 
Table 2 is laid out the same as Table 1. AMS subject matter experts 
provided estimates in the second column of the average amount of 
time that would be necessary for each live poultry dealer to meet 
each of the elements listed in the ``Regulatory Requirements'' 
column. Estimates for the value of the time are from U.S. Bureau of 
Labor Statistics Occupational Employment and Wage Statistics 
released May 2020. The wage estimates are marked up 41.56 percent to 
account for benefits. The ``Adjustment'' column allows for 
estimation of costs that will only apply to a subset of the poultry 
growers or to the live poultry dealers. Expected costs for each 
``Regulatory Requirement'' and are listed in the ``Expected Cost'' 
column. Summing the values in the ``Expected Cost'' column provides 
the total expected costs for producing and distributing

[[Page 35030]]

the disclosure documents associated with proposed Sec.  201.100 on 
an ongoing basis.

                                     Table 2--Expected Ongoing Direct Costs Associated With proposed Sec.   201.100
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                            Number of                                                     Number of LPDs/
        Regulatory  requirement          hours required             Profession             Expected wage     number of      Adjustment     Expected cost
                                          for each LPD                                          ($)          contracts       (percent)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.100(A).............................            0.08  Evenly distributed among              \1\ 71.80          22,312       \2\ 74.72          99,750
(a1)...................................                   management, administrative,
                                                          and information tech.
201.100(A)(a2).........................            0.08  Evenly distributed among              \1\ 71.80          22,312           \3\ 5           6,675
                                                          management, administrative,
                                                          and information tech.
201.100(A)(a3).........................            0.08  Evenly distributed among              \1\ 71.80          22,312           \4\ 5           6,675
                                                          management, administrative,
                                                          and information tech.
201.100(b).............................             0.5  Manager........................           93.20              42  ..............           1,957
(1)-(8)................................             0.5  Administrative.................           39.69              42  ..............             834
201.100(c)(1)-(3)......................               1  Manager........................           93.20              42  ..............           3,915
                                                      1  Administrative.................           39.69              42  ..............           1,667
                                                      1  Lawyer.........................          113.80              42  ..............           4,780
201.100(d)(1)(2)(i)....................              15  Manager........................           93.20              42          \5\ 90          52,846
                                                      3  Administrative.................           39.69              42          \5\ 90           4,501
                                                      6  Information Tech...............           82.50              42          \5\ 90          18,711
201.100(d)(1)(2)(ii)-(v)...............              30  Manager........................           93.20              42           \6\ 5           5,872
                                                      6  Administrative.................           39.69              42           \6\ 5             500
                                                     12  Information Tech...............           82.50              42           \6\ 5           2,080
201.100(d)(3)..........................              10  Manager........................           93.20              42           \7\ 5           1,957
                                                      2  Administrative.................           39.69              42           \7\ 5             167
                                                      4  Information Tech...............           82.50              42           \7\ 5             693
201.100(d)(4)..........................            0.25  Manager........................           93.20              42  ..............             979
                                                   0.25  Administrative.................           39.69              42  ..............             417
201.100(d)(5)..........................            0.25  Manager........................           93.20              42  ..............             979
                                                   0.25  Administrative.................           39.69              42  ..............             417
201.100(f)(1)(2).......................              20  Manager........................           93.20              42  ..............          78,291
                                                      5  Lawyer.........................          113.80              42  ..............          23,898
                                                      3  Administrative.................           39.69              42  ..............           5,001
                                                      4  Information Tech...............           82.50              42  ..............          13,860
                                        ----------------------------------------------------------------------------------------------------------------
    Total Cost.........................  ..............  ...............................  ..............  ..............  ..............         337,420
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ $71.80 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
  $93.20, $39.69, and $82.50 respectively.
\2\ 74.72 is the percentage of the existing poultry grower contracts that are expected to come up for renewal each year. It includes all flock-to-flock
  and single year contracts as well as longer term contracts that are expected to expire within a year.
\3\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.
\4\ Estimates costs for only the 5 percent of growers that that enter contract for the first time.
\5\ Reduces estimated cost by 10 percent to exclude the 5 percent for the estimated proportion of growers that require upgrades to poultry housing and 5
  percent for the estimated proportion of growers that enter a contract for the first time.
\6\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing and enter into contracts for the first time.
\7\ Estimates cost for the 5 percent of the growers that require upgrades to poultry housing.

    Table 3 below provides the details of the estimated one-time, 
first-year costs of providing disclosure documents required in 
proposed Sec.  201.214. Like the previous tables, AMS subject matter 
experts provided estimates in the second column of the average 
amount of time that would be necessary for each live poultry dealer 
to meet each of the elements listed in the ``Regulatory 
Requirements'' column. Values in the ``Expected Wage'' column are 
taken from U.S. Bureau of Labor Statistics Occupational Employment 
and Wage Statistics released May 2020. The wage estimates are marked 
up 41.56 percent to account for benefits. The number of LPDs is the 
number of live poultry dealers that filed annual reports with AMS 
for their 2020 fiscal years. ``Expected Cost'' is the estimate of 
the cost of each ``Regulatory Requirement.'' Summing the ``Expected 
Cost'' column provides the total expected first-year, one-time costs 
for setting-up and producing the disclosure documents associated 
with proposed Sec.  201.214.

                   Table 3--One Time First-Year Costs Associated With Proposed Sec.   201.214
----------------------------------------------------------------------------------------------------------------
                                   Number of                       Expected wage                   Expected cost
    Regulatory requirement       hours per LPD     Profession           ($)       Number of LPDs        ($)
----------------------------------------------------------------------------------------------------------------
201.214(a)....................               2  Manager.........           93.20              42           7,829
                                             4  Administrative..           39.69              42           6,668
                                             2  Information                82.50              42           6,930
                                                 Technology.
                                             5  Manager.........           93.20              42          19,573
201.214(b)....................               2  Administrative..           39.69              42           3,334
                                            18  Information                82.50              42          62,371
                                                 Technology.

[[Page 35031]]

 
                                             8  Manager.........           93.20              42          31,316
201.214(c)....................               5  Administrative..           39.69              42           8,336
                                            22  Information                82.50              42           7,829
                                                 Technology.
                               ---------------------------------------------------------------------------------
    Total Cost................  ..............  ................  ..............  ..............          76,231
----------------------------------------------------------------------------------------------------------------

    Table 4 below provides the details of the estimated ongoing 
costs of providing disclosure documents required in proposed Sec.  
201.214. AMS subject matter experts provided estimates in the second 
column of the average amount of time that would be necessary for 
each live poultry dealer to meet each of the elements listed in the 
``Regulatory Requirements'' column. They also provided the expected 
number of tournaments per plant. The number of poultry processing 
plants was tallied from the annual reports that live poultry dealers 
file with AMS. Values in the ``Expected Wage'' column were found in 
U.S. Bureau of Labor Statistics Occupational Employment and Wage 
Statistics released May 2020. The wage estimates are marked up 41.56 
percent to account for benefits. Multiplying across the row provides 
the ``Cost'' for each ``Regulatory Requirement,'' and summing the 
``Cost'' column provides the total expected costs for producing and 
distributing the disclosure documents associated with proposed Sec.  
201.214 on an ongoing basis.

                                         Table 4--Ongoing Expected Costs Associated With Proposed Sec.   201.214
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Number of
      Regulatory requirement             Hours           Profession          Number of      tournaments     Weeks in a     Avg. wage ($)     Cost ($)
                                                                              plants         per plant         year
--------------------------------------------------------------------------------------------------------------------------------------------------------
201.214(b)........................             0.1  Evenly distributed               108            1.35              52       \1\ 71.80          54,231
                                                     among management,
                                                     administrative, and
                                                     information tech.
201.214(c)........................             0.1  Evenly distributed               108            1.35              52       \1\ 71.80          54,231
                                                     among management,
                                                     administrative, and
                                                     information tech.
                                   ---------------------------------------------------------------------------------------------------------------------
    Total Cost....................  ..............  ....................  ..............  ..............  ..............  ..............         108,463
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ $71.80 is the average of the average wages for poultry processing managers, administrative professionals, and information technology staff at
  $93.20, $39.69, and $82.50 respectively.


Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2022-11997 Filed 6-7-22; 8:45 am]
BILLING CODE 3410-02-P