[Federal Register Volume 87, Number 190 (Monday, October 3, 2022)]
[Proposed Rules]
[Pages 60010-60055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-21114]



[[Page 60009]]

Vol. 87

Monday,

No. 190

October 3, 2022

Part IV





Department of Agriculture





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Agricultural Marketing Service





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9 CFR Part 201





Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act; Proposed Rule

  Federal Register / Vol. 87 , No. 190 / Monday, October 3, 2022 / 
Proposed Rules  

[[Page 60010]]


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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-21-0045]
RIN 0581-AE05


Inclusive Competition and Market Integrity Under the Packers and 
Stockyards Act

AGENCY: Agricultural Marketing Service, Department of Agriculture 
(USDA).

ACTION: Proposed rule.

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SUMMARY: The U.S. Department of Agriculture's (USDA) Agricultural 
Marketing Service (AMS) is soliciting comments on proposed revisions to 
the regulations under the Packers and Stockyards Act, 1921. The 
proposal would prohibit certain prejudices against market-vulnerable 
individuals that tend to exclude or disadvantage covered producers in 
those markets. The proposal would identify retaliatory practices that 
interfere with lawful communications, assertion of rights, and 
associational participation, among other protected activities, as 
unjust discrimination prohibited by the law. The proposal would also 
identify unlawfully deceptive practices that violate the Packers and 
Stockyards Act with respect to contract formation, contract 
performance, contract termination, and contract refusal. The purpose of 
the rule is to promote inclusive competition and market integrity in 
the livestock, meats, poultry, and live poultry markets.

DATES: Comments must be received by December 2, 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. AMS strongly prefers comments be submitted electronically. 
However, written comments may be submitted (i.e., postmarked) via mail 
to S. Brett Offutt, Chief Legal Officer, Packers and Stockyards 
Division, USDA, AMS, FTPP; Room 2097-S, Mail Stop 3601, 1400 
Independence Ave. SW, Washington, DC 20250-3601. 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. Parties who wish 
to comment anonymously may do so by entering ``N/A'' in the fields that 
would identify the commenter.

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:

Outline of the Notice of Proposed Rulemaking

I. Introduction (Statutory Authority)
    A. Background to This Rulemaking
    B. Previous Rulemakings
II. Undue Prejudices or Disadvantages and Discriminatory Practices
    A. Agency Interpretation of Undue or Unreasonable Prejudice or 
Disadvantage and Unjust Discriminatory Practices
    B. Prohibited Undue Prejudices or Disadvantages and Unjust 
Discrimination--Proposed Sec.  201.304(a)(1)--Generally
    i. Authority Provided by the Act
    ii. Economic Rationale
    iii. Specific Proposed Protected Bases
    C. Cooperatives--Proposed Sec.  201.304(a)(2)
    D. Enumerated Undue Prejudices
    E. Retaliation
    i. Retaliation as Discrimination Under the Act
    ii. Economic Rationale
    F. Prohibition on Retaliation--Proposed Sec.  201.304(b)
    G. Bases of Protected Activities--Proposed Sec.  201.304(b).
    i. Assertion of Rights
    ii. Associational Participation
    iii. Lawful Communications
    H. Delineation of Protected Activities
    I. Recordkeeping--Proposed Sec.  201.304(c)
    J. Request for Comments
III. Deceptive Practices
    A. Scope of Deceptive Practices Regulated
    B. Deceptive Practices in the Formation of Contract
    C. Deceptive Practices in the Operation of Contract
    D. Deceptive Practices in the Termination of Contract
    E. Deceptive Practices in Refusal To Deal
    F. Request for Comments
IV. Severability
V. Required Regulatory Analyses
VI. Request for Comments

I. Introduction and Regulatory Background

    The rise of vertically integrated contract agriculture and highly 
concentrated local markets in livestock and poultry over the last four 
decades have increasingly left many producers and growers (hereinafter 
producers, unless otherwise noted) vulnerable to a range of practices 
that unjustly exclude them from and undermine their economic 
opportunities in the marketplace. The regulatory toolkit embodied in 
the Packers & Stockyards Act, as amended (P&S Act or Act) (7 U.S.C. 181 
et seq.), has not been deployed to keep pace with these issues. AMS is 
proposing this regulation to enhance those basic protections that 
modern livestock and poultry producers need to promote inclusive 
competition and market integrity. We invite comment on a range of 
questions in this proposal.
    Specifically, AMS is proposing to:
     Prohibit, as undue prejudices, disadvantages, and adverse 
actions against ``market vulnerable individuals'' who are at heightened 
risk in relevant markets;
     Prohibit, as unjust discrimination, retaliatory and 
adverse actions that interfere with lawful communications, assertion of 
rights, associational participation, and other protected activities;
     Prohibit, as deceptive practices, regulated entities 
employing pretexts, false or misleading statements, or omissions of 
material facts, in contract formation, contract performance, contract 
termination, and contract refusal; and
     Require recordkeeping to support USDA monitoring, 
evaluation, and enforcement of compliance with aspects of this rule.
    AMS is proposing these modernized regulations under the Act's 
provisions prohibiting undue prejudice, unjust discrimination, and 
deception to provide for clearer, more effective standards to govern 
the modern marketplace and to better protect, through compliance and 
enforcement, individually harmed producers and growers. Enacted in 1921 
``to comprehensively regulate packers, stockyards, marketing agents and 
dealers,'' \1\ the P&S Act, among other things, prohibits actions that 
hinder integrity and competition in the livestock and poultry markets. 
Section 202(a) of the Act states that it is unlawful for any packer, 
swine contractor, or live poultry dealer to engage in or use any 
unfair, unjustly discriminatory, or deceptive practice or device.\2\ 
Section 202(b) of the Act states that it is unlawful for any packer, 
swine contractor, or live poultry dealer to make or give any undue or 
unreasonable preference or advantage to any particular person or 
locality, or subject any particular person or locality to any undue or 
unreasonable prejudice or disadvantage in any respect. The Secretary of 
Agriculture (Secretary) has

[[Page 60011]]

delegated the responsibility for administering the P&S Act to AMS. 
Within AMS, the Packers, and Stockyards Division (PSD) of the Fair-
Trade Practices Program has responsibility for the day-to-day 
administration of the P&S Act. The current regulations implementing the 
P&S Act are found in title 9, part 201 of the Code of Federal 
Regulations (CFR). Section 407 of the P&S Act (7 U.S.C. 228) provides 
that the Secretary ``may make such rules, regulations, and orders as 
may be necessary to carry out the provisions of this Act.'' This 
proposed rule, if finalized, would amend 9 CFR part 201.
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    \1\ Hays Livestock Comm'n Co. v. Maly Livestock Comm'n Co., 498 
F.2d 925, 927 (10th Cir. 1974).
    \2\ 7 U.S.C. 192(a).
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A. Background to This Rulemaking

    Congress enacted the P&S Act after many years of concern about 
farmers and ranchers being cheated and mistreated. At the time, 
Congress worried that the five very large meatpackers' control over the 
nation's food supply tended toward monopolization, which could put 
economic opportunity for producers and their communities at risk, 
destroying individual economic opportunity for producers and smaller 
food businesses and harming rural communities, among other harms.\3\ 
Moreover, Congress believed that existing antitrust and market 
regulatory laws, including the Sherman Act and Federal Trade Commission 
Act, did not sufficiently protect farmers and ranchers.\4\ Accordingly, 
in the P&S Act, Congress gave the Secretary of Agriculture broad 
authority to regulate the meatpacking industry. The House of 
Representatives' report on the P&S Act stated that it was the ``most 
comprehensive measure and extends farther than any previous law in the 
regulation of private business, in time of peace, except possibly the 
interstate commerce act.'' \5\ The Conference Report on the P&S Act 
stated that: ``Congress intends to exercise, in the bill, the fullest 
control of the packers and stockyards which the Constitution permits . 
. .'' \6\
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    \3\ See 61 Cong. Rec. 1860 (1921) (House Floor Debate).
    \4\ See, Shively, J. and Roberts, J., ``Competition Under the 
Packers and Stockyards Act: What Now?'' 15 Drake Journal of 
Agricultural Law 419, 422-423 (2010); and Current Legislation, 22 
Columbia Law Review 68, 69 (1922).
    \5\ House Report No. 67-77, at 2 (1921).
    \6\ House Report No. 67-324, at 3 (1921).
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    In the early 1900s, meat packing in the United States was highly 
concentrated, with approximately 50 to 70 percent of the beef packing 
industry controlled by the industry's ``Big Five:'' Armour, Cudahy, 
Morris, Swift, and Wilson.\7\ A 1918 Federal Trade Commission (FTC) 
meat industry investigation found that in 1916 the Big Five controlled 
the slaughter and processing of 82 percent of cattle, 79 percent of 
calves, 87 percent of sheep, and 63 percent of swine in the U.S.\8\ 
Those five dominant operators also controlled an interlocking network 
of the feed mills, stockyards, and transportation infrastructure that 
supported the industry. As extensively documented in a report by the 
FTC, which set the stage for Congressional passage of the P&S Act, 
those five packers deployed from their positions in that market 
structure a range of practices to further entrench their dominance.\9\
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    \7\ Mathews, K. H. Jr., W. F. Hahn, K. E. Nelson, L. A. Duewer, 
and R. A. Gustafson. April 1999. U.S. Beef Industry: Cattle Cycles, 
Price Spreads, and Packer Concentration. U.S. Department of 
Agriculture, Market and Trade Economics Division, Economic Research 
Service. Technical Bulletin No. 1874.
    \8\ Federal Trade Commission. 1918. Annual Report for 1918, p. 
23., available at ftc_ar_1918.pdf (last accessed 8/9/2022).
    \9\ Id.
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    At that same time, the Department of Justice (DOJ) brought 
enforcement cases under the Sherman Act against the packing industry, 
which resulted in a series of consent decrees (judicially overseen 
agreements) that restructured the market.\10\ The consent decrees, 
together with the adoption of the P&S Act, reformed market practices by 
eliminating packer ownership of cattle and their means of transporting 
it, and reinforced market structures that--for a period of time in the 
20th century--secured open, fair marketplaces for all, such as terminal 
auction yards regulated as stockyards by the Packers and Stockyards 
Administration of USDA.\11\ By 1963, the four-firm concentration ratio 
(the standard economic tool used to evaluate the degree of 
concentration in markets) had fallen to 26 percent in beef and 33 
percent in hogs.
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    \10\ United States v. Swift & Co., Equity No. 37623, (Sup. Ct. 
of D.C. 1920).
    \11\ Harl, Agricultural Law, sec. 71.03 (1993).
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    Amidst slowing demand in the beef and hog sectors, the dramatic 
growth of demand in the poultry industry, technological advances and 
increased returns to scale in meat processing, and a decline in Federal 
antitrust and fair markets enforcement, concentration returned to the 
meat packing industry.\12\ Between 1980 and 2020, the four-firm 
concentration ratio grew from 36 percent to 81 percent in beef packing 
(steers and heifers) and rose by 34 percent to 64 percent in hogs.\13\ 
Between 1977 and 2020, the four-firm concentration ratio in the poultry 
broiler industry increased from 22 percent to 53 percent.\14\
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    \12\ MacDonald, J.M., M. E. Ollinger, K. E. Nelson, and C. R. 
Handy. Consolidation in U.S. Meatpacking. Food and Rural Economics 
Division, Economic Research Service, U.S. Department of Agriculture. 
Agricultural Economic Report No. 785. Available at https://www.ers.usda.gov/publications/pub-details/?pubid=41120, accessed 9/
19/22.
    \13\ U.S. Department of Agriculture, Agricultural Marketing 
Service., Packers and Stockyards Division, Annual Report. Various 
years.
    \14\ U.S. Department of Agriculture, Agricultural Marketing 
Service, Packers and Stockyards Division, Annual Report, 2020. 2021 
draft pending as of 07/11/22. United States Department of 
Agriculture Grain Inspection, Packers and Stockyards Administration. 
``Assessment of the Livestock and Poultry Industries Fiscal Year 
2007.'' May 2008.
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    The above data reflects the state of concentration nationally, but 
concentration in local markets that exceeds national averages has been 
observed in the poultry, hog and pig, and cattle industries. In the 
last available survey of local markets (2011), MacDonald and Key found 
that 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.\15\ 
Regional concentration is often higher than national concentration for 
hogs.\16\ And in cattle, based on AMS's experience conducting 
investigations and monitoring markets, there are commonly only one or 
two buyers in some local geographic markets, and few sellers have the 
option of selling fed cattle to more than three or four packers.
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    \15\ 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.
    \16\ Wise, T. A., S. E. Trist. ``Buyer Power in U.S. Hog 
Markets: A Critical Review of the Literature,'' Tufts University, 
Global Development and Environment Institute (GDAE) Working Paper 
No. 10-04, August 2010, available at: https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl (last accessed 8/9/2022).
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    The move towards heightened concentration was accompanied by a 
dramatic shift from the spot market towards various types of vertical 
contracts. In the early 20th century, farm-finished cattle and hogs 
were primarily shipped by rail and slaughtered in urban centers close 
to large consumer bases, and fresh meat was rail-shipped only by the 
largest packers. Prices for cattle and hog purchases were largely 
negotiated in spot, cash markets in person. In 1921, poultry 
consumption accounted for a small share of total U.S. meat consumption, 
and retail distribution outlets (i.e., local food markets) were not 
centralized.

[[Page 60012]]

    In successive decades, as concentration in the industry increased 
and as the size of plants increased, large packers needed to ensure 
constant and secure supplies of animals to keep these larger plants 
running at peak capacity.\17\ Buying animals through contracts with 
producers was believed to facilitate their ability to do so. Vertical 
contracts took the form of production, marketing, and forward 
contracts.
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    \17\ MacDonald. J. M. and W. D. McBride. The Transformation of 
U.S. Livestock Agriculture: Scale, Efficiency, and Risks. January 
2009. Economic Information Bulletin No. (EIB-43). Available at 
https://www.ers.usda.gov/webdocs/publications/44292/10992_eib43.pdf?v=0, accessed 9-20-2022.
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    Livestock and poultry production contracts are agreements between a 
producer and a contractor, where the livestock (generally hogs) or 
poultry are grown by a grower on behalf of the contractor under 
specific guidelines (production practices or target weight, for 
example) identified in the contract. The producer is generally paid a 
contract fee by the contractor for growing the livestock or poultry. 
Once the livestock or poultry reach a specific weight, they are often 
marketed to a packer or live poultry dealer under a marketing contract, 
though they could also be marketed on the spot market. Under a 
marketing contract, the ownership of the livestock or poultry (mostly 
livestock) remains with the producer until they are ready to be 
marketed to a packer or live poultry dealer. A marketing contract is an 
agreement between a producer and a packer or live poultry dealer that 
identifies a price (or a pricing formula), quantities/qualities, and a 
delivery schedule for the livestock or poultry to the packer or live 
poultry dealer. A forward contract is a specific type of marketing 
contract (generally for livestock) under which a specific group of 
livestock is negotiated for sale by a producer or contractor to a 
packer several months in advance of delivery of the livestock. The 
producer or contractor and packer agree to the delivery month and 
pricing method for the specific group of livestock to be delivered. The 
producer generally picks the day of delivery in the delivery month.
    The growth of these vertical contract relationships, in the context 
of highly concentrated markets, has led to concerns that firms have 
greater control over producers and thus have more ability to abuse 
their market power, impede producer choices, exclude some market 
participants, and coerce producers unwittingly into inefficient farm 
decisions.\18\ Many have expressed concern that the decline in the use 
of spot markets to market livestock has also led to harder-to-quantify 
losses of independent ways of life, adversely impacting rural economies 
and communities.\19\
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    \18\ Hendrickson, M.K., and H.S. James, Jr. 2005. ``The Ethics 
of Constrained Choice: How the Industrialization of Agriculture 
Impacts Farming and Farmer Behavior.'' Journal of Agricultural and 
Environmental Ethics, 18: 269-291. In: Hendrickson, M., James, H., 
Heffernan, W.D. 2013. ``Vertical Integration and Concentration in 
U.S. Agriculture.'' In: Thompson, P., Kaplan, D. (eds) Encyclopedia 
of Food and Agricultural Ethics. Springer, Dordrecht, 7. See also 
Christopher Leonard, ``The Meat Racket'' (2015); C. Robert Taylor, 
``Harvested Cattle, Slaughtered Markets,'' April 27, 2022, available 
at https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/; Peter Carstensen, ``Buyer 
Power and the Horizontal Merger Guidelines: Minor Progress on an 
Important Issue,'' 14 U. Pa. J. Bus. L. 775 (2012), available at 
https://repository.law.wisc.edu/s/uwlaw/item/29746.
    \19\ James, H.S. Jr., M.K. Hendrickson, and P.H. Howard. 2013. 
``Networks, Power and Dependency in the Agrifood Industry.'' In H.S. 
James, Jr. (ed.), ``The Ethics and Economics of Agrifood 
Competition'' (pp. 99-126). Dordrecht, The Netherlands: Springer 
Publishers. In: Hendrickson, M., James, H., Heffernan, W.D. 2013. 
``Vertical Integration and Concentration in US Agriculture.'' In: 
Thompson, P., Kaplan, D. (eds) Encyclopedia of Food and Agricultural 
Ethics. Springer, Dordrecht, 8.
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    Among the four major meat markets, chicken companies adopted 
production contracting earliest and most completely. Between 1950 and 
1955, along with increased vertical integration through ownership of 
the flocks, the use of production contracts rose from 5 to 85 percent 
of the broiler industry's production to become nearly universal by 
1975. The same switch was slower in turkey production, exceeding 80 
percent in 1977.\20\ The share of hogs sold through long-term marketing 
contracts increased from 10 to 72 percent between 1993 and 2001. 
Packer-owned hogs increased from 6.4 percent of U.S. hog production in 
1994 to 24 percent in 2000.\21\ Comparatively, in the cattle industry 
32 percent of production was under contract in 2013--referring again to 
contractual agreements for growing cattle to a certain weight or under 
a certain production method.22 23 Marketing contracts have 
seen far greater adoption. Cattle being marketed through forward 
contracts and Alternative Marketing Arrangements (AMAs), where cattle 
are already dedicated to certain packers or end-buyers, have risen from 
about 35 percent in 2005 to 73 percent today.\24\ As a result, since 
2005, negotiated cash trades have declined from 65 percent to about 27 
percent today.\25\
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    \20\ Martinez, S. W. (2002). ``Vertical Coordination of 
Marketing Systems: Lessons From the Poultry, Egg, and Pork 
Industries.'' (No. 1473-2016-120694) Economic Research Service, 
USDA, Washington, DC.
    \21\ Martinez, S. W. (2002). ``Vertical Coordination of 
Marketing Systems: Lessons From the Poultry, Egg, and Pork 
Industries'' (No. 1473-2016-120694) Economic Research Service, USDA, 
Washington, DC.
    \22\ Crespi, John, and Tina L. Saitone. (2018) ``Are Cattle 
Markets the Last Frontier? Vertical Coordination in Animal-Based 
Procurement Markets.'' Annual Review of Resource Economics 10(1): 
207-227.
    \23\ Macdonald, James M. (2015) ``Trends in Agricultural 
Contracts.'' Choices 30(3):1-6.
    \24\ Packers and Stockyards Division, ``Annual Report'' (2020).
    \25\ U.S. Department of Agriculture, Agricultural Marketing 
Service, Market News, as of May 2022.
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    Some of these developments were driven in part by technological and 
marketing changes.\26\ In cattle, for example, the development of boxed 
beef to ship standardized cuts allowed packers to move their slaughter 
facilities closer to producers. With cattle no longer shipped from 
terminal auction markets to the large cities, packers played a more 
dominant role in the procurement of cattle directly from producers 
within a surrounding area, and marketing practices shifted, for a time, 
towards bilateral cash negotiation and, then eventually, longer-term 
marketing contracts with pricing formulas.\27\
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    \26\ Lonergan, S. M., and D. N. Marple. ``Historical 
perspectives of the meat and animal industry and their relationship 
to animal growth, body composition, and meat technology,'' ``The 
Science of Animal Growth and Meat Technology.'' Lonergan, S. M., D. 
N. Marple, Eds., Second Edition, Elsevier, (2019) 1-17, available at 
The Science of Animal Growth and Meat Technology [verbar] 
ScienceDirect.
    \27\ Lawrence, J.D., Schroeder, T.C. and Hayenga, M.L. (2001), 
``Evolving Producer-Packer-Customer Linkages in the Beef and Pork 
Industries.'' Applied Economic Perspectives and Policy, 23: 370-385. 
Available at https://doi.org/10.1111/1467-9353.00067.

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[[Page 60013]]

    The increased use of long-term production and marketing contracts 
in livestock and poultry markets, can foster greater vertical 
coordination, and potentially allows certain production and marketing 
efficiencies related to scale and certain enhanced aspects of packer, 
or even retailer, control over product differentiation. The use of 
vertical contracts may be appealing to livestock or poultry producers 
for a range of reasons, including more secure access to markets. In 
poultry markets, for example, contracts shift some aspects of market 
risks from producers to live poultry dealers, such as grain prices or 
certain weather-related risks.\28\ In the case of livestock, contracts 
can also reduce a producer's output price risk.\29\
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    \28\ Knoeber, Charles R., and Walter N. Thurman. (1995) ``Don't 
Count Your Chickens. . . : Risk and Risk Shifting in the Broiler 
Industry.'' American Journal of Agricultural Economics 77(3): 486-
496.
    \29\ Key, N. and MacDonald, J.M. (2006) ``Agricultural 
Contracting: Trading Autonomy for Risk Reduction'' Amber Waves, U.S. 
Department of Agriculture Economic Research Service. https://www.ers.usda.gov/amber-waves/2006/february/agricultural-contracting-trading-autonomy-for-risk-reduction/
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    On the other hand, as they facilitate packers and live poultry 
dealers' control across the supply chain, contracts can shift certain 
risks onto or between producers.\30\ In particular, without robust open 
spot markets, cattle producers have complained of less ability to enter 
the markets and less competition between buyers for better prices.\31\ 
As one notable commentator has termed them, these markets appear to be 
by ``invitation only.'' \32\
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    \30\ See, e.g., Michael Kades, ``Protecting Livestock Producers 
and Chicken Growers,'' Washington Center for Equitable Growth (May 
5, 2022), available at https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/; Mary K. 
Hendrickson, et al., ``The Food System: Concentration and Its 
Impacts,'' A Special Report for Farm Family Action Alliance, May 
2021, available at https://farmaction.us/concentrationreport/; C. 
Robert Taylor, ``Harvested Cattle, Slaughtered Markets,'' April 27, 
2022, available at https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/; Peter 
Carstensen, ``Buyer Power and the Horizontal Merger Guidelines: 
Minor Progress on an Important Issue,'' 14 U. Pa. J. Bus. L. 775 
(2012), available at https://repository.law.wisc.edu/s/uwlaw/item/29746.
    \31\ See, e.g., Bill Bullard, ``Chronically Besieged: The U.S. 
Live Cattle Industry,'' Presentation to Thurman Arnold Project at 
Yale and Law, Ethics, & Animals Program at Yale Law School, ``Big Ag 
& Antitrust Conference,'' Jan. 2021, available at https://www.r-calfusa.com/wp-content/uploads/2021/01/210116-Chronically-Beseiged-The-U.S.-Live-Cattle-Industry-Final.pdf; see also Nathan Miller et 
al., ``Buyer Power in the Beef Packing Industry: An Update on 
Research in Progress,'' April 2022, available at http://www.nathanhmiller.org/cattlemarkets.pdf.
    \32\ C. Robert Taylor, ``The Many Faces of Corporate Power in 
the Food System.'' Presented at DOJ/FTC Workshop on Merger 
Enforcement, February 2004, available at https://www.justice.gov/atr/many-faces-power-food-system.
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    Limited options for producers heighten the risks of prejudicial 
exclusion and retaliation. Over the years, these concerns have been 
reported to USDA, but the Department has not been able to effectively 
address complaints, in part owing to insufficient clarity around P&S 
Act rules and standards and related questions around the ability for 
individuals to bring cases based on specific instances of harm.
    The rise of concentrated and vertically integrated markets also 
gives rise to certain abuses that may take the form of deception. For 
example, cattle producers have complained to USDA that they are 
provided with false pretexts as to why a packer would not accept cattle 
from a producer or would pay less for it. Similarly, poultry and swine 
growers have complained they have not been told the truth regarding why 
they were terminated from contracts or otherwise treated differently 
under them. These forms of deception may also be connected with efforts 
to discriminate, retaliate, or otherwise unjustly exclude certain 
producers or growers from the marketplace.\33\
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    \33\ See, e.g., ``Transition Recommendations: On Issues Related 
to Agricultural Concentration and Competition,'' Campaign for 
Contract Agriculture Reform . . . Western Organization of Resource 
Councils, et al., Nov. 9, 2020.
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    Concerns with the rise of vertically integrated contracting across 
concentrated markets were highlighted in a series of workshops 
conducted by the U.S. Department of Justice (DOJ) and USDA in 2010.\34\ 
And indeed, following the workshops, a number of producers reported to 
USDA that they suffered retaliation, and that racial and other 
exclusionary prejudices were problems. In 2010 and 2016, USDA proposed 
regulations seeking to address many of these concerns, given their 
pervasiveness in the marketplace and the longstanding challenges that 
USDA faced in addressing them. However, the relevant provisions of the 
proposed regulations were not finalized.\35\
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    \34\ Department of Justice. ``Competition and Agriculture: 
Voices from the Workshops on Agriculture and Antitrust Enforcement 
in our 21st Century Economy and Thoughts on the Way Forward.'' May 
2012. Available at https://www.justice.gov/sites/default/files/atr/legacy/2012/05/16/283291.pdf.
    \35\ Poultry Grower Ranking Systems; Withdrawal of Proposed 
Rule, 86 FR 60779 (November 4, 2021).
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    Unfortunately, the concentrated nature of livestock and poultry 
markets exposes all producers to potential market abuses, but some may 
not be well positioned to protect themselves. Racial and ethnic 
minorities are arguably more exposed to market abuses, as evidenced by 
their participation in the agricultural sector having declined sharply 
over the last many decades. The most recent data from the 2017 Census 
of Agriculture (Figures 1 and 2) indicate that non-white racial and 
ethnic groups constitute a very small share of contracted livestock and 
poultry producers--a trend likely due in part to historical 
discrimination against these groups.
    Undoubtedly, discrimination such as what has been experienced by 
these groups in the past continues in some form today, which is why 
additional protections are needed. Further, the same USDA Census of 
Agriculture data show that producers who identify as Black and Native 
Hawaiian are more likely to have lower gross revenue than their white 
counterparts, which makes these producers relatively more vulnerable to 
the market abuses observed in the sector today. These longstanding 
challenges have prompted Congress and USDA to promote more equitable 
market access. Section II.B.ii, below provides a more extensive 
discussion of AMS's concerns regarding the exclusion from, or 
disadvantages in, certain markets.
    Retaliation remains a prevalent concern in today's concentrated and 
highly integrated markets. For example, as recently as April 2022, 
threats and fear of retaliation interfered with plans for invited 
witnesses to testify at each of the House and Senate Agriculture 
Committees' hearings on livestock competition practices. In his opening 
remarks, House Agriculture Committee Chair David Scott noted:
    We were supposed to have a 4th witness, a rancher, on our panel, 
but due to intimidation and threats to this person's livelihood, to 
this person's reputation, they chose not to participate out of fear. 
Witness intimidation is unacceptable. . .
Only a day before, Senator Deborah Fischer had stated:
    I wish we had a Nebraska producer here, but as is noted in their 
letter, none of our producer members we encouraged to testify were 
willing to put themselves out front for fear of possible retribution 
from other market participants, an unfortunate reality of today's 
cattle industry.\36\
---------------------------------------------------------------------------

    \36\ House Chair David Scott D-GA, Opening remarks, U.S. House, 
Committee on Agriculture, ``An Examination of Price Discrepancies, 
Transparency, and Alleged Unfair Practices in Cattle Markets,'' 
April 27, 2022, (14 min: 24 sec), available at https://anchor.fm/houseagdems/episodes/An-Examination-of-Price-Discrepancies-Transparency-and-Alleged-Unfair-Practices-in-Cattle-Markets-e1hpvo8/a-a7r40dk. U.S. Senate Committee on Agriculture, Nutrition, and 
Forestry, ``Legislative hearing to review S. 4030, the Cattle Price 
Discovery and Transparency Act of 2022, and S. 3870, the Meat and 
Poultry Special Investigator Act of 2022,'' April 26, 2022 (1 hour 
39 min), available at https://www.agriculture.senate.gov/hearings/legislative-hearing-to-review-s-4030-the-cattle-price-discovery-and-transparency-act-of-2022-and-s3870-the-meat-and-poultry-special-investigator-act-of-2022.


[[Page 60014]]


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    Producer organizations have also recently reported to USDA concerns 
relating to possible coercion in the rulemaking comment process.\37\ 
Section II, and in particular II.E.ii, below, provide a more fulsome 
discussion of concerns regarding retaliation for engaging in protected 
activities.
---------------------------------------------------------------------------

    \37\ See, e.g., U.S. Department of Agriculture, ``USDA Extends 
Public Comment Period to August 23 and Posts Public Webinar for the 
Proposed Rule to Promote Transparency in Poultry Grower Contracting 
and Tournaments,'' Aug. 5, 2022, available at https://www.usda.gov/media/press-releases/2022/08/05/usda-extends-public-comment-period-august-23-and-posts-public (last accessed Aug. 2022).
---------------------------------------------------------------------------

    Deception in various forms and guises also remains a concern in the 
marketplace, including during the COVID-19 pandemic, where producers 
had dramatically reduced access to markets.\38\ We discuss these 
concerns extensively in Section III, below.
---------------------------------------------------------------------------

    \38\ On limits to market access in the pandemic, see U.S. 
Department of Agriculture, Agricultural Marketing Service, 
``Agricultural Competition: A Plan in Support of Fair and 
Competitive Markets,'' May 2022, available at https://www.ams.usda.gov/reports/agricultural-competition-plan-support-fair-and-competitive-markets (last accessed Aug. 2022).
---------------------------------------------------------------------------

    The historic Executive order issued by the Biden-Harris 
administration, Executive Order (E.O.) 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 market abuses 
and enhanced competition in the livestock, poultry, and related 
markets, including unjustly discriminatory, unduly prejudicial, and 
deceptive practices, in particular retaliation. E.O. 14036 also 
underscored that an individual should not have to show market-wide harm 
to secure relief under the Act. AMS has considered that direction in 
undertaking this rulemaking.
    The P&S Act is a remedial statute enacted to address problems faced 
by farmers, producers, and other participants in certain livestock, 
poultry, and related agricultural markets; to protect the public from 
predatory practices; and to help ensure a stable food supply. Thus, as 
academics and courts have noted, the Act has ``tort-like provisions 
that are concerned with unfair practices and discrimination'' that 
fulfill a ``market facilitating function,'' which Congress designed to 
prevent ``market abuse.'' \39\ AMS interprets and implements the Act to 
affect its core statutory purposes.\40\ AMS is concerned that the 
current regulations do not adequately address many unduly prejudicial, 
unjustly discriminatory, and deceptive practices, which are exacerbated 
by increased horizontal concentration and vertical contracting. This 
proposed rule aims to address those concerns.
---------------------------------------------------------------------------

    \39\ Herbert Hovenkamp, ``Does the Packers and Stockyards Act 
Require Antitrust Harm?'' (2011). Faculty Scholarship at Penn Carey 
Law. 1862. https://scholarship.law.upenn.edu/faculty_scholarship/1862 (``subsections (a) and (b) appear to be tort-like provisions 
that are concerned with unfair practices and discrimination, but not 
with restraint of trade or monopoly as such''); Peter Carstensen, 
The Packers and Stockyards Act: A History of Failure to Date, CPI 
Antitrust Journal 2-7 (April 2010) (``Congress sought to ensure that 
the practices of buyers and sellers in livestock (and later poultry) 
markets were fair, reasonable, and transparent. This goal can best 
be described as market facilitating regulation.''); Michael C. Stumo 
& Douglas J. O'Brien, Antitrust Unfairness vs. Equitable Unfairness 
in Farmer/Meat Packer Relationships, 8 Drake J. Agric. L. 91 (2003); 
Michael Kades, ``Protecting livestock producers and chicken 
growers,'' Washington Center for Equitable Growth (May 2022), 
https://equitablegrowth.org/wp-content/uploads/2022/05/050522-packers-stockyards-report.pdf (``Section 202's prohibitions on 
unjust discrimination and undue preference are not limited to 
conduct that destroys or limits competition or creates a monopoly. 
These provisions address conduct that impedes a well-functioning 
market and deprives livestock and poultry producers of the true 
value of their animals. Taken together, these provisions seek to 
prevent market abuses.'').
    \40\ See Bowman v. U.S. Dep't of Agric., 363 F.2d 81 at 85 (5th 
Cir. 1966).
---------------------------------------------------------------------------

B. Previous Rulemakings

    At the direction of Congress, through the Food, Conservation, and 
Energy Act of 2008 (2008 Farm Bill) (Pub. L. 110-246), USDA's then 
Grain Inspection, Packers, and Stockyards Administration (GIPSA), which 
administered the Packers and Stockyards Act, published a proposed rule 
(75 FR 35338; June 22, 2010) (2010 Proposed Rule).\41\ The 2010 
Proposed Rule, among other things, banned retaliation as an ``unfair, 
unjustly discriminatory, and deceptive practice,'' and clarified when 
certain conduct in the livestock and poultry industries represents the 
making or giving of an undue or unreasonable preference or advantage or 
subjects a person or locality to an undue or unreasonable prejudice or 
disadvantage. Congress then prohibited finalization of portions of the 
2010 Proposed Rule through appropriations acts for fiscal years 2012 
through 2015.
---------------------------------------------------------------------------

    \41\ In 2017, GIPSA merged with the Agricultural Marketing 
Service (AMS). AMS now administers the regulations under the Act and 
undertook this rulemaking to meet the statutory requirement.
---------------------------------------------------------------------------

    In 2015, after increased public awareness of issues that the 2010 
Proposed Rule attempted to address,\42\ Congress ceased including the 
prohibition in appropriations bills, and GIPSA undertook another 
rulemaking to address these issues. In 2016, the agency published 
another proposed rule (81 FR 92703; December 20, 2016) (2016 Proposed 
Rule) attempting to establish what constituted unfair practices and 
undue preferences, along with a related interim final rule (81 FR 
92566) (2016 IFR). Following the change of administration, the agency 
decided to take no further action on the rule. In a notification of no 
further action published in the Federal Register (82 FR 48603; October 
18, 2017) (2017 No Further Action Notification), GIPSA acknowledged 
that some producers, growers, and farm trade groups generally supported 
the proposed rule, and many commenters had raised concerns about 
growing power imbalances, discrimination, and retaliation. GIPSA, 
however, decided not to finalize the 2016 Proposed Rule, in part on the 
grounds that it raised the stakes for regulated entities in ways that 
could suppress innovation, and contained ambiguous terms that were 
likely to increase and prolong litigation between producers and 
regulated entities and between regulated entities and AMS. The 2016 
Proposed Rule listed six non-exclusive criteria for the Secretary to 
consider when determining whether conduct constituted an unfair 
practice or preference. In contrast, the current proposed rule focuses 
on discrimination, deception, and retaliation.
---------------------------------------------------------------------------

    \42\ ``Chickens: Last Week Tonight with John Oliver,'' HBO, May 
17, 2015, available at https://www.youtube.com/watch?v=X9wHzt6gBgI; 
see also Nathaniel Haas, ``John Oliver v. chicken,'' Politico, June 
1, 2015, available at https://www.politico.com/story/2015/06/john-oliver-vs-chicken-118510.
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    In 2020, AMS issued a proposed rule (85 FR 1771; January. 13, 2020) 
(2020 Proposed Rule), which was finalized later that year (85 FR 79779; 
December. 11, 2020) (2020 Final Rule), which that set out several 
(nonexclusive) criteria the Secretary would consider concerning undue 
or unreasonable preferences or advantages: whether the preference or 
advantage cannot be justified on the basis of a cost savings related to 
dealing with different producers, sellers, or growers; cannot be 
justified on the basis of meeting a

[[Page 60015]]

competitor's prices; cannot be justified on the basis of meeting other 
terms offered by a competitor; and cannot be justified as a reasonable 
business decision. In response to the 2020 Proposed Rule, AMS received 
numerous comments raising concerns regarding discriminatory and 
retaliatory practices; however, AMS stated that the 2020 Final Rule was 
intended for the narrower purpose of establishing criteria to 
consider.\43\ Specifically, the 2020 Proposed Rule's preamble noted 
that discrimination on the basis of race, gender, and other such 
protected bases was unlawful and would be addressed as potential 
violations of the Act's prohibition against undue prejudices. In August 
2021, AMS reiterated this policy in a series of Frequently Asked 
Questions (FAQs).\44\ AMS's FAQs also underscored that the rule's 
criteria were ``not exhaustive and not determinative.''
---------------------------------------------------------------------------

    \43\ Undue and Unreasonable Preferences and Advantages Under the 
Packers and Stockyards Act, 85 FR 79779 (January 11, 2021), 9 CFR 
part 201. Comments available at https://www.regulations.gov/document/AMS-FTPP-18-0101-0001/comment.
    \44\ 85 FR 79779; U.S. Department of Agriculture, Agricultural 
Marketing Service, ``Frequently Asked Questions on the Enforcement 
of Undue and Unreasonable Preferences under the Packers and 
Stockyards Act,'' August 2021, available at https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq 
(last accessed June 2022).
---------------------------------------------------------------------------

    In the context of each of these rulemakings spanning the last 
decade, GIPSA, and later AMS, received comments regarding the power 
imbalances in the livestock and poultry industries and highlighting the 
need for regulations that adequately protect farmers against recurrent 
retaliation, deception, and discrimination. Given the consistency of 
these assertions, as well as the concerns further brought to light 
during the COVID-19 pandemic regarding today's increasingly 
concentrated livestock and poultry markets,\45\ AMS believes this 
proposed rule is needed to effectuate its responsibility to protect 
producers against unlawful practices that exclude, disadvantage, 
discriminate against, retaliate against, or deceive them, and that the 
rulemaking would promote markets with integrity that are competitive 
and inclusive to all.
---------------------------------------------------------------------------

    \45\ U.S. Department of Agriculture, ``Agri-Food Supply Chain 
Assessment: Program and Policy Options for Strengthening 
Resilience,'' 12-17, February 2021, available at https://www.ams.usda.gov/supply-chain (last accessed Aug. 2022); see also 
Agricultural Marketing Service, U.S. Department of Agriculture, 
``Agricultural Competition: A Plan in Support of Fair and 
Competitive Markets,'' May 2022, available at https://www.ams.usda.gov/reports/agricultural-competition-plan-support-fair-and-competitive-markets (last accessed Aug. 2022).
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II. Undue Prejudices or Disadvantages and Unjust Discriminatory 
Practices

A. Agency Interpretation of Undue or Unreasonable Prejudice or 
Disadvantage and Unjust Discriminatory Practices

    This proposed rule addresses concerns related to undue prejudices 
or disadvantages and unjust discrimination. First, proposed Sec.  
201.304(a) would establish clearer duties on packers, swine 
contractors, and live poultry dealers to ensure full and non-
discriminatory market access for market vulnerable individuals. This 
section would also prohibit undue prejudices and disadvantages against 
cooperatives.
    Second, proposed Sec.  201.304(b) would address retaliation by 
setting out protected activities that a covered producer may engage in 
but that a regulated entity may not use as grounds for unjust 
discrimination or undue prejudice or disadvantage. The proposed 
regulations would prohibit regulated entities from retaliating against 
a covered producer for participating in a protected activity by 
terminating a contract, refusing to renew a contract, offering more 
unfavorable contract terms than those generally or ordinarily offered, 
refusing to deal, interfering with third-party contracts, and other 
actions with a an adverse impact to covered producers. These acts of 
retaliation would be unjustly discriminatory and unduly prejudicial and 
disadvantageous.
    Section 202(b) of the P&S Act (7 U.S.C. 192(b)) prohibits regulated 
entities from ``subjecting any particular person or locality to any 
undue or unreasonable prejudice or disadvantage in any respect[.]'' 
Though not defined by the Act, in 1921, legal definitions of prejudice 
included anything that ``places the person affected in a more 
unfavorable or disadvantageous position than he would otherwise have 
occupied.'' \46\ Merriam-Webster.com defines prejudice to include 
``injury or damage resulting from some judgment or action of another in 
disregard of one's rights'' and ``an irrational attitude of hostility 
directed against an individual, a group, a race, or their supposed 
characteristics.'' \47\ USDA's Judicial Officer has defined prejudice 
in an administrative adjudication as ``subjecting any person to any 
injury or damage and not subjecting all similarly situated persons to 
the same injury or damage [.]'' \48\
---------------------------------------------------------------------------

    \46\ Roberto v. Catino, 140 Md. 38, 116 A. 873, 875 (1922).
    \47\ Merriam-Webster online dictionary, https://www.merriam-webster.com/dictionary/prejudice (accessed June 15, 2022).
    \48\ In Re: IBP, Inc., 57 Agric. Dec. 1353 (U.S. Department of 
Agriculture July 31, 1998).
---------------------------------------------------------------------------

    Likewise, sec. 202(a) of the P&S Act (7 U.S.C. 192(a)) prohibits 
``unjust discrimination.'' but does not expressly define the term. 
Merriam-Webster.com defines ``unjust'' as: ``characterized by 
injustice: unfair.'' \49\ The common meaning of the word 
``discrimination'' means ``differential treatment; especially a failure 
to treat all persons equally where no reasonable distinction can be 
found between those favored and those not favored.'' \50\ While the 
meaning of the word ``discriminatory'' varies depending on the context, 
the common definition includes ``applying or favoring discrimination in 
treatment.'' \51\ Therefore, under sec. 202(a) of the Act, a regulated 
entity treating similar entities differently with respect to livestock, 
meats, meat food products, livestock products in unmanufactured form, 
or live poultry based on certain conditions is an unjustly 
discriminatory practice.\52\
---------------------------------------------------------------------------

    \49\ Merriam-Webster online dictionary, https://www.merriam-webster.com/dictionary/unjust (accessed June 15, 2022).
    \50\ Black's Law Dictionary, p. 586 (11th ed. 2019).
    \51\ Merriam-Webster online dictionary, https://www.merriam-webster.com/dictionary/discriminatory (accessed June 15, 2022).
    \52\ See, also In Re: IBP, Inc., 57 Agric. Dec. 1353 (1998), 
rev'd on other grounds by Excel Corp. v. United States Dep't of 
Agri., 397 F.3d 1285 (10th Cir. 2005).
---------------------------------------------------------------------------

    The terms ``unjust discrimination'' and ``undue or unreasonable 
prejudice or disadvantage'' in the P&S Act do not follow the precise 
language of any law that preceded it. This is not without reason. The 
P&S Act ``would never have been adopted by the Congress if the 
marketing of livestock and the distribution of meat products did not 
present problems [that] were insufficiently met by the [then existing] 
antitrust laws[.]'' \53\ There were two laws, however, that preceded 
the passage of the P&S Act that influenced the inclusions of ``unjust 
discrimination'' and ``undue or unreasonable prejudice or 
disadvantage'' in the P&S Act: the Clayton Act, and the Interstate 
Commerce Act. While both the Clayton Act and the Interstate Commerce 
Act informed the P&S Act's prohibition on unfair and discriminatory 
practices, the P&S Act has a broader application.
---------------------------------------------------------------------------

    \53\ Crosse & Blackwell Co. v. F.T.C., 262 F.2d 600, 604 (4th 
Cir. 1959).
---------------------------------------------------------------------------

    The Clayton Act, passed in 1914, used the language of 
discrimination specifically with respect to discriminatory pricing, 
prohibiting anyone from ``either directly or

[[Page 60016]]

indirectly [discriminating] in price between different purchasers of 
commodities . . . where the effect of such discrimination may be to 
substantially lessen competition or create a monopoly in any line of 
commerce.'' \54\ The Clayton Act was careful to expressly prohibit 
discriminatory pricing in particular. In contrast, the P&S Act does not 
include this textual limitation. In addition, the Clayton Act requires 
that the discrimination ``may be to substantially effect competition or 
create a monopoly.'' The P&S Act, again, is broader:
---------------------------------------------------------------------------

    \54\ The Clayton Act, sec. 2, Public Law No. 63-212, 38 Stat. 
730 (1914).
---------------------------------------------------------------------------

    [T]he prohibitions of [the Act] go further than the prohibitions in 
the Clayton Act. For instance, one of the sections of the Clayton Act 
prohibits discrimination in prices as between localities, and then 
contains a sort of nullification clause, to the effect that it shall 
not prevent anybody from choosing his own customers or making 
discriminations in prices where there is a difference in quality or a 
difference in transportation charges, and so forth, while this bill 
makes any undue or unreasonable discrimination as between localities or 
between persons unlawful.\55\
---------------------------------------------------------------------------

    \55\ 61 Cong. Rec. 1888 (1921) (statement of Rep. Anderson).

    Likewise, the Interstate Commerce Act was an important template for 
the P&S Act. The P&S Act's statutory history is replete with references 
and comparisons, in general terms, to the Interstate Commerce Act. 
Passed in 1887, the Interstate Commerce Act forbade common carriers--
primarily meaning railroads--from undue preferences, prejudices, and 
discrimination in their rates and charges between connecting lines.\56\ 
As the Supreme Court explained the Interstate Commerce Act in 1934: 
``The purpose . . . was to bring into existence a body which, from its 
special character, would be best fitted to determine, among other 
things, whether upon the facts in a given case there is an unjust 
discrimination against interstate commerce.'' \57\
---------------------------------------------------------------------------

    \56\ Act of February 4, 1887 (Interstate Commerce Act), sec. 3, 
Public Law 49-41, February 4, 1887; Enrolled Acts and Resolutions of 
Congress, 1789; General Records of the United States Government, 
1778--1992; Record Group 11; National Archives.
    \57\ State of Fla. v. United States, 292 U.S. 1, 12, 54 S. Ct. 
603, 608, 78 L. Ed. 1077 (1934) (citing United States v. Louisville 
& Nashville R.R. Co., 235 U.S. 314, 320 (1914)).''[F]rom the 
beginning the very purpose for which the Commission was created was 
to . . . decide whether from facts, disputed or undisputed [whether 
a] preference or discrimination existed.'' Louisville and Nashville 
R.R. Co., 235 U.S. at 320.
---------------------------------------------------------------------------

    With respect to the courts' interpretation of unjustly 
discriminatory practices under the P&S Act, there are few Federal cases 
that explore the difference between unjust discrimination and the other 
provisions of the Act. Because of the P&S Act's similarity to the 
Clayton Act, the Seventh Circuit holds that unjust discrimination has 
included below-cost sales which injure sellers or primary line 
competition, even if the buyers or secondary-line competition are not 
affected. See Wilson & Co. v. Benson, 286 F.2d 891, 895 (7th Cir. 
1961). Likewise, that circuit holds that price discrimination in favor 
of a larger grocery store chain, and higher prices to its competitors, 
are another type of unjust discrimination that the Act has prevented. 
Swift & Co. v. United States, 317 F.2d 53, 55-56 (7th Cir. 1963). 
Moreover, the Supreme Court has held that when discrimination is used 
as an attempt to limit competition, it is a monopoly practice. See 
Denver Union Stock Yard Co. v. Producers Livestock Mktg., 356 U.S. 282, 
289 (1958) (interpreting sec. 312 of the Act and finding that 
regulations aimed at preventing market agencies registered at one 
stockyard from doing business for producers at any other market within 
a normal marketing area to be a monopoly practice).
    AMS proposes this regulation to protect the integrity of the market 
as a competitive, price-clearing, economically open commercial endeavor 
by eliminating or restraining prejudicial discrimination. This includes 
prejudicial discriminatory behaviors such as those that adversely 
impact open access by competitors and market participants (through 
certain exclusionary prejudices, such as denying or disadvantaging an 
individual's access to market on grounds which could include race, 
gender, religion, or other bases; or retaliatory discrimination for 
engaging in certain basic protected activities closely tied to the 
basic requirements of being in the business of livestock, poultry, and 
related markets covered under the Act), and otherwise exert forms of 
control or dependency that limit the economic freedom of those 
participating in the market.\58\ The harms these proposed regulations 
aim to prevent are the kinds of discrimination (and, as discussed 
below, deceptive) practices that dominant firms can use to limit 
competition and interfere with the operation of the market, including 
across the entire supply chain with respect to livestock, meats, meat 
food products, livestock products in unmanufactured form, or for any 
live poultry dealer with respect to live poultry.
---------------------------------------------------------------------------

    \58\ Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth (May 5, 2022), 
available at https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------

B. Prohibited Undue Prejudices or Disadvantages and Unjust 
Discrimination--Proposed Sec.  201.304(a)(1)

    Section 201.301 of the proposed regulations would protect the 
integrity of the market, promoting fairness and competition by 
prohibiting undue prejudices and disadvantages and unjust 
discrimination that inhibit inclusive market access and treatment. 
Specifically, proposed Sec.  201.304(a)(1) would prohibit prejudice, 
disadvantage, or the denial or reduction of market access by regulated 
entities against covered producers based on their status, as defined in 
the regulation, of being ``market vulnerable'' producers. This term is 
defined as membership in a group that has been subjected to, or is at 
heightened risk of, adversely differential treatment in the 
marketplace. AMS seeks comments on whether specific groups should be 
named in the definition of a market vulnerable individual as examples 
of market vulnerable individuals and, if so, requests supporting 
evidence on the historical treatment of such groups. AMS also seeks 
comment on whether, alternatively, prohibitions on undue prejudice or 
disadvantage or unjust discrimination would best be addressed by 
identifying defined protected classes, and if so, which protected 
classes. The intent of the proposed regulation is to help break down 
barriers that may serve to exclude or disadvantage certain covered 
producers, while leaving room for differential treatment based on 
legitimate business purposes.
    This proposal defines a covered producer as a livestock producer 
(as defined in the regulation at proposed Sec.  201.302) or swine 
production contract grower or poultry grower as defined in sec. 2(a) of 
the Act. While swine contract producers and poultry growers are defined 
in the Act, AMS believes the Act is properly read to protect livestock 
producers from unjustly prejudicial and discriminatory practices. To 
effectuate this purpose, this proposed rule defines livestock producer 
as any person engaged in the raising and caring for livestock by the 
producer or another person, whether the livestock is owned by the 
producer or by another person, but not an employee of the owner of the 
livestock. This definition is designed to

[[Page 60017]]

capture the vast majority of market participants who are dependent on 
regulated entities to engage in the livestock business. AMS seeks 
comment on whether to limit the definition to persons engaging in the 
raising and caring for livestock in the chain of slaughter, or whether 
such limitation is unnecessary or improperly limits the coverage of the 
Act.
    The principal purpose of this proposed approach is to address 
prejudices in the marketplace against producers that are more 
vulnerable to such treatment and to stop unjust discrimination. AMS 
views vulnerability to adverse marketplace treatment to include, but 
not be limited to, exclusion or disadvantage on the basis of race, 
ethnicity, or sex or gender prejudices (including discrimination 
against an individual for being lesbian, gay, transgender, or queer), 
religion, disability, or age.\59\ AMS seeks comment on these bases, and 
whether there are other bases for vulnerability to adverse marketplace 
treatment.
---------------------------------------------------------------------------

    \59\ Supreme Court case law has established that discriminating 
against an individual for being lesbian, gay, transgender or queer 
is discrimination on the basis of sex or gender prejudices. Bostock 
v. Clayton Cnty., Georgia, 140 S. Ct. 1731, 1741 (2020) (``[I]t is 
impossible to discriminate against a person for being homosexual or 
transgender without discriminating against that individual based on 
sex.'').
---------------------------------------------------------------------------

    This proposed rule aims to ensure more inclusive market competition 
and address allegations related to undue prejudices through enforceable 
regulatory prohibitions. The proposed prohibitions would protect 
producers at both individual and market-wide levels from undue 
prejudices and disadvantages and unjust discrimination--both of which 
AMS has determined violate the P&S Act. The Secretary is empowered 
under the P&S Act to address harms in their incipiency.\60\ Moreover, 
given its experience interacting with producers and regulated entities, 
AMS believes that individual instances of prejudice and discrimination 
can have a cumulative adverse effect on relevant markets, including the 
national market.
---------------------------------------------------------------------------

    \60\ E.g. Bowman v. United States Dep't of Agric., 363 F.2d 81, 
85 (5th Cir. 1966) (```the Act is designed to `* * * prevent 
potential injury by stopping unlawful practices in their incipiency. 
Proof of a particular injury is not required.' '').
---------------------------------------------------------------------------

    AMS believes the proposed regulatory scheme results in a flexible 
approach to resolving marketplace vulnerabilities. AMS's proposed 
regulatory approach of prohibiting unjust discrimination and undue 
prejudices and disadvantages against market vulnerable producers 
recognizes that discrimination against producers may evolve. AMS 
expects the proposed definition will be sufficiently responsive to the 
particular facts of given cases and particular markets over time. AMS 
is considering issuing guidance on the proposed regulatory approach.
    AMS is seeking comment on the definition of ``market vulnerable 
producers.'' AMS's goal is to appropriately govern regulated entities' 
conduct for the purpose of ensuring inclusive competition in the 
marketplace, grounded in the Act's authorities. This includes seeking 
comment on whether it should delineate specific categories of 
vulnerable producers on the basis of membership in groups that have 
historically been subject to adverse treatment owing to racial, ethnic, 
gender, or religious prejudices. If so, AMS solicits supporting 
evidence regarding the historical adverse treatment of such groups.
    AMS also seeks comment on the use of a ``market vulnerable 
producer'' approach--rather than a list of protected classes that may 
not be discriminated against--to the regulatory prohibition against 
discrimination. In the alternative to using the market vulnerable 
producer approach, the agency is considering whether this regulation 
should ban discrimination against specific classes, such as on the 
basis of race, color, national origin, religion, sex, sexual 
orientation, gender identity, age, disability, marital status, or 
family status. Such an approach would differ from the market vulnerable 
individual approach and would instead more closely follow the civil 
rights laws that prohibit prejudicial discrimination against certain 
protected classes.
    The prohibition on prejudice against cooperatives also seeks to 
prevent barriers to market access for cooperatives. Congress has long 
recognized the need to provide enhanced protections for cooperatives, 
as embodied for example in the Agricultural Fair Practices Act of 1967 
(Pub. L. 90-288), which protects producers' rights to form a 
cooperative.\61\
---------------------------------------------------------------------------

    \61\ For the purposes of this preamble, a cooperative is an 
incorporated or unincorporated association of producers, with or 
without capital stock, formed for mutual benefit of its members. 
Farm cooperatives are formed under state, not Federal law, even 
though cooperatives have Federal protections. See James B. Dean & 
Thomas Earl Geu, The Uniform Limited Cooperative Association Act: An 
Introduction, 13 Drake J. Agric. L. 63, 67 (2008) (``There is, 
however, no single type of cooperative. Although much of the law 
that has developed around cooperatives has developed with respect to 
agricultural cooperatives, cooperatives exist in many areas . . . 
including housing, insurance, banking, health care, and retail 
sales, among others.''). Cooperatives can both be buyers and sellers 
of agricultural products. Cooperatives made up of sellers, because 
they jointly fix the prices of their goods, are legally permitted to 
market the products they produce when the cooperative organization 
meets the requirements of the Capper-Volstead Act (see 7 U.S.C. 291) 
or the Clayton Act (see 15 U.S.C. 17).
---------------------------------------------------------------------------

i. Authority Provided by the Act
    There is no indication that Congress intended to exempt any 
practice of regulated entities affecting producers covered under the 
Act.\62\ The P&S Act, through secs. 202(a) and (b), broadly prohibits 
certain practices or devices, including undue or unreasonable 
prejudices and disadvantages and unjust discrimination. Sections 202(a) 
and (b) of the Act identify a number of prohibited actions with respect 
to livestock, meats, meat food products, or livestock products in 
unmanufactured form, or for any live poultry dealer with respect to 
live poultry. To effectuate these statutory prohibitions, AMS proposes 
to prohibit specific undue and unreasonable prejudices, disadvantages, 
and discrimination against any covered producer. AMS also seeks comment 
on whether to extend these protections to all persons buying or selling 
meat and meat food products in markets under the jurisdiction of the 
Act.
---------------------------------------------------------------------------

    \62\ See 7 U.S.C. 193. C.f. Mitchell v. United States, 313 U.S. 
80, 94, 61 S. Ct. 873, 877, 85 L. Ed. 1201 (1941) (``We have 
repeatedly said that it is apparent from the legislative history of 
the Act that not only was the evil of discrimination the principal 
thing aimed at, but that there is no basis for the contention that 
Congress intended to exempt any discriminatory action or practice of 
interstate carriers affecting interstate commerce which it had 
authority to reach.'').
---------------------------------------------------------------------------

    In enacting the P&S Act, Congress cast a wide net to capture all 
acts of unjust discrimination and unreasonable prejudice against any 
particular person. The Act's prohibition of anti-competitive, 
discriminatory, and unreasonably prejudicial actions against a 
particular person was not a new statutory concept, as the Interstate 
Commerce Act also banned unreasonable prejudices and discriminatory 
practices well before the enactment of the P&S Act. While a finding of 
being within the Interstate Commerce Act's (ICA) scope is not a 
necessary precondition for a violation of the P&S Act, the comparison 
is nevertheless useful, especially with respect to the structure and 
design of provisions governing undue prejudices. A comparison is 
provided in Table 1, below.
    In Mitchell v. U.S., the Supreme Court decided that the Interstate 
Commerce Act prohibited discrimination based on race. 313 U.S. 80 
(1941). The Supreme Court held that ``it is apparent from the 
legislative history of the Interstate

[[Page 60018]]

Commerce Act that not only was the evil of discrimination the principal 
thing aimed at, but that there is no basis for the contention that 
Congress intended to exempt any discriminatory action or practice of 
interstate carriers affecting interstate commerce which it had 
authority to reach.'' \63\ Further, the Court isolated a section of the 
Interstate Commerce Act and noted that, ``Paragraph 1 of Section 3 of 
the Act says explicitly that it shall be unlawful for any common 
carrier subject to the Act `to subject any particular person * * * to 
any undue or unreasonable prejudice or disadvantage in any respect 
whatsoever.'' \64\ (Emphasis added) The Court found that unreasonable 
prejudice against an individual based on race was a violation and 
concluded that, ``the Interstate Commerce Act expressly extends its 
prohibitions to the subjecting of `any particular person' to 
unreasonable discriminations.'' \65\
---------------------------------------------------------------------------

    \63\ Id. at 94.
    \64\ Id. at 95.
    \65\ Id. at 97.
---------------------------------------------------------------------------

    The P&S Act contains similar but broader language than the 
Interstate Commerce Act sec. 3 in sec. 202, which reads, ``It shall be 
unlawful for any packer or swine contractor with respect to livestock, 
meats, meat food products, or livestock products in unmanufactured 
form, or for any live poultry dealer with respect to live poultry, to: 
(a) Engage in or use any unfair, unjustly discriminatory, or deceptive 
practice or device; or (b) Make or give any undue or unreasonable 
preference or advantage to any particular person or locality in any 
respect, or subject any particular person or locality to any undue or 
unreasonable prejudice or disadvantage in any respect. . .'' (emphasis 
added). Table 1 illustrates where the text between the two Acts is 
similar, and also how the Packers and Stockyards Act is broader.\66\
---------------------------------------------------------------------------

    \66\ For more on the relationship between the Interstate 
Commerce Act and the P&S Act in this area, see Michael Kades, 
``Protecting Livestock Producers and Chicken Growers,'' Washington 
Center for Equitable Growth, at 66 (May 2022) discussing Wheeler v. 
Pilgrim's Pride Corp., 591 F.3d 355, 368-369 (5th Cir 2009) (en 
banc) (J. Jones concurring): ``In all the cases discussed by the 
concurrence dealing with both terms [under the ICA], the defendant 
faced charges that it treated customers differently. According to 
the court, `railway companies are only bound to give the same terms 
to all persons alike under the same conditions.' If the conditions 
are different, then different treatment is merited. Further, 
`competition between rival routes is one of the matters which may 
lawfully be considered in making rates.' Differential treatment 
driven by competitive forces is not a violation. Acknowledging that 
competition can justify differential treatment of customers is 
different than requiring the plaintiff to prove anticompetitive harm 
to establish a violation.''

  Table 1--Comparison of the Interstate Commerce Act and the Packers &
                             Stockyards Act
------------------------------------------------------------------------
                                             P&S Act, Section 202 [7
  Interstate Commerce Act (1887 text)     U.S.C.192]. Unlawful practices
                Sec. 3.                             enumerated
------------------------------------------------------------------------
That it shall be unlawful for any        It shall be unlawful for any
 common carrier subject to the            packer or swine contractor
 provisions of this act to make or give   with respect to livestock,
 any undue or unreasonable preference     meats, meat food products, or
 or advantage to any particular person,   livestock products in
 company, firm, corporation, or           unmanufactured form, or for
 locality, or any particular              any live poultry dealer with
 description of traffic, in any respect   respect to live poultry, to:
 whatsoever,                             (a) Engage in or use any
or to subject any particular person,      unfair, unjustly
 company, firm, corporation, or           discriminatory, or deceptive
 locality, or any particular              practice or device; or
 description of traffic, to any undue    (b) Make or give any undue or
 or unreasonable prejudice or             unreasonable preference or
 disadvantage in any respect              advantage to any particular
 whatsoever.                              person or locality in any
Every common carrier subject to the       respect, or subject any
 provisions of this act . . . shall not   particular person or locality
 discriminate in their rates and          to any undue or unreasonable
 charges between such connecting          prejudice or disadvantage in
 lines[.] (emphasis added).               any respect; (emphasis added).
------------------------------------------------------------------------

    As shown in Table 1, unlike the Interstate Commerce Act, the P&S 
Act in secs. 202(a) and (b) prohibits undue or unreasonable prejudices 
or disadvantages as well as deception and unjust discrimination 
(without limitation to discrimination in rates and charges in 
particular). In this proposed rulemaking, AMS incorporates the language 
from sec. 202 to prohibit acts of unreasonable prejudice and to prevent 
unreasonable discrimination including but not limited to the race 
discrimination that the Court found to be violative of the Interstate 
Commerce Act in Mitchell.
    This proposed regulation sets forth specific prohibitions on 
prejudicial or discriminatory acts or practices against individuals 
that are sufficient to demonstrate violation of the P&S Act without the 
need to further establish broad-based, market-wide prejudicial or 
discriminatory outcomes or harms. The prohibitions on regulated 
entities adversely treating individual producers set forth in this 
proposed rule address the types of harms the P&S Act is intended to 
prevent. AMS believes that preventing broad-based exclusion is most 
effectively enforced at the individual producer level when the conduct 
is in its incipiency.\67\ To further allow for effective enforcement of 
the statute, AMS is also proposing a recordkeeping requirement to 
support evaluation of regulated entity compliance.
---------------------------------------------------------------------------

    \67\ ``[T]he purpose of the Act is to halt unfair trade 
practices in their incipiency, before harm has been suffered.'' See 
Farrow v. U.S. Dep't of Agr., 760 F.2d 211, 215 (8th Cir. 1985) 
(citing De Jong Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329, 
1336-37 (9th Cir. 1980)); Swift & Co. v. United States, 393 F.2d 
247, 252 (7th Cir. 1968); Armour and Company v. United States, 402 
F.2d 712, 723 n. 12 (7th Cir.1968).
---------------------------------------------------------------------------

ii. Economic Rationale
    Marketplace integrity and market access were leading policy goals 
at the time of the Act's passage. ``The primary purpose of [the P&S 
Act] is to assure fair competition and fair-trade practices in 
livestock marketing and in the meatpacking industry . . . The Act 
provides that meatpackers subject to its provisions shall not engage in 
practices that restrain commerce or create a monopoly. They are also 
prohibited from engaging in any . . . unjust discriminatory practice or 
device. . .'' (emphasis added). AMS believes that discrimination in the 
form of prejudice or retaliation against a covered producer on the 
basis of certain non-economic prejudices restrains commerce, including 
competition, and effects undue and unjust trade practices by denying or 
inhibiting full market access for producers. These limitations on 
market access are contrary to the primary purposes of the Act--assuring 
fair trade practices and competitive markets that producers can access, 
as well as prohibiting unjust discrimination. For these reasons, AMS 
has determined that prejudice on certain non-economic bases, as set 
forth under ``market vulnerable individual,'' is undue and unjust.

[[Page 60019]]

    Undue prejudice is, furthermore, a market abuse that undermines 
market integrity, deprives the producer of the benefit of the market, 
and prevents the producer from obtaining the true market value of the 
livestock, or their services.\68\ While such a pathway for harm is 
sufficient justification for the rulemaking, prejudicial discrimination 
is also anti-competitive and leads to economic inefficiencies. This 
section addresses the economics of these issues, including by 
describing the history of prejudice and discrimination and their 
economic consequences in the agricultural sector and other economic 
sectors for market vulnerable individuals and groups.
---------------------------------------------------------------------------

    \68\ See Stafford v. Wallace, 258 U.S. 495 (1922).
---------------------------------------------------------------------------

Background and History of Economic Impacts of Prejudice and Unjust 
Discrimination in Agricultural and Other Economic Sectors
    While not necessarily tied exclusively to the operation of 
livestock markets, it is well-documented that undue prejudice has 
occurred and persists in agricultural markets and has led to market 
abuse. For example, in the earlier part of the 1900s agricultural 
landholders conspired to restrict land sales and the administration of 
Federal farm support programs to Black people, including those engaged 
in livestock production.\69\ A 1959 paper reported ``significant market 
discrimination'' against Black American producers in the Southern 
United States.\70\ The loss of heirs' property--land that is passed 
down from generation to generation without a will or other legal 
documentation--has been the leading cause of Black land loss in US 
agriculture.\71\ Some of the loss of heirs' property was the direct 
result of predatory and discriminatory abuse of partition sales 
processes and inequities in access and use of legal and other estate 
planning tools among Black populations.\72\
---------------------------------------------------------------------------

    \69\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell, 
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss: 
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42. 
American Economic Association, 2022.
    \70\ Tang, Anthony M. ``Economic development and changing 
consequences of race discrimination in Southern agriculture.'' 
Journal of Farm Economics 41, no. 5 (1959): 1113-1126.
    \71\ U.S. Department of Agriculture, National Agricultural 
Library, ``Heirs' Property,'' https://www.nal.usda.gov/farms-and-agricultural-production-systems/heirs-property (last accessed Aug. 
2022).
    \72\ Mitchell, Thomas W. 2019. Historic Partition Law Reform: A 
Game Changer for Heirs' Property Owners. In Heirs' property and land 
fractionation: fostering stable ownership to prevent land loss and 
abandonment. https://www.fs.usda.gov/treesearch/pubs/58543 (last 
accessed 8/9/2022).
---------------------------------------------------------------------------

    The Federal Government also played a role in discriminatory 
practices, which had significant economic consequences for Black 
producers especially. Reports from the U.S. Commission on Civil Rights 
in 1965 and 1982 documented discrimination in the provision of USDA 
programs and other prejudicial factors leading to the decline in Black 
farming.\73\ In the late 1990s, Black producers won a lawsuit filed 
against USDA for engaging in discriminatory practices in its farm loan 
programs--practices which led to financial ruin and land loss for many 
Black farmers.\74\
---------------------------------------------------------------------------

    \73\ U.S. Commission on Civil Rights. 1965. Equal Opportunity in 
Farm Programs: An Appraisal of Services Rendered by Agencies of the 
U.S. Department of Agriculture. https://files.eric.ed.gov/fulltext/ED068206.pdfUS Commission on Civil Rights. 1982. ``The Decline of 
Black Farming in America.'' https://eric.ed.gov/?id=ED222604.
    \74\ Feder, J. and T. Cowan. 2013. ``Garcia v. Vilsack: A Policy 
and Legal Analysis of a USDA Discrimination Case'', Congressional 
Research Service report number 7-5700, February 22, 2013.
---------------------------------------------------------------------------

    These, and other widespread discriminatory practices, help explain 
the relative greater decrease in the number of Black producers over the 
course of the twentieth century.\75\ Indeed, White farm ownership 
declined 62 percent and Black farm ownership 96 percent between 1930 
and 2012.\76\ Over the same period, total acres operated by Whites 
declined 9 percent and Blacks by 90 percent.\77\
---------------------------------------------------------------------------

    \75\ Touzeau, Leslie. 2019. ``Being Stewards of Land Is Our 
Legacy': Exploring the Lived Experiences of Young Black Farmers.'' 
Journal of Agriculture, Food Systems, and Community Development 8 
(4): 1-6. https://doi.org/10.5304/jafscd.2019.084.007.
    \76\ Francis, Dania V., Darrick Hamilton, Thomas W. Mitchell, 
Nathan A. Rosenberg, and Bryce Wilson Stucki. ``Black Land Loss: 
1920-1997.'' In AEA Papers and Proceedings, vol. 112, pp. 38-42. 
American Economic Association, 2022; Wood, S., & Gilbert, J. (2000, 
Spring). Returning African-American farmers to the land: Recent 
trends and a policy rationale. The Review of Black Political 
Economy, 27, 43-64. Available at https://doi.org/10.1007/BF02717262.
    Touzeau, Leslie. 2019. ```Being Stewards of Land Is Our Legacy': 
Exploring the Lived Experiences of Young Black Farmers.'' Journal of 
Agriculture, Food Systems, and Community Development 8 (4): 1-6. 
https://doi.org/10.5304/jafscd.2019.084.007.
    \77\ The Agricultural Census figures on farm operations for 2012 
are downloaded from the National Agricultural Statistics Service's 
Quick Stats and figures from 1930 are from volume 4 of the 1930 
Census, https://agcensus.library.cornell.edu/census_year/1930-census/.
---------------------------------------------------------------------------

    Other racial and ethnic minorities have also been negatively 
impacted by prejudicial acts. Latino and Indigenous people farming on 
reservations lost their farmland through the same abuses of partition 
sale processes as Black farmers. Between 1900 and 2017, the percent of 
all producers identifying as White increased nine percentages points to 
96 percent, while American Indian or Alaska Native producers increased 
by only 1.3 percentage points, to 2.3 percent.\78\ Hispanic or Latino 
farmers increased by only 2.4 percentage points between 1920 and 2017, 
to 3.4 percent. Racial and ethnic inequities in farmland ownership and 
indicators of farm-related wealth have also been observed in recent 
years.\79\ Concerns have also been highlighted regarding the treatment 
of Asian American and Pacific Islander poultry growers, in particular 
that immigrant communities may not appreciate the risks of contractual 
arrangements due to language barriers.\80\
---------------------------------------------------------------------------

    \78\ Casey, Alyssa R. Racial Equity in U.S. Farming: Background 
in Brief 2021. Congressional Research Service. https://crsreports.congress.gov/product/pdf/R/R46969.
    \79\ Horst, M., Marion, A. ``Racial, ethnic and gender 
inequities in farmland ownership and farming in the U.S.'' Agric Hum 
Values 36, 1-16 (2019). https://doi.org/10.1007/s10460-018-9883-3.
    \80\ Christopher Leonard, ``The Meat Racket,'' (2015) and Witt, 
Howard. ``Hmong poultry farmers cry foul, sue'' Chicago Tribune. May 
15, 2006. Available online at: https://www.chicagotribune.com/news/ct-xpm-2006-05-15-0605150155-story.html.
---------------------------------------------------------------------------

    Complete foreclosure of market access, for example through the loss 
of land or other capital, has clear adverse economic outcomes for 
protected groups who wish to engage in the agricultural sector but 
cannot. At the same time, discriminatory acts reduce economic 
opportunity for individuals in protected groups who are able to 
maintain market access. This not only causes economic harm to these 
groups but also has broader impacts.
    Studies documenting these economic impacts of prejudicial 
discrimination in the agricultural sector are relatively sparse, partly 
due to data limitations. However, economic studies focused on 
employment practices, financial transactions, housing, and other 
markets outside the agricultural sector demonstrate how discrimination 
may cause economic harm across all types of markets, including 
agricultural ones. As early as the 1950s, economic studies documented 
racial wage gaps between

[[Page 60020]]

workers.\81\ Enabled by a lack of competition among employers, this 
discrimination not only had adverse economic impacts for protected 
groups but also for employers who, due to their own discriminatory 
actions, ultimately paid higher wages for some equally productive 
workers.\82\ Recent studies highlight how racial wealth disparities 
reduce labor market competition, since reduced wealth hinders job 
search abilities.\83\ On the flip side, recent research shows that 
increased labor market participation among racial minorities and women 
contributed to increased economic output during the second half of the 
twentieth century.\84\ Research on the U.S. patent system finds that 
racially-motivated violent acts reduced the number of patents by Black 
inventors in the U.S. during the late 1800s and through the middle of 
the twentieth century.\85\ These patents could have led to new wealth 
for the inventors and increased business investments, potentially 
contributing to overall economic growth. In an analysis of data from 
the National Survey of Small Business Finances, Black led-businesses 
were found to have been more frequently issued loans with higher 
interest rates and other unfavorable terms relative to white or male-
led businesses, which could reduce productivity and innovation in the 
broader economy.\86\ In housing, recent evidence shows that minority 
households are steered towards areas with higher rates of poverty, 
crime, and pollution, and less economic opportunity.\87\ Combined, 
these discriminatory practices have large economic consequences. A 2020 
study estimates that if racial gaps in wages, housing, access to higher 
education, and lending were closed, the U.S. would experience a $5 
trillion dollar increase in gross domestic product (GDP) from 2020 to 
2025.\88\
---------------------------------------------------------------------------

    \81\ Bayer, P., and K. K. Charles. ``Divergent Paths: A New 
Perspective on Earnings Differences Between Black and White Men 
since 1940.'' The Quarterly Journal of Economics (2018), 1459-1501. 
Becker, G.S. The Economics of Discrimination. First Edition, The 
University of Chicago Press, 1957.
    \82\ Becker, G.S. The Economics of Discrimination. First 
Edition, The University of Chicago Press, 1957.
    \83\ Kate Bahn, Mark Stelzner, and Emilie Openchowski, ``Wage 
discrimination and the exploitation of workers in the U.S. labor 
market,'' Washington Center for Equitable Growth, September 2020, 
available at https://equitablegrowth.org/research-paper/wage-discrimination-and-the-exploitation-of-workers-in-the-u-s-labor-market/?longform=true.
    \84\ Hsieh et al., ``The Allocation of Talent and U.S. Economic 
Growth,'' 2019, available at https://onlinelibrary.wiley.com/doi/epdf/10.3982/ECTA11427.
    \85\ Cook, Lisa D. ``Violence and economic activity: evidence 
from African American patents, 1870-1940.'' Journal of Economic 
Growth 19, no. 2 (2014): 221-257.
    \86\ Laura Alfaro, Ester Faia, and Camelia Minoiu, 
``Distributional Consequences of Monetary Policy Across Races: 
Evidence from the U.S. Credit Register'' April 2022, available at 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4096092; Ken S. 
Cavalluzzo, Linda C. Cavalluzzo, and John D. Wolken, ``Competition, 
Small Business Financing, and Discrimination: Evidence from a New 
Survey,'' The Journal of Business, October 2022, available at 
https://www.jstor.org/stable/pdf/10.1086/341638.pdf?refreqid=excelsior%3Ab05443d9a80629ef03bbe4cb6e7747e4&ab_segments=&origin=&acceptTC=1.
    \87\ Christensen, Peter, and Christopher Timmins. ``Sorting or 
steering: The effects of housing discrimination on neighborhood 
choice.'' Journal of Political Economy 130, no. 8 (2022): 2110-2163.
    \88\ Closing the Racial Wealth Gap: The Economic Costs of Black 
Inequality in the United States. Citi GPS: Global Perspectives and 
Solutions. 2020. Available at https://ir.citi.com/NvIUklHPilz14Hwd3oxqZBLMn1_XPqo5FrxsZD0x6hhil84ZxaxEuJUWmak51UHvYk75VKeHCMI%3D.
---------------------------------------------------------------------------

Undue Prejudice and Economic Inefficiency
    Prejudicial discrimination has been theorized and observed to be an 
artificial barrier to market activities, and as such, it can create a 
market distortion.\89\ A variety of pathways for agricultural market 
distortions due to discrimination are possible. For example, if prices 
paid for otherwise identical cattle differed because of the race, 
ethnicity, or other producer characteristics that do not have any 
bearing on productivity, rather than the on the value of the marginal 
product of the cattle, then the prejudice based on these 
characteristics distorts prices and in turn both output and investment. 
While the specifics of producer returns in contract production are 
different from marketed production, producers receiving a lower 
contract payment rate or other unfavorable contract terms simply 
because of the producers' race or other personal characteristics would 
likewise induce market distortions.
---------------------------------------------------------------------------

    \89\ Stiglitz, J. ``Approaches to the Economics of 
Discrimination'', American Economic Review, vol. 63/2, May 1973: 
287-295.
---------------------------------------------------------------------------

    Prejudicial discrimination can take other forms besides wage, 
contract, or price differentials, such as exclusionary practices in 
product purchases or sales, or higher lending costs. These examples of 
artificial barriers preventing resources from moving to their highest 
and best uses via allocative efficiency, such that marginal benefits 
equal marginal costs, lead to market inefficiency. Lowering the level 
of this market distortion would increase market efficiency, albeit 
noting there is limited information to empirically assess the impacts 
of discrimination on efficiency in agricultural markets.
Undue Prejudice and Potential Market Abuse in Concentrated Livestock 
Markets
    Like in other parts of the economy and in other types of markets, 
those participating in agricultural markets from groups that have and 
continue to suffer racial, ethnic, gender, and religious prejudices may 
be particularly vulnerable to market abuses, especially in concentrated 
markets such as in the livestock sector. This is because they currently 
represent not only a very small share of producers in the industry, 
including those in the livestock sector and among producers who have 
production contracts, but their size, sales, and incomes are lower than 
other producers, leaving them more economically isolated and with fewer 
economic resources to counteract concentrated market forces and actors.
    In the livestock sector, the results of historical prejudice and 
the risk of present-day prejudice are apparent when looking at data 
from the 2017 Census of Agriculture, which show that currently a very 
small fraction of livestock farms with production contracts are 
operated by Black, Asian, American Indian, or Native Hawaiian producers 
(Figure 1). As described earlier in this section, discriminatory acts, 
especially against Black producers, undoubtedly contributed to the 
current low levels of racial and ethnic minority participation in the 
livestock sector, including among producers with production contracts. 
These remaining producers may be particularly vulnerable to market 
abuses in concentrated livestock markets.

[[Page 60021]]

[GRAPHIC] [TIFF OMITTED] TP03OC22.069

    Disparities in farm size and income across racial and ethnic groups 
also exist among livestock and poultry farms with production contracts, 
highlighting additional vulnerability for particular groups in the 
sector. Figure 2 shows the percentage and number of livestock and 
poultry farms with production contracts by the reported race or 
ethnicity of their producers, categorized by level of Gross Cash Farm 
Income (GCFI), which includes commodity cash receipts, farm-related 
income, and Government payments.\90\ USDA's Economic Research Service 
(ERS) classifies small farms as having a GCFI less than $150,000 and up 
to $349,999 per year, mid-sized farms as having GCFI between $350,000 
and $999,999, and large-scale farms as having a GCFI equal to or 
greater than $1,000,000. Farms are also classified as being non-family 
farms, which are farms in which an operator or persons related to the 
operator do not own a majority of the business.\91\ These data indicate 
that contracted livestock and poultry farms with producers who identify 
as Black and Native Hawaiian are more likely to be in the lower income 
GCFI categories than their white counterparts. To a lesser extent, 
farms with producers identifying as Native American also tend to be in 
the lower income GCFI categories than their White counterparts' farms. 
Markets dominated by one or a few large packers or live poultry dealers 
may be less accessible to these smaller farms, which have limited 
financial or other economic resources with which to engage. They may 
also be more vulnerable to discriminatory acts or market abuses such as 
retaliation.
---------------------------------------------------------------------------

    \90\ U.S. Department of Agriculture, Economic Research Service, 
``Most farms are small, but large-scale farms account for almost 
half of production,'' available at: https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=58288 (last 
accessed Aug, 2022).
    \91\ U.S. Department of Agriculture, Economic Research Service, 
``Farm Structure and Contracting,'' available at: https://www.ers.usda.gov/topics/farm-economy/farm-structure-and-organization/farm-structure-and-contracting/ (last accessed Aug. 
2022).

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[[Page 60022]]

[GRAPHIC] [TIFF OMITTED] TP03OC22.070

iii. Specific Proposed Bases
    In determining the proposed bases for protection under this 
section, AMS looked to several sources, including the Statement of 
General Policy Under the Packers and Stockyards Act published by the 
Secretary of Agriculture in 1968 (Statement of General Policy) (9 CFR 
203.12(f)), the regulations governing USDA-conducted programs, and a 
series of statutes identifying producers that Congress has determined 
face special disadvantages, are underserved, or are otherwise more 
vulnerable to prejudices.
    The Statement of General Policy reflects the current USDA policy on 
the enforcement of the P&S Act. The Statement of General Policy 
provides in part that it's a violation of sections 304, 307, and 312(a) 
of the Packers and Stockyards Act for a stockyard owner or market 
agency to discriminate, in the furnishing of stockyard services or 
facilities or in establishing rules or regulations at the stockyard, 
because of race, religion, color, or national origin of those persons 
using the stockyard services or facilities. Such services and 
facilities include, but are not limited to, the restaurant, restrooms, 
drinking fountains, lounge accommodations, those furnished for the 
selling, weighing, or other handling of the livestock, and facilities 
for observing such services.
    While this part of the Statement of General Policy applies to 
violations of secs. 304, 307, and 312(a) of the Act--related to the 
provision of services and facilities at stockyards on an unreasonable 
and discriminatory basis, almost identical prohibitive language is used 
in sec. 202 of the Act. Section 202 pertains to packers, swine 
contractors, and live poultry dealers. Section 202(a) of the Act 
prohibits any unjustly discriminatory practice or device with respect 
to livestock, meats, meat food products or livestock products in 
manufactured form, or live poultry.
    AMS also considered USDA's general regulatory prohibition against 
discrimination in USDA programs, which governs how USDA provides 
services to producers and growers. Most recently updated in 2014, it 
offers a more current interpretation of anti-discrimination standards. 
The relevant provision provides that no agency, officer, or employee of 
the USDA shall, on the grounds of race, color, national origin, 
religion, sex, sexual orientation, disability, age, marital status, 
family/parental status, income derived from a public assistance 
program, political beliefs, or gender identity, exclude from 
participation in, deny the benefits of, or subject to discrimination 
any person in the United States under any program or activity conducted 
by the USDA.\92\
---------------------------------------------------------------------------

    \92\ 7 CFR 15d.3; U.S. Department of Agriculture, 
``Nondiscrimination in Programs or Activities Conducted by the 
United States Department of Agriculture,'' 79 FR 41406, July 16, 
2014, available at https://www.federalregister.gov/documents/2014/07/16/2014-16325/nondiscrimination-in-programs-or-activities-conducted-by-the-united-states-department-of-agriculture (last 
accessed 8/9/2022).
---------------------------------------------------------------------------

    In that rulemaking, USDA identified areas where discrimination 
against a producer is an unacceptable denial of access to USDA's 
services.

[[Page 60023]]

    AMS also looked to the legislative mandates that emerged over the 
last thirty years, directing USDA to make extra efforts to overcome the 
barriers that prevent members of those groups from accessing USDA's 
services and agricultural markets generally.\93\ Congress adopted 
numerous statutes seeking to remedy market access barriers on the basis 
of prejudices across a wide range of areas, including: 7 U.S.C. 8711 
(base acres); 7 U.S.C. 2003 (target participation rates); 7 U.S.C. 7333 
(Administration and operation of noninsured crop assistance program); 7 
U.S.C. 1932 (Assistance for rural entities); 16 U.S.C. 2202a, 3801, 
3835, 3839aa-2, 3841, and 3844 (conservation); 7 U.S.C. 8111 (Biomass 
Crop Assistance Program); 7 U.S.C. 1508 (Federal crop insurance, 
covering underserved producers defined as new, beginning, and socially 
disadvantaged farmers or ranchers and including members of an Indian 
tribe); and 16 U.S.C. 3871e(d) (conservation, covering historically 
underserved producers defined as beginning, veteran, socially 
disadvantaged, and limited-resource farmers and ranchers). In 25 U.S.C. 
4301(a) and elsewhere, Congress has clearly expressed its intent for 
the United States government to encourage and foster tribal commerce 
and economic development.\94\
---------------------------------------------------------------------------

    \93\ For background, see Congressional Research Service, 
Defining a Socially Disadvantaged Farmer or Rancher (SDFR): In Brief 
(March 19, 2021), available at https://crsreports.congress.gov/product/pdf/R/R46727/6.
    \94\ See, e.g., Native American Business Development Act, 25 
U.S.C. 4301(a).
---------------------------------------------------------------------------

    The definitions and coverage in these statutes varies to some 
extent. Some focus principally on members of groups that have 
experienced racial or ethnic prejudices, while others include gender 
prejudices. Additionally, some provide further assistance to new and 
beginning farmers and military service veterans who are farmers. In 
sum, these statutes reflect the now multi-decade priority of U.S. 
agricultural policy to overcome barriers that stand in the way of full 
market access for all producers and growers, with significant emphasis 
placed on overcoming certain persistent forms of racial, ethnic, and 
gender prejudices that obstruct full market access for some producers.
    In interpreting the P&S Act, AMS has sought to propose a rule that 
would remove barriers to market access for producers and growers most 
vulnerable to being denied access. For the purposes of this proposed 
rule, AMS is proposing a prohibition on undue prejudice on the basis of 
a covered producer's membership in a vulnerable group. We seek comment 
on whether to adopt one of several options for the term ``market 
vulnerable individual,'' and if so, which one we should adopt. We are 
also seeking comment on whether to specifically delineate certain 
protected classes.
    Because of the Act's broad application discussed in an earlier 
section, ``II.B.i., Authority provided by the Act,'' the similar 
language used in secs. 202, 304, 305, and 312 of the Act, and the 
series of statutes outlining a range of prejudices identified as being 
deserving of public policy efforts to ensure full market access, AMS 
finds it reasonable that members of groups who have been subjected to 
discrimination, prejudice, disadvantage, or exclusion on the basis of 
race, ethnicity, or gender should be considered vulnerable and covered 
by the prohibitions against undue prejudice or disadvantage and unjust 
discrimination as enumerated by sec. 202 of the Act.
    AMS is proposing, and seeking comment on, whether a flexible 
definition of vulnerable group would be advantageous to ensuring 
inclusive market access for covered producers by permitting an evolving 
as well as market-specific application of the regulation. Such an 
approach could address barriers to inclusion as they may arise. At the 
same time, AMS is seeking comment on how to ensure that most persons 
that would be protected under the Statement of General Policy and under 
USDA's general regulations prohibiting discrimination, as noted above, 
could be protected under this regulation.\95\ In particular, as noted 
above AMS seeks comment on whether to delineate certain specific groups 
as examples of market vulnerable groups, and also seeks comment on 
whether it is preferable instead to prohibit discrimination based on 
protected classes, such as on the basis of race, color, national 
origin, religion, sex, sexual orientation, gender identity, age, 
disability, marital status, and family status. AMS seeks additional 
comment on the appropriate approach to protect market access for and 
stop unjust discrimination against Indian tribes and tribal members.
---------------------------------------------------------------------------

    \95\ See, e.g., Pregnancy Discrimination Act, see also Bostock 
v. Clayton Cnty., Georgia, 140 S. Ct. at 1741.
---------------------------------------------------------------------------

    Refusing to deal, providing less compensation, or any other type of 
discrimination because of a person's particular non-economic 
characteristics is the type of behavior both the Act and USDA aim to 
prevent.

C. Cooperatives--Proposed Sec.  201.304(a)(1)

    Proposed Sec.  201.304(a)(1) also specifies that regulated 
entities, which include packers, swine contractors, or live poultry 
dealers, may not discriminate against a cooperative of covered 
producers--i.e., covered producers who collectively work together. For 
example, individual covered producers may form a cooperative to meet 
volume or other contractual requirements when they may not be able to 
meet those requirements by themselves. A covered producer is defined in 
the proposed regulations at Sec.  201.302 as a livestock producer as 
defined in this section or swine production contract grower or poultry 
grower as defined in section 2(a) of the Act. Covered producers acting 
as a cooperative are an association or group made up of one or more 
producers collectively processing, preparing for market, handling, and 
marketing livestock or poultry. The P&S Act includes cooperative 
associations in the definition of ``person'' at 7 U.S.C. 182(1), 
providing that when used in the Act ``[t]he term ``person'' includes 
individuals, partnerships, corporations, and associations. . .''
    Covered producer cooperatives improve economic conditions for 
individual producers. They have been demonstrated to be competitive and 
responsive to meeting the needs of regulated entities and the 
market.\96\ For example, smaller livestock producers may move towards 
cooperative agreements on a regional basis to meet buyers' volume 
requirements.
---------------------------------------------------------------------------

    \96\ At least some of the drafters of the Act fully expected the 
Act to be consonant to the goals of cooperatives: ``My own 
conviction is that the cooperative effort of producers and consumers 
to get closer together in an effort to reduce the spread between 
them is the most favorable tendency of our time, so far as the 
question of marketing and distribution is concerned.'' 61 Cong. Rec. 
1882 (1921).
---------------------------------------------------------------------------

    Producers have indicated to AMS that they feel such a move is 
necessary, owing to the rise of concentration in the markets and the 
decline in options for smaller producers. Small cattle producers have 
expressed their concerns to AMS about disparate treatment by packers 
between large and small producers. Large packers have commonly shown 
limited interest in dealing with producers that operate on a smaller 
capacity. On this point, producers have informed AMS that packers are 
in search of deals with large quantities of product, and if a producer 
is unable to meet demand for readily available bulk quantities, that 
producer is unable to compete in the industry.

[[Page 60024]]

    Producers testified in 2010 about packer buyers pulling out of 
their small-scale feedlots for months in retaliation for producers 
seeking higher prices and not allotting their entire herd capacity. 
Packer buyers often prefer to include large quantities on single 
transactions to lower transactions costs and maximize profits.\97\ 
Adding protections for smaller producers that wish to work together to 
form cooperatives would enable smaller producers to (1) form 
cooperatives without fear of prejudice or disadvantage, and (2) reduce 
transactions costs for individual member producers.
---------------------------------------------------------------------------

    \97\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops, Exploring Competition Issues in 
Agriculture Livestock Workshop: A Dialogue on Competition Issues 
Facing Farmers in Today's Agricultural Marketplaces, Fort Collins, 
Colorado, August 27, 2010. Available at https://www.justice.gov/sites/default/files/atr/legacy/2012/08/20/colorado-agworkshop-transcript.pdf.
---------------------------------------------------------------------------

    This proposed regulation is intended, in part, to benefit smaller 
producers--who lack the necessary land, capital, or financing (or for 
other reasons may not wish) to establish a large enough operation to 
meet preferred contractual requirements--by preventing discrimination 
against their cooperative operations. Through cooperation, one or more 
producers may be able to jointly meet the requirements and participate 
as a producer in the industry, allowing producers to operate more 
efficiently. Preventing discrimination against producer cooperatives 
will provide another avenue for producers who otherwise might not have 
been able to participate in the market.
    While this section proposes that regulated entities may not 
prejudice or disadvantage cooperatives of covered producers, based on 
their protected status as a cooperative under this regulation, AMS 
notes that regulated entities may decline contracting with cooperatives 
for other justified economic reasons--i.e., for reasons other than the 
prospective business partner's status as a cooperative. For example, a 
regulated entity may refuse to contract with a cooperative of covered 
producers when the contract would not be cost-effective for the entity, 
regardless of the cooperative status of the producers. In this 
hypothetical example, the regulated entity would not be unduly 
prejudicing cooperatives of covered producers based on their status as 
a cooperative. Instead, the regulated entity would have a 
nonprejudicial basis for their business decision. AMS notes that 
antitrust laws also prohibit cooperatives themselves from participating 
in certain anticompetitive behavior. As discussed earlier, undue 
prejudice and disadvantage may inhibit producers' ability to obtain 
fair market value for their livestock and poultry and would be 
prohibited under proposed Sec.  201.304(a)(1). Proposed Sec.  
201.304(a)(1) aims to encourage a diverse agricultural market and 
prevent undue prejudice and disadvantage and unjust discrimination 
against cooperatives.
    Congress has long protected cooperatives in the agricultural space, 
acknowledging the need for farmers to meet the economic demands of the 
market. One year after the passage of the P&S Act, Congress passed the 
Capper-Volstead Act (Pub. L. 67-146), which permits producer 
cooperatives to collectively process, prepare for market, handle, and 
market their products. In a decision related to an antitrust action 
against a nonprofit cooperative association whose members were involved 
in production and marketing of broiler chickens, the Supreme Court 
noted that farmers faced special challenges in the agricultural market 
and therefore cooperatives are afforded legal protections in helping 
them address those challenges.\98\ Congress also passed the 
Agricultural Fair Practices Act,\99\ which provides enhanced 
protections to those seeking to form a cooperative. In particular, that 
statute prevents handlers from performing certain types of pricing and 
contract discrimination, coercion, and other practices that undermine 
cooperatives.
---------------------------------------------------------------------------

    \98\ Nat'l Broiler Mktg. Ass'n v. United States, 436 U.S. 816, 
825-26, 98 S. Ct. 2122, 2129, 56 L. Ed. 2d 728 (1978) (``Farmers 
were perceived to be in a particularly harsh economic position. They 
were subject to the vagaries of market conditions that plague 
agriculture generally, and they had no means individually of 
responding to those conditions. Often the farmer had little choice 
about who his buyer would be and when he would sell. A large portion 
of an entire year's labor devoted to the production of a crop could 
be lost if the farmer were forced to bring his harvest to market at 
an unfavorable time. Few farmers, however, so long as they could act 
only individually, had sufficient economic power to wait out an 
unfavorable situation. Farmers were seen as being caught in the 
hands of processors and distributors who, because of their position 
in the market and their relative economic strength, were able to 
take from the farmer a good share of whatever profits might be 
available from agricultural production. By allowing farmers to join 
together in cooperatives, Congress hoped to bolster their market 
strength and to improve their ability to weather adverse economic 
periods and to deal with processors and distributors.'').
    \99\ Public Law 90-288, Apr. 16, 1968, 82 Stat. 93 (7 U.S.C. 
2301 et seq.).
---------------------------------------------------------------------------

    This proposed rule would provide additional protection for 
cooperatives by preventing a regulated entity from isolating 
cooperatives through contract termination and preventing cooperatives 
from accessing markets for their products. As noted above, the P&S Act 
intended to improve the agricultural market and includes associations 
in the definition of ``person'' when referred to in the Act. The Act 
affords cooperative associations the same protections against 
discrimination as are afforded to all other covered producers. 7 U.S.C. 
182(1). Thus, protections for cooperatives against discrimination were 
contemplated at the time of the Act's passage.\100\
---------------------------------------------------------------------------

    \100\ H.Rep. No. 85-1048, 1957.
---------------------------------------------------------------------------

D. Enumerated Prejudices

    Proposed Sec.  201.302(a)(2) outlines an inexhaustive list of 
prejudices that, if based upon the covered producer's status, the 
regulation prohibits. The harm that may be done through discriminatory 
actions cannot be neatly cataloged, but the proposed Sec.  
201.302(a)(2) sets forth injuries that the agency believes are 
inherently prejudicial: offering less favorable terms, refusing to 
deal, differential contract enforcement, and contract termination or 
non-renewal. Under proposed Sec.  201.302(b), prejudicial actions are 
to be considered together with the covered producer's membership in a 
market vulnerable group or cooperative, and they would not by 
themselves be violations. AMS seeks comment on the scope of these acts.

E. Retaliation

i. Retaliation as Discrimination Under the Act
    Proposed Sec.  201.304(b) would establish protected activities for 
covered producers and would prohibit regulated entities from 
retaliatory conduct on the basis of those activities. Regulated 
entities wield significant economic power given their vertical 
relationships with producers. Regulated entities choosing to 
discriminate among producers using their market power advantages for 
the purpose of preventing certain producers, or groups of producers, 
from engaging in the behaviors and activities discussed below, is 
disparate treatment that is unjustly discriminatory. This type of 
discrimination is oftentimes exercised through retaliation. The method 
of retaliation may take many forms. Accordingly, the proposed rule is 
designed to prohibit a variety of adverse actions. However, the 
proposed regulations are also narrowly tailored, requiring the adverse 
action to be linked to specific protected activities. Adverse actions 
not tied to the activities

[[Page 60025]]

proposed would not be regulated under this proposal.
ii. Economic Rationale
    While the statute does not require market-wide harm as a condition 
to forbid retaliation, which is an abuse that undermines market 
integrity, this section explains the adverse economic effects of 
retaliation, which include harm across the marketplace. Indeed, 
oligopsonistic or monopsonistic market structures can allow firms with 
large market shares to use their market power advantage to punish 
certain producer behaviors that the firm believes could offset their 
market power advantage or even to punish producer behaviors that are 
unrelated to the product or service they provide. When firms retaliate 
by canceling contracts, selectively enforcing contract terms, renewing 
contracts with unfavorable terms for the producer, or otherwise 
impairing producers' ability to remain economically competitive as a 
penalty for their engagement in the activities identified in the next 
section, that conduct likely results in economic inefficiencies and 
should be prohibited on a market wide basis, even if the specific 
retaliatory act only affects one individual. Such impacts are 
especially difficult to address when those firms maintain dominant 
positions in the markets.
    Retaliation against even one seller could presumably have a market-
wide chilling effect on others (at least within the area where the 
retaliating entity is dominant). However, the ability to use such a 
tool does require the right conditions, such as those that exist in 
concentrated livestock markets where, in many cases, few or one firm 
hold a dominate position. It is unlikely that packers or poultry 
dealers operating in highly competitive markets (in which they are not 
in a dominant economic position) could effectively use retaliation, 
since livestock producers could simply find other buyers with whom to 
do business.
    Economic measures of firm concentration may help to identify when 
retaliation may be more easily employed in a market, albeit noting that 
an empirical relationship between retaliation and concentration 
measures in livestock markets has not been established.
    The following table shows the level of concentration in the 
livestock and poultry slaughtering industries for 2010-2020 using four-
firm Concentration Ratios (CR4).

                 Table 2--Four-Firm Concentration Ratio in Livestock and Poultry Slaughter \101\
----------------------------------------------------------------------------------------------------------------
                                                     Steers &
                      Year                         heifers  (%)      Hogs  (%)     Broilers  (%)   Turkeys  (%)
----------------------------------------------------------------------------------------------------------------
2010............................................              85              65              51              56
2011............................................              85              64              52              55
2012............................................              85              64              51              53
2013............................................              85              64              54              53
2014............................................              83              62              51              58
2015............................................              85              66              51              57
2016............................................              84              66              50              57
2017............................................              83              66              51              53
2018............................................              84              70              54              55
2019............................................              85              67              53              55
2020............................................              81              64              53              55
----------------------------------------------------------------------------------------------------------------

    The table shows the combined market share of the four largest steer 
and heifer slaughterers remained stable between 83 and 85 percent from 
2010 to 2019 and dropped to 81 percent in 2020. Four-firm concentration 
ratios for hog and broiler slaughter has also remained relatively 
stable between 62 and 70 percent and 51 and 54 percent, respectively. 
The data above are estimates of national four-firm concentration ratios 
at the national level, but the relevant economic markets for livestock 
and poultry may be regional or local, and concentration in the relevant 
market may be higher than the national level.
---------------------------------------------------------------------------

    \101\ U.S. Department of Agriculture, AMS Packers and Stockyards 
annual reports. Available at https://www.ams.usda.gov/reports/psd-annual-reports (last accessed 8/9/2022).
---------------------------------------------------------------------------

    As discussed previously, regional concentration is often higher 
than national concentration for hogs.\102\ Based on AMS's experience 
conducting investigations and monitoring cattle markets, there are 
commonly only one or two buyers in some local geographic markets, and 
few sellers have the option of selling fed cattle to more than three or 
four packers.
---------------------------------------------------------------------------

    \102\ Wise, T. A., S. E. Trist. ``Buyer Power in U.S. Hog 
Markets: A Critical Review of the Literature,'' Tufts University, 
Global Development and Environment Institute (GDAE) Working Paper 
No. 10-04, August 2010, available at: https://sites.tufts.edu/gdae/files/2020/03/10-04HogBuyerPower.pdf.TAbl (last accessed 8/9/2022).
---------------------------------------------------------------------------

    Though poultry markets may appear to be the least concentrated in 
terms of their national four-firm concentration ratios, relevant 
economic markets for poultry growing services are more localized than 
markets for fed cattle or hogs, and local concentration in poultry 
markets is often greater than in hog and other livestock markets. The 
following table highlights this issue by showing the limited ability a 
poultry grower has to switch to a different integrator using the 
Herfindahl-Hirschman Index (HHI).\103\ Similar to a CR4, HHI is an 
indicator of market concentration, with the index being increasing as 
market shares across firms (packers) become more unequal and/or the 
number of these firms decrease. Markets with HHIs above 2,500 are in 
some cases considered highly concentrated. The following table is a 
modification of a table in MacDonald (2104), adding HHI indices to the 
latter's calculations of the integrators in the broiler grower's 
geographic region. The HHIs in the table assume equal market share for 
each integrator, and as such are the minimum HHIs possible (at least 
with 2 to 4 growers). They show that 88.4% (72.2%) of growers are 
facing an integrator HHI of at least 2,500 (3,333). The data suggests 
that the majority of contract broiler growers in the U.S. are in 
markets where the sellers have the potential for market power 
advantage.
---------------------------------------------------------------------------

    \103\ MacDonald, James M., and Nigel Key. ``Market power in 
poultry production contracting? Evidence from a farm survey.'' 
Journal of Agricultural and Applied Economics 44, no. 4 (2012): 477-
490.

[[Page 60026]]



                                 Table 3--Integrators in the Broiler Growers' Region and Associated Market Power Indices
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Minimum HHI of
                    Integrators in grower's area                     integrators in       Farms           Birds        Production       Can change to
                                                                      grower's area                                                   another integrator
--------------------------------------------------------------------------------------------------------------------------------------------------------
                               Number                                                               Percent of total                    Percent of farms
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................................................          10,000            21.7            23.4            24.5                    7
2..................................................................           5,000            30.2            31.9            31.7                   52
3..................................................................           3,333            20.4            20.4            19.7                   62
4..................................................................           2,500            16.1            14.9            14.8                   71
>4.................................................................  ..............             7.8             6.7             6.6                   77
No Response........................................................  ..............             3.8             2.7             2.7                   NA
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Retaliation by oligopolistic or monopolistic firms can be 
effectuated in the pursuit of economic self-interest or be done against 
such interest for some nonpecuniary reason.\104\ In the case of 
economic self-interest, oligopsonistic or monopsonistic integrators or 
packers may use retaliation to facilitate their ability to earn excess 
rents. However, this use of retaliation, as a means to protect excess 
profits, is only possible when markets for livestock are characterized 
by few integrators or packers. Where producers have few, if any, 
alternative packers, or integrators to engage with, the act of not 
renewing a contract, as retaliation for unfavorable behavior or 
actions, can cause economic inefficiencies.
---------------------------------------------------------------------------

    \104\ Fehr, Ernst, and Simon G[auml]chter. ``Fairness and 
retaliation: The economics of reciprocity.'' Journal of economic 
perspectives 14, no. 3 (2000): 159-181.
---------------------------------------------------------------------------

    Retaliation may also be used by integrators and packers to ensure 
that regulators or new entrants cannot discipline their behavior in the 
marketplace. Both regulators and new entrants may be inhibited by the 
inability to communicate with market participants. Regulators may be 
unable to obtain the information needed to learn of or establish 
violations, while prospective new entrants may be unable to establish 
necessary market relationships with industry participants.
    Many producers have expressed concerns about retaliatory behavior 
from regulated entities with respect to activities inextricably 
relevant to the livestock and poultry markets. Examples include 
contract poultry and hog producers afraid to talk with USDA 
representatives, file comments with USDA (or not file comments that 
adopt their integrator's view), seek enforcement of contracts, organize 
associations, or even attend association meetings, opt out of 
arbitration, complain about feed outages and company personnel 
behavior, and question the need for farm upgrades.\105\ In cattle and 
independent hog production, private complaints to AMS include fear that 
packers will refuse to visit farms or feedlots, offer bids on 
livestock, purchase livestock from disfavored producers, and other more 
subtle behaviors, like delaying delivery or shipment and manipulating 
where producers fall in order of procurement.
---------------------------------------------------------------------------

    \105\ U.S. Department of Justice & U.S. Department of 
Agriculture, Public Workshops Exploring Competition in Agriculture, 
Poultry Workshop, May 21, 2010, Alabama A&M University Normal, 
Alabama. Available at Poultry Workshop Transcript (justice.gov).
---------------------------------------------------------------------------

    In addition, it is also possible that discriminatory or retaliatory 
acts by packers or integrators intended to prevent the transfer of 
rents also negatively affect efficiency by reducing the incentives for 
investment, beneficial coordination of actions, or adoption of 
innovative production process. In one case, a court found that an 
integrator retaliated against a grower who was a leader of a growers' 
association,\106\ suggesting both that producer coordination may reduce 
the packers'/integrators' oligopsony excess profit and that growers' 
ability to compete in these markets may be harmed by retaliation. In 
another court case, James v. Tyson Foods, Inc., fifty-four poultry 
growers sued the integrator for retaliatory actions and were awarded 
$10 million in damages as a result.\107\
---------------------------------------------------------------------------

    \106\ Terry v. Tyson Farms, Inc., 604 F.3d 272 (6th Cir. 2010).
    \107\ James v. Tyson Foods, Inc., 292 P.3d 10 (Okla., 2012).
---------------------------------------------------------------------------

F. Prohibition on Retaliation--Proposed Sec.  201.304(b)

    To address the dangers of the retaliatory practices described 
above, AMS is proposing to add Sec.  201.304(b) to the regulations. 
Proposed Sec.  201.304(b)(1) would prohibit and provide examples of 
retaliatory practices by regulated entities against covered producers 
who engage in protected activities. Proposed Sec.  201.304(b)(2)(i) 
through (vi) lists these protected activities.
    Under Sec.  201.304(b)(1), regulated entities would be prohibited 
from retaliating or otherwise taking an adverse action against a 
covered producer because the covered producer participated in the 
activities described in Sec.  201.304(b), to the extent that these 
activities are not otherwise prohibited by Federal or state antitrust 
laws. While a group of producers might be protected from retaliation 
when associating in the production or marketing of livestock, producers 
would not be protected from the adverse action of packers if the 
producers engaged in a violation of Federal or state antitrust law. AMS 
expects that prohibited retaliation would include, but not be limited 
to termination of contracts, non-renewal of contracts, refusing to deal 
with a covered producer, and interference in farm real estate 
transactions or contracts with third parties. The proposed rule is 
designed to prohibit all such actions with an adverse impact on a 
covered producer.
    AMS has chosen these specific examples of retaliation because they 
represent the retaliatory practices that have been the most common 
causes for complaints or because AMS has otherwise determined them to 
be recurring problems in the livestock and poultry industries. Covered 
producers have experienced termination or non-renewal of their 
contracts for numerous reasons. Covered producers who have not 
personally experienced these forms of retaliation have nevertheless 
expressed fear of such retaliation through direct communication with 
AMS personnel, at workshops, and in comments on previous related 
rulemakings. Related to termination and non-renewal of contracts is a 
regulated entity's refusal to deal. This proposed rule extends 
protections against retaliation to covered producers who are refused a 
new contract due to their involvement in protected activities. A 
regulated entity would also be prohibited from interfering in a covered 
producer's farm real estate transactions

[[Page 60027]]

or contracts with third parties. Impeding or obstructing a covered 
producer's attempts to sell his or her farm or ability to contract with 
a third party as a result of his or her participation in certain 
activities hinders a covered producer's ability to freely participate 
in the market. AMS believes that punishing covered producers or denying 
them opportunities afforded to other covered producers because they 
engaged in certain activities is an unjustly discriminatory practice. 
Not only do retaliatory practices harm individual covered producers; 
recurrent instances and patterns of retaliation erode market integrity 
and discourage fairness and competition in the livestock and poultry 
markets.
    The specific examples of retaliatory practices listed in the 
proposed regulation are not meant to be exhaustive; other retaliatory 
actions with an adverse impact on covered producers would be prohibited 
as well. When investigating complaints of retaliatory practices that do 
not conform to one of these examples, AMS would, as it has in the past, 
continue to use its expertise to determine whether a regulated entity's 
action has an adverse impact on the covered producer.

G. Bases for Protected Activities--Proposed Sec.  201.304(b)

    AMS has identified three categories of producer activities that we 
propose to be protected due to concerns about retaliatory behavior from 
packers, live poultry dealers, and swine contractors. Starting with the 
recognition that these activities are related to the business of being 
a producer or grower or involvement in that sectoral or geographic 
community, the criteria used to establish the three categories--
consistent with the Act's purpose to safeguard farmers and ranchers 
against receiving less than the true market value of their livestock 
\108\--include the extent to which the activities are supported under 
existing legal doctrine and the activities' potential to mitigate 
market power abuses or enhance economic efficiency. The following 
sections discuss three categories of protected activities: (i) 
assertion of rights, (ii) associational participation, and (iii) lawful 
communication, in the context of the criteria.
---------------------------------------------------------------------------

    \108\ Stafford v. Wallace, 258 U.S. 495 (1922).
---------------------------------------------------------------------------

i. Assertion of Rights
    The basis of rights in this context is two-fold, including both 
legal rights derived under various statutes and contractual rights 
contained in agreements with regulated entities. Assertions of rights 
may be necessary to ensure that covered producers are receiving 
appropriate treatment in their dealings with regulated entities. 
Disputes relating to contract terms and legal compliance could be over 
differences between the buyer and seller over what constitutes mutually 
agreeable returns or could even be over issues extraneous to the actual 
product or service provided by the covered producer. Access to existing 
legal remedies under state and Federal law may be necessary for covered 
producers to effectuate their bargained-for exchange in contracting and 
to address their inability to make complete contracts and associated 
hold-up risk, which leads to under investment and less efficient market 
allocations. Hold-up is the risk growers face at the time of contract 
renewal when integrators make contract renewal dependent on further 
grower investments not disclosed at the time of the original 
agreements.\109\
---------------------------------------------------------------------------

    \109\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony 
Power, Asset Specificity, and Hold-Up: Evidence from the Broiler 
Industry.'' American Journal of Agricultural Economics 88 (2006).
---------------------------------------------------------------------------

    Some regulated entities may prefer to limit, minimize, or otherwise 
eliminate producer assertions or legal and contractual rights, as they 
are likely associated with additional economic costs. For example, a 
poultry grower may seek to enforce a production contract term providing 
the grower with the right to five flocks annually, when the grower only 
received four flocks. If a regulated entity sought to punish a grower 
seeking enforcement of this term, the grower's risk of contract 
termination would likely outweigh the benefit to them of contract 
enforcement, and thereby undermine their contract, from the grower's 
perspective. On the other hand, the regulated entity's cost of 
breaching or terminating the agreement may be lower than their cost of 
performance under the contract. Systemic conduct of this type would be 
an abuse of market power and result in reduced allocative efficiency. 
Attempts to limit, deter, or curtail producers' assertions of rights 
mitigates or removes a primary producer tool for proper enforcement of 
their rights.
ii. Associational Participation
    While individual producers and growers operate at a tremendous 
informational deficit compared to the larger sophisticated packer 
operations, producer and grower organizations and associations can 
mitigate incomplete and asymmetric information frictions in the market. 
Producer and grower organizations may provide individual covered 
producers the opportunity to counter other market power imbalances that 
exist in the livestock and poultry industries. Associational 
participation is connected to the provision of the product or service 
of growing poultry or raising livestock and can serve to improve 
producer productivity. Agriculture associations and organizations have 
historically been favored under Federal \110\ and state laws and 
exempted from certain types of Federal antitrust violations under the 
Capper-Volstead Act.\111\ By narrowing the asymmetrical information gap 
and creating other benefits, associations can enhance production and 
allocative efficiencies.
---------------------------------------------------------------------------

    \110\ See 7 U.S.C. 2301; 7 U.S.C. 291. The Agriculture Fair 
Practices Act prevents agricultural handlers from discrimination and 
coercion against individuals who belong to cooperatives. Among other 
things, this statute prohibits handlers from undermining a 
cooperative's ordinary operations by either bribing members of the 
cooperative or making false reports about the cooperative's 
operations.
    \111\ For example, under Missouri's Nonprofit Cooperative 
Marketing Law, RSMo 1939 section 14362, a nonprofit cooperative is 
exempt from a number of taxes (including sales tax), and only pay an 
annual fee of ten dollars.
---------------------------------------------------------------------------

    Growers have expressed concern that associations and organizations 
have repeatedly been targets of retaliatory behavior, and in some 
instances, USDA and DOJ have intervened under the P&S Act. In the 
1960s, poultry growers in Arkansas and Mississippi joined organizations 
to try to advance their interests and protections in their contracts 
with poultry companies. The poultry companies with which they had 
contracts engaged in harassment, threats, intimidation, and retaliation 
against the associations and the growers that joined them. A USDA 
Administrative Law Judge held that the poultry companies' conduct was a 
violation of the P&S Act and ordered the companies to cease and desist 
from their unlawful actions and reinstate the growers who were 
retaliated against.\112\
---------------------------------------------------------------------------

    \112\ See In re: Arkansas Valley Industries, Inc., Ralston 
Purina Company, and Tyson's Foods, Inc., 27 Ag. Dec. 84 (January 23, 
1968), and In Re: Curtis Davis, Leon Davis, and Moody Davis d/b/a 
Pelahatchie Poultry Company, 28 Ag. Dec. 406 (April 3, 1969).
---------------------------------------------------------------------------

    In 1989, a company operating a poultry slaughtering complex in 
northern Florida, terminated its contract with a poultry grower who was 
the president of a poultry growers' association. The U.S. District 
Court issued an injunction against the company, finding that it acted 
to hamper legal action by the growers' association and to discourage 
other growers from presenting grievances to

[[Page 60028]]

governmental authorities. USDA and DOJ filed a lawsuit,along with 
poultry growers, to enjoin the company's actions as constituting an 
unfair, unjustly discriminatory, and deceptive practice and device, and 
an undue and unreasonable prejudice and disadvantage, in violation of 
the P&S Act.\113\ The Court agreed and also determined that the 
company's actions would constitute obstruction of justice, extortion, 
mail fraud, and wire fraud in furtherance of a pattern of racketeering 
activity.
---------------------------------------------------------------------------

    \113\ Baldree v. Cargill, Inc. and United States v. Cargill, 
Inc., et al., 758 F.Supp.704 (M.D.Fla. 1990)
---------------------------------------------------------------------------

    In these cases, courts determined that attempts to limit, deter, or 
curtail associational participation limits lawful information exchanges 
and prevents or dilutes the potential for covered producers to engage 
in pro-competitive collaboration. This proposed regulation seeks to 
codify this line of analysis, which has arisen under direct enforcement 
of the statutory terms, and in the face of more recent court decisions 
involving private litigation, to provide clarity to market participants 
regarding USDA enforcement priorities going forward.\114\
---------------------------------------------------------------------------

    \114\ See, e.g., Terry v. Tyson Farms Inc. 604 F.3d 272, 275 
(6th Cir. 2009). On these line of cases, see also Michael Kades, 
``Protecting Livestock Producers and Chicken Growers,'' Washington 
Center for Equitable Growth (May 5, 2022), available at https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
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iii. Lawful Communications
    Under this proposed rule, covered producer communications would 
include any lawful communications with government agencies or other 
persons for the purpose of improving the production or marketing of 
livestock or poultry, exploring a possible business relationship, or 
supporting proceedings under the Act against a regulated entity. 
Broadly, these types of communication improve transparency, facilitate 
compliance with and enforcement of relevant laws and regulations, and 
can serve to mitigate market power abuse and enhance production and 
allocative efficiencies, as well as protect market integrity.
Communications With Government Agencies and Communications Related to 
Proceedings Under the Act
    Related to ``assertions of rights,'' covered producers seeking the 
enforcement of a regulatory scheme designed to benefit them will likely 
need to communicate with government representatives. This communication 
is only incidental to the product or service provided to the regulated 
entity, and communication with government representatives serves 
numerous public policy interests. Abuses of market power to restrict 
communication related to government compliance programs would 
systematically result in deprivation of legal rights, losses in income 
or welfare for producers, and costs to markets and society.\115\ 
Covered producers have expressed concerns regarding their 
communications with government agencies and support for government 
actions. For example: a cattle producer believes he has been the victim 
of weight fraud by a regulated entity, but as a producer with limited 
alternative outlets for sale of his cattle, the producer may be 
hesitant to report the fraud to USDA or other authorities for fear the 
regulated entity will refuse to engage in future business.
---------------------------------------------------------------------------

    \115\ Heese, Jonas, and Gerardo P[eacute]rez-Cavazos. ``The 
effect of retaliation costs on employee whistleblowing.'' Journal of 
Accounting and Economics 71, no. 2-3 (2021): 101385. European 
Commission, Directorate-General for Internal Market, Industry, 
Entrepreneurship and SMEs, Rossi, L., McGuinn, J., Fernandes, M., 
Estimating the economic benefits of whistleblower protection in 
public procurement: final report, Publications Office, 2017, https://data.europa.eu/doi/10.2873/125033 (last accessed Aug. 2022).
---------------------------------------------------------------------------

Communications for the Purpose of Improving Production/Marketing or 
Exploring a Business Relationship
    As with communications related to enforcement, communications for 
the purpose of improving production or marketing or exploring business 
relationships aid covered producers in obtaining fair market value for 
their livestock and poultry. Protecting such communications would 
protect the producer's ability to obtain help from experts and 
professionals unaffiliated with the regulated entity. In addition, 
covered producers would be able to explore business opportunities 
without fear of reprisal from firms with which they currently do 
business. Communications of this type can improve production efficiency 
and price discovery mechanisms.
    Retaliatory actions can also result from a blend of protected 
activities. In Philson v. Cold Creek Farms, Inc., turkey growers 
alleged in part that the poultry company provided them with lower 
quality poults than it provided to other growers, and that the 
company's motivation for doing that was to punish and discourage 
growers from voicing their complaints (lawful communication) about the 
company's practices. Some of the turkey growers also alleged that their 
poultry contracts were terminated in retaliation for their objections 
to the poultry company's weighing and computing practices (assertion of 
rights). The Court noted that ``[s]uch a retaliatory act is properly 
challenged under the PSA as it adversely affects competition and could 
be considered unfair, unjustly discriminatory or deceptive.'' \116\ 
Here, we see retaliation related to two categories of protected 
activities.
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    \116\ Philson v. Cold Creek Farms, Inc., 947 F. Supp. 197 at 202 
(E.D.N.C. 1996).
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H. Delineation of Protected Activities

    Paragraphs (b)(2)(i) through (vi) of proposed Sec.  201.304 list 
activities that would be protected. Regulated entities would be 
prohibited from retaliating against covered producers due to the 
covered producer's participation in these protected activities. AMS has 
determined that a covered producer's ability to freely participate in 
these activities without fear of retaliation is essential to promoting 
fair and competitive markets in the livestock and poultry industries. 
Many of these activities also represent activities for which covered 
producers have experienced or expressed fear of retaliation.
    Specifically, proposed paragraph (b)(2)(i) would protect a covered 
producer's ability to communicate with a government agency regarding 
the production of poultry or livestock, or to petition for redress of 
grievances before a court, legislature, or government agency. A covered 
producer's ability to communicate with a government agency is an 
essential tool for ensuring that a covered producer's rights are 
protected. Likewise, a covered producer must be able to freely petition 
for the redress of grievances for the protections afforded to covered 
producers by laws and regulations to have their intended effect.
    Proposed paragraph (b)(2)(ii) would protect a covered producer's 
ability to assert any of the rights granted under the Act or the 
regulations in 9 CFR part 201, or to assert rights afforded by their 
contact. These rights include, for example, growers' rights to view the 
weighing of flocks, which is legally protected but which growers have 
complained is not practically enforceable. Although these rights are 
ostensibly protected by laws, regulations, or legal contracts, they 
lose their efficacy if covered producers suffer repercussions for 
asserting them.
    Proposed paragraph (b)(2)(iii) would protect a covered producer's 
ability to assert the right to formor joinaproducer or grower 
association or organization, or to collectively process, prepare for 
market, handle, or market livestock or poultry.An assertion of rights 
in this context may involve expressing interest

[[Page 60029]]

or intent to engage in these activities or engaging in these 
activities. Associations and organizations provide a means for covered 
producers to share information regarding the production of poultry and 
livestock, to potentially uncover recurrent problematic practices in 
the industry, and to potentially organize to seek redress of 
grievances, among other benefits. Collectively processing, preparing 
for market, handling, or marketing livestock or poultry affords covered 
producers the opportunity to combine their resources to potentially 
counteract market imbalances. AMS believes that retaliating against 
producers for engaging in these activities hinders the free flow of 
information and hampers producers' ability to fairly compete in the 
market.
    Proposed paragraph (b)(2)(iv) would protect a covered producer's 
ability to communicate or cooperate with a person for the purposes of 
improving production or marketing of livestock or poultry. Such 
communication may include, for example, communication with extension 
programs or with independent veterinarians and animal health experts.
    Proposed paragraph (b)(2)(v) would protect a covered producer's 
ability to communicate or negotiate with a regulated entity for the 
purposes of exploring a business relationship. A covered producer may 
want to seek information from a regulated entity with which they do not 
currently have a business relationship regarding the possibility of a 
future business relationship, such as entering into a contract. 
Protecting this activity would allow covered producers to freely 
compare potential business relationships and choose between several 
regulated entities, encouraging competition.
    Finally, proposed paragraph (b)(2)(vi) would protect a covered 
producer's ability to support or participate as a witness in any 
proceeding under the Act or a proceeding that relates to an alleged 
violation of law by a regulated entity. Owing to the close-knit and 
concentrated markets in which covered producers operate, protecting 
some covered producers as witnesses may enable other covered producers 
to effectuate their rights under the Act and related laws. Without such 
protections, enforcement of the Act may be frustrated overall.

I. Recordkeeping

    To help lessen these threats of retaliation, the proposed rule 
contains compliance systems for monitoring and facilitating compliance 
and change within companies. Vital to such an effort will be AMS's 
ability to inspect relevant records, as they may exist, such as 
policies and procedures, staff training and producer information 
materials, data and testing, board of directors' oversight materials, 
and other relevant materials. AMS may utilize compliance inspections, 
company reports to AMS, and public analyses to benchmark industry 
practice and improve market standards. AMS believes that its 
recordkeeping approach will enable it to monitor and facilitate a 
regulated entity's approach to compliance at the highest levels, 
including the tone at the top: chief executive officers and boards of 
directors. The tone and compliance practices set by senior executives 
can be expected to play a vital role in establishing a corporate 
culture of compliance, which is a critical defense against legal and 
regulatory violations and a first step towards more inclusive market 
practices.
    Proposed paragraph (c) would ensure appropriate recordkeeping 
regarding compliance. It indicates certain specific records should be 
kept for a period of 5 years. Specifically, regulated entities would be 
required to retain, to the extent that they produce them, policies and 
procedures, staff training materials, materials informing covered 
producers about reporting mechanisms and protections, compliance 
testing, board of directors' oversight materials, and records about the 
number and nature of complaints received relevant to prejudice and 
retaliation. AMS is proposing 5 years to provide a broader ability to 
monitor the evolution of compliance practices over time in this area, 
and to ensure that records are available for what may be complex 
evidentiary cases.
    Recordkeeping, as described in the proposed rule, is a commonly 
utilized regulatory compliance and monitoring mechanism among market 
regulators.\117\ Access to these records will assist AMS in assessing 
the effectiveness of the regulated entity's compliance with Sec.  
201.304. Existing gaps in both generally applicable agricultural and 
PSD-specific data collection make addressing widespread reports of 
discriminatory behavior difficult. Recordkeeping is critical if AMS is 
to fulfill its duties to prevent and secure enforcement against undue 
prejudice and unjust discrimination in the relevant agricultural 
sector.
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    \117\ See, e.g., generally, Board of Governors of the Federal 
Reserve System, ``Federal Trade Commission Act, Section 5: Unfair or 
Deceptive Acts or Practices,'' Consumer Compliance Handbook, 
available at https://www.federalreserve.gov/boarddocs/supmanual/cch/ftca.pdf (last accessed June 2022).
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J. Request for Comments on Proposed Sec.  201.304

    AMS specifically invites comments on various aspects of the 
proposal to prohibit undue prejudices and unjust discrimination as 
described above. Please fully explain all views and alternative 
solutions or suggestions, supplying examples and data or other 
information to support those views where possible. Parties who wish to 
comment anonymously may do so by entering ``N/A'' in the fields that 
would identify the commenter. While comments on any aspect of the 
proposed rule are welcome, AMS specifically solicits comments on the 
following.
Undue Prejudices and Unjust Discrimination
    1. Would the regulatory protections provided by the prohibition on 
undue prejudices for market vulnerable individuals and cooperatives, as 
described above, assist those producers and growers in overcoming 
barriers to market access or equitable and reasonable treatment, or 
otherwise address prejudices or the threat thereof in the marketplace? 
If so, why? If not, why not?
    2. With respect to undue prejudices, are the proposed prohibited 
bases of market vulnerable individuals and cooperatives broad enough to 
provide appropriate flexibility and ensure equitable market access? If 
not, please suggest changes.
    3. Should AMS delineate specific examples of groups that are market 
vulnerable? If so, please provide supportive evidence regarding 
historical adverse treatment of such groups.
    4. Should AMS delineate specific forms of prejudice, such as 
racial, ethnic, gender, or religious prejudices, that would apply for 
producers who are members of the relevant group without regard to their 
individual qualities?
    5. Is the proposed list of undue prejudices appropriately clear and 
inclusive--for example, is it sufficiently clear that prejudices 
relating to gender include sexual orientation?
    6. As an alternative or in addition to the market vulnerable 
individual approach, should AMS prohibit discrimination based on 
protected classes (i.e., prohibit discrimination on the basis of race, 
color, national origin, religion, sex, sexual orientation, disability, 
age, marital status, family/parental status, income derived from a 
public assistance program, political

[[Page 60030]]

beliefs, or gender identity)? Why or why not?
    7. Should prejudices be more specifically delineated in the 
rulemaking to cover some or all of the bases governing non-
discrimination in conducted programs as discussed in the section on 
specific proposed bases, and specifically: race, color, national 
origin, religion, sex, sexual orientation, disability, age, marital 
status, family/parental status, income derived from a public assistance 
program, political beliefs, or gender identity? Why or why not?
    8. With respect to undue prejudices, should localities be addressed 
in any special way, such as localities where producers or growers are 
underserved or otherwise face persistent challenges of equitable and 
reasonable market access owing to the locality or related reasons? 
Please provide specific examples, if possible.
    9. What specific challenges or burdens may regulated entities face 
in complying with the undue prejudices provisions of the proposed rule? 
How do they differ from existing policies, procedures, and practices of 
regulated entities?
    10. Should AMS clarify how producers and growers demonstrate 
qualification for the protections as market vulnerable individuals in a 
local market? If so, what factors should be included?
    11. Are the specific prejudicial acts specified in proposed Sec.  
201.304(a)(2) appropriate? Are there additional forms of prejudicial 
conduct that should be specifically delineated? If so, please identify 
them and provide examples of how such actions have been used to target 
market vulnerable individuals or cooperatives.
    12. Are there different types of purchase arrangements than those 
generally or ordinarily offered, such as forward contracts, formula 
contracts, other alternative marketing agreements, or cash market 
purchases, which could be employed in a prejudicial manner as a class 
of contract or in specific circumstances? If so, please identify them 
and provide examples of how such actions have been used to target 
market vulnerable individuals or cooperatives.
    13. Does the undue prejudices provision provide sufficient 
protection regardless of the type of business organization of the 
covered producer? If not, please suggest specific changes.
    14. Should prejudicial discrimination and retaliation provisions be 
extended to all persons buying or selling meat and meat food products, 
including poultry, in markets subject to the Act? Why or why not?
    15. Does the proposed rule appropriately enable the production of 
religiously compliant meats? Do any concerns turn on whether the 
prohibited prejudices in proposed Sec.  201.304(a)(1) are defined to 
include religious bases? Please explain your views and suggest specific 
approaches to address any concerns.
    16. Do the provisions on undue prejudice adequately address 
concerns regarding inequitable market access for Tribal members and 
Tribes? If not, what additional changes should be proposed?
    17. How should AMS handle Tribal government entities that sponsor 
or manage regulated entities? Should AMS permit compliance with 
proposed Sec.  201.304(a) be substituted for compliance with Tribal 
government rules, policies, or guidance governing equitable market 
access?
    18. AMS is aware of at least one private industry program aimed at 
establishing preferences intended to create ``a more equitable 
agricultural economy''--in response to ``systemic inequality''--by 
partnering with Black producers.\118\ Were such a program (or a similar 
program designed to address socially inclusive supply chains) present 
in livestock and poultry markets, should AMS evaluate and determine 
that such program is an undue preference pursuant to the criteria set 
forth in 9 CFR 201.211? Please explain views and offer suggestions on 
ways to address relevant concerns.
---------------------------------------------------------------------------

    \118\ Cargill's ``Black Farmer Equity Initiative'': https://www.cargill.com/about/black-farmer-equity-initiative (last accessed 
8/9/2022).
---------------------------------------------------------------------------

    19. Does the proposed regulation provide appropriate protection for 
cooperatives, in particular as the structure and organization of 
cooperatives vary across livestock and poultry markets? Please explain 
any particular concerns that should be better addressed by the proposed 
regulation.
    20. Prejudice and other prohibited actions the agency proposes 
refers to offering contract terms that are less favorable than those 
generally or ordinarily offered. Should the agency be more specific to 
include differential contract terms, such as: price terms, including 
any base or formula price; formulas used for premiums or discounts 
related to grade, yield, quality, or specific characteristics of the 
animals or meat; the duration of the commitment to purchase or to 
contract for the production of animals; transportation requirements; 
delivery location requirements; delivery date and time requirements; 
terms related to who determines date of delivery; the required number 
of animals to be delivered; layout periods in production contracts; 
financing, risk-sharing, and profit-sharing; or terms related to the 
companies' provision of inputs or services, grower compensation, and 
capital investment requirements under production contracts? Please 
explain why or why not, and what terms the agency could add or change.
    21. Should the Agency include among the prejudices, the action of 
offering less favorable price terms, contract terms, and other less 
favorable treatment in the course of business dealings than those 
generally offered to similarly situated producers? Should an allowance 
be made for legitimate business reasons? Please explain why or why not, 
and what terms the Agency could add or change.
Retaliation
    22. Would the regulatory protections provided by the prohibition on 
retaliation, as described above, assist producers and growers in 
avoiding unjust discrimination in the market or otherwise help them 
access markets, obtain meaningful and accurate price discovery, or 
avoid anticompetitive or unjust practices or the threats thereof? If 
so, why; if not, why not?
    23. Are the specific acts of retaliation listed in proposed Sec.  
201.304(b)(3) appropriate? Are there additional forms of retaliatory 
conduct that should be specifically delineated?
    24. Should prohibitions on retaliation protect producers and 
growers who choose not to participate in protected activities? For 
example, should the provision prohibit the giving of any premiums or 
discounts with respect to joining or not joining livestock or poultry 
associations?
    25. Are the bases of protected activities appropriate, including 
their nexus to the business, industry, and community, criteria for 
selection, and application of those criteria? Should they be broader, 
narrower, or different in some way? Please explain your views.
    26. Should the protected activities relating to communication and 
cooperation, beyond government entities, be limited to USDA extension 
and USDA supported (grantees and cooperators) non-profit entities? Why 
or why not?
    27. Does the proposed anti-retaliation provision provide sufficient 
protection regardless of the covered producer's type of business 
organization? If not, please suggest specific changes.
    28. Should protections for exploring a business relationship be 
extended to such activities with any person, or

[[Page 60031]]

should they be limited, as they are in the proposal, to exploring a 
business relationship with a regulated entity?
    29. Should the proposed list of retaliatory actions include a 
catch-all clause, such as ``offering unfavorable contract terms that 
otherwise effect reprisal'' or ``offering contract terms that are less 
favorable than those generally or ordinarily offered''? That is, is the 
offering of a contract term a proper subject of retaliation? If so, 
should we also include a non-exclusive list of contract terms that 
could affect reprisal, such as price terms, including any base or 
formula price; formulas used for premiums or discounts related to 
grade, yield, quality, or specific characteristics of the animals or 
meat; the duration of the commitment to purchase or to contract for the 
production of animals; transportation requirements; delivery location 
requirements; delivery date and time requirements; terms related to who 
determines date of delivery; the required number of animals to be 
delivered; layout periods in production contracts; financing, risk-
sharing, and profit-sharing; or terms related to the companies' 
provision of inputs or services, grower compensation, or capital 
investment requirements under production contracts? Please explain why 
or why not, and what terms the agency could add or change.
    30. What specific challenges or burdens might regulated entities 
face in complying with the anti-retaliation provisions of the proposed 
rule? How do the proposed provisions differ from existing policies, 
procedures, and practices of regulated entities?
Recordkeeping
    31. Are the recordkeeping obligations of the proposed regulation 
appropriate to permit AMS to monitor regulated entities for compliance? 
Why or why not, and what changes, if any, should be made?
    32. Should AMS require regulated entities to produce and maintain 
specific policies and procedures, specific compliance practices or 
certifications, or specific disclosures to help ensure compliance with 
the undue prejudices and anti-retaliation provisions of the proposed 
rule? Please explain why for specific items.
    33. What specific challenges or burdens might regulated entities 
face in complying with recordkeeping duties of the proposed rule? How 
do they differ from existing policies, procedures, and practices of 
regulated entities?

III. Deceptive Practices

    AMS also proposes a new Sec.  201.306 designed to prohibit 
regulated entities from specified deceptive practices in contracting. 
Because of the power of the regulated entities over their vertical 
relationships, deceptions in contracting are of considerable concern.
    Similar to its broad prohibition of unjustly discriminatory 
practices, the Act does not specifically define the ``deceptive 
practices'' it prohibits in sec. 202(a). The agency's interpretation of 
``deceptive practices'' here relates to trends underlying the Act's 
passage. At the time of the Act's passage, state common law already 
prohibited deceptive practices, such as fraudulent inducement of 
contract and misattribution of the source of goods. These are not, as 
the Act is not, limited to deceived and injured contracting parties, 
but also include deceptions that directly injure competitors. 
Regardless, courts were cautiously expanding common law beyond 
misrepresentations of source to misrepresentations concerning other 
characteristics or qualities of the seller's goods.\119\ Likewise, in 
1920--shortly before the passage of the Act--Congress passed a Federal 
trademark law that prohibited intentional deception regarding the 
origin of goods. Public Law 66-163, 41 Stat. 534 (1920). So, in 1921, 
the Act was one of the earliest Federal prohibitions against deceptive 
practices. It did not remain so for long.
---------------------------------------------------------------------------

    \119\ Restatement (Third) of Unfair Competition sec. 2 (1995), 
comment b.
---------------------------------------------------------------------------

    Less than a decade after the passage of the Act, in 1930, the 
Perishable Agricultural Commodities Act followed with its prohibitions 
against ``deceptive practices in connection with the weighing, 
counting, or in any way determining the quantity of any perishable 
agricultural commodity received, bought, sold, shipped, or handled in 
interstate or foreign commerce.'' See 7 U.S.C. 499b. In 1938, the 
Federal Trade Commission Act was amended to declare unlawful 
``deceptive acts or practices in or affecting commerce.'' Public Law 
75-447, 52 Stat. 111 (1938). As observed in 1967, ``[d]eceptive trade 
practices victimize honest merchants as well as consumers, and impair 
rational allocation of economic resources.'' \120\ The FTC has 
characterized deception as: involving a material representation, 
omission or practice that is likely to mislead a consumer acting 
reasonably in the circumstances.\121\
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    \120\ Richard F. Dole, Jr., Merchant and Consumer Protection: 
The Uniform Deceptive Trade Practices Act, 76 Yale L.J. 485 (1967).
    \121\ Federal Trade Commission, Policy Statement on Deception, 
1983, available at https://www.ftc.gov/legal-library/browse/ftc-policy-statement-deception (last accessed Aug. 2022).
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    ``[I]ntegrity and ethics of those engaged in marketing livestock'' 
is a vital concern.\122\ With respect to regulating deception, the 
supply of meat to the American consumer depends on a market that is 
safe, reliable, and honest.\123\ Protecting the market from the harms 
of deception starts with protecting suppliers: producers, market 
agencies, dealers, and packers. To achieve a market free of deceptive 
practices, the Secretary has established regulations and pursued 
administrative and Federal enforcement cases.
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    \122\ See, e.g., Midwest Farmers v. United States, 64 F. Supp. 
91, 95 (D. Minn. 1945).
    \123\ In re: Frosty Morn Meats, Inc., 7 B.R. 988, 1020 (M.D. 
Tenn. 1980).
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    In the case law and through regulations, as described below, 
violative deceptions under the Act include false statements or 
omissions that occur even before contracting that prevent or mislead 
sellers or buyers from making an informed decision. Thus, obvious 
falsehoods, such as false weighing and false accounting have always 
been considered deceptive practices under sec. 202(a) of the Act. 
Another obvious falsehood, delivering checks drawn on accounts with 
insufficient funds--whether for livestock or meat--is also deceptive. 
Moreover, the Act requires honest dealing, so misleading omissions are 
also prohibited. Prohibited omissions include failure to tell a 
business partner that the regulated entity was receiving a commission 
from a competitor, sales tactics that omit relevant information, or 
failure to have the required bond. And finally, where regulated 
entities have close business relationships, secret payments and bribes 
undermine the ability of producers and consumers to rely on an honest 
market and are therefore deceptive.
    This proposed regulation would not be the first to prohibit 
deception. Current Packers and Stockyards regulations require honesty 
in weighing (Sec. Sec.  201.49, 201.71), price reporting (Sec.  
201.53), fees (Sec.  201.98), and business relationships (Sec.  
201.67). Even in the consideration of whether termination of a contract 
violated the Act, AMS currently considers the quality of the 
communication, and therefore considers its honesty. (See Sec.  
201.217.)
    Producers and consumers cannot make rational decisions in a 
dishonest market, and honest competitors cannot compete when regulated 
entities deceive. For example, if one packer is paying more for 
livestock by weight but is also deceptively weighing livestock to lower 
the total value of the livestock during processing, the honest packer

[[Page 60032]]

must compete with that deception. On the other hand, if the weight of 
livestock from a packer were to be regularly more favorable, due to 
falsely increasing the weight, honest competitors would have to respond 
to a reputation that their weights are lower. A packer that fails to 
pay for meat promptly is not only deceiving the seller--by financing 
their operations using the seller's goods--but is also forcing honest 
meat packers to compete without financing their operations in this 
deceptive manner. Proposed Sec.  201.306--Deceptive practices--would 
name practices and devices that AMS considers deceptive in violation of 
sec. 202(a) of the Act, which prohibits deceptive practices and devices 
by packers, swine contractors, and live poultry dealers. AMS intends 
that this proposed regulation would address broad areas of specific 
concern, but it may not exhaustively identify all deceptive practices 
that would violate sec. 202(a) of the Act.
    As outlined extensively in the separately proposed transparency 
rule, poultry growers face incomplete information regarding contracting 
and tournaments and have complained of inaccurate information 
influencing their decisions to be growers or make additional capital 
investments. While AMS has separately proposed specific disclosures 
relating to transparency in poultry growing contracts and tournaments 
in another proposed rule, Transparency in Poultry Growing Contracting 
and Tournaments, 87 FR 34980 (June 8, 2022), the provisions of this 
proposed rule are broader. These provisions also encompass poultry 
growing contracting and tournaments; for example, this proposed rule 
would address communications by the live poultry dealer and its agents 
in the context of contracting or tournaments. Further, this rulemaking 
addresses deception in hog and cattle markets, which is not addressed 
in the proposed transparency rule.
    The provisions of this proposed rule would also focus on general 
circumstances that may give rise to the provision of false or 
misleading information in the production or growing of poultry or 
livestock. Such circumstances could include where a live poultry 
dealer's poultry nutrition adviser provides misleading advice to a 
contract grower, where a swine production contract provides false 
information regarding manure compliance procedures, or where a packer 
provides false or misleading information about cash market trading in 
livestock.
    These proposed provisions respond, in part, to the range of 
complaints lodged with USDA, Congress, and the media over the years 
regarding inaccurate, incomplete, or otherwise misleading 
representations or pretexts that affect the decision-making or access 
to markets by producers and growers of livestock and poultry. For 
example, packers and industry representatives have routinely indicated 
that producers may choose the form of pricing mechanism for their 
transactions. However, as cash-negotiated markets have declined, 
producers have increasingly complained to USDA that they are not 
provided such a choice, and in fact are commonly given a take-it-or-
leave-it offer to buy their cattle off of a pricing formula provided by 
the company. Producers have complained that they have been told their 
cattle are not of sufficiently high quality or that formula market 
arrangements are necessary to incentivize such quality, but cattle 
procured under those marketing arrangements may not in fact be of any 
higher quality. This raises legitimate concerns that certain refusals 
to deal are based upon pretext or deception, which hinders the free 
flow of livestock from producer to consumer. If producers have been 
misled, they are hindered from organizing their operations so that they 
can correctly identify competitor packers that will accept their 
livestock or otherwise contract with them.
    Poultry growers have complained over the years regarding 
unfavorable provision of inputs made to certain producers despite 
statements by live poultry dealers that there are no differences in 
treatment. Growers have also complained of terminations, suspensions, 
or reductions in flocks on the basis of pretext, such as animal welfare 
contractual violations, when in fact other reasons may exist for the 
termination, including but not limited to the discrimination and 
retaliation noted above, or other unreasonable bases such as a 
preference for family or friends of the local agent of a live poultry 
dealer or for a poultry grower connected to a senior executive of a 
live poultry dealer.\124\ If misleading information in connection with 
a termination is provided to a bank that forecloses on the grower, this 
may be actionable as well by the grower who was the victim of the 
deception. While this would not necessarily be an undue preference or 
unjust discrimination, it would be covered by this deception 
rulemaking. Therefore, the proposed rule supports market integrity more 
broadly by ensuring that producers and growers can make decisions and 
operate in the market based on complete and accurate information.
---------------------------------------------------------------------------

    \124\ Wheeler v. Pilgrim's Pride, 536 F.3d 455 (5th Cir. 2008).
---------------------------------------------------------------------------

    Hog producers and growers, as well as cattle producers, have also 
highlighted concerns regarding preferential market access for company-
owned or controlled livestock. Again, while this part of the proposed 
rule would not prohibit undue preferences, this deception rulemaking 
would establish a clearer duty on regulated entities regarding honesty 
and market integrity in the relationships with covered producers, 
including with respect to statements made regarding market access and 
other aspects of contracting.
    The high levels of oligopsony in the local marketplaces in which 
many producers and growers operate today, and the extensive reliance on 
vertical integration, forward contracting, and long-term marking 
agreements, mean that producers and growers are more vulnerable to 
being excluded from, or to suffering adverse pricing in, the 
marketplace by these deceptions in contracting, if and where they may 
arise.
    More than 100 years of history illustrate the types of conduct 
prohibited as deceptive by the Act, which provide a foundation for some 
of the specific deceptions that this proposed rule addresses. The FTC 
employed a similar approach when developing its policy on deceptive 
practices. Recognizing that there was no single definitive statement of 
the FTC's authority on ``deceptive acts or practices,'' it reviewed its 
own history of decided cases to identify the most important principles 
of general applicability and provide a greater sense of certainty as to 
how the concept of deception will be applied. The FTC's approach 
informs AMS in identifying and prohibiting deceptive practices. Past 
cases indicate that USDA's approach, generally, is to view 
representations, omissions, and practices from the perspective of a 
reasonable party receiving them and determine if those deceptions 
affect the conduct or decision of the recipient. As the court explained 
in Gerace v. Utica Veal Co., 580 F. Supp. 1465, 1469 (N.D.N.Y. 1984), 
regulated entities are liable to anyone for the damages they sustain in 
consequence of an entity's deceptive practice, even if they are not a 
direct party to the transaction.
    AMS believes that a substantial arc of deceptive practices in the 
marketplace that this specific rulemaking intends to prohibit can be 
organized and summarized as deceptions in contract formation, contract 
operation, contract cancellation, and refusals to contract.

[[Page 60033]]

Deceptions in the contracting process present harms that cause the type 
of injury the Act was designed to prevent. This proposed regulation 
addresses these four types of deceptions.

A. Scope of Deceptive Practices Regulated

    Proposed Sec.  201.306(a), Deceptive practices, sets forth the 
scope of the prohibition of deceptive practices in the rest of Sec.  
201.306. The P&S Act limits the Secretary's jurisdiction to the 
regulated entities' operations subject to the P&S Act. Thus, the 
proposed regulation's scope relates to those operations with respect to 
livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry.

B. Deceptive Practices in the Offering or Formation of Contract

    Proposed Sec.  201.306(b) would prohibit a regulated entity from 
making or modifying a contract when the entity employs a pretext, false 
or misleading statement, or fails to state a material fact necessary to 
make the statement made not otherwise false or misleading. Therefore, 
this proposed regulation is intended to prevent deception in contract 
offering or formation.
    Deception in the offering or formation of a contract has taken many 
forms through the Act's history. One example is false advertising, 
specifically bait and switch advertising, which occurs through 
advertising on price when, in fact, the customer has to pay a higher 
price at the point of sale. This practice is illegal under both the P&S 
Act and the FTC Act. In the case under the P&S Act, In re: Larry W. 
Peterman, d/b/a Meat Masters, 42 Agric. Dec. 1848 (1983), aff'd 
Peterman v. United States Dep't of Agric, 770 F.2d 888 (10th Cir. 
1985), the packer advertised meat at a very attractive low price. 
Customers responded to the advertised price, only to be subjected to 
deceptive sales tactics, causing them to purchase higher priced meats. 
The advertised meat was ``so fat [the customer] could see very little 
red muscle tissue in it,'' causing the customer to purchase primal cuts 
rather than what they intended to buy because the packer represented 
that the fat loss and yield would be a better option. After their 
purchase, customers determined that they had paid significantly more 
than they were led to believe, and they could have paid much less even 
at retail grocery stores.
    Under certain circumstances, failures to disclose information are 
also deceptive. The Act's purposes include protecting farmers and 
ranchers from receiving less than fair market value for their livestock 
and protecting consumers from unfair practices. Solomon Valley Feedlot, 
Inc. v. Butz, 557 F.2d 717, 718 (10th Cir. 1977). ``Among the means 
employed to accomplish this purpose is the use of surety bonds.'' Id. 
at 720. Sellers of livestock are entitled to the protection of a 
packer, dealer, or market agency's surety bond securing its 
obligations. Failure to maintain an adequate bond is therefore a 
deceptive practice.\125\ When a packer fails to maintain a bond, the 
seller does not know that the sale is unsecured, and therefore the 
seller is at greater risk of nonpayment.
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    \125\ United States v. Hulings, 484 F. Supp. 562, 567 (D. Kan. 
1980). See also In Re: Mid-W. Veal Distributors, 43 Agric. Dec. 
1124, 1139-40 (1984), citing In re: Norwich Veal and Beef, Inc., 38 
Agric. Dec. 214 (1979), In Re: Raskin Packing Co., 37 Agric. Dec. 
1890, 1894-6 (1978).
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    Deception in contract formation is not limited to false statements 
and omissions with respect to regulatory requirements. The Act includes 
affirmative duties to be truthful. For instance, a court has recognized 
that the P&S Act prohibits a regulated entity from negotiating using 
published prices it knows are inaccurate because using incorrect prices 
deceives the livestock seller. See Schumacher v. Tyson Fresh Meats, 
Inc., 434 F.Supp.2d 748 (Dist. S.D. 2006). In Schumacher, the packer 
failed to disclose inaccurately reported boxed beef prices when it 
negotiated the purchase of cattle on the basis of those prices. Because 
the Act prohibits deceptive practices with respect to the price paid to 
the producer, the court found that those deceptive practices do not 
need to adversely affect competition to violate the Act. Id.
    Likewise, Bruhn's Freezer Meats of Chicago, Inc. v. U.S. Dept. of 
Agriculture, 438 F.2d 1332 (8th Cir. 1971), affirmed that a variety of 
deceptions violate the Act, including short weighing, misrepresenting 
grades and cuts of meat, and false advertising in the selling of meat 
to customers. The agency's proposed regulation with respect to 
deceptive practices in contract formation prohibits all these types of 
deception.
    More importantly, AMS is concerned that transparency in market 
transactions--reported prices, offered contracts, and long-term 
contracts--is inhibited by potentially deceptive practices and 
statements. AMS has long received complaints regarding statements that 
entice producers to contract to their eventual detriment. This 
provision would make clear that statements at the time of contract 
formation will be evaluated to determine if there is deception in order 
to prevent injury to the producers in their inception.

C. Deceptive Practices in the Operation of Contract

    Proposed Sec.  201.306(c) would prohibit a regulated entity from 
performing under or enforcing a contract by employing a pretext, false 
or misleading statement, or omission of a material fact necessary to 
make the statement not false or misleading.
    Deceptive practices take many forms throughout the operation of a 
contract. USDA and the courts have recognized these forms in a variety 
of administrative and Federal enforcement actions, including false 
weighing, false or deceptive grading (including failure to disclose the 
formulas for determining payment), commercial bribery, and failing to 
pay for purchases.
    False or inaccurate weighing has long been recognized as deceptive 
under secs. 202(a) and 312 of the Act. See Bruhn's Freezer Meats, 438 
F.3d 1337 (8th Cir. 1971); Solomon Valley Feedlot, 557 F.2d at 717; 
Gerace v. Utica Veal Co., 580 F. Supp. 1465, 1470 (N.D.N.Y. 1984). 
False weighing can occur in various ways. In some cases, the regulated 
entity records inaccurate weights using an improperly calibrated scale. 
In other cases, a regulated entity uses the scale improperly. Among 
examples where packers have been found to have committed this deceptive 
practice, in in re: DuQuoin Packing Company, Decatur Packing Division 
and William S. Martin, 41 Agric. Dec. 1367 (1982), a weigher committed 
a deceptive practice when he failed to properly adjust an otherwise 
properly working scale to a zero balance prior to weighing, which 
caused the scale to register less than actual weights. Weighing is ``a 
serious matter and one of paramount importance to the farmer, industry 
and consumers.'' In re Trenton Livestock, Inc., 33 Agric. Dec. 499, 510 
aff'd 510 F.2d 966 (4th Cir. 1975). Even if a regulated entity does not 
intentionally set out to deceive with respect to the weight of 
livestock, the Act does not require proof of a particularized intent. 
Parchman v. U.S. Dep't of Agric., 852 F.2d 858, 864 (6th Cir. 1988) 
(interpreting sec. 312 of the Act). Short weighing alone is enough to 
be an unfair and deceptive practice under the Act, without regard to 
the competitive injury the short weighing causes. Garace, 580 F. Supp. 
at 1470.
    False or inaccurate grading has the same effect as false weighing 
because deceptive grading prevents the seller from receiving the full 
value of their livestock or poultry. USDA's Judicial Officer found a 
deceptive practice when

[[Page 60034]]

a packer failed to inform hog producers of a change in the formula it 
used to estimate lean percent in hogs. Lean percent was one factor used 
in determining price when the packer purchased hogs on a carcass merit 
basis. USDA determined that nearly twenty thousand lots of hogs were 
purchased under the changed formula without notice to producers, 
resulting in payment of $1.8 million less than they would have received 
under the previous formula. In re: Excel Corporation, 63 Agric. Dec. 
317 (2004), aff'd Excel Corp. v. United States Dep't of Agric., 397 
F.3d 1285, 1293 (10th Cir. 2005). This type of deceptive practice harms 
honest competitors because ``[h]ad hog producers been alerted to the 
change, they could have shopped their hogs to other packers.'' 397 F.3d 
at 1291.
    Paying ``kickbacks'' and commercial bribery may occur both in the 
contract formation and during the operation of a contract. Whether the 
payment comes before or after the contract was formed, those payments 
are a deceptive practice. For example, in Holiday Food Serv., Inc. v. 
Dep't of Agric., 820 F.2d 1103, 1105 (9th Cir. 1987), a packer paid the 
purchasing agents of hotels and restaurants ``kickbacks'' after they 
purchased meats for their principals. And, in Nat'l Beef Packing Co. v. 
Sec'y of Agric., 605 F.2d 1167, 1168 (10th Cir. 1979), not only was the 
commercial bribery a violation of the Act, but the court also agreed 
with the Secretary that a packer's executives had a positive duty to 
inquire into the payment of commissions that served as bribes. Id.
    Payment violations can be deceptive, especially issuance of 
insufficient funds checks. E.g. In Re: Mid-W. Veal Distributors, d/b/a 
Nagle Packing Co., & Milton Nagle, 43 Agric. Dec. 1124, 1140 (1984). 
Failing to pay for meat has also been found to be deceptive in numerous 
instances.\126\ Under the similar language of sec. 312 of the Act, the 
Eighth Circuit explained that timely payment was unfair and deceptive 
even prior to the enactment of sec. 409 of the Act: ``Timely payment in 
a livestock purchase prevents the seller from being forced, in effect, 
to finance the transaction.'' Van Wyk v. Bergland, 570 F.2d 701, 704 
(8th Cir. 1978).
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    \126\ See, e.g. Milton Abeles, Inc. v. Creekstone Farms Premium 
Beef, LLC, No. 06-CV-3893(JFB)(AKT), 2009 WL 875553, at *19 
(E.D.N.Y. Mar. 30, 2009) (citing Liberty Mutual Ins. Co. v. Bankers 
Trust Co., 758 F.Supp. 890, 896 n. 7 (S.D.N.Y.1991); In re FLA 
Packing & Provision, Inc., and C. Elliot Kane, P & S Docket No. D-
95-0062, 1997 WL 809036, at *6 n. 1 (1997); In re: Central Packing 
Co., Inc. d/b/a Plat-Central Food Services Co., Inc., a/k/a Plat-
Central Food Service Supply Co., and Albert Brust, an individual, 48 
Agric. Dec. 290, 297-99 (1989)); see also In Re: Ampex Meats Corp. & 
Laurence B. Greenburg., 47 Agric. Dec. 1123, 1125 (1988) (citing In 
Re: Rotches Pork Packers, Inc. & David A. Rotches., 46 Agric. Dec. 
573, 579-80 (U.S.D.A. Apr. 13, 1987) In Re: George Ash, 22 Agric. 
Dec. 889 (1963); In re Goldring Packing Co., 21 Agric. Dec. 26 
(1962); In Re: Eastern Meats, Inc., 21 Agric. Dec. 580 134 (1962)).
---------------------------------------------------------------------------

    The live poultry dealer's honesty is vitally important to poultry 
growers. Because much of the payment system relies on information that 
is wholly within the live poultry dealer's control, deception is 
particularly dangerous. The Department has received complaints 
regarding statements made during the operation of the contract that led 
producers to believe that specific terms would not be enforced, only to 
see the live poultry dealer implement policy changes that led to 
immediate changes to contracting requirements. These sorts of 
communications may reach the level of unlawful deception under the P&S 
Act, which reaches beyond common-law fraud. Likewise, for the market to 
function, livestock producers must be able to reasonably rely on a 
packer's calculation of value, and they must be able to rely on 
statements and accountings the packers deliver.

D. Deceptive Practices in the Termination of Contract

    Proposed Sec.  201.306(d) would prohibit regulated entities from 
terminating a contractortaking any otheradverse action against a 
covered producer by employing pretext, false or misleading statements, 
or omission to state a material fact necessary to make the statement 
not false or misleading.
    AMS notes, for example, that poultry growers complain of companies 
terminating their broiler production contracts based on pretext or for 
a deceptive reason. Contract termination puts the grower at severe risk 
of significant economic loss. A production broiler house often has 
significant long-term financial obligations. The potential loss 
includes not only the loss of production income, but construction is 
often financed with mortgages on the grower's farm or family home. 
Pretextual cancellation may make even the sale or transfer of the 
broiler production house impossible because purchasers may be unable to 
determine if the broiler houses have value.

E. Deceptive Practices in Refusal To Deal

    Proposed Sec.  201.306(e) would prohibit the deceptive practice of 
providing false or misleading information to a producer, grower, or 
association of producers or growers concerning the regulated entity's 
refusal to contract. AMS proposes this ban to meet producer concerns 
that packers use pretext to deny access to certain livestock 
transactions and pretextual refusals to renew growing contracts. This 
proposal also supports the statutory prohibition in sec. 202(a) of the 
Act of unjust discrimination and the sec. 202(b) prohibition of undue 
preferences and prejudices. A refusal to contract may be lawful or 
unlawful. So, while an ordinary refusal to deal is not a violation of 
the Act, some refusals have unlawful purposes or effects. Group 
boycott, for example, has unlawful purpose and effect. See Klor's, Inc. 
v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959). Group boycott--or 
blanket refusal to deal--forces the boycotted party to adopt conforming 
trade practices, or they must quit the business entirely. Id. Under the 
P&S Act, unlawful practices have included attempts to force livestock 
markets to adopt terms that were favorable to the packer. See De Jong 
Packing Co. v. U.S. Dep't of Agric., 618 F.2d 1329, 1336 (9th Cir. 
1980). Packers may not ``exert a coercive influence upon the trade 
practices of third parties in order to exact more favorable terms than 
they could otherwise obtain.'' Id. Moreover, refusal to deal was firmly 
on the minds of the legislature when the Act passed. 61 Cong. Rec. 1861 
(1921) (explaining that packers refused to bid on a load of cattle in 
more than one market, thereby preventing sellers from re-consigning 
livestock to different markets). Deceptions related to these refusals 
to deal may conceal other unlawful practices designed to pose barriers 
to entry for farmers that may wish to enter these markets.
    A regulated entity that refused to contract on unlawful grounds may 
well choose to hide their motives with misleading or deceptive 
statements. This proposed regulation would recognize misleading 
statements in a refusal to enter into a contract as ``deceptive'' 
within the meaning of the Act.

F. Request for Comments on Proposed Sec.  201.306

    AMS invites comment on (1) the proposed addition of new Sec.  
201.306 to the regulations and (2) the specific proposed prohibitions 
on deceptive practices. Parties who wish to comment anonymously may do 
so by entering ``N/A'' in the fields that would identify the commenter. 
While comments on any aspect of the proposed new section are welcome, 
AMS specifically solicits comments on the following:
    1. Do the proposed regulations accurately and adequately identify 
recurrent deceptive practices in the livestock and poultry industries? 
Please

[[Page 60035]]

explain why or why not and explain in detail any areas of deception 
that may be missing.
    2. Are there recurrent deceptive practices that are not adequately 
addressed by these regulations? Please discuss.
    3. Should deception in contract refusal be governed by the 
categorical approach as proposed, or should it be governed by a single 
statement setting out one standard for contract formation, performance, 
and termination? Why or why not?
    4. Should deception be structured instead around prohibiting the 
deceptive pretext, statement, or omission, rather than prohibiting the 
contractual activity based on the deceptive statement or omission? Why 
or why not?
    5. Do the prohibitions against ``employing'' certain false or 
misleading statements, pretexts, and omissions in the formation, 
operation, etc., of a contract appropriately capture the importance or 
effect of the misleading statement (its materiality or relevance to the 
producer or the formation/operation/etc., of the contract)? Or should a 
regulated entity be prohibited from employing any pretext, false or 
misleading statement, or omission of material facts necessary to make a 
statement not false or misleading, in connection with making, 
enforcing, or cancelling contact? In either case, if not, how could AMS 
better approach this issue, including using elements or defenses?
    6. Are there other elements, such as the reasonableness of the 
recipient, that AMS should explicitly consider in a rule on deception? 
Why or why not?
    7. What specific challenges or burdens might regulated entities 
face in complying with the deceptive practices provisions of the 
proposed rule? How do they differ from existing policies, procedures, 
and practices of regulated entities?
    8. Should AMS propose specific recordkeeping provisions relating to 
these deceptive practices? If so, what should they include?
    9. Should AMS require that all contracts with respect to livestock, 
meats, meat food products, livestock products in unmanufactured form, 
or live poultry be in writing? Why or why not?
    10. Do the provisions on deception provide sufficiently clarity 
regarding deception with respect to a regulated entity's course of 
business dealings generally or ordinarily offered? If not, how might 
such a provision be structured?
    11. Should a failure to continue to buy in the cash market, 
following a regular or dependable pattern or practice of such buying, 
be treated for the purposes of this proposed rule as more similar to 
termination of a contract, rather than as refusal to deal? Why or why 
not?

IV. Severability

    AMS proposes to add a new Sec.  201.390 to 9 CFR part 201 of the 
Packers and Stockyards regulations. This provision would ensure that if 
any provision of part 201 was declared invalid, or if the applicability 
of any of its provisions to any person or circumstances was held 
invalid, the validity of the remaining provisions of part 201 or their 
applicability to other persons or circumstances would not be affected. 
Such a provision is typical in AMS regulations that may cover several 
different topics and is proposed for addition here as a matter of 
housekeeping.

V. Required Regulatory Analyses

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (PRA) (44 
U.S.C. Chapter 35), AMS has requested Office of Management and Budget 
(OMB) approval of the information collection and recordkeeping 
requirement of proposed Sec.  201.304(c). 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 detailed information on the burdens of these new 
information collection and recordkeeping requirements. A similar amount 
of detail can be found in the Regulatory Impact Analysis (RIA), as the 
recordkeeping costs apply to both the PRA and the RIA. Comments on this 
section will be considered in the final rule analysis.
    OMB Number: 0581-NEW.
    Expiration Date of Approval: This is a NEW collection.
    Type of Request: Approval of a New Information Collection.
    Abstract: This rulemaking has been determined to be significant for 
the purposes of Executive Order (E.O.) 12866 and, therefore, has been 
accordingly reviewed by the Office of Management and Budget. As a 
required part of the regulatory process, AMS prepared an economic 
analysis of the costs and benefits of the proposed Sec. Sec.  201.302, 
201.304, 201.306, and 201.390.
    In the late 1910s, Congress was concerned about the monopoly power 
wielded by the five large meatpackers and the consequent constraint to 
competition and diminished economic opportunities for rural 
communities, agricultural producers and small food manufacturers.\127\ 
Congress believed the existing the Sherman Act and Federal Trade 
Commission Act was inadequate in its protections of agricultural 
producers.\128\ Consequently, Congress expanded and furthered its 
protections of farmers and ranchers by enacting the 1921 Packers and 
Stockyards Act and giving the Secretary of Agriculture authority to 
regulate the meat packing industry.
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    \127\ See 61 Cong. Rec. 1860 (1921) (House Floor Debate).
    \128\ See, Shively, J. and Roberts, J., ``Competition Under the 
Packers and Stockyards Act: What Now?'' 15 Drake Journal of 
Agricultural Law 419, 422-423 (2010); and Current Legislation, 22 
Columbia Law Review 68, 69 (1922).
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    Proposed Sec.  201.304(a) ensures full and non-discriminatory 
market access for producers who would be considered vulnerable to 
prejudice, disadvantage, or exclusion from the marketplace. The 
provision would also prohibit undue prejudices and disadvantages based 
upon the status of the covered producer as a cooperative. Proposed 
Sec.  201.304(b) would address retaliation by setting out protected 
activities that a covered producer may engage in but that a regulated 
entity may not use as grounds for unjust discrimination or undue 
prejudice.
    Proposed Sec.  201.304(c)(1) would require live poultry dealers, 
swine contractors, and packers to incur recordkeeping costs by 
requiring regulated entities to retain all relevant records relating to 
their compliance with proposed Sec.  201.304(a) and (b) for no less 
than 5 years. AMS is proposing this information collection and 
recordkeeping requirement to assist in evaluating compliance with 
proposed Sec.  201.304 and to facilitate investigations and 
enforcements based on producer and grower complaints. Costs of 
recordkeeping include maintaining and updating records by regulated 
entities as will be discussed and quantified below.
    Proposed Sec.  201.304(c)(2) lists records that may be relevant and 
that must be retained if they exist. Specifically, regulated entities 
would be required to retain records relating to policies and 
procedures, staff training materials, materials informing covered 
producers regarding reporting mechanisms and protections, compliance 
testing, board of directors' oversight materials, and the number and 
nature of complaints received relevant to proposed Sec.  201.304.
    The information collection and recordkeeping requirement in this

[[Page 60036]]

request may be valuable in reducing instances of undue prejudices, 
discrimination, and retaliation in the livestock and poultry 
industries, in accordance with the purposes of the P&S Act, 1921. The 
information collection request and recordkeeping requirement may also 
bolster AMS's ability to review the records of regulated entities 
during compliance reviews and investigations based on complaints of 
undue prejudices, discrimination, and retaliation in the livestock and 
poultry industries.
Live Poultry Dealer, Swine Contractor, and Packer Recordkeeping Costs
    Estimate of Burden: Public reporting burden for maintaining records 
for this information collection is estimated to average 4.25 hours per 
response in the first year, and 3.50 hours thereafter.
    Respondents: Live poultry dealers, swine contractors, and packers
    Estimated Number of Respondents: 1,026
    Estimated Total Annual Burden on Respondents: 4,361 hours in the 
first year and 3,591 hours 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 are to respond; including through the use of 
appropriate automated, electronic, mechanical, or other technological 
collection techniques or other forms of information technology.
Information Collection and Recordkeeping Costs of Proposed Sec.  
201.304(c)
    Costs to comply with the proposed recordkeeping are likely 
relatively low. Proposed Sec.  201.304(c), requires certain specific 
records that, if the regulated entity maintains, should be kept for a 
period of five years, including policies and procedures, staff training 
materials, materials informing covered producers regarding reporting 
mechanisms and protections, compliance testing, board of directors' 
oversight materials, and the number and nature of unduly prejudicial or 
discrimination-based complaints received relevant to proposed Sec.  
201.304(a) and (b).
    Costs of recordkeeping include regulated entities maintaining and 
updating compliance records. From the perspective of the regulated 
entity, recordkeeping is a direct cost. Some smaller regulated entities 
that currently don't maintain records, may voluntarily decide to 
develop formal policies, procedures, training, etc., to comply with the 
rulemaking and would then have records to maintain.
    AMS expects the recordkeeping costs would be comprised of the time 
required by regulated entities to store and maintain records. AMS 
expects that the costs will be relatively small because some packers, 
live poultry dealers, and swine contractors may currently have few 
records concerning policies and procedures, staff training materials, 
materials informing covered producers regarding reporting mechanisms 
and protections, compliance testing, board of directors' oversight 
materials, and the number and nature of complaints received related to 
prejudicial and discriminatory treatment. Some firms might not have any 
records to store. Others already store the records and may have no new 
costs.
    The amount of time required to keep records were estimated by AMS 
subject matter experts. These experts were economists and supervisors 
with many years of experience in AMS's PSD conducting investigations 
and compliance reviews of regulated entities. AMS used the May 2020 
U.S. Bureau of Labor Statistics (BLS) Occupational Employment and Wage 
Statistics for the time values in this analysis.\129\ BLS estimated an 
average hourly wage for general and operations managers in animal 
slaughtering and processing to be $65.84. The average hourly wage for 
lawyers in food manufacturing was $80.39. In applying the cost 
estimates, AMS marked-up the wages by 41.56 percent to account for 
fringe benefits.
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    \129\ Estimates are available at U.S. Bureau of Labor 
Statistics. Occupational Employment and Wage Statistics, available 
at https://www.bls.gov/oes/special.requests/oesm20all.zip (accessed 
8/9/2022).
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    AMS expects that recordkeeping costs would be correlated with the 
size of the firms. AMS ranked packers, live poultry dealers, and swine 
contractors by size and grouped them into quartiles, estimating more 
recordkeeping time for the largest entities in the first quartile than 
for the smallest entities in the fourth quartile. The first quartile 
contains the largest 25 percent of entities, and the fourth quartile 
contains the smallest 25 percent of entities. AMS estimated that 
proposed Sec.  201.304(c) would require an average of 4.00 hours of 
administrative assistant time, 1.50 hours of time each from managers, 
attorneys, and information technology staff for packers, live poultry 
dealers, and swine contractors in the first quartile to setup and 
maintain the required records in the first year. AMS expects the 
packers, live poultry dealers, and swine contractors in the second 
quartile would require an average of 2.00 hours of administrative 
assistant time, 0.75 hours of time each from managers, attorneys, and 
information technology staff for first year costs. The third quartile 
would require 1.33 hours of administrative assistant time, 0.50 hours 
of time each from managers, attorneys, and information technology staff 
for first year costs, and the fourth quartile would require 0.67 hours 
of administrative assistant time, 0.25 hours of time each from 
managers, attorneys, and information technology staff.
    AMS also expects that packers, live poultry dealers, and swine 
contractors will incur continuing recordkeeping costs in each 
successive year. AMS estimated that proposed Sec.  201.304(c) would 
require an average of 3.00 hours of administrative assistant time, 1.50 
hours of time each from managers, attorneys, and 1.00 hour of time from 
information technology staff for packers, live poultry dealers, and 
swine contractors in the largest quartile to setup and maintain the 
required records in each succeeding year. AMS expects that packers, 
live poultry dealers, and swine contractors in the second quartile 
would require an average of 1.50 hours of administrative assistant 
time, 0.75 hours of time each from managers, attorneys, and 0.50 hours 
of time from information technology staff in each succeeding year. The 
third quartile would require 1.00 hour of administrative assistant 
time, 0.50 hours of time each from managers, attorneys, and 0.33 hours 
of time from information technology staff in each succeeding year, and 
the smallest quartile would require 0.50 hours of administrative 
assistant time, 0.25 hours of time each from managers, and attorneys, 
and 0.17 hours from information technology staff.
    Estimated first-year costs for recordkeeping requirements in 
proposed Sec.  201.304(c) totaled $26,000 for live poultry 
dealers,\130\ $170,000 for swine contractors,\131\ and $107,000 for

[[Page 60037]]

packers.\132\ Estimated yearly continuing costs for recordkeeping 
requirements in Sec.  201.304(c) totaled $23,000 for live poultry 
dealers,\133\ $147,000 for swine contractors,\134\ and $93,000 for 
packers.\135\
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    \130\ 89 live poultry dealers x ($39.69 per hour admin. cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour 
manger cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($113.80 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + ($82.50 information tech cost x (1.5 hours + .75 hours + 
.5 hours + .25 hours))/4 = $26,390.
    \131\ 575 swine contractors x ($39.69 per hour admin. cost x(4 
hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + (113.80 
legal cost x(1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($82.50 information tech cost x (1.5 hours + .75 hours + .5 hours + 
.25 hours))/4 = $170,496.
    \132\ 362 packers x ($39.69 per hour admin. cost x (4 hours + 2 
hours + 1.33 hours + .67 hours)) + ($93.20 per hour manger cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($113.80 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($82.50 
information tech cost x (1.5 hours + .75 hours + .5 hours + .25 
hours))/4 = $107,338.
    \133\ 89 live poultry dealers x($39.69 per hour admin. cost x (4 
hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($113.80 
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
$82.50 information tech cost x (1.5 hours + .75 hours + .5 hours + 
.25 hours))/4 = $22,788.
    \134\ 575 swine contractors x ($39.69 per hour admin. cost x (4 
hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour manger 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($113.80 
legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
$82.50 information tech cost x (1.5 hours + .75 hours + .5 hours + 
.25 hours))/4 = $147,225.
    \135\ 362 packers x ($39.69 per hour admin. cost x (4 hours + 2 
hours + 1.33 hours + .67 hours)) + ($93.20 per hour manger cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($113.80 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($82.50 
information tech cost x (1.5 hours + .75 hours + .5 hours + .25 
hours))/4 = $92,688.
---------------------------------------------------------------------------

    Breaking out costs by market, AMS expects recordkeeping 
requirements in proposed Sec.  201.304(c) to cost beef packers $47,000 
in the first year and $41,000 in each following year. Proposed Sec.  
201.304(c) would cost lamb packers $21,000 in the first year and 
$18,000 in successive years. Proposed Sec.  201.304(c) would cost pork 
packers $39,000, and it would cost swine contractors $170,000 for a 
total of $209,000 in the first year. Proposed Sec.  201.304(c) would 
cost swine contractors $147,000 in successive years, and it would cost 
pork packers $33,000 for a total $180,000.

Executive Order 12866 and the Regulatory Flexibility Act

    This rulemaking has been determined to be significant for the 
purposes of E.O. 12866 and, therefore, has accordingly reviewed by the 
Office of Management and Budget. As a required part of the regulatory 
process, AMS prepared an economic analysis of the costs and benefits of 
the proposed Sec. Sec.  201.302, 201.304, 201.306, and 201.390. This 
regulatory filing is comprised of definitions in Sec.  201.302, 
specific prohibited discriminatory and unduly prejudicial practices in 
Sec.  201.304, specific prohibited deceptive practices in Sec.  
201.306, and a statement of severability among the provisions in Sec.  
201.390. The definitions in Sec.  201.302 of a covered producer, market 
vulnerable individual, livestock producer, and regulated entity would 
apply to proposed Sec. Sec.  201.304 and 201.306, and the regulatory 
impacts of the definitions are captured in the regulatory impacts of 
Sec. Sec.  201.304 and 201.306, which are highlighted in this analysis.
    The statement of severability in proposed Sec.  201.390 has no 
quantified regulatory impact, as it only serves to ensure that if any 
provision of Sec.  201.302, Sec.  201.304, or Sec.  201.306 is declared 
invalid or the applicability to any person or circumstance is invalid, 
the remainder of the provisions would remain valid.
    Proposed Sec.  201.304 would provide notice to the industry 
regarding unduly prejudicial and discriminatory practices that are 
prohibited and if they occur would be a violation of sec. 202(a) of the 
P&S Act. Practices that would be prohibited as unduly prejudicial and 
discriminatory under proposed Sec.  201.304(a) include prejudice, 
disadvantage, or discrimination that otherwise inhibits market access 
to a covered producer with respect to livestock, poultry, meats, and 
meat food products based on a covered producer's status as a market 
vulnerable individual or as a cooperative. Examples of prejudice or 
disadvantage are included in proposed Sec.  201.304(a)(3) and include 
offering less favorable contract terms than those generally offered, 
refusing to deal, or adversely differential performance, enforcement, 
or termination of contracts.
    Proposed Sec.  201.304(b)(1) prohibits retaliation or otherwise 
taking an adverse action against a covered producer because of the 
covered producer's participation in certain activities described in 
Sec.  201.304(b)(2). Proposed Sec.  201.304(b)(2)(i)-(vi) list 
activities that are protected under Sec.  201.304(b)(1). A covered 
producer that communicates with a government agency, or petitions a 
court, legislature, or government agency for redress of grievances is 
protected from retaliation with respect to livestock, meats, meat food 
products, livestock products in unmanufactured form, or live poultry. A 
covered producer who asserts rights granted under the P&S Act, contract 
rights, or rights to form or join a producer or grower association to 
collectively market livestock or poultry would also be protected from 
retaliation. Additionally, covered producers would be protected from 
retaliation if they communicate or cooperate with a person for purposes 
of improving production or marketing of livestock or poultry, negotiate 
with a regulated entity for purposes of exploring a business 
relationship, or support or participate as a witness in any proceeding 
under the P&S Act or a proceeding that relates to an alleged violation 
of law by a regulated entity.
    Proposed Sec.  201.306(a) would provide notice to the industry 
regarding specific deceptive practices in which a regulated entity may 
not engage with respect to livestock, meats, meat food products, 
livestock products in unmanufactured form, or live poultry. Proposed 
Sec.  201.306(b)-(e) would prohibit deceptive practices in contract 
formation, contract performance, contract termination, and contract 
refusal with respect to livestock and meats and lists specific 
practices that would constitute a violation of sec. 202(a) of the P&S 
Act. The prohibited deceptive practices include making or modifying a 
contract, performing under or enforcing a contract, terminating a 
contract, or refusing to contract with a covered producer based on 
pretext, omission of material facts, or false or misleading statements.
    Proposed Sec.  201.390 would ensure that if any provision of Sec.  
201.302, Sec.  201.304, or Sec.  201.306 is declared invalid or the 
applicability to any person or circumstance is invalid, the remainder 
of the provision would remain valid.
    Protecting rights in contracting is an important feature of both 
proposed Sec. Sec.  201.304 and 201.306. Proposed Sec.  201.304 
prohibits retaliation by regulated entities through termination of 
contracts, non-renewal of contracts, refusing to deal, and interference 
in farm real estate contracts as unduly prejudicial and discriminatory 
practices. Proposed Sec.  201.306 prohibits deceptive practices by 
regulated entities in contracting with covered producers including 
making or modifying a contract, performing under or enforcing a 
contract, terminating a contract, or refusing to contract with a 
covered producer based on pretext, false or misleading statements, or 
omission of material facts. A discussion of contracting in these 
industries is, therefore, useful in explaining the need for these 
additional regulations. As will be seen in the next three tables below 
defining market shares of regulated entities and the discussion that 
follows, the unduly prejudicial, discriminatory, and deceptive 
practices, including retaliation, that proposed Sec. Sec.  201.304 and 
201.306 would prohibit are partially attributable to the structure of 
the livestock and poultry industries, the imbalance of market power 
between

[[Page 60038]]

regulated entities, producers, growers, and the potential market 
failure of asymmetrical information, which, along with imperfect 
competition, contributes to hold-up.
Prevalence of Contracting in Cattle, Hog, and Poultry Industries
    Growing, production, and marketing contracts feature prominently in 
the livestock and poultry industries. As outlined above, several 
provisions in proposed Sec. Sec.  201.304 and 201.306 would affect the 
process of making, enforcing, and terminating contracts for livestock, 
poultry, and meat grown or marketed under contract.
    The type of contracting varies among cattle, hogs, and poultry. 
Broilers, the largest segment of poultry, are almost exclusively grown 
under production contracts, in which the live poultry dealers, a 
regulated entity, own the birds and provide poultry growers with feed 
and medication to raise and care for the birds until they reach the 
desired market size. Poultry growers provide the housing, the skill and 
efforts of labor, water, electricity, fuel, and provide for waste 
removal. Fed cattle marketing contracts typically take the form of 
marketing agreements as discussed below. Hog production falls between 
these two extremes.
    As shown in the table below, over 96 percent of all broilers and 
over 42 percent of all hogs are grown under contractual arrangements. 
Similar to poultry contracts, swine contractors typically own the 
slaughter hogs and sell the finished hogs to pork packers. The swine 
contractors typically provide feed and medication to the swine 
production contract growers who own the growing facilities and provide 
growing services. The following table shows that the percentage of 
contract growing arrangements by species has remained relatively stable 
between 2007 and 2017.

          Table 4--Percentage of Poultry and Hog Raised and Delivered Under Production Contracts \136\
----------------------------------------------------------------------------------------------------------------
                             Species                                   2007            2012            2017
----------------------------------------------------------------------------------------------------------------
Broilers........................................................            96.5            96.4            96.3
Turkeys.........................................................            67.7            68.5            69.5
Hogs............................................................            43.3            43.5            42.4
----------------------------------------------------------------------------------------------------------------

    Other types of contracts include marketing agreements and forward 
contracts. Under marketing agreements, livestock producers market their 
livestock to a packer for slaughter under a verbal or written 
agreement. Under forward contracts, producers and packers agree to 
terms on a future sale and purchase of livestock. These types of 
agreements and contracts are commonly referred to as Alternative 
Marketing Arrangements (AMAs). Pricing mechanisms vary across AMAs. 
Some AMAs rely on a reported spot, or negotiated, market price or 
exchange-based futures price for at least one aspect of its price, 
while others involve complicated pricing formulas with premiums and 
discounts based on carcass merits. The livestock producer and packer 
agree on a pricing mechanism under AMAs, but usually not on a specific 
price.
---------------------------------------------------------------------------

    \136\ Agricultural Census, 2012 and 2017, available at https://www.nass.usda.gov/Publications/AgCensus/2017/Full_Report/Volume_1,_Chapter_1_US/usv1.pdf (last accessed 8/9/2022).
---------------------------------------------------------------------------

    AMS reports the number of cattle sold to packers under formula, 
forward contract, and negotiated pricing mechanisms. The following 
table illustrates the prevalence of contracting in the marketing of fed 
cattle. Formula pricing methods and forward contracts are two forms of 
AMA contracts. Thus, the first two columns in the following table are 
cattle marketed under contract and the third column represents the spot 
market, or negotiated market, for fed cattle including negotiated grid. 
The data in the below table show that the AMA contracting of cattle has 
increased since 2010. Approximately 55 percent of fed cattle were 
marketed under contracts in 2010. By 2021, the percentage of fed cattle 
marketed to packers under AMA contracts had increased to just over 72 
percent. These data also show the declines in the percentage of cattle 
sold on the spot market from 45.6 in 2010 to 27.6 in 2021.

                        Table 5--Percentage of Fed Cattle Sold by Type of Purchase \137\
----------------------------------------------------------------------------------------------------------------
                                                                                      Forward
                              Year                                    Formula        contract       Negotiated
----------------------------------------------------------------------------------------------------------------
2010............................................................            44.9             9.5            45.6
2011............................................................            48.4            10.9            40.7
2012............................................................            54.7            11.4            33.8
2013............................................................            60.0            10.2            29.8
2014............................................................            58.1            14.2            27.6
2015............................................................            58.2            16.5            25.3
2016............................................................            58.2            12.0            29.8
2017............................................................            58.7            11.4            29.9
2018............................................................            62.0             8.8            29.2
2019............................................................            65.7             9.8            24.4
2020............................................................            64.1             9.0            27.0
2021............................................................            61.5            10.9            27.6
----------------------------------------------------------------------------------------------------------------

    As previously discussed, and illustrated in Table 4 above, over 40 
percent of hogs are grown under production contracts. These hogs are 
then sold by swine contractors or to other contract production growers 
to packers under marketing contracts.
---------------------------------------------------------------------------

    \137\ U.S. Department of Agriculture, Agricultural Marketing 
Service, available at: https://mpr.datamart.ams.usda.gov/
menu.do?path=Products\Cattle\Weekly%20Cattle (last accessed Aug. 
2022).

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

[[Page 60039]]

    As can be seen in the below table, the percentage of hogs sold 
under marketing contracts has increased since 2010 to over 98 percent 
in 2020. The spot market for hogs has declined from 5.2 percent in 2010 
to 1.5 percent in 2020. As these data demonstrate, almost all hogs are 
marketed to packers under some type of marketing contract.

                           Table 6--Percentage of Hogs Sold by Type of Purchase \138\
----------------------------------------------------------------------------------------------------------------
                                                                       Other
                                                                     marketing
                              Year                                 arrangements    Formula \140\    Negotiated
                                                                       \139\
----------------------------------------------------------------------------------------------------------------
2010............................................................            45.4            49.4             5.2
2011............................................................            47.6            48.2             4.2
2012............................................................            47.7            48.6             3.6
2013............................................................            48.3            48.4             3.2
2014............................................................            45.9            51.4             2.7
2015............................................................            46.0            51.4             2.6
2016............................................................            50.0            47.6             2.5
2017............................................................            52.5            45.0             2.5
2018............................................................            56.5            41.3             2.2
2019............................................................            59.8            38.4             1.8
2020............................................................            61.3            37.1             1.5
----------------------------------------------------------------------------------------------------------------

Structural Issues in the Cattle, Hog, and Poultry Industries
    The livestock and poultry industries are characterized by a high 
volume of growing, production, and marketing contracts. High volume of 
this type of contracting, coupled with high levels of market 
concentration, may increase the risk for anticompetitive behaviors of 
undue prejudice and discrimination, retaliation, and deception by 
regulated entities, which can harm market vulnerable producers.
---------------------------------------------------------------------------

    \138\ U.S. Department of Agriculture, Agricultural Marketing 
Service, available at: https://mpr.datamart.ams.usda.gov/
menu.do?path=\Products (last accessed Aug. 2022).
    \139\ Includes Packer Owned and Packer Sold, and Other Purchase 
Arrangements.
    \140\ Includes Swine Pork Market Formula, and Other Market 
Formula.
---------------------------------------------------------------------------

    Despite various policy and public concerns with contracting, 
growing, production, and marketing contracts can offer certain benefits 
to the contracting parties. Properly tailored, benefits can include 
helping farmers, livestock producers, and processors manage price and 
production risks, elicit the production of products with specific 
quality attributes by tying prices to those attributes, and facilitate 
the smooth flow of commodities to processing plants. Such attributes 
may encourage certain efficiencies in use of farm and processing 
capacities. Quality-related attributes and standards can incentivize 
farmers to deliver products that consumers desire and produce products 
in ways that reduce processing costs.\141\
---------------------------------------------------------------------------

    \141\ RTI International, 2007, GIPSA Livestock and Meat 
Marketing Study, Prepared for USDA, GIPSA; Stephen R. Koontz, 
``Another Look at Alternative Marketing Arrangement Use by the 
Cattle and Beef Industry,'' in Bart Fischer et al., ``The U.S. Beef 
Supply Chain: Issues and Challenges Proceedings of a Workshop on 
Cattle Markets,'' 2021. But see C. Robert Taylor, ``Market Structure 
of the Livestock Industry,'' Testimony before the House Committee of 
Agriculture, April 16, 2007, available at https://www.iatp.org/documents/c-robert-taylor-testimony-market-structure-of-the-livestock-industry; C. Robert Taylor, ``Harvested Cattle, 
Slaughtered Markets,'' April 27, 2022, available at https://www.antitrustinstitute.org/work-product/aai-advisor-robert-taylor-issues-new-analysis-on-the-market-power-problem-in-beef-lays-out-new-policy-framework-for-ensuring-competition-and-fairness-in-cattle-and-beef-markets/(contesting quality incentives delivered 
through these agreements).
---------------------------------------------------------------------------

    There are, however, trade-offs with the use of these contracts. In 
concentrated industries, like the cattle, hog, and poultry industries, 
where market power is present, these types of contracts may result in 
increased opportunities for undue prejudices and discrimination, 
retaliation, and deception, among other concerns, which cause 
inefficiencies in the markets for livestock, poultry, and meat.\142\ 
Heightened market concentration implies that livestock producers and 
poultry growers face fewer marketing and contract options compared to 
less concentrated markets. Livestock producers and poultry growers may 
find themselves in a take-it-or-leave it situation when a new or 
renewal contract is presented due to a limited number of packers and 
live poultry dealers with which to contract. Thus, livestock producers 
and poultry dealers entering into new or renewal contracts may be taken 
advantage of through discriminatory, deceptive, or retaliatory 
practices.
---------------------------------------------------------------------------

    \142\ Nathan H. Miller, et al., ``Buyer Power in the Beef 
Packing Industry: An Update on Research in Progress,'' April 13, 
2022, available at http://www.nathanhmiller.org/cattlemarkets.pdf. 
See also Michael Kades, ``Protecting Livestock Producers and Chicken 
Growers,'' Washington Center for Equitable Growth (May 5, 2022), 
available at https://equitablegrowth.org/research-paper/protecting-livestock-producers-and-chicken-growers/.
---------------------------------------------------------------------------

    Livestock and poultry contracts may hold producers and growers 
captive, due to limited number of packers and live poultry dealers and 
therefore susceptible to unjust, prejudicial and retaliatory practices. 
For example, a contract that limits a poultry grower's services to a 
single integrator, even if the contract provides for fair compensation 
to the grower, still leaves the grower subject to retaliation risks. 
The grower may face the hold-up risk that the contractor may require 
additional capital investments or may face retaliation, when the 
contractor imposes lower returns at the time of contract renewal.\143\ 
Some growers make substantial long-term capital investments as part of 
livestock or poultry production contracts, including land, poultry or 
hog houses, and equipment. Those investments may tie the grower to a 
single contractor or integrator, furthering the indebtedness, and thus 
also imbalance of power.
---------------------------------------------------------------------------

    \143\ See Vukina and Leegomonchai, ``Oligopsony Power, Asset 
Specificity, and Hold-Up: Evidence From The Broiler Industry,'' 
American Journal of Agricultural Economics, 88(3): 589-605 (August 
2006).
---------------------------------------------------------------------------

    In the poultry industry, limited integrator choice may accentuate 
contract risks. The data in Table 3 above show that 52 percent of 
broiler growers, accounting for 56 percent of total production, report 
having only one or two integrators in their local areas. Even where 
multiple growers are present, there are high costs to switching, owing 
to the differences in technical specifications that integrators 
require. The growers likely need to invest in new equipment and learn 
to apply different operational techniques due to different breeds, 
target weights and grow-out cycles.

[[Page 60040]]

    In 2013, production contracts covered $58 billion in agricultural 
production, 83 percent of which was poultry and hog contracts.\144\ 
Most hogs are produced and marketed under production and marketing 
contracts. Open market negotiated trade represented 9 percent of total 
trades for hogs in 2008 and dropped to 2 percent in 2020.\145\ In 
effect, the only production/marketing choice for a hog producer is to 
enter a contract.
---------------------------------------------------------------------------

    \144\ MacDonald, J.M. ``Trends in Agricultural Contracts.'' 
Choices. 2015. Quarter 3. Available at https://www.choicesmagazine.org/choices-magazine/theme-articles/current-issues-in-agricultural-contracts/trends-in-agricultural-contracts, 
accessed 9-19-22.
    \145\ USDA, AMS, FTPP, Packers and Stockyards Division. Packer 
Annual Reports, 2021 and 2012. Available at https://www.ams.usda.gov/reports/psd-annual-reports, accessed 9-19-22.
---------------------------------------------------------------------------

    In the cattle sector, cow-calf operations incur a significant 
investment in breeding stock and typically sell steers and heifers once 
a year. Price risk can therefore rise from the months-long production 
process.\146\ Access to competitive markets, absent from 
discrimination, undue prejudice, and retaliation, is important to the 
economic livelihood of vulnerable producers. Reduced marketing 
options--fewer options to sell on the spot market, or lack of access to 
contracts--can leave producers susceptible to unfair trade practices. 
Spot market trades, or negotiated trades, as opposed to marketing 
agreements or contracts, for fed cattle accounted for 51 percent of all 
trades in 2008 and fell to 27 percent in 2020.\147\
---------------------------------------------------------------------------

    \146\ Martinez, C.C., Maples, J.G. and Benavidez, J. Beef Cattle 
Markets and COVID-19. Applied Economics Perspectives and Policy, 
(2021) 43: 304-314. Available at https://doi.org/10.1002/aepp.13080, 
accessed 9/19/22.
    \147\ USDA, AMS, FTPP, Packers and Stockyards Division. Packer 
Annual Reports, 2021 and 2012. Available at https://www.ams.usda.gov/reports/psd-annual-reports, accessed 9-19-22.
---------------------------------------------------------------------------

    A 2006 survey indicated that growers with access to a single 
integrator received 7 to 8 percent less compensation, on average, than 
farmers located in areas with 4 or more integrators.\148\ If live 
poultry dealers already possess some market power to reduce prices for 
poultry growing services, some contracts can extend that power by 
raising the costs of entry for new competitors or allowing for price 
discrimination.\149\
---------------------------------------------------------------------------

    \148\ MacDonald, J. and N. Key. ``Market Power in Poultry 
Production Contracting? Evidence from a Farm Survey.'' Journal of 
Agricultural and Applied Economics. 44(4) (November 2012): 477-490.
    \149\ See, e.g., Williamson, Oliver E. ``Markets and 
Hierarchies: Analysis and Antitrust Implications,'' New York: The 
Free Press (1975); Edlin, Aaron S. & Stefan Reichelstein (1996) 
``Holdups, Standard Breach Remedies, and Optimal Investment,'' The 
American Economic Review 86(3): 478- 501 (June 1996).
---------------------------------------------------------------------------

    One indication of potential market power is industry 
concentration.\150\ Table 2 presented earlier, shows the level of 
concentration in the livestock and poultry slaughtering industries for 
2010-2020. The table shows the combined market share of the four 
largest steer and heifer slaughterers remained stable between 83 and 85 
percent from 2010 to 2019 and dropped to 81 percent in 2020. Four-firm 
concentration ratios for hog and broiler slaughter has also remained 
relatively stable between 62 and 70 percent and 51 and 54 percent, 
respectively.
---------------------------------------------------------------------------

    \150\ For additional discussion see MacDonald, J.M. 2016 
``Concentration, contracting, and competition policy in U.S. 
agribusiness,'' Competition Law Review, No. 1-2016: 3-8.
---------------------------------------------------------------------------

    As discussed previously, the data in Table 2 are estimates of 
national four-firm concentration ratios at the national level, but the 
relevant economic markets for livestock and poultry may be regional or 
local, and concentration in the relevant market may be higher than the 
national level. For example, while poultry markets may appear to be the 
least concentrated in terms of the four-firm concentration ratios 
presented above, relevant economic markets for poultry growing services 
are more localized than markets for fed cattle or hogs, and local 
concentration in poultry markets is often greater than in hog and other 
livestock markets. The data presented earlier in Table 3 highlights 
this issue by showing the limited ability a poultry grower has to 
switch to a different integrator. As a result, national concentration 
may not demonstrate accurately the options poultry growers in a 
particular region face.
    The levels of industry concentration shown in Tables 2 and 3 may 
contribute to oligopolistic market power and asymmetric information. 
The result is that the contracts bargained between the parties may 
leave livestock producers, swine production contract growers, and 
poultry growers vulnerable to detrimental risks of anticompetitive 
conduct such as prejudice and discrimination, retaliation, and 
deception due to the structural issues discussed above and may result 
in inefficiencies in the marketplace.
Asymmetric Information
    There is asymmetry in the information available to livestock 
producers and livestock and poultry growers and the packers, swine 
contractors, and live poultry dealers with whom they contract. The 
larger packers, swine contractors, and live poultry dealers generally 
have more information (costs of production, input quality, and consumer 
demand, for example) that is useful in contracting than the smaller 
livestock producers and livestock and poultry growers. This asymmetry 
of information can lead to deceptive practices by regulated entities 
with superior information in making or modifying production, marketing, 
or growing contracts, performing under, enforcing, or terminating these 
contracts, or refusing to contract with a covered producer based on 
pretext, omission of information, or false or misleading statements.
    Some marketing contracts for fed cattle, for example, use various 
plant averages in the calculation for the base price of the cattle in 
the marketing contract. Only the packer has the information about the 
plant averages and producers cannot independently verify the 
information. Similar issues exist in hog marketing contracts. For 
contracts based on the pork cutout, the hog packer has more information 
about the direct retail pork demand and hence pork cutout prices than 
hog sellers.
    Asymmetric information is particularly acute in all contracts 
between poultry growers and live poultry dealers. 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 with AMS in 2020 was 251. The 
largest live poultry dealers contracted with several thousand 
growers.\151\ Most growers producing poultry under production contracts 
are paid under a poultry grower ranking or ``tournament'' pay system. 
Under tournament systems, the contract between the poultry grower and 
the company for whom the grower raises poultry for slaughter pays the 
grower based on a grouping, ranking, or comparison of poultry growers 
delivering poultry to the same company during a specified period. 
Generally, live poultry dealers provide most of the inputs to all the 
growers in each poultry tournament used to determine grower pay. In 
these tournaments, the live poultry dealers have information about the 
quality of the inputs, while each grower only knows 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 he or she almost

[[Page 60041]]

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, only has information concerning his or her 
own production and income. Prohibiting deception may serve to reduce 
the negative impacts from asymmetric information. Prohibiting 
retaliation against producers or growers because they joined a 
cooperative or association, shared information to improve their 
production or growing practices, or communicated with the government 
should lead to reducing the information asymmetry between regulated 
entities and producers and growers.
---------------------------------------------------------------------------

    \151\ 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.
---------------------------------------------------------------------------

Hold-Up Risk
    Hold-up is another risk that is particularly acute in the service 
contracts between poultry growers and live poultry dealers. Hold-up is 
far less of a risk for hog and cattle producers, so the discussion here 
is limited to poultry growing to highlight this risk to poultry 
growers. Substantial gaps exist between the periods of time covered by 
the contract and the mortgage on poultry housing, creating uncertainty 
around whether growers will be able to repay their debt and recoup 
their investments, introducing hold-up risk into the contracting 
process. As discussed in the preamble, hold-up is the risk growers face 
at the time of contract renewal when integrators make contract renewal 
dependent on further grower investments not disclosed at the time of 
the original agreements.\152\
---------------------------------------------------------------------------

    \152\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony 
Power, Asset Specificity, and Hold-Up: Evidence from the Broiler 
Industry.'' American Journal of Agricultural Economics 88 (2006).
---------------------------------------------------------------------------

    This is of concern in poultry production contracts because the 
capital requirements related to growing chickens are significant and 
highly specialized (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 
have reported that they must accept unfavorable contract terms or 
endure unfavorable treatment during a contract--including inappropriate 
limits on their ability to form associations, assert their rights under 
the law or contract (such as viewing the weighing of broilers), 
communicate with government entities, and seek alternative business 
relationships--because they are tied to production to pay off lenders 
and they have few, if any, alternative integrators with whom they can 
contract. Hog producers which invest heavily in production facilities 
face may similar risks.
    Long term, this behavior may result in underinvestment in 
production, which is inefficient. Alternatively, if growers do not 
anticipate hold-up, then growers may spend too much on investments 
because the integrator who demands them is not incurring any cost. The 
resulting over-investment in capital by those growers facing hold-up is 
also inefficient. Hold-up risk is a manifestation of both market power 
and asymmetric information.
    Hold-up risk can be alleviated with a prohibition on retaliation 
for certain protected activities that enhance the competitive 
environment and market integrity, as well as a prohibition on deception 
and the accompanying reduction in asymmetric information. Increased 
information to growers by allowing growers to freely communicate and 
share information without fear of retaliation would allow growers to be 
make more informed decision about the efficient level of capital in 
which to invest.
Contracting, Industry Structure, and Market Failure: Summary of the 
Need for Regulation
    Growing, production, and marketing contracts benefit the livestock 
and poultry industries. Existing structural issues may result in 
imperfect competition, risks of undue prejudice and discrimination, 
retaliation, deception, unequal bargaining power, and information 
asymmetries, potentially increasing hold-up risk.
    USDA's long-standing policy has been that the P&S Act prohibits the 
type of conduct that this proposed rule addresses.\153\ Sections 
201.304 and 201.306 will serve to fill-in gaps where other Federal and 
state statutes, not specific to the agricultural sector, overlap and 
fail to provide full protections. Proposed Sec.  201.304 would prohibit 
packers, swine contractors, and live poultry dealers from unduly 
discriminating and employing undue prejudices against market vulnerable 
producers and cooperatives.
---------------------------------------------------------------------------

    \153\ Agricultural Marketing Service, USDA, ``Undue and 
Unreasonable Preferences and Advantages Under the Packers and 
Stockyards Act,'' Final Rule, December 11, 2020, 85 FR 79779, 79787, 
available at https://www.federalregister.gov/documents/2020/12/11/2020-27117/undue-and-unreasonable-preferences-and-advantages-under-the-packers-and-stockyards-act; Agricultural Marketing Service, 
USDA, ``Frequently Asked Questions on the Enforcement of Undue and 
Unreasonable Preferences under the Packers and Stockyards Act,'' 
August 2021, available at https://www.ams.usda.gov/rules-regulations/packers-and-stockyards-act/faq (last accessed Aug. 
2022).
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    Proposed Sec.  201.304 would also prohibit retaliation including 
termination of contracts, refusing to deal, refusing to renew a 
contract, and interference in farm real estate transactions or 
contracts with third parties. Retaliation would only be effective if 
producers and growers had a small number of packers and live poultry 
dealers to market their livestock or growing services. If producers and 
growers had lots of choices among packers and live poultry dealers, 
producers and growers would simply market their livestock or growing 
services to a different packer or live poultry dealer if they were 
being retaliated against. Thus, retaliation is more likely to occur in 
markets with imperfect competition and an oligopsonistic structure, 
such as the cattle, hog, and poultry markets. This clear statement 
regarding prohibitions on retaliation could reduce instances of 
retaliation against livestock producers and livestock and poultry 
growers.
    Proposed Sec.  201.304 would also protect various activities that 
would allow covered producers to freely communicate with each other and 
governmental entities. To establish a climate of compliance, regulated 
entities would be required to maintain all relevant records in 
compliance with proposed Sec.  201.304.
    Proposed Sec.  201.306 would prohibit packers, swine contractors, 
and live poultry dealers from employing deceptive practices against 
producers and growers in forming, performing, and terminating contracts 
and refusing to contract based on false or misleading information.
    By setting forth specific prohibitions on unduly prejudicial and 
discriminatory and deceptive practices, the proposed rule would 
reinforce producers' and growers' existing rights to gather and share 
information, while reducing the fear of retaliation and interference in 
the contracting process. The prohibitions in the proposed rule would 
also continue to support, and possibly promote more efficient and 
equitable reducing information asymmetries and hold-up risk, reducing 
retaliation, pretext, false and misleading information, and increasing 
communication, cooperation, and retention of legal rights. The 
prohibitions specified in proposed Sec. Sec.  201.304 and 201.306 would 
ultimately assist in mitigating the impacts of imperfect competition.

[[Page 60042]]

Cost-Benefit Analysis of Proposed Sec. Sec.  201.304 and 201.306

Regulatory Alternatives Considered
    Executive Order 12866 requires an assessment of costs and benefits 
of potentially effective and reasonably feasible alternatives to the 
planned regulations and an explanation of why the planned regulatory 
action is preferable to the potential alternatives.\154\ AMS considered 
three regulatory alternatives. The first alternative that AMS 
considered is to maintain the status quo and not propose Sec. Sec.  
201.304 and 201.306. The second alternative that AMS considered is to 
issue proposed Sec. Sec.  201.304 and 201.306 as presented in this 
proposed rule.\155\ This second alternative is AMS's preferred 
alternative as will be explained below. The third alternative that AMS 
considered is proposing Sec. Sec.  201.304 and 201.306, but exempting 
small businesses, as defined by the Small Business Administration 
(SBA), from having to comply with the recordkeeping requirement of 
Sec.  201.304(c).
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    \154\ See Section 6(a)(3)(C) of Executive Order 12866.
    \155\ This proposed rule includes Sec.  201.302, which defines a 
covered producer, livestock producer, and regulated entity. These 
definitions would apply to proposed Sec. Sec.  201.304 and 201.306. 
The definitions proposed in Sec.  201.302 are captured in the 
regulatory impacts of proposed Sec. Sec.  201.304 and 201.306. The 
proposed rule also includes Sec.  201.390 which states all 
provisions are severable in case any provision is declared invalid. 
Proposed Sec.  201.390
---------------------------------------------------------------------------

Regulatory Alternative 1: Status Quo Alternative
    If proposed Sec. Sec.  201.304 and 201.306 are never promulgated, 
there are no marginal costs and marginal benefits as industry 
participants will not alter their conduct. From a cost standpoint, this 
Status Quo Alternative is the least-cost alternative compared to the 
other two alternatives. This alternative also has no marginal benefits. 
Since there are no changes from the status quo under this regulatory 
alternative, it will serve as the baseline against which to measure the 
other two alternatives.
Regulatory Alternative 2: The Proposed Alternative
    As discussed above, proposed Sec.  201.304 prohibits undue 
prejudice, discrimination, and retaliation by regulated entities and 
adds a requirement for regulated entities to maintain records, for a 
period of five years, related to its compliance with proposed Sec.  
201.304. Proposed Sec.  201.306 would prohibit deceptive practices by 
regulated entities in contracting with covered producers including 
making or modifying a contract, performing under or enforcing a 
contract, terminating a contract, or refusing to contract with a 
covered producer based on pretext, omission of information, or false or 
misleading statements.
Regulatory Alternative 2: Benefits of the Proposed Alternative
    Reductions in prejudicial, discriminatory, retaliatory, and 
deceptive practices by packers, swine contractors, and live poultry 
dealers would benefit livestock and poultry producers and growers. 
These types of anticompetitive conduct do not have procompetitive 
benefits and are generally conduct that occurs outside of written 
contracts. Retaliation, for example, is not written into a contract, 
but can occur by a packer terminating a contract based on pretext if a 
livestock producer takes an action for which a packer disapproves, such 
as joining a producer group that the packer denounces. There need not 
be any changes to the contracting process or changes in the use of 
marketing, production, or growing arrangements for producers and 
growers to receive benefits. Any reductions in prejudicial, 
discriminatory, retaliatory, and deceptive practices by packers, swine 
contractors, and live poultry dealers would benefits producers and 
growers. The amount of benefits that would be received by producers and 
growers depends on the extent to which the proposed rule reduces 
prejudicial, discriminatory, retaliatory, and deceptive practices. 
That, in turn, is bounded by the degree to which any of these types of 
activities are occurring in the baseline. The following discussion is 
about the types of benefits that producers and growers would receive 
from a reduction in prejudicial, discriminatory, retaliatory, and 
deceptive practices by packers, swine contractors, and live poultry 
dealers. If the reductions are small, the benefits would be small. The 
greater the reductions, the greater the potential benefits.
    AMS discusses the potential benefits to livestock producers and 
growers from the Proposed Alternative (proposed Sec. Sec.  201.304 and 
201.306) compared to the Status Quo Alternative. USDA's long-standing 
policy has been that the P&S Act prohibits the type of conduct that the 
Proposed Alternative (proposed Sec. Sec.  201.304 and 201.306) 
addresses. The Proposed Alternative adds specificity to deceptive, 
unjustly discriminatory practices (retaliation), and unreasonable 
prejudices. Consequently, AMS expects packers, live poultry dealers, 
and swine contractors would review the proposed rule and assess 
compliance of their contracts and conduct with the proposed rule. Some 
packers, swine contractors, and live poultry dealers may make some 
minor modifications if they believe their contracts or conduct are not 
in compliance. AMS expects all regulated entities to maintain relevant 
records relating to their compliance with proposed Sec.  201.304, which 
would provide further benefits to the industry.
    The size of the benefits is difficult to quantify as they depend on 
the amount of undue prejudice, discrimination, and deception that will 
be avoided should the provisions in the Proposed Alternative be adopted 
by the Agency. The more undue prejudice, discrimination, and deception 
that will be avoided, the larger the benefits. AMS is unable to 
quantify the benefits and will present a qualitative discussion of the 
types of potential benefits that accrue from reductions in prejudice, 
discrimination, retaliation, and deception.
    The following discussion is for the benefits, in general, to the 
livestock and poultry industries from the provisions in the Proposed 
Alternative, and similar provisions that USDA has long viewed as 
violations of P&S Act. The added benefits to the industry from the 
Proposed Alternative over the Status Quo Alternative occur when 
packers, swine contractors, and live poultry dealers alter their 
contracts and/or conduct of their employees to reduce instances of 
deceptive, prejudicial, and discriminatory practices, including 
retaliation, and keep records about their compliance programs. The 
potential benefits include protecting producer and grower rights, 
improved corporate culture and the ability to investigate compliance 
through recordkeeping requirement, addressing asymmetric information, 
prohibiting deceptive practices, and other benefits.
Protecting Producer and Grower Rights
    Concentration and lack of competition in livestock procurement 
markets and poultry contracting can lead to abuses of market power such 
as undue prejudice and discrimination, retaliation, deception, fraud, 
and restrictions of producer and grower rights. A key purpose of 
specifying certain prohibitions on unduly prejudicial, discriminatory, 
and deceptive practices, including those in the Proposed Alternative, 
is to protect livestock producers, swine contractors and poultry 
growers' rights under the P&S Act. The Proposed Alternative would also 
help protect producers and growers from unfair and deceptive practices 
stemming from market power

[[Page 60043]]

imbalances such as undue prejudice, discrimination, retaliation, and 
deception by using pretext and false and misleading information in 
contracting by packers and live poultry dealers. These benefits of 
prohibiting prejudicial, discriminatory, and deceptive practices, 
including those in the proposed rule, would accrue not only to the 
market's vulnerable and cooperative producers and growers who have been 
subjected to the prohibited practices, but also to those for whom the 
proposed rule's deterrence effects would protect from future potential 
abuses.
    For example, proposed Sec.  201.304(a)(1) and (2) in the Proposed 
Alternative would prohibit undue prejudice and discrimination by 
packers, swine contractors, and live poultry dealers against market 
vulnerable producers and growers and cooperatives. This prohibition 
would protect vulnerable producers and growers and cooperatives who 
would potentially face these types of discrimination. Proposed Sec.  
201.304(a)(3) in the Proposed Alternative includes examples of unduly 
prejudicial and discriminatory conduct, including termination of 
contracts, refusing to deal, and interference in farm real estate 
transactions or contracts with third parties. Unfair termination of 
contracts and refusal to deal can lead to an inefficient allocation of 
resources.
    Proposed Sec.  201.304(b)(1) in the Proposed Alternative would 
prohibit packers, swine contractors, and live poultry dealers from 
retaliating against producers and growers for engaging in certain 
protected activities. Additionally, proposed Sec.  201.304(b)(2) would 
protect producers and growers from retaliation by regulated entities 
for engaging in various activities, including communicating with a 
government agency, seeking redress before a court, or asserting rights 
to join a producer or grower association, collectively process and 
market livestock or poultry, or supporting or participating as a 
witness in any proceeding under the P&S Act, or a proceeding that 
relates to an alleged violation of law by a regulated entity. These 
provisions would also protect producers and growers from retaliation 
resulting from communication or cooperating with a person to improve 
the production of livestock or poultry and from communicating with a 
regulated entity to explore a business relationship. These types of 
protections can improve market efficiency.
    The Proposed Alternative's Sec.  201.306 would add a prohibition on 
packers, swine contractors, and live poultry dealers of committing the 
deceptive practices of pretext, providing false and misleading 
information, or omission of material facts in forming, performing, and 
terminating contracts and refusing to contract with producers and 
growers with respect to livestock poultry and meat. Prohibitions on 
deception could also improve efficiency by reducing instances where 
resources are allocated based on pretext, false or misleading 
information, or omission of material facts. That is, incorrect or 
incomplete information can misguide the allocation of resources such as 
land, labor, and capital away from their best use. The benefits of a 
more efficient allocation of resources from these types of prohibitions 
would be captured by producers, growers, packers, and live poultry 
dealers. These types of benefits would be directly related to the 
reduction in prejudicial, discriminatory, retaliatory, and deceptive 
practices. These proposed provisions would further promote integrity in 
the market and should give current and prospective producers and 
growers more confidence that they would be treated fairly.
Recordkeeping
    There are multiple potential benefits of the record-keeping 
provision in the Proposed Alternative's proposed Sec.  201.304(c). 
Record-keeping regulations can reduce AMS investigative costs and 
improve the quality of the investigations. Access to essential records 
would improve AMS enforcement and assist AMS in assessing the 
effectiveness of the regulated entity's compliance with proposed Sec.  
201.304(c). Information that AMS would gather when conducting 
compliance reviews, can enable AMS to promote market competitiveness 
and efficiency, as well as protect market participants against 
discrimination and other abusive practices. The rights of vulnerable 
producers and cooperatives can be better upheld when records of 
regulated entities are maintained and can be reviewed by AMS.
    Another potential benefit of the recordkeeping requirement in the 
Proposed Alternative's Sec.  201.304(c) is that regulated entities 
would know that AMS may be able to obtain and review records during 
investigations. This may result in a change in corporate culture of 
regulated entities in favor of increased voluntary compliance with 
proposed Sec.  201.304 and reductions in undue prejudice, 
discrimination, and retaliation because regulated entities would know 
their records can be reviewed. Company leaders may shift the corporate 
culture in order to comply with the proposed rule.
Addressing Asymmetric Information
    Several provisions in the Proposed Alternative would enhance the 
protection of the rights of producers and growers to lawfully 
communicate and to associate with others to explore business 
relationships and improve production practices and in the marketing of 
livestock, poultry, and meat. These provisions would benefit producers 
and growers by encouraging the use of their currently existing legal 
rights to cooperate that would solidify and enhance their access to 
information. This in turn, would help address information asymmetry and 
thus help producers and growers make better business decisions, enhance 
their competitiveness, reduce hold-up risk, and promote innovation and 
economic efficiency in the industry.
    The Proposed Alternative, by protecting the rights of growers and 
producers to form associations and communicate freely with one another 
and to communicate with other regulated entities for the purpose of 
exploring a business relationship, would help close this information 
gap. This would benefit producers and growers by improving industry 
transparency, enhancing the bargaining power of supplier groups if they 
elect to organize in such a way.
    This proposed rule would prohibit retaliation against covered 
producers due to their association with other producers and regulated 
entities, which could increase the information available to growers 
that is important in decision making. Improved safeguarding of 
protected activities may enable the producer or grower to improve 
business decision-making and manage risk, including potentially 
acquiring external insurance and risk-management products. In addition, 
facilitating producers and growers' ability to gain more and better 
information would help correct information asymmetry and improve 
transparency and completeness in contracts.
    More information would also reduce the risks associated with hold-
up as discussed above. By protecting rights to freely communicate and 
associate, this proposed rule would facilitate communication across the 
industry that may help disseminate information regarding new 
innovations and best practices within the industry. These types of 
provisions that could provide producers and growers with access to more 
and better information should promote innovation and economic 
efficiency in the industry.
    The Proposed Alternative may also serve to reduce the risk of 
violating sec.

[[Page 60044]]

202(a) of the P&S Act because it would provide clarification to the 
livestock and poultry industries as to the discriminatory and deceptive 
practices that would be prohibited under that section of the Act. Less 
risk through the clarification provided in the Proposed Alternative 
would likely foster fairness in contracting by providing explicit 
protections for livestock producers, swine production contract growers, 
and poultry growers.
Prohibiting Deceptive Practices
    Proposed Alternative's Sec.  201.306 specifies prohibited practices 
that would be considered deceptive, and thus in violation of sec. 
202(a) of the P&S Act. Though USDA already protects producers and 
growers from deceptive practices, the proposed rule would explicitly 
protect suppliers from deception by packers and live poultry dealers 
from pretextual justifications, providing false and misleading 
information, and the omission of material facts in contracting. 
Prohibited deceptions, including false statements, pretext, or 
omissions, can prevent or mislead producers and growers, sellers, or 
buyers from making informed decisions and thus represents a market 
inefficiency. The provisions in the Proposed Alternative would help 
give producers and growers confidence that the information provided by 
processors is reliable, which would help them to make better and more 
informed business decisions and manage risk.
Other Benefits
    While some of these protections already benefit individual 
producers and growers, ensuring they cover the full marketplace and can 
be enforced individually adds to the overall integrity and fairness of 
livestock and poultry contracting. Specifying these protections may 
bring additional benefits above the Status Quo Alternative.
    Growing, production, and marketing contracting has many benefits in 
the livestock and poultry industries. The Proposed Alternative can 
further enhance the documented benefits of contracting by prohibiting 
unduly prejudicial, discriminatory, and deceptive practices. Packers, 
swine contractors, and live poultry dealers have at times exploited 
their market power through business practices that have unjustly harmed 
producers and livestock and poultry growers. These abuses have led to a 
climate of fear among producers and growers that certain actions they 
might undertake such as communication with government or other 
regulated entities to pursue business relationships, association with 
certain groups, or making lawful public complaints about the packers, 
swine contractors, or live poultry dealers might result in harmful 
retaliations. AMS intends the Proposed Alternative to promote integrity 
to the marketplace by enhancing the protection of the rights of the 
producers and growers and alleviating those fears.
    The literature and data on these topics are not sufficient to allow 
AMS to estimate the magnitude of the inefficiencies that the Proposed 
Alternative may correct above the Status Quo Alternative, nor the 
degree to which the additional producer and grower protections would 
address inefficiencies. Though AMS is unable to quantify the benefits 
of the proposed regulation, this analysis has explained the types of 
benefits that would be derived from reductions in prejudice, 
discrimination, retaliation, and deception. If the reductions are 
small, the benefits would be small. The greater the reductions, the 
greater the potential benefits.
Regulatory Alternative 2: Costs of the Proposed Alternative
    Under the Proposed Alternative, the proposed rule would not impose 
any restrictions on numbers or types of production or marketing 
contracts that can be utilized, use of AMAs, tournaments, or base price 
mechanisms in contracts for packers, swine contractors, and live 
poultry dealers. Instead, the Proposed Alternative enhances the 
prohibited unduly prejudicial, unjustly discriminatory, and deceptive 
practices that AMS already considers violations of secs. 202(a) and 
202(b) of the P&S Act. AMS does not expect the Proposed Alternative's 
Sec. Sec.  201.304 and 201.306 to result in any measurable indirect 
costs resulting from adjustments by the livestock and poultry 
industries to reduce their use of AMAs, poultry tournaments, pricing 
mechanisms, or to result in a significant number of substantial changes 
to existing marketing or production contracts. Nor does AMS expect the 
Proposed Alternative's Sec. Sec.  201.304 and 201.306 to have any 
material effect on the quantity of meat or poultry produced.
Litigation Costs
    AMS expects the Proposed Alternative's Sec. Sec.  201.304 and 
201.306 to reduce litigation. The Proposed Alternative clarifies the 
prohibited unduly prejudicial, discriminatory, and deceptive practices 
that would violate sec. 202(a) of the P&S Act. The clarification could 
result in a reduction in litigation costs if companies come into 
compliance without any enforcement action. This regulation encourages 
regulated entities to proactively avoid prejudicial, discriminatory, 
and deceptive practices that could otherwise lead to costly litigation. 
Further, some firms may develop policies and procedures to comply with 
the proposed recordkeeping requirements. This effect could reduce 
litigation and thus result in reduced litigation costs for regulated 
entities.
    However, there are several provisions in the Proposed Alternative's 
Sec.  201.304 that could result in additional litigation. AMS has 
received formal and informal complaints against packers, swine 
contractors, and live poultry dealers for retaliation for belonging to 
various producer and grower associations, contacting AMS to file a 
complaint, asserting legal rights, and contacting a competing regulated 
entity to pursue a contractual relationship. Similarly, there are 
several provisions in the Proposed Alternative's Sec.  201.306 that 
could result in additional litigation, including refusals by regulated 
entities to enter into or renegotiate contracts and contract 
terminations by producers and growers. The clarity of the practices 
that AMS considers to be discriminatory and deceptive in the Proposed 
Alternative's Sec. Sec.  201.304 and 201.306 could offer producers and 
growers new hope for relief from courts for perceived undue 
prejudicial, discriminatory, and deceptive practices by regulated 
entities. This effect could result in increased litigation.
    AMS is uncertain as to which effect will dominate and to what 
extent. Given both effects, AMS does not expect large increases or 
decreases in litigation from the proposed rule and, therefore, does not 
estimate litigation costs in this analysis.
Direct Costs of the Proposed Option
    AMS expects the Proposed Alternative's Sec. Sec.  201.304 and 
201.306 would only result in direct administrative and recordkeeping 
costs to the industry. AMS expects that packers, swine contractors, and 
live poultry dealers would incur direct administrative costs of 
learning the proposed rule and then reviewing and, if necessary, 
revising marketing and production contracts to ensure compliance with 
the Proposed Alternative's Sec. Sec.  201.304 and 201.306. Regulated 
entities would also incur recordkeeping costs from keeping the records 
required under the Proposed Alternative's Sec.  201.304. The expected 
total costs of the Proposed Alternative's

[[Page 60045]]

Sec. Sec.  201.304 and 201.306 will be the direct administrative costs 
and recordkeeping costs of that regulatory alternative. The direct 
administrative costs and recordkeeping costs will be estimated below.
Direct Administrative Costs
    AMS expects that the Proposed Alternative's Sec. Sec.  201.304 and 
201.306 would prompt packers, live poultry dealers, and swine 
contractors to first review and learn the proposed rule and then review 
their procurement policies and production contracts and make any 
necessary changes to ensure compliance with the new regulations. 
Expected costs are estimated as the total value of the time required to 
review and learn the rulemaking and then review and, if necessary, 
revise procurement and production contracts.
    AMS expects the direct administrative costs of complying with the 
Proposed Alternative's Sec. Sec.  201.304 and 201.306 would be 
relatively small. USDA policy has long held that several of the 
provisions in the Proposed Alternative's Sec. Sec.  201.304 and 201.306 
or similar provisions were violations of the P&S Act, although the 
position has not been established in regulations. Consequently, AMS 
expects packers, live poultry dealers, and swine contractors to make 
changes to relatively few contracts.
    Estimates of the amount of time required to review and learn the 
proposed rule and to review and revise contracts and keep records were 
provided by AMS subject matter experts. These experts were economists 
and supervisors with many years of experience in AMS's PSD conducting 
investigations and compliance reviews of regulated entities. In May 
2020, U.S. Bureau of Labor Statistics (BLS) released Occupational 
Employment and Wage Statistics that AMS used for the time values in 
this analysis.\156\ BLS estimated an average hourly wage for general 
and operations managers in animal slaughtering and processing to be 
$65.84. The average hourly wage for lawyers in food manufacturing was 
$80.39. In applying the cost estimates, AMS marked-up the wages by 
41.56 percent to account for fringe benefits.
---------------------------------------------------------------------------

    \156\ Estimates are available at U.S. Bureau of Labor 
Statistics. Occupational Employment and Wage Statistics, available 
at https://www.bls.gov/oes/special.requests/oesm20all.zip (accessed 
8/9/2022).
---------------------------------------------------------------------------

    AMS expects that each packer, swine contractor, and live poultry 
dealer would spend one hour of legal time and one hour of management 
time to review and learn the rulemaking and then review and, if 
necessary, revise production and marketing contracts to ensure 
compliance with the rulemaking.
    Live poultry dealers are currently required to file form PSD 3002, 
``Annual Report of Live Poultry Dealers,'' OMB control number 0581-
0308, with AMS. Eighty-nine live poultry dealers filed annual reports 
with AMS for their 2020 fiscal year.
    Packers are currently required to file form PSD 3004, ``Annual 
Report of Packers'' OMB control number 0581-0308, with AMS. Among other 
things, each packer reports the number of head of cattle or calves, 
hogs, and lamb, sheep, or goats that it processed. Three hundred sixty-
two packers that processed cattle or calves, hogs, or lamb, sheep or 
goats filed reports with AMS for their fiscal year 2020. Two hundred 
forty-eight were beef or veal packers. Two hundred eight were pork 
packers, and 147 were lamb, sheep, or goat packers.\157\ The number of 
beef, pork, and lamb packers do not sum to 362 because many firms 
slaughtered more than one species of livestock. For instance, 119 
packers slaughtered both beef and pork, and 75 slaughtered beef, pork, 
and lamb.
---------------------------------------------------------------------------

    \157\ For brevity, all beef and veal packers will be 
collectively referred to as beef packers and all lamb, sheep, and 
goat packers will be collectively referred to as lamb packers.
---------------------------------------------------------------------------

    AMS expects that packers processing more than one species of 
livestock will not incur additional costs for each species. That is, 
AMS expects that each packer will require one hour of attorney's time 
and one hour of management time regardless of how many species of 
livestock it processes. To allocate costs across (1) beef, (2) pork, 
and (3) lamb processors, AMS allocated one-third of the costs to each 
of (1) beef, (2) pork, and (3) lamb for packers that processed all 
three species. For packers processing any two, AMS allocated one half 
the costs to each.
    AMS estimated that all live poultry dealers that are regulated 
under the Proposed Alternative would require 1 hour of an attorney's 
time costing the industry $10,000 \158\ and 1 hour of management time 
costing the industry $8,000 \159\ for learning the rulemaking, 
reviewing, and adjusting contracts. The total costs for learning, 
reviewing, and adjusting contracts would be $18,000 \160\ for live 
poultry dealers. AMS also expects that rulemaking will cost all 575 
swine contractors an hour of an attorney's time and 1 hour of 
management time costing a total of $119,000 across all swine 
contractors.\161\
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    \158\ 89 live poultry dealers x $113.80 per hour x 1 hour = 
$10,128.
    \159\ 89 live poultry dealers x $93.20 per hour x 1 hour = 
$8,295.
    \160\ $10,128 + $8,295 = $18,423.
    \161\ 575 x ($113.80 per hour x 1 hour + $93.20 per hour x 1 
hour) = $119,027.
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    AMS expects that packers would require an estimated 1 hour of an 
attorney's time and 1 hour of management time costing the industry 
$75,000.\162\ Pork packers' share of the packers' costs would be 
$27,000. Combining costs to pork packers with costs to swine 
contractors arrives at a total cost of $146,000 for hogs and pork 
markets.
---------------------------------------------------------------------------

    \162\ 362 x ($113.80 per hour x 1 hour + $93.20 per hour x 1 
hour) = $74,935.
---------------------------------------------------------------------------

    AMS estimates that beef packers and lamb packers would also require 
1 hour of attorney's time and 1 hour of management time to learn the 
rulemaking, review, and revise contracts. The total costs for would be 
$33,224 for beef packers and $14,697 for lamb packers.
Direct Recordkeeping Costs
    As presented in detail in the Paperwork Reduction Act (PRA) 
section, costs to comply with the proposed recordkeeping requirements 
are likely relatively low. Proposed Sec.  201.304(c) requires specific 
records that, if the regulated entity maintains, should be kept for a 
period of five years, including policies and procedures, staff training 
materials, materials informing covered producers regarding reporting 
mechanisms and protections, compliance testing, board of directors' 
oversight materials, and any records of the number and nature of unduly 
prejudicial or discrimination-based complaints received.
    Costs of recordkeeping, as described in detail in the PRA, include 
regulated entities maintaining and updating compliance records, and is 
considered a direct cost. Some smaller regulated entities that 
currently don't maintain records, may voluntarily decide to develop 
formal policies, procedures, training, etc. to comply with the 
rulemaking and would then have records to maintain.
    As described in detail in the PRA section, AMS expects the 
recordkeeping costs would be comprised of the time required by 
regulated entities to store and maintain records. AMS expects that the 
costs will be relatively small because many packers, live poultry 
dealers, and swine contractors may currently have few records 
concerning policies and procedures, staff training materials, materials 
informing covered producers regarding reporting mechanisms and 
protections, compliance testing, and board of

[[Page 60046]]

directors' oversight materials related to prejudicial treatment. Some 
smaller firms might not have any records to store. Others already store 
the records and may have no new costs.
    As described in detail in the PRA, AMS estimated that recordkeeping 
time for larger entities will be greater than for smaller entities, and 
thus estimated costs by quartiles, from largest entities to smallest. 
AMS estimated that proposed Sec.  201.304(c) would require packers, 
live poultry dealers, and swine contractors in each quartile an average 
4.00 hours, 2.00 hours, 1.33 hours, and 0.67 hours of administrative 
time for the first, second, third, and fourth quartiles, respectively. 
Additionally, AMS estimated that the hours required of managers, 
attorneys, and information technology staff each will average 1.50 
hours, 0.75 hours, 0.50 hours, and 0.25 hours for the first, second, 
third, and fourth quartiles, respectively.
    As delineated in detail in the PRA, AMS also expects that packers, 
live poultry dealers, and swine contractors will incur continuing 
recordkeeping costs in each successive year. AMS estimated that 
proposed Sec.  201.304(c) would require an average of 3.00 hours, 1.50 
hours, 1.00 hour, and 0.50 hour of administrative assistant time; 1.50 
hours, 0.75 hour, 0.50 hour, and 0.25 hour of time each from managers 
and attorneys; and 1.00 hour, 0.50 hour, 0.33 hour, and 0.17 hour of 
time from information technology staff for packers, live poultry 
dealers, and swine contractors in the first, second, third, and fourth 
quartiles, respectively, to setup and maintain the required records in 
each succeeding year.
    As described in detail in the PRA, estimated first-year costs for 
recordkeeping requirements in proposed Sec.  201.304(c) total $26,000 
for live poultry dealers,\163\ $170,000 for swine contractors,\164\ and 
$107,000 for packers. Estimated yearly continuing costs for 
recordkeeping requirements in Sec.  201.304(c) total $23,000 for live 
poultry dealers,\165\ $147,000 for swine contractors,\166\ and $93,000 
for packers.\167\
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    \163\ 89 live poultry dealers x (($39.69 per hour admin. cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour 
manager cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($113.80 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + ($82.50 information tech cost x (1.5 hours + .75 hours + 
.5 hours + .25 hours))/4 = $26,390.
    \164\ (575 swine contractors x (($39.69 per hour admin. cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour 
manager cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
(113.80 legal cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) 
+ ($82.50 information tech cost x (1.5 hours + .75 hours + .5 hours 
+ .25 hours)))/4 = $170,496.
    \165\ (89 live poultry dealers x (($39.69 per hour admin. cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour 
manager cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($113.80 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + $82.50 information tech cost x (1.5 hours + .75 hours + .5 
hours + .25 hours)))/4 = $22,788.
    \166\ (575 swine contractors x (($39.69 per hour admin. cost x 
(4 hours + 2 hours + 1.33 hours + .67 hours)) + ($93.20 per hour 
manager cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + 
($113.80 legal cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)) + ($82.50 information tech cost x (1.5 hours + .75 hours + 
.5 hours + .25 hours)))/4 = $147,225.
    \167\ (362 packers x ($39.69 per hour admin. cost x (4 hours + 2 
hours + 1.33 hours + .67 hours)) + ($93.20 per hour manager cost x 
(1.5 hours + .75 hours + .5 hours + .25 hours)) + ($113.80 legal 
cost x (1.5 hours + .75 hours + .5 hours + .25 hours)) + ($82.50 
information tech cost x (1.5 hours + .75 hours + .5 hours + .25 
hours)))/4 = $92,688.
---------------------------------------------------------------------------

    Breaking out costs by market, AMS expects recordkeeping 
requirements in proposed Sec.  201.304(c) to cost beef packers $47,000 
in the first year and $41,000 in each following year, as described in 
detail in the PRA. Proposed Sec.  201.304(c) would cost lamb packers 
$21,000 in the first year and $18,000 in successive years. Proposed 
Sec.  201.304(c) would cost pork packers $39,000, and it would cost 
swine contractors $170,000 for a total of $209,000 in the first year. 
Proposed Sec.  201.304(c) would cost swine contractors $147,000 in 
successive years, and it would cost pork packers $33,000 for a total 
$180,000.
Total Direct Administrative and Recordkeeping Costs
    The below table summarizes combined expected administrative and 
recordkeeping costs for regulated entities in the first year and in 
succeeding years. AMS expects that administrative and recordkeeping 
costs associated with Proposed Alternative Sec. Sec.  201.304 and 
201.306 would cost each packer, swine contractor, and live poultry 
dealer an average $504 in the first year and an average $256 in each 
succeeding year. First-year costs would total $45,000 for live poultry 
dealers, $290,000 for swine contractors, and $182,000 for packers. 
Costs in successive years would be due to recordkeeping requirements 
and would total $23,000 for live poultry dealers, $147,000 for swine 
contractors, and $93,000 for packers annually.

  Table 7--Expected First-Year Cost and Succeeding Years Costs for Live
             Poultry Dealers, Packers, and Swine Contractors
------------------------------------------------------------------------
                                                           Cost for each
                                            First-year      succeeding
                                             cost  ($)       year  ($)
------------------------------------------------------------------------
Average Cost per Live Poultry Dealer....             504             256
Average Cost per to Swine Contractor....             504             256
Average Cost per Packer.................             504             256
Total Cost to Live Poultry Dealers......          45,000          23,000
Total Cost to Swine Contractors.........         290,000         147,000
Total Cost to Packers...................         182,000       ** 93,000
    Beef Packers *......................          80,000          41,000
    Pork Packers *......................          66,000          33,000
    Lamb Packers *......................          36,000          18,000
                                         -------------------------------
        Total Cost......................         517,000         263,000
------------------------------------------------------------------------
* Many packers process more than one species of livestock, but AMS
  expects that each packer will require one hour of attorney's time and
  one hour of management time regardless of how many species of
  livestock it processes. To allocate costs across (1) beef, (2) pork,
  and (3) lamb processors, AMS allocated one-third of the costs to each
  of (1) beef, (2) pork, and (3) lamb for packers that processed all
  three species.
** Column total may not sum due to rounding.


[[Page 60047]]

    The total direct administrative and recordkeeping costs are 
estimated to be $517,000 in the first year. Estimated first year total 
direct administrative and recordkeeping costs for the cattle and beef 
industry, hogs and pork, lamb, and poultry industries rounded to the 
nearest thousand dollars are listed in the following table.

  Table 8--Direct Administrative and Recordkeeping Costs for Proposed Sec.  Sec.   201.304 and 201.306 in 2022
----------------------------------------------------------------------------------------------------------------
               Cattle  ($ Th)                   Hogs  ($ Th)    Lambs  ($ Th)   Poultry  ($ Th)   Total  ($ Th)
----------------------------------------------------------------------------------------------------------------
80                                                       355               36               45              517
----------------------------------------------------------------------------------------------------------------

Regulatory Alternative 2--Proposed Alternative: Ten-Year Total Direct 
Administrative and Recordkeeping Costs
    Expected administrative and recordkeeping costs of proposed 
Sec. Sec.  201.304 and 201.306 for each year from 2022 through 2031 
appear in the table below.

   Table 9--Ten-Year Total Direct Administrative and Recordkeeping Costs of Proposed Sec.  Sec.   201.304 and
                                                    201.306 *
----------------------------------------------------------------------------------------------------------------
                                                                                    Poultry  ($
              Year                Cattle  ($ Th)   Hogs  ($ Th)    Lambs  ($ Th)        Th)        Total  ($ Th)
----------------------------------------------------------------------------------------------------------------
2022............................              80             355              36              45             517
2023............................              41             181              18              23             263
2024............................              41             181              18              23             263
2025............................              41             181              18              23             263
2026............................              41             181              18              23             263
2027............................              41             181              18              23             263
2028............................              41             181              18              23             263
2029............................              41             181              18              23             263
2030............................              41             181              18              23             263
2031............................              41             181              18              23             263
                                 -------------------------------------------------------------------------------
    Totals......................             449           1,982             200             250           2,881
----------------------------------------------------------------------------------------------------------------
** Column total may not sum due to rounding.

    Based on the analysis, AMS expects the ten-year total direct 
administrative and recordkeeping costs of proposed Sec. Sec.  201.304 
and 201.306 to be $2.9 million.
Regulatory Alternative 2--Proposed Alternative: Present Value of Ten-
Year Total Direct Administrative and Recordkeeping Costs
    Costs to be incurred in the future are lower than the same costs to 
be incurred today. This is because the money that will be used to pay 
the costs in the future can be invested today and earn a return on 
investment until the period in which the cost is incurred. After the 
cost has been incurred, the earned returns will still be available.
    To account for the time value of money, the administrative costs to 
be incurred in the future are discounted back to today's dollars using 
a discount rate. The sum of all costs discounted back to the present is 
called the present value (PV) of total costs. AMS relied on both a 
three percent and seven percent discount rate as discussed in Circular 
A-4.\168\
---------------------------------------------------------------------------

    \168\ Circular A-4. December 17, 2003, available at 
www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A4/a-4.pdf (accessed 01/10/2022).
---------------------------------------------------------------------------

    AMS calculated the PV of the ten-year total direct administrative 
and recordkeeping costs of the proposed regulations using a three 
percent and seven percent discount rate and the PVs appear in the 
following table.

[[Page 60048]]



Table 10--PV of Ten-Year Direct Administrative and Recordkeeping Cost of
                    Sec.  Sec.   201.304 and 201.306
------------------------------------------------------------------------
                                                             Proposed
                      Discount rate                         alternative
                                                              ($ th)
------------------------------------------------------------------------
3 Percent...............................................           2,487
7 Percent...............................................           2,082
------------------------------------------------------------------------

    AMS expects the PV of the ten-year total administrative and 
recordkeeping costs of proposed Sec. Sec.  201.304 and 201.306 to be 
$2.5 million at a three percent discount rate and $2.1 million at a 
seven percent discount rate.
Regulatory Alternative 2--Proposed Alternative: Annualized PV of Ten-
Year Total Direct Administrative and Recordkeeping Costs
    AMS then annualized the PV of the ten-year total administrative and 
recordkeeping costs (referred to as annualized costs) of proposed 
Sec. Sec.  201.304 and 201.306 using both a three percent and seven 
percent discount rate as required by Circular A-4 and the results 
appear in the following table.\169\
---------------------------------------------------------------------------

    \169\ Ibid.

  Table 11--Annualized Direct Administrative and Recordkeeping Costs of
                Proposed Sec.  Sec.   201.304 and 201.306
------------------------------------------------------------------------
                                                             Proposed
                      Discount rate                         alternative
                                                              ($ th)
------------------------------------------------------------------------
3 Percent...............................................             292
7 Percent...............................................             297
------------------------------------------------------------------------

    AMS expects the annualized ten-year administrative and 
recordkeeping costs of proposed Sec. Sec.  201.304 and 201.306 to be 
$292,000 at a three percent discount rate and $297,000 at a seven 
percent discount rate.
Cost-Benefit Comparison of Proposed Alternative
    Combined sales of beef, pork, and broiler chicken in the U.S. for 
2019 were approximately $240 billion. As discussed above, the total 
cost of proposed Sec. Sec.  201.304 and 201.306 in the first year is 
estimated to be $517,000, or 0.000002 percent of revenues. A reduction 
in prejudicial, discriminatory, retaliatory, and deceptive practices 
would lead to benefits that would be directly related to the reductions 
in these practices. If the reductions are small, the benefits would be 
small. The greater the reductions, the greater the benefits. AMS 
expects that the net benefits to society from the proposed rule will be 
very small in relation to the total value of industry production, 
leading to negligible indirect effects on industry supply and demand, 
including price and quantity effects.
Regulatory Alternative 3: Small Business Exemption Alternative
    The third regulatory alternative that AMS considered is issuing 
proposed Sec. Sec.  201.304 and 201.306, but exempting small 
businesses, as defined by the SBA, from compliance with the 
recordkeeping requirement of Sec.  201.304(c).\170\ All other 
provisions of Sec. Sec.  201.304 and 201.306 would still apply to small 
businesses. Most packers are small businesses under the SBA definition. 
Of the 362 packers reporting to AMS, 346 are small businesses. Two 
hundred forty-two beef packers and 197 pork packers are small 
businesses. All 147 lamb packers are small businesses. Packers include 
multi-species packers. One hundred eight swine contractors are small 
businesses. There are 54 small poultry dealers.
---------------------------------------------------------------------------

    \170\ See, ``Stay legally compliant (sba.gov),'' available at 
https://www.sba.gov/business-guide/manage-your-business/stay-legally-compliant (Last accessed 8/9/2022).
---------------------------------------------------------------------------

Regulatory Alternative 3: Total Costs of the Small Business Exemption 
Alternative
    The below table summarizes combined expected administrative and 
recordkeeping costs for regulated entities in the first year and in 
succeeding years. AMS expects that administrative and recordkeeping 
costs associated with Proposed Alternative Sec. Sec.  201.304 and 
201.306 would cost each live poultry dealer, swine contractor, and 
packer an average of $398, $485, $231, respectively, in the first year. 
AMS expects costs to average $165, $256, and $23 for live poultry 
dealers, swine contractors, and packers, respectively, in each 
succeeding year. First-year costs would total $35,000 for live poultry 
dealers, $279,000 for swine contractors, and $84,000 for packers. Costs 
in successive years would be due to recordkeeping requirements and 
would total $15,000 for live poultry dealers, $138,000 for swine 
contractors, and $8,000 for packers annually. The total direct 
administrative and recordkeeping costs are estimated to be $398,000 in 
the first year.

 Table 12--Small Business Record Keeping Exemption Alternative Expected
  First-Year Cost and Succeeding Years Costs for Live Poultry Dealers,
                     Packers, and Swine Contractors
------------------------------------------------------------------------
                                                           Cost for each
                                            First year      succeeding
                                             cost  ($)       year  ($)
------------------------------------------------------------------------
Average Cost per Live Poultry Dealer....             398             165
Average Cost per Swine Contractor.......             485             256
Average Cost per Packer.................             231              23
Total Cost to Live Poultry Dealers......          35,000          15,000
Total Cost to Swine Contractors.........         279,000         138,000
Total Cost to Packers...................          84,000           8,000
    Beef Packers *......................          36,000           3,000
    Pork Packers *......................          33,000           5,000
    Lamb Packers *......................          15,000               0
                                         -------------------------------
        Total Cost......................         398,000         161,000
------------------------------------------------------------------------
* Many packers process more than one species of livestock, but AMS
  expects that each packer will require one hour of attorney's time and
  one hour of management time regardless of how many species of
  livestock it processes. To allocate costs across (1) beef, (2) pork,
  and (3) lamb processors, AMS allocated one-third of the costs to each
  of (1) beef, (2) pork, and (3) lamb for packers that processed all
  three species.


[[Page 60049]]

    As discussed above, AMS considers the total costs from proposed 
Sec. Sec.  201.304 and 201.306 to be increased direct administrative 
and recordkeeping costs with no indirect costs from adjustments by the 
cattle, hog, and poultry industries to reduce their use of AMAs, change 
pricing mechanisms or poultry tournaments, and no substantial changes 
to existing marketing, growing, or production contracts. AMS estimated 
the costs to small business from the direct administrative costs of 
Sec. Sec.  201.304 and 201.306 but excluded the recordkeeping costs of 
Sec.  201.304(c) in this alternative option.
    AMS estimated the costs to small business to be the value of the 
time for management, attorneys, administrative staff, and information 
technology staff to review the rulemaking and the firms' practices 
determining compliance with the direct administrative costs of 
Sec. Sec.  201.304 and 201.306. AMS estimated costs for the Small 
Business Exemption Alternative similarly to the Proposed Alternative. 
The only difference is the recordkeeping costs of Sec.  201.304(c) 
attributable to small business are not included in the costs for the 
Small Business Exemption Alternative. The estimates appear in the table 
below. The Proposed Alternative is also shown for convenience.

      Table 13--Annual Total Direct Costs--Small Business Exemption
                               Alternative
------------------------------------------------------------------------
                                                                Small
                                                  Proposed     business
                     Year                       alternative   exemption
                                                   ($ th)    alternative
                                                                ($ th)
------------------------------------------------------------------------
2022..........................................          517          376
2023..........................................          263          161
2024..........................................          263          161
2025..........................................          263          161
2026..........................................          263          161
2027..........................................          263          161
2028..........................................          263          161
2029..........................................          263          161
2030..........................................          263          161
2031..........................................          263          161
                                               -------------------------
    Totals....................................        2,881        1,809
------------------------------------------------------------------------

    AMS estimates that proposed Sec. Sec.  201.304 and 201.306, with 
the small business exemption, will result in $376 thousand in direct 
total costs in the cattle, hog, lamb, and poultry industries in the 
first full year following implementation and $161 thousand each year in 
ongoing costs. AMS expects the ten-year total costs of proposed 
Sec. Sec.  201.304 and 201.306 with a small business exemption to be 
$1.8 million. Exempting small business would save approximately 
$140,000 in the first year and $1.1 million over ten years.
Regulatory Alternative 3: PV of Total Costs of the Small Business 
Exemption Alternative
    AMS calculated the PV of the ten-year total costs of the Small 
Business Exemption Alternative using both a three percent and seven 
percent discount rate and the PVs appear in the following table. The 
Proposed Alternative is also shown for convenience.

      Table 14--PV of Ten-Year Total Cost--Small Business Exemption
------------------------------------------------------------------------
                                                               Small
                                             Proposed        business
              Discount rate                 alternative      exemption
                                              ($ th)        alternative
                                                              ($ th)
------------------------------------------------------------------------
3 Percent...............................           2,487           1,567
7 Percent...............................           2,082           1,331
------------------------------------------------------------------------

    AMS expects the PV of the ten-year total costs of proposed 
Sec. Sec.  201.304 and 201.306 with a small business exemption to be 
$1.6 million at a three percent discount rate and $1.3 million at a 
seven percent discount rate.
Regulatory Alternative 3: Annualized Costs of the Small Business 
Exemption Alternative
    AMS then annualized the PV of the ten-year total costs of proposed 
Sec. Sec.  201.304 and 201.306 with a small business exemption using 
both a three percent and seven percent discount rate and the results 
appear in the following table. The Proposed Alternative is also shown 
for convenience.

      Table 15--Ten-Year Annualized Costs--Small Business Exemption
------------------------------------------------------------------------
                                                               Small
                                             Proposed        business
              Discount rate                 alternative      exemption
                                              ($ th)        alternative
                                                              ($ th)
------------------------------------------------------------------------
3 Percent...............................             292             184
7 Percent...............................             297             190
------------------------------------------------------------------------

    AMS expects the annualized costs of proposed Sec. Sec.  201.304 and 
201.306 with a small business exemption to be $184,000 at a three 
percent discount rate and $190,000 at a seven percent discount rate.
Cost-Benefit Comparison of Regulatory Alternatives
    The status quo alternative has zero marginal costs. AMS compared 
the annualized costs of the Proposed Alternative to the annualized 
costs of the Small Business Exemption Alternative by subtracting the 
annualized costs of the Small Business Exemption Alternative from those 
of the Proposed Alternative and the results appear in the following 
table.

Table 16--Difference in Ten-Year Annualized Costs of Proposed Sec.  Sec.
    201.304 and 201.306 Between Proposed Alternative and Small Business
                          Exemption Alternative
------------------------------------------------------------------------
                      Discount rate                           ($ th)
------------------------------------------------------------------------
3 Percent...............................................             108
7 Percent...............................................             107
------------------------------------------------------------------------

    The annualized costs of the Small Business Exemption Alternative 
are $108,000 less expensive using a three percent discount rate and 
$107,000 less expensive using a seven percent discount rate. As is the 
case with costs, the benefits will be highest for the Proposed 
Alternative because the full benefits will be received by all livestock 
producers and growers, not just those doing business with large 
packers, swine contractors and live poultry dealers.
    Though the Small Business Exemption Alternative would save between 
$108,000 and $106,000 on an annualized basis, this alternative would 
deny the potential benefits offered by proposed Sec.  201.304(c) to all 
livestock producers, swine contract growers, and poultry growers who 
contract with small packers, swine contractors, and live poultry 
dealers. While most cattle, hogs, and poultry processed and grown are 
contracted with large businesses, there are many small businesses who 
would be exempt from keeping records under proposed Sec.  201.304(c) if 
the Small Business Exemption Alternative is chosen. The Small Business 
Exemption Alternative of the recordkeeping requirement of Sec.  
201.304(c) would exempt all lamb processors and deny the potential 
benefits to all lamb producers. Under this alternative, these livestock 
producers, poultry growers and swine production contract growers would 
be denied the potential benefits of recordkeeping and improved 
corporate culture as discussed above in the section on Regulatory 
Alternative 2: Benefits of the Proposed Alternative.
    AMS considered all three regulatory alternatives and believes that 
the Proposed Alternative is the best alternative as it benefits all 
livestock producers, swine production contract growers, and poultry 
growers, regardless of the size of the packer, swine contractor, or 
live poultry dealer with

[[Page 60050]]

which they contract above the Status Quo Alternative.

Regulatory Flexibility Analysis

    Proposed Sec.  201.304 prohibits retaliation by regulated entities 
by terminating contracts, non-renewal of contracts, refusing to deal, 
and interfering in farm real estate contracts as unduly prejudicial and 
discriminatory practices. Proposed Sec.  201.306 prohibits deceptive 
practices by regulated entities in contracting with covered producers 
including making or modifying a contract, performing under or enforcing 
a contract, terminating a contract, or refusing to contract with a 
covered producer based on pretext, false or misleading statements, or 
omission of material facts.
    Additionally, the Proposed Alternative's Sec.  201.304(c) requires 
packers, live poultry dealers, and swine contractors to keep relevant 
records of policies and procedures, staff training materials, materials 
informing covered producers regarding reporting mechanisms and 
protections, compliance testing, and board of directors' oversight 
materials related to prejudicial treatment.
    The SBA defines small businesses by their North American Industry 
Classification System Codes (NAICS).\171\ Live poultry dealers, NAICS 
311615, are considered small businesses if they have fewer than 1,250 
employees. Meat packers, including, beef, veal, pork, lamb, and goat 
packers, NAICS 311611, are small businesses if they have fewer than 
1,000 employees. Swine contractors, NAICS 112210, are considered small 
if their sales are less than $1 million annually.
---------------------------------------------------------------------------

    \171\ U.S. Small Business Administration. Table of Small 
Business Size Standards Matched to North American Industry 
Classification System Codes. effective August 19, 2019. ``The SBA 
Issues a Final Rule to Adopt NAICS 2017 for Small Business Size'' 
(last accessed 8/9/2022). Available at https://www.sba.gov/article/2018/feb/27/sba-issues-final-rule-adopt-naics-2017-small-business-size-standards.
---------------------------------------------------------------------------

    AMS maintains data on live poultry dealers from the annual reports 
these firms file with AMS. 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.
    AMS records identified 362 packers that file annual reports with 
PSD for their 2020 fiscal year. Two hundred forty-eight were beef 
packers. Two hundred eight were pork packers, and 147 were lamb or goat 
packers. Many firms slaughtered more than one species of livestock. For 
instance, 118 packers slaughtered both beef and pork.
    Most packers would be small businesses, although large packers are 
responsible for most meat production. Three hundred forty-six packers 
would be small businesses. Two hundred forty-two beef packers and 197 
pork packers were small businesses. All of the 147 lamb and goat 
packers were small businesses.
    AMS does not have similar records for swine contractors because 
they are not required to register with AMS or provide annual reports. 
Table 24 of the 2017 USDA Census of Agriculture indicated that there 
were 575 swine contractors in 2017. The Census of Agriculture table has 
categories for the number of head that swine contractors sold, but not 
the value of the head sold. AMS expects that the 467 swine contractors 
that sold 5,000 head of hogs or more were large businesses, and the 108 
contractors that sold less than 5,000 head were small businesses.
    AMS estimated the costs in two parts. First, AMS expects that each 
packer, swine contractor, and live poultry dealer would review and 
learn the new rulemaking and then review and, if necessary, revise 
production and marketing contracts to ensure compliance with the new 
rulemaking. Second, AMS expects that packers, live poultry dealers, and 
swine contractors would have additional costs associated with the new 
recordkeeping requirements in proposed Sec.  201.304(c).
    AMS estimated that costs reviewing and learning the Proposed 
Alternative to small live poultry dealers, small packers, and small 
swine contractors would consist of one hour of a manager's time and one 
hour of a lawyer's time to review the requirements of proposed 
Sec. Sec.  201.304 and 201.306. Expected first-year costs would be $207 
\172\ for each live poultry dealer, each swine contractor, and each 
packer. This would amount to a total $11,000 for the 54 live poultry 
dealers, $72,000 for the 346 packers, and $22,000 for the 108 swine 
contractors.
---------------------------------------------------------------------------

    \172\ $113.80 per hour x 1 hour of an attorney's time + $93.20 
per hour x 1 hour of a manager's time = $207.
---------------------------------------------------------------------------

    Concerning the recordkeeping requirements in the Proposed 
Alternative's Sec.  201.304(c), AMS expects the cost would be comprised 
of the time required to store and maintain records. AMS expects that 
the costs will be relatively small because packers, live poultry 
dealers, and swine contractors would likely have few records concerning 
policies and procedures, staff training materials, materials informing 
covered producers regarding reporting mechanisms and protections, 
compliance testing, and board of directors' oversight materials related 
to prejudicial treatment. Many firms might not have any records to 
maintain. Others already maintain the records and have no new costs.
    AMS expects that recordkeeping costs would be correlated with the 
size of the firms. AMS ranked packers, live poultry dealers, and swine 
contractors by size and grouped them into quartiles, estimating more 
recordkeeping time for larger entities than for the smaller entities. 
AMS estimated that proposed Sec.  201.304(c) would require an average 
of 4.00 hours of administrative assistant time, 1.50 hours of time each 
from managers, attorneys, and information technology staff for packers, 
live poultry dealers, and swine contractors in the first quartile, 
containing the largest entities, to setup and maintain the required 
records in the first year. AMS expects the packers, live poultry 
dealers, and swine contractors in the second quartile would require an 
average of 2.00 hours of administrative assistant time, 0.75 hours of 
time each from managers, attorneys, and information technology staff 
for first year costs. The third quartile would require 1.33 hours of 
administrative assistant time, 0.50 hours of time each from managers, 
attorneys, and information technology staff for first year costs, and 
the fourth quartile, containing the smallest entities, would require 
0.67 hours of administrative assistant time, 0.25 hours of time each 
from managers, attorneys, and information technology staff.
    AMS also expects that packers, live poultry dealers, and swine 
contractors will incur continuing costs in each successive year. AMS 
estimated that proposed Sec.  201.304(c) would require an average of 
3.00 hours of administrative assistant time, 1.50 hours of time each 
from managers and attorneys, and 1.00 hour of time from information 
technology staff for packers, live poultry dealers, and swine 
contractors in the first quartile to setup and maintain the required 
records in each succeeding year. AMS expects the packers, live poultry 
dealers, and swine contractors in the second quartile would require an 
average of 1.50 hours of administrative assistant time, 0.75 hours of 
time each from managers and attorneys, and 0.50 hours of time from 
information technology staff in each succeeding year. The third 
quartile would require 1.00 hour of administrative assistant time, 0.50 
hours of time each from managers and attorneys, and 0.33 hours of time 
from information technology staff in each succeeding year, and the 
fourth quartile would require 0.50 hours

[[Page 60051]]

of administrative assistant time, 0.25 hours of time each from managers 
and attorneys, and 0.17 hours from information technology staff.
    Estimated first-year costs for recordkeeping requirements in the 
Proposed Alternative's Sec.  201.304(c) totaled $9,000 for live poultry 
dealers,\173\ $11,000 for swine contractors,\174\ and $98,000 for 
packers.\175\ Estimated yearly continuing costs for recordkeeping 
requirements in Sec.  201.304(c) totaled $8,000 for live poultry 
dealers,\176\ $9,000 for swine contractors,\177\ and $84,000 for 
packers.\178\
---------------------------------------------------------------------------

    \173\ 9.5 live poultry dealers x ($39.69 per hour admin. cost x 
2 hours + $93.20 per hour manger cost x .75 + $113.80 legal cost x 
.75 hours + $82.50 information tech cost x .75 hours) + 44.5 live 
poultry dealers x ($39.69 per hour admin. cost x (1.33 hours + .67 
hours) + $93.20 per hour manger cost x (.5 hours + .25 hours) + 
$113.80 legal cost x (.5 hours + .25 hours) + $82.50 information 
tech cost x (.5 hours + .25 hours))/2 = $9,414.
    \174\ 108 swine contractors x ($39.69 per hour admin. cost x .67 
hours + $93.20 per hour manger cost x .25 hours + $113.80 legal cost 
x .25 hours + $82.50 information tech cost x .25 hours) = $10,675.
    \175\ 74.5 packers x ($39.69 per hour admin. cost x 2 hours + 
$93.20 per hour manger cost x .75 hours + $113.80 legal cost x .75 
hours + $82.50 information tech cost x .75 hours + 271.5 packers x 
($39.69 per hour admin. cost x (2 hours + 1.33 hours + .67 hours) + 
$93.20 per hour manger cost x (.75 hours + .5 hours + .25 hours) + 
$113.80 legal cost x (.75 hours + .5 hours + .25 hours) + $82.50 
information tech cost x (.75 hours + .5 hours + .25 hours))/3 = 
$97,850.
    \176\ 9.5 live poultry dealers x ($39.69 per hour admin. cost x 
1.5 hours + $93.20 per hour manger cost x .75 + $113.80 legal cost x 
.75 hours + $82.50 information tech cost x .75 hours) + 44.5 live 
poultry dealers x ($39.69 per hour admin. cost x (1 hours + .5 
hours)) + $93.20 per hour manger cost x (.5 hours + .25 hours)) + 
($113.80 legal cost x (.5 hours + .25 hours) + ($82.50 information 
tech cost x (.33hours + .17 hours))/2 = $8,129.
    \177\ 108 swine contractors x ($39.69 per hour admin. cost x .5 
hours + $93.20 per hour manger cost x .25 hours + $113.80 legal cost 
x .25 hours + $82.50 information tech cost x .17 hours) = $9,217.
    \178\ 74.5 packers x ($39.69 per hour admin. cost x 3 hours + 
$93.20 per hour manger cost x 1.5 hours + $113.80 legal cost x 1.5 
hours + $82.50 information tech cost x 1 hour) + 271.5 packers x 
($39.69 per hour admin. cost x (1.5 hours + 1 hours + .5 hours) + 
$93.20 per hour manger cost x (.75 hours + .5 hours + .25 hours) + 
$113.80 legal cost x (.75 hours + .5 hours + .25 hours) + $82.50 
information tech cost x (.50 hours + .33 hours + .17 hours))/3 = 
$84,494.
---------------------------------------------------------------------------

    Total expected first year costs, including one time reviewing costs 
and recordkeeping cost would be $169,000 for packers, $33,000 for swine 
contractors, and $21,000 for live poultry dealers. Table 17 lists 
expected costs for small businesses subject to proposed Sec. Sec.  
201.304 and 201.306. AMS expects marginal costs to total $223,000 in 
the first year. Ten-year costs annualized at 3 percent would be $94,000 
for packers, $12,000 for swine contractors, and $10,000 for live 
poultry dealers. Total ten-year costs annualized at 3 percent would be 
expected to be $116,000.
    Ten-year costs annualized at 7 percent would be $96,000 for 
packers, $12,000 for swine contractors, and $10,000 for live poultry 
dealers. Total ten-year costs annualized at 7 percent would be expected 
to be $118,000.

                          Table 17--Estimated Industry Total Costs to Small Businesses
----------------------------------------------------------------------------------------------------------------
                                                                       Swine          Poultry
                  Estimate type                    Packers  ($)     contractors     processors      Total  ($)
                                                                        ($)             ($)
----------------------------------------------------------------------------------------------------------------
First-Year Costs................................         169,000          33,000          21,000         223,000
10 years Annualized at 3 Percent................          94,000          12,000          10,000         116,000
10 years Annualized at 7 Percent................          96,000          12,000          10,000         118,000
----------------------------------------------------------------------------------------------------------------

    Live poultry dealers annually file reports with AMS that list each 
firm's net sales. Packers that purchase more than $500,000 annually in 
livestock also file annual reports that list net sales. While packers 
that annually slaughter less than $500,000 in livestock also file 
annual reports with AMS, in order to reduce the reporting requirements 
for small packers, they are not required to provide annual net sales.
    Data from the annual reports enables AMS to compare average net 
sales for small pork packers, beef packers, and live poultry dealers to 
the expected costs of proposed Sec. Sec.  201.304 and 201.306 in the 
table below. A shortcoming in the comparison is that net sales for 
smallest packers, those that purchase less than $500,000 in livestock, 
are not included in the average.
    Swine contractors are not required to file annual reports with AMS, 
and similar net sales data are not available for swine contractors. 
Census of Agriculture's data have the number of head sold by size 
classes for farms that sold their own hogs and pigs in 2017 and that 
identified themselves as contractors or integrators, but not the value 
of sales nor the number of head sold from the farms of the contracted 
production. To estimate average revenue per establishment, AMS used the 
estimated average value per head for sales of all swine operations and 
the production values for firms in the Agriculture Census size classes 
for swine contractors.
    The following table compares the average per entity first-year 
costs of the Proposed Alternative's Sec. Sec.  201.304 and 201.306 to 
the average revenue per establishment for all regulated small 
businesses. First-year costs are appropriate for a threshold analysis 
because all the costs would occur in the first year. First-year costs 
per regulated entity are considerably higher than annualized costs, and 
any ratio of annualized costs to revenues will be less than a ratio of 
first-year costs to revenues.

                          Table 18--Comparison of Average Costs per Entity to Average Revenues per Entity for Small Businesses
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                            First-year                      Annualized
                                                          Number of     Average revenue                       cost as       Annualized        cost as
                        NAICS                               small       or net sales per    First-year      percent of         cost         percent of
                                                         businesses      establishment      costs  ($)        revenue      discounted at      revenue
                                                                              ($)                            (percent)          7%           (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
112210--Swine Contractor.............................             108            485,860             306          0.0629             115          0.0236
311615--Poultry Processor............................              54         50,729,044             381          0.0008             181          0.0004

[[Page 60052]]

 
311611--Meat Packer *................................             346         83,356,860             490          0.0006             277          0.0003
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Averages exclude net sales for packers that purchased less than $500,000 in livestock annually.

    First-year costs as a percent of revenues are small. It is highest 
for swine contractors because average revenues for swine contractors 
are considerably smaller than average revenues for packers and live 
poultry dealers. At 0.0629 percent, the first-year cost is small 
compared to revenue.
    Average net sales for packers listed in Table 18 have the problem 
of excluding the smallest packers, and consequently the averages are 
biased toward being too large. However, first-year cost as a percent of 
net sales is 0.0006 percent. Estimated first year cost for each packer 
is $490. These are relatively small numbers. If average net sales for 
each packer were only one hundredth of the amount listed in Table 18, 
estimated first-year costs would be less than 0.1 percent of net sales.
    AMS has limited data on revenues for the smallest packers and live 
poultry dealers. Eighty-five packers submitted shortened annual reports 
to AMS because they purchased less than $500,000 in livestock. For the 
largest of these packers, annual revenues are likely close to $500,000 
and expected costs would be about 0.06 percent. AMS encourages comments 
concerning business sizes for packers that purchase less than $500,000 
in livestock each year and the effect the proposed Sec. Sec.  201.304 
and 201.306 would have on their business.
Small Business Exception Alternative
    AMS also considered a Small Business Exception Alternative to the 
Proposed Alternative's Sec. Sec.  201.304 and 201.306. The Small 
Business Exception Alternative would be the same as the Proposed 
Alternative's Sec. Sec.  201.304 and 201.306 in all respects with the 
exception that none of the recordkeeping requirements in proposed Sec.  
201.304(c) would apply to small businesses. This Small Business 
Exception Alternative would cost small packers, swine contractors, and 
live poultry dealers less than proposed Sec. Sec.  201.304 and 201.306 
would cost. Recordkeeping costs comprised the largest share of the 
costs associated with Sec. Sec.  201.304 and 201.306.
    Although the Small Business Exception Alternative would not require 
small businesses to keep any additional records, small businesses would 
still be required to comply with all of the other provisions of 
Sec. Sec.  201.304 and 201.306. AMS expects that small live poultry 
dealers, small packers, and small swine contractors would need to 
review the new rulemaking and determine whether the proposed rule would 
require any changes to their procurement contracts or other business 
practices and make the necessary changes. AMS estimated that costs 
would consist of one hour of a manager's time and one hour of a 
lawyer's time to review the requirements of Proposed Alternative's 
Sec. Sec.  201.304 and 201.306. This amounts to expected first-year 
costs of $207 \179\ for each live poultry dealer, each swine 
contractor, and each packer that qualifies as small business. All costs 
would occur in the first year.
---------------------------------------------------------------------------

    \179\ $113.80 per hour x 1 hour of an attorney's time + 93.20 
per hour x 1 hour of a manager's time = $207.
---------------------------------------------------------------------------

    Table 19 lists expected costs for small businesses subject to the 
Small Business Exception Alternative. AMS expects marginal costs to 
total $105,000 in the first year. The Small Business Exception 
Alternative is expected to cost $72,000, $22,000, and $11,000 for 
packers, swine contractors, and live poultry dealers respectively.

              Table 19--Estimated Industry Total Costs for the Small Business Exception Alternative
----------------------------------------------------------------------------------------------------------------
                                                                       Swine
                  Estimate type                     Packers ($)     contractors       Poultry       Packers ($)
                                                                        ($)       processors ($)
----------------------------------------------------------------------------------------------------------------
First-Year Costs................................          72,000          22,000          11,000         105,000
10 years Annualized at 3 Percent................           8,000           3,000           1,000          12,000
10 years Annualized at 7 Percent................          10,000           3,000           1,000          14,000
----------------------------------------------------------------------------------------------------------------

    Ten-year costs annualized at 3 percent would be $8,000 for packers, 
$3,000 for swine contractors, and $1,000 for live poultry dealers. This 
amounts to $24 for each live poultry dealer, swine contractor, and 
packer. Total ten-year costs annualized at 3 percent would be expected 
to be $12,000.
    Ten-year costs annualized at 7 percent would be $10,000 for 
packers, $3,000 for swine contractors, and $1,000 for live poultry 
dealers. This amounts to $28 for each live poultry dealer, swine 
contractor, and packer. Total ten-year costs annualized at 3 percent 
would be expected to be $14,000.
    Table 20 compares the average per entity first-year costs of the 
Small Business Exception Alternative to the average revenue for each 
regulated small business. First-year costs are appropriate for a 
threshold analysis because all of the costs associated with the 
alternative would occur in the first year.

[[Page 60053]]



        Table 20--Comparison of per Entity Cost to Revenues for the Small Business Exception Alternative
----------------------------------------------------------------------------------------------------------------
                                                                             Average revenue    First-year cost
                NAICS                  Number of small    First-year costs   or net sales per    as percent of
                                          businesses            ($)         Establishment ($)  revenue (percent)
----------------------------------------------------------------------------------------------------------------
112210--Swine Contractor............                108                207            485,860             0.0426
311615--Poultry Processor...........                 54                207         50,729,044             0.0004
311611--Meat Packer *...............                346                207         83,356,860             0.0002
----------------------------------------------------------------------------------------------------------------
* Averages exclude net sales for packers that purchased less than $500,000 in livestock annually.

    First-year costs as a percent of revenues are small. Similar to 
proposed Sec. Sec.  201.304 and 201.306, relative costs are highest for 
swine contractors because average revenues for swine contractors are 
considerably smaller than average revenues for packers and live poultry 
dealers. At 0.0426 percent, the first-year cost to swine contractors is 
small compared to revenue.
    Average net sales for packers listed in Table 18 have the same 
problem as the net sales figures in Table 16. They exclude the smallest 
packers, and consequently the averages are biased toward being too 
large. However, first-year cost as a percent of net sales for packers 
purchasing more than $500,000 per year is 0.0002 percent. Estimated 
first year cost for each packer is $207. Costs would be less than 0.1 
percent of revenues for any packer with revenue greater than $20,700. 
Even for the smallest packer that AMS regulates, $207 would not likely 
have a significant economic impact.
Comparison of Alternatives
    Expected costs for small businesses under the Proposed 
Alternative's Sec. Sec.  201.304 and 201.306 would be more than double 
the expected costs for small businesses under a Small Business 
Exception Alternative. The cost difference is due to recordkeeping 
requirements. First-year costs would be $128,000 more for the Proposed 
Alternative than the Small Business Exception Alternative. While all of 
the costs associated with the Small Business Exception Alternative 
occur in the first year, small businesses would continue to incur 
recordkeeping costs associated with the Proposed Alternative Sec. Sec.  
201.304 and 201.306 into the future. Estimated costs annualized at 7 
percent are $104,000 higher for Proposed Alternative Sec. Sec.  201.304 
and 201.306 than for the Small Business Exemption Alternative.
    With either the Small Business Exception Alternative, or the 
Proposed Alternative, AMS expects the costs to be relatively small. The 
number of regulated entities that could experience a cost increase is 
substantial. Most regulated packers and live poultry dealers are small 
businesses. However, AMS expects that few small businesses would 
experience significant costs. For all three groups of regulated 
entities: packers, live poultry dealers, and swine contractors, average 
first year costs are expected to amount to less than one 0.1 percent of 
annual revenue for either of the alternatives. AMS expects that any 
additional costs to small packers, live poultry dealers, and swine 
contractors from this proposed rulemaking will not change their ability 
to continue operations or place any small businesses at a competitive 
disadvantage.
    AMS chose the Proposed Alternative's Sec. Sec.  201.304 and 201.306 
over the Small Business Exception Alternative because AMS wishes to 
prevent the kind of undue prejudices and discrimination described in 
the proposed rule. AMS believes that keeping relevant records serves as 
constant reminder to all packers, live poultry dealers, and swine 
contractors that they cannot purchase livestock or enter into contracts 
for growing services with the kind of undue prejudices and 
discrimination described in the rulemaking.
    The Proposed Alternative's Sec. Sec.  201.304 and 201.306 are 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. AMS encourages small stakeholders to submit 
any relevant data during the comment period.

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.

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

    This proposed rule has been reviewed in accordance with the 
requirements of E.O. 13175--Consultation and Coordination with Indian 
Tribal governments. E.O. 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 will impact individual members of Indian Tribes 
and will impact Tribal governments or instrumentalities of Tribal 
governments. The rulemaking will also impact the relationship between 
Tribes and the Federal Government. USDA will hold a consultation with 
Tribal governments regarding the impact of this proposed rule with 
respect to Tribal governments and Native American livestock producers. 
USDA also seeks comments and information from Tribal organizations 
concerning impact on individual American Indian/Alaska Native livestock 
producers. Additional details on the date and manner of the 
consultations will be announced in a ``Dear Tribal Leader Letter,'' to 
be sent individually to tribes and published on the USDA Office of 
Tribal Relations website at https://www.usda.gov/tribalrelations/tribal-consultations.

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

[[Page 60054]]

rulemaking 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, American Indian/Alaskan Natives, Pacific Islanders, and 
Native Hawaiians were disproportionately impacted. AMS analysis 
reflects that most producers and poultry growers will experience 
greater access to information regarding acquiring, handling, and 
processing quality livestock. The proposed regulation provides clearer 
standards to address market disadvantages to small and medium scale 
producers and growers, contributing to favorable contract terms and 
equitable price premiums.
    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. As a result of this outreach, if AMS detects the 
possibility of the new regulation causing a potential disparate impact 
on any protected individual or group, AMS will develop a mitigation 
strategy.

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 rulemaking. There are no administrative procedures 
that must be exhausted prior to any judicial challenge to the 
provisions of this proposed 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 sec. 
308 of the Act.

VI. Request for Comments

    Comments submitted on or before December 2, 2022 will be 
considered. Comments should reference Docket No. AMS-FTPP-21-0045 and 
the date and page number of this issue of the Federal Register. 
Comments can be submitted by either of the following methods:
     Federal eRulemaking Portal: Go to https://www.regulations.gov. Enter AMS-FTPP-21-0045 in the Search filed. Select 
the Documents tab, then select the Comment button in the list of 
documents.
     Postal Mail/Commercial Delivery: Send your comment to 
Docket No. AMS-FTPP-21-0045, S. Brett Offutt, Chief Legal Officer, 
Packers and Stockyards Division, USDA, AMS, FTPP; Room 2097-S, Mail 
Stop 3601, 1400 Independence Ave. SW, Washington, DC 20250-3601.

List of Subjects in 9 CFR Part 201

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

    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. Add subpart O, consisting of Sec. Sec.  201.300 through 201.390, to 
read as follows:

Subpart O--Competition and Market Integrity

Sec.
201.300-201.301 [Reserved]
201.302 Definitions.
201.304 Undue prejudices or disadvantages and unjust discriminatory 
practices.
201.306 Deceptive practices.
201.307-201.389 [Reserved]
201.390 Severability.


Sec. Sec.  201.300-201.301   [Reserved]


Sec.  201.302   Definitions.

    For purposes of this subpart, the following definitions apply:
    Covered producer means a livestock producer as defined in this 
section or a swine production contract grower or poultry grower as 
defined in section 2(a) of the Act (7 U.S.C. 182(8), (14)).
    Livestock producer means any person engaged in the raising and 
caring for livestock by the producer or another person, whether the 
livestock is owned by the producer or by another person, but not an 
employee of the owner of the livestock.
    Market vulnerable individual means a person who is a member, or who 
a regulated entity perceives to be a member, of a group whose members 
have been subjected to, or are at heightened risk of, adverse treatment 
because of their identity as a member or perceived member of the group 
without regard to their individual qualities. A market vulnerable 
individual includes a company or organization where one or more of the 
principal owners, executives, or members would otherwise be a market 
vulnerable individual.
    Regulated entity means a swine contractor or live poultry dealer as 
defined in section 2(a) of the Act (7 U.S.C. 182(8)) or a packer as 
defined in section 201 of the Act (7 U.S.C. 191).


Sec.  201.304   Undue prejudices or disadvantages and unjust 
discriminatory practices.

    (a) Prohibited bases. (1) A regulated entity may not prejudice, 
disadvantage, inhibit market access, or otherwise take adverse action 
against a covered producer with respect to any matter related to 
livestock, meats, meat food products, livestock products in 
unmanufactured form, or live poultry based upon the covered producer's 
status as a market vulnerable individual or as a cooperative.
    (2) Prejudice or disadvantage with respect to paragraph (a)(1) of 
this section includes the following actions:
    (i) Offering contract terms that are less favorable than those 
generally or ordinarily offered.
    (ii) Refusing to deal.
    (iii) Differential contract performance or enforcement.
    (iv) Termination of a contract or non-renewal of a contract.
    (b) Retaliation prohibited. (1) A regulated entity may not 
retaliate or otherwise take an adverse action against a covered 
producer because of the covered producer's participation in the 
activities described in paragraph (b)(2) of this section to the extent 
that these activities are not otherwise prohibited by Federal or state 
law, including antitrust laws.
    (2) The following activities are protected under paragraph (b)(1) 
of this section:
    (i) A covered producer communicates with a government agency with 
respect to any matter related to livestock, meats, meat food products, 
livestock products in unmanufactured form, or live poultry or petitions 
for redress of grievances before a court, legislature, or government 
agency.
    (ii) A covered producer asserts any of the rights granted under the 
Act or this part, or asserts contract rights.
    (iii) A covered producer asserts the right to form or join a 
producer or grower association or organization, or to collectively 
process, prepare for market, handle, or market livestock or poultry.

[[Page 60055]]

    (iv) A covered producer communicates or cooperates with a person 
for the purposes of improving production or marketing of livestock or 
poultry.
    (v) A covered producer communicates or negotiates with a regulated 
entity for the purpose of exploring a business relationship.
    (vi) A covered producer supports or participates as a witness in 
any proceeding under the Act, or a proceeding that relates to an 
alleged violation of law by a regulated entity.
    (3) For purposes of paragraph (b)(1) of this section, retaliation 
includes the following actions:
    (i) Termination of contracts or non-renewal of contracts.
    (ii) Adversely differential performance or enforcement of a 
contract.
    (iii) Refusing to deal with a covered producer.
    (iv) Interference in farm real estate transactions or contracts 
with third parties.
    (c) Recordkeeping of compliance practices. (1) The regulated entity 
shall retain all records relevant to its compliance with paragraphs (a) 
and (b) of this section for no less than 5 years from the date of 
record creation.
    (2) Records that may be relevant under paragraph (c)(1) of this 
section include, if any, policies and procedures, staff training 
materials, materials informing covered producers regarding reporting 
mechanisms and protections, compliance testing, board of directors' 
oversight materials, and the number and nature of complaints received 
relevant to this section.


Sec.  201.306   Deceptive practices.

    (a) Prohibited practices. A regulated entity may not engage in the 
specific deceptive practices prohibited in paragraphs (b) through (e) 
of this section with respect to any matter related to livestock, meats, 
meat food products, livestock products in unmanufactured form, or live 
poultry.
    (b) Contract formation. A regulated entity may not make or modify a 
contract by employing a pretext, false or misleading statement, or 
omission of material fact necessary to make a statement not false or 
misleading.
    (c) Contract performance. A regulated entity may not perform under 
or enforce a contract by employing a pretext, false or misleading 
statement, or omission of material fact necessary to make a statement 
not false or misleading.
    (d) Contract termination. A regulated entity may not terminate a 
contract or take any other adverse action against a covered producer by 
employing a pretext, false or misleading statement, or omission of 
material fact necessary to make a statement not false or misleading.
    (e) Contract refusal. A regulated entity may not provide false or 
misleading information to a covered producer or association of covered 
producers concerning a refusal to contract.


Sec. Sec.  201.307-201.389   [Reserved]


Sec.  201.390   Severability.

    If any provision of this subpart is declared invalid or the 
applicability thereof to any person or circumstances is held invalid, 
the validity of the remainder of this subpart or the applicability 
thereof to other persons or circumstances shall not be affected 
thereby.

Erin Morris,
Associate Administrator, Agricultural Marketing Service.
[FR Doc. 2022-21114 Filed 9-30-22; 8:45 am]
BILLING CODE 3410-02-P