USDA's AMS

The U.S. Department of Agriculture is announcing a new Fair and Competitive Livestock and Poultry Markets proposed rule, which USDA believes would tackle longstanding challenges around interpretations of unfairness and competitive injury for the livestock, meat and poultry sectors. This aims to support farmers and growers and continues President Biden’s work to lower food costs for consumers.

Agriculture Secretary Tom Vilsack made the announcement during an event at the Center for American Progress showcasing the administration’s agenda to create more affordable and competitive agricultural markets. The event highlighted USDA’s progress to enhance the department’s ability to enforce the Packers and Stockyards Act, including previous rulemaking and an enforcement partnership with the Department of Justice. The event also provided a look back at USDA’s Investing in America Agenda efforts to enhance independent meat and poultry and other diversified food processing capacity; expand domestic, innovative fertilizer production; create a fairer market for seeds and other agricultural inputs; and support more robust and resilient supply chains. USDA also released a fact sheet highlighting its actions under the Biden-Harris Administration to spur competition in the agriculture sector.

“Entrenched market power and the abuses that flow from it remain an obstacle to achieving lower prices for consumers and fairer practices for producers,” said Vilsack. “Today’s proposed rule stands for clear, transparent standards so that markets function fairly and competitively for consumers and producers alike. With our whole-of-government approach to competition and resiliency, the Biden-Harris Administration is fighting every day to lower costs for American families and give farmers a fairer shake.”

The proposed rule will make clearer how prohibitions on unfair practices will be enforced under the Packers and Stockyards Act. Specifically, the rule provides clearer tests and frameworks around unfair practices that harm market participants individually and unfair practices that harm markets overall.

“Farmers, ranchers, consumers, and smaller processors all depend upon the Packers & Stockyards Act to protect them from bad actors in the marketplace,” said USDA’s Senior Advisor for Fair and Competitive Markets Andy Green. “It’s time to provide the regulatory clarity and simplicity needed to put an end to unfair conduct that harms the market or that harms market participants.”

The proposal is based on USDA’s extensive administrative case law and builds off of precedent established under other unfair practices laws. The proposal follows well-understood approaches to unfair practices and unfair methods of competition.

The proposed rule will be published in the Federal Register for public comment. Upon publication, the public can submit comments at Regulations.gov for 60 days. All comments submitted will be considered as USDA develops a final rule. The final rule will be published in the Federal Register.

The publication of this proposed rule is part of a suite of USDA regulatory actions under the Packers and Stockyards Act to enhance transparency, stop discrimination and support market fairness in the livestock and poultry industries. Previous actions include the Poultry Grower Payment Systems and Capital Improvement Systems proposed rule and the Transparency in Poultry Grower Contracting and Tournaments and Inclusive Competition and Market Integrity under the Packers and Stockyards Act final rules.

NCC finds proposed rule would bring frivolous, costly litigation

The USDA's new proposed rule would attempt to change the legal standard that parties must demonstrate harm to competition and make it easier to sue and win under the Packers and Stockyards Act.

In response to the announcement of the proposed rule, NCC Interim President Gary Kushner released the following statement:

“This latest rulemaking retreads a failed proposal from more than a decade ago, which was written by a plaintiff’s lawyer who made his money suing poultry companies. This current facelift to the ‘Harm to Competition’ rule would open the floodgates to frivolous and costly litigation. This was largely confirmed today by Assistant Attorney General Jonathan Kanter during the unveiling of the rule when he said that he hopes plaintiffs 'will bring a PSA case, or two, or 20’ against poultry processing companies.

“Eight different federal circuit courts of appeal have addressed the key issue underpinning the proposed rule—the need to establish injury to competition to demonstrate a violation—and they have uniformly and resoundingly rejected the position advanced by USDA in this proposed rule. USDA participated directly in many of those cases. Rather than accept the courts’ decisions, however, Secretary Vilsack and this administration are trying to circumvent Congress and misuse the rulemaking process to achieve what they have not won in court and what Congress has never authorized – all under the guise of somehow lowering costs for consumers.

“Today’s livestock and poultry contracting and marketing practices are already and remain regulated by USDA’s Agricultural Marketing Service, which administers and enforces the Packers and Stockyards Act to protect farmers, ranchers and consumers.

“This proposal is ill-advised, would inflict billions of dollars of economic harm on American agriculture, line the pockets of plaintiffs’ lawyers, exceed USDA’s statutory authority, and increase costs for consumers who are already struggling with inflation in most of their everyday lives.”

Meat Institute responds

The Meat Institute finds that the latest proposed rule change to the Packers and Stockyards Act by the Biden Administration is attempting to set meat production back decades by encouraging litigation and limiting how livestock producers can market their animals to packers.

In the proposed rule, USDA attempts to circumvent Congress and the courts to reverse the longstanding legal standard that parties must demonstrate harm to competition to sue and win under the Packers and Stockyards Act Section 202(a) or (b).

Removing the need to show harm to competition will encourage frivolous lawsuits. To protect themselves, meat packers may be forced to curtail the use of Alternative Marketing Agreements to minimize these costly litigation risks.

“Unfortunately for the Biden Administration, Secretary Vilsack has tried these changes before,” said Julie Anna Potts, president and CEO of the Meat Institute. “They have failed before the courts, conflict with Congressional intent and are a blatant attempt to pick winners and losers in the marketplace. Under these proposed rules, everyone loses, the livestock producer, the packer and ultimately the consumer.”

Portrayed as an effort to increase competition, this government interference comes when fed cattle prices were at record levels for most of 2023, surpassing the 2014-2015 previous record highs. Well into 2024, cattle prices remain at record levels.

“What is the Biden Administration trying to fix?” said Potts.

And the cattle price outlook for 2024 continues to be bullish, with USDA projecting the annual average price of cattle to increase over the 2023 record based on a smaller cattle supply.

Contrary to USDA’s assertion, these changes would introduce uncertainty into the market and de-couple the demand signals producers receive from beef consumers, including consumers’ willingness to pay for value-added attributes. At low points in the cattle cycle, like the 2024 historically small cattle herd, it puts at risk the value producers earn from sustained beef demand. As the expansion phase of the cattle cycle begins, it would undermine the benefits earned from growing beef demand.

“In response to consumer demands for value-added meat products like ‘no antibiotics ever,’ ‘grass-fed,’ or even someday ‘carbon neutral,’” said Potts, “AMAs have rewarded livestock producers for investing in these attributes while ensuring meat packers can make the high-quality products consumers want to feed their families.”

In addition, the Meat Institute believes the proposed change violates the “major questions doctrine,” as articulated in the Supreme Court’s ruling in West Virginia vs. Environmental Protection Agency, because the U.S. Department of Agriculture is acting without the permission of Congress and proposing administrative rules that will have a dramatic effect on all stakeholders in the meat and poultry markets.

“The President and his Administration continue to pursue policies that will increase costs for consumers. From Secretary Vilsack’s proposed changes to the Packers and Stockyards Act’s rules to USDA’s delayed modernization of pork inspection to EPA’s proposed wastewater guidelines, these policies will prove costly to the 98 percent of American households who purchase meat to feed their families,” said Potts.

Share of the consumer dollar

U.S. Secretary of Agriculture Tom Vilsack said that the share of the consumer dollar received by farmers and ranchers was dropping. In the beef market, the share of the consumer dollar is steady with the meat packer and processor receiving the smallest share.

Background on AMAs for cattle

The American beef market has modernized to allow producer-driven innovations, or AMAs. AMAs allow producers more flexibility in how to market their cattle, protect themselves against risk and earn better prices.

AMAs for fed cattle include: forward contracts, formula pricing, negotiated grid trades and packer-owned transfers.

A few examples:

Forward contracts:

  • Acattle producer signs a contract with a feedlot operator. They agree that in six months, the producer will deliver 100 head of cattle at a fixed price of $1,000 per head. When the delivery arrives at the lot, despite the current market price, the producer receives $1,000 per head. This forward contract gives the producer certainty and provides the feedlot operator a stable supply at a fixed cost.

Formula pricing:

  • A cattle producer enters a formula pricing arrangement with a small beef packer/processor. The formula determines the price based on the agreed criteria: price per pound for carcass weight. For higher-quality grades like Choice or Prime, $.10 per pound. It could also include a penalty like $0.05 per pound for below-grade carcasses. Formula pricing also provides potential premiums for other value-added production practices that align with consumer demand. When the cattle are delivered, the pricing is calculated based on the formula. This lets the producer be rewarded for investments in the herd like improved genetics and high-quality feed, provides risk management opportunities for the producer and ensures the processor receives high quality cattle to meet demand. Ironically, USDA has invested significant resources in establishing a cattle market library to support this method of pricing.

Experts agree and studies show that AMAs increase beef demand.

Legal background

The eight federal courts of appeals that have considered the issue have unanimously concluded that a plaintiff must show actual or likely harm to competition to make a claim and win under Section 202(a) or (b) of the Packers and Stockyards Act.

The most recent circuit to address the issue, the Sixth Circuit, said:

The tide has now become a tidal wave, with the recent issuance of the Fifth Circuit Court of Appeals’ en banc decision in Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355 (5th Cir. 2009) (en banc), in which that court joined the ranks of all other federal appellate courts that have addressed this precise issue when it held that “the purpose of the Packers and Stockyards Act of 1921 is to protect competition and, therefore, only those practices that will likely affect competition adversely violate the Act.” Wheeler, 591 F.3d at 357. All told, seven circuits — the Fourth, Fifth, Seventh, Eighth, Ninth, Tenth and Eleventh Circuits — have now weighed in on this issue, with unanimous results.